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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20192022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from             to             
 
Commission File Number: 001-33708
 PHILIP MORRIS INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
Virginia13-3435103
(State or other jurisdiction of

incorporation or organization)
(I.R.S. Employer

Identification No.)
120 Park Avenue677 Washington Blvd, Suite 1100
New YorkStamford
New YorkConnecticut1001706901
(Address of principal executive offices)(Zip Code)
917-663-2000203-905-2410
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each class                    Trading Symbol(s)Name of each exchange on which registered
Common Stock, no par valuePMNew York Stock Exchange
2.000%2.625% Notes due 20202023PM20BPM23New York Stock Exchange
Floating2.125% Notes due 20202023PM20CPM23BNew York Stock Exchange
1.750%3.600% Notes due 20202023PM20APM23ANew York Stock Exchange
4.500%2.875% Notes due 20202024PM20PM24New York Stock Exchange
1.875%2.875% Notes due 20212024PM21BPM24CNew York Stock Exchange
1.875%0.625% Notes due 20212024PM21CPM24BNew York Stock Exchange
4.125%3.250% Notes due 20212024PM21PM24ANew York Stock Exchange
2.900%2.750% Notes due 20212025PM21APM25New York Stock Exchange
2.625%3.375% Notes due 20222025PM22APM25ANew York Stock Exchange
2.375%2.750% Notes due 20222026PM22BPM26ANew York Stock Exchange
2.500%2.875% Notes due 20222026PM22PM26New York Stock Exchange
2.500%0.125% Notes due 20222026PM22CPM26BNew York Stock Exchange
2.625%3.125% Notes due 20232027PM23PM27New York Stock Exchange
2.125%3.125% Notes due 20232028PM23BPM28New York Stock Exchange
3.600% Notes due 2023PM23ANew York Stock Exchange
2.875% Notes due 2024PM24New York Stock Exchange
2.875% Notes due 2024PM24CNew York Stock Exchange
0.625% Notes due 2024PM24BNew York Stock Exchange




Title of each class                    Trading Symbol(s)Name of each exchange on which registered
3.250%2.875% Notes due 20242029PM24APM29New York Stock Exchange
2.750%3.375% Notes due 20252029PM25PM29ANew York Stock Exchange
3.375%0.800% Notes due 20252031PM25APM31New York Stock Exchange
2.750%3.125% Notes due 20262033PM26APM33New York Stock Exchange
2.875%2.000% Notes due 20262036PM26PM36New York Stock Exchange
0.125%1.875% Notes due 20262037PM26BPM37ANew York Stock Exchange
3.125%6.375% Notes due 20272038PM27PM38New York Stock Exchange
3.125%1.450% Notes due 20282039PM28PM39New York Stock Exchange
2.875%4.375% Notes due 20292041PM29PM41New York Stock Exchange
3.375%4.500% Notes due 20292042PM29APM42New York Stock Exchange
0.800%3.875% Notes due 20312042PM31PM42ANew York Stock Exchange
3.125%4.125% Notes due 20332043PM33PM43New York Stock Exchange
2.000%4.875% Notes due 20362043PM36PM43ANew York Stock Exchange
1.875%4.250% Notes due 20372044PM37APM44New York Stock Exchange
6.375% Notes due 2038PM38New York Stock Exchange
1.450% Notes due 2039PM39New York Stock Exchange
4.375% Notes due 2041PM41New York Stock Exchange
4.500% Notes due 2042PM42New York Stock Exchange
3.875% Notes due 2042PM42ANew York Stock Exchange
4.125% Notes due 2043PM43New York Stock Exchange
4.875% Notes due 2043PM43ANew York Stock Exchange
4.250% Notes due 2044PM44New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes    No  
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes    No  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer                            Accelerated filer              
Non-accelerated filer                             Smaller reporting company    ☐
Emerging growth company    ☐
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.       
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements.    
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b).
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes    No  






As of June 30, 2019,2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately $122$153 billion based on the closing sale price of the common stock as reported on the New York Stock Exchange.



        Class                                Outstanding at
January 31, 20202023
Common Stock,

no par value
1,555,911,9301,550,232,895 
shares
 
DOCUMENTS INCORPORATED BY REFERENCE
DocumentParts Into Which Incorporated
Portions of the registrant’s definitive proxy statement for use in connection with its annual meeting of shareholders to be held on May 6, 2020,3, 2023, to be filed with the Securities and Exchange Commission (“SEC”) on or about March 26, 2020.23, 2023.Part III






TABLE OF CONTENTS
 
 
In this report, “PMI,” “we,” “us” and “our” refers to Philip Morris International Inc. and its subsidiaries.

Trademarks and service marks in this report are the registered property of, or licensed by, the subsidiaries of Philip Morris International Inc. and are italicized.




PART I

Item 1.Business.
Item 1.Business.
 
General Development of Business
 
General
 
Philip Morris International Inc. is a Virginia holding company incorporated in 1987. We are a leading international tobacco company engagedworking to deliver a smoke-free future and to evolve our portfolio for the long term to include products outside of the tobacco and nicotine sector. Our current product portfolio primarily consists of cigarettes and smoke-free products, which include heat-not-burn, vapor, and oral nicotine products. Since 2008, we have invested more than $10.5 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes. This investment includes the building of world-class scientific assessment capabilities, notably in the manufactureareas of pre-clinical systems toxicology, clinical and sale of cigarettes,behavioral research, as well as post-market studies. In November 2022, we acquired Swedish Match AB ("Swedish Match") – a leader in oral nicotine delivery – creating a global smoke-free productscombination led by the companies’ IQOS and associated electronic devices and accessories, and other nicotine-containing products in markets outside the United States of America. In addition, we ship a version of our Platform 1ZYN device and its consumables authorized by thebrands. The U.S. Food and Drug Administration ("FDA") has authorized versions of our IQOS Platform 1 devices and consumables, and Swedish Match's General snus, as Modified Risk Tobacco Products ("MRTPs"). We describe the MRTP orders in more detail in the "Business Environment" section of Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

In March 2008, we became a U.S. public company listed on the New York Stock Exchange and subject to Altriathe rules of the Securities and Exchange Commission (the "SEC").

In 2021, we laid the foundation for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the milestone acquisitions of Vectura Group Inc.,PLC and Fertin Pharma A/S, which provide essential capabilities for salefuture product development. Now, through our Vectura Fertin Pharma subsidiary, with a strong foundation and significant expertise in life sciences, we aim to expand into wellness and healthcare areas.

In the fourth quarter of 2022, we acquired Swedish Match, a market leader in oral nicotine delivery with a significant presence in the United States under license.market. The Swedish Match acquisition is a key milestone in PMI’s transformation to becoming a smoke-free company. PMI consolidated statements of earnings for the year ended December 31, 2022, include the results of operations of Swedish Match from November 11, 2022 (acquisition date) to December 31, 2022. The operating results of Swedish Match are included in a separate segment.


We are leading a transformationIn the fourth quarter of 2022, we also completed an agreement with Altria Group, Inc. to end our commercial relationship in the tobacco industryU.S. covering IQOS as of April 30, 2024. Thereafter, PMI will have the full rights to create a smoke-free future, based on a new categorycommercialize IQOS in the U.S.

For further details of reduced-riskour 2021 and 2022 acquisitions, see Item 8, Note 3. Acquisitions and Note 13. Segment Reporting.

Smoke-free products ("SFPs") is the term we primarily use to refer to all of our products that whileare not risk free, are a much better choice than continuing to smoke.  Our goal is to ultimately replace cigarettes with smoke-freecombustible tobacco products, to the benefit of adults who would otherwise continue to smoke, society, the companysuch as heat-not-burn, e-vapor, and its shareholders.oral nicotine. In addition, SFPs include wellness and healthcare products, as well as consumer accessories such as lighters and matches.

Reduced-risk products ("RRPs") is the term we use to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking.to smoke. We have a range of RRPs in various stages of development, scientific assessment and commercialization. Because ourOur RRPs do not burn tobacco, they produce an aerosolare smoke-free products that containscontain and/or generate far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.  Through multidisciplinary capabilities in product development, state-of-the-art facilities and scientific substantiation, we aim to ensure that our RRPs meet adult consumer preferences and rigorous regulatory requirements.

Our IQOS smoke-free product brand portfolio includes heated tobacco and nicotine-containing vapor products.  Our leading smoke-free platform ("Platform 1") isuses a precisely controlled heating device into which a specially designed heatedand proprietary tobacco unit is inserted and heated to generate an aerosol. We market ourHeated tobacco units ("HTU") is the term we use to refer to heated tobacco units under the brand namesconsumables, which include our BLENDS, HEETS, HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO (, defined collectively as "HEETSHEETS"),Marlboro Dimensions, MarlboroHeatSticks, Parliament HeatSticks, SENTIA and TEREA, as well as the KT&G-licensed brands, Marlboro HeatSticks Fiitand Parliament HeatSticksMiix (outside of South Korea). Platform 1 was first introduced in Nagoya, Japan, in 2014. As of December 31, 2019, Platform 1is2022, our smoke-free products were available for sale in 52 markets73 markets.

Swedish Match already has a leading nicotine pouch franchise in key cities or nationwide.the U.S. under the ZYN brand name. The Swedish Match product portfolio is complementary to our existing portfolio, permitting us to bring together a leading oral nicotine product with the leading
1


heat-not-burn product. By joining forces with Swedish Match, we expect to accelerate the achievement of our joint smoke-free ambitions, switching more adults who would otherwise continue to smoke to better alternatives faster than either company could achieve separately.

Our cigarettes are sold in more than 180approximately 175 markets, and in many of these markets they hold the number one or number two market share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio comprises both international and local brands and is led by Marlboro, the world’s best-selling international cigarette, which accounted for approximately 37%39% of our total 20192022 cigarette shipment volume. Marlboro is complemented in the premium-price category by Parliament. Our other leading international cigarette brands are Bond Street, Chesterfield, L&M, Lark and Philip Morris. These sevenfive international cigarette brands contributed approximately 78%77% of our cigarette shipment volume in 2019.2022. We also own a number of important local cigarette brands, such as Dji Sam Soe, Sampoerna A and Sampoerna UA in Indonesia, and Fortune and Jackpot in the Philippines.

Source of Funds — Dividends
 
We are a legal entity separate and distinct from our direct and indirect subsidiaries. Accordingly, our right, and thus the right of our creditors and stockholders, to participate in any distribution of the assets or earnings of any subsidiary is subject to the prior rights of creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be recognized. As a holding company, our principal sources of funds, including funds to make payment on our debt securities, are from the receipt of dividends and repayment of debt from our subsidiaries. Our principal wholly owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions with respect to their common stock that are otherwise compliant with law.

Description of Business
 
We manageAs of December 31, 2022, we managed our business in six operatinggeographical segments, as follows:a Swedish Match segment and a Wellness and Healthcare segment:

The European Union Region (“EU”) is headquartered in Lausanne, Switzerland, and covers all the European Union countries and also Switzerland, Norway, Iceland and the United Kingdom;
The Eastern Europe Region (“EE”) is also headquartered in Lausanne, and includes Southeast Europe, Central Asia, Ukraine, Israel and Russia;

The Middle East & Africa Region (“ME&A”) is also headquartered in Lausanne, and covers the African continent, the Middle East, Turkey and our international duty free business;
The South & Southeast Asia Region (“S&SA”) is headquartered in Hong Kong, and includes Indonesia, the Philippines and other markets in this region;
The East Asia & Australia Region (“EA&A”) is also headquartered in Hong Kong, and includes Australia, Japan, South Korea, the People's Republic of China ("China") and other markets in this region, as well as Malaysia and Singapore; and
The Latin America & CanadaAmericas Region (“LA&C”AMCS”) is headquartered in New YorkStamford, Connecticut, and covers the South American continent, Central America, Mexico, the Caribbean and Canada. LA&C alsoCanada;
Swedish Match, which reflects our fourth quarter 2022 acquisition of the company; and
Wellness and Healthcare ("W&H"), which includes transactions under license with Altria Group, Inc., for the distribution of our Platform 1 product in the United States.

As of March 22, 2019, we deconsolidated the financialoperating results of our Canadian subsidiary, Rothmans, Bensonnew Wellness and Healthcare business, Vectura Fertin Pharma. In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc. (also known as Vectura Group Ltd.) and OtiTopic, Inc. On March 31, 2022, we launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma. The operating results of this new business are reported in the Wellness and Healthcare segment.

To further support the growth of our smoke-free business, reinforce consumer centricity, and increase the speed of innovation and deployment, in January 2023, we rearranged our operations in four geographical segments, down from the current six and as follows:
Europe Region is headquartered in Lausanne, Switzerland, and covers all the European Union countries, Switzerland, the United Kingdom, and also Ukraine, Moldova and Southeast Europe;
South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region is headquartered in Dubai, United Arab Emirates. It covers South and Southeast Asia, the African continent, the Middle East, Turkey, as well as Israel, Central Asia, Caucasus and Russia;
2


East Asia, Australia, and PMI Duty Free Region is headquartered in Hong Kong, and includes the consolidation of our international duty free business with East Asia & Hedges Inc. ("RBH") fromAustralia; and
Americas Region is headquartered in Stamford, Connecticut, and covers the United States, Canada and Latin America.

The operations of Swedish Match and our Wellness and Healthcare segment remained unchanged. We will report our financial statements. For further details, see Item 8, Note 22. Deconsolidationresults based on the new geographical segments as of RBHthe first quarter of 2023.
.

FollowingIn November 2022, we completed the deconsolidationrelocation of our Canadian subsidiary, we will continuecorporate headquarters, including our AMCS headquarters, from New York, New York, to report the volume of brands sold by RBH for which other PMI subsidiaries are the trademark owners. These include Stamford, Connecticut.

HEETS, Next, Philip Morris and Rooftop, which together accounted for approximately 40% of RBH'sOur total shipment volume, including cigarettes and heated tobacco units, increased by 1.6% in 2018.2022 to 731.1 billion units, with shipment volume of heated tobacco units reaching 109.2 billion units in 2022, up from 95.0 billion units in 2021. Shipment volume of our principal cigarette brand, Marlboro, increased by 2.0% in 2022.

References in this Form 10-K to total international market, defined as worldwide cigarette and heated tobacco unit volume, excluding the United States, total industry, total market and market shares, in this Form 10-K are our estimates for tax-paid products based on the latest available data from a number of internal and external sources, and may, in defined instances, exclude the People's Republic of China and/or our duty free business. In addition,Unless otherwise stated, references to reflect the deconsolidation of RBH, effective March 22, 2019, PMI'stotal industry, total market, our shipment volume and our market share has been restated for previous periods.

Our total shipments, includingperformance reflect cigarettes and heated tobacco units, decreased by 2.0%units.

Estimates for total industry volume and market share in 2019 to 766.4 billion units. We estimate that internationalcertain geographies reflect limitations on the availability and accuracy of industry volumes, including cigarettesdata during pandemic-related restrictions.

Key data regarding total market and heated tobacco units,market share were approximately 5.1 trillion units in 2019, a 0.9% decrease from 2018. Excluding the People’s Republic of China (“PRC”), we estimate that international cigarette and heated tobacco unit volume was 2.7 trillion units in 2019, a 2.0% decrease from 2018. We estimate that our reported share of the international market (which is defined as worldwide cigarette and heated tobacco unit volume, excluding the United States of America) was approximately 15.1% in 2019, 15.2% in 2018 and 15.1% in 2017. Excluding the PRC, we estimate that our reported share of the international market was approximately 28.4%, 28.3%, and 27.8% in 2019, 2018 and 2017, respectively.follows:
202220212020
Total Market, billion units (excluding China and the U.S.)2,6262,6202,561
Total International Market Share (1)
27.6%27.2%27.6%
Cigarettes23.6%23.7%24.6%
HTU4.1%3.5%3.0%
PMI Cigarette over Cigarette Market Share (2)
24.9%24.8%25.6%
Marlboro Cigarette over Cigarette Market Share (3)
9.8%9.5%9.4%
(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, excluding China and the U.S., including cigarillos in Japan
(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan
(3) Defined as Marlboro's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan
Note: Sum of share of market by product categories might not foot to total due to roundings
Shipments of our principal cigarette brand,
Marlboro, decreased by 0.6% in 2019 and represented approximately 10.0% of the international cigarette market, excluding the PRC, in 2019, 9.7% in 2018 and 9.7% in 2017.
Total shipment volume of heated tobacco units reached 59.7 billion units in 2019, up from 41.4 billion units in 2018.

We have a market share of at least 15% and, in a number of instances, substantially more than 15%, in approximately 95100 markets, including Algeria, Argentina, Australia, Austria, Belgium, Brazil, the Czech Republic, Egypt, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Israel, Italy, Japan, Kazakhstan, Korea, Kuwait, Mexico, the Netherlands, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, the Slovak Republic, South Korea, Spain, Switzerland, Turkey and Ukraine.
 

3



Distribution & Sales

Our main types of distribution and sales are tailored to the characteristics of each market and are often used simultaneously:
 
Direct sales and distribution, where we have set up our own distribution selling directly to the retailers (including gas stations and other key accounts);retailers;
Distribution through independent distributors that often distribute other fast-moving consumer goods and are responsible for distribution in a particular market;
Exclusive zonified distribution, where the dedicated multicategory product distributors are dedicated to us in tobacco products distribution and assigned to exclusive territories within a market;
Distribution through national or regional wholesalers that then supply the retail trade;
Our own e-commerce infrastructure for product sales to trade partners and to consumers; and
Our own brand retail and e-commerce infrastructuresinfrastructure for our RRP products and accessories.accessories for sales to consumers.
 

Competition
 
We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs. In the combustible product category, we predominantly sell American blend cigarette brands, such as Marlboro, L&M, Parliament, Philip Morris and Chesterfield, which are the most popular across many of our markets. In the RRP product category, we predominantlyprimarily sell Platform 1 devices and heated tobacco units under the IQOS brand umbrella.brand. We also sell other smoke-free products, including those commercialized through Swedish Match. We seek to compete in all profitable retail price categories, although our brand portfolio is weighted towards the premium-price category.

The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence,confidence; competitors' introduction of lower-price products or innovative products; novel products which given their taste characteristics may be more commercially successful; higher tobacco product taxes,taxes; higher absolute prices and larger gaps between retail price categories,categories; and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs.

Competitors in our industry include three large international tobacco companies,British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, the PRC,China, Taiwan, Thailand and Vietnam. Industry consolidation and privatizations of state-owned enterprises have led to an overall increase in competitive pressures. Some competitors have different profit, volume and volumeregulatory objectives, and some international competitors aremay be less susceptible to changes in different currency exchange rates.rates than we are. Certain new market entrants in the non-combustible product category may alienate consumers from innovative products through inappropriate marketing campaigns, and messaging and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information about our RRPs.RRPs, all of which could have a material adverse effect on our profitability and results of operations.

Procurement and Raw Materials    
 
We purchase tobacco leaf of various types, grades and styles throughout the world, mostly through independent tobacco suppliers. In 2019,2022, we also contracted directly with farmers in several countries, including Argentina, Brazil, Colombia, Ecuador, Italy, Pakistan the Philippines and Poland. In 2019,2022, direct sourcing from farmers represented approximately 23%16% of PMI’s global leaf requirements. The largest supplies of tobacco leaf are sourced from Argentina, Brazil, China, Italy, Indonesia (mostly for domestic use in kretek products), Malawi, Mozambique, the Philippines, Turkey and the United States.

We believe that there is an adequate supply of tobacco leaf in the world markets to satisfy our current and anticipated production requirements.

Given the global reach of our value chain, properly managing land and water resources and utilizing a geographically diversified sourcing strategy for agricultural products are priorities as we seek to increase the resilience of our production systems and minimize operational risks. We conduct a global water risk assessment annually in tobacco-growing regions to identify potential hotspots for physical water risks that require adaptation measures. Our water stewardship strategy includes guidance for applying a landscape approach to water optimization projects, protecting natural resources and recharge areas, and improving the efficiency of irrigation systems to integrate better farm water management. These business practices are intended to mitigate the risk that climate change could influence weather patterns in ways that negatively impact the quality or cost of the agricultural products used to manufacture our products.
4



In addition to tobacco leaf, we purchase a wide variety of direct materials from a total of approximately 400360 suppliers. In 2019,2022, our top ten suppliers of direct materials combined represented approximately 50%60% of our total direct materials purchases. The threefour most significant direct materials that we purchase are printed paper board used in packaging, acetate tow used in filter making and fine paper used in the manufacturing of cigarettes and heated tobacco units, as well as susceptors used for the TEREA heated tobacco units. In addition, the adequate supply and procurement of cloves are of particular importance to our Indonesian business.

The adequateWe discuss the details of our supply chain for our RRP portfolio, including the supply of electronic devices, is important to our business. We work with two electronics manufacturing service providers for the supply of our Platform 1 devices and a small number of other providers for other products in our RRP portfolio and related accessories. Although we work closely with these service providers on monitoring their

production capability and financial health, the commercialization of our RRPs could be adversely affected if they are unable to meet their commitments. The production of our RRP portfolio requires various metals, and we believe that there is an adequate supply of such metals in the world markets to satisfy our current and anticipated production requirements. However, some components and materials necessary for the production of our RRPs are obtained from single or limited sources, and can be subject to industry-wide shortages and price fluctuations. Our inability to secure an adequate supply of such components and materials could negatively impact the commercialization of our RRPs.

Our IQOS devices are subject to product warranties, which are described in more detail in Item 8.7. Financial Statements and Supplementary Data of this Annual Report on Form 10-K (“Item 8”) in Note 5. Product Warranty to our consolidated financial statements. We discuss our RRP products in more detail in Item 7.Management's Discussion and Analysis of Financial Condition and Results of Operationsof this Annual Report on Form 10-K (“Item 7”) in Business Environment—Reduced-Risk Products.


 Business Environment

Information called for by this Item is hereby incorporated by reference to the paragraphs in Item 7, Business Environment. to this Annual Report on Form 10-K.
 

Other Matters
 
Customers
 
As described in more detail in “Distribution & Sales” above, in many of our markets we sell our products to distributors. In 2019,2022, sales to a distributor in the European Union Region and a distributor in the East Asia & Australia Region each amounted to 10 percent or more of our consolidated net revenues. See Item 8, Note 12.13. Segment Reporting for more information. We believe that none of our business segments is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on our consolidated results of operations. In some of our markets, particularly in the European Union, Eastern Europe, the Middle East and Africa, and in the East Asia & Australia Regions, a loss of a distributor may result in a temporary market disruption.
 
EmployeesHuman Capital
 
Our Workforce.At December 31, 2019,2022, including Swedish Match's employees, we employed approximately 73,50079,800 people worldwide of more than 130 different nationalities, including full-time, temporary and part-time staff. Our businesses are subject to a number of laws and regulations relating to our relationship with our employees. Generally, these laws and regulations are specific to the location of each business. We engage with legally recognized employee representative bodies and we have collective bargaining agreements in several of the countries in which we operate. In addition, in accordance with European Union requirements, we have established a European Works Council composed of management and elected members of our workforce. We believe that ourwe maintain good relations with our employees and their representative organizations.

Our Internal Transformation. To be successful in our transformation to a smoke-free future, we must continue transforming our culture and ways of working, align our talent with our business needs, successfully integrate acquired businesses and innovate to become a truly consumer-centric business. To achieve our strategic goals, we need to attract, retain and motivate the best global talent with the right degree of diversity, experience, competencies and skills. Therefore, we strive to ensure the development of our existing talent while increasingly recruiting those with the expertise in areas that are relatively new to us such as digital and technical solutions. Our compensation and benefit programs are set at the levels that we believe are necessary to attract the best talent and remain competitive with other consumer product companies.

Oversight and Management. Our Board of Directors (the "Board") provides oversight of various matters pertaining to our workforce. The Compensation and Leadership Development Committee of the Board is responsible for executive compensation matters and oversight of the risks and programs related to talent management. Our Code of Conduct highlights our commitment to ethical business conduct and honesty, respect, fairness in our ways of working.

Inclusion & Diversity. At PMI, we believe that a diverse workforce and an inclusive culture are strategic priorities which help fuel innovation and business success. As part of our commitment to workplace diversity, in 2020, our Chief Executive Officer appointed a Chief Diversity Officer. Improving gender balance, especially in management positions, continues to be one of our priorities:

In 2022, we achieved the global target of 40% female representation in management positions;
In 2021, we started our Women in Leadership program to support our female talents; and
We were the first multinational company to receive a global EQUAL-SALARY certification from the EQUAL-SALARY     Foundation in 2019. In 2022, we were re-certified as a global EQUAL-SALARY organization for the second time, verifying that PMI continues to pay female and male employees equally for equal work everywhere where we operate. This achievement is an important milestone toward the creation of a more inclusive gender-balanced workplace and the continuation of our reputation as a top employer.
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In recognition of our efforts, we were again added to the 2022 Bloomberg Gender-Equality Index for transparency in gender reporting and advancing women’s equity (among the 414 companies from 11 different sectors in 45 countries, who scored at or above the global threshold established by Bloomberg L.P.).

Creation of employee resource groups ("ERGs") was another important milestone to drive further inclusion at PMI. We believe these groups serve as a platform for building an enhanced sense of belonging, visibility, and greater understanding of different experiences and dimensions of diversity in our company. Currently, we have established global ERGs for race and ethnicity, LGBTQ+, gender and disability matters concerning our employees. Each global ERG is sponsored by a member of the PMI senior leadership team, to reinforce the fact that our strong commitment to Inclusion & Diversity comes from the top. In 2022, we continued to focus on the growth of our global ERGs and to expand them locally, to be able to meet the specific needs of different markets and regions.

By the end of 2022, our global parental leave principles were implemented in every market in which we operate, with the exception of Russia. PMI’s minimum leave principles provide primary caregivers with a minimum of 18 weeks fully paid parental leave and secondary caregivers with a minimum of 8 weeks fully paid parental leave. These global and gender-neutral guidelines demonstrate how PMI is creating a more inclusive, diverse work environment to meet the challenges and expectations of our people for the 21st century workplace.

To further strengthen our commitment to drive inclusion and equality, we also commissioned an independent academic study exploring the methods organizations can adopt to drive lasting cultural change. Findings of this study informed the development of practices and programs focused on employee inclusion at PMI.

Our Initiatives in Response to COVID-19. Since the outbreak of the global COVID-19 pandemic, we have focused on business continuity, health and safety of our employees, and have adapted our ways of working to a new environment. We have implemented additional safety measures for essential employees in our facilities and offices. We have also enhanced remote and flexible work arrangements and digital collaboration, and related risk management, and to date, many of our employees continue to have the ability work remotely for up to 60% of their working time, where applicable.

Government Regulation

As a company with global operations in a heavily regulated industry, we are excellent.subject to multiple laws and regulations of jurisdictions in which we operate. We discuss our regulatory environment in Item 7, Business Environment.

The regulatory landscape related to environmental, social, and governance ("ESG”) matters is rapidly evolving. We closely monitor these developments and implement initiatives addressing PMI’s priority ESG areas in line with our sustainability strategy. In particular, we are subject to international, national and local environmental laws and regulations in the countries in which we do business. We have specific programs across our business units designed to meet applicable environmental compliance requirements and reduce our carbon footprint, wastage, as well as water and energy consumption. We report externally about our climate change mitigation strategy, together with associated targets and results in reducing our carbon footprint, through CDP (formerly known as the Carbon Disclosure Project), the leading international non-governmental organization assessing the work of thousands of companies worldwide in the area of environmental impact, including climate change.

Our environmental and occupational health and safety management program includes policies, standard practices and procedures at all our manufacturing centers. Furthermore, we have engaged an external certification body to validate the effectiveness of this management program at our manufacturing centers around the world, in accordance with internationally recognized standards for safety and environmental management. Our subsidiaries expect to continue to make investments in order to drive improved performance and maintain compliance with environmental laws and regulations. We assess and report to our management the compliance status of all our legal entities on a regular basis. Based on current regulations, the management and controls we have in place and our review of climate change risks (both physical and regulatory), environmental expenditures have not had, and are not expected to have, a material adverse effect on our consolidated results of operations, capital expenditures, financial position, earnings or competitive position.

Based on current regulations, compliance with government regulations, including environmental regulations, has not had, and is not expected to have a material adverse effect on our results of operations, capital expenditures, financial position, earnings, or competitive position.

As discussed in more detail in Item 1A. Risk Factors, our financial results could be significantly affected by regulatory initiatives that could result in a significant decrease in demand for our brands or by climate-related regulations that increase our cost of operation. More specifically, any regulatory requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements could have a
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material adverse effect on our financial results. Further, tightened climate-related regulation may lead to additional carbon taxation or energy price increases impacting our cost of operation. These shifts in regulation and other market trends could, amongst others, impact current deforestation rates. Availability of deforestation-free materials, could be impacted by increased demand for alternative energy sources and low-carbon fuels, such as biomass, which could result in increased sourcing costs.

We discuss additional information regarding regulatory matters relating to climate change in Item 7, Climate Change Laws and Regulations.
 
Information About Our Executive Officers    

The disclosure regarding executive officers is hereby incorporated by reference to the discussion under the heading “Information about our Executive Officers as of February 6, 2020”10, 2023” in Part III, Item 10. Directors, Executive Officers and Corporate Governance of this Annual Report on Form 10-K (“Item 10”).

Intellectual Property

Our trademarks are valuable assets, and their protection and reputation are essential to us. We own the trademark rights to all of our principal brands, including Marlboro, HEETS, IQOS, IQOS ILUMA,TEREA, and IQOSZYN, or have the right to use them in all countries where we use them.in which these brands are advertised or sold.
 
In addition, we have a large number of granted patents and pending patent applications worldwide. Our patent portfolio, as a whole, is material to our business. However, no one patent, or group of related patents, is material to us. We also have registered industrial designs, as well as unregistered proprietary trade secrets, technology, know-how, processes and other unregistered intellectual property rights.
 
Effective January 1, 2008, PMI entered into an Intellectual Property Agreement with Philip Morris USA Inc. (“PM USA”), a wholly owned subsidiary of Altria Group, Inc. (“PM USA”). The Intellectual Property Agreement allocates ownership of jointly funded intellectual property as follows:

PMI owns all rights to jointly funded intellectual property outside the United States, its territories and possessions; and

PM USA owns all rights to jointly funded intellectual property in the United States, its territories and possessions.

The parties agreed to submit disputes under the Intellectual Property Agreement first to negotiation between senior executives and then to binding arbitration.


An agreement reached with PM USA in 2022 relating to IQOS commercialization rights in the U.S. includes, among other things, an agreement relating to intellectual property rights consistent with the commercialization rights for relevant IQOS products.

Seasonality
 
Our business segments are not significantly affected by seasonality, although in certain markets cigarette consumption trendsmay be lower during the winter months due to the cold weather and may rise during the summer months due to outdoor use, longer daylight, and tourism.
 
Environmental Regulation    
We are subject to international, national and local environmental laws and regulations in the countries in which we do business. We have specific programs across our business units designed to meet applicable environmental compliance requirements and reduce our carbon footprint and wastage as well as water and energy consumption. We report externally about our climate change mitigation strategy, together with associated targets and results in reducing our carbon footprint, through CDP (formerly, the Carbon Disclosure Project), the leading international non-governmental organization assessing the work of thousands of companies worldwide in the area of environmental impact, including climate change. Our environmental and occupational health and safety management system includes policies, standard practices and procedures at all our manufacturing centers. We also conduct regular safety assessments at our offices, warehouses and car fleet organizations. Furthermore, we have engaged an external certification body to validate the effectiveness of this management system at our manufacturing centers around the world, in accordance with internationally recognized standards for safety and environmental management. The environmental performance data we report externally is also verified by a qualified third party. Our subsidiaries expect to continue to make investments in order to drive improved performance and maintain compliance with environmental laws and regulations. We assess and report the compliance status of all our legal entities on a regular basis. Based on the management and controls we have in place and our review of climate change risks (both physical and regulatory), environmental expenditures have not had, and are not expected to have, a material adverse effect on our consolidated results of operations, capital expenditures, financial position, earnings or competitive position.


Available Information    
 
We are required to file with the SEC annual, quarterly and current reports, proxy statements and other information required by the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC, from which investors can electronically access our SEC filings.
 
We make available free of charge on, or through, our website at www.pmi.com our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Investors can access our filings with the SEC by visiting www.pmi.com.
 
The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we make with the SEC.
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Item 1A.     Risk Factors.     
     
The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, our operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this Annual Report on Form 10-K.

Forward-Looking and Cautionary Statements
We may from time to time make written or oral forward-looking statements, including statements contained in this Annual Report on Form 10-K and other filings with the SEC, in reports to stockholders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "aspires," "estimates," "intends," "projects," "aims," "goals," "targets""targets," "forecasts" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Our RRPs constitute a new product category in its early stages that is less predictable than our mature cigarette business. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in our securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in Item 7, Business Environment. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time, except in the normal course of our public disclosure obligations.


Risks Related to OurOverall Business and Industry

Consumption of tax-paid cigarettes continues to decline in many of our markets.Risks
This decline is due
We may be unsuccessful in our attempts to multiple factors, including increased taxesintroduce reduced-risk products, and pricing, governmental actions,regulators may not permit the diminishing social acceptancecommercialization of smoking, continuing economicthese products or the communication of scientifically substantiated information and geopolitical uncertainty,claims.
Our key strategic priorities are to: (i) develop and the continuing prevalencecommercialize products that present less risk of illicit products. These factorsharm to adult smokers who switch to those products versus continued smoking; and their potential consequences are discussed more fully below(ii) encourage and in Item 7, Business Environment.

Cigarettes are subject to substantial taxes. Significant increases in cigarette-related taxes have been proposed or enacted and are likely toeducate current adult smokers who would otherwise continue to smoke to switch to those RRPs. For our efforts to be proposedsuccessful, we must:

develop RRPs that adult smokers find acceptable alternatives to smoking;
conduct rigorous scientific studies to substantiate that RRPs reduce exposure to harmful and potentially harmful constituents in smoke and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking; and
effectively advocate for a timely development of science-based regulatory frameworks for the development and commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to make better consumer choices.

We might not succeed in our efforts. If we do not succeed, but others do, or enacted in numerous jurisdictions. These tax increasesif heat-not-burn products are inequitably regulated compared to other RRP categories without regard to the totality of the scientific evidence available for such products, we may disproportionately affect our profitability and make us less competitive versus certain of our competitors.
Tax regimes, including excise taxes, sales taxes and import duties, can disproportionately affect the retail price of cigarettes versus other combustible tobacco products, or disproportionately affect the relative retail price of our cigarette brands versus cigarette brands manufactured by certain of our competitors. Because our portfolio is weighted toward the premium-price cigarette category, tax regimes based on sales price can place usbe at a competitive disadvantage in certain markets. As a result, our volume and profitability may be adversely affected in these markets.
Increases in cigarette taxes are expected to continue to have an adverse impact on our salesdisadvantage. In addition, actions of cigarettes, due to resulting lower consumption levels, a shift in sales from manufactured cigarettes to other combustible tobacco products and from the premium-price to the mid-price or low-price cigarette categories, where we may be under-represented, from local sales to legal cross-border purchases of lower price products, or to illicit productssome market entrants, such as contraband, counterfeit and "illicit whites."

Our business faces significant governmental action aimed at increasing regulatory requirementsthe inappropriate marketing of e-vapor products to youth, as well as alleged health consequences associated with the goal of reducing or preventing the use of tobaccocertain e-vapor products, may unfavorably impact public opinion and/or mischaracterize all e-vapor products or other RRPs to consumers, regulators and policy makers without regard to the totality of scientific evidence available for specific products.
Governmental actions, combined This may impede our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs. We cannot predict whether regulators will permit the sale and/or marketing of RRPs with scientifically substantiated information and claims. Such restrictions could limit the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volume in manysuccess of our markets,RRPs.

The WHO study group on tobacco product regulation published their eighth report on the scientific basis of tobacco product regulation in May 2021. The report is based on a review of scientific evidence related to novel and we expectemerging nicotine and tobacco products, such
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as electronic nicotine delivery systems ("ENDS"), electronic non-nicotine delivery systems and heated tobacco products ("HTPs") on a number of scientific topics. The report concludes by making a number of policy recommendations on HTPs and ENDS that, such factors will continue to reduce consumption levels and will increase down-tradingif implemented, could restrict both the availability of these products, and the risk of counterfeiting, contraband, "illicit whites" and legal cross-border purchases. Significant regulatory developments will continueaccess to take place over the next few years in most of our markets, driven principally byaccurate information about them. In August 2021, the World Health Organization's Framework Convention on Tobacco Control (“FCTC”(the "FCTC"). Since it came into force in 2005, the FCTC has led to increased efforts by tobacco control advocates Secretariat published two reports on novel and public health organizations to promote increasingly restrictive regulatory measures on the marketing and sale ofemerging tobacco products to the ninth session of the Conference of the Parties ("CoP") of the FCTC, which are not materially different from the WHO study group report. Substantive decisions based on these reports were deferred to CoP 10, currently scheduled to take place in the fourth quarter of 2023. It is not possible to predict whether or to what extent measures recommended by the WHO's reports will be implemented as the reports are not binding to the WHO Member States.

Additionally, any claims, regardless of merit, challenging our research and clinical data available to date, may impact the development of science-based regulatory frameworks for the commercialization of the RRP category and the commercialization of the RRP category in general.

Our RRPs and commercial activities for these products are designed for, and directed toward, current adult smokers. Regulatory initiatives thatsmokers and users of nicotine-containing products, and not for non-smokers or youth. We put significant effort to restrict access of our products from non-smokers or youth. Nevertheless, technological, operational, regulatory and/or commercial setbacks might impact the implementation or effectiveness of youth access prevention mechanisms and surrounding infrastructure. If nonetheless there is a significant usage of our products or competitive products among youth or non-smokers, even in situations over which we have been proposed, introduced or enacted include:no control, our reputation and credibility may suffer, the regulatory approach to our products may become more restrictive, and our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs may be significantly impacted.

restrictions on or licensing of outlets permitted to sell cigarettes;
Moreover, the levying of substantial and increasing tax and duty charges;
restrictions or bans on advertising, marketing and sponsorship;
the display of larger health warnings, graphic health warnings and other labeling requirements;
restrictions on packaging design, including the use of colors, and plain packaging;
restrictions on packaging and cigarette formats and dimensions;
restrictions or bans on the display ofFDA’s premarket tobacco product packaging at the point of sale and restrictions or bans on cigarette vending machines;

requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents;
disclosure, restrictions, or bans ofmodified risk tobacco product ingredients;
increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;
regulation, restrictions or prohibitionsauthorizations of novel tobacco or nicotine-containing products;
eliminationtwo versions of duty free sales and duty free allowances for travelers;
encouraging litigation against tobacco companies; and
excluding tobacco companies from transparent public dialogue regarding public health and other policy matters.
Our financial results could be significantly affected by regulatory initiatives resulting in a significant decrease in demand for our brands, in particular requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements.

Litigation related to tobacco use and exposure to environmental tobacco smoke could substantially reduce our profitability and could severely impair our liquidity.

There is litigation related to tobacco products pending in certain jurisdictions. Damages claimed in some tobacco-related litigation are significant and, in certain cases in Brazil, Canada, and Nigeria, range into the billions of U.S. dollars. We anticipate that new cases will continue to be filed. The FCTC encourages litigation against tobaccoPlatform 1 product manufacturers. It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. See Item 8, Note 18. Contingencies to our consolidated financial statements for a discussion of pending litigation and Item 7, Business Environment—Reduced-Risk Products (RRPs)—Legal Challenges to RRPs.

We face intense competition, and our failure to compete effectively could have a material adverse effect on our profitability and results of operations.
We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs. We are subject to highly competitive conditionsstrict marketing, reporting and other requirements. Although we have received these authorizations from the FDA, there is no guarantee that the product will remain authorized for sale in all aspects of our business. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price productsthe U.S., or innovative products, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs. Competitors include three large international tobacco companies,whether new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, the PRC, Taiwan, Thailand and Vietnam. Industry consolidation and privatizations of state-owned enterprises have led to an overall increase in competitive pressures. Some competitors have different profit and volume objectives, and some international competitors are susceptible to changes in different currency exchange rates. Certain new market entrants may alienate consumers from innovative products through inappropriate marketing campaigns and messaging and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extentversions of the dissemination of inaccurate and misleading information about our RRPs.

Because we have operations in numerous countries, our results may be influenced by economic, regulatory and political developments, natural disasters, pandemicsproducts (Platform 1 or conflicts.
Some of the countries in which we operate face the threat of civil unrest and can be subject to regime changes. In others, nationalization, terrorism, conflict and the threat of war may haveother smoke-free platforms) will receive necessary authorizations, particularly if there is a significant impact on the business environment. Natural disasters, pandemics, economic, political, regulatoryuptake in youth or other developments could disrupt our supply chain, manufacturing capabilities or distribution capabilities. In addition, such developments could lead to loss of property or equipment that are critical to our business in certain markets and difficulty in staffing and managing our operations, which could reduce our volumes, revenues and net earnings.non-smoker initiation.
In certain markets, we are dependent on governmental approvals of various actions such as price changes, and failure to obtain such approvals could impair growth of our profitability.
In addition, despite our high ethical standards and rigorous control and compliance procedures aimed at preventing and detecting unlawful conduct, given the breadth and scope of our international operations, we may not be able to detect all potential improper or unlawful conduct by our employees and partners.


We may be unable to anticipate changes in adult consumer preferences.
Our business is subject to changes in adult consumer preferences, which may be influenced by local economic conditions. To be successful, we must:

promote brand equity successfully;
anticipate and respond to new adult consumer trends;
develop new products and markets and broaden brand portfolios;
improve productivity;
convince adult smokers to convert to our RRPs;
ensure adequate production capacity to meet demand for our products; and
be able to protect or enhance margins through price increases.
In periods of economic uncertainty, adult consumers may tend to purchase lower-price brands, and the volume of our premium-price and mid-price brands and our profitability could suffer accordingly. Such down-trading trends may be reinforced by regulation that limits branding, communication and product differentiation.

The financial and business performance of our reduced-risk products is less predictable than our cigarette business.
Our RRPs are novel products in a new category, and the pace at which adult smokers adopt them may vary, depending on the competitive, regulatory, fiscal and cultural environment, and other factors in a specific market. There may be periods of accelerated growth and periods of slower growth for these products, the timing and drivers of which may be more difficult for us to predict versus our mature cigarette business. The impact of this lower predictability on our projected results for a specific period may be significant, particularly during the early stages of this new product category.

We lose revenuescategory, during the COVID-19 pandemic as a result of unpredictability due to shortage of key components in our supply chain, or due to geopolitical or macroeconomic events that negatively impact RRP availability or adoption, which in turn may have a material adverse effect on our results of operation.

We may be unsuccessful in our efforts to differentiate reduced-risk products and cigarettes with respect to taxation.
To date, we have been largely successful in demonstrating to regulators that our RRPs are not cigarettes due to the absence of combustion, and as such they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes. Nevertheless, we are unable to predict whether regulators will be issuing new regulations where RRP will be equally taxed in line with other tobacco products such as ordinary cigarettes. However, if we cease to be successful in these efforts, RRP unit margins may be materially adversely affected, which in turn may have a material adverse effect on our results of operation.

Consumption of tax-paid cigarettes continues to decline in many of our markets.
This decline is due to multiple factors, including increased taxes and pricing, governmental actions, the diminishing social acceptance of smoking and health concerns, competition, continuing economic and geopolitical uncertainty, and the continuing prevalence of illicit products. These factors and their potential consequences are discussed more fully below and in Item 7, Business Environment. A continuous decline in the consumption of cigarettes could have a material adverse effect on our revenue and profitability, which in turn may have a material adverse effect on our ability to fund our smoke-free transformation.

Cigarettes are subject to substantial taxes. Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions. These tax increases may disproportionately affect our profitability and make us less competitive versus certain of our competitors.
Tax regimes, including excise taxes, sales taxes and import duties, can disproportionately affect the retail price of cigarettes versus other combustible tobacco products, or disproportionately affect the relative retail price of our cigarette brands versus cigarette brands manufactured by certain of our competitors. Because our portfolio is weighted toward the premium-price cigarette category, tax
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regimes based on sales price can place us at a competitive disadvantage in certain markets. Furthermore, our volume and profitability may be adversely affected in these markets.

In addition, increases in cigarette taxes are expected to continue to have an adverse impact on our sales of cigarettes, due to resulting lower consumption levels, a shift in sales from manufactured cigarettes to other combustible tobacco products and from the premium-price to the mid-price or low-price cigarette categories, where we may be under-represented, from local sales to legal cross-border purchases of lower price products, or to illicit products such as contraband, counterfeit and "illicit whites."

Each of these risks could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

Our business faces significant governmental action aimed at increasing regulatory requirements with the goal of reducing or preventing the use of tobacco products.
Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volumes for our products in many of our markets, and we expect that such factors will continue to reduce consumption levels and will increase down-trading and the risk of counterfeiting, contraband, "illicit whites" and legal cross-border purchases, “illicit whites,” non-tax-paid volume producedpurchases. Significant regulatory developments will continue to take place over the next few years in most of our markets, driven principally by the FCTC. Since it came into force in 2005, the FCTC has led to increased efforts by tobacco control advocates and public health organizations to promote increasingly restrictive regulatory measures on the marketing and sale of tobacco products to adult smokers. Regulatory initiatives that have been proposed, introduced or enacted by governmental authorities in various jurisdictions include:

restrictions on or licensing of outlets permitted to sell cigarettes;
the levying of substantial and increasing tax and duty charges;
restrictions or bans on advertising, marketing and sponsorship;
the display of larger health warnings, graphic health warnings and other labeling requirements;
restrictions on packaging design, including the use of colors, and mandating plain packaging;
restrictions on packaging and cigarette formats and dimensions;
restrictions or bans on the display of tobacco product packaging at the point of sale and restrictions or bans on vending machines;
generation sales bans, under which the sale of certain tobacco or nicotine products to people born after a certain year would be prohibited;
requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents;
disclosure, restrictions, or bans of tobacco product ingredients, including bans on the flavors of certain tobacco products;
increased restrictions on smoking and use of tobacco and nicotine-containing products in public and work places and, in some instances, in private places and outdoors;
restrictions or prohibitions of novel tobacco or nicotine-containing products or related devices;
elimination of duty free sales and duty free allowances for travelers;
restrictions in terms of importing or exporting our products impacting our logistics activities and ability to ship our products;
encouraging litigation against tobacco companies; and
excluding tobacco companies from transparent public dialogue regarding public health and other policy matters.

Our financial results could be materially affected by regulatory initiatives resulting in a significant decrease in demand for our brands. More specifically, requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements could have a material adverse effect on our financial results.

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Changes in the earnings mix and changes in tax laws may result in significant variability in our effective tax rates. Our ability to receive payments from foreign subsidiaries or to repatriate royalties and dividends could be restricted by local manufacturers,country currency exchange controls and counterfeiting of our Platform 1 device and heated tobacco units.other regulations.
Large quantities of counterfeit cigarettesWe are soldsubject to income tax laws in the international market. We believe that Marlboro isUnited States and numerous foreign jurisdictions. Changes in the most heavily counterfeited international cigarette brand, although we cannot quantifyU.S. tax system, including significant increases in the revenues we loseU.S. corporate income tax rate and the minimum tax rate on certain earnings of foreign subsidiaries could be enacted. Such changes could have a material adverse impact on our effective tax rate thereby reducing our net earnings. Further changes in the tax laws of foreign jurisdictions could arise as a result of this activity.the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which recommended changes to numerous long-standing tax principles. If implemented, such changes, as well as changes in taxing jurisdictions’ administrative interpretations, decisions, policies, or positions, could also have a material adverse impact on our effective tax rate thereby reducing our net earnings. In addition,future periods, our revenuesability to recover deferred tax assets could be subject to additional uncertainty as a result of such developments. Furthermore, changes in the earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates.

As a result of Russia’s invasion of Ukraine, certain taxing jurisdictions, including the U.S., have proposed punitive tax legislation applicable to companies doing business in Russia, which could also have a material adverse impact on our effective tax rate if enacted thereby reducing our net earnings.

Because we are reduceda U.S. holding company, our most significant source of funds is distributions from our non-U.S. subsidiaries. Certain countries in which we operate have adopted or could institute currency exchange controls and other regulations that limit or prohibit our local subsidiaries' ability to convert local currency into U.S. dollars or to make payments outside the country. This could subject us to the risks of local currency devaluation and business disruption.

Risks Related to the Impact of the War in Ukraine on our Business

Our business, results of operations, cash flows and financial position may be adversely impacted by contraband, legal cross-border purchases, “illicit whites”the continuation and non-tax-paid volume produced by local manufacturers. Our revenues and consumer satisfaction withconsequences of the war in Ukraine.
In 2022, Russia accounted for around 9% of our Platform 1 devicetotal cigarette and heated tobacco unitsunit shipment volume, and around 7% of our total net revenues. Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume, and around 1% of our total net revenues. Historically, we also produced finished goods in Ukraine for export and manufactured products in Russia. In 2022, as a result of Russia’s invasion of Ukraine, we suspended planned investments and scaled down our manufacturing operations in Russia. In Ukraine, we have temporarily reduced operations, including closing our factory in the country.

The short and long-term implications of the Russian invasion of Ukraine for our operations in those countries are impossible to predict at this time. The likelihood of retaliatory action by the Russian government against companies, including us, as a result of actions and statements made in response to the Russian invasion, including the possibility of legal action against us or our employees or nationalization of foreign businesses or assets, including cash reserves held in Russia and intangible assets such as trademarks, is impossible to predict. We are 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. In Ukraine, there is no way to know when and to what extent we will be able to fully normalize our operations or to what extent our workforce, facilities, inventory, and other assets will remain intact. These developments have and will continue to have a material adverse impact on our business, results of operations, cash flows and financial position, and may result in impairment charges.

The conflict also continues to elevate the likelihood of supply chain disruptions, both in the region and globally, and may inhibit our ability to timely source materials and services needed to make and sell our products. For example, historically we sourced certain finished goods, production materials and components from both Russia and Ukraine, including printed materials and filters, and the invasion has, and may continue to, disrupt the availability of and impact our supply chain for these materials. These disruptions, to the extent we are unable to find alternative sources or otherwise address these supply constraints, may impact the availability and cost of our products in other markets, which would adversely impact our business, results of operations, cash flows and financial position, and may result in impairment charges. Furthermore, the imposition of various restrictions on transactions with parties from certain jurisdictions, the ban on exports of various products, and other economic and financial restrictions may adversely affect certain third parties with which we do business in Russia, such as customers, suppliers, intermediaries, service providers and banks.

The broader consequences of the invasion are also impossible to predict, but could include reputational consequences, further sanctions, financial or currency restrictions, punitive tax law changes, embargoes, regional instability, and geopolitical shifts as well as adverse effects on macroeconomic conditions, security conditions, currency exchange rates, and financial markets. Given the nature of our business and global operations, such geo-political instability and uncertainty could increase the costs of our materials and operations; reduce demand for our products; have a negative impact on our supply chains, manufacturing capabilities, or distribution capabilities; increase our exposure to currency fluctuations; constrain our liquidity or our ability to access capital markets; create staffing or operations difficulties; or subject us to increased cyber-attacks. While we will continue to monitor this fluid situation and
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develop contingency plans as necessary to address any disruptions to our business operations as they develop, the extent of the conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted.

The conflict may also have the effect of heightening many other risks disclosed in this Form 10-K, any of which could adversely affect our business, results of operations, cash flows or financial position. Such risks could affect, without limitation, the achievement of our strategic priorities, including achievement of our RRP growth targets; the availability of third-party manufacturing resources; the availability of attractive acquisition and strategic business opportunities and our ability to fully realize the benefits of these transactions; our ability to attract, motivate, and retain the best global talent; and our loss of revenue from counterfeiting and similar illicit activities.

Risks Related to Sourcing and Distribution of Products, Services and Materials

Use of third-parties may negatively impact the distribution, quality, and availability of our products and services, and we may be required to replace third-party contract distributors, manufacturers or service providers.
We increasingly rely on third-parties and their subcontractors/suppliers, sometimes concentrated in a specific geographic area, for product distribution and to manufacture some of our products and product parts (particularly, the electronic devices and accessories), as well as to provide services, including to support our finance, commercialization and information technology processes. While many of these arrangements improve efficiencies and decrease our operating costs, they also diminish our direct control. Such diminished control may lead to disruption in the distribution of our products and may have a material adverse effect on the quality and availability of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult consumer preferences, all of which may place us at a competitive disadvantage. In addition, we may be unable to renew these agreements on satisfactory terms for numerous reasons, including government regulations, and our costs may increase significantly if we must replace such third parties with other partners or our own resources.

The effects of climate change and legal or regulatory responses related to climate change may have a negative impact on our business and results of operations.
While we seek to mitigate our business risks associated with climate change by establishing environmental goals and standards and seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or mitigate environmental impacts, we recognize that there are inherent climate-related risks wherever business is conducted. Among other potential impacts, climate change could influence the quality and volume of the agricultural products we rely on, including tobacco, due to a number of factors beyond our control, including more frequent variations in weather patterns, extreme weather events causing unexpected downtime and inventory losses, other adverse weather conditions, and governmental restrictions on trade, all of which may lead to disruption of operations at factories, warehouses and other premises.

Furthermore, risks related to natural ecosystems degradation, decreased agricultural productivity in certain regions of the world, biodiversity loss, water resource depletion and deforestation, which are partially driven or exacerbated by climate change, may disrupt our business operations or those of our suppliers and business partners.

There is an increased focus by foreign, federal, state and local regulatory and legislative bodies regarding environmental policies relating to climate change. New climate-related legal or regulatory requirements may lead to additional carbon taxation, energy price increases, new compliance costs, increased distribution and supply chain costs, and other expenses impacting our cost of operation. Even if we make changes to align ourselves with legal or regulatory requirements, we may still be subject to significant penalties if such laws or regulations are interpreted and applied in a manner inconsistent with our practices.

Government mandated prices, production control programs, and shifts in crops driven by economic conditions may increase the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.
As with other agricultural commodities, the price of tobacco leaf and cloves can be influenced by imbalances in supply and demand and the impacts of natural disasters and pandemics such as COVID-19. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs. Changes in the patterns of demand for agricultural products could cause farmers to produce less tobacco or cloves. Any significant change in tobacco leaf and clove prices, quality and quantity could affect our profitability and our business.

Risks Related to our International Operations

Because we have operations in numerous countries, our results may be adversely impacted by economic, regulatory and political developments, natural disasters, pandemics or conflicts.
Some of the countries in which we operate face the threat of civil unrest and can be subject to regime changes. In others, nationalization, terrorism, conflict and the threats of war or acts of war may have a significant impact on the business environment. Natural disasters, extreme weather events, pandemics, economic, political, regulatory, acts of war or threats of war, or other
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developments could disrupt or increase the expenses related to our supply chain, manufacturing capabilities, distribution capabilities, or the energy and other utility services required to operate our factories, warehouses, and other premises. Our business continuity plans and other safeguards might not always be effective to fully mitigate their impact. In addition, such developments – including the impact on energy prices and availability in the EU and elsewhere resulting from the invasion of Ukraine by Russia – could increase costs of our materials and operations and lead to loss of property or equipment that are critical to our business in certain markets and difficulty in staffing and managing our operations, all of which could have a material adverse effect on our operations, volumes, revenue, net earnings and profitability. We discuss additional risks associated with Russia's invasion of Ukraine and climate change above and with the COVID-19 pandemic below.

In certain markets, we are dependent on governmental approvals of various actions such as price changes, and failure to obtain such approvals could impair growth of our profitability.

In addition, despite our high ethical standards and rigorous controls and compliance policies aimed at preventing and detecting unlawful conduct, given the breadth and scope of our international operations, we may not be able to detect all potential improper or unlawful conduct by our employees and partners. Such improper or unlawful conduct (actual or alleged) could lead to litigation and regulatory action, cause damage to our reputation and that of our brands, and result in substantial costs.

Our reported results could be adversely affected by counterfeitunfavorable currency exchange rates, and currency fluctuations could impair our competitiveness.
We conduct our business primarily in local currency and, for purposes of financial reporting, the local currency results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period. Foreign currencies may fluctuate significantly against the U.S. dollar reducing our net revenues, operating income and EPS. Our primary local currency cost bases may be different from our primary currency revenue markets, and U.S. dollar fluctuations against various currencies may have disproportionate negative impact on net revenues as compared to our gross profit and operating income margins.

A sustained period of elevated inflation across the markets in which we operate could result in higher operating and financing costs and lead to reduced demand for our products.
Increasing inflationary pressures may result in significant increases to our expenses, including direct materials, wages, energy, and transportation costs. While we take actions, wherever possible, to reduce the impact of the effects of inflation, in cases of sustained and elevated inflation across several of our major markets, it may be difficult to effectively control the increases to our costs. Increased inflation also has and may continue to lead to interest rate increases, thereby increasing our interest expense. Increasing inflationary pressures may also negatively impact consumer purchasing power, which could result in reduced demand for our products. If we are unable to increase our prices or take other actions to mitigate the effect of increasing inflationary pressures, our profitability and financial position could be negatively impacted.


Risks Related to Legal Challenges and Investigations

Litigation related to tobacco use and exposure to environmental tobacco smoke could substantially reduce our profitability and could severely impair our liquidity.
There is litigation related to tobacco products pending in certain jurisdictions in which we operate. Damages claimed in some tobacco-related litigation are significant and, in certain cases in Brazil, Canada, and Nigeria, range into the billions of U.S. dollars. We anticipate that do not meetnew cases will continue to be filed. The FCTC encourages litigation against tobacco product manufacturers. It is possible that our consolidated results of operations, cash flows or financial position could be materially adversely affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. We face various administrative and legal challenges related to certain RRP activities, including allegations concerning product quality standardsclassification, advertising restrictions, corporate communications, product coach activities, scientific substantiation, product liability, antitrust, and scientific validation procedures.unfair competition.  While we design our programs to comply with relevant regulations, we expect these or similar challenges to continue as we expand our efforts to commercialize RRPs and to communicate publicly. The outcomes of these matters may affect our RRP commercialization and public communication activities and performance in one or more markets. Also see Item 8, Note 18. Contingencies to our consolidated financial statements for a discussion of pending litigation.

From time to time, we are subject to governmental investigations on a range of matters.
Investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of income taxes, customs duties and/or excise taxes, allegations of false and misleading usage of descriptors, allegations of unlawful advertising, and allegations of unlawful labor practices. We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially adversely affected by an unfavorable outcome of pending or future investigations. See Item 8, Note 18. Contingencies—Other Litigation and Item 7,"Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Results
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by Business Segment—Business Environment—Governmental Investigations for a description of certain governmental investigations to which we are subject.

We may be unsuccessful in our attempts to introduce reduced-risk products, and regulators may not permit the commercialization of these products or the communication of scientifically substantiated risk-reduction claims.

Our key strategic priorities are: to develop and commercialize products that present less risk of harm to adult smokers who switch to those products versus continued smoking; and to convince current adult smokers who would otherwise continue to smoke to switch to those RRPs. For our efforts to be successful, we must: develop RRPs that such adult smokers find acceptable alternatives to smoking; conduct rigorous scientific studies to substantiate that they reduce exposure to harmful and potentially harmful constituents in smoke and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking; and effectively advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to make better consumer choices. We might not succeed in our efforts. If we do not succeed, but others do, or if heat-not-burn products are inequitably regulated compared to other RRP categories without regard to the totality of the scientific evidence available for such products, we may be at a competitive disadvantage. In addition, actions of some market entrants, such as the inappropriate marketing of e-vapor products to youth, as well as alleged health consequences associated with the use of certain e-vapor products, may unfavorably impact public opinion and/or mischaracterize all e-vapor products or other RRPs to consumers, regulators and policy makers

without regard to the totality of scientific evidence for specific products. This may impede our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs. We cannot predict whether regulators will permit the sale and/or marketing of RRPs with scientifically substantiated risk-reduction claims. Such restrictions could limit the success of our RRPs. Moreover, the FDA’s premarket tobacco product authorization of a version of our Platform 1 product is subject to strict marketing, reporting and other requirements and is not a guarantee that the product will remain authorized, particularly if there is a significant uptake in youth initiation.


We may be unsuccessful in our efforts to differentiate reduced-risk products and cigarettes with respect to taxation.

To date, we have been largely successful in demonstrating to regulators that our RRPs are not cigarettes, and as such they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes. If we cease to be successful in these efforts, RRP unit margins may be adversely affected.

Our reported results could be adversely affected by unfavorable currency exchange rates, and currency devaluations could impair our competitiveness.
We conduct our business primarily in local currency and, for purposes of financial reporting, the local currency results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period. During times of a strengthening U.S. dollar, our reported net revenues, operating income and EPS will be reduced because the local currency translates into fewer U.S. dollars. During periods of local economic crises, foreign currencies may be devalued significantly against the U.S. dollar, reducing our margins. Actions to recover margins may result in lower volume and a weaker competitive position.

Changes in the earnings mix and changes in tax laws may result in significant variability in our effective tax rates. Our ability to receive payments from foreign subsidiaries or to repatriate royalties and dividends could be restricted by local country currency exchange controls.
The Tax Cuts and Jobs Act that was signed into law in December 2017 constitutes a major change to the U.S. tax system. Our estimated impact of the Tax Cuts and Jobs Act is based on management’s current interpretations, and our analysis is ongoing.  Our final tax liability may be materially different from current estimates due to developments such as implementing regulations and clarifications. In future periods, our effective tax rate and our ability to recover deferred tax assets could be subject to additional uncertainty as a result of such developments. Furthermore, changes in the earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates. Because we are a U.S. holding company, our most significant source of funds is distributions from our non-U.S. subsidiaries. Certain countries in which we operate have adopted or could institute currency exchange controls that limit or prohibit our local subsidiaries' ability to convert local currency into U.S. dollars or to make payments outside the country. This could subject us to the risks of local currency devaluation and business disruption.

Our ability to grow profitability may be limited by our inability to introduce new products, enter new markets or improve our margins through higher pricing and improvements in our brand and geographic mix.
Our profit growth may suffer if we are unable to introduce new products or enter new markets successfully, to raise prices or to improve the proportion of our sales of higher margin products and in higher margin geographies.

We may be unable to expand our brand portfolio through successful acquisitions or the development of strategic business relationships.
One element of our growth strategy is to strengthen our brand portfolio and market positions through selective acquisitions and the development of strategic business relationships. Acquisition and strategic business development opportunities are limited and present risks of failing to achieve efficient and effective integration, strategic objectives and anticipated revenue improvements and cost savings. There is no assurance that we will be able to acquire attractive businesses on favorable terms, or that future acquisitions or strategic business developments will be accretive to earnings.

Government mandated prices, production control programs, shifts in crops driven by economic conditions and the impact of climate change may increase the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.
As with other agricultural commodities, the price of tobacco leaf and cloves can be influenced by imbalances in supply and demand, and crop quality can be influenced by variations in weather patterns, including those caused by climate change. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs. Changes in the

patterns of demand for agricultural products could cause farmers to produce less tobacco or cloves. Any significant change in tobacco leaf and clove prices, quality and quantity could affect our profitability and our business.

Our ability to achieve our strategic goals may be impaired if we fail to attract and retain the best global talent.

To be successful, we must continue transforming our culture and ways of working, align our talent with our business needs, innovate and transform to a consumer-centric business. We compete for talent, including in areas that are new to us, such as digital and technical solutions, with companies in the consumer products, technology and other sectors that enjoy greater societal acceptance. As a result, we may be unable to attract and retain the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.

The failure of our information systems to function as intended or their penetration by outside parties with the intent to corrupt them or our failure to comply with privacy laws and regulations could result in business disruption, litigation and regulatory action, and loss of revenue, assets or personal or other confidential data.
We use information systems to help manage business processes, collect and interpret data and communicate internally and externally with employees, suppliers, consumers, customers and others. Some of these information systems are managed by third-party service providers. We have backup systems and business continuity plans in place, and we take care to protect our systems and data from unauthorized access. Nevertheless, failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs. Failure to protect personal data, respect the rights of data subjects, and adhere to strict cybersecurity protocols could subject us to substantial fines and other legal challenges under regulations such as the EU General Data Protection Regulation. As we are increasingly relying on digital platforms in our business, the magnitude of these risks is likely to increase.

We may be unable to adequately protect our intellectual property rights, and disputes relating to intellectual property rights could harm our business.
Our intellectual property rights are valuable assets, and their protection is important to our business.business, and that protection may not be equally available in every country in which we operate or in which our products are sold. If the steps we take to protect our intellectual property rights globally, including through applying for, prosecuting, maintaining and enforcing, where relevant, a combination of trademark, design, copyright, patent, trade secrets and other intellectual property rights, are inadequate, or if others infringe or misappropriate our intellectual property rights, notwithstanding legal protection, our business, financial condition, and results of operations could suffer.be adversely impacted. Moreover, failing to manage our existing and/or future intellectual property may place us at a competitive disadvantage. Intellectual property rights of third parties may limit our ability to introduce new products develop, manufacture and/or improve the quality of existingcommercialize our products in one or more markets. Competitors or other third parties may claim that we infringe their intellectual property rights. Any such claims, regardless of merit, could divert management’s attention, be costly, disruptive, time-consuming and unpredictable and expose us to significant litigation costs and damages, and may impede our ability to develop, manufacture and/or commercialize new RRPs and sell newimprove our products, or improve existing products. If,and thus have a material adverse effect on our revenue and our profitability. In addition, if, as a result, we are unable to manufacture or sell our RRPs or improve their quality in one or more markets, our ability to convert adult smokers to our RRPs in such markets would be adversely affected. See Item 8, Note 18. Contingencies—Other Litigation to our consolidated financial statements for a description of certain intellectual property proceedings.

Risks Related to our Competitive Environment

We face intense competition, and our failure to compete effectively could have a material adverse effect on our profitability and results of operations.
We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price products or innovative products, novel products which given their taste characteristics may be requiredmore commercially successful, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to replace third-party contract manufacturers or service providersdifferentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs.

Competitors in our industry include British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, China, Taiwan, Thailand and Vietnam. Some competitors have different profit, volume and regulatory objectives, and some international competitors may be less susceptible to changes in currency exchange rates than we are. Certain new market entrants in the non-combustible product category may alienate consumers from innovative products through inappropriate marketing campaigns, messaging and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information about our own resources.RRPs, all of which could have a material adverse effect on our profitability and results of operations.

In certain instances, we contract with third parties to manufacture some of our products or product parts or to provide other services. We may be unable to renew these agreements on satisfactory terms for numerous reasons, including government regulations. Accordingly,anticipate changes in adult consumer preferences.
Our business is subject to changes in adult consumer preferences, which may be influenced by local economic conditions, accessibility to our costs may increase significantly ifproducts and availability of accurate information related to our products.

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To be successful, we must replace such third parties with our own resources.must:


Item 1B.Unresolved Staff Comments.promote brand equity successfully;
anticipate and respond to new adult consumer trends;
ensure that our products meet our quality standards;
develop new products and markets and broaden brand portfolios;
improve productivity;
educate and encourage adult smokers to convert to our RRPs;
ensure effective adult consumer engagement, including communication about product characteristics and usage of RRPs;
provide excellent customer care;
ensure adequate production capacity to meet demand for our products; and
be able to protect or enhance margins through price increases.

In periods of economic uncertainty, adult consumers may tend to purchase lower-price brands, and the volume of our premium-price and mid-price brands and our profitability could be materially adversely impacted as a result. Such down-trading trends may be reinforced by regulation that limits branding, communication and product differentiation.

Our ability to grow profitability may be limited by our inability to introduce new products, enter new markets or improve our margins through higher pricing and improvements in our brand and geographic mix.
Our profit growth may be materially adversely impacted if we are unable to introduce new products or enter new markets successfully, to raise prices or to improve the proportion of our sales of higher margin products and in higher margin geographies.

We may be unable to expand our brand portfolio through successful acquisitions or the development of strategic business relationships, and the intended benefits from our investments may not materialize.
One element of our growth strategy is to expand our brand portfolio and market positions through selective acquisitions and the development of strategic business relationships. Acquisition and strategic business development opportunities are limited and present risks of failing to achieve efficient and effective integration, strategic objectives and/or anticipated revenue improvements and cost savings. There is no assurance that we will be able to acquire attractive businesses or enter into strategic business relationships on favorable terms ahead of our competitors, or that such acquisitions or strategic business development relationships will be accretive to earnings or improve our competitive position. In addition, we may not have a controlling position in certain strategic investments or relationships, which could impact the extent to which the intended financial growth and other benefits from these investments or relationships may ultimately materialize.

Our ability to achieve our strategic goals may be impaired if we fail to attract, motivate and retain the best global talent and effectively align our organizational design with the goals of our transformation.
To be successful, we must continue transforming our culture and ways of working, align our talent and organizational design with our increasingly complex business needs, and innovate and transform to a consumer-centric business. We compete for talent, including in areas that are new to us, such as digital, information technology, life sciences, with companies in the consumer products, technology, pharmaceutical and other sectors that enjoy greater societal acceptance. As a result, we may be unable to attract, motivate and retain the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.

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Risks Related to the Impact of a Pandemic on our Business

Our business, results of operations, cash flows and financial position may be materially adversely impacted by an epidemic, endemic or pandemic, such as COVID-19.
The outbreak of the global COVID-19 pandemic in 2020 has created significant societal and economic disruption, and resulted in the closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which have and may continue to adversely impact our business, results of operations, cash flows and financial position. Our business continuity plans and other safeguards may not be effective to mitigate the ongoing or potential impact of COVID-19 or other epidemics, endemics, or pandemics.

The production of our RRP portfolio requires various components and materials, and we believe that there is an adequate supply of such components and materials in the world markets to satisfy our current and anticipated production requirements. However, some components and materials necessary for the production of our RRPs, including those for the electronic devices, are obtained from single or limited sources, and can be subject to industry-wide shortages and price fluctuations. While we have been successful in maintaining adequate supply of such components and materials during the ongoing COVID-19 pandemic so far, the COVID-19 pandemic, or another epidemic, endemic or pandemic, may disrupt that supply, whether through regulatory enforced actions taken to contain its spread, or through other supply chain disruptions caused by such epidemic, endemic or pandemic. This could negatively impact the commercialization of our RRPs.

Significant risks to our business during an epidemic, endemic or pandemic, such as the ongoing consequences of the COVID-19 outbreak, also include:

our diminished ability to convert adult smokers to our RRPs;
significant volume declines in our duty-free business and certain other key markets;
disruptions or delays in our manufacturing and supply chain, including delays and increased costs in the shipment of parts to manufacture our products or for the products themselves;
increased currency volatility; and
delays in certain cost saving, transformation and restructuring initiatives.

The significant adverse effect of an epidemic, endemic or pandemic on the economic or political conditions in markets in which we operate could result in changes to the preferences of our adult consumers and lower demand for our products, particularly for our mid-price or premium-price brands.

Each of these risks could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

Risks Related to Illicit Trade

We lose revenues as a result of counterfeiting, contraband, cross-border purchases, "illicit whites," non-tax-paid volume produced by local manufacturers, and counterfeiting of our Platform 1 device and heated tobacco units.
Large quantities of counterfeit cigarettes are sold in the international market. We believe that Marlboro is the most heavily counterfeited international cigarette brand, although we cannot quantify the revenues we lose as a result of this activity. In addition, our revenues are reduced by contraband, legal cross-border purchases, "illicit whites" and non-tax-paid volume produced by local manufacturers. Our revenues and consumer satisfaction with our Platform 1 device and heated tobacco units may be materially adversely affected by counterfeit products that do not meet our product quality standards and scientific validation procedures.
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Risks Related to Cybersecurity and Data Governance

The failure or disruption of our information technology networks and systems, or those managed by third-party service providers or owned by our business partners and used in furtherance of PMI’s business, due to cybersecurity attacks; unauthorized attempts to corrupt or extract data; security vulnerabilities; misconfigurations; human error; or failure or inability by us, third-parties, or our business partners to adhere to cybersecurity industry best practices, could place us at a competitive disadvantage, cause reputational damage, impact our operations, result in data breaches, significant business disruption, litigation, regulatory action including significant fines or penalties, financial impact, loss of revenue or assets, including our intellectual property, personal, confidential, or sensitive data.
We and our business partners heavily rely on information technology networks and systems, including those connected to the Internet, to help manage business processes and operations, including the collection, storage, interpretation, and processing of confidential, sensitive, personal and other data; internal and external communications; marketing and e-commerce activities; the manufacture, sale, and distribution of our products; management of third-party business relationships; engagement with governmental authorities; innovation through research and development; and other activities necessary for business operations. Some of these information systems and networks are developed, supplied, or managed by third-party service providers that may make us vulnerable to “supply chain” style cyberattacks.

Cyberattacks, security incidents and vulnerabilities impacting PMI, newly acquired companies, our business partners, or our third-party providers, continue to dynamically evolve in sophistication and volume, making it difficult for us to predict probability, frequency, and impact severity of security incidents. Further, it may be inherently difficult to detect vulnerabilities during due diligence, for long periods of time, or soon enough to mitigate exploitation. There can be no assurance that such security incidents or vulnerabilities will not have a material adverse effect on us in the future.

We continue to make investments in administrative, technical, and physical safeguards to maintain information security protections in line with industry standards and best practices. We evaluate the adequacy of preventative actions to reduce security incidents on an ongoing basis.

Our safeguards may not, however, be effective in mitigating the impact of service disruptions or other failures of these information technology networks and systems. Failure to timely respond and mitigate security incidents, could result in wide-ranging business interruptions. Such security incidents could place us at a competitive disadvantage; result in financial impacts, a loss of revenue, assets, including our intellectual property, personal or other sensitive data; result in litigation and regulatory action including significant fines or penalties; impact our operations; cause damage to our reputation and that of our brands; and result in significant remediation and other costs.

Our or our business partners’ failure or inability to adhere to privacy, data, artificial intelligence and information security laws could result in business disruption, loss of reputation and consumer trust, litigation, regulatory action including significant fines or penalties, financial impact, and loss of revenue, assets or personal, confidential, or sensitive data.
An actual or alleged failure to comply with complex and changing privacy, data, artificial intelligence and information security laws and regulations under the EU General Data Protection Regulation, various United States state and federal laws, and other similar privacy and information security laws across the jurisdictions in which PMI operates, such as the failure to protect personal data; implement appropriate technological and reasonable security measures; respect the privacy rights of data subjects; provide sufficient detailed notices of personal data processing; retrieve consent and provide opt-outs; meet stringent timeframe requirements for incident reporting to regulatory authorities; comply with artificial intelligence regulations; and others, could have a material adverse effect on us, subject us to substantial fines and/or legal challenges, and/or harm our business, reputation, financial condition, or operating results. Such laws and regulations across the jurisdictions in which PMI operates may vary, resulting in inconsistent or conflicting legal obligations.

Risks Related to the Acquisitions of Swedish Match, OtiTopic, Inc. ("OtiTopic"), Fertin Pharma A/G ("Fertin Pharma") and Vectura Group Ltd. ("Vectura") (collectively, the "Acquisitions")

As previously disclosed in this Form 10-K, since 2021, we have acquired Swedish Match, OtiTopic, Fertin Pharma and Vectura, and have launched a new Wellness and Healthcare business consolidating OtiTopic, Fertin Pharma and Vectura: Vectura Fertin Pharma.

We may be unable to successfully integrate and realize the expected benefits from the Acquisitions.
The successful integration of the acquired businesses and their operations into those of our own and our ability to realize the benefits of the Acquisitions, are subject to a number of risks and uncertainties, many of which are not in our control.The risks and uncertainties relating to integrating the businesses acquired include, among other things: (i) the challenge of integrating complex organizations, systems, operating procedures, industry specific compliance programs, technology, networks and other assets of the businesses that we acquire, and the costs related to such integration efforts; (ii) the possibility that we are unable to gain access to
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differentiated intellectual property, proprietary technology, and pharmaceutical development expertise as anticipated by these Acquisitions, and thus fail to realize our desired entry into additional smoke-free, wellness, therapeutic and healthcare platforms; (iii) the challenge of integrating the cultures and business practices of each of Swedish Match, Fertin Pharma and Vectura to our culture and business practices, which if not managed correctly, could lead to difficulties in retaining key management and other key employees; and (iv) the challenge of achieving a successful integration as a result of our affiliation to our combustible product portfolio. In addition, even if we are able to successfully integrate, the anticipated benefits of the Acquisitions may not be realized fully, or at all, or may take longer to realize than expected. Furthermore, the success of the Acquisitions also depends on Swedish Match's continued growth in highly competitive markets and on the success of the research and development efforts of Vectura Fertin Pharma, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products developed by them. Moreover, our combustible product portfolio may stand in the way of introducing and growing new product categories, and may prevent our business from developing a long-term sustainable ecosystem of products in the wellness, therapeutic, and healthcare categories.

The businesses that we acquire in the Acquisitions may have liabilities that are not known to us.
The businesses that we have acquired in the Acquisitions may have liabilities that we were unable to identify, or were unable to discover, in the course of performing our due diligence investigations during the Acquisitions thereof. We cannot assure you that the indemnification available to us under the respective acquisition agreements, will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the respective business or property that we will assume upon consummation of each acquisition. Furthermore, the acquisition of Swedish Match was structured as a direct purchase of shares from Swedish Match shareholders and therefore did not include an acquisition agreement or indemnification rights. Any such liabilities, individually or in the aggregate, could have a material adverse effect on our business, financial condition and results of operations.

Accounting adjustments related to the Acquisitions could adversely affect our financial results.
We have accounted for the completion of the Acquisitions using the acquisition method of accounting. Differences between preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the consolidated financial statements and our future results of operations and financial position in combination with the businesses acquired.Furthermore, given the nature of the assets being acquired in the Acquisitions, we may not be able to avoid future impairments of those assets, which may also have a material impact on our future results of operation and financial position.

PMI, Swedish Match and Vectura Fertin Pharma may be subject to uncertainties that could adversely affect our respective businesses, and adversely affect the financial results of our combined businesses.
Our success following these Acquisitions will depend in part upon our ability and the ability of each of Swedish Match and Vectura Fertin Pharma to maintain business relationships. Uncertainty about the effect of the Acquisitions on customers, suppliers, employees and other constituencies of each of Swedish Match, Fertin Pharma and Vectura, may have a material adverse effect on us and/or the businesses that we have acquired through the Acquisitions. Customers, suppliers and others who do business with Swedish Match or Vectura Fertin Pharma may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions as a result of the Acquisitions, which could negatively affect the revenues, earnings and cash flows of our company or the businesses that we have acquired. Regulatory changes may have an impact on the development and/or commercialization of products which originate from the Swedish Match or Vectura Fertin Pharma value chains, as well as our revenues, earnings and cash flow. If we are unable to maintain the business and operational relationships of Swedish Match, or of Vectura Fertin Pharma, our financial position, results of operations or cash flows upon combining with these companies could be adversely affected.


Item 1B.Unresolved Staff Comments.
None.



Item 2. Properties.
 
We own or lease various manufacturing, office and research and development facilities in locations primarily outsidearound the United States.world. We own properties in Switzerland where our operations center and state-of-the-art research and development facility are located.


At December 31, 2019,2022, we operated and owned a total of 3853 manufacturing facilities across our six operating segments. Among them, 78 factories produced heated tobacco units. The Swedish Match acquisition expanded our manufacturing footprint with the addition of 14 owned manufacturing facilities, which are included in the total above. The manufacturing facilities acquired from Swedish Match are primarily engaged in the production of smoke-free products.

In 2019,2022, certain facilities each manufactured over 30 billion units (cigarettes and heated tobacco units combined). The largest manufacturing facilities, in terms of volume, are located in Turkey (ME&A), Indonesia (S&SA), Turkey (ME&A)Poland (EU), Russia (EE), Italy (EU), the Philippines (S&SA), Russia (EE), Poland (EU), Lithuania (EU), Czech Republic (EU) and ItalyPortugal (EU). As part of our global operating model,
18


products manufactured in a particular manufacturing facility are not necessarily distributed in the operating segment where the facility is located.

We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, and we are progressing with our plans to build manufacturing capacity for our other RRP and smoke-free platforms. We will continue to optimize our manufacturing infrastructure.

We believe the properties owned or leased by our subsidiaries are maintained in good condition and are believed to be suitable and adequate for our present needs.


Item 3.Legal Proceedings.
Item 3.Legal Proceedings.

The information called for by this Item is incorporated herein by reference to Item 8, Note 18. Contingencies.

Item 4.
Item 4.Mine Safety Disclosures.
 
Not applicable.


PART II

Item 5.
Item 5.Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
 

The principal stock exchange on which our common stock (no par value) is listed is the New York Stock Exchange (ticker symbol "PM"). At January 31, 2020,2023, there were approximately 50,80043,700 holders of record of our common stock.
 



19



Performance Graph

The graph below compares the cumulative total shareholder return on PMI's common stock with the cumulative total return for the same period of PMI's Peer Group and the S&P 500 Index. The graph assumes the investment of $100 as of December 31, 2014,2017, in PMI common stock (at prices quoted on the New York Stock Exchange), and each of the indices as of the market close and reinvestment of dividends on a quarterly basis.

chart-a1095974eeba597aa2c.jpgpm-20221231_g1.jpg
Date PMI  
PMI Peer Group (1)
 S&P 500 Index
December 31, 2014 $100.00  $100.00 $100.00
December 31, 2015 $113.40  $108.20 $101.40
December 31, 2016 $123.10  $109.70 $113.50
December 31, 2017 $147.60  $130.20 $138.30
December 31, 2018 $98.60  $118.30 $132.20
December 31, 2019 $133.00  $146.40 $173.90

DatePMI
PMI Peer Group (1)
S&P 500 Index
December 31, 2017$100.00$100.00$100.00
December 31, 2018$66.80$89.40$93.80
December 31, 2019$90.10$110.80$120.80
December 31, 2020$93.60$118.50$140.50
December 31, 2021$113.10$137.10$178.30
December 31, 2022$127.00$132.90$143.60

(1) The PMI Peer Group presented in this graph is the same as that used in the prior year. The PMI Peer Group was established based on a review of four characteristics: global presence; a focus on consumer products; and net revenues and a market capitalization of a similar size to those of PMI. The review also considered the primary international tobacco companies. As a result of this review, the following companies constitute the PMI Peer Group: Altria Group, Inc., Anheuser-Busch InBev SA/NV, British American Tobacco p.l.c., The Coca-Cola Company, Colgate-Palmolive Co., Diageo plc, Heineken N.V., Imperial Brands PLC, Japan Tobacco Inc., Johnson & Johnson, Kimberly-Clark Corporation, The Kraft-Heinz Company, McDonald's Corp., Mondelēz International, Inc., Nestlé S.A., PepsiCo, Inc., The Procter & Gamble Company, Roche Holding AG, and Unilever NV and PLC.

Note: Figures are rounded to the nearest $0.10.
20




Issuer Purchases of Equity Securities During the Quarter Ended December 31, 20192022

Our share repurchase activity for each of the three months in the quarter ended December 31, 2019,2022, was as follows:
 
Period 
Total
Number of
Shares
Repurchased
 
Average
Price Paid
per Share
 
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
 
Approximate
Dollar Value
of Shares that
May Yet be
Purchased
Under the Plans
or Programs
October 1, 2019 –
October 31, 2019 (1)
 
 $
 
 $
November 1, 2019 –
November 30, 2019 (1)
 
 $
 
 $
December 1, 2019 –
December 31, 2019 (1)
 
 $
 
 $
Pursuant to Publicly Announced
Plans or Programs
 
 $
    
October 1, 2019 –
October 31, 2019 (2)
 897
 $75.37
    
November 1, 2019 –
November 30, 2019 (2)
 690
 $81.33
    
December 1, 2019 –
December 31, 2019 (2)
 1,186
 $82.69
    
For the Quarter Ended
December 31, 2019
 2,773
 $79.98
    
PeriodTotal
Number of
Shares
Repurchased
Average
Price Paid
per Share
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value
of Shares that
May Yet be
Purchased
Under the Plans
or Programs
October 1, 2022 –
October 31, 2022 (1)
$— 10,481,359 $6,016,847,275 
November 1, 2022 –
November 30, 2022 (1)
$— 10,481,359 $6,016,847,275 
December 1, 2022 –
December 31, 2022 (1)
$— 10,481,359 $6,016,847,275 
Pursuant to Publicly Announced
   Plans or Programs
— $—   
October 1, 2022 –
October 31, 2022 (2)
3,753 $85.29   
November 1, 2022 –
November 30, 2022 (2)
3,421 $90.52   
December 1, 2022 –
December 31, 2022 (2)
1,703 $97.40   
For the Quarter Ended
   December 31, 2022
8,877 $89.63   
 
(1)During this reporting period, we did not have an authorized share repurchase program.
(2)Shares repurchased represent shares tendered to us by employees who vested in restricted and performance share unit awards and used shares to pay all, or a portion of, the related taxes.

(1)On June 11, 2021, our Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period that commenced in July 2021. These share repurchases have been made pursuant to the $7 billion program. On May 11, 2022, we announced the suspension of our three-year share repurchase program following the recommended public offer to acquire the outstanding shares of Swedish Match from its shareholders. For further details on the offer, see the Acquisitions and Other Business Arrangements section of Part II, Item 7 of this Form 10-K.

(2)Shares repurchased represent shares tendered to us by employees who vested in restricted and performance share unit awards and used shares to pay all, or a portion of, the related taxes.



21



Item 6.     Selected[Reserved].



Item 7.Management’s Discussion and Analysis of Financial Data.Condition and Results of Operations.

(in millions of dollars, except per share data)

 2019 2018 2017 2016 2015
Summary of Operations:         
Revenues including excise taxes$77,921
 $79,823
 $78,098
 $74,953
 $73,908
Excise taxes on products48,116
 50,198
 49,350
 48,268
 47,114
Net revenues29,805
 29,625
 28,748
 26,685
 26,794
Operating income10,531
 11,377
 11,581
 10,903
 10,745
Net earnings attributable to PMI7,185
 7,911
 6,035
 6,967
 6,873
Basic earnings per share4.61
 5.08
 3.88
 4.48
 4.42
Diluted earnings per share4.61
 5.08
 3.88
 4.48
 4.42
Dividends declared per share4.62
 4.49
 4.22
 4.12
 4.04
Total assets42,875
 39,801
 42,968
 36,851
 33,956
Long-term debt (1)
26,656
 26,975
 31,334
 25,851
 25,250
Total debt31,045
 31,759
 34,339
 29,067
 28,480
(1) Excluding current portion of long-term debt.

This Selected Financial Data should be read in conjunction with Item 7 and Item 8.



Item 7.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of risks and cautionary factors that may affect future results in Item 1A. Risk Factors.

Description of Our Company

We are a leading a transformation in theinternational tobacco industrycompany working to createdeliver a smoke-free future and ultimately replaceto evolve our portfolio for the long term to include products outside of the tobacco and nicotine sector. Our current product portfolio primarily consists of cigarettes withand smoke-free products, which include heat-not-burn, vapor, and oral nicotine products. Since 2008, we have invested more than $10.5 billion to the benefit ofdevelop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, society,with the company and its shareholders. We are a leading international tobacco company engagedgoal of completely ending the sale of cigarettes. This investment includes the building of world-class scientific assessment capabilities, notably in the manufactureareas of pre-clinical systems toxicology, clinical and sale of cigarettes,behavioral research, as well as post-market studies. In November 2022, we acquired Swedish Match AB ("Swedish Match") – a leader in oral nicotine delivery – creating a global smoke-free products and associated electronic devices and accessories, and other nicotine-containing products in markets outsidecombination led by the United States. In addition, we ship a version of our Platform 1companies’ IQOS and device and its consumables authorized by theZYN brands. The U.S. Food and Drug Administration ("FDA") to Altria Group, Inc., for sale in the United States under license. We are building a future on a new categoryhas authorized versions of smoke-free products that, while not risk free, are a much better choice than continuing to smoke.  Through multidisciplinary capabilities in product development, state-of-the-art facilities and scientific substantiation, we aim to ensure that our smoke-free products meet adult consumer preferences and rigorous regulatory requirements. Our IQOS smoke-free product brand portfolio includes heat-not-burn tobaccoPlatform 1 devices and nicotine-containing vapor products.consumables, and Swedish Match's General snus, as Modified Risk Tobacco Products (MRTPs). We describe the MRTP orders in more detail in the "Business Environment" section of this Item 7.

We manageAs of December 31, 2022, we managed our business in six operating segments:geographical segments, a Swedish Match segment and a Wellness and Healthcare segment:
 
European Union ("EU");
Eastern Europe ("EE");
Middle East & Africa ("ME&A"), which includes our international duty free business;
South & Southeast Asia ("S&SA");
East Asia & Australia ("EA&A");
Americas ("AMCS");
Swedish Match, which reflects our fourth quarter 2022 acquisition of the company; and
Latin America & CanadaWellness and Healthcare ("LA&C"W&H"), which includes transactions under license with Altria Group, Inc. for the distributionoperating results of our Platform 1 productnew Wellness and Healthcare business, Vectura Fertin Pharma. In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc. (also known as Vectura Group Ltd.) and OtiTopic, Inc. On March 31, 2022, we launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma. The operating results of this new business are reported in the Wellness and Healthcare segment.

To further support the growth of our smoke-free business, reinforce consumer centricity, and increase the speed of innovation and deployment, in January 2023, we rearranged our operations in four geographical segments, down from the current six and as follows:
Europe Region is headquartered in Lausanne, Switzerland, and covers all the European Union countries, Switzerland, the United States.Kingdom, and also Ukraine, Moldova and Southeast Europe;
South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region is headquartered in Dubai, United Arab Emirates. It covers South and Southeast Asia, the African continent, the Middle East, Turkey, as well as Israel, Central Asia, Caucasus and Russia;
East Asia, Australia, and PMI Duty Free Region is headquartered in Hong Kong, and includes the consolidation of our international duty free business with East Asia & Australia; and
Americas Region is headquartered in Stamford, Connecticut, and covers the United States, Canada and Latin America.

22


The operations of Swedish Match and our Wellness and Healthcare segment remained unchanged. We will report our financial results based on the new geographical segments as of the first quarter of 2023.

In November 2022, we completed the relocation of our corporate headquarters, including our AMCS headquarters, from New York, New York, to Stamford, Connecticut.

Our cigarettes are sold in more than 180approximately 175 markets, and in many of these markets they hold the number one or number two market share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio comprises both international and local brands.

Smoke-free products ("SFPs") is the term we primarily use to refer to all of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine. In addition, SFPs include wellness and healthcare products, as well as consumer accessories such as lighters and matches.

In addition to the manufacture and sale of cigarettes, we are engaged in the development and commercialization of reduced-risk products ("RRPs"). RRPs is the term we use to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking. We have a range of RRPs in various stages of development, scientific assessment and commercialization. Our RRPs are SFPs that contain and/or generate far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke. IQOS is the leading brand in our SFP portfolio. As of December 31, 2022, our smoke-free products were available for sale in 73 markets.

In 2021, we laid the foundation for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the milestone acquisitions of Vectura Group plc and Fertin Pharma A/S, as noted above, which provide essential capabilities for future product development. Now, through our Vectura Fertin Pharma subsidiary, with a strong foundation and significant expertise in life sciences, we aim to expand into wellness and healthcare areas.

In 2022, we acquired Swedish Match AB, a market leader in oral nicotine delivery with a significant presence in the United States market. The Swedish Match acquisition is a key milestone in PMI’s transformation to becoming a smoke-free company. Swedish Match already has a leading nicotine pouch franchise in the U.S. under the ZYN brand name. The Swedish Match product portfolio is complementary to our existing portfolio, permitting us to bring together a leading oral nicotine product with the leading heat-not-burn product. By joining forces with Swedish Match, we expect to accelerate the achievement of our joint smoke-free ambitions, switching more adults who would otherwise continue to smoke to better alternatives faster than either company could achieve separately.

For further details of our 2021 and 2022 acquisitions, see Item 8, Note 3. Acquisitions and Note 13. Segment Reporting

We use the term net revenues to refer to our operating revenues from the sale of our products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. Our net revenues and operating income are affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange rates and the mix of products we sell. Mix is a term used to refer to the proportionate value of premium-price brands to mid-price or low-price brands in any given market (product mix). Mix can also refer to the proportion of shipment volume in more profitable markets versus shipment volume in less profitable markets (geographic mix).

Our cost of sales consists principally of: tobacco leaf, non-tobacco raw materials, labor and manufacturing costs; shipping and handling costs; and the cost of the IQOSdevices produced by third-party electronics manufacturing service providers. Estimated costs associated with IQOSdevice warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.

Our marketing, administration and research costs include the costs of marketing and selling our products, other costs generally not related to the manufacture of our products (including general corporate expenses), and costs incurred to develop new products. The most significant components of our marketing, administration and research costs are marketing and sales expenses and general and administrative expenses.

Philip Morris International Inc. is a legal entity separate and distinct from its direct and indirect subsidiaries. Accordingly, our right, and thus the right of our creditors and stockholders, to participate in any distribution of the assets or earnings of any subsidiary is subject to the prior rights of creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be recognized. As a holding company, our principal sources of funds, including funds to make payment on our debt securities, are from the receipt of

dividends and repayment of debt from our subsidiaries. Our principal wholly owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions with respect to their common stock that are otherwise compliant with law.

23


Executive Summary

The following executive summary provides the business update and significant highlights from the Discussion and Analysis that follows.

War in Ukraine

Since the onset of the war in Ukraine, our main priority has been the safety and security of our more than 1,300 employees and their families in the country. PMI has helped to evacuate more than 1,000 people from Ukraine and relocate over 2,700 others from conflict zones to locations in the country away from the heaviest fighting; provided critical aid to employees who cannot leave or who decide to remain in Ukraine; and provided those who have left the country with a range of support in neighboring countries. We are continuing to pay salaries to all our Ukrainian employees and are also providing substantial in-kind support to them and their families. In addition, we have contributed approximately $10 million in funds and donated essential items across the country.
On February 25, 2022, in order to preserve the safety of our employees, we announced the temporary suspension of our commercial and manufacturing operations in Ukraine, including at our factory in Kharkiv. We subsequently resumed some retail activities where safety allowed, in order to provide product availability and service to adult consumers, and began to supply the market from production centers outside Ukraine, as well as through a contract manufacturing arrangement. Production at our factory in Kharkiv remains suspended.
In 2022, Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume and around 1% of our total net revenues. As of December 31, 2022, our Ukrainian operations had approximately $0.4 billion in total assets, excluding intercompany balances.

We employ more than 3,200 people in Russia and will continue to support our employees there, including paying their salaries, while continuing to fulfill our legal obligations. We will continue to make decisions with employee safety and security as a priority.

On March 24, 2022, we announced the concrete steps we had taken to suspend planned investments and scale down our manufacturing operations in Russia, including: the discontinuation of a number of cigarette products; the suspension of our marketing activities; the cancellation of all product launches planned for 2022, including ILUMA; and the cancellation of our plans to manufacture heated tobacco units for ILUMA in Russia.

We are 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.

In 2022, Russia accounted for approximately 9% of total shipment volumes and around 7% of our total net revenues. As of December 31, 2022, our Russian operations had approximately $2.5 billion in total assets, excluding intercompany balances, of which approximately $0.6 billion consisted of cash and equivalents held mostly in local currency (Russian rubles).
We recorded pre-tax charges related to the war in Ukraine of approximately $151 million in 2022 (including humanitarian efforts). This includes charges in Russia related to the cancellation of the planned launch of ILUMA and the planned production of related heated tobacco units.

These developments above have and will continue to have a material adverse impact on our business, results of operations, cash flows and financial position, and may result in impairment charges.

For further details, see Item 8, Note 4. War in Ukraine to our consolidated financial statements as well as Item 1A. Risk Factors and the "Trade Policy" section of this MD&A.

Agreement with Altria Group, Inc. regarding Commercialization of IQOSin the U.S.
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. as of April 30, 2024. As a result of PMI reacquiring these rights, effective May 1, 2024, PMI will have the full rights to commercialize IQOS in the U.S. 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.
For further details, see Item 8, Note 3. Acquisitions.
24


Swedish Match Acquisition
On November 11, 2022, Philip Morris Holland Holdings B.V. (“PMHH”), a wholly owned subsidiary of PMI, acquired a controlling interest of 85.87% of the total issued and outstanding shares in Swedish Match. Swedish Match's operating results beginning on November 11, 2022 through December 31, 2022, are included in PMI's consolidated statement of earnings and disclosed as a separate segment.

On November 28, 2022, PMHH announced that it had acquired 93.11% of the shares in Swedish Match and intended to: (i) initiate compulsory redemption under the Swedish Companies Act to acquire all remaining shares in Swedish Match; and (ii) request delisting of Swedish Match’s shares from Nasdaq Stockholm.

On December 16, 2022, Swedish Match announced that the compulsory redemption process had been initiated. On December 30, 2022, the shares of Swedish Match were delisted from Nasdaq Stockholm, by which time PMHH had become the owner of 94.81% of Swedish Match's shares.

For further details, see Item 8, Note 3. Acquisitions.

KT&G

On January 30, 2023, PMI announced a long-term collaboration with KT&G, South Korea’s leading tobacco and nicotine manufacturer, to continue to commercialize KT&G’s innovative smoke-free devices and consumables on an exclusive, worldwide basis (excluding South Korea).

The agreement covers fifteen years, to January 29, 2038, with performance-review cycles and associated commitments, based on volume, to be confirmed for each three-year period, to allow flexibility for evolving market conditions.

For further details, see "Acquisitions and Other Business Arrangements" section of this MD&A.


Consolidated Operating Results

Net Revenues – Net revenues of $29.8 billion for the year ended December 31, 2019, increased by $0.2 billion, or 0.6%, from the comparable 2018 amount. The change in our net revenues from the comparable 2018 amount was driven by the following (variances not to scale with year-to-date results):
chart-d5a1373d21214890bb8.jpgNet Revenues – Net revenues of $31.8 billion for the year ended December 31, 2022, increased by $0.4 billion, or 1.1%, from the comparable 2021 amount. The change in our net revenues from the comparable 2021 amount was driven by the following (variances not to scale):
pm-20221231_g2.jpg
Net revenues, excluding unfavorable currency and acquisitions, increased by 3.8%8.0%, mainly reflecting: favorable volume/mix, primarily driven by higher heated tobacco units ("HTU") volume and device volume, partly offset by lower cigarette volume and unfavorable device mix, cigarette mix and HTU mix; a favorable pricing variance, notably in Germany, Indonesia, Japan, the Philippines and Turkey; and favorable volume/mix, mainly driven by heatedhigher combustible tobacco unit and IQOS device volume in the EU and Russia, and heated tobacco unit volume in Japan,pricing, partly offset by unfavorable volume/mixlower device pricing and lower HTU (net) pricing; and a favorable comparison related to the Saudi Arabia customs assessments of cigarettes, notably$246 million in Australia, the EU, Indonesia, Japan and Russia, unfavorable heated tobacco unit volume in PMI Duty Free, and unfavorable IQOS device volume in Japan and Korea. The currency-neutral growth in net revenues of 3.8% came despite the unfavorable impact of $763 million,2021, shown in "Other" above, predominantly resulting fromand further described in the deconsolidationfollowing "Diluted Earnings Per Share" discussion.

In 2022, Russia and Ukraine accounted for around 8% of our Canadian subsidiary, Rothmans, Benson & Hedges, Inc. ("RBH"), effective March 22, 2019. For further details on the deconsolidation of RBH, see Item 8, Note 18. PMI's total net revenues.
Contingencies and Note 22. Deconsolidation of RBH.
25


Net revenues by product category for the years ended December 31, 20192022 and 2018,2021, are shown below:
chart-0e35503389a8527f975.jpg
pm-20221231_g3.jpg        chart-866bd228fe9e54f5801.jpgpm-20221231_g4.jpg


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 segment reporting, consolidated financial position, results of operations or cash flows in any of the periods presented. For further details, see Item 8, Note 13. Segment Reporting.
Diluted Earnings Per Share The changes in our reported diluted earnings per share (“diluted EPS”) for the year ended December 31, 2019, from the comparable 2018 amounts, were as follows:

26


 Diluted EPS
% Growth
(Decline)
For the year ended December 31, 2018$5.08
 
   
2018 Asset impairment and exit costs
 
2018 Tax items0.02
 
       Subtotal of 2018 items0.02
 
   
2019 Asset impairment and exit costs(0.23) 
2019 Canadian tobacco litigation-related expense(0.09) 
2019 Loss on deconsolidation of RBH(0.12) 
2019 Russia excise and VAT audit charge(0.20) 
2019 Fair value adjustment for equity security investments0.02
 
2019 Tax items0.04
 
       Subtotal of 2019 items(0.58) 
   
Currency(0.13) 
Interest0.04
 
Change in tax rate(0.04) 
Operations0.22
 
For the year ended December 31, 2019$4.61
(9.3)%
Diluted Earnings Per Share The changes in our reported diluted earnings per share (“diluted EPS”) for the year ended December 31, 2022, from the comparable 2021 amounts, were as follows:

Diluted EPS% Change
For the year ended December 31, 2021$5.83 
2021 Asset impairment and exit costs0.12 
2021 Saudi Arabia customs assessments0.14 
2021 Asset acquisition cost0.03 
2021 Equity investee ownership dilution(0.04)
2021 Amortization and impairment of intangibles0.05 
2021 Tax items 
       Subtotal of 2021 items0.30 
2022 Charges related to the war in Ukraine(0.08)
2022 Fair value adjustment for equity security investments0.02 
2022 Amortization and impairment of intangibles(0.15)
2022 Costs associated with Swedish Match AB offer(0.06)
2022 Swedish Match AB acquisition accounting related item(0.06)
2022 Tax benefit associated with Swedish Match AB financing0.13 
2022 Tax items0.03 
       Subtotal of 2022 items(0.17)
Currency(0.77)
Interest0.02 
Change in tax rate0.03 
Operations0.57 
For the year ended December 31, 2022$5.81 (0.3)%

Asset impairment and exit costs – During 2021, we recorded pre-tax asset impairment and exit costs of $216 million, representing $181 million net of income tax and a diluted EPS charge of $0.12 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea. The pre-tax charge was recorded in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2021. For further details, see Item 8, Note 20. Asset Impairment and Exit Costs.

Saudi Arabia customs assessments In June 2021, the Customs Appeal Committee in Riyadh notified our distributors in Saudi Arabia of its decisions to largely reject their challenges of the Saudi Arabia Customs General Authority assessments as described in Item 8, Note 18. Contingencies. On the basis of these decisions and in line with arrangements with the distributors, we recorded a pre-tax charge of $246 million in the second quarter of 2021 (representing $215 million net of income tax and a diluted EPS charge of $0.14 per share). The pre-tax charge was recorded as a reduction of net revenues on the consolidated statement of earnings for the year ended December 31, 2021, and was included in the Middle East & Africa segment results.

Asset acquisition cost – In August 2021, we acquired 100% of OtiTopic, Inc., a U.S. respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction. We accounted for this transaction as an asset acquisition since the acquired in-process research and development ("IPR&D") of the dry powder inhalation aspirin treatment represented substantially all of the fair value of the gross assets acquired. At the date of acquisition, we determined that the acquired IPR&D had no alternative future use. As a result, we recorded a pre-tax charge of $51 million (representing a $0.03 per share charge to diluted EPS) to research and development costs within marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2021. For further details, see Item 8, Note 3. Acquisitions.

Equity investee ownership dilution – In 2021, our equity method investee, Medicago Inc., initiated additional rounds of equity funding in which we did not participate. As a result, our share of holdings in Medicago Inc. was reduced from approximately 32% at December 31, 2020, to approximately 23% as of December 31, 2021. The ownership dilution resulted in a $0.04 per share
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favorable impact to diluted EPS and income of $55 million to equity investments and securities (income)/loss, net in the consolidated statements of earnings for the year ended December 31, 2021. For further details, see Item 8, Note 18. Contingencies - Third Party Guarantees.

Amortization and impairment of intangiblesDuring 2022 and 2021, we recorded amortization and impairment of intangibles of $271 million (representing $227 million net of income tax or $0.15 per share decrease in diluted EPS) and $96 million (representing $78 million net of income tax or $0.05 per share decrease in diluted EPS), respectively. The pre-tax amortization and impairment of intangibles amount in 2022 consisted of amortization expense of $159 million primarily due to increased acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021, and an impairment charge of $112 million reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment. For further details, see Item 8, Note 3. Acquisitions and Note 5. Goodwill and Other Intangible Assets, net.

Charges related to the war in Ukraine – During 2022, we recorded a pre-tax charge of $151 million, representing $128 million net of income tax and a diluted EPS charge of $0.08 per share, related to circumstances driven by the war, including machinery and inventory write-downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts. For further details, see Item 8, Note 4. War in Ukraine.

Fair Value adjustment for equity security investments – During 2022, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.02 per share increase in diluted EPS). For further details, see Item 8, Note 6. Related Parties - Equity Investments and Other.

Costs associated with Swedish Match AB offer – During 2022, we incurred pre-tax costs associated with the Swedish Match acquisition of $116 million (representing $99 million net of income tax and a diluted EPS charge of $0.06 per share) primarily related to financing costs, derivative financials instruments and certain transaction related costs. These pre-tax costs of $116 million were recorded in marketing, administration and research costs ($115 million expense) and interest expense, net ($1 million expense) on our consolidated statement of earnings for the year ended December 31, 2022.

Swedish Match AB acquisition accounting related item – Following the Swedish Match acquisition, we recorded pre-tax purchase accounting adjustments of $125 million related to the sale of acquired inventories stepped up to fair value (representing $94 million net of income tax and a diluted EPS charge of $0.06 per share). These pre-tax adjustments were recorded in cost of sales in the consolidated statements of earnings for the year ended December 31, 2022. For further details, see Item 8, Note 3. Acquisitions.

Income taxes – The 20182022 Tax itemsbenefit associated with Swedish Match AB financing that decreasedincreased our 20182022 diluted EPS by $0.02 per share in the table above represented a current income tax charge of $185 million primarily due to an increase in our final 2017 transition tax liability, mostly offset by a deferred income tax benefit of $154 million primarily due to the recognition of deferred tax assets for net operating losses in the state of New York.

The 2019 Tax items that increased our 2019 diluted EPS by $0.04$0.13 per share in the table above was primarilydue to a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity at December 31, 2022. The 2022 Tax items that increased our 2022 diluted EPS by $0.03 per share in the table above were due to a reduction in estimated U.S. federal incomedeferred tax on dividend repatriation for the years 2015-2018 ($67 million).

liabilities related to pension plan assets of $40 million. The change in the tax rate that decreasedincreased our diluted EPS by $0.04$0.03 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction and U.S. state deferred income tax expense, partially offset by repatriation cost differences.

reserves.
For further details, see Item 8, Note 11.
Income Taxes.

Asset impairment and exit costs – As a part of the optimization of our global manufacturing infrastructure, we recorded pre-tax asset impairment and exit costs of $422 million during 2019, representing $362 million net of income tax and a diluted EPS charge of $0.23 per share. This charge primarily related to a cigarette plant closure in Berlin, Germany (approximately $0.19 per share), as well as the closure of a cigarette plant in Argentina, Colombia and Pakistan. The total pre-tax charge was included in marketing, administration and research costs on the consolidated statements of earnings. For further details, see Item 8, Note 21. Asset Impairment and Exit Costs.

Canadian tobacco litigation-related expense In the first quarter of 2019, we recorded a pre-tax charge of $194 million, representing $142 million net of tax, relating to the judgment against RBH in two Québec smoking and health class actions. The charge of $0.09 per share reflects our 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. The total pre-tax charge was included in marketing, administration and research costs on the consolidated statements of earnings and was included in the operating income of the Latin America & Canada segment. For further details, see Item 8, Note 18. Contingencies and Item 8, Note 22. Deconsolidation of RBH.


Loss on deconsolidation of RBHFollowing the judgment in the two Québec smoking and health class actions, RBH obtained an initial order from the Ontario Superior Court of Justice granting it protection under the Companies’ Creditors Arrangement Act (“CCAA”), which is a Canadian federal law that permits a Canadian business to restructure its affairs while carrying on its business in the ordinary course with minimal disruption to its customers, suppliers and employees. The administration of the CCAA process, principally relating to the powers provided to the court and the court appointed monitor, removes certain elements of control of the business from both PMI and RBH. As a result, we have determined that we no longer have a controlling financial interest over RBH and that we do not exert "significant influence" over RBH under U.S. GAAP. Therefore, we deconsolidated RBH as of the date of the CCAA filing on March 22, 2019, and will account for our continuing investment in RBH as an equity security, without readily determinable fair value.

A loss on the deconsolidation of RBH of $239 million was included in marketing, administration and research costs on the consolidated statements of earnings and was included in the operating income of the Latin America & Canada segment. The $0.12 per share impact also included a tax benefit of $49 million within the provision for income taxes, as discussed above, related to the reversal of a deferred tax liability on the unremitted earnings of RBH. For further details, see Item 8, Note 18. Contingencies and Item 8, Note 22. Deconsolidation of RBH.

Russia excise and VAT audit charge – As a result of the final tax assessment for the 2015-2017 financial years received by our Russian affiliate, in the third quarter of 2019, PMI recorded a pre-tax charge of $374 million in marketing, administration and research costs in the consolidated statements of earnings, representing $315 million net of income tax and a diluted EPS charge of $0.20. The pre-tax charge of $374 million was included in the operating income of the Eastern Europe segment. For further details, see Item 8, Note 18. Contingencies.

Fair Value adjustment for equity security investments – In the fourth quarter of 2019, PMI recorded a favorable fair value adjustment for its equity security investments of $35 million after tax (or $0.02 per share increase in diluted EPS).  The fair value adjustment for its equity security investments was included in equity investments and securities (income)/loss, net ($44 million income) and provision for income taxes ($9 million expense) on the consolidated statements of earnings in 2019. For further details, see Item 8, Note 16. Fair Value Measurements.

Currency – The unfavorable currency impact of $0.77 per share during 2019the reporting period primarily results from the fluctuations of the U.S. dollar, especially against the Egyptian pound, Euro, Hungarian forint, Japanese yen and Polish zloty, partially offset by the Russian ruble and Turkish lira.Swiss franc. This unfavorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Interest– The favorable impact of $0.02 per share from interest in the table above was due primarily to our ongoing efforts to optimize our capital structure followingdriven by the passage of the U.S. Tax Cuts and Jobs Act. This included the decision to use existing cash to repay $2.5 billion and $4.0 billionrepayment of long-term debt that maturedmaturing in 20182021 and 2022, and higher net interest income driven by higher interest rates, partially offset by higher interest expense in 2019, respectively.connection with the Swedish Match acquisition.

Operations – The increase in diluted EPS of $0.22$0.57 per share from our operations in the table above was due primarily to the following segments:

European Union: Favorable volume/mix and favorable pricing, partially offset by higher marketing, administration and research costs and higherEuropean Union: Favorable volume/mix, partly offset by unfavorable pricing, higher manufacturing costs and higher marketing, administration and research costs;
Middle East & Africa: Favorable volume/mix, favorable pricing and lower marketing, administration and research costs, partly offset by higher manufacturing costs; and
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South & Southeast Asia: Lower marketing, administration and research costs and favorable pricing, partly offset by unfavorable volume/mix;
South & Southeast Asia: Favorable pricing and lower manufacturing costs, partially offset by unfavorable volume/mix and higher marketing, administration and research costs;
Middle East & Africa: Favorable pricing, lower manufacturing costs and lower marketing, administration and research costs, partially offset by unfavorable volume/mix; and
East Asia & Australia: Favorable pricing and lower manufacturing costs, partially offset by unfavorable volume/mix and higher marketing, administration and research costs;
partially offset by
Latin America & Canada:
East Asia & Australia: Unfavorable impact resulting from the deconsolidation of RBH, as well as unfavorable volume/mix partially offset by lower marketing, administration and research costs, favorable pricing and higher manufacturing costs, partly offset by lower marketing, administration and research costs;
Wellness and Healthcare: Primarily reflecting investments in research and development, as well as expenses related to employee retention programs;
Americas: Higher marketing, administration and research costs and higher manufacturing costs, partly offset by favorable pricing; and
Eastern Europe: Unfavorable volume/mix, higher manufacturing costs and higher marketing, administration and research costs, partly offset by favorable pricing.

lower manufacturing costs; and
Eastern Europe: Higher marketing, administration and research costs and higher manufacturing costs, partially offset by favorable volume/mix and favorable pricing.

For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following Discussion and Analysis.



DiscussionConsolidated Operating Results

Net Revenues – Net revenues of $31.8 billion for the year ended December 31, 2022, increased by $0.4 billion, or 1.1%, from the comparable 2021 amount. The change in our net revenues from the comparable 2021 amount was driven by the following (variances not to scale):
pm-20221231_g2.jpg
Net revenues, excluding currency and Analysis

Critical Accounting Estimates

Item 8, Note 2. Summaryacquisitions, increased by 8.0%, mainly reflecting: favorable volume/mix, primarily driven by higher heated tobacco units ("HTU") volume and device volume, partly offset by lower cigarette volume and unfavorable device mix, cigarette mix and HTU mix; a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing and lower HTU (net) pricing; and a favorable comparison related to the Saudi Arabia customs assessments of Significant Accounting Policies to our consolidated financial statements includes a summary of the significant accounting policies$246 million in 2021, shown in "Other" and methods usedfurther described in the preparationfollowing "Diluted Earnings Per Share" discussion.

In 2022, Russia and Ukraine accounted for around 8% of our consolidated financial statements. In most instances, we must usePMI's total net revenues.

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Net revenues by product category for the years ended December 31, 2022 and 2021, are shown below:

pm-20221231_g3.jpgpm-20221231_g4.jpg

Following the Swedish Match acquisition and a particular accounting policy or method because it is the only one that is permittedreview of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products previously reported under U.S. GAAP.

The preparation of financial statements requires that we use estimates and assumptions that affect the reported amounts of our assets, liabilities, net revenues and expenses, as well as our disclosure of contingencies. If actual amounts differ from previous estimates, we include the revisions in our consolidated results of operations in the period during which we know the actual amounts. Historically, aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant impact on our consolidated financial statements.

The selection and disclosure of our critical accounting estimates have been discussed with our Audit Committee. The following is a discussion of the more significant assumptions, estimates, accounting policies and methods used in the preparation of our consolidated financial statements:

Revenue Recognition - We recognize revenue as performance obligations are satisfied. Our primary performance obligation is the distribution and sales of cigarettes and other nicotine-containing products, including reduced-risk products. Our performance obligations are typically satisfied upon shipment or delivery to our customers. The company estimates the cost of sales returns based on historical experience, and these estimates are immaterial. Estimated costs associated with warranty programs for IQOS devices are generally provided for in cost of sales in the period the related revenues are recognized, based on a number of factors, including historical experience,its combustible tobacco product failure rates and warranty policies. The transaction price is typically based on the amount billedcategory to the customer and includes estimated variable consideration where applicable. Such variable consideration is typicallynewly created smoke-free product category to better reflect the characteristics of these products. This reclassification did not constrained and is estimated based on the most likely amount that PMI expects to be entitled to under the terms of the contracts with customers, historical experience of discount or rebate redemption, where relevant, and the terms of any underlying discount or rebate programs, which may change from time to time as the business and product categories evolve.

Inventories - Our inventories are valued at the lower of cost or market based upon assumptions about future demand and market conditions.  The valuation of inventory also requires us to estimate obsolete and excess inventory.  We perform regular reviews of our inventory on hand, as well as our future purchase commitments with our suppliers, considering multiple factors, including demand forecasts, product life cycle, current sales levels, pricing strategy and cost trends. If our review indicates that inventories of raw materials, components or finished products have become obsolete or are in excess of anticipated demand or that inventory cost exceeds net realizable value, we may be required to make adjustments that will impact the results of operations. 

Goodwill and Non-Amortizable Intangible Assets Valuation - We test goodwill and non-amortizable intangible assets for impairment annually or more frequently if events occur that would warrant such review. While the company has the option to perform a qualitative assessment for both goodwill and non-amortizable intangible assets to determine if it is more likely than not that an impairment exists, the company elects to perform the quantitative assessment for our annual impairment analysis. The impairment analysis involves comparing the fair value of eachPMI’s segment reporting, unit or non-amortizable intangible asset to the carrying value. If the carrying value exceeds the fair value, goodwill or a non-amortizable intangible asset is considered impaired. To determine the fair value of goodwill, we primarily use a discounted cash flow model, supported by the market approach using earnings multiples of comparable global and local companies within the tobacco industry. At December 31, 2019, the carrying value of our goodwill was $5.9 billion, which is related to ten reporting units, each of which consists of a group of markets with similar economic characteristics. The estimated fair value of each of our ten reporting units exceeded the carrying value as of December 31, 2019. To determine the fair value of non-amortizable intangible assets, we primarily use a discounted cash flow model applying the relief-from-royalty method. We concluded that the fair value of our non-amortizable intangible assets exceeded the carrying value.These discounted cash flow models include management assumptions relevant for forecasting operating cash flows, which are subject to changes in business conditions, such as volumes and prices, costs to produce, discount rates and estimated capital needs. Management considers historical experience and all available information at the time the fair values are estimated, and we believe these assumptions are consistent with the assumptions a hypothetical marketplace participant would use. Since the March 28, 2008, spin-off from Altria Group, Inc., we have not recorded a charge to earnings for an impairment of goodwill or non-amortizable intangible assets.

Marketing Costs - We incur certain costs to support our products through programs that include advertising, marketing, consumer engagement and trade promotions. The costs of our advertising and marketing programs are expensed in accordance with U.S. GAAP. Recognition of the cost related to our consumer engagement and trade promotion programs contain uncertainties due to the judgment

required in estimating the potential performance and compliance for each program. For volume-based incentives provided to customers, management continually assesses and estimates, by customer, the likelihood of the customer's achieving the specified targets, and records the reduction of revenue as the sales are made. For other trade promotions, management relies on estimated utilization rates that have been developed from historical experience. Changes in the assumptions used in estimating the cost of any individual marketing program would not result in a material change in ourconsolidated financial position, results of operations or operating cash flows.

Employee Benefit Plans - As discussedflows in Item 8, Note 13. Benefit Plans to our consolidated financial statements, we provide a range of benefits to our employees and retired employees, including pensions, postretirement health care and postemployment benefits (primarily severance). We record annual amounts relating to these plans based on calculations specified by U.S. GAAP. These calculations include various actuarial assumptions, such as discount rates, assumed rates of return on plan assets, compensation increases, mortality, turnover rates and health care cost trend rates. We review actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As permitted by U.S. GAAP, any effect of the modifications is generally amortized over future periods. We believe that the assumptions utilized in calculating our obligations under these plans are reasonable based upon our historical experience and advice from our actuaries.

Weighted-average discount rate assumptions for pension and postretirement plan obligations at December 31, 2019 and 2018 are as follows:
 20192018
Pension plans0.83%1.61%
Postretirement plans3.28%3.97%

We anticipate that assumption changes will increase 2020 pre-tax pension and postretirement expense to approximately $256 million as compared with approximately $201 million in 2019, excluding amounts related to employee severance and early retirement programs. The anticipated increase is primarily due to higher amortization of unrecognized actuarial gains/losses of $73 million, coupled with higher service cost of $48 million, partially offset by lower interest cost of $49 million and higher expected return on plan assets of $18 million and other movements of $1 million.

Weighted-average expected rate of return and discount rate assumptions have a significant effect on the amount of expense reported for the employee benefit plans.  A fifty-basis-point decrease in our discount rate would increase our 2020 pension and postretirement expense by approximately $65 million, and a fifty-basis-point increase in our discount rate would decrease our 2020 pension and postretirement expense by approximately $58 million. Similarly, a fifty-basis-point decrease (increase) in the expected return on plan assets would increase (decrease) our 2020 pension expense by approximately $36 million.

Income Taxes - Income tax provisions for jurisdictions outside the United States, as well as state and local income tax provisions, are determined on a separate company basis, and the related assets and liabilities are recorded in our consolidated balance sheets.

The extent of our operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. In accordance with the authoritative guidance for income taxes, we evaluate potential tax exposures and record tax liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.

We are required to assess the likelihood of recovering deferred tax assets against future sources of taxable income.  If we determine, using all available evidence, that we do not reach the more likely than not threshold for recovery, a valuation allowance is recorded.  Significant judgment is required in determining the need for and amount of valuation allowances for deferred tax assets including estimates of future taxable income in the applicable jurisdictions and the feasibility of on-going tax planning strategies, as applicable. 

The effective tax rates used for interim reporting are based on our full-year geographic earnings mix projections. Changes in currency exchange rates or earnings mix by taxing jurisdiction could have an impact on the effective tax rates. Significant judgment is required in determining income tax provisions and in evaluating tax positions.

periods presented. For further details, see Item 8, Note 11.13. Income TaxesSegment Reporting.

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Diluted Earnings Per Share to The changes in our consolidated financial statements.reported diluted earnings per share (“diluted EPS”) for the year ended December 31, 2022, from the comparable 2021 amounts, were as follows:


Diluted EPS% Change
For the year ended December 31, 2021$5.83 
2021 Asset impairment and exit costs0.12 
2021 Saudi Arabia customs assessments0.14 
2021 Asset acquisition cost0.03 
2021 Equity investee ownership dilution(0.04)
2021 Amortization and impairment of intangibles0.05 
2021 Tax items 
       Subtotal of 2021 items0.30 
2022 Charges related to the war in Ukraine(0.08)
2022 Fair value adjustment for equity security investments0.02 
2022 Amortization and impairment of intangibles(0.15)
2022 Costs associated with Swedish Match AB offer(0.06)
2022 Swedish Match AB acquisition accounting related item(0.06)
2022 Tax benefit associated with Swedish Match AB financing0.13 
2022 Tax items0.03 
       Subtotal of 2022 items(0.17)
Currency(0.77)
Interest0.02 
Change in tax rate0.03 
Operations0.57 
For the year ended December 31, 2022$5.81 (0.3)%
Hedging -
Asset impairment and exit costs –As discussed below During 2021, we recorded pre-tax asset impairment and exit costs of $216 million, representing $181 million net of income tax and a diluted EPS charge of $0.12 per share, related to the organizational design optimization plan, primarily in “Market Risk,” we use derivative financial instruments principally to reduce exposures to market risks resulting from fluctuationsSwitzerland, and the product distribution restructuring in foreign currency exchangeSouth Korea. The pre-tax charge was recorded in marketing, administration and interest rates by creating offsetting exposures. For derivatives to which we have elected to apply hedge accounting, gains and losses on these derivatives are initially deferred in accumulated other comprehensive losses on the consolidated balance sheet and recognizedresearch costs in the consolidated statementstatements of earnings intofor the same line item as the impact of the underlying transaction and in the periods when the related hedged transactions are also recognized in operating results. If we had elected not to use the hedge accounting provisions, gains (losses) deferred in stockholders’ (deficit) equity would have been recorded in our net earnings for these derivatives.

Fair value of non-marketable equity securities - year ended December 31, 2021. For further details, see Item 8, Note 22.20. DeconsolidationAsset Impairment and Exit Costs.

Saudi Arabia customs assessments In June 2021, the Customs Appeal Committee in Riyadh notified our distributors in Saudi Arabia of RBH.

Contingencies - Asdiscussedits decisions to largely reject their challenges of the Saudi Arabia Customs General Authority assessments as described in Item 8, Note 18. Contingencies. On the basis of these decisions and in line with arrangements with the distributors, we recorded a pre-tax charge of $246 million in the second quarter of 2021 (representing $215 million net of income tax and a diluted EPS charge of $0.14 per share). The pre-tax charge was recorded as a reduction of net revenues on the consolidated statement of earnings for the year ended December 31, 2021, and was included in the Middle East & Africa segment results.

Asset acquisition cost – In August 2021, we acquired 100% of OtiTopic, Inc., a U.S. respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction. We accounted for this transaction as an asset acquisition since the acquired in-process research and development ("IPR&D") of the dry powder inhalation aspirin treatment represented substantially all of the fair value of the gross assets acquired. At the date of acquisition, we determined that the acquired IPR&D had no alternative future use. As a result, we recorded a pre-tax charge of $51 million (representing a $0.03 per share charge to our consolidated financial statements, legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. Wediluted EPS) to research and our subsidiaries record provisionsdevelopment costs within marketing, administration and research costs in the consolidated financial statements of earnings for pending litigation whenthe year ended December 31, 2021. For further details, see Item 8, Note 3. Acquisitions.

Equity investee ownership dilution – In 2021, our equity method investee, Medicago Inc., initiated additional rounds of equity funding in which we determine that an unfavorable outcome is probable and the amountdid not participate. As a result, our share of the loss can be reasonably estimated.holdings in Medicago Inc. was reduced from approximately 32% at December 31, 2020, to approximately 23% as of December 31, 2021. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specifiedownership dilution resulted in a lawsuit bears little relevance$0.04 per share
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favorable impact to diluted EPS and income of $55 million to equity investments and securities (income)/loss, net in the ultimate outcome. Muchconsolidated statements of earnings for the tobacco-related litigation is in its early stages, and litigation is subject to uncertainty. At the present time, except as stated otherwise inyear ended December 31, 2021. For further details, see Item 8, Note 18. Contingencies - Third Party Guarantees.

Amortization and impairment of intangibles while it is reasonably possible thatDuring 2022 and 2021, we recorded amortization and impairment of intangibles of $271 million (representing $227 million net of income tax or $0.15 per share decrease in diluted EPS) and $96 million (representing $78 million net of income tax or $0.05 per share decrease in diluted EPS), respectively. The pre-tax amortization and impairment of intangibles amount in 2022 consisted of amortization expense of $159 million primarily due to increased acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021, and an unfavorable outcomeimpairment charge of $112 million reflecting the impact of general economic and market conditions resulting in a case may occur, after assessingreduction in future estimated cash flows on certain products within the information availableWellness and Healthcare segment. For further details, see Item 8, Note 3. Acquisitions and Note 5. Goodwill and Other Intangible Assets, net.

Charges related to it: (i) management has not concluded that it is probable thatthe war in Ukraine – During 2022, we recorded a loss has beenpre-tax charge of $151 million, representing $128 million net of income tax and a diluted EPS charge of $0.08 per share, related to circumstances driven by the war, including machinery and inventory write-downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts. For further details, see Item 8, Note 4. War in Ukraine.

Fair Value adjustment for equity security investments – During 2022, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.02 per share increase in diluted EPS). For further details, see Item 8, Note 6. Related Parties - Equity Investments and Other.

Costs associated with Swedish Match AB offer – During 2022, we incurred pre-tax costs associated with the Swedish Match acquisition of $116 million (representing $99 million net of income tax and a diluted EPS charge of $0.06 per share) primarily related to financing costs, derivative financials instruments and certain transaction related costs. These pre-tax costs of $116 million were recorded in anymarketing, administration and research costs ($115 million expense) and interest expense, net ($1 million expense) on our consolidated statement of earnings for the pending tobacco-related cases; (ii) management is unableyear ended December 31, 2022.

Swedish Match AB acquisition accounting related item – Following the Swedish Match acquisition, we recorded pre-tax purchase accounting adjustments of $125 million related to estimate the possible loss or rangesale of loss for anyacquired inventories stepped up to fair value (representing $94 million net of the pending tobacco-related cases;income tax and (iii) accordingly, no estimated loss has been accrueda diluted EPS charge of $0.06 per share). These pre-tax adjustments were recorded in cost of sales in the consolidated financial statements of earnings for unfavorable outcomes in these cases, if any. Legal defense costs are expensed as incurred.the year ended December 31, 2022. For further details, see Item 8, Note 3. Acquisitions.

Income taxes – The 2022 Tax benefit associated with Swedish Match AB financing that increased our 2022 diluted EPS by $0.13 per share in the table above was due to a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity at December 31, 2022. The 2022 Tax items that increased our 2022 diluted EPS by $0.03 per share in the table above were due to a reduction in deferred tax liabilities related to pension plan assets of $40 million. The change in the tax rate that increased our diluted EPS by $0.03 per share in the table above was primarily due to changes in income tax reserves.

Currency – The unfavorable impact of $0.77 per share during the reporting period primarily results from the fluctuations of the U.S. dollar, especially against the Egyptian pound, Euro, Hungarian forint, Japanese yen and Polish zloty, partially offset by the Russian ruble and Swiss franc. This unfavorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Interest – The favorable impact of $0.02 per share from interest in the table above was primarily driven by the repayment of long-term debt maturing in 2021 and 2022, and higher net interest income driven by higher interest rates, partially offset by higher interest expense in connection with the Swedish Match acquisition.

Operations – The increase in diluted EPS of $0.57 per share from our operations in the table above was due primarily to the following segments:

European Union: Favorable volume/mix, partly offset by unfavorable pricing, higher manufacturing costs and higher marketing, administration and research costs;
Middle East & Africa: Favorable volume/mix, favorable pricing and lower marketing, administration and research costs, partly offset by higher manufacturing costs; and
28


South & Southeast Asia: Lower marketing, administration and research costs and favorable pricing, partly offset by unfavorable volume/mix;
partially offset by
East Asia & Australia: Unfavorable volume/mix and higher manufacturing costs, partly offset by lower marketing, administration and research costs;
Wellness and Healthcare: Primarily reflecting investments in research and development, as well as expenses related to employee retention programs;
Americas: Higher marketing, administration and research costs and higher manufacturing costs, partly offset by favorable pricing; and
Eastern Europe: Unfavorable volume/mix, higher manufacturing costs and higher marketing, administration and research costs, partly offset by favorable pricing.

For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following Discussion and Analysis.

Consolidated Operating Results

Net Revenues – Net revenues of $31.8 billion for the year ended December 31, 2022, increased by $0.4 billion, or 1.1%, from the comparable 2021 amount. The change in our net revenues from the comparable 2021 amount was driven by the following (variances not to scale):
pm-20221231_g2.jpg
Net revenues, excluding currency and acquisitions, increased by 8.0%, mainly reflecting: favorable volume/mix, primarily driven by higher heated tobacco units ("HTU") volume and device volume, partly offset by lower cigarette volume and unfavorable device mix, cigarette mix and HTU mix; a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing and lower HTU (net) pricing; and a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Other" and further described in the following "Diluted Earnings Per Share" discussion.

In 2022, Russia and Ukraine accounted for around 8% of PMI's total net revenues.

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Net revenues by product category for the years ended December 31, 2022 and 2021, are shown below:

pm-20221231_g3.jpgpm-20221231_g4.jpg

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 segment reporting, consolidated financial position, results of operations or cash flows in any of the periods presented. For further details, see Item 8, Note 13. Segment Reporting.

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Diluted Earnings Per Share The changes in our reported diluted earnings per share (“diluted EPS”) for the year ended December 31, 2022, from the comparable 2021 amounts, were as follows:
Diluted EPS% Change
For the year ended December 31, 2021$5.83 
2021 Asset impairment and exit costs0.12 
2021 Saudi Arabia customs assessments0.14 
2021 Asset acquisition cost0.03 
2021 Equity investee ownership dilution(0.04)
2021 Amortization and impairment of intangibles0.05 
2021 Tax items 
       Subtotal of 2021 items0.30 
2022 Charges related to the war in Ukraine(0.08)
2022 Fair value adjustment for equity security investments0.02 
2022 Amortization and impairment of intangibles(0.15)
2022 Costs associated with Swedish Match AB offer(0.06)
2022 Swedish Match AB acquisition accounting related item(0.06)
2022 Tax benefit associated with Swedish Match AB financing0.13 
2022 Tax items0.03 
       Subtotal of 2022 items(0.17)
Currency(0.77)
Interest0.02 
Change in tax rate0.03 
Operations0.57 
For the year ended December 31, 2022$5.81 (0.3)%

Asset impairment and exit costs – During 2021, we recorded pre-tax asset impairment and exit costs of $216 million, representing $181 million net of income tax and a diluted EPS charge of $0.12 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea. The pre-tax charge was recorded in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2021. For further details, see Item 8, Note 20. Asset Impairment and Exit Costs.

Saudi Arabia customs assessments In June 2021, the Customs Appeal Committee in Riyadh notified our distributors in Saudi Arabia of its decisions to largely reject their challenges of the Saudi Arabia Customs General Authority assessments as described in Item 8, Note 18. Contingencies. On the basis of these decisions and in line with arrangements with the distributors, we recorded a pre-tax charge of $246 million in the second quarter of 2021 (representing $215 million net of income tax and a diluted EPS charge of $0.14 per share). The pre-tax charge was recorded as a reduction of net revenues on the consolidated statement of earnings for the year ended December 31, 2021, and was included in the Middle East & Africa segment results.

Asset acquisition cost – In August 2021, we acquired 100% of OtiTopic, Inc., a U.S. respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction. We accounted for this transaction as an asset acquisition since the acquired in-process research and development ("IPR&D") of the dry powder inhalation aspirin treatment represented substantially all of the fair value of the gross assets acquired. At the date of acquisition, we determined that the acquired IPR&D had no alternative future use. As a result, we recorded a pre-tax charge of $51 million (representing a $0.03 per share charge to diluted EPS) to research and development costs within marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2021. For further details, see Item 8, Note 3. Acquisitions.

Equity investee ownership dilution – In 2021, our equity method investee, Medicago Inc., initiated additional rounds of equity funding in which we did not participate. As a result, our share of holdings in Medicago Inc. was reduced from approximately 32% at December 31, 2020, to approximately 23% as of December 31, 2021. The ownership dilution resulted in a $0.04 per share
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favorable impact to diluted EPS and income of $55 million to equity investments and securities (income)/loss, net in the consolidated statements of earnings for the year ended December 31, 2021. For further details, see Item 8, Note 18. Contingencies - Third Party Guarantees.

Amortization and impairment of intangiblesDuring 2022 and 2021, we recorded amortization and impairment of intangibles of $271 million (representing $227 million net of income tax or $0.15 per share decrease in diluted EPS) and $96 million (representing $78 million net of income tax or $0.05 per share decrease in diluted EPS), respectively. The pre-tax amortization and impairment of intangibles amount in 2022 consisted of amortization expense of $159 million primarily due to increased acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021, and an impairment charge of $112 million reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment. For further details, see Item 8, Note 3. Acquisitions and Note 5. Goodwill and Other Intangible Assets, net.

Charges related to the war in Ukraine – During 2022, we recorded a pre-tax charge of $151 million, representing $128 million net of income tax and a diluted EPS charge of $0.08 per share, related to circumstances driven by the war, including machinery and inventory write-downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts. For further details, see Item 8, Note 4. War in Ukraine.

Fair Value adjustment for equity security investments – During 2022, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.02 per share increase in diluted EPS). For further details, see Item 8, Note 6. Related Parties - Equity Investments and Other.

Costs associated with Swedish Match AB offer – During 2022, we incurred pre-tax costs associated with the Swedish Match acquisition of $116 million (representing $99 million net of income tax and a diluted EPS charge of $0.06 per share) primarily related to financing costs, derivative financials instruments and certain transaction related costs. These pre-tax costs of $116 million were recorded in marketing, administration and research costs ($115 million expense) and interest expense, net ($1 million expense) on our consolidated statement of earnings for the year ended December 31, 2022.

Swedish Match AB acquisition accounting related item – Following the Swedish Match acquisition, we recorded pre-tax purchase accounting adjustments of $125 million related to the sale of acquired inventories stepped up to fair value (representing $94 million net of income tax and a diluted EPS charge of $0.06 per share). These pre-tax adjustments were recorded in cost of sales in the consolidated statements of earnings for the year ended December 31, 2022. For further details, see Item 8, Note 3. Acquisitions.

Income taxes – The 2022 Tax benefit associated with Swedish Match AB financing that increased our 2022 diluted EPS by $0.13 per share in the table above was due to a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity at December 31, 2022. The 2022 Tax items that increased our 2022 diluted EPS by $0.03 per share in the table above were due to a reduction in deferred tax liabilities related to pension plan assets of $40 million. The change in the tax rate that increased our diluted EPS by $0.03 per share in the table above was primarily due to changes in income tax reserves.

Currency – The unfavorable impact of $0.77 per share during the reporting period primarily results from the fluctuations of the U.S. dollar, especially against the Egyptian pound, Euro, Hungarian forint, Japanese yen and Polish zloty, partially offset by the Russian ruble and Swiss franc. This unfavorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Interest – The favorable impact of $0.02 per share from interest in the table above was primarily driven by the repayment of long-term debt maturing in 2021 and 2022, and higher net interest income driven by higher interest rates, partially offset by higher interest expense in connection with the Swedish Match acquisition.

Operations – The increase in diluted EPS of $0.57 per share from our operations in the table above was due primarily to the following segments:

European Union: Favorable volume/mix, partly offset by unfavorable pricing, higher manufacturing costs and higher marketing, administration and research costs;
Middle East & Africa: Favorable volume/mix, favorable pricing and lower marketing, administration and research costs, partly offset by higher manufacturing costs; and
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South & Southeast Asia: Lower marketing, administration and research costs and favorable pricing, partly offset by unfavorable volume/mix;
partially offset by
East Asia & Australia: Unfavorable volume/mix and higher manufacturing costs, partly offset by lower marketing, administration and research costs;
Wellness and Healthcare: Primarily reflecting investments in research and development, as well as expenses related to employee retention programs;
Americas: Higher marketing, administration and research costs and higher manufacturing costs, partly offset by favorable pricing; and
Eastern Europe: Unfavorable volume/mix, higher manufacturing costs and higher marketing, administration and research costs, partly offset by favorable pricing.

For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following Discussion and Analysis.

Discussion and Analysis

Critical Accounting Estimates
Item 8, Note 2. Summary of Significant Accounting Policies to our consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. In most instances, we must use a particular accounting policy or method because it is the only one that is permitted under U.S. GAAP.

The preparation of financial statements requires that we use estimates and assumptions that affect the reported amounts of our assets, liabilities, net revenues and expenses, as well as our disclosure of contingencies. If actual amounts differ from previous estimates, we include the revisions in our consolidated results of operations in the period during which we know the actual amounts. Historically, aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant impact on our consolidated financial statements.

The selection and disclosure of our critical accounting estimates have been discussed with our Audit Committee. The following is a discussion of the more significant assumptions, estimates, accounting policies and methods used in the preparation of our consolidated financial statements:

Acquisitions - PMI accounts for business combinations using the acquisition method of accounting. PMI allocates the purchase price of an acquired business to the assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with the excess recorded as Goodwill. The fair value of the applicable assets acquired and liabilities assumed is determined through established valuation techniques, such as the income, cost or market approach. PMI may utilize third-party valuation experts to assist in the fair value determination of certain assets acquired and liabilities assumed. The determination of fair value requires management to make judgements and may involve the use of significant estimates, including assumptions with respect to estimated projected revenue growth, future cash flows, terminal growth rates, useful economic lives of intangible assets acquired, discount rates, royalty rates and other factors. Certain acquired intangibles are expected to have indefinite lives based on their history and PMI’s intent to continue to support and build the intangible.

Although PMI believes its estimates of fair value are reasonable, actual financial results could differ from those estimates. Changes in assumptions related to future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the intangible assets acquired.

See Item 8, Note 3. Acquisitions to our consolidated financial statements for details of the critical accounting estimates relevant to the business combinations in the periods presented in this Form 10-K.

Revenue Recognition - We recognize revenue as performance obligations are satisfied. Our primary performance obligation is the distribution and sales of cigarettes and smoke-free products, including heat-not-burn, vapor and oral nicotine products. Our performance obligations are typically satisfied upon shipment or delivery to our customers. PMI estimates the cost of sales returns based on historical experience, and these estimates are immaterial. Estimated costs associated with warranty programs for IQOS devices are generally provided for in cost of sales in the period the related revenues are recognized, based on a number of factors, including historical experience, product failure rates and warranty policies. The transaction price is typically based on the amount
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billed to the customer and includes estimated variable consideration where applicable. Such variable consideration is typically not constrained and is estimated based on the most likely amount that PMI expects to be entitled to under the terms of the contracts with customers, historical experience of discount or rebate redemption, where relevant, and the terms of any underlying discount or rebate programs, which may change from time to time as the business and product categories evolve.

Inventories - Our inventories are valued at the lower of cost or market based upon assumptions about future demand and market conditions.  The valuation of inventory also requires us to estimate obsolete and excess inventory.  We perform regular reviews of our inventory on hand, as well as our future purchase commitments with our suppliers, considering multiple factors, including demand forecasts, product life cycle, current sales levels, pricing strategy and cost trends. If our review indicates that inventories of raw materials, components or finished products have become obsolete or are in excess of anticipated demand or that inventory cost exceeds net realizable value, we may be required to make adjustments that will impact the results of operations. 

Goodwill and Non-Amortizable Intangible Assets Valuation - We test goodwill and non-amortizable intangible assets for impairment annually or more frequently if events occur that would warrant such review. While PMI has the option to perform a qualitative assessment for both goodwill and non-amortizable intangible assets to determine if it is more likely than not that an impairment exists, PMI elects to perform the quantitative assessment for our annual impairment analysis. The impairment analysis involves comparing the fair value of each reporting unit or non-amortizable intangible asset to the carrying value. If the carrying value exceeds the fair value, goodwill or a non-amortizable intangible asset is considered impaired. To determine the fair value of goodwill, we primarily use the market approach using earnings multiples of comparable global companies within the tobacco industry, supported by a discounted cash flow model. At December 31, 2022, the carrying value of our goodwill was $19.7 billion, which is related to ten geographical reporting units, each of which consists of a group of markets with similar operating and economic characteristics, Wellness and Healthcare business, Vectura Fertin Pharma and our 2022 acquisition. The acquisition of Swedish Match in 2022 is considered a separate operating segment. For additional information, see Item 8, Note 3. Acquisitions. The estimated fair value of each of our ten geographical reporting units, Wellness and Healthcare business and Swedish Match exceeded the carrying value as of December 31, 2022. To determine the fair value of non-amortizable intangible assets, we primarily use a discounted cash flow model applying the relief-from-royalty method. We concluded that the fair value of our non-amortizable intangible assets exceeded the carrying value.These discounted cash flow models include management assumptions relevant for forecasting operating cash flows, which are subject to changes in business conditions, such as volumes and prices, costs to produce, discount rates and estimated capital needs. Management considers historical experience and all available information at the time the fair values are estimated, and we believe these assumptions are consistent with the assumptions a hypothetical marketplace participant would use. Since the March 28, 2008, spin-off from Altria Group, Inc., we have not recorded a charge to earnings for an impairment of goodwill or non-amortizable intangible assets.

Marketing Costs - We incur certain costs to support our products through programs that include advertising, marketing, consumer engagement and trade promotions. The costs of our advertising and marketing programs are expensed in accordance with U.S. GAAP. Recognition of the cost related to our consumer engagement and trade promotion programs contain uncertainties due to the judgment required in estimating the potential performance and compliance for each program. For volume-based incentives provided to customers, management continually assesses and estimates, by customer, the likelihood of the customer's achieving the specified targets, and records the reduction of revenue as the sales are made. For other trade promotions, management relies on estimated utilization rates that have been developed from historical experience. Changes in the assumptions used in estimating the cost of any individual marketing program would not result in a material change in our financial position, results of operations or operating cash flows.

Employee Benefit Plans - As discussed in Item 8, Note 14. Benefit Plans to our consolidated financial statements, we provide a range of benefits to our employees and retired employees, including pensions, postretirement health care and postemployment benefits (primarily severance). We record annual amounts relating to these plans based on calculations specified by U.S. GAAP. These calculations include various actuarial assumptions, such as discount rates, assumed rates of return on plan assets, compensation increases, mortality, turnover rates and health care cost trend rates. We review actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As permitted by U.S. GAAP, any effect of the modifications is generally amortized over future periods. We believe that the assumptions utilized in calculating our obligations under these plans are reasonable based upon our historical experience and advice from our actuaries.

Weighted-average discount rate assumptions for pension and postretirement plan obligations at December 31, 2022 and 2021 are as follows:
20222021
Pension plans3.03%0.86%
Postretirement plans5.89%3.08%
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We anticipate that assumption changes will decrease 2023 pre-tax pension and postretirement expense to approximately $91 million as compared with approximately $152 million in 2022, excluding amounts related to employee severance and early retirement programs. The anticipated decrease is primarily due to lower amortization of unrecognized actuarial losses of $168 million, coupled with lower service cost of $74 million, partially offset by higher interest cost of $167 million and other movements of $14 million.

Weighted-average expected rate of return and discount rate assumptions have a significant effect on the amount of expense reported for the employee benefit plans.  A fifty-basis-point decrease in our discount rate would increase our 2023 pension and postretirement expense by approximately $40 million, and a fifty-basis-point increase in our discount rate would increase our 2023 pension and postretirement expense by approximately $1 million. Similarly, a fifty-basis-point decrease (increase) in the expected return on plan assets would increase (decrease) our 2023 pension expense by approximately $37 million.

Income Taxes - Income tax provisions for jurisdictions outside the United States, as well as state and local income tax provisions, are determined on a separate company basis, and the related assets and liabilities are recorded in our consolidated balance sheets.

The extent of our operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. In accordance with the authoritative guidance for income taxes, we evaluate potential tax exposures and record tax liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would generally result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.

We are required to assess the likelihood of recovering deferred tax assets against future sources of taxable income.  If we determine, using all available evidence, that we do not reach the more likely than not threshold for recovery, a valuation allowance is recorded.  Significant judgment is required in determining the need for and amount of valuation allowances for deferred tax assets including estimates of future taxable income in the applicable jurisdictions and the feasibility of on-going tax planning strategies, as applicable. 

The effective tax rates used for interim reporting are based on our full-year geographic earnings mix projections. Changes in currency exchange rates, earnings mix by taxing jurisdiction or future regulatory developments may have an impact on the effective tax rates. Significant judgment is required in determining income tax provisions and in evaluating tax positions.

For further details, see Item 8, Note 12. Income Taxes to our consolidated financial statements.

Hedging - As discussed below in “Market Risk,” we use derivative financial instruments principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange and interest rates by creating offsetting exposures. 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 the consolidated statement of earnings. For our other derivatives to which we have elected to apply hedge accounting, gains and losses on these derivatives are initially deferred in accumulated other comprehensive losses on the consolidated balance sheet and recognized in the consolidated statement of earnings into the same line item as the impact of the underlying transaction and in the periods when the related hedged transactions are also recognized in operating results. If we had elected not to use the hedge accounting provisions, gains (losses) deferred in stockholders’ (deficit) equity would have been recorded in our net earnings for these derivatives.

Contingencies - Asdiscussed in Item 8, Note 18. Contingencies, to our consolidated financial statements, legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. Much of the tobacco-related litigation is in its early stages, and litigation is subject to uncertainty. At the present time, except as stated otherwise in Item 8, Note 18. Contingencies, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it: (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any. Legal defense costs are expensed as incurred.
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Consolidated Operating Results
Our net revenues and operating income by segment were as follows:
(in millions)202220212020
Net Revenues
European Union$12,119 $12,275 $10,702 
Eastern Europe3,725 3,544 3,378 
Middle East & Africa3,901 3,293 3,088 
South & Southeast Asia4,395 4,396 4,396 
East Asia & Australia5,132 5,953 5,429 
Americas1,903 1,843 1,701 
Swedish Match316 — — 
Wellness and Healthcare271 101 — 
Net revenues$31,762 $31,405 $28,694 
Operating Income (Loss)
European Union$5,788 $6,119 $5,098 
Eastern Europe1,166 1,213 871 
Middle East & Africa1,758 1,146 1,026 
South & Southeast Asia1,459 1,506 1,709 
East Asia & Australia1,919 2,556 2,400 
Americas436 487 564 
Swedish Match(22)— — 
Wellness and Healthcare(258)(52)— 
Operating income$12,246 $12,975 $11,668 
(in millions)201920182017
Net Revenues   
European Union$9,817
$9,298
$8,318
Eastern Europe3,282
2,921
2,711
Middle East & Africa4,042
4,114
3,988
South & Southeast Asia5,094
4,656
4,417
East Asia & Australia5,364
5,580
6,373
Latin America & Canada2,206
3,056
2,941
Net revenues$29,805
$29,625
$28,748
Operating Income   
European Union$3,970
$4,105
$3,691
Eastern Europe547
902
887
Middle East & Africa1,684
1,627
1,884
South & Southeast Asia2,163
1,747
1,514
East Asia & Australia1,932
1,851
2,608
Latin America & Canada235
1,145
997
Operating income$10,531
$11,377
$11,581

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

Russia excise and VAT audit charge - See Item 8, Note 18. Contingencies for details of the $374 million pre-tax charge included in the Eastern Europe segment for the year ended December 31, 2019.
Asset impairment and exit costs - See Item 8, Note 21. Asset Impairment and Exit Costs for details of the $422 million pre-tax charge for the year ended December 31, 2019, as well as a breakdown of these costs by segment.
Canadian tobacco litigation-related expense - See Item 8, Note 18. Contingencies and Note 22. Deconsolidation of RBH for details of the $194 million pre-tax charge included in the Latin America & Canada segment for the year ended December 31, 2019.

Loss on deconsolidation of RBH - See Item 8, Note 22. Deconsolidation of RBH for details of the $239 million loss included in the Latin America & Canada segment for the year ended December 31, 2019.

Charges related to the war in Ukraine - See Item 8, Note 4. War in Ukraine for details of the $151 million pre-tax charges in the Eastern Europe segment for the year ended December 31, 2022.
Swedish Match AB acquisition accounting related item - See Item 8, Note 3. Acquisitions for details of the $125 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 year ended December 31, 2022.
Impairment of intangibles - See Item 8, Note 5. Goodwill and Other Intangible Assets, net for the details of the $112 million pre-tax impairment charge included in the Wellness and Healthcare segment within the operating income table above for the year ended December 31, 2022.
Asset impairment and exit costs - See Item 8, Note 20. Asset Impairment and Exit Costs for details of the $216 million and $149 million pre-tax charges for the year ended December 31, 2021 and 2020, respectively, as well as a breakdown of these costs by segment.
Saudi Arabia customs assessments - See Item 8, Note 18. Contingencies for the details of the $246 million reduction in net revenues of combustible tobacco products included in the Middle East & Africa segment for the year ended December 31, 2021.
Asset acquisition cost - See Item 8, Note 3. Acquisitions for the details of the $51 million pre-tax charge associated with the asset acquisition of OtiTopic, Inc. included in the Wellness and Healthcare segment within the operating income table above for the year ended December 31, 2021.
Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI recorded a gain of $119 million for tax credits representing overpayments of indirect taxes for the period from March 2012 through December 2019; these tax credits were applied to tax liabilities in Brazil during 2021. This amount was included as a
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reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2020 and was included in the operating income of the Americas segment. An additional amount of overpaid indirect taxes of approximately $90 million is dependent on the outcome of a challenge by the local tax authority.

Our net revenues by product category were as follows:
PMI Net Revenues by Product CategoryPMI Net Revenues by Product CategoryPMI Net Revenues by Product Category
(in millions)201920182017(in millions)202220212020
Combustible Products 
Combustible tobacco productsCombustible tobacco products
European Union$8,093
$8,433
$8,048
European Union$7,212 $8,211 $8,052 
Eastern Europe2,438
2,597
2,657
Eastern Europe2,410 2,240 2,250 
Middle East & Africa3,721
3,732
3,893
Middle East & Africa3,567 3,110 3,005 
South & Southeast Asia5,094
4,656
4,417
South & Southeast Asia4,372 4,385 4,395 
East Asia & Australia2,693
3,074
3,156
East Asia & Australia2,138 2,414 2,468 
Latin America & Canada2,179
3,037
2,937
Total Combustible Products$24,218
$25,529
$25,107
Reduced-Risk Products 
AmericasAmericas1,804 1,706 1,577 
Swedish MatchSwedish Match70 — — 
Total combustible tobacco productsTotal combustible tobacco products21,572 22,067 21,747 
Smoke-free productsSmoke-free products
Smoke-free products excluding Wellness and Healthcare:Smoke-free products excluding Wellness and Healthcare:
European Union$1,724
$865
$269
European Union4,907 4,064 2,650 
Eastern Europe844
324
55
Eastern Europe1,315 1,304 1,128 
Middle East & Africa321
382
94
Middle East & Africa334 183 83 
South & Southeast Asia


South & Southeast Asia23 11 
East Asia & Australia2,671
2,506
3,218
East Asia & Australia2,994 3,539 2,961 
Latin America & Canada27
19
4
Total Reduced-Risk Products$5,587
$4,096
$3,640
AmericasAmericas99 137 124 
Swedish MatchSwedish Match246 — — 
Total smoke-free products excluding Wellness and HealthcareTotal smoke-free products excluding Wellness and Healthcare9,919 9,237 6,947 
Wellness and HealthcareWellness and Healthcare271 101  
Total smoke-free productsTotal smoke-free products10,190 9,338 6,947 
 
Total PMI Net Revenues$29,805
$29,625
$28,748
Total PMI net revenuesTotal PMI net revenues$31,762 $31,405 $28,694 
Note: Sum of product categories or Regions might not foot to total PMI due to rounding.

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 segment reporting, consolidated financial position, results of operations or cash flows in any of the periods presented. For further details, see Item 8, Note 13. Segment Reporting.

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. These net revenue amounts consist of the sale of our cigarettes and other tobacco products combined.that are combusted. Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include reduced-risksmoke-free products.

Net revenues related to reduced-risksmoke-free 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.taxes, if applicable. These net revenue amounts consist of the sale of all of our heatedproducts that are not combustible tobacco units, IQOS devicesproducts, such as heat-not-burn, e-vapor, and relatedoral nicotine, also including wellness and healthcare products, as well as consumer accessories such as lighters and other nicotine-containing products, which primarily include our e-vapor products.matches.


We recognize revenue when control is transferredNet revenues related to wellness and healthcare products consist of operating revenues generated from the customer, typically either upon shipment orsale of products primarily associated with inhaled therapeutics, and oral and intra-oral delivery of goods.

Revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc., commencing in the third quarter of 2019, for sale under license in the United States,systems that are included in Net Revenuesthe operating results of the Latin America & Canada segment.PMI's new
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Wellness and Healthcare business, Vectura Fertin Pharma.

PMI's heat-not-burn products include licensed KT&G heat-not-burn products.

References to "Cost/Other" in the Consolidated Financial Summary table of total PMI and the six operatinggeographical segments throughout this "Discussion and Analysis" reflects the currency-neutral variances of: cost of sales (excluding the volume/mix cost component); marketing, administration and research costs (including asset impairment and exit costs, the Canadian tobacco litigation-related expense, the charge related to the deconsolidation of RBH in Canada, and the Russia excise and VAT audit charge)costs); and amortization and impairment of intangibles. “Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable toto: fees for certain distribution rights billed to customers in certain markets in the ME&A Region, as well asand the impact of the deconsolidation in RBH.Saudi Arabia customs assessment net revenue adjustment.


Our shipment volume by segment for cigarettes and heated tobacco units was as follows:
PMI Shipment Volume (Million Units)
PMI Shipment Volume (Million Units)
PMI Shipment Volume (Million Units)
201920182017202220212020
Cigarettes Cigarettes
European Union174,319
179,622
187,293
European Union153,890 157,843163,420
Eastern Europe100,644
108,718
119,398
Eastern Europe81,460 88,69893,462
Middle East & Africa134,568
136,605
136,759
Middle East & Africa134,110 127,911117,999
South & Southeast Asia174,934
178,469
171,600
South & Southeast Asia143,982 141,923144,788
East Asia & Australia49,951
56,163
62,653
East Asia & Australia42,493 43,91345,100
Latin America & Canada72,293
80,738
84,223
AmericasAmericas65,973 64,58763,749
Total Cigarettes706,709
740,315
761,926
Total Cigarettes621,908 624,875628,518
Heated Tobacco Units Heated Tobacco Units
European Union12,569
5,977
1,889
European Union39,515 28,208 19,842 
Eastern Europe13,453
4,979
674
Eastern Europe24,806 25,650 20,898 
Middle East & Africa2,654
3,403
907
Middle East & Africa4,456 2,140 1,022 
South & Southeast Asia


South & Southeast Asia469 240 36 
East Asia & Australia30,677
26,866
32,729
East Asia & Australia39,391 38,162 33,862 
Latin America & Canada (1)
299
147
27
AmericasAmericas532 576 451 
Total Heated Tobacco Units59,652
41,372
36,226
Total Heated Tobacco Units109,169 94,976 76,111 
Cigarettes and Heated Tobacco Units Cigarettes and Heated Tobacco Units
European Union186,888
185,599
189,182
European Union193,405 186,051 183,262 
Eastern Europe114,097
113,697
120,072
Eastern Europe106,266 114,348 114,360 
Middle East & Africa137,222
140,008
137,666
Middle East & Africa138,566 130,051 119,021 
South & Southeast Asia174,934
178,469
171,600
South & Southeast Asia144,451 142,163 144,824 
East Asia & Australia80,628
83,029
95,382
East Asia & Australia81,884 82,075 78,962 
Latin America & Canada72,592
80,885
84,250
AmericasAmericas66,505 65,163 64,200 
Total Cigarettes and Heated Tobacco Units766,361
781,687
798,152
Total Cigarettes and Heated Tobacco Units731,077 719,851 704,629 
(1)
Includes shipments to Altria Group, Inc., commencing in the third quarter of 2019, for sale in the United States under license.

Following the deconsolidation of our Canadian subsidiary, we will continue to report the volume of brands sold by RBH for which other PMI subsidiaries are the trademark owners. These include HEETS, Next, Philip Morris and Rooftop, which together accounted for approximately 40% of RBH's total shipment volume in 2018.Rooftop.

Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables, which for us include ourBLENDS, HEETS, HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO (, defined collectively as HEETSHEETS), MarlboroDimensions, MarlboroHeatSticks, Parliament HeatSticks, SENTIA and TEREA, as well as the KT&G-licensed brands, MarlboroFiit and HeatSticks andMiix Parliament HeatSticks.(outside of South Korea).

ShipmentMarket share for HTUs is defined as the in-market sales volume for HTUs as a percentage of the total estimated industry sales volume for cigarettes and HTUs.
34



References to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units, tounless otherwise stated.

As of 2022 and on a comparative basis, total industry volume, PMI in-market sales volume and PMI market share for the United States is includedfollowing geographies include the cigarillo category in Japan: the heated tobacco unit shipment volume of the Latin Americatotal international market, East Asia & Canada segment.Australia Region, and Japanese domestic market.

References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States, total industry, total market and market shares throughout this "Discussion and Analysis" are our estimates for tax-paid products based on the latest available data from a number of internal and external sources and may, in defined instances, exclude the People's Republic of China and/or our duty free business. In addition, to reflect the deconsolidation of RBH, effective March 22, 2019, PMI's

Estimates for total industry volume and market share has been restated for previous periods.in certain geographies reflect limitations on the availability and accuracy of industry data during pandemic-related restrictions.

In-market sales ("IMS") is defined as sales to the retail channel, depending on the market and distribution model.


Central Asia is defined as Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan.

North Africa is defined as Algeria, Egypt, Libya, Morocco and Tunisia.

The Gulf Cooperation Council ("GCC") is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Unless otherwise stated, references to total industry, total market, our shipment volumeSoutheast Europe is defined as Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and our market share performance reflect cigarettes and heated tobacco units.Serbia.

From time to time, PMI’s shipment volumes are subject to the impact of distributor inventory movements, and estimated total industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade inventory movements of PMI’s competitors arising from market-specific factors that significantly distort reported volume disclosures. Such factors may include changes to the manufacturing supply chain, shipment methods, consumer demand, timing of excise tax increases or other influences that may affect the timing of sales to customers. In such instances, in addition to reviewing PMI shipment volumes and certain estimated total industry/market volumes on a reported basis, management reviews these measures on an adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements. Management also believes that disclosing PMI shipment volumes and estimated total industry/market volumes in such circumstances on a basis that excludes the impact of distributor and/or estimated trade inventory movements improves the comparability of performance and trends for these measures over different reporting periods.


2019
2022 compared with 20182021

The following discussion compares our consolidated operating results for the year ended December 31, 2019,2022, with the year ended December 31, 2018.2021.

Estimated international industry cigarette and heated tobacco unit volume excluding(excluding China and the United States,U.S.) of 2.72.6 trillion, decreasedincreased by 2.0%0.2%, due todriven by the EU, EE, S&SA, EA&ASouth & Southeast Asia and LA&C,Americas Regions, partly offset by the Eastern Europe, Middle East & Africa and East Asia & Australia Regions, as described in the Regional sections below.sections.

Excluding Russia and Ukraine, estimated international industry volume increased by 0.9%.

Our total shipment volume decreasedincreased by 2.0%1.6%, due to:

Middle East & Africa, primarily reflecting lower cigarette shipment volume, notably in Turkey,driven by an increase of 14.9% for HTUs, partly offset by Egypta 0.5% decline for cigarettes.

Excluding Russia and Saudi Arabia, and lower heated tobacco unitUkraine, our total shipment volume in PMI Duty Free;
South & Southeast Asia,increased by 3.2%, reflecting lower cigarette shipment volume, primarily in Indonesia, Pakistanincreases of 21.5% and the Philippines, partly offset by Thailand;
East Asia & Australia, primarily reflecting lower cigarette shipment volume in Japan0.8% for HTUs and lower cigarette and heated tobacco unit shipment volume in Korea, partly offset by higher heated tobacco unit shipment volume in Japan; and
Latin America & Canada, reflecting lower cigarette shipment volume, principally in Argentina, Canada (primarily due to the impact of the deconsolidation of RBH) and Venezuela. Excluding the volume impact from the RBH deconsolidation of approximately 4.3 billion units (reflecting the volume of RBH-owned brands from March 22, 2018 through December 31, 2018), ourcigarettes, respectively. Our total shipment volume in the Eastern Europe Region decreasedincreased by 5.2%;2.7%, on the same basis.
partly offset by
the EU, reflecting higher heated tobacco unitFor additional detail on PMI's shipment volume acrossperformance by Region, please refer to the Region, notably in Italy, partly offset by lower cigarette shipment volume, primarily in France, Germany and Italy; and"Total Market, PMI Shipment & Market Share Commentaries" sections for PMI's regional operating segments.
Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, notably in Kazakhstan, Russia and Ukraine, partly offset by lower cigarette shipment volume, primarily in Russia and Ukraine.
35


Excluding the volume impact from the RBH deconsolidation of approximately 4.3 billion units (reflecting the volume of RBH-owned brands from March 22, 2018 through December 31, 2018 and including Duty-Free sales of these brands in Canada), PMI's total shipment volume decreased by 1.4%.

Impact of Inventory Movements

Excluding the volume impact from the deconsolidation of RBH, and theThe net favorableunfavorable impact of estimated distributor inventory movements of approximately 1.1 billion units, ourwas immaterial in the year, with PMI’s total in-market sales declinedincreasing by 1.5%1.7%, due to a 3.7% decline of cigarettes, partly offsetor by a 35.3% increase in heated tobacco units.


3.2% excluding Russia and Ukraine, both essentially in-line with the respective shipment volumes.
The net favorable impact of estimated distributor inventory movements of approximately 1.1
Our total HTU in-market sales volume for the year was 106.9 billion units, reflected a 2.7or 86.4 billion favorable impact from heated tobacco units (driven primarily by Japan, mainly reflecting a favorable comparison with 2018 in which IQOS consumable inventories were reduced, partly offset by PMI Duty Free)excluding Russia and Ukraine, representing growth of 15.6% and 21.4%, partially offset by a 1.6 billion unfavorable impact from cigarettes (due primarily to Japan, North Africa and Thailand, partly offset by the EU Region and Saudi Arabia).respectively.

Our cigarette shipment volume by brand and heated tobacco unit shipment volume was as follows:
PMI Shipment Volume by Brand (Million Units)
 Full-Year
 2019
2018
Change
Cigarettes
   
Marlboro262,908
264,423
(0.6)%
L&M92,873
89,789
3.4 %
Chesterfield57,185
59,452
(3.8)%
Philip Morris49,164
49,864
(1.4)%
Parliament38,723
41,697
(7.1)%
Sampoerna A35,133
39,522
(11.1)%
Dji Sam Soe32,435
29,195
11.1 %
Bond Street28,025
32,173
(12.9)%
Lark19,602
23,021
(14.9)%
Fortune12,831
16,596
(22.7)%
Others77,830
94,583
(17.7)%
Total Cigarettes706,709
740,315
(4.5)%
Heated Tobacco Units (1)
59,652
41,372
44.2 %
Total Cigarettes and Heated Tobacco Units766,361
781,687
(2.0)%
(1) Includes shipments to Altria Group, Inc., commencing in the third quarter of 2019, for sale in the United States under license.
PMI Shipment Volume by Brand (Million Units)
20222021Change
Cigarettes
Marlboro244,649 239,905 2.0 %
L&M82,588 84,342 (2.1)%
Chesterfield67,054 58,800 14.0 %
Parliament43,999 41,621 5.7 %
Philip Morris39,620 42,395 (6.5)%
Others143,998 157,812 (8.8)%
Total Cigarettes621,908 624,875 (0.5)%
Heated Tobacco Units109,169 94,976 14.9 %
Total Cigarettes and Heated Tobacco Units731,077 719,851 1.6 %
Note:Sampoerna A includes Sampoerna; Philip Morris includes Philip Morris/Dubliss; and Lark includes Lark Harmony.

Shipment volume for our HTU brands increased, primarily driven by the EU, Middle East & Africa and East Asia & Australia Regions, partly offset by the Eastern Europe Region.

Our cigarette shipment volume of the following international brands decreased:increased:

Marlboro, mainly due to Italy and Japan, partly reflecting the impact of out-switching to heated tobacco units, as well as France, partially offset by the Philippines, Saudi Arabia and Turkey;
Chesterfield, mainly due to Argentina, Italy, Russia and Venezuela, partly offset by Brazil;
Philip Morris, notably due to Argentina, partly offset by Indonesia and Russia;
Parliament, mainly due to Japan, Korea and Russia;
Sampoerna A in Indonesia, mainly reflecting the impact of retail price increases resulting in widened price gaps with competitors' products;
Bond Street, mainly due to Russia and Ukraine;
Lark, mainly due to Japan and Turkey;
Fortune in the Philippines, mainly reflecting up-trading to Marlboro resulting from narrowed price gaps with the below premium price segment; and
"Others," notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; and low-price brands, notably Morven in Pakistan and Next/Dubliss in Russia, partly offset by Jackpot in the Philippines.

The increase in our heated tobacco unit shipment volume was mainly driven by:by the EU (notably Italy and Poland), Eastern Europe, (notably Kazakhstan, RussiaMiddle East & Africa and Ukraine) and Japan,Americas Regions, partly offset by Koreathe EU Region;
Chesterfield, primarily driven by the Eastern Europe and PMI Duty Free.South & Southeast Asia Regions, partly offset by the Middle East & Africa Region; and

Parliament, mainly driven by the Middle East & Africa Region.

Our cigarette shipment volume of the following international brands increased:decreased:

L&M, mainly driven by Egypt and Thailand, partly offset by Russia and Turkey;L&M, primarily due to the EU, Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East & Africa and Americas Regions; and
Dji Sam Soe in Indonesia, driven by the strong performance of the DSS Magnum Mild 16 variant and the introduction of 20s and 50s variants.

2019 Philip Morris, mainly due to the Eastern Europe and Americas Regions, partly offset by the East Asia & Australia Region.

The cigarette shipment volume decline for "Others" was mainly due to: Bond Street (primarily Eastern Europe) and Lark (mainly Japan and Turkey), partly offset by Dji Sam Soe (Indonesia).

Excluding Russia and Ukraine, our cigarette shipment volume increased by 1.8% for Marlboro, 5.6% for Chesterfield, 10.3% for Parliament and 6.3% for Philip Morris, and decreased by 0.3% for L&M.
36



International Share of Market (excluding(Excluding China and the United States)

20222021Change (pp)
Total International Market Share (1)
27.6 %27.2 %0.4 
Cigarettes23.6 %23.7 %(0.1)
HTU4.1 %3.5 %0.6 
Cigarette over Cigarette Market Share (2)
24.9 %24.8 %0.1 
(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, excluding China and the U.S., including cigarillos in Japan
(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan
Note: Sum of share of market by product categories might not foot to total due to roundings
Our total international market share (excluding
International Share of Market (Excluding China and the United States), definedStates, as our cigarettewell as Russia and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, increased by 0.1 point to 28.4%, reflecting:Ukraine)
Total international heated tobacco unit market share of 2.2%, up by 0.6 points; and
20222021Change (pp)
Total International Market Share (1)
27.3 %26.7 %0.6 
Cigarettes23.7 %23.7 %— 
HTU3.6 %3.0 %0.6 
Cigarette over Cigarette Market Share (2)
24.9 %24.6 %0.3 
(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, excluding China and the U.S., including cigarillos in Japan
(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan
Note: Sum of share of market by product categories might not foot to total due to roundings
Total international cigarette market share of 26.2%, down by 0.5 points.
37

Our total international cigarette market share, defined as our cigarette sales volume as a percentage of total industry cigarette sales volume, was down by 0.3 points to 26.9%, mainly reflecting: out-switching to heated tobacco units, notably in the EU and Japan; and lower cigarette market share, notably in Argentina, Indonesia, Korea and Turkey.
In 2019, we owned six of the world's top 15 international cigarette brands, with international cigarette market shares as follows: Marlboro, 10.0%; L&M, 3.5%; Chesterfield, 2.2%; Philip Morris, 1.9%; Parliament, 1.5%; and Bond Street, 1.1%.



Key Market Data

Key market data regarding total market size, our shipments and market share were as follows:
PMI Shipments (billion units)
PMI Market Share (%)(1)
MarketTotal Market
(billion units)
TotalCigaretteHeated Tobacco UnitTotalHeated Tobacco Unit
202220212022202120222021202220212022202120222021
Total (2)
2,626.42,620.5731.1719.9621.9624.9109.295.027.627.24.13.5
European Union
France32.534.314.015.213.715.00.20.243.643.90.70.7
Germany70.374.128.228.624.826.33.42.340.138.64.83.1
Italy72.870.440.838.628.629.712.38.954.153.014.611.5
Poland55.749.321.718.417.115.34.53.138.937.38.26.3
Spain44.642.713.613.212.712.60.90.530.031.11.71.2
Eastern Europe
Russia208.9216.864.768.849.352.515.416.331.131.77.67.4
Middle East & Africa
Egypt93.693.421.019.520.019.21.00.222.220.70.80.2
Turkey117.2125.156.155.756.155.747.944.5
South & Southeast Asia
Indonesia309.6296.286.882.886.882.828.028.0
Philippines51.855.232.234.432.034.20.20.262.162.30.40.3
East Asia & Australia
Australia8.99.73.03.13.03.133.432.3
Japan (2)
148.3150.555.555.221.122.134.433.137.635.723.621.3
South Korea72.671.713.914.19.49.44.54.719.219.76.26.5
Americas
Argentina30.330.019.319.919.319.963.866.3
Mexico32.231.921.020.520.820.40.10.165.164.10.40.3
(1) Market share estimates are calculated using IMS data
(2) Total market and market share estimates include cigarillos in Japan


38


    PMI Shipments (billion units) 
PMI Market Share (%)(1)
Market Total Market
(billion units)
 Total Cigarette Heated Tobacco Unit Total Heated Tobacco Unit
  20192018 20192018 20192018 20192018 20192018 20192018
Total 2,703.62,757.7 766.4781.7 706.7740.3 59.741.4 28.428.3 2.21.6
                   
European Union                
France 37.940.9 17.018.5 16.918.4 0.1 45.045.5 0.20.1
Germany 73.375.2 27.928.1 27.027.7 0.90.4 38.037.3 1.20.5
Italy 67.969.0 34.935.2 31.433.5 3.51.7 51.851.8 4.82.2
Poland 46.243.2 19.017.9 17.917.6 1.10.4 41.241.5 2.50.9
Spain 45.345.0 14.514.1 14.113.9 0.30.2 31.332.1 0.70.4
                   
Eastern Europe                
Russia 226.5238.9 68.068.0 58.864.6 9.23.4 30.128.3 3.81.0
                   
Middle East & Africa                
Saudi Arabia 20.820.6 9.27.4 9.27.4  43.041.5 
Turkey 118.9118.5 51.955.0 51.955.0  43.746.4 
                   
South & Southeast Asia                
Indonesia 306.8303.6 98.5101.4 98.5101.4  32.133.4 
Philippines 70.573.2 49.751.2 49.751.2  70.569.9 
                   
East Asia & Australia                
Australia 12.012.8 3.33.8 3.33.8  27.529.7 
Japan 158.0167.3 52.452.3 26.630.8 25.821.4 34.534.0 17.115.5
Korea 68.669.5 15.517.4 10.812.0 4.65.4 22.625.0 6.87.8
                   
Latin America & Canada               
Argentina 33.435.0 23.325.8 23.325.8  70.073.8 
Mexico 35.535.5 23.824.2 23.824.2  67.168.0 
                   
(1) Market share estimates are calculated using IMS data
Note: % change for Total Market and PMI shipments is computed based on millions of units; PMI Market Share estimates for previous periods are restated to reflect RBH deconsolidation and exclude RBH-owned brands.


















Financial Summary
Financial Summary -
Years Ended
December 31,
    Change
Fav./(Unfav.)
 Variance
Fav./(Unfav.)
 20192018 TotalExcl.
Curr.
 TotalCur-
rency
PriceVol/
Mix
Cost/
Other
(1)
(in millions)   
Net Revenues $29,805
$29,625
 0.6 %3.8 % $180
$(937)$1,483
$397
$(763)
Cost of Sales (10,513)(10,758) 2.3 %(0.5)% 245
302

(309)252
Marketing, Administration and Research Costs (2)
 (8,695)(7,408) (17.4)%(22.0)% (1,287)340


(1,627)
Amortization of Intangibles (66)(82) 19.5 %15.9 % 16
3


13
Operating Income $10,531
$11,377
 (7.4)%(4.9)% $(846)$(292)$1,483
$88
$(2,125)
Financial Summary
Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/Other
(in millions)
Net Revenues (1)
31,762 31,405 1.1 %8.0 %$357 $(2,656)$515 $528 $1,719 $251 
Cost of Sales (2)
(11,402)(10,030)(13.7)%(16.5)%(1,372)695 (414)— (1,089)(564)
Marketing, Administration and Research Costs (3)
(8,114)(8,400)3.4 %0.3 %286 454 (197)— — 29 
Operating Income12,246 12,975 (5.6)%6.7 %$(729)$(1,507)$(96)$528 $630 $(284)
(1) Favorable Cost/Other variance includes a $246 million reduction in net revenues in 2021 related to the impact of the RBH deconsolidation.Saudi Arabia customs assessments. For more details, see Item 8, Note 18. Contingencies.
(2) CUnfavorableost/Other variance includes charges in 2022 of $112 million related to an impairment charge of intangible assets, $62 million related to the war in Ukraine and $125 million of Swedish Match AB acquisition accounting related item. For more details, Item 8, see Note 3. Acquisitions, Note 4. War in Ukraine and Note 5. Goodwill and Other Intangible Assets, net.
(3) Cost/Other variance includes charges in 2022 of $89 million related to the war in Ukraine and $115 million in 2022 related to costs associated with the Swedish Match AB offer, offset by charges in 2021 of $216 million related to asset impairment and exit costs and $51 million in 2021 associated with the asset acquisition cost of $422 millionOtiTopic, Inc. For more details, see Item 8, Note 3. Acquisitions, Note 4. War in 2019, the Russia excise Ukraine and VAT audit charge of $374 million in 2019, the 2019 loss on deconsolidation of RBH of $239 million,Note 20. Asset Impairment and the 2019 Canadian tobacco litigation-related expense of $194 million, as well as the impact of the RBH deconsolidation.Exit Costs.
Note: Net Revenues include revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc., commencing in the third quarter of 2019, for sale under license in the United States.

Net revenues, excluding unfavorable currency and acquisitions, increased by 3.8%8.0%, mainly reflecting: favorable volume/mix, primarily driven by higher HTU volume and device volume, partly offset by lower cigarette volume and unfavorable device mix, cigarette mix and HTU mix; a favorable pricing variance, notably in Germany, Indonesia, Japan, the Philippines and Turkey; and favorable volume/mix, mainly driven by heatedhigher combustible tobacco unit and IQOS device volume in the EU and Russia, and heated tobacco unit volume in Japan,pricing, partly offset by unfavorable volume/mixlower device pricing and lower HTU (net) pricing; and a favorable comparison related to the Saudi Arabia customs assessments of cigarettes, notably$246 million in Australia, the EU, Indonesia, Japan and Russia, unfavorable heated tobacco unit volume in PMI Duty Free, and unfavorable IQOS device volume in Japan and Korea. The currency-neutral growth in net revenues of 3.8% came despite the unfavorable impact of $763 million,2021, shown in "Cost/Other," predominantly resulting from the deconsolidationOther".

In 2022, Russia and Ukraine accounted for around 8% of RBH.PMI's total net revenues.

The unfavorable currency in net revenues was due primarily to the Egyptian pound, Euro, Russian rubleJapanese yen, Philippine peso, Polish zloty and Turkish lira.lira, partly offset by the Russian ruble.

Net revenues include $5.6$10.2 billion in 20192022 and $4.1$9.3 billion in 20182021 related to the sale of RRPs.smoke-free products. In 2019, approximately $0.7 billion of our $5.6 billion in RRP net revenues were from2022, IQOS devices.devices accounted for approximately 5% of our full year smoke-free net revenues both including and excluding Russia and Ukraine.

Operating income decreased by 7.4%5.6%. Excluding unfavorableOperating income, excluding currency ($292 million)and acquisitions, increased by 6.7%, which included: favorable comparisons versus the prior year period related to the 2021 Saudi Arabia customs assessments of $246 million (as noted above for net revenues), 2021 asset impairment and exit costs ($422 million) in 2019of $216 million and 2021 asset acquisition cost of $51 million, partly offset by the impact of 2022 costs associated with the Swedish Match AB offer of $115 million, higher amortization and impairment of intangibles (primarily $112 million related to plant closuresimpairment charges in Argentina, Colombia, Germany2022), 2022 charges related to the war in Ukraine of $151 million and Pakistan as part$125 million of global manufacturing infrastructure optimization, the 2019 Russia exciseSwedish Match AB acquisition accounting related item in 2022. In addition to these items, operating income was impacted by: a favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable cigarette mix, HTU mix and VAT audit charge ($374 million), the 2019 loss on deconsolidation of RBH ($239 million)device mix, and the 2019 Canadian tobacco litigation-related expense ($194 million), operating income increased by 5.9%, primarily reflecting:unfavorable impact on profitability of higher device volume; and a favorable pricing variance; favorable volume/mix, mainly drivenpartially offset by heated tobacco units in the EU, Japanhigher manufacturing costs (primarily due to higher logistics costs and Russia,other inflationary impacts, partly offset by unfavorable volume/mix of cigarettes, notably in Australia, the EU, Indonesia, Japanproductivity); and Russia, as well as unfavorable heated tobacco unit volume in PMI Duty Free; and lower manufacturing costs; partly offset by higher marketing, administration and research costs, reflecting increased investment behindcosts.

As reduced-risk products (mainlygrow as a proportion of our business, notably for IQOS ILUMA where unit costs of devices and both the unit costs and weight of consumables are not yet fully optimized, a temporary dilutive margin impact is likely to continue in the EUcoming quarters.

Like many other global companies, we are facing significant inflationary forces in the world economy. Inflationary pressures are growing as we renew pricing arrangements, notably for certain direct materials, wages, energy, and Eastern Europe), andtransportation costs. These inflationary pressures, including margin pressure from inflation as well as the net unfavorable impact resulting fromcost of capital, could continue to grow in the deconsolidation of RBH shown in "Cost/Other."upcoming quarters.

39


Interest expense, net, of $570$588 million decreased by $95$40 million (14.3%(6.4%), due primarily to our ongoing efforts to optimize our capital structure followingdriven by the passage of the Tax Cuts and Jobs Act. This included the decision to use existing cash to repay $2.5 billion and $4.0 billionrepayment of long-term debt that maturedmaturing in 20182021 and 2019, respectively.2022 and higher net interest income driven by higher interest rates, partially offset by higher interest expense in connection with the Swedish Match acquisition.

Our effective tax rate increaseddecreased by 0.32.5 percentage points to 23.2%19.3%. The effective tax rate for the year ended December 31, 2019, was unfavorably impacted by changes in earnings mix by taxing jurisdiction and U.S. state deferred income tax expense, partially offset by the reversal of a deferred tax liability on the unremitted earnings of our Canadian subsidiary, RBH ($49 million), a reduction in estimated U.S. federal income tax on dividend repatriation for the years 2015-2018 ($67 million), and other repatriation cost differences. We estimate that our 20202023 effective tax rate will be approximately 23%20.5% to 21.5%, excluding discrete tax events. Changes in currency exchange rates, earnings mix by taxing jurisdiction, or dividend repatriation costs may have an impact on the effective tax rates, which we monitor each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions. For further details, see Item 8, Note 11.12. Income Taxes.


We are regularly examined by tax authorities around the world, and we are currently under examination in a number of jurisdictions. It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in unrecognized tax benefits along with related interest and penalties. An estimate of any possible change cannot be made at this time.

Net earnings attributable to PMI of $7.2$9.0 billion decreased by $726 million$0.1 billion or 9.2%0.7%. This decrease was due primarily to lower operating income as discussed above, partially offset by a lower interest expense, net. Diluted and basiceffective income tax rate. Basic EPS of $4.61$5.82 and diluted EPS of $5.81 decreased by 9.3%.0.2% and 0.3%, respectively. Excluding an unfavorable currency impact of $0.13,$0.77, diluted EPS decreasedincreased by 6.7%12.9%.


20182021 compared with 20172020

For a discussion comparing our consolidated operating results for the year ended December 31, 2018,2021, with the year ended December 31, 2017,2020, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Discussion and Analysis - Consolidated Operating Results in our Annual Report on Form 10-K for the year ended December 31, 2018,2021, which was filed with the U.S. Securities and Exchange Commission on February 7, 2019.11, 2022. This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2022.


Operating Results by Business Segment

Business Environment     
Taxes, Legislation, Regulation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco Products
The tobacco industry and our company face a number of challenges that may adversely affect our business, volume, results of operations, cash flows and financial position. These challenges, which are discussed below and in “Cautionary Factors That May Affect Future Results,” include:

regulatory restrictions on our products, including restrictions on the packaging, marketing, and sale of tobacco or other nicotine-containing products or related devices that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or even ban certain of our products;
fiscal challenges, such as excessive excise tax increases and discriminatory tax structures;
illicit trade in cigarettes and other tobacco and nicotine-containing products, including counterfeit, contraband and so-called “illicit whites”"illicit whites";
intense competition, including from non-tax paid volume by certain local manufacturers;
pending and threatened litigation as discussed in Item 8, Note 18. Contingencies; and
Contingencies; and
governmental investigations.

Regulatory Restrictions: The tobacco industry operates in a highly regulated environment. The well-known risks of smoking have led regulators to impose significant restrictions and high excise taxes on cigarettes.

We support a comprehensive regulatory framework for tobacco products based on the principle of harm reduction, including mandated health warnings, minimum age laws, restrictions on advertising, and public place smoking restrictions. We also support regulatory measures that help reduce illicit trade.

Much of the regulation that shapes the business environment in which we operate is driven by the World Health Organization's (“WHO”) Framework Convention on Tobacco Control (“FCTC”),FCTC, which entered into force in 2005. The FCTC has as its main objective to establish a global agenda for tobacco regulation, with the purpose of reducing tobacco use. To date, 180182 countries and the European Union are Parties to the FCTC. The treaty requires Parties to have in place various tobacco control measures and recommends others. The FCTC governing body, the Conference of the Parties (“CoP”), has also adopted non-binding guidelines and policy recommendations related to certain articles of the FCTC that go beyond the text of the treaty. In October 2018, the CoP recognized the need for more scientific assessment and improved reporting to define policy on heated tobacco products. Similar to its previous policy recommendations on e-cigarettes, the CoP invited countries to regulate, restrict or prohibit heated tobacco products, as appropriate under their national laws.

In July 2019,Prior to CoP 9 that took place in November 2021, the WHO issued the Report on the Global Tobacco Epidemic 2019. While citing insufficient independent studies regarding the benefits and the unknown long-term health impacts of electronic nicotine delivery systemsWHO FCTC Secretariat published two reports on novel and heatedemerging tobacco products, the WHO has taken the position that such products are not risk-freeproducts. The reports were noted by CoP 9 and should be regulated in the same manner as cigarettesrelated substantive discussions and in line with the FCTC provisions.

decisions were deferred to CoP 10, currently scheduled for 2023. It is not possible to predict whether or to what extent measures recommended by the WHO, including the FCTC guidelines,WHO's reports will be implemented.implemented as the reports are not binding to the WHO Member States.
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We agreebelieve that when better alternatives to cigarettes exist, the discussion should not be whether these alternatives should be made available to the more than one billion people who smoke today, but how fast, and within what regulatory framework to maximize their adoption while minimizing unintended use. Therefore, we advocate for regulatory frameworks that are based on a continuum of risk where non-combustible products fall below combustible cigarettes. Product regulation should include measures that encourage and accelerate switching to non-combustible products, for example, by allowing adult consumers who would not otherwise quit to receive truthful and non-misleading information about such products to enable them to make informed decisions and by applying uniform product standards to enable manufacturers to demonstrate the reduction in harmful and potentially harmful constituents, as well as the absence of combustion. Regulation should also include specific rules for ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-containing products, including our RRPs, needproducts. Importantly, regulation must include measures designed to be regulated; however, we continue to seek to engage in a dialogue with regulators with respect to thoseprevent initiation by youth and non-smokers. We support mandated health warnings, minimum age laws, restrictions on advertising, and public place smoking restrictions. We also support regulatory measures that we do not believe would protect public health and, if implemented, could disrupt competition, severely limit our ability to market and sell our products (including our RRPs) to adult smokers, or increasehelp reduce illicit trade. We advocate for measures that would accelerate switching to better alternatives to continued smoking and embrace a regulatory framework that recognizes a risk continuum of tobacco and other nicotine-containing products.

Certain measures are discussed in more detail below and in the Reduced-Risk Products (RRPs) section.

Fiscal Challenges: Excessive and disruptive excise, sales and other tax increases and discriminatory tax structures are expected to continue to have an adverse impact on our profitability, due to lower consumption and consumer down-trading to non-premium, discount, other low-price or low-taxed combustible tobacco products such as fine cut tobacco and illicit cigarettes. In addition, in certain jurisdictions, some of our combustible tobacco products are subject to tax structures that discriminate against premium-price products and manufactured cigarettes. We believe that such tax policies undermine public health by encouraging consumers to turn to illicit trade, and ultimately undercut government revenue objectives, disrupt the competitive environment, and encourage criminal activity. Other jurisdictions have imposed, or are seeking to impose, levies or other taxes specifically on tobacco companies, such as taxes on revenues and/or profits.

World Customs Organization Developments: In 2020, the World Customs Organization (the “WCO”) amended the harmonized system nomenclature to introduce dedicated custom codes for novel tobacco and nicotine products, including heated tobacco products, e-cigarettes and other nicotine-containing products. The amendments became effective as of January 1, 2022. These amendments are not expected to significantly impact current customs duty rates. As of December 2022, and out of 160 contracting parties to the WCO’s Harmonized System Convention, 94 contracting parties, including the EU, U.S., have notified the WCO that they have implemented the 2022 edition of the Harmonized System creating new dedicated customs codes for novel tobacco and nicotine products.

EU Tobacco Products Directive: In April 2014, the EU adopted a significantly revised EU Tobacco Products Directive (TPD),TPD, which entered into force in May 2016. All Member Statesmember states have adopted laws transposing the TPD.  The TPD sets forth a comprehensive set of regulatory requirements for tobacco products, including:

health warnings covering 65% of the front and back panels of cigarette packs, with an option for Member Statesmember states to further standardize tobacco packaging, including the introduction of plain packaging;
a ban on characterizing flavors in some tobacco products, with a transition period for menthol expiringthat expired in May 2020;
security features and tracking and tracing measures that became effective onin May 20, 2019; and
a framework for the regulation of novel tobacco products and e-cigarettes, including requirements for health warnings and information leaflets, a prohibition on product packaging text related to reduced risk, and the introduction of notification requirements or authorization procedures in advance of commercialization.

In May 2021, the European Commission published its first report on the application of the TPD. The report identifies significant progress made due to the implementation of the TPD and where there is still room for improvement. Most notably, it finds that the EU legislation has enhanced tobacco control, contributed to protecting the health of EU citizens by providing Member States with strong rules to address the use of tobacco products in the EU. The TPD reportedly achieved the 2% reduction target of the impact assessment with decreased smoking prevalence among youth. The report also concludes that there is scope for improvement in certain areas, such as enforcement at national level, assessment of ingredients, and a better consideration for novel and emerging products.

In November 2021, the European Commission published the implementation roadmap to Europe's Beating Cancer Plan (the "Plan"). According to the Plan, a revision of the TPD is planned for 2024.

EU Tobacco Excise Directive ("TED"): The EU Commission is preparing a legislative proposal for the revision of the 2011 EU Tobacco Excise Directive that may include definitions and tax treatment for novel tobacco and nicotine-containing products, including heated tobacco products, e-cigarettes and nicotine pouches. The proposal, after several delays, is now expected to be published during
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the first half of 2023 and adopted by the EU Council in the course of 2024. Any final amendments to TED require unanimous agreement by all EU member states, followed by transposition of TED into national legislation. The earliest potential effective date for any changes to TED, after the transposition period, is 2025.

Plain Packaging and Other Packaging Restrictions: Plain packaging legislation bans the use of branding, logos and colors on packaging other than the brand name and variant that may be printed only in specified locations and in a uniform font. To date, plain packaging laws have been adopted in certain markets in all of our operating segments, including the key markets of Australia, France, Saudi Arabia and Turkey, and are in various degrees of implementation.Turkey. Some countries, such as Canada, New ZealandDenmark and Israel adopted plain packaging regulations that apply to all tobacco products, including RRPs. Other countries are also considering plain packaging legislation.

Some countries have adopted, or are considering adopting, packaging restrictions that could have an impact similar to plain packaging. Examples of such restrictions include standardizing the shape and size of packages, prohibiting certain colors or the use of certain descriptive phrases on packaging, and requiring very large graphic health warnings that leave little space for branding.

Restrictions and Bans on the Use of Ingredients: The WHO and others in the public health community have recommended restrictions or total bans on the use of some or all ingredients in tobacco products, including menthol. Broad restrictions and ingredient bans would require us to reformulate our American blend tobacco products and could reduce our ability to differentiate these products in the market in the long term. MentholIn many countries, menthol bans would eliminate the entire category of mentholated tobacco products. The European Union has banned flavoredcigarettes and roll-your-own tobacco products subjectwith characterizing flavors. Other tobacco products, including heated tobacco products, are currently exempted from this characterizing flavor ban. However, on November 23, 2022, the European Union Commission published a delegated directive that will end this exemption. All EU Member States are required to an exemption until May 2020 for menthol.apply the delegated directive as of October 23, 2023, and ban the use of characterizing flavors in heated tobacco products in the European Union, impacting a significant proportion of our RRP products currently sold in the European Union. While we cannot predict the ultimate impact on our business from this ban, consumer switching to non-flavored products was high in reaction to past bans on flavors in other categories and markets. We therefore believe any impact will be manageable, with consumers switching to non-flavored products partially mitigating the effect of the ban. We will actively monitor relevant developments in the European Union market. Other countries may follow the EU’s approach. For instance,approach toward tobacco product ingredients. Turkey has banned menthol as of May 2020. Broader ingredient bans have been adopted by CanadaBrazil and Brazil. In Brazil, an ingredient ban is currently on appeal by a tobacco industry union, of which our Brazilian subsidiary is a member. It is not possible to predict the outcome of these legal proceedings.Canada.

Bans on Display of Tobacco Products at Retail: In a number of our markets, including, but not limited to, Australia and Russia, governments have banned the display of tobacco products at the point of sale. Other countries are considering similar bans.

Bans and Restrictions on Advertising, Marketing, Promotions and Sponsorships: For many years, the FCTC has called for, and countries have imposed, partial or total bans on tobacco advertising, marketing, promotions and sponsorships, including bans and restrictions on advertising on radio and television, in print and on the Internet. The FCTC's non-binding guidelines recommend that governments prohibit all forms of communication with adult smokers.

Restrictions on Product Design: Some members of the public health community are calling for the further standardization of tobacco products by requiring, for example, that cigarettes have a certain minimum diameter, which would amount to a ban on slim cigarettes, or requiring the use of standardized filter and cigarette paper designs. In addition, at its meeting in November 2016, the CoP adopted non-binding guidelines recommending that countries regulate product design features that increase the attractiveness of tobacco products, such as the diameter of cigarettes and the use of flavor capsules.

Restrictions on Public Smoking:Smoking and Use of Nicotine-Containing Products in Public: The pace and scope of public smoking restrictions on the use of our products have increased significantly in most of our markets. Many countries around the world have adopted, or are likely to adopt, regulations that restrict or ban smoking and use of nicotine-containing products in public and/or work places, restaurants, bars and nightclubs. Some public health groups have called for, and some countries, regional governments and municipalities have adopted or proposed, bans on smoking in outdoor places, as well as bans on smoking in cars (typically, when minors are present) and private homes.

Other Regulatory Issues: Some regulators are considering, or in some cases have adopted, regulatory measures designed to reduce the supply of tobacco products. These include regulations intended to reduce the number of retailers selling tobacco products by, for example, reducing the overall number of tobacco retail licenses available or banning the sale of tobacco products within specified distances of certain public facilities. Other regulators are also considering generation sales bans, under which the sale of certain tobacco or nicotine products to people born after a certain year would be prohibited. On December 13, 2022 the New Zealand parliament passed a bill introducing regulatory measures restricting the sale and supply of smoked tobacco products, including reducing the number of retail outlets licensed to sell smoked tobacco products, imposing a maximum limit of nicotine content for smoked tobacco products and prohibiting the sale of smoked tobacco products to anyone born on or after January 1, 2009. These measures are limited to smoked tobacco products and do not apply to heated tobacco products and e-cigarettes. In Mexico, a new law
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came into force on December 12, 2022 prohibiting imports and exports of certain nicotine and non-nicotine delivery and consumption systems, as well as the consumables used in those systems, including much of our RRP portfolio. On December 16, 2022, the Federal Government enacted an implementation regulation for the tobacco control law, which includes (i) a point of sale display ban of tobacco products; (ii) restrictions on where tobacco products can be consumed, and (iii) prohibition to communicate corporate social responsibility programs funded by the tobacco industry.

On January 1, 2023 a law regulating the marketing of nicotine pouches went into effect in Slovakia. The regulatory framework contains a minimum purchase legal age (18 years), a nicotine limit, and a labelling requirement. On December 6, 2022 the Dutch Government published a draft bill to ban the placing on the market of nicotine pouches in the Netherlands. On December 16, 2022 a notification period to the EU Commission expired for a Belgian Royal Decree to ban nicotine pouches. Based on this decree the Belgian Government could ban the placing on the market of nicotine pouches in Belgium.

In a limited number of markets, most notably Japan, we are dependent on governmental approvals that may limit our pricing flexibility.

The EU Single-Use Plastics Directive, which will require tobacco manufacturers and importers to cover the costs of public collection systems for tobacco product filters, under Extended Producer Responsibility ("EPR") schemes, entered into force on July 2, 2019, after which Member States will have two years2019. To date, some member states transposed the Directive into national legislation. We expect remaining member states to transpose itthe EU Single-Use Plastics Directive into national law.legislation including EPR schemes by January 2023. While we cannot predict the impact of this initiative on our business at this time, we are monitoring developments in this area.

In some countries, including in the EU, cigarettes are subject to testing, disclosure and mandatory emissions limits for tar, nicotine, carbon monoxide and other smoke constituents. In the Netherlands, several public health organizations have requested that the Dutch enforcement body enforce the requirements for maximum tar, nicotine, and carbon monoxide ("TNCO") emissions levels for cigarettes using a test method other than the method currently set forth in the EU TPD and transposed into national legislation. This request followed publication of a report by the Dutch State Institute for Public Health & Environment, which found that all cigarette brands sold in the Netherlands exceeded the maximum TNCO levels when measured under an alternative method. While the Dutch enforcement body declined the request, the applicants have challenged that decision in pending legal proceedings in the Netherlands. While we are not parties to the proceeding and cannot predict the outcome, a decision to enforce the existing TNCO ceilings in the Netherlands using an alternative test method could impact a significant portion of the manufactured cigarettes available on the market in the Netherlands and could lead to similar actions in other EU countries.

Illicit Trade: Illicit tobacco trade creates a cheap and unregulated supply of tobacco products, undermines efforts to reduce smoking prevalence, especially among youth, damages legitimate businesses and intellectual property rights, stimulates organized crime, increases corruption and reduces government tax revenue. ExcludingWe generally estimate that, excluding China and the U.S., illicit trade may account for as much as 10%12% of global cigarette consumption; this includes counterfeit, contraband and the growingpersistent problem of “illicit"illicit whites," which are cigarettes legally producedpurchased in one jurisdiction for the sole purpose of being exported and illegally sold in another jurisdiction where they have no legitimate market. WeCurrently, we estimate that illicit trade in the European Union accounted for approximately 10%8% of total cigarette consumption in 2019.2022.

A number of jurisdictions are considering actions to prevent illicit trade. In November 2012, the FCTC adopted the Protocol to Eliminate Illicit Trade in Tobacco Products (the “Protocol”), which includes supply chain control measures, such as licensing of manufacturers and distributors, enforcement of these control measures in free trade zones, controls on duty free and Internet saleschannels and the implementation of tracking and tracing technologies. To date, 5866 Parties, including the European Union, have ratified it. The Protocol came into force in September 2018. Parties must now start implementing its measures viaprovisions in their national legislation. In October 2018,November 2021, the firstsecond Meeting of the Parties to the Protocol decided, among others, to produce a comprehensive reportfocus on good practices for the implementation of tracking and tracing systems and to prepare a conceptual framework for global information sharing to combat illicit tobacco trade.trade and enable the parties to exchange products' tracking and tracing information in a secure manner. We welcome this decision and expect that other Parties will ratify the Protocol.

We devote substantial resources to help prevent illicit trade in combustible tobacco products and RRPs. For example, we engage with governments, our business partners and other stakeholders to implement effective measures to combat illicit trade and, in some instances, pursue legal remedies to protect our intellectual property rights.

The tracking and tracing regulations for cigarettes and roll-your-own products manufactured or destined for the EU became effective on May 20, 2019. The effective date for other tobacco-containing products, including some of our RRPs such as heated tobacco units, is May 20, 2024. While we expect that this regulation will increase our operating expenses, we do not expect this increase to be significant.

In 2009, our Colombian subsidiaries entered into an Investment and Cooperation Agreement with the national and regional governments of Colombia to promote investment in, and cooperation on, anti-contraband and anti-counterfeit efforts. The agreement
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provides $200

million in funding over a 20-year period to address issues such as combating illegal cigarette trade and increasing the quality and quantity of locally-grown tobacco.

In May 2016, PMI launched PMI IMPACT, a global initiative that supports third-party projects dedicated to fighting illegal trade and related crimes such as corruption, organized criminal networks and money laundering. The centerpiece of PMI IMPACT is a council of external independent experts in the fields of law, anti-corruption and law enforcement. The experts are responsible for evaluating and approving funding proposals for PMI IMPACT grants. PMI has pledged $100 million to fund projects within PMI IMPACT over three funding rounds.

Reduced-Risk Products (RRPs)    

Our Approach to RRPs: We recognize that smoking cigarettes causes serious diseases and that the best way to avoid the harms of smoking is never to start or to quit. Nevertheless, it is predicted that over the next decadeby 2025, the number of smokers will remain largely unchanged from the current estimate of 1.1 billion, despite the considerable efforts to discourage smoking.

Cigarettes burn tobacco, which produces smoke. As a result of the combustion process, the smoker inhales various toxic substances. In contrast, RRPs do not burn tobacco and produce an aerosol that containstherefore contain significantly lower levels of harmful and potentially harmful constituents ("HPHCs") than found in cigarette smoke.

For adult smokers who would otherwise continue to smoke, we believe that RRPs, while not risk-free, offer a much better consumer choice. Accordingly, our key strategic priorities are:are to: (i) to develop and commercialize products that present less risk of harm to adult smokers who switch to those products versus continued smoking; and to convince(ii) educate and encourage current adult smokers who would otherwise continue to smoke to switch to those products.

We recognize that this transformation from cigarettes to RRPs will take time and that the speed of transformation will depend in part upon factors beyond our control, such as the willingness of governments, regulators and other policy groups to embrace RRPs as a desired alternative to continued cigarette smoking. We also recognize that our part in this transformation must be funded from our existing cigarette business. For as long as a significant number of adult smokers continues to smoke, itresponsible leadership of the category is critical thatcritical. We aim to maintain our competitive position in the industry be led by responsible and ethical manufacturers. Therefore, during the transformation, we intend to remaincigarette market through selective investment. As a leading international cigarette manufacturer.manufacturer, we will continue to accelerate this transformation by using our regulatory and commercial expertise and extensive commercial and distribution infrastructure as an effective platform for the commercialization of our RRPs and communication with adult smokers and trade partners about the benefits of switching to our RRPs.

While seeking to remain competitive in the cigarette market, we are judiciously reallocating resources from cigarettes to RRPs and are streamlining our cigarette portfolio.

We have a range of RRPs in various stages of development, scientific assessment and commercialization. We conduct rigorous scientific assessments of our RRP platforms to substantiate that they reduce exposure to HPHCs and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking. We draw upon a team of expert scientists and engineers from a broad spectrum of scientific disciplines and our extensive learnings of adult consumer preferences to develop and assess our RRPs. Our efforts are guided by the following key objectives:

to develop RRPs that adult smokers who would otherwise continue to smoke find to be satisfying alternatives to smoking;
for those adult smokers, our goal is to offer RRPs with a scientifically substantiated risk-reduction profile that approaches as closely as possible that associated with smoking cessation;
to substantiate the reduction of risk for the individual adult smoker and the reduction of harm to the population as a whole, based on scientific evidence of the highest standard that is made available for scrutiny and review by external independent scientists and relevant regulatory bodies; and
to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs, including the communication of scientifically substantiated information to enable adult smokers to make better consumer choices.

Our RRP Platforms: Our product development is based on the elimination of combustion via tobacco heating and other innovative systems, for aerosol generation, which we believe isare the most promising path to providing a better consumer choice for those who would otherwise continue to smoke. We recognize that no single product will appeal to all adult smokers. Therefore, we are developing a portfolio of products intended to appeal to a variety of distinct adult consumer preferences.

Four
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Five PMI-developed or improved RRP platforms are in various stages of development and commercialization readiness:

        Platform 1 uses a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol. We have conducted a series of clinical studies for this platform, the results of which were included in our submission to the U.S. Food and Drug Administration (“FDA”) described below.

The results of the first six-month term of the 6+6 month exposure response study were received at the end of 2017, and the related report was completed and submitted. In addition to the FDA in the second quarteroriginal version of 2018. The study showed that all eight of the co-primary clinical risk endpoints moved in the same direction in the group that switched to our Platform 1 product as observed for smoking cessation, with statistically significant changes in fivewhich relies on a heating technology using a blade, a new version of the eight endpoints compared with on-going smoking. The resultsPlatform 1 is now available using induction instead of the second six-month term of the 6+6 month exposure response study were received for analysis in the second quarter of 2018; we are analyzing the results, and expect to finalize the report later this year. In addition, as set out in our submission to the FDAheating a blade. All studies referenced above we completed an 18-month combined chronic toxicity and carcinogenicity study in mice, which was on-going at the time of our FDA submission. We shared the resultswere conducted with the FDA in August 2018.blade version of Platform 1. We believe that there is full comparability between the subsequent Platform 1 versions, and therefore the data from these studies remain valid. In 2022, we also began the initial launch of a heated tobacco product using external resistive heating technology and commercialized under the BONDS brand.

    Platform 2 usesused a pressed carbon heat source which, when ignited, generates a nicotine-containing aerosol by heating tobacco. As a result of consumer testing feedback, the design of our current Platform 2 technology has been discontinued. We are assessing alternative designs for this consumer segment.

Platform 3 is a product using nicotine salt that is composed of two parts: a consumable that contains a highly soluble encapsulated nicotine powder and a non-electric device that activates it. Once a consumable is inserted into the mechanical device, the nicotine powder is aerosolized and inhaled. The results of our pharmacokinetic study (that measured the nicotine pharmacokinetic profile as well as subjective effects) and of our five-day reduced exposure study indicate that this platform could be an acceptable substitute for adult smokers who seek an alternative to cigarettes. The reduced exposure study results showed a substantial reduction in relevant biomarkers of exposure to the measured HPHCs in those who switched to Platform 2compared to those who continued to smoke cigarettes over a five-day period. The sustainability of this reduction as well as changes in clinical risk markers were assessed in a three-month reduced exposure study. The results of this study were received at the end of 2017, and the related report was finalized in the second quarter of 2018.

Platform 3 provides an aerosol of nicotine salt. We have explored two routes for this platform, one with electronics and one without, and conducted nicotine pharmacokinetic studies with both versions. The results of the pharmacokinetic study related to thethis version without electronics were received, and the related report was finalized in the fourth quarter of 2018. The results indicate this product's potential as an acceptable alternative to continued cigarette smoking in terms of product satisfaction. We are conducting aworking on product use and adaptation study inmodifications to enable switching by those adult smokers and expect the results in 2020.who are looking for better alternatives to cigarettes.

    Platform 4 covers e-vapor products, which are battery-powered devices that produce an aerosol by vaporizing a nicotine-containingtobacco-free liquid solution. Our e-vapor products comprise devices using current generation technology and

Recently, we developed a new e-liquid for our new e-vapor mesh technology that addressesto deliver real tobacco taste satisfaction in an E-Vapor product liquid-using patented technology, where flavors and nicotine are extracted directly from the tobacco leaves and captured in a liquid solution, without having to add flavoring ingredients.

We also entered into a licensing agreement with Kaival Brands International, LLC in June 2022 to distribute an e-vapor product, known in the U.S. as the BIDI® Stick. The agreement grants PMI certain challenges presented by someintellectual property rights relating to the premium e-vapor products currently ondevice and, potentially, other newly developed devices, to permit PMI to manufacture, promote, sell, and distribute the market. Our IQOSMESH products are designede-vapor device and, to ensure the consistency and qualityextent included, other newly developed devices in international markets outside of the generated aerosol.U.S. We conducted a nicotine pharmacokinetic studyhave begun commercializing an improved version of the BIDI® Stick under the brand VEEV now in 2017. The results of this study were receivedCanada, U.K., Serbia and Ukraine.

Platform 5 covers Snus and Modern Oral Nicotine Pouches. Snus refers to dried loose tobacco, or snuff, which is consumed by sniffing the product through the nose, moist loose tobacco which is put in the second quartermouth between the lower or upper lip and gum, and Snus pouches which contain grinded tobacco, water, salt and flavors. Modern Oral Nicotine Pouches consist of 2018 for analysis,white pre-conditioned pouches containing nicotine derived from tobacco. Users place a pouch between the upper lip and gum and leave it there while the related report was finalizednicotine and taste are being released. At the end of the use, the user can dispose of the pouch. Nicotine pouches are inherently smoke-free as they are consumed orally, and no combustion process occurs during use. They contain primarily nicotine, flavors, and a cellulose substrate. The nicotine used in the fourth quarterpouches is of 2018.pharmaceutical-grade like the nicotine used in medicinal products, such as gums and inhalers, while the flavors are approved for use in food in accordance with the product quality standards for nicotine pouches developed by the Swedish Institute for Standards. In 2021, PMI acquired AG Snus as well as Fertin Pharma, two companies manufacturing and/or marketing nicotine pouches. In 2022, we significantly expanded our Platform 5 products portfolio with the acquisition of Swedish Match. The resultsacquisition also represented an expansion of this study indicateour RRP presence in the United States market, where Swedish Match's ZYN brand is the leading nicotine pouch franchise.

We aim to expand our brand portfolio and market positions with additional RRPs. In addition, we are continuing to use our expertise, technology and capabilities to explore new growth opportunities beyond our current business, including products that IQOS MESH products are an effective means ofdo not contain nicotine delivery while being a satisfying alternative for e-cigarette users. In March 2019, a six-month pre-clinical study in mice evaluating the impact of e-cigarette vapor on the risks of pulmonary and cardiovascular disease compared to cigarette smoke was completed; this study did not pertain to a specific product. The study demonstrated that e-cigarette vapors induce significantly lower biological responses associated with cardiovascular and pulmonary diseases compared with cigarette smoke. We will also initiate a clinical study to measure selected biomarkers of exposure to HPHCs and assess changes in clinical risk markers.or tobacco.

After we receive the results of our scientific studies, including those mentioned above, in accordance with standard scientific practices, we intend to share the conclusions in scientific forums and to submit them for inclusion in peer-reviewed publications.

The research and development expense for our RRPsmoke-free portfolio accounted for 98%, 92% and 74%99% of our total research and development expense for each of the three years ended December 31, 2019, 20182022, 2021 and 2017, respectively.2020.  The research and development expense for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, is set forth in Item 8, Note 14.15. Additional Information to the consolidated financial statements.

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Commercialization of RRPs: We are buildingdeveloping a newmulticategory product categoryapproach and tailortailoring our commercialization strategy to the characteristics of each specific market. We focus our commercialization efforts on consumer retail experience, guided consumer trials and customer care, as well asand increasingly, digital communication programs.programs and e-commerce.  In order to accelerate switching to our Platform 1 product,products, our initial market introductions typically entail one-on-oneone-to-one consumer engagement (in person or by digital means) and introductory device discounts.  These initial commercialization efforts require substantial investment, which we believe will moderate over time.time and further benefit from the increased use of digital engagement capabilities. During the COVID-19 pandemic, we accelerated our investments in, and pivot to, digital consumer engagement.

As of December 31, 2022, PMI's smoke-free products were available for sale in 73 markets.

In 2014, we introduced our Platform 1 product in pilot city launches in Nagoya, Japan, and in Milan, Italy. Since then, we have continuously expanded our commercialization activities, and the productactivities.
is currently available for sale in 52 markets in key cities or nationwide.
We estimateData shows that only a very small percentage of adult smokers who convert to our Platform 1 product switch back to cigarettes.

We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, are progressing with our plans to build manufacturing capacity for our other RRP platforms, and continue to optimize our manufacturing infrastructure.

An adequate supply chain forinfrastructure and expand our RRP portfolio, including the supply of electronic devices, is importantcommercialization activities to our business.new products and markets. We work with two electronics manufacturing service providers for the supply of our Platform 1 and IQOS MESH devices and a small number of other

providers for other products in our RRP portfolio anddiscuss certain risks related accessories. Although we work closely with these service providers on monitoring their production capability and financial health,to the commercialization of our RRPs could be adversely affected if they are unable to meet their commitments. The productionand supply of our RRP portfolio requires various metals, and we believe that there is an adequate supply of such metals in the world markets to satisfy our current and anticipated production requirements. However, some components and materials necessary for the production of our RRPs, including those for the electronic devices, are obtained from single or limited sources, and can be subject to industry-wide shortages and price fluctuations. Our inability to secure an adequate supply of such components and materials could negatively impact the commercialization of our RRPs.

Item 1.A. Risk Factors.
Our Platform 1 and
IQOS MESH devices are subject to standard product warranties generally for a period of 12 months from the date of purchase or such other periods as required by law. We discuss product warranties in more detail in Item 8, Note 5.7. Product Warranty. The significance of warranty claims is dependent on a number of factors, including device version mix, product failure rates, logistics and service delivery costs, and warranty policies, and may increase with the number of devices sold.

Product quality may affect consumer acceptanceOn October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc. to end the companies' commercial relationship covering Platform 1 in the U.S. as of our RRPs.April 30, 2024. Thereafter, PMI will have the full rights to commercialize Platform 1 in the U.S.- the world’s largest smoke-free market, as of April 30, 2024. This agreement provides a clear path to fulfilling Platform 1 international success in a market where around 31 million adults continue to smoke.

Our near-term planned commercialization efforts for the other PMI-developed RRP platforms are as follows:

We currently market our e-vapor products in Ireland and the U.K. In July 2018, we pilot-launched IQOS MESH, one of our Platform 4 products, in London, U.K. In light of the current confusion in the e-vapor category, we have postponed our planned launch of an improved version of this product until the third quarter of 2020, when we expect to reach the optimal capacity for commercialization at scale.

We completed a small-scale city test of TEEPS, our Platform 2 product, that we had initiated in December 2017 in Santo Domingo, the Dominican Republic. We are finalizing our improvements to this product and plan to conduct a consumer test by the end of 2020.

Depending onIn late 2022, we began commercializing our BONDS product in the outcomePhilippines and Colombia.

Following the consumer test conducted in 2020, and the results of the product use and adaptation study described above, we are incorporating our learnings into our plans to improve our Platform 3 product.

We started commercializing a new version of IQOS MESH in Canada, Croatia, the Czech Republic, Finland, France, Greece, Italy, Ukraine, New Zealand and the Slovak Republic under the IQOS VEEV or VEEV brand names.

We launched a Platform 5 product in Sweden in January 2022, and have since launched it in ten additional markets, that is a reformulated version of the already commercialized nicotine pouches bearing the Shiro brand by our newly acquired affiliate AG Snus.

In addition, Swedish Match’s commercialization efforts in 2022 included the launch of several variants of existing snus and nicotine pouch brands in different markets, such as the launch of various ZYN variants in multiple markets, as well as consumer research, we plan to conduct a consumer test of our Platform 3the new Volt Pearls nicotine pouch product by the end of 2020.in Denmark, Iceland and Sweden.

RRP Regulation and Taxation: RRPs contain nicotine and are not risk-free. We thereforeAs we describe in more detail above, we support science-based regulation and taxation of RRPs. RegulationRRPs, and believe that regulation and taxation should differentiate between cigarettes and products that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products versus continued smoking and should recognize a continuum of risk for tobacco and other nicotine-containing products. Regulation, should provide minimum standards for all RRP categories and specific rules for product assessment methodologies, ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-containing products. Regulation, as well as industry practices, should reflect the fact that youth should not consume nicotine in any form.

Some governments have banned or are seeking to ban or severely restrict emerging tobacco and nicotine-containing products such as our RRPs and communication of truthful and non-misleading information about such products.

These regulations might foreclose or unreasonably restrict adult consumer access even to products that might be shown to be a better consumer choice than continuing to smoke. During the COVID-19 pandemic, some governments have been and may continue to be
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temporarily unable to focus on the development of science-based regulatory frameworks for the development and commercialization of RRPs or on the enforcement or implementation of regulations that are significant to our business.

We oppose such blanket bans and unreasonable restrictions of products that have the potential to present less risk of harm compared to continued smoking. By contrast, we support regulation that sets clear standards for all RRP categories and propels innovation to benefit adult smokers who would otherwise continue to smoke.

In the United States, an established regulatory framework for assessing “Modified Risk Tobacco Products” and “New Tobacco Products” exists under the jurisdiction of the FDA. We submitted to the FDA a Modified Risk Tobacco Product Application (“MRTPA”) for our Platform 1 product in December 2016, and a Premarket Tobacco Product Application (“PMTA”) for our Platform 1 product in March 2017.

On April 30, 2019, the FDA determined that a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, is appropriate for the protection of public health ("APPH") and authorized it for sale in the United States. The FDA’s decision followed its comprehensive assessment of our PMTA. On December 7, 2020, the FDA reached the same determination for the IQOS3 device and authorized that version of our Platform 1 product for sale in the United States.

On July 7, 2020, the FDA determined that the available scientific evidence demonstrates that the issuance of an exposure modification order would be appropriate for the promotion of public health and authorized the marketing of a version of our Platform 1 product, namely IQOS 2.4 and three related consumables, as a "modified risk tobacco product." The FDA authorized the marketing of this product in the U.S. with the following information:

"AVAILABLE EVIDENCE TO DATE:

the IQOS system heats tobacco but does not burn it.
this significantly reduces the production of harmful and potentially harmful chemicals.
scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces your body’s exposure to harmful or potentially harmful chemicals."

We must request and receive authorization from the FDA in order to continue marketing this product with the same modified exposure information after the present order expires in four years from the date of the orders.

On March 18, 2021, we submitted to the FDA a supplemental MRTPA ("sMRTPA") for IQOS 3 requesting authorization to market this version of the device as a Modified Risk Tobacco Product with reduced exposure information like IQOS 2.4. In June 2021, the FDA formally accepted and filed our sMRTPA for substantive scientific review, following a period for the public to provide comments on our application. The FDA authorized our sMRTPA for IQOS 3 by issuing a Modified Risk Granted Order – Exposure Modification on March 11, 2022.

There are two types of MRTP orders the FDA may issue: a “risk modification” order or an “exposure modification” order. We had requested both types of orders for IQOS 2.4 and an initial selection of 3 consumables' variants. After review, the FDA determined that the evidence did not support issuing a "risk modification" order at this time but that it did support issuing an "exposure modification" order for the product. This determination included a finding that issuance of the exposure modification order is expected to benefit the health of the population as a whole. We also received an exposure modification order for IQOS 3.

On April 29, 2022, we submitted the Annual Report for the IQOS Tobacco Heating System ("THS") to the US Food and Drug Administration. The report included a systematic review of the literature covering publications related to the IQOS THS between March 1, 2021 and February 28, 2022. 226 publications were identified, of which 132 were in English and contained original research or data on Heated Tobacco Products (27 from PMI or other tobacco manufacturers and 105 from independent researchers). The report concludes that, although the scientific evidence continues to develop and evolve, the extensive data reviewed confirms that while HTPs are not risk-free, the risks of HTPs are significantly reduced for both users and non-users against the well-proven risks of continued smoking, and therefore continue to support the APPH status of IQOS THS.

We look forward to working with the FDA to provide any additional information they may require in order to market this product with reduced risk claims.

The FDA’s marketing order doesPMTA and MRTP orders do not mean that the agency “approved” our Platform 1 product. The authorization isThese authorizations are subject to strict marketing, reporting and other requirements, and isare not a guarantee that the product will remain authorized, particularly if there is a significant uptake in youth or non-smoker initiation.  The FDA will monitor the marketing of the product.
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On September 29, 2021, the International Trade Commission ("ITC") issued its Final Determination ("FD"), Limited Exclusion Order ("LEO") and Cease and Desist Order ("CDO"). The ITC upheld the finding of infringement in the FD and found a subsequent violation. The ITC issued a LEO prohibiting the importation of infringing tobacco heating articles and components thereof and CDOs against Philip Morris USA, Inc. and Altria Client Services, LLC, which went into effect at the end of the 60-day Presidential review period on November 28, 2021. We planhave appealed the patent issues. Furthermore, lawsuits based on the same patent families have been repeatedly and universally rejected in European courts and the European Patent Office. The decision has no bearing outside the United States. For further details, see Item 8, Note 18. Contingencies to file a PMTA applicationour consolidated financial statements.

Some states and municipalities in the U.S. have introduced severe restrictions for the IQOS 3 device in the coming months.


In May 2017, the FDA formally acceptedsale of certain e-cigarettes and filed our MRTPA for substantive scientific review and, in June 2017, the FDA opened the period for the public to provide comments on our application. The FDA closed the public comment period on February 11, 2019. In late 2019, we provided a response to the FDA's request for clarification regarding our mice study described above. Following our response, the FDA re-opened a public comment period ending February 24, 2020.

The FDA referred our MRTPA to the Tobacco Product Scientific Advisory Committee (“TPSAC”). TPSAC held a meeting on January 24 and January 25, 2018 to discuss our MRTPA. The recommendations and votes of TPSAC are not binding ontobacco products, including those authorized by the FDA. By regulation, the FDA’s decisionWe believe that such restrictions on our MRTPAFDA-authorized products will take into account, in additionnot advance public health and will unreasonably limit adult consumer access to the views of TPSAC, scientific evidence as well as comments, data and information submitted by interested persons.products that are shown to be a better alternative to continued smoking.

The FDA review of our MRTPA is on-going.

Separately, in July 2017,In March 2020, the FDA issued a policy announcement aimingfinal rule to explorerequire new text and graphic health warnings on cigarette packs and advertisements. Heated tobacco products are technically covered by this rule, however the potential of nicotine reduction in cigarettes in conjunctionFDA stated that it would make product-specific decisions about health warnings when issuing or revising individual product or marketing orders. This approach would be consistent with the availability of less harmful products that deliver nicotineoriginal marketing order for adults who chooseHeatsticks where FDA required Philip Morris Products S.A. to remove the Surgeon General’s health warning for carbon monoxide from packaging and advertising, and to use sucha nicotine addiction health warning instead. Philip Morris Products S.A. is committed to providing adult consumers with complete, accurate, and non-misleading information about possible health risks associated with its products. In July 2018, as part of a public consultation procedure, we submittedWe have shared our views with the FDA on this topicthe application of the new warnings to our heated tobacco products. The final rule is the FDA. Itsubject of litigation in the U.S. and was vacated nationwide by a federal court in November 2022. Philip Morris Products S.A. is not possiblea party to predict the regulatory measures that may be recommended by the FDA as a result of this policy.litigation.

In the U.S., tobacco and nicotine-containing products that were not commercially marketed as of February 15, 2007, are subject to review and authorization by the FDA. FollowingManufacturers of all non-authorized products currently on the market were required to file a risePMTA with the FDA by September 9, 2020. The FDA announced on September 9, 2020 that it will prioritize enforcement against any tobacco and nicotine-containing product sold without a PMTA. On October 5, 2021, FDA published its final PMTA rule in the use of e-vapor products among minorsFederal Register, which is effective November 4, 2021.All future applications will have to comply with the requirements in the U.S. and an outbreakPMTA rule, which is substantially similar to the version of lung injuries alleged to be associated with the use of certain e-vapor products in many states,final PMTA rule which was posted on Advanced Federal Register on January 2, 2020, the FDA announced an enforcement policy against the sale of e-vapor products sold without FDA authorization, prioritizing enforcement against the sale of cartridge-based e-vapor products with flavors other than tobacco and menthol, and sale of any nicotine-containing products to minors and where the manufacturer fails to take adequate measures to prevent access by minors.19, 2021.

While we do not sell e-vapor products in the U.S. and therefore are not subject to these actions, we continue to support regulation and industry practices that reflect the fact that youth should not consume nicotine in any form.

Future FDA actions may influence the regulatory approach of other governments.

Until recently, there were noCurrently, national standards in certain countries with specific product standards for heat-not-burn products. Effective July 2017 and March 2018, respectively, Russia and Ukraine adopted standards that set minimum quality and safety requirements for the consumables and definedheat-not-burn products with technical heat-not-burn specifications and/or methods for demonstrating the absence of combustion, and the productcombustion. These standards are mandatory in Kazakhstan that came into force in March 2019 also cover devices. InColombia, Egypt, Jordan, Saudi Arabia, Tajikistan, Tunisia, the UAE, Uzbekistan and Bahrain, and voluntary in Armenia, Costa Rica, Dominican Republic, Indonesia, Kazakhstan, Kyrgyzstan, Morocco, Philippines, Russia, Vietnam, the U.K. and Ukraine. In Japan, a productvoluntary standard onsets minimum safety requirements for tobacco heating devices.

For e-vapor products (e-cigarettes) national standards setting minimum quality and safety of electronic nicotine-containingrequirements have been adopted in several markets. These standards are mandatory in Armenia, Bahrain, China, Egypt, Jordan, New Zealand, United Arab Emirates, and Saudi Arabia, and voluntary in Costa Rica, France, Kazakhstan, Philippines, Russia, the U.K. and Ukraine.

Currently, industry standards setting minimum quality and safety requirements for tobacco-free oral nicotine products including heat-not-burn products, was approved(nicotine pouches) have been adopted in March 2019. Effective December 2019, Jordan adopted a national standard for heat-not-burn products (both devicesthe U.K. and consumables), and defined a method for demonstrating the absence of combustion in these products. Sweden. Both standards are voluntary.

We expect and encourage other governments to consider similar product standards going forward.for all novel tobacco and nicotine-containing products and encourage making them mandatory.

In theAll EU all EU Member Statesmember states have transposed the EU Tobacco Products Directive, including the provisions on novel tobacco products, such as heated tobacco units, and e-cigarettes. Most of the EU Member Statesmember states require a notification submitted six months before the intended placing on the market of a novel tobacco product,such products, while some require pre-market authorizations for the introduction of such products. To date, we have filed a comprehensive dossier summarizing our scientific assessment of our Platform 1 product in over 20 Member States.member states.

On September 12, 2022, Norway rejected a submission for authorization of HEETS as a novel tobacco product. Norway partially transposed the EU Tobacco Products Directive (the “TPD”) under the European Free Trade Association ("EFTA") agreement and introduced an authorization system for novel tobacco products following article 19 of TPD. So far Norway has not granted authorization of any novel tobacco product. E-cigarettes and tobacco free nicotine pouches have not been granted access either.
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In addition, in Italy, in April 2018, we submitted under recent legislation an application for HEETS, used with the IQOS device, requesting regulatory recognition of the reduction of toxic substances and potential risk reduction resulting from switching to this product compared to continued cigarette smoking. In January 2019, our application was not granted primarily on the grounds of insufficient data and questions of methodology.  Due to the constraints of the review process, we had beenwere unable to supplement the application with all the data we subsequently filed with the FDA and to address methodological questions during the review. We plan to submit a new application where we will clarify the concerns raised by the decision and further strengthen our application by submitting additional evidence that became availablegenerated since we submitted our first application, consistent with our FDA filing.filings. We are confident that our evidence supports our application.

On October 31, 2019, our Australian subsidiary, Philip Morris Limited (“PML”), submitted an application to the Scheduling Committee of the Therapeutic Goods Administration of Australia (“TGA”) seeking to exempt heated tobacco products from being prohibited in Australia. In August 2020, the TGA issued its decision denying the application and stating that it did not present compelling evidence to establish a public health benefit from greater access to nicotine in heated tobacco products.

To date, several governmental agencies have published their scientific findings that analyze the harm-reduction potential of certain RRPs versus continuing smoking, including:

In December 2017, at the request of the U.K. Department of Health and Public Health England, the U.K. Committee on Toxicity published its assessment of the risk of heat-not-burn products relative to cigarette smoking. This assessment included analysis of scientific data for two heat-not-burn products, one of which was our Platform 1 product. The assessment concluded that, while still harmful to health,

compared with the known risks from cigarettes, heat-not-burn products are probably less harmful. Subsequently, in February 2018, Public Health England published a report stating that the available evidence suggests that heat-not-burn products may be considerably less harmful than cigarettes and more harmful than e-cigarettes.

In May 2018, the German Federal Institute for Risk Assessment (“BfR”) published a study on the Platform 1 aerosol relative to cigarette smoke using the Health Canada Intense Smoking Regimen. BfR found reductions in selected HPHCs in a range of 80-99%. This publication indicates that significant reductions in the levels of selected toxicants are likely to reduce toxicant exposure, which BfR stated might be regarded as a discrete benefit compared to combustible cigarettes.

In May 2018, the Dutch National Institute for Public Health and Environment (“RIVM”) published a factsheet on novel tobacco products that heat rather than burn tobacco, focusing on our Platform 1 product. RIVM analyzed the aerosol generated by our Platform 1 product and concluded that the use of this product, while still harmful to health, is probably less harmful than continued smoking.

In June 2018, the Korean Food and Drug Administration (“KFDA”) issued a statement on products that heat rather than burn tobacco. The KFDA tested three heat-not-burn products, one of which was our Platform 1 product. The KFDA confirmed that the levels of the nine HPHCs tested in the aerosol of these products were on average approximately 90% lower compared to those measured in the cigarette smoke of the top five cigarette brands in South Korea. However, the KFDA stated that it could not establish that the tested heat-not-burn products are less harmful than cigarettes. In October 2018, our Korean affiliatesubsidiary filed a request with a local court seeking information underlying KFDA’s analysis, conclusions and public statements. In May 2020, the court ordered KFDA to produce certain records.

In August 2018, the Science & Technology Committee of the U.K. House of Commons published a report of its inquiry into e-cigarettes and heat-not-burn products. The report concluded that e-cigarettes are significantly less harmful to health than smoking tobacco. The report also observed that for those smokers who don’tdo not accept e-cigarettes, heat-not-burn products may offer a public health benefit despite their relative risk. The report called for a risk-proportionate regulatory environment for both e-cigarettes and heat-not-burn products and noted that e-cigarettes should remain the least taxed, cigarettes the most taxed, with heat-not-burn products falling between the two. The U.K. Committee on Advertising Practice announced the removal of a prohibition of health claims in the advertising of e-cigarettes in the U.K. effective November 2018, with a review of the impact of this decision on market practices 12 months thereafter.2018.

In November 2018, the Eurasian Economic Commission (regulatory body of the Eurasian Union consisting of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia) published the results of its commissioned study on novel nicotine-containing products, including our Platform 1 product. The study confirms significantly lower levels of HPHCs in the aerosol generated by this product compared to cigarette smoke.

In January 2019, scientific media published the results of the study of the China National Tobacco Quality Supervision and Test Centre (“CNTQST”) comparing the aerosol generated by our Platform 1 product with cigarette smoke. The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating
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tobacco in our Platform 1 product contributed to the difference. The CNTQST stated that the reduction in emissions of harmful constituents cannot be interpreted as equivalent to a proportionate harm/risk reduction for smokers.smokers in the same proportion.

In 2020, the Superior Health Council of Belgium (“SHC”) published results of its inquiry into heat-not-burn products. The SHC concluded that heat-not-burn products, while not safe, have a more favorable toxicity profile than cigarettes. However, in light of the uncertainty of such products’ short and long-term impacts, the toxic effects of the dual use with cigarettes, and the existence of approved smoking cessation tools, the SHC recommended that current regulations for cigarettes should apply to heat-not-burn products.

In June 2022, the SHC published new advice on e-cigarettes in which they confirm that e-cigarettes are substantially less harmful than smoking cigarettes and therefore a better alternative for smokers. The SHC underlines that the vast majority of the risks of tobacco smoking are not caused by nicotine, but by the harmful substances that are released by the combustion of tobacco. Based on the cited science they call for legislation that makes a clear distinction between cigarettes and e-cigarettes, by focusing on better-informing smokers about the benefits of the lower-risk (but not risk-free) alternative, as well as on protecting non-smokers and young people.

The foregoing scientific findings of government agencies may not be indicative of the measures that the relevant government authorities could take in regulating our products.

We make our scientific findings publicly available for scrutiny and peer review through several channels, including our websites. From time to time, adult consumers, competitors, members of the scientific community, and others inquire into our scientific methodologies, challenge our scientific conclusions or request further study of certain aspects of our RRPs and their health effects. We are committed to a robust and open scientific debate butand believe that such debate should be based on accurate and reliable scientific information. We seek to provide accurate and reliable scientific information about our RRPs; nonetheless, we may not be able to prevent third-party dissemination of false, misleading or unsubstantiated information about these products. The dissemination of scientifically unsubstantiated information or studies with a strong confirmation bias by third parties may cause confusion among adult smokers and affect their decision to switch to better alternatives to continued smoking, such as our RRPs.

To date, we have been largely successful in demonstrating to regulators that our heated tobacco units are not cigarettes due to the absence of combustion, and as such they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes. Although we believe that this is sensible from the public health perspective, we cannot guarantee that regulators will continue this approach.

There can be no assurance that we will succeed in our efforts to replace cigarettes with RRPs or that regulation will allow us to commercialize RRPs in all markets, to communicate about our RRPs, including making scientifically substantiated risk-reduction claims, or to treat RRPs differently from cigarettes.


Legal Challenges to RRPs: We face various administrative and legal challenges related to certain RRP activities, including allegations concerning product classification, advertising restrictions, corporate communications, product coach activities, scientific substantiation, product liability, and unfair competition.  While we design our programs to comply with relevant regulations, we expect these or similar challenges to continue as we expand our efforts to commercialize RRPs and to communicate publicly. The outcomes of these matters may affect our RRP commercialization and public communication activities and performance in one or more countries.markets.

Our RRP Business Development Initiatives: In December 2013, we established a strategic framework with Altria Group, Inc. (“Altria”) setting out terms on how the parties would collaborate to develop and commercialize e-vapor products and commercialize two of our RRPs in the U.S. In late 2018, Altria announced that it will participate in the e-vapor category only through another e-vapor company in which Altria acquired a minority interest. Regarding heat-not-burn products, as discussed above, the FDA has authorized a version of our Platform 1 product for sale in the U.S., and we are seeking authorization for our MRTP submission. These efforts are not affected by Altria's e-vapor announcement. In September 2019, Altria's subsidiary, Philip Morris USA Inc. (“PM USA”), began commercialization of a version of our Platform 1 product in the U.S. Under the agreement, PM USA was required to achieve certain milestones in order to maintain its exclusive distribution right and additional milestones to extend the agreement after the initial 5-year term. On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc. to end the companies' commercial relationship covering IQOS in the U.S. as of April 30, 2024. Thereafter, PMI will have the full rights to commercialize IQOS in the U.S. (For more details, please refer to Note 3. Acquisitions, and Note 18. Contingencies).

In January 2020, we announced an agreement with KT&G, a leading tobacco and nicotine company in South Korea, for the commercialization of KT&G’s smoke-free products outside of South Korea on an exclusive basis. On January 30, 2023, we announced a renewal and extension of this arrangement. For more information, see Acquisitions and Other Business Arrangements below.

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Other Developments: In September 2017, we announced our support of the Foundation for a Smoke-Free World. In September 2020, our pledge agreement with the Foundation was amended. We agreedcontributed $45 million in 2020, $40 million in 2021, $17.5 million in 2022, and expect to contribute $80up to $35 million per year over the next 12 years,annually from 2023 through 2029, as specified in the amended pledge agreement. We made an initial contributionTo date, we contributed a total of $4.5 million in 2017, the first annual contribution of $80 million in the first quarter of 2018 and the second annual contribution of $80 million in the first quarter of 2019.$267 million. The Foundation is an independent body and is governed by its independent Board of Directors. The Foundation’s role, as set out in its corporate charter, includes funding research in the field of tobacco harm reduction, encouraging measures that reduce the harm caused by smoking, and assessing the effect of reduced cigarette consumption on the industry value chain.


Governmental Investigations

From time to time, we are subject to governmental investigations on a range of matters, including tax, customs, antitrust, advertising, and labor practices. We describe certain matters pending in Thailand, Russia, and South Korea and Thailand in Item 8, Note 18. Contingencies.

In November 2010, a WTOWorld Trade Organization ("WTO") panel issued its decision in a dispute relating to facts that arose from August 2006 between the Philippines and Thailand, concerning a series of Thai customs and tax measures affecting cigarettes imported by PM Thailand into Thailand (see Item 8, Note 18. Contingenciesfor additional information). The WTO panel decision which was upheld by the WTO Appellate Body, concluded that Thailand had no basis to find that PM Thailand's declared customs values and taxes paid were too low, as alleged by the DSI in 2009. The decision alsoThai government and created obligations for Thailand to revise its laws, regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports. Thailand agreed in September 2011 to fully comply with the decision, by October 2012. Thebut the Philippines asserts that to date Thailand has not fully complied with the WTO panel decision. The Philippines has repeatedly expressed concerns with ongoing investigations by Thailand of PM Thailand, including those that led to the criminal charges described in Item 8, Note 18. Contingencies,decision and has commenced two formal proceedingschallenges at the WTO to challenge criminal charges against PM Thailand arguing that the criminal charges appear to be based on grounds not supported by WTO customs valuation rules and inconsistent with several decisions already taken by Thai Customs and other Thai governmental agencies. On November 12, 2018 and July 12, 2019, the WTO issued its decisions agreeing with the Philippines that the criminal charges against PM Thailand and its former and current employeesin connection with import entries of cigarettes from the Philippines and Indonesia, respectively, described in Item 8, Note 18. Contingencies, are inconsistent with WTO customs valuation rules. In January 2019 and September 2019, Thailand appealed the WTO's decision related to the criminal charges in connection with import entries of cigarettes from the Philippines and Indonesia, respectively. It is not possible to predict any future developments in these proceedings while theAppellate Body. The WTO Appellate Body is not operational.operational, and the appeals by Thailand are suspended indefinitely. In December 2020, the Philippines and Thailand agreed to pursue facilitator-assisted discussions aimed at progressing and resolving outstanding issues and the countries have since agreed to seek the establishment of a bilateral consultative mechanism, with the goal of reaching a comprehensive settlement of their dispute, consistent with their rights and obligations under the WTO Agreement, as well as the recommendations and rulings of the WTO Dispute Settlement Body.

The Public Prosecutor’s office of Rome, Italy, notified our Italian subsidiary, Philip Morris Italia S.r.l. (“PM Italia”), as well as three former or current employees and a former external consultant of PM Italia in July 2020 and March 2020, respectively, that it concluded a preliminary investigation against them for alleged contravention of anti-corruption laws and related disruption of trade freedom. The Public Prosecutor alleges that the individuals involved promised certain personal favors to government officials from January to July of 2018 in exchange for favorable treatment for PM Italia, and that PM Italia lacked appropriate organizational controls to prevent the alleged actions by the individuals. BAT has filed a civil claim against PM Italia claiming vicarious liability for any wrongdoing of its former or current employees and seeking EUR 50 million in damages. The court admitted the claim as a matter of course and issued summons for PM Italia to appear as civil party in the case. The next trial hearing is scheduled for February 13, 2023. PM Italia believes the charges brought against it by the Public Prosecutor are without merit and will defend them vigorously.

Asset Impairment and Exit Costs

We discuss asset impairment and exit costs related to restructuring activities in Item 8, Note 20. Asset Impairment and Exit Costs to our consolidated financial statements.

U.S. GAAP Treatment of ArgentinaTurkey as a Highly Inflationary Economy

Following the categorization of ArgentinaTurkey by the International Practices Task Force of the Center for Audit Quality as a country with a three-year cumulative inflation rate greater than 100%, the country is considered highly inflationary in accordance with U.S. GAAP. Consequently, we beganPMI has begun to account for the operations of our Argentinianits Turkish affiliates as highly inflationary, and to treat the U.S. dollar as the functional currency of the affiliates, effective JulyApril 1, 2018.




Asset Impairment and Exit Costs

We discuss asset impairment and exit costs in Item 8, Note 21. Asset Impairment and Exit Costs2022. The impact of this accounting change was not material to our consolidated financial statements.

As part of our transformation to a smoke-free future, we also seek to optimize our organizational design. In January 2020, we commenced the first phase of a two-phase restructuring project in Switzerland. This phase may impact approximately 265 existing positions that will be eliminated or relocated, and we initiated consultation proceduresstatements for the impacted employees as required underyear ended December 31, 2022.

Climate Change Laws and Regulations

While, to date, the law. The second phaseeffect of climate-related laws and regulations on PMI has not been material to our business, results of operations or financial conditions, consideration of environmental and climate-related laws and regulations is an integral aspect of PMI’s climate-related risk assessment process. To this restructuring project is expectedend, we actively monitor the existing and potential impact on PMI of significant pending or existing climate change-related legislation, regulations, international accords, reporting frameworks, standards, principles, and other forms of guidance. Examples include, but are not limited to, commence in the second quarterEU Emissions Trading System, the 2015 Paris Climate Agreement, recommendations of 2020.the Task Force on Climate-related Financial Disclosures, the SEC’s proposed rules regarding climate-related
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disclosures, the Taskforce on Nature-related Financial Disclosures, the European Commission Corporate Sustainability Reporting Directive, and the International Sustainability Standards Board proposed standards.

Acquisitions and Other Business Arrangements

We discuss our acquisitions in Item 8, Note 6.3. Acquisitions to our consolidated financial statements.

On August 27, 2019, we announced that we were in discussions with Altria Group, Inc. regarding a potential all-stock, no premium merger of equals, and on September 25, 2019, we announced that the merger discussions had ended and that both companies agreed to focus on launching our Platform 1product in the United States.

Global Collaboration Agreement with KT&G

InOn January 2020,30, 2023, PMI announced a globallong-term collaboration agreement with theKT&G, South Korea’s leading tobacco and nicotine company in South Korea, KT&G,manufacturer, to continue to commercialize KT&G’s innovative smoke-free products outside of the country. The agreement will run for an initial period of three years. The two companies plan for global collaboration with the intention to actively expand to cover many markets, based on commercial success. The agreement allows PMI to distribute current KT&G smoke-free products,devices and their evolutions,consumables on an exclusive, worldwide basis (excluding South Korea).

The agreement covers fifteen years, to January 29, 2038, with performance-review cycles and does not restrictassociated commitments, based on volume, to be confirmed for each three-year period, to allow flexibility for evolving market conditions.

The agreement gives PMI from distributing its own or third-party products.continued exclusive access to KT&G’s smoke-free product brandbrands and product-innovation pipeline, including offerings for low- and middle-income markets, that will enhance PMI’s existing portfolio includes heat-not-burn tobacco products (e.g., Lil Mini and Lil Plus), hybrid technologies that combine heat-not-burn tobacco and e-vapor technologies (e.g., Lil Hybrid), and e-vapor products (e.g., Lil Vapor). PMI will be responsible for the commercialization of smoke-free products supplied under the agreement.products.

Products sold under the agreement will be subject to careful assessment to ensure they meet the regulatory requirements in the markets where they are launched, as well as ourPMI’s high standards of quality and scientific substantiation of their harm reduction potential.substantiation. PMI and KT&G will seek any necessary regulatory approvals that may be required on a market-by-market basis. There are no current plans to commercialize KT&G products in the United States.


Investments in Unconsolidated Subsidiaries and Equity SecuritiesInvestments

We discuss our investments in unconsolidated subsidiaries and equity securitiesinvestments in Item 8, Note 4.6. Related Parties - Equity Investments in Unconsolidated Subsidiaries, Equity Securitiesand Other and Item 8, Note 16. Fair Value Measurementsto our consolidated financial statements.


Trade Policy

PMI complies with all applicable trade restrictions and requirements, including sanctions, in the markets in which it operates. We have taken appropriate actions in response to the latest sanctions to ensure full compliance with the relevant restrictions.

We are subject to various trade restrictions imposed by the United States of AmericaU.S., EU, Switzerland, the U.K., and countriesother jurisdictions in which we do business (“Trade Sanctions”), including the trade and economic sanctions administered by the U.S. Department of the Treasury's Office of Foreign Assets Control and the U.S. Department of State. It is our policy to comply fully with these Trade Sanctions.

Tobacco products are agricultural products under U.S. law and arePursuant to specific exemptions or licenses, or where sanctions do not technological or strategic in nature. From timeapply to time weour business, PMI may make sales in countries subject to Trade Sanctions, either where such sanctions do not apply to our business or pursuant to exemptions or licenses.

Sanctions.
A subsidiary sells products to distributors that, in turn, sell those products to duty free customers that supply U.N. peacekeeping forces around the world, including those in the U.N. peacekeeping mission located in Abyei, a special administrative territory in Sudan. We do not believe that these sales, which are not subject to Trade Sanctions, and are
de minimis in volume and value, present a material risk to our shareholders, our reputation or the value of our shares. We have no employees, operations or assets in the Sudan.

To our knowledge, none of our commercial arrangements results in the governments of any country identified by the U.S. government

as a state sponsor of terrorism, nor entities controlled by those governments, receiving cash or acting as intermediaries in violation of U.S. laws.

We do not do business or sell products in Iran, North Korea andor Syria. From time to time, we explore opportunities to

We sell our productscigarettes in one or more of these countries, asCuba under a distribution agreement. These sales are permitted by law.U.S. law under a License Exception for Agricultural Commodities, issued by the United States Department of Commerce (Bureau of Industry and Security), and specifically granted to our distributor.

Certain states within the U.S. have enacted legislation permitting or requiring state pension funds to divest or abstain from future investment in stocks of companies that do business with certain countries that are sanctioned by the U.S. Because we do business in certain of these countries, consistent with our policy to fully comply with Trade Sanctions and as described above, these state pension funds may have divested of our stock or may not invest in our stock. We do not believe such legislation has had a material effect on the price of our shares.


PMI is also subject to various Trade Sanctions imposed by the EU and other jurisdictions. We comply fully with these Trade Sanctions.
2019
On June 24, 2021, the EU introduced sanctions regarding Belarus aimed at specific sectors of the Belarus economy, including the tobacco sector. Subsequently, seven non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Bosnia and Herzegovina,
52


Montenegro, and Albania) announced that they “aligned themselves” with the majority of the EU sanctions. Switzerland and the UK have also imposed sanctions similar in scope to the EU sanctions.

On August 9, 2021, the U.S. imposed blocking sanctions on certain Belarusian individuals and entities pursuant to an Executive Order, which expanded the bases for the imposition of sanctions, including, among others, by authorizing the imposition by OFAC of blocking sanctions on persons operating in the tobacco sector of the Belarus economy. In 2021 and 2022, the U.S., the EU, the U.K., Switzerland and several other jurisdictions supplemented their respective sanctions lists by including additional Belarusian sanctions targets.

Following the start of the conflict in Ukraine on February 24, 2022, the U.S., the EU, the UK, Switzerland, Canada, Australia, New Zealand, Singapore, South Korea, Japan and other countries introduced extensive economic sanctions and export controls regarding Russia. While the introduced sanctions slightly vary from jurisdiction to jurisdiction, they are largely aligned. The restrictions are primarily targeted at the Russian financial, banking, oil, military, aviation and marine sectors. The U.S. has also introduced a prohibition on new investment in the Russian Federation by a U.S. person, wherever located. Among sanctions targets are Russian political figures and military personnel, certain oligarchs and journalists, and companies operating in the above-mentioned sectors. Export to Russia of certain luxury goods, and goods and technology which might contribute to Russia’s technological enhancement was banned. Seven non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Bosnia and Herzegovina, Montenegro, and Albania) announced that they “aligned themselves” with the majority of the EU sanctions. The EU and Switzerland introduced additional trade restrictions banning, among many other goods, the export of certain non-tobacco materials used to produce cigarettes and heated tobacco consumables in Russia as well as related technical assistance and other related services. In addition, the EU, the UK, Switzerland, Canada, Australia, New Zealand and Ukraine sanctioned Mr. Igor Kesaev, a non-majority shareholder of Megapolis Distribution B.V.

The U.K. banned the export of electronic cigarettes and similar personal electric vaporizing devices to Russia as well as related technical assistance, and financial and brokering services. Certain countries also banned the delivery of services to Russia, such as information technology consultancy services, accounting and business and management consulting services, most with exceptions for subsidiaries of U.S., E.U., or Swiss owned companies.

Russia introduced certain countermeasures aimed at reducing the effect of Western sanctions. Countermeasures include restrictions on export of certain goods from Russia, including tobacco-related production equipment, restrictions on lending to foreign borrowers, repatriation of dividends and transactions with securities and real estate involving companies from “hostile” countries (i.e., those which introduced sanctions regarding Russia).

PMI continues to monitor the development of new sanctions and ensure full compliance.



2022 compared with 2021
2018

The following discussion compares operating results within each of our operating segments for 20192022 with 2018.2021.

Unless otherwise stated, references to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units. Estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of industry data during pandemic-related restrictions.

European Union:
Financial Summary -
Years Ended
December 31,
    Change
Fav./(Unfav.)
 Variance
Fav./(Unfav.)
 20192018 TotalExcl.
Curr.
 TotalCur-
rency
PriceVol/
Mix
Cost/
Other
(in millions)   
Net Revenues $9,817
$9,298
 5.6 %11.6% $519
$(563)$288
$794
$
Operating Income $3,970
$4,105
 (3.3)%4.8% $(135)$(330)$288
$587
$(680)

Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/
Other
(in millions)
Net Revenues12,119 12,275 (1.3)%10.6 %$(156)$(1,472)$10 $(127)$1,433 $— 
Operating Income5,788 6,119 (5.4)%10.5 %$(331)$(972)$(2)$(127)$977 $(207)

Net revenues, excluding unfavorable currency and acquisitions, increased by 11.6%10.6%, reflecting a favorable pricing variance, driven principally by France and Germany, partly offset by Poland; andreflecting: favorable volume/mix, primarilymainly driven by heated tobacco unithigher HTU volume and IQOSdevice volume, notably in the Czech Republic, Germany, Greece, Italy and Poland, partly offset by lower cigarette volume, notably in France and Italy,unfavorable HTU mix, and unfavorable cigarette volume/mix in Germany.mix;
53


partially offset by an unfavorable pricing variance, mainly due to lower HTU (net) pricing and lower device pricing, partly offset by higher combustible tobacco pricing.

The unfavorable pricing variance is impacted by the supplemental excise tax surcharge on heated tobacco units in Germany, which went into effect in 2022. The legality of the surcharge is currently being assessed in court and the obligation to pay the surcharge is temporarily suspended. PMI currently accounts for the surcharge as a reduction in net revenues and in accrued liabilities in its consolidated financial statements. The accrued liability balance will continue to increase with the continuation of the European Union segment include $1,724 millionHTU selling activities and in 2019 and $865 million in 2018 related to the salecase of RRPs.an unfavorable ruling would negatively impact PMI’s future cash provided by operating activities. The favorable ruling would positively impact future PMI’s operating results.

Operating income, decreased by 3.3%. Excluding asset impairmentexcluding currency and exit charges of $342 million in 2019 related to the plant closure in Germany and unfavorable currency of $330 million, operating incomeacquisitions, increased by 13.1% mainly reflecting: a favorable pricing variance;10.5%, primarily reflecting favorable volume/mix, primarilymainly driven by heated tobacco unithigher HTU volume, notably in the Czech Republic, Germany, Greece, Italy and Poland, partly offset by lower cigarette volume, notably in France and Italy, andunfavorable HTU mix, unfavorable cigarette volume/mix in Germany;and the unfavorable impact on profitability of higher device volume; partially offset by an unfavorable pricing variance; higher manufacturing costscosts; and higher marketing, administration and research costs notably(including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $51 million and a favorable comparison versus the prior year period related to increased investment behind reduced-risk products.asset impairment and exit costs of $68 million).


European Union - Total Market, PMI Shipment Volume and Market Share Commentaries

Total market PMI shipment volume and market share performance are shown in the table below:
European Union Key DataFull-Year
Change
20222021% / pp
Total Market (billion units)484.3478.91.1 %
PMI Market Share
Marlboro15.9 %16.6 %(0.7)
L&M5.3 %5.6 %(0.3)
Chesterfield5.5 %5.5 %— 
Philip Morris2.1 %2.2 %(0.1)
Heated Tobacco Units7.7 %5.7 %2.0 
Others3.0 %3.0 %— 
Total European Union39.5 %38.6 %0.9 
European Union Key Data Full-Year
    Change
  2019
2018
% / pp
Total Market (billion units) 482.5
484.5
(0.4)%
     
PMI Shipment Volume (million units)    
Cigarettes 174,319
179,622
(3.0)%
Heated Tobacco Units 12,569
5,977
+100.0%
Total European Union 186,888
185,599
0.7 %
     
PMI Market Share    
Marlboro 18.0%18.5%(0.5)
L&M 6.7%6.9%(0.2)
Chesterfield 5.8%5.9%(0.1)
Philip Morris 2.7%2.9%(0.2)
HEETS 2.5%1.2%1.3
Others 3.1%3.1%
Total European Union 38.8%38.5%0.3

Note: Sum may not foot due to roundings.
The estimated total market in the EU decreasedincreased by 0.4%1.1% to 482.5484.3 billion units, notablyprimarily driven by:
Italy, up by 3.4%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures (particularly in the first half of the year);
Poland, up by 13.0%, primarily reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to:to the easing of pandemic-related measures); and
France,Romania, up by 8.2%, mainly reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to the easing of pandemic-related measures);
partly offset by
Germany, down by 7.4%5.1%, primarily reflecting the impact of significant excise tax-driven price increases and a higher prevalencecross-border (non-domestic) purchases due to the easing of illicit trade;pandemic-related measures; and
Germany,the U.K., down by 2.5%13.4%, primarilynotably reflecting the impact of price increasesincreased out-bound tourism compared to the pandemic-affected prior year period.

Our Regional market share increased by 0.9 points to 39.5%, with gains in 2018Germany, Italy and March 2019; and
Italy, down by 1.5%, primarily reflecting the impact of price increases in 2018 and the first quarter of 2019;
Poland, partly offset by declines in France and Spain.
Poland, up by 6.8%, primarily reflecting a lower prevalence of illicit trade; and
54


Spain, up by 0.8%, partly reflecting a lower prevalence of illicit trade.

pm-20221231_g5.jpg
Our total shipment volume increased by 0.7%4.0% to 186.9193.4 billion units, reflecting:mainly driven by:
Italy, up by 5.8%, primarily reflecting a higher heated tobacco unit shipment volume across the Region (notably Italy),market share driven by HTUs, as well as a higher total market;
Poland, up by 17.6%, mainly reflecting the higher total market and a higher market share;share driven by HTUs; and
Romania, up by 36.1%. Excluding the net favorable impact of estimated distributor inventory movements, total in-market sales volume increased by 27.3%, primarily reflecting a higher market share driven by HTUs, as well as the higher total market;
partly offset by
lower cigarette shipment volume, mainly in France, due to thedown by 8.1%, primarily reflecting a lower total market and a lower cigarette market share, as well as Germany and Italy, partly reflecting out-switching to heated tobacco units.share.

Our Regional market share increased by 0.3 points to 38.8%, with gains in the Czech Republic, Germany, Greece and Portugal, partly offset by declines in France, Poland and Spain.



Eastern Europe:

Financial Summary -
Years Ended
December 31,
    Change
Fav./(Unfav.)
 Variance
Fav./(Unfav.)
 20192018 TotalExcl.
Curr.
 TotalCur-
rency
PriceVol/
Mix
Cost/
Other
(in millions)   
Net Revenues $3,282
$2,921
 12.4 %16.1 % $361
$(108)$85
$384
$
Operating Income $547
$902
 (39.4)%(41.9)% $(355)$23
$85
$109
$(572)

Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/
Other
(in millions)
Net Revenues3,725 3,544 5.1 %3.7 %$181 $51 $— $334 $(204)$— 
Operating Income1,166 1,213 (3.9)%(13.9)%$(47)$122 $— $334 $(212)$(291)

Net revenues, excluding unfavorable currency and acquisitions, increased by 16.1%3.7%, reflectingreflecting: a favorable pricing variance, mainlyprimarily driven by Russia and Ukraine, and favorable volume/mix, predominantly driven by heatedhigher combustible tobacco unit and IQOS device volume in Russia and Ukraine, and heated tobacco unit volume in Kazakhstan,pricing; partly offset by unfavorable cigarette volume/mix, in Russia andmainly due to lower cigarette volume, in Ukraine.lower HTU volume and unfavorable cigarette mix.


TheIn 2022, Russia and Ukraine accounted for around 70% of PMI's total net revenues in the Region.

Operating income, excluding currency and acquisitions, decreased by 13.9%, notably reflecting the impact of the Eastern Europe segment include $844 million in 2019 and $324 million in 20182022 charges related to the sale of RRPs.
Operating income decreased by 39.4%. Excludingwar in Ukraine ($151 million) shown in "Cost/Other", as well as unfavorable volume/mix, mainly due to the unfavorable impact of $374 millionsame factors as for net revenues; higher manufacturing costs (notably related to the Russia exciseUkraine); and VAT audit charge, and favorable currency of $23 million, operating income decreased by 0.4%, due to: higher marketing, administration and research costs, notably reflecting increased investments behind reduced-risk products (primarily in Russia in support of geographic expansion); and higher manufacturing costs; partly offset by a favorable pricing variance; and favorable volume/mix, predominantly driven by heated tobacco unit volume in Kazakhstan, Russia and Ukraine, partly offset by unfavorable cigarette volume/mix in Russia.variance.

55


Eastern Europe - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in Eastern Europe decreased by 5.4%4.4% to 397.4358.0 billion units, notablyprimarily due to:
Russia, down by 5.2%3.6%, primarily reflectingmainly due to the impact of price increases, as well as an increase in the prevalence of illicit trade;increases; and
Ukraine, down by 12.0%, primarily reflecting the impact of excise tax-driven price increases, as well as an increase18.3%.

The estimated total market in the prevalence of illicit trade;Eastern Europe, excluding Russia and Ukraine, was essentially stable at 113.3 billion units.
partly offset by
Kazakhstan, up by 5.7%, partly reflecting a lower prevalence of illicit trade.

Our Regional market share decreased by 0.8 points to 29.8%. Excluding Russia and Ukraine, our Regional market share increased by 1.60.4 points to 28.7%26.7%.

pm-20221231_g6.jpg
PMI Shipment Volume (million units)Full-Year
 2019
2018
Change
Cigarettes100,644
108,718
(7.4)%
Heated Tobacco Units13,453
4,979
+100.0%
Total Eastern Europe114,097
113,697
0.4 %
Our total shipment volume decreased by 7.1% to 106.3 billion units, primarily due to:

Russia, down by 6.0%, due to cigarettes and HTUs; and
Ukraine, down by 30.1%, due to cigarettes and HTUs.
In 2022, Russia and Ukraine accounted for around 71% of PMI's total shipment volume in the Region. Excluding Russia and Ukraine, total shipment volume increased by 0.4% to 114.1 billion units, notably reflecting:2.7%.
Kazakhstan, up by 11.6%, reflecting the higher total market and a higher market share of heated tobacco units;
partly offset by
Ukraine, down by 3.0%, reflecting the lower total market, partly offset by a higher market share of heated tobacco units.


Middle East & Africa:

Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/
Other
(in millions)
Net Revenues3,901 3,293 18.5 %29.0 %$608 $(348)$— $200 $503 $253 
Operating Income1,758 1,146 53.4 %67.6 %$612 $(163)$— $200 $364 $211 

56

Financial Summary -
Years Ended
December 31,
    Change
Fav./(Unfav.)
 Variance
Fav./(Unfav.)
 20192018 TotalExcl.
Curr.
 TotalCur-
rency
PriceVol/
Mix
Cost/
Other
(in millions)   
Net Revenues $4,042
$4,114
 (1.8)%2.2% $(72)$(162)$207
$(113)$(4)
Operating Income $1,684
$1,627
 3.5 %6.8% $57
$(53)$207
$(128)$31


Net revenues, excluding unfavorable currency and acquisitions, increased by 2.2%29.0%, mainly reflecting:notably reflecting a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/Other", favorable volume/mix, primarily driven by higher cigarette volume and higher HTU volume; and a favorable pricing variance, primarilymainly driven by Egypt, the GCC, PMI Duty Free and Turkey, partly offset by Morocco; partially offset by unfavorable volume/mix, mainly due to heatedcombustible tobacco unit and cigarette volume in PMI Duty Free, as well as cigarette volume in Kuwait, partly offset by favorable cigarette volume in Egypt and favorable cigarette volume/mix in Algeria and Saudi Arabia.pricing.

The net revenues of the Middle East & Africa segment include $321 million in 2019 and $382 million in 2018 related to the sale of RRPs.

Operating income, excluding unfavorable currency and acquisitions, increased by 6.8%67.6%, mainlynotably reflecting a favorable comparison related to the Saudi Arabia customs assessments in 2021 (as noted above for net revenues), favorable volume/mix, primarily driven by the same factors as for net revenues; a favorable pricing variance; lower manufacturing costs; and lower marketing, administration and research costs notably in(including the GCC;unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $13 million and a favorable comparison versus the prior year period related to asset impairment and exit costs of $17 million); partly offset by unfavorable volume/mix, mainly due to the same factors as for net revenues noted above.higher manufacturing costs.

Middle East & Africa - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in the Middle East & Africa was essentially flat at 592.4decreased by 0.8% to 557.2 billion units, notably reflecting:mainly due to:
Algeria, updown by 7.0%16.1%, partly reflectingor by 6.8% excluding the timingnet unfavorable impact of estimated trade inventory movements, primarily reflecting industry supply chain disruptions, as well as the impact of excise tax-driven price increases in 2019 compared to 2018;the first quarter of 2021; and
Egypt, up by 1.6%, mainly due to the timing of estimated trade inventory movements in 2019 related to anticipated price increases;
offset by
Duty Free,Turkey, down by 1.6%6.3%, mainly reflecting lower purchasesa higher estimated prevalence of illicit trade, partly offset by travelers to China; andthe impact on adult smoker average daily consumption of the easing of pandemic-related measures, coupled with increased in-bound tourism;
Morocco, downpartly offset by 16.0%
International Duty Free, up by 43.8%, primarily reflecting the impact of significant excise tax-driven price increasesreduced government travel restrictions and increased passenger traffic in 2019.certain geographies.


Our Regional market share decreasedincreased by 0.21.6 points to 23.5%24.7%.

PMI Shipment Volume (million units)Full-Year
 2019
2018
Change
Cigarettes134,568
136,605
(1.5)%
Heated Tobacco Units2,654
3,403
(22.0)%
Total Middle East & Africa137,222
140,008
(2.0)%

pm-20221231_g7.jpg
Our total shipment volume decreasedincreased by 2.0%6.5% to 137.2138.6 billion units, notably in:mainly driven by:
Egypt, up by 8.2%, primarily reflecting a higher market share driven by cigarettes and HTUs; and
PMI Duty Free, down by 7.0%. Excluding the net unfavorable impact of estimated distributor inventory movements of 0.4 billion units, PMI's in-market sales decline was 4.6%, mainly reflecting lower market share and the lower total market; and
Turkey, down by 5.6%, mainly reflecting lower market share, primarily driven by the timing of retail price increases in April 2019 compared to competition;
partly offset by
Egypt, up by 12.2%, primarily reflecting higher market share, driven by L&M, as well as the higher total market; and

Saudi Arabia, up by 24.9%. Excluding61.3%, or by 47.3% excluding the net favorable impact of estimated distributor inventory movements of 1.5 billion units, mainly attributable(primarily due to cigarettes), reflecting the timing of shipments compared to 2018, PMI's in-market sales grew by 4.1%, primarily reflectinghigher total market and a higher market share.


57


South & Southeast Asia:

Financial Summary -
Years Ended
December 31,
   Change
Fav./(Unfav.)
 Variance
Fav./(Unfav.)
Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20192018 TotalExcl.
Curr.
 TotalCur-
rency
PriceVol/
Mix
Cost/
Other
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/
Other
(in millions) (in millions)
Net Revenues $5,094
$4,656
 9.4%9.6% $438
$(10)$583
$(135)$
Net Revenues4,395 4,396 — %6.2 %$(1)$(274)$— $45 $228 $— 
Operating Income $2,163
$1,747
 23.8%22.8% $416
$17
$583
$(99)$(85)Operating Income1,459 1,506 (3.1)%5.7 %$(47)$(133)$— $45 $(16)$57 

Net revenues, excluding unfavorable currency and acquisitions, increased by 9.6%6.2%, reflecting: favorable volume/mix, primarily driven by higher cigarette volume and favorable cigarette mix; and a favorable pricing variance, principally drivenmainly due to combustible tobacco pricing.

Operating income, excluding currency and acquisitions, increased by Indonesia5.7%, primarily reflecting: lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $21 million and the Philippines,unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $13 million); and a favorable pricing variance; partly offset by unfavorable volume/mix, largelymainly due to Indonesia, partly offset by favorable volume in India and Thailand, as well as favorable mix in the Philippines.lower cigarette mix.

Operating income increased by 23.8%. Excluding asset impairment and exit costs of $20 million related to a plant closure in Pakistan in the first quarter of 2019 as part of our global manufacturing infrastructure optimization, and favorable currency of $17 million, operating income increased by 24.0%, mainly reflecting: a favorable pricing variance and lower manufacturing costs, partly offset by unfavorable volume/mix, reflecting the same factors as for net revenues noted above, and higher marketing, administration and research costs, partly due to the Philippines.

South & Southeast Asia - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in South & Southeast Asia decreasedincreased by 1.2%2.9% to 738.1743.3 billion units, notably due to:mainly driven by:
Pakistan,India, up by 16.8%, primarily reflecting a favorable comparison versus the prior year, during which pandemic-related restrictions impacted the movement of certain products, including tobacco; and
Indonesia, up by 4.5%, mainly reflecting the impact on adult smoker consumption of the easing of pandemic-related measures, which drove growth in the tax-advantaged 'below tier one' segment;
partly offset by
Bangladesh, down by 14.0%4.0%, primarily reflecting the impact of pandemic-related restrictions on mobility during February 2022, as well as the impact of second-quarter 2022 excise tax-driven price increases; and
the Philippines, down by 6.1%, mainly reflecting the impact of first-quarter 2022 excise tax-driven price increases;increases.
the Philippines, down by 3.7%, primarily reflecting the impact of price increases in the below premium segment in the fourth quarter of 2018, as well as price increases in the third quarter of 2019; and
Vietnam, down by 5.2%, mainly reflecting the impact of excise tax-driven price increases;
partly offset by
Indonesia, up by 1.1%, reflecting the absence of an excise tax increase in 2019; and
Thailand, up by 5.8%, primarily reflecting on-going recovery from the September 2017 excise tax reform.

Our Regional market share decreased by 0.1 point0.3 points to 23.7%19.4%.

58


PMI Shipment Volume (million units)Full-Year
 2019
2018
Change
Cigarettes174,934
178,469
(2.0)%
Heated Tobacco Units

 %
Total South & Southeast Asia174,934
178,469
(2.0)%

pm-20221231_g8.jpg
Our total shipment volume decreasedincreased by 2.0%1.6% to 174.9144.5 billion units, notably due to:mainly driven by:
Indonesia, down by 2.9%, mainly reflecting lower market share, primarily due to the widened retail price gap of Sampoerna A to competitive brands following its price increase in October 2018, partly offset by the higher total market;
Pakistan,India, up by 73.9%, primarily reflecting a higher market share (driven by geographic expansion) and the higher total market; and
Indonesia, up by 4.8%, mainly reflecting the higher total market;
partly offset by
the Philippines, down by 8.6%6.3%, mainly reflecting the lower total market, partly offset by higher market share driven by favorable retail price gaps with competitors' brands; andmarket.

the Philippines, down by 2.9%, mainly reflecting the lower total market, partly offset by higher market share, notably of
Marlboro;
partly offset by
Thailand, up by 18.0%, mainly reflecting higher market share, driven by the continued strong performance of L&M7.1 and the favorable impact of distribution expansion in 2018, as well as the higher total market.


East Asia & Australia:

Financial Summary -
Years Ended
December 31,
    Change
Fav./(Unfav.)
 Variance
Fav./(Unfav.)
 20192018 TotalExcl.
Curr.
 TotalCur-
rency
PriceVol/
Mix
Cost/
Other
(in millions)   
Net Revenues $5,364
$5,580
 (3.9)%(3.4)% $(216)$(26)$230
$(420)$
Operating Income $1,932
$1,851
 4.4 %2.4 % $81
$37
$230
$(292)$106

Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/
Other
(in millions)
Net Revenues5,132 5,953 (13.8)%(3.9)%$(821)$(587)$— $(16)$(218)$— 
Operating Income1,919 2,556 (24.9)%(10.9)%$(637)$(358)$— $(16)$(477)$214 

Net revenues, excluding unfavorable currency and acquisitions, decreased by 3.4%3.9%, primarily reflecting: unfavorable volume/mix, mainly due to unfavorable device mix, lower cigarette volume in Australia, Japan and Korea, lower IQOS device volume in Japan, and lower heated tobacco unit volume and IQOS device volume in Korea,unfavorable cigarette mix, partly offset by higher heated tobacco unitHTU volume in Japan. Theand higher device volume; and an unfavorable volume/mix was partly offset by a favorable pricing variance, predominantly driven by Australia and Japan.comparison.

The net revenues of the East Asia & Australia segment include $2,671 million in 2019 and $2,506 million in 2018 related to the sale of RRPs.

Operating income, excluding favorable currency increasedand acquisitions, decreased by 2.4%10.9%, mainly reflecting: a favorable pricing varianceunfavorable volume/mix, primarily due to unfavorable HTU mix, lower cigarette volume, unfavorable cigarette mix and lowerunfavorable device mix; and higher manufacturing costs, primarily related to Japan and Korea,costs; partly offset by unfavorable volume/mix, mainly reflecting the same drivers as for net revenues noted above, as well as higherlower marketing, administration and research costs.costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $88 million and the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $21 million).
59



East Asia & Australia - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in East Asia & Australia, excluding China, decreased by 4.0%0.9% to 299.2292.8 billion units, notablymainly due to:
Australia, down by 5.9%, or by 8.9% excluding the impact of estimated trade inventory movements, mainly reflecting the impact of excise tax-driven retail price increases;
Japan, down by 5.6%1.5%, mainlyprimarily reflecting the impact of the October 1, 20182021 excise tax-driven retail price increases, as well as out-switching to the cigarillo category;increases.
Korea, down by 1.4%, reflecting the secular decline of the cigarette category, partly offset by the growth of the heat-not-burn category; and
Taiwan, down by 1.9%, continuing to reflect the impact of significant excise tax-driven retail price increases in June 2017, as well as an increase in the prevalence of illicit trade.

Our Regional market share, excluding China, decreasedincreased by 0.50.8 points to 26.9%27.3%.

pm-20221231_g9.jpg
PMI Shipment Volume (million units)Full-Year
 2019
2018
Change
Cigarettes49,951
56,163
(11.1)%
Heated Tobacco Units30,677
26,866
14.2 %
Total East Asia & Australia80,628
83,029
(2.9)%

PMI'sOur total shipment volume decreased by 2.9%0.2% to 80.681.9 billion units, notably in:mainly due to:

Australia, down by 5.1%, mainly reflecting a lower total market, partly offset by a higher market share; and
South Korea, down by 11.1%1.6%, principally due toprimarily reflecting a lower cigarette and heated tobacco unit market share, as well as the lower total market;share;
partly offset by
Japan, up by 0.3%, reflecting the net favorable impact of estimated distributor inventory movements of approximately 2.6 billion units (comprised of approximately 3.4 billion heated tobacco units, partially offset by approximately 0.8 billion cigarettes), mainly due to a favorable comparison with 2018 in which
Japan, up by 0.6%, or by 3.9% excluding the net unfavorable impact of estimated distributor inventory movements (primarily due to HTUs), reflecting a higher market share, partly offset by the lower total market.IQOS consumable inventories in Japan were reduced. Excluding the impact of these inventory movements, PMI's in-market sales declined by 4.2%, primarily reflecting the lower total market, partly offset by higher heated tobacco unit market share.


Latin America & Canada:
Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 1.9%.


Americas:
Financial Summary -
Years Ended
December 31,
   Change
Fav./(Unfav.)
 Variance
Fav./(Unfav.)
Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20192018 TotalExcl.
Curr.
 TotalCur-
rency
PriceVol/
Mix
Cost/
Other
(1)
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/
Other
(in millions) (in millions)
Net Revenues $2,206
$3,056
 (27.8)%(25.6)% $(850)$(68)$90
$(113)$(759)Net Revenues1,903 1,843 3.3 %4.1 %$60 $(15)$— $102 $(23)$(4)
Operating Income $235
$1,145
 (79.5)%(80.7)% $(910)$14
$90
$(89)$(925)Operating Income436 487 (10.5)%(8.2)%$(51)$(11)$— $102 $(6)$(136)
(1) Unfavorable Cost/Other variance includes the impact of the RBH deconsolidation.
Note: Net Revenues include revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc., commencing in the third quarter of 2019, for sale under license in the United States.
60


Net revenues, excluding unfavorable currency decreasedand acquisitions, increased by 25.6%4.1%, predominantly due to: the unfavorable impact shown in "Cost/Other," resulting from the deconsolidation of RBH; andprimarily reflecting: a favorable pricing variance, driven by combustible tobacco pricing; partly offset by unfavorable volume/mix, mainly due to lowerunfavorable cigarette volume in Argentinamix.

Operating income, excluding currency and Canada,acquisitions, decreased by 8.2%, mainly reflecting: higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $5 million and a favorable comparison versus the prior year period related to asset impairment and exit costs of $8 million); and higher manufacturing costs; partly offset by a favorable pricing variance, notably in Brazil, Canada, Colombia and Mexico, partially offset by Argentina,variance. Volume/mix was slightly unfavorable, mainly due to the adoption of highly inflationary accounting.

The net revenues of the Latin America & Canada segment include $27 million in 2019 and $19 million in 2018 related to the sale of RRPs.

Operating income decreased by 79.5%. Excluding the loss on deconsolidation of RBH ($239 million), the Canadian tobacco litigation-related expense ($194 million), asset impairment and exit costs ($60 million) related to plant closures in Argentina and Colombia as part of our global manufacturing infrastructure optimization, and favorable currency ($14 million), operating income decreased by 37.6%. This decline was predominantly due to the unfavorable impact, shown in "Cost/Other," resulting from the deconsolidation of RBH; an unfavorable volume/cigarette mix, mainly due to lower cigarette volume in Argentina and Canada, partiallylargely offset by a favorable pricing variance, lower manufacturing costs and lower marketing, administration and research costs.higher cigarette volume.

Latin America & CanadaAmericas - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market in Latin America & Canada decreasedthe Americas, excluding the U.S., increased by 4.3%1.7% to 194.1190.8 billion units, notably due to:primarily driven by:
Argentina,Brazil, up by 7.6%, primarily reflecting a lower estimated prevalence of illicit trade;
partly offset by
Canada, down by 4.6%12.8%, primarily due tonotably reflecting the impact of cumulative price increases and the impact of the economic downturn as of the second half of 2018;out-switching from cigarettes to e-vapor products.
Canada, down by 7.7%, primarily due to the impact of cumulative price increases, as well as the growing prevalence of e-vapor products; and
Venezuela, down by 61.6%, mainly reflecting the deterioration of the socioeconomic environment and the impact of inflation-driven price increases.

Our Regional market share, decreasedexcluding the U.S., increased by 0.40.3 points to 36.9%34.8%.


PMI Shipment Volume (million units)Full-Year
 2019
2018
Change
Cigarettes72,293
80,738
(10.5)%
Heated Tobacco Units299
147
+100.0%
Total Latin America & Canada72,592
80,885
(10.3)%

pm-20221231_g10.jpg
Our total shipment volume decreasedincreased by 10.3%2.1% to 72.666.5 billion units, ormainly driven by:
Brazil, up by 5.2% excluding the impact of the RBH deconsolidation, notably due to:
Argentina, down by 9.4%13.3%, primarily reflecting the lowerhigher total market and a higher market share; and
Mexico, up by 2.5%, mainly reflecting a higher total market and a higher market share for cigarettes;
partly offset by
Argentina, down by 2.8%, primarily reflecting a lower market share due to adult smoker downtrading to ultra-low-price brands produced by local manufacturers, partly offset by a higher total market.


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Swedish Match:

Our results for the Swedish Match operating segment for the full-year include Swedish Match's results beginning on November 11, 2022, when PMI became the owner of a majority position in Swedish Match, through December 31, 2022. The business operations of our Swedish Match segment are managed and evaluated separately from the geographical segments.

Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/
Other
(in millions)
Net Revenues316 — — %— %$316 $— $316 $— $— $— 
Operating Income / (Loss)(22)— — %— %$(22)$— $(22)$— $— $— 

We recorded net revenues of $316 million in the Swedish Match segment, with an operating loss of $22 million, primarily reflecting $125 million in an acquisition accounting-related item and $26 million related to the amortization of acquired intangibles.


Wellness and Healthcare:

In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc. and OtiTopic, Inc. On March 31, 2022, we launched a new Wellness and Healthcare business, Vectura Fertin Pharma, consolidating these entities. The operating results of this business are reported in the Wellness and Healthcare segment. The business operations of our Wellness and Healthcare segment are managed and evaluated separately from the geographical segments.

Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
20222021TotalExcl.
Curr. & Acquis.
TotalCur-
rency
Acqui-sitionsPriceVol/
Mix
Cost/
Other
(in millions)
Net Revenues271 101 +100%(7.9)%$170 $(11)$189 $(10)$— $
Operating Income / (Loss)(258)(52)-(100)%-(100)%$(206)$$(72)$(10)$— $(132)

Net revenues, excluding currency and acquisitions, decreased by 7.9%, primarily reflecting lower product supply revenues and lower royalties.

The operating loss of $258 million in 2022 included $171 million of amortization and impairment of intangibles. The remaining operating loss in 2022 of $87 million mainly reflected investments in research and development, as well as lower market share; and
Venezuela, down by 74.8%, primarily reflecting the lower total market.


expenses related to employee retention programs.
2018


2021 compared with 20172020

For a discussion comparing our consolidated operating results within each of our operatinggeographical segments for the year ended December 31, 2018,2021, with the year ended December 31, 2017,2020, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Operating Results by Business Segment in our Annual Report on Form 10-K for the year ended December 31, 2018,2021, which was filed with the U.S. Securities and Exchange Commission on February 7, 2019.11, 2022. This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2022.
62



Financial Review
chart-7afa3067cb17c8da6dc.jpgchart-6a2df93042cb84ab17b.jpgchart-5cdaf24be4761f417f9.jpg
 For the Years Ended December 31,
(in millions)201920182017
Net cash provided by operating activities$10,090
$9,478
$8,912
Net cash used in investing activities(1,811)(998)(3,083)
Net cash used in financing activities(8,061)(9,651)(2,769)




2019

pm-20221231_g11.jpgpm-20221231_g12.jpgpm-20221231_g13.jpg

For the Years Ended December 31,
(in millions)202220212020
Net cash provided by operating activities$10,803 $11,967 $9,812 
Net cash used in investing activities(15,679)(2,358)(1,154)
Net cash provided by (used in) financing activities3,806 (11,977)(8,496)

2022 compared with 20182021


Net Cash Provided by Operating Activities

Net cash provided by operating activities of $10.1 billion for the year ended December 31, 2019, increased2022 decreased by $0.6$1.2 billion from the comparable 2018 period.compared with 2021. Excluding unfavorable currency movements of $1.0$1.5 billion, net cash provided by operating activities increased by $1.6$0.3 billion, due primarily to higher currency-neutral net earnings of $1.1 billion and lower pension plan contributions, net of refunds, of $0.3 billion, partially offset by higher working capital requirements of $1.3$1.0 billion and other movements of $0.3 billion. movements.

The unfavorable currency movements representedprimarily related to the impactscurrency impact on net earnings coupled with the currency impacts on subsidiary working capital movements and the related inter-company positions fromrepresented the fluctuations of the U.S. dollar, in 2018 and 2019, especially against theEgyptian pound, Euro, Mexican peso,Hungarian forint, Japanese yen and Polish zloty, partially offset by the Russian ruble and Turkish lira.

Swiss franc.

The lowerhigher working capital requirements in 2022 as compared with 2021 were primarily due to highermore cash used for accounts receivable in 2022 mainly reflecting the timing of sales and cash collections, and more cash used for inventory mainly reflecting stock movements related to excise tax increases, partially offset by more cash provided by accrued liabilities and other current assets related tomainly reflecting the timing of excise tax-paid inventory movements and excise tax payments, and higher cash provided by accounts payable reflecting a combination of extended payment terms from vendors in 2019 and higher 2018 payments for payments.
IQOS device purchases in the fourth quarter of 2017, partially offset by more cash used for accounts receivable primarily due to the timing of cash collections.

The other movements of $0.3 billion, excluding currency, was driven by the net impact of the net earnings decline of $0.4 billion adjusted for the add-back of the non-cash items of $0.7 billion, comprised of $0.3 billion related to the 2019 Canadian tobacco litigation-related expense and the 2019 loss on deconsolidation of RBH and $0.4 billion related to the 2019 asset impairment and exit costs.  While the asset impairment and exit costs were largely non-cash charges in 2019, approximately $0.2 billion of employee separation costs will be paid by the end of 2021 - see Item 8, Note 21. Asset Impairment and Exit Costs for additional information.

Net Cash Used in Investing Activities

Net cash used in investing activities of $1.8$15.7 billion for the year ended December 31, 2019,2022, increased by $0.8$13.3 billion from the comparable 20182021 period. This increase in netwas due primarily to the $14.0 billion of cash used in investing activities was due principally2022 for the Swedish Match acquisition, net of acquired cash, the 2022 cash payment to Altria Group, Inc. of $1.0 billion for PMI to reacquire the reductionIQOS commercialization
63


rights in the U.S. and higher capital expenditures. These increases were partially offset by the $2.1 billion of cash resulting from the deconsolidationused in 2021 for our acquisitions, net of RBH, partly offset by lower capital expenditures.acquired cash. For further detailsdetail on deconsolidation of RBH,our acquisitions and the Altria Group, Inc. Agreement, see Item 8.8, Note 22.3. Deconsolidation of RBH.Acquisitions.

Our capital expenditures were $0.9$1.1 billion in 20192022 and $1.4$0.7 billion in 2018.2021. The 20192022 expenditures were primarily related to our ongoing investments in RRPs.smoke-free product manufacturing capacity. We expect total capital expenditures in 20202023 of approximately $1.0$1.3 billion, (including capital expenditures related to our ongoing investment in RRPs), to be funded by operating cash flows.partly reflecting increased investments behind smoke-free product manufacturing capacity, including for ILUMA and Swedish Match's portfolio.

Net Cash Used inProvided by (Used in) Financing Activities

Net cash used inprovided by financing activities of $8.1$3.8 billion for the year ended December 31, 2019, decreased2022, increased by $1.6$15.8 billion from the comparable 20182021 period. The decreaseincrease was primarily due to higher borrowings in 2022 reflecting net cash used in financing activities was due primarilyborrowings of $9.9 billion under credit facilities related to 2019the Swedish Match acquisition, proceeds from long-term debt issuances ($3.8of $6.0 billion proceedsand net short-term borrowings of $1.0 billion (primarily commercial paper), as well as lower share repurchases and lower repayments of long-term debt in 2022. These increases were partially offset by higher cash usage primarily reflecting payments made after the acquisition date to acquire additional Swedish Match shares from our U.S. dollar and Euro debt issuances in 2019)noncontrolling interests, higher dividend payments and the purchase of the remaining 49% intereststakes in our Costa RicanTurkish affiliates in 2018, partially offset by higher long-term debt repayments and higher repaymentsthe first quarter of short-term borrowing.2022. For further details on the purchasepurchases of additional Swedish Match shares and the remaining 49% intereststakes in our Costa RicanTurkish affiliates, see Item 8, Note 6.3. AcquisitionsAcquisitions..

Dividends paid in 20192022 and 20182021 were $7.2$7.8 billion and $6.9$7.6 billion, respectively.


20182021 compared with 20172020

For a discussion comparing our net cash activities (operating, investing and financing) for the year ended December 31, 2018,2021, with the year ended December 31, 2017,2020, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Financial Review in our Annual Report on Form 10-K for the year ended December 31, 2018,2021, which was filed with the U.S. Securities and Exchange Commission on February 7, 2019.


11, 2022. This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2022.
Ÿ
Debt and Liquidity

We define cash and cash equivalents as short-term, highly liquid investments, readily convertible to known amounts of cash that mature within a maximum of three months and have an insignificant risk of change in value due to interest rate or credit risk changes. As a policy, we do not hold any investments in structured or equity-linked products. Our cash and cash equivalents are predominantly held in demand deposits with institutions that have investment-grade long-term credit rating. As part of our cash management strategy and in order to

manage counterparty exposure, we also enter into reverse repurchase agreements. Such agreements are collateralized with government or corporate securities held by a custodial bank and, at maturity, cash is paid back to PMI, and the collateral is returned to the bank. For 2018, we had an average balance of $0.3 billion,2022 and we had a zero balance at December 31, 2018. For 2019,2021, the activityactivities for such reverse repurchase agreements waswere not material.

In August 2021, we published a business transformation-linked financing framework (“Framework”), which integrates PMI's smoke-free transformation into its financing strategy. The Framework outlines the guidelines that we will follow in issuing business transformation-linked financing instruments in the debt capital and loan markets, which may include public notes offerings, private placements, loans, and other relevant financing instruments.

Credit RatingsThe cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings. On November 10, 2022, Fitch affirmed our long-term credit rating at “A” and short-term at “F1”, and revised our outlook to “Stable” from “Rating Watch Negative”. On November 11, 2022, Moody’s affirmed our long-term credit rating at “A2” and short-term at “P-1”, and revised our outlook to “Stable” from “Rating(s) Under Review”. On November 11, 2022, Standard & Poor’s revised our long-term credit rating to “A-” from “A” and short-term to “A-2” from “A-1” with “Stable” outlook (previously “CreditWatch Negative”).

At February 10, 2023, our credit ratings and outlook by major credit rating agencies were as follows:
Short-termLong-termOutlook
Moody’sP-1A2Stable
Standard & Poor’sA-2A-Stable
FitchF1AStable
64



Revolving Credit FacilitiesOn January 25, 2023, we entered into an agreement to amend and extend the term of our $1.8 billion 364-day committed revolving credit facility from January 31, 2023, to January 30, 2024.
At February 10, 2023, our committed revolving credit facilities were as follows:


Type
(in billions)
Committed Revolving Credit Facilities
364-day revolving credit, expiring January 30, 2024$1.8
Multi-year revolving credit, expiring February 10, 2026(1)
2.0
Multi-year revolving credit, expiring September 29, 2026(2) (3)
2.5
Total facilities$6.3
(1) On January 28, 2022, we entered into an agreement, effective February 10, 2022, to amend and extend the term of our $2.0 billion multi-year revolving credit facility, for an additional year covering the period February 11, 2026 to February 10, 2027, in the amount of $1.9 billion.
(2) Includes business transformation-linked pricing adjustments that may result in the reduction or increase in both the interest rate and commitment fee under the credit agreement if PMI achieves, or fails to achieve, certain specified targets based on its business transformation goals.
(3) On September 20, 2022, we entered into an agreement, effective September 29, 2022, to amend and extend the term of our $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 February 10, 2023, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing. Subject to market conditions, PMI currently expects to request a further extension of the terms of its $2.5 billion multi-year revolving credit facility for an additional one-year period, in accordance with and subject to the terms and conditions of the relevant revolving credit facility agreement.

All banks participating in our committed revolving credit facilities have an investment-grade long-term credit rating from the credit rating agencies. We continuously monitor the credit quality of our banking group, and at this time we are not aware of any potential non-performing credit provider.

These committed revolving credit facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral. We expect to continue to meet our covenants.

In addition to the committed revolving credit facilities discussed above, certain of our subsidiaries maintain short-term credit arrangements to meet their respective working capital needs. These credit arrangements, which amounted to approximately $1.9 billion at December 31, 2022 and approximately $2.3 billion at December 31, 2021, are for the sole use of our subsidiaries. Borrowings under these arrangements and other bank loans amounted to $295 million at December 31, 2022, and $225 million at December 31, 2021.

Financing of the Swedish Match AcquisitionIn connection with PMI’s all-cash recommended public offer to the shareholders of Swedish Match AB ("Swedish Match"), a public limited liability company organized under the laws of Sweden, for all the outstanding shares of Swedish Match, on May 11, 2022, PMI entered into a credit agreement relating to a 364-day senior unsecured bridge facility. The facility provided for borrowings up to an aggregate principal amount of $17 billion, expiring 364 days after the occurrence of certain events unless extended. On June 23, 2022, PMI entered into a new €5.5 billion (approximately $5.8 billion at the date of signing) senior unsecured term loan credit agreement consisting of a €3.0 billion (approximately $3.2 billion at the date of signing) tranche expiring three years after the occurrence of certain events and a €2.5 billion (approximately $2.6 billion at the date of signing) tranche expiring on June 23, 2027. In connection with the term loan facility, the aggregate principal amount of commitments under the 364-day senior unsecured bridge facility was reduced from $17 billion to $11 billion. On November 11, 2022, PMI acquired a controlling interest of 85.87% of the total issued shares in Swedish Match and has acquired 94.81% of its outstanding shares as of December 31, 2022.

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 will 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
65


agreement. On November 21, 2022, PMI repaid $4.0 billion under the bridge facility. As of December 31, 2022, outstanding borrowings under the bridge facility amounted to $4.4 billion and $1.1 billion commitments remained available for drawing. As of December 31, 2022, the €5.5 billion (approximately $5.9 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. For further details, see Item 8, Note 3. Acquisitions to our consolidated financial statements.

Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S. and in Europe having an aggregate issuance capacity of $8.0 billion. At December 31, 2022, we had $0.9 billion of commercial paper outstanding. At December 31, 2021, we had no commercial paper outstanding. The average commercial paper balance outstanding during 2022 and 2021was $3.1 billion and $1.1 billion, respectively.

Sale of Accounts Receivable To mitigate credit risk and enhance cash and liquidity management, we sell trade receivables to unaffiliated financial institutions. These arrangements allow us to sell, on an ongoing basis, certain trade receivables without recourse. The trade receivables sold are generally short-term in nature and are removed from the consolidated balance sheets. We sell trade receivables under two types of arrangements, servicing and nonservicing.

Our operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions. The trade receivables sold that remained outstanding under these arrangements as of December 31, 2022, 2021 and 2020, were $1.0 billion, $0.9 billion and $1.2 billion, respectively. The net proceeds received are included in cash provided by operating activities in the consolidated statements of cash flows.

For further details, see Item 8, Note 19. Sale of Accounts Receivable to our consolidated financial statements.

Debt Our total debt was $43.1 billion at December 31, 2022, and $27.8 billion at December 31, 2021. Our total debt is primarily fixed rate in nature. The weighted-average all-in financing cost of our total debt was 2.5% in 2022 and 2.4% in 2021. For further details, including the fair value of our debt, see Item 8, Note 8. Indebtedness. The amount of debt that we can issue is subject to approval by our Board of Directors.

On February 11, 2020, we filed a shelf registration statement with the U.S. Securities and Exchange Commission, under which we may from time to time sell debt securities and/or warrants to purchase debt securities over a three-year period. During February 2023, we plan to file a new shelf registration statement with the Securities and Exchange Commission.

Our notes issuances in 2022 were as follows:
(in millions)
TypeFace ValueInterest RateIssuanceMaturity
U.S. dollar notes(a)$1,0005.125%November 2022November 2024
U.S. dollar notes(b)$7505.000%November 2022November 2025
U.S. dollar notes(b)$1,5005.125%November 2022November 2027
U.S. dollar notes(b)$1,2505.625%November 2022November 2029
U.S. dollar notes(b)$1,5005.750%November 2022November 2032
(a) Interest is payable semi-annually on each May 15 and November 15, commencing May 15, 2023.
(b) Interest is payable semi-annually on each May 17 and November 17, commencing May 17, 2023.

The weighted-average time to maturity of our long-term debt was approximately 8 years at the end of 2022 and 10 years at the end of 2021.

Cash Requirements – At December 31, 2022, our material short-term and long-term cash requirements for various contractual obligations and commitments primarily consisted of the following:
principal payments related to long-term debt and the associated interest payments. For further details, see Item 8, Note 8. Indebtedness to our consolidated financial statements;
accounts payable and accrued liabilities on our consolidated balance sheet (primarily short-term in nature);
66


purchase obligations for inventory and production costs to be utilized in the normal course of business such as raw materials, electronic devices, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution, as well as capital expenditures. These purchase obligations are expected to be approximately $3.3 billion in 2023 and approximately $1.6 billion for years beyond;
As part of the agreement with Altria Group, Inc. for PMI to reacquire the IQOS commercialization rights in the U.S., PMI agreed to pay the remaining cash consideration of $1.7 billion (plus interest, at a per annum rate equal to six percent (6%)) by July 2023 at the latest. For further details, see Item 8, Note 3. Acquisitions to our consolidated financial statements;
operating lease liabilities, on an undiscounted basis, which were included in our consolidated balance sheets. For further details, see Item 8, Note 21. Leases to our consolidated financial statements; and
other long-term liabilities mainly related to transition tax. For further details, see Item 8, Note 12. Income Taxes to our consolidated financial statements.

We utilize long-term and short-term debt financing, including a commercial paper program that is regularly used to finance ongoing liquidity requirements, as part of our overall cash management strategy. Our ability to access the capital and credit markets as well as overall dynamics of these markets may impact borrowing costs. We expect that the combination of our long-term and short-term debt financing, the commercial paper program and the committed credit facilities, coupled with our operating cash flows, will enable us to meet our liquidity requirements.

Credit RatingsThe cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings. At February 6, 2020, our credit ratings and outlook by major credit rating agencies were as follows:
Short-termLong-termOutlook
Moody’sP-1A2Stable
Standard & Poor’sA-1AStable
FitchF1AStable

Credit FacilitiesOn January 31, 2020, we entered into an agreement to amend and extend the term of our $2.0 billion 364-day revolving credit facility from February 4, 2020, to February 2, 2021.
At February 6, 2020, our committed credit facilities were as follows:
(in billions)  


Type
 
Committed
Credit
Facilities
364-day revolving credit, expiring February 2, 2021 $2.0
Multi-year revolving credit, expiring February 28, 2021 2.5
Multi-year revolving credit, expiring October 1, 2022 3.5
Total facilities $8.0

At February 6, 2020, there were no borrowings under the committed credit facilities, and the entire committed amounts were available for borrowing.

All banks participating in our committed credit facilities have an investment-grade long-term credit rating from the credit rating agencies. We continuously monitor the credit quality of our banking group, and at this time we are not aware of any potential non-performing credit provider.

All but the $2.0 billion 364-day revolving credit facility in the table above require us to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“consolidated EBITDA”) to consolidated interest expense of not less than 3.5 to 1.0 on a rolling four-quarter basis. At December 31, 2019, our ratio calculated in accordance with the agreements was 11.2 to 1.0. These facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral. We expect to continue to meet our covenants. The terms “consolidated EBITDA” and “consolidated interest expense,” both of which include certain adjustments, are defined in the facility agreements previously filed with the U.S. Securities and Exchange Commission.

We plan to replace our existing $2.5 billion multi-year revolving credit facility, expiring February 28, 2021 with a new $2.0 billion revolving credit facility expiring February 10, 2025. The new credit facility, which is expected to close on February 10, 2020, will not include the consolidated EBITDA to consolidated interest expense ratio covenant discussed above.
In addition to the committed credit facilities discussed above, certain of our subsidiaries maintain short-term credit arrangements to meet their respective working capital needs. These credit arrangements, which amounted to approximately $2.7 billion at December 31, 2019,

and $3.3 billion at December 31, 2018, are for the sole use of our subsidiaries. Borrowings under these arrangements amounted to $338 million at December 31, 2019, and $730 million at December 31, 2018.

Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S. and in Europe having an aggregate issuance capacity of $8.0 billion. At December 31, 2019, and December 31, 2018, we had no commercial paper outstanding. The average commercial paper balance outstanding during 2019 and 2018was $2.3 billion and $3.4 billion, respectively.

Sale of Accounts Receivable To mitigate credit risk and enhance cash and liquidity management we sell trade receivables to unaffiliated financial institutions. These arrangements allow us to sell, on an ongoing basis, certain trade receivables without recourse. The trade receivables sold are generally short-term in nature and are removed from the consolidated balance sheets. We sell trade receivables under two types of arrangements, servicing and nonservicing.

Our operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions. The trade receivables sold that remained outstanding under these arrangements as of December 31, 2019, 2018 and 2017, were $0.9 billion, $1.0 billion and $1.1 billion, respectively. The net proceeds received are included in cash provided by operating activities in the consolidated statements of cash flows.

For further details, see Item 8, Note 20. Sale of Accounts Receivable to our consolidated financial statements.

Debt Our total debt was $31.0 billion at December 31, 2019, and $31.8 billion at December 31, 2018. Our total debt is primarily fixed rate in nature. For further details, see Item 8, Note 7. Indebtedness. The weighted-average all-in financing cost of our total debt was 2.5% in 2019 and 2018. See Item 8, Note 16. Fair Value Measurements to our consolidated financial statements for a discussion of our disclosures related to the fair value of debt. The amount of debt that we can issue is subject to approval by our Board of Directors.

On February 14, 2017, we filed a shelf registration statement with the U.S. Securities and Exchange Commission, under which we may from time to time sell debt securities and/or warrants to purchase debt securities over a three-year period. During February 2020, we plan to file a new shelf registration statement with the Securities and Exchange Commission.

Our debt issuances in 2019 were as follows:
         
(in millions)        
Type Face Value Interest Rate Issuance Maturity
         
U.S. dollar notes
(a) 
$900 2.875% May 2019 May 2024
U.S. dollar notes
(b) 
$750 3.375% May 2019 August 2029
EURO notes
(c) 
€500 (approximately $557)
(d) 
0.125% August 2019 August 2026
EURO notes
(c) 
€750 (approximately $835)
(d) 
0.800% August 2019 August 2031
EURO notes
(c) 
€750 (approximately $835)
(d) 
1.450% August 2019 August 2039
         
(a) Interest on these notes is payable semi-annually in arrears beginning in November 2019.
(b) Interest on these notes is payable semi-annually in arrears beginning in August 2019.
(c) Interest on these notes is payable annually in arrears beginning in August 2020.
(d) USD equivalents for foreign currency notes were calculated based on exchange rates on the date of issuance.

The net proceeds from the sale of the securities listed in the table above have been and will be used for general corporate purposes, including repayment of outstanding commercial paper and refinancing of outstanding 2.000% Notes due 2020, outstanding Floating Rate Notes due 2020 and outstanding Euro denominated 1.750% Notes due 2020.

The weighted-average time to maturity of our long-term debt was 10.2 years at the end of 2019 and 9.6 years at the end of 2018.

Off-Balance Sheet Arrangements and Aggregate Contractual Obligations

We have no off-balance sheet arrangements, including special purpose entities, other than guarantees, and contractual obligationscash requirements discussed below.above.


Guarantees At December 31, 2019,2022, we were contingently liable for $0.5 billion ofhave guarantees of our own performance, of which $0.3 billion related to our obligations under indemnity agreements to enable appeals of customs assessments against our distributors, and $0.2 billion wereare primarily related to excise taxes on the shipment of our products. There is no liability in the consolidated financial statements associated with these guarantees. At December 31, 2019, our third-partyThese guarantees were insignificant.

Aggregate Contractual Obligations The following table summarizes our contractual obligations at December 31, 2019:
  Payments Due
(in millions)Total20202021-20222023-20242025 and Thereafter
Long-term debt (1)

$30,962

$4,051

$5,779

$4,890

$16,242
Interest on borrowings (2)
10,124
877
1,534
1,273
6,440
Operating leases (3)
949
222
286
158
283
Purchase obligations (4):

    
Inventory and production costs3,493
2,199
885
409

Other2,180
977
578
213
412
 5,673
3,176
1,463
622
412
Other long-term liabilities (5)
1,992
278
408
661
645
 
$49,700

$8,604

$9,470

$7,604

$24,022

(1) Amounts represent thehave not had, and are not expected cash payments at the face value of our long-term debt and finance lease obligations.to have, a significant impact on PMI’s liquidity. In October 2020, we guaranteed an obligation for an equity method investee. For further details, see Item 8, Note 7.18. IndebtednessContingencies to our consolidated financial statements.
(2) Amounts represent the expected cash payments of our interest expense on our long-term debt, including the current portion of long-term debt. Interest on our fixed-rate debt is presented using the stated interest rate. Interest on our variable debt is estimated using the rate in effect at December 31, 2019. Amounts exclude the amortization of debt discounts, the amortization of loan fees and fees for lines of credit that would be included in interest expense in the consolidated statements of earnings.
(3) Amounts represent the maturity of PMI"s operating lease liabilities, on an undiscounted basis.
(4) Purchase obligations for inventory and production costs (such as raw materials, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution) are commitments for projected needs to be utilized in the normal course of business. Other purchase obligations include commitments for marketing, advertising, capital expenditures, information technology and professional services. Other purchase obligations also include the expected future contributions to the Foundation for a Smoke-Free World.  For further details see Business EnvironmentOther Developments. Arrangements are considered purchase obligations if a contract specifies all significant terms, including fixed or minimum quantities to be purchased, a pricing structure and approximate timing of the transaction. Amounts represent the minimum commitments under non-cancelable contracts. Any amounts reflected on the consolidated balance sheet as accounts payable and accrued liabilities are excluded from the table above.
(5) Other long-term liabilities consist primarily of transition tax (as discussed in Item 8, Note 11. Income Taxes to our consolidated financial statements), postretirement health care costs, accruals established for employment costs and accruals established for Exit activities (for further details, see Note 21. Asset impairment and Exit Costs). The following long-term liabilities included on the consolidated balance sheet are excluded from the table above: accrued pension and postemployment costs, tax contingencies, insurance accruals and other accruals. We are unable to estimate the timing of payments (or contributions in the case of accrued pension costs) for these items. Currently, we anticipate making pension contributions of approximately $77 million in 2020, based on current tax and benefit laws (as discussed in Item 8, Note 13. Benefit Plans to our consolidated financial statements).

Ÿ Equity and Dividends

We discuss our stock awards as of December 31, 2019,2022, in Item 8, Note 9.10. Stock Plans to our consolidated financial statements.

During 2019, 2018 and 2017, we did not repurchase any shares underOn June 11, 2021, our Board of Directors authorized a new share repurchase program andof up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period. On July 22, 2021, we do not presently intend tobegan repurchasing shares under this new share repurchase program. From July 22, 2021 through March 31, 2022, we repurchased 10.5 million shares of our common stock in 2020.at a cost of approximately $1.0 billion. During the first three months of 2022, we repurchased 2.0 million shares of our common stock at a cost of $199 million.

On May 11, 2022, we announced the suspension of our three-year share repurchase program following the recommended public offer to acquire the outstanding shares of Swedish Match from its shareholders. Prior to the suspension of the program, we made no share repurchases during the second quarter of 2022. For further details on Swedish Match, see the Item 8, Note 3. Acquisitions.

Dividends paid in 20192022 were $7.2$7.8 billion. During the third quarter of 2019,2022, our Board of Directors approved a 2.6%1.6% increase in the quarterly dividend to $1.17$1.27 per common share. As a result, the present annualized dividend rate is $4.68$5.08 per common share.


Market Risk

Ÿ Counterparty Risk - We predominantly work with financial institutions with strong short- and long-term credit ratings as assigned by Standard & Poor’s and Moody’s. These banks are also part of a defined group of relationship banks. Non-investment grade institutions are only used in certain emerging markets to the extent required by local business needs. We have a conservative approach when it comes to choosing financial counterparties and financial instruments. As such we do not invest or hold investments in any structured or equity-linked products. The majority of our cash and cash equivalents is currently invested in demand deposits maturing withinwith maturities of less than 30 days.

We continuously monitor and assess the credit worthiness of all our counterparties.
67


Ÿ
Derivative Financial Instruments - We operate in markets primarily outside of the U.S.,United States of America, with manufacturing and sales facilities in various locations throughoutaround the world. Consequently, we use certain financial instruments to manage our foreign currency and interest rate exposure. We use derivative financial instruments principally to reduce our exposure to market risks resulting from fluctuations in foreign exchange and interest rates by creating offsetting exposures. We are not a party to leveraged derivatives and, by policy, do not use derivative financial instruments for speculative purposes.

See Item 8, Note 15.16. Financial Instruments Item 8, Note 16. Fair Value Measurements and Item 8, Note 19. Balance Sheet Offsettingto our consolidated financial statements for further details on our derivative financial instruments and the related collateral arrangements.

Ÿ Value at Risk - We use a value at risk computation to estimate the potential one-day loss in the fair value of our interest-rate-sensitive and foreign currency price-sensitive derivative financial instruments. This computation includes our debt and foreign currency forwards, swaps and options. Anticipated transactions, foreign currency trade payables and receivables, and net investments in foreign subsidiaries, which the foregoing instruments are intended to hedge, were excluded from the computation.

The computation estimates were made assuming normal market conditions, using a 95% confidence interval and a one-day holding period using a "parametric delta-gamma" approximation technique to determine the observed interrelationships between movements in interest rates and various currencies and in calculating the risk of the underlying positions in the portfolio. These interrelationships were determined by observing interest rate and forward currency rate movements primarily over the preceding quarter for determining value at risk at December 31, 20192022 and 2018,2021, and primarily over each of the four preceding quarters for the calculation of average, high and low value at risk amounts during each year.
Fair Value Impact  
(in millions)At December 31, 2022Average  High  Low  
Instruments sensitive to:
    Foreign currency rates$33$55$73$33
Interest rates$233$253$317$195
Fair Value Impact  
(in millions)At December 31, 2021Average  High  Low  
Instruments sensitive to:
    Foreign currency rates$24$36$45$24
Interest rates$217$200$217$179


The significant year-over-year increase in "average" and "high" impact on the value at risk computation above was primarily due to trends in foreign currency and interest rate volatility.
 Fair Value Impact  
(in millions) At
December 31, 2019
 Average   High   Low  
Instruments sensitive to:       
    Foreign currency rates$18 $20 $24 $18
        
Interest rates$301 $247 $346 $169
        
 Fair Value Impact  
(in millions) At
December 31, 2018
 Average   High   Low  
Instruments sensitive to:       
    Foreign currency rates$19 $20 $23 $19
        
Interest rates$142 $132 $152 $96


The value at risk computation is a risk analysis tool designed to statistically estimate the maximum probable daily loss from adverse movements in interest and foreign currency rates under normal market conditions. The computation does not purport to represent actual losses in fair value or earnings to be incurred by us, nor does it consider the effect of favorable changes in market rates. We cannot predict actual future movements in such market rates and do not present these results to be indicative of future movements in market rates or to

be representative of any actual impact that future changes in market rates may have on our future results of operations or financial position.

Contingencies

See Item 3 and Item 8, Note 18. Contingencies to our consolidated financial statements for a discussion of contingencies.

68


Cautionary Factors That May Affect Future Results

Forward-Looking and Cautionary Statements
We may from time to time make written or oral forward-looking statements, including statements contained in filings with the SEC, in reports to stockholders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "aspires," "estimates," "intends," "projects," "aims," "goals," "targets""targets," "forecasts" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Our RRPs constitute a new product category in its early stages that is less predictable than our mature cigarette business. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in our securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in Item 1A. Risk Factors and Business Environment of this section. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider thisthe following to be a complete discussion of all potential risks or uncertainties to be complete.uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time, except in the normal course of our public disclosure obligations.

Item 7A.Quantitative and Qualitative Disclosures About Market Risk.
Item 7A.Quantitative and Qualitative Disclosures About Market Risk.
 
The information called for by this Item is included in Item 7, Market Risk.
 
69


Item 8.Financial Statements and Supplementary Data.

Item 8.Financial Statements and Supplementary Data.


Consolidated Statements of Earnings
(in millions of dollars, except per share data)
for the years ended December 31,202220212020
Revenues including excise taxes (includes $8,269 in 2022, $7,822 in 2021 and $7,572 in 2020 from related parties)$80,669 $82,223 $76,047 
Excise taxes on products48,907 50,818 47,353 
Net revenues (includes $3,658 in 2022, $3,330 in 2021 and $3,233 in 2020 from related parties) (Note 18)31,762 31,405 28,694 
Cost of sales (Notes 4 & 5)11,402 10,030 9,569 
Gross profit20,360 21,375 19,125 
Marketing, administration and research costs (Notes 3, 4, 5, 13 & 20)8,114 8,400 7,457 
Operating income12,246 12,975 11,668 
Interest expense, net (Note 15)588 628 618 
Pension and other employee benefit costs (Note 14)24 115 97 
Earnings before income taxes11,634 12,232 10,953 
Provision for income taxes (Note 12)2,244 2,671 2,377 
Equity investments and securities (income)/loss, net(137)(149)(16)
Net earnings9,527 9,710 8,592 
Net earnings attributable to noncontrolling interests479 601 536 
Net earnings attributable to PMI$9,048 $9,109 $8,056 
Per share data (Note 11):
Basic earnings per share$5.82 $5.83 $5.16 
Diluted earnings per share$5.81 $5.83 $5.16 
for the years ended December 31,2019 2018 2017
Revenues including excise taxes$77,921
 $79,823
 $78,098
Excise taxes on products48,116
 50,198
 49,350
Net revenues29,805
 29,625
 28,748
Cost of sales10,513
 10,758
 10,432
Gross profit19,292
 18,867
 18,316
Marketing, administration and research costs (Notes 18, 21 & 22)8,695
 7,408
 6,647
Amortization of intangibles66
 82
 88
Operating income10,531
 11,377
 11,581
Interest expense, net (Note 14)570
 665
 914
Pension and other employee benefit costs (Note 13)89
 41
 78
Earnings before income taxes9,872
 10,671
 10,589
Provision for income taxes (Note 11)2,293
 2,445
 4,307
Equity investments and securities (income)/loss, net(149) (60) (59)
Net earnings7,728
 8,286
 6,341
Net earnings attributable to noncontrolling interests543
 375
 306
Net earnings attributable to PMI$7,185
 $7,911
 $6,035
Per share data (Note 10):     
Basic earnings per share$4.61
 $5.08
 $3.88
Diluted earnings per share$4.61
 $5.08
 $3.88

















See notes to consolidated financial statements.

70


Consolidated Statements of Comprehensive Earnings
(in millions of dollars)
for the years ended December 31,202220212020
Net earnings$9,527 $9,710 $8,592 
Other comprehensive earnings (losses), net of income taxes:
Change in currency translation adjustments:
Unrealized gains (losses), net of income taxes of $(169) in 2022, $(58) in 2021 and $94 in 2020(1,268)58 (1,265)
Change in net loss and prior service cost:
Net gains (losses) and prior service costs, net of income taxes of $(132) in 2022, $(210) in 2021 and $139 in 2020843 1,055 (726)
Amortization of net losses, prior service costs and net transition costs, net of income taxes of $(49) in 2022, $(72) in 2021
and $(67) in 2020
217 323 299 
Change in fair value of derivatives accounted for as hedges:
Gains (losses) recognized, net of income taxes of $(99) in 2022,
$(20) in 2021 and $13 in 2020
481 124 (68)
(Gains) losses transferred to earnings, net of income taxes of
$35 in 2022, $7 in 2021 and $0 in 2020
(219)(35)(20)
Total other comprehensive earnings (losses)54 1,525 (1,780)
Total comprehensive earnings9,581 11,235 6,812 
Less comprehensive earnings attributable to:
Noncontrolling interests515 522 574 
Comprehensive earnings attributable to PMI$9,066 $10,713 $6,238 
for the years ended December 31,2019 2018 2017
Net earnings$7,728
 $8,286
 $6,341
Other comprehensive earnings (losses), net of income taxes:     
Change in currency translation adjustments:     
Unrealized gains (losses), net of income taxes of ($161) in 2019, ($47) in 2018 and $620 in 2017505
 (812) 330
(Gains)/losses transferred to earnings, net of income taxes of $0 in 2019, 2018 and 2017
 
 (2)
(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of $0 in 2019, 2018 and 2017 (Note 22)502
 
 
Change in net loss and prior service cost:     
Net gains (losses) and prior service costs, net of income taxes of $247 in 2019, $65 in 2018 and ($17) in 2017(454) (1,046) 523
Amortization of net losses, prior service costs and net transition costs, net of income taxes of ($69) in 2019, ($43) in 2018 and ($31) in 2017243
 218
 228
(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of ($15) in 2019, $0 in 2018 and $0 in 2017 (Note 22)27
 
 
Change in fair value of derivatives accounted for as hedges:     
Gains (losses) recognized, net of income taxes of $2 in 2019, ($4) in 2018 and $8 in 2017(18) 24
 (44)
(Gains) losses transferred to earnings, net of income taxes of $3 in 2019, $5 in 2018 and $2 in 2017(14) (31) (11)
Total other comprehensive earnings (losses)791
 (1,647) 1,024
Total comprehensive earnings8,519
 6,639
 7,365
Less comprehensive earnings attributable to:     
Noncontrolling interests586
 304
 306
Comprehensive earnings attributable to PMI$7,933
 $6,335
 $7,059












See notes to consolidated financial statements.

71


Consolidated Balance Sheets
(in millions of dollars, except share data)
at December 31,20222021
Assets
Cash and cash equivalents$3,207 $4,496 
 Trade receivables (less allowances of $42 in 2022 and $70 in 2021) (1)
3,850 3,123 
Other receivables (less allowances of $32 in 2022 and $36 in 2021)906 817 
Inventories:
Leaf tobacco1,674 1,642 
Other raw materials2,028 1,652 
Finished product6,184 5,426 
9,886 8,720 
Other current assets (Note 3)1,770 561 
Total current assets19,619 17,717 
Property, plant and equipment, at cost:
Land and land improvements545 565 
Buildings and building equipment4,291 4,293 
Machinery and equipment9,549 9,275 
Construction in progress1,058 599 
15,443 14,732 
Less: accumulated depreciation8,733 8,564 
6,710 6,168 
Goodwill (Note 5)19,655 6,680 
Other intangible assets, net (Note 5)6,732 2,818 
Equity investments (Note 6)4,431 4,463 
Deferred income taxes603 895 
Other assets (less allowances of $20 in 2022 and $21 in 2021) (Note 3)3,931 2,549 
Total Assets$61,681 $41,290 
at December 31,2019 2018
Assets   
Cash and cash equivalents$6,861
 $6,593
Trade receivables (less allowances of $20 in 2019 and $25 in 2018)3,080
 2,950
Other receivables637
 614
Inventories:   
Leaf tobacco2,052
 2,318
Other raw materials1,596
 1,405
Finished product5,587
 5,081
 9,235
 8,804
Other current assets701
 481
Total current assets20,514
 19,442
Property, plant and equipment, at cost:   
Land and land improvements566
 600
Buildings and building equipment4,132
 3,975
Machinery and equipment9,354
 9,096
Construction in progress394
 886
 14,446
 14,557
Less: accumulated depreciation7,815
 7,356
 6,631
 7,201
Goodwill (Note 3)5,858
 7,189
Other intangible assets, net (Note 3)2,113
 2,278
Investments in unconsolidated subsidiaries and equity securities (Notes 4 & 16)4,635
 1,269
Deferred income taxes1,153
 977
Other assets1,971
 1,445
Total Assets$42,875
 $39,801


(1) Includes trade receivables from related parties of $688 million and $518 million as of December 31, 2022, and 2021, respectively (less allowances of $7 million in 2022 and $1 million in 2021). For further details, see Note 6. Related Parties - Equity Investments and Other.











See notes to consolidated financial statements.


72
at December 31,2019 2018
Liabilities   
Short-term borrowings (Note 7)$338
 $730
Current portion of long-term debt (Note 7)4,051
 4,054
Accounts payable2,299
 2,068
Accrued liabilities:   
Marketing and selling666
 732
Taxes, except income taxes5,837
 5,088
Employment costs1,042
 794
Dividends payable1,831
 1,783
Other1,973
 1,366
Income taxes (Note 11)796
 576
Total current liabilities18,833
 17,191
Long-term debt (Note 7)26,656
 26,975
Deferred income taxes908
 898
Employment costs3,634
 3,083
Income taxes and other liabilities (Note 11)2,443
 2,393
Total liabilities52,474
 50,540

Contingencies (Note 18)

 


Stockholders’ (Deficit) Equity
   
Common stock, no par value (2,109,316,331 shares issued in 2019 and 2018)
 
Additional paid-in capital2,019
 1,939
Earnings reinvested in the business30,987
 31,014
Accumulated other comprehensive losses(9,363) (10,111)
 23,643
 22,842
Less: cost of repurchased stock (553,421,668 and 554,736,610 shares in 2019 and 2018, respectively)35,220
 35,301
Total PMI stockholders’ deficit(11,577) (12,459)
Noncontrolling interests1,978
 1,720
Total stockholders’ deficit(9,599) (10,739)
Total Liabilities and Stockholders’ (Deficit) Equity$42,875
 $39,801



at December 31,20222021
Liabilities
Short-term borrowings (Note 8)$5,637 $225 
Current portion of long-term debt (Note 8)2,611 2,798 
Accounts payable4,076 3,331 
Accrued liabilities:
Marketing and selling695 811 
Taxes, except income taxes7,440 6,324 
Employment costs1,168 1,146 
Dividends payable1,990 1,958 
Other2,679 1,637 
Income taxes (Note 12)1,040 1,025 
Total current liabilities27,336 19,255 
Long-term debt (Note 8)34,875 24,783 
Deferred income taxes1,956 726 
Employment costs1,984 2,968 
Income taxes and other liabilities (Note 12)1,841 1,766 
Total liabilities67,992 49,498 
Contingencies (Note 18)

Stockholders’ (Deficit) Equity
Common stock, no par value (2,109,316,331 shares issued in 2022 and 2021) (Note 9) — 
Additional paid-in capital2,230 2,225 
Earnings reinvested in the business34,289 33,082 
Accumulated other comprehensive losses (Note 17)(9,559)(9,577)
26,960 25,730 
Less: cost of repurchased stock (559,098,620 and 559,146,338 shares in 2022 and 2021, respectively)35,917 35,836 
Total PMI stockholders’ deficit(8,957)(10,106)
Noncontrolling interests2,646 1,898 
Total stockholders’ deficit(6,311)(8,208)
Total Liabilities and Stockholders’ (Deficit) Equity$61,681 $41,290 










See notes to consolidated financial statements.
73


Consolidated Statements of Cash Flows
(in millions of dollars)
for the years ended December 31,202220212020
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
   Net earnings$9,527 $9,710 $8,592 
   Adjustments to reconcile net earnings to operating cash flows:
Depreciation, amortization and impairment of intangibles1,189 998 981 
Deferred income tax (benefit) provision(234)(17)(143)
Asset impairment and exit costs, net of cash paid (Note 20)(93)(22)(14)
Cash effects of changes, net of the effects from acquired companies:
Receivables, net (1)
(871)(198)26 
Inventories(1,287)549 (165)
Accounts payable719 653 406 
Accrued liabilities and other current assets1,862 623 121 
Income taxes(261)(260)(260)
Pension plan contributions, net of refunds (Note 14)3 (269)(102)
Other249 200 370 
Net cash provided by operating activities10,803 11,967 9,812 
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures(1,077)(748)(602)
Acquisition of Swedish Match AB, net of acquired cash (Note 3)(13,976)— — 
Other acquisitions, net of acquired cash (Note 3) (2,111)— 
Altria Group, Inc. agreement (Note 3)(1,002)— — 
Equity investments(20)(34)(47)
Net investment hedges and other derivatives (Note 16)284 466 (551)
Other112 69 46 
Net cash used in investing activities(15,679)(2,358)(1,154)
for the years ended December 31,2019 2018 2017
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES     
   Net earnings$7,728
 $8,286
 $6,341
   Adjustments to reconcile net earnings to operating cash flows:     
Depreciation and amortization964
 989
 875
Deferred income tax (benefit) provision(141) (100) (501)
Asset impairment and exit costs, net of cash paid (Note 21)371
 (3) (10)
Cash effects of changes in:     
Receivables, net(331) 53
 (92)
Inventories(548) (613) 730
Accounts payable451
 (51) 425
Accrued liabilities and other current assets1,108
 910
 (554)
Income taxes75
 (135) 1,370
Pension plan contributions(200) (110) (66)
Other613
(1) 
252
 394
Net cash provided by operating activities10,090
 9,478
 8,912
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES     
Capital expenditures(852) (1,436) (1,548)
Investments in unconsolidated subsidiaries and equity securities(31) (63) (111)
Deconsolidation of RBH (Note 22)(1,346)
(2) 

 
Net investment hedges386
 416
 (1,527)
Other32
 85
 103
Net cash used in investing activities(1,811) (998) (3,083)
(1) Includes amounts from related parties of $(166) million, $(149) million and $88 million in 2022, 2021 and 2020, respectively













See notes to consolidated financial statements.
74


for the years ended December 31,202220212020
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Short-term borrowing activity by original maturity:
Net issuances (repayments) - maturities of 90 days or less$876 $— $(70)
Issuances - maturities longer than 90 days934 — 45 
Repayments - maturities longer than 90 days(795)— (45)
Borrowings under credit facilities related to Swedish Match AB acquisition13,920 — — 
Repayments under credit facilities related to Swedish Match AB acquisition(4,000)— — 
Long-term debt proceeds5,965 — 3,713 
Long-term debt repaid(2,724)(3,042)(3,999)
Repurchases of common stock(209)(775)— 
Dividends paid(7,812)(7,580)(7,364)
Payments to acquire Swedish Match AB noncontrolling interests (Note 3)(1,495)— — 
Payments to noncontrolling interests and Other (Note 3)(854)(580)(776)
Net cash provided by (used in) financing activities3,806 (11,977)(8,496)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(213)(417)258 
Cash, cash equivalents and restricted cash(1):
Increase (Decrease)(1,283)(2,785)420 
Balance at beginning of year4,500 7,285 6,865 
Balance at end of year$3,217 $4,500 $7,285 
Cash Paid:
                   Interest$717 $716 $728 
                   Income taxes$2,751 $2,936 $2,785 
for the years ended December 31,2019 2018 2017
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES     
Short-term borrowing activity by original maturity:     
    Net issuances (repayments) - maturities of 90 days or less$(364) $255
 $(127)
    Issuances - maturities longer than 90 days989
 
 1,634
    Repayments - maturities longer than 90 days(989) 
 (1,634)
Long-term debt proceeds3,819
 
 6,850
Long-term debt repaid(3,998) (2,484) (2,551)
Dividends paid(7,161) (6,885) (6,520)
Sale (purchase) of subsidiary shares to/(from) noncontrolling interests (Note 6)51
 (81) 5
Other(408) (456) (426)
Net cash used in financing activities(8,061) (9,651) (2,769)
Effect of exchange rate changes on cash, cash equivalents and restricted cash27
 (685) 1,085

Cash, cash equivalents and restricted cash(3):
     
Increase (Decrease)245
 (1,856) 4,145
Balance at beginning of year6,620
 8,476
 4,331
Balance at end of year$6,865
 $6,620
 $8,476
      
Cash Paid:     
                   Interest$800
 $882
 $1,050
                   Income taxes$2,430
 $2,749
 $3,403


(1)Includes the Loss on Deconsolidation of RBH ($239 million) and the Canadian tobacco litigation-related charge ($194 million) that were included in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2019. For further details on these charges, see Note 22. Deconsolidation of RBH.

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

(3) The amounts for cash, and cash equivalents and restricted cash shown above include restricted cash of $10 million, $4 million $27 million and $29$5 million as of December 31, 2019, 20182022, 2021 and 2017,2020, respectively, which were included in other current assets in the consolidated balance sheets.











See notes to consolidated financial statements.
75


Consolidated Statements of Stockholders' (Deficit) Equity
(in millions of dollars, except per share data)

 PMI Stockholders’ (Deficit) Equity    
 Common
Stock
 Additional
Paid-in
Capital
 Earnings Reinvested
in the Business
 Accumulated Other
Comprehensive
Losses
 Cost of
Repurchased
Stock
 Noncontrolling
Interests
 Total
Balances, January 1, 2017$
 $1,964
 $30,397
 $(9,559) $(35,490) $1,788
 $(10,900)
Net earnings    6,035
     306
 6,341
Other comprehensive earnings (losses), net of income taxes      1,024
     1,024
Issuance of stock awards  20
     108
   128
Dividends declared ($4.22 per share)    (6,573)       (6,573)
Payments to noncontrolling interests          (255) (255)
Other  (12)       17
 5
Balances, December 31, 2017
 1,972
 29,859
 (8,535) (35,382) 1,856
 (10,230)
Net earnings    7,911
     375
 8,286
Other comprehensive earnings (losses), net of income taxes      (1,572)   (75) (1,647)
Issuance of stock awards  47
     81
   128
Dividends declared ($4.49 per share)    (6,994)       (6,994)
Payments to noncontrolling interests          (435) (435)
Adoption of new accounting standards (1)
    238
       238
Other (Note 6)  (80)   (4)   (1) (85)
Balances, December 31, 2018
 1,939
 31,014
 (10,111) (35,301) 1,720
 (10,739)
Net earnings    7,185
     543
 7,728
Other comprehensive earnings (losses), net of income taxes      219
   43
 262
Issuance of stock awards  79
     81
   160
Dividends declared ($4.62 per share)    (7,212)       (7,212)
Payments to noncontrolling interests          (378) (378)
Deconsolidation of RBH (Note 22)      529
     529
Other  1
   
   50
 51
Balances, December 31, 2019$
 $2,019
 $30,987
 $(9,363) $(35,220) $1,978
 $(9,599)

PMI Stockholders’ (Deficit) Equity
Common
Stock
Additional
Paid-in
Capital
Earnings Reinvested
in the Business
Accumulated Other
Comprehensive
Losses
Cost of
Repurchased
Stock
Noncontrolling
Interests
Total
Balances, January 1, 2020$— $2,019 $30,987 $(9,363)$(35,220)$1,978 $(9,599)
Net earnings8,056 536 8,592 
Other comprehensive earnings (losses), net of income taxes(1,818)38 (1,780)
Issuance of stock awards (Note 10)69 91 160 
Dividends declared ($4.74 per share)(7,405)(7,405)
Dividends paid to noncontrolling interests(602)(602)
Other17 (14)
Balances, December 31, 2020— 2,105 31,638 (11,181)(35,129)1,936 (10,631)
Net earnings9,109 601 9,710 
Other comprehensive earnings (losses), net of income taxes1,604 (79)1,525 
Issuance of stock awards (Note 10)119 78 197 
Dividends declared ($4.90 per share)(7,665)(7,665)
Dividends paid to noncontrolling interests(560)(560)
Common stock repurchased(785)(785)
Other— 
Balances, December 31, 2021— 2,225 33,082 (9,577)(35,836)1,898 (8,208)
Net earnings9,048 479 9,527 
Other comprehensive earnings (losses), net of income taxes189 (135)54 
Issuance of stock awards (Note 10)37 118 155 
Dividends declared ($5.04 per share)(7,841)(7,841)
Dividends paid to noncontrolling interests(472)(472)
Common stock repurchased(199)(199)
Acquisitions (Note 3)2,379 2,379 
Purchases of shares from noncontrolling interests (Note 3)(32)(171)(1,503)(1,706)
Balances, December 31, 2022$ $2,230 $34,289 $(9,559)$(35,917)$2,646 $(6,311)
(1) Financial Accounting Standard Update ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities”















See notes to consolidated financial statements.
76


Notes to Consolidated Financial Statements

Note 1.

Background and Basis of Presentation:

Background

Philip Morris International Inc. is a holding company incorporated in Virginia, U.S.A. (also referred to herein as the U.S., the United States or the United States of America), whose subsidiaries and affiliates and their licensees are primarily engaged in the manufacture and sale of cigarettes and other nicotine-containingsmoke-free products including reduced-risk products, in markets outside of the United States of America. In addition, PMI ships a version of its Platform 1deviceheat-not-burn, vapor, and its consumables authorized by the U.S. Food and Drug Administration ("FDA") to Altria Group, Inc., for sale in the United States under license.oral nicotine products. Throughout these financial statements, the term "PMI" refers to Philip Morris International Inc. and its subsidiaries.

Smoke-free products ("SFPs") is the term PMI primarily uses to refer to all of its products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral nicotine. In addition, SFPs include wellness and healthcare products, as well as consumer accessories such as lighters and matches.

Reduced-risk products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking. PMI has a range of RRPs in various stages of development, scientific assessment and commercialization.

PMI's RRPs are smoke-free products that contain and/or generate far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.

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

Basis of presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of net revenues and expenses during the reporting periods. Significant estimates and assumptions include, among other things: pension and benefit plan assumptions; useful lives and valuation assumptions of goodwill and other intangible assets; valuation assumptions for non-marketable equity securities; marketing programs, and income taxes. Actual results could differ from those estimates.

The consolidated financial statements include PMI, as well as its wholly owned and majority-owned subsidiaries. Investments in which PMI exercises significant influence (generally 20%-50% ownership interest) are accounted for under the equity method of accounting. Investments not accounted for under the equity method of accounting are measured at fair value, if it is readily determinable, with changes in fair value recognized in net income. Investments without readily determinable fair values, non-marketable equity securities, are measured and recorded using a measurement alternative that values the security at cost minus any impairment. All intercompany transactions and balances have been eliminated.

AsIn the fourth quarter of March 22, 2019,2022, PMI deconsolidatedacquired a controlling interest of the financialtotal issued shares in Swedish Match AB (“Swedish Match”). The operating results of Swedish Match are included in a separate segment. In the third quarter of 2021, PMI acquired Fertin Pharma A/S, Vectura Group plc. and OtiTopic, Inc. On March 31, 2022, PMI launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma. The operating results of this business are reported in the Wellness and Healthcare segment. For further details on these acquisitions, see Note 3. Acquisitions and Note 13. Segment Reporting.

Certain prior years' amounts have been reclassified to conform with the current year's presentation. Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH") from PMI'sown 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 segment reporting, consolidated financial statements.position, results of operations or cash flows in any of the periods presented. For further details, see Note 22.13. DeconsolidationSegment Reporting. During the first quarter of RBH2022, one of Fertin Pharma's product lines was moved from the Wellness and Healthcare segment to the European Union segment. For further details, see Note 5. Goodwill and Other Intangible Assets, net. The change did not have a material impact on PMI's consolidated financial position, results of operations or cash flows in any of the periods presented.




77


Note 2.

Summary of Significant Accounting Policies:

Acquisitions

PMI uses the acquisition method of accounting for acquired businesses. Under the acquisition method, PMI’s consolidated financial statements reflect the operations of an acquired business starting from the closing date of the acquisition. PMI allocates the purchase price to the tangible and identifiable intangible assets acquired and liabilities assumed based on the estimated fair values as of the acquisition date. Any residual purchase price is recorded as goodwill. The fair value of assets acquired and liabilities assumed in certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months from the acquisition date. Contingent consideration liabilities are recognized at the estimated fair value on the acquisition date. Subsequent changes to the fair value of contingent consideration are recognized in marketing, administration and research costs in the consolidated statement of earnings. Transaction costs are expensed as incurred.

If PMI determines that assets acquired do not meet the definition of a business, the transaction will be accounted for as an acquisition of assets rather than a business combination and, therefore, no goodwill will be recorded. In an asset acquisition, acquired in-process research and development ("IPR&D") with no alternative future use is charged to expense.

Cash and cash equivalents

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


Depreciation

Property, plant and equipment are stated at historical cost and depreciated byprimarily using the straight-line method over the estimated useful lives of the assets. Machinery and equipment are depreciated primarily over periods ranging from 3 to 15 years, and buildings and building improvements primarily over periods up to 40 years.

Employee benefit plans

PMI provides a range of benefits to its employees and retired employees, including pensions, postretirement health care and postemployment benefits (primarily severance). PMI records annual amounts relating to these plans based on calculations specified under U.S. GAAP. PMI recognizes the funded status of its defined pension and postretirement plans on the consolidated balance sheets. The funded status is measured as the difference between the fair value of the plans assets and the benefit obligation. PMI measures the plan assets and liabilities at the end of the fiscal year. For defined benefit pension plans, the benefit obligation is the projected benefit obligation. For the postretirement health care plans, the benefit obligation is the accumulated postretirement benefit obligation. Any plan with an overfunded status is recognized as an asset, and any plan with an underfunded status is recognized as a liability. Any gains or losses and prior service costs or credits that have not been recognized as a component of net periodic benefit costs are recorded as a component of other comprehensive earnings (losses), net of deferred taxes. PMI elects to recognize actuarial gains/(losses) using the corridor approach.

Fair value measurements

PMI follows ASC 820, Fair Value Measurements and Disclosures with respect to assets and liabilities that are measured at fair value. The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of input that may be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs include quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
78



Foreign currency translation

PMI translates the results of operations of its subsidiaries and affiliates using average exchange rates during each period, whereas balance sheet accounts are translated using exchange rates at the end of each period. Currency translation adjustments are recorded as a component of stockholders’ (deficit) equity. In addition, some of PMI’s subsidiaries have assets and liabilities denominated in currencies other than their functional currencies, and to the extent those are not designated as net investment hedges, these assets and liabilities generate transaction gains and losses when translated into their respective functional currencies.

Goodwill and non-amortizable intangible assets valuation

PMI tests goodwill and non-amortizable intangible assets for impairment annually or more frequently if events occur that would warrant such review. PMI performs its annual impairment analysis in the second quarter of each year. The impairment analysis involves comparing the fair value of each reporting unit or non-amortizable intangible asset to the carrying value. If the carrying value exceeds the fair value, goodwill or a non-amortizable intangible asset is considered impaired.

Hedging instruments

Derivative financial instruments are recorded at fair value on the consolidated balance sheets as either assets or liabilities. Changes in the fair value of derivatives are recorded each period either in accumulated other comprehensive losses on the consolidated balance sheet or in earnings, depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type of hedge transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive losses are reclassified to the consolidated statements of earnings, into the same line item as the impact of the underlying transaction, in the periods in which operating results are affected by the hedged item. Cash flows from hedging instruments are classified in the same manner as the affected hedged item in the consolidated statements of cash flows.

Impairment of long-lived assets

PMI reviews long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. PMI performs undiscounted operating cash flow analyses to determine if an impairment exists. For purposes of recognition and measurement of an impairment for assets held for use, PMI groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If an impairment is determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if any, are based on the lower of carrying value or estimated proceeds to be received less costs of disposal.

Impairment of investment in non-marketable equity securities

Non-marketable equity securities are subject to periodic impairment reviews during which PMI considers both qualitative and quantitative factors that may have a significant impact on the investees' fair value. Upon determining that an impairment may exist, the security’s fair value is calculated and compared to its carrying value, and an impairment is recognized immediately if the carrying value exceeds the fair value. For further details see Note 22. Deconsolidation of RBH.


Impairment of equity method investments in unconsolidated subsidiaries

Investments in unconsolidated subsidiariesEquity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of the investments may not be recoverable. An impairment loss would be recorded whenever a decline in value of an equity investment below its carrying amount is determined to be other than temporary. PMI determines whether a loss is other than temporary by considering the length of time and extent to which the fair value of the equity investment has been less than the carrying amount, the financial condition of the equity investment, and the intent to retain the investment for a period of time is sufficient to allow for any anticipated recovery in market value.

Income taxes

Income taxes are provided on all earnings for jurisdictions outside the United States. These provisions, as well as state and local income tax provisions, are determined on a separate company basis, and the related assets and liabilities are recorded in PMI’s consolidated balance sheets. Significant judgment is required in determining income tax provisions and in evaluating tax positions. PMI recognizes accrued interest and penalties associated with uncertain tax positions as part of the provision for income taxes on the consolidated statements of earnings. PMI recognizes income taxes associated with Global Intangible Low-Taxed Income ("GILTI") taxes as current period expense rather than including these amounts in the measurement of deferred taxes.

79


Inventories

Inventories are stated at the lower of cost or market. The first-in, first-out and average cost methods are used to cost substantially all inventories. It is a generally recognized industry practice to classify leaf tobacco inventory as a current asset, although part of such inventory, because of the duration of the aging process, ordinarily would not be utilized within one year.

Leases

PMI determines that a contract contains a lease if the contract conveys a right to control the use of the identified asset for a period of time in exchange for consideration. LeaseOperating lease expense is recognized on a straight-line basis over the lease term. Finance lease expense is amortized based on production activity or the lease term. Lease expense is recorded in cost of sales or marketing, administration and research costs depending on the nature of the leased item. At lease commencement, PMI recognizes lease liabilities and the corresponding right-of-use assets (at the present value of future payments) for predominately all of its operating leases. The recognition of the right-of-use asset and lease liability includes renewal options when it is reasonably certain that they will be exercised. Certain of PMI’s leases include payments that are based on changes to an index or on actual usage. These lease payments are adjusted periodically and are included within variable lease costs. PMI accounts for lease and nonlease components as a single-lease component with the exception of its vehicle leases, of which PMI accounts for the lease components separately from the nonlease components. Additionally, leases with an initial term of 12 months or less are not included in the right-of-use asset or lease liability on the consolidated statement of financial position.

Marketing costs

PMI supports its products with advertising, adult consumer engagement and trade promotions. Such programs include, but are not limited to, discounts, rebates, in-store display incentives, e-commerce, mobile and other digital platforms, adult consumer activation and promotion activities, as well as costs associated with adult consumer experience outlets and other adult consumer touchpoints and volume-based incentives. Advertising, as well as certain consumer engagement and trade activities costs, are expensed as incurred. Trade promotions are recorded as a reduction of revenues based on amounts estimated as being due to customers at the end of a period, based principally on historical utilization. For interim reporting purposes, advertising and certain consumer engagement expenses are charged to earnings based on estimated sales and related expenses for the full year.

Revenue recognition

PMI recognizes revenue primarily through the manufacture and sale of cigarettes and other nicotine-containingsmoke-free products, including reduced-riskheat-not-burn, vapor and oral nicotine products. The majority of PMI revenues are generated by sales through direct and indirect distribution networks with short-term payment conditions and where control is typically transferred to the customer either upon shipment or delivery of goods. PMI evaluates the transfer of control through evidence of the customer’s receipt and acceptance, transfer of title, PMI’s right to payment for those products and the customer’s ability to direct the use of those products upon receipt. Typically, PMI’s performance obligations are satisfied and revenue is recognized either upon shipment or delivery of goods.

In certain instances, PMI facilitates shipping and handling activities after control has transferred to the customer. PMI has elected to record all shipping and handling activities as costs to fulfill a contract. The shipping and handling costs that have not been incurred at the time revenue is recognized are accrued.  The transaction price is typically based on the amount billed to the customer and includes estimated variable consideration, where applicable. Such variable consideration is typically not constrained and is estimated based on the most likely amount that PMI expects to be entitled to under the terms of the contracts with customers, historical experience of discount

or rebate redemption, where relevant, and the terms of any underlying discount or rebate programs, which may change from time to time as the business and product categories evolve. PMI has elected to exclude excise taxes collected from customers from the measurement of the transaction price, thereby presenting revenues net of excise taxes. Estimated costs associated with warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.

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

Research and development costs are expensed as incurred.

In a business combination, the fair value of IPR&D acquired is initially capitalized and accounted for as indefinite-lived intangible assets until completion or abandonment of the projects. Upon completion, a determination as to the useful life is performed and the intangible asset is accounted for as a definite-lived intangible asset. Both the indefinite and definite-lived intangible assets are subject to impairment testing annually or more frequently if indicators exist. In an asset acquisition, the initial cost to acquire the IPR&D is expensed in the consolidated statements of earnings when the project has no alternative future use. PMI records these costs within marketing, administration and research costs in its consolidated statements of earnings.

80


Stock-based compensation

PMI measures compensation cost for all stock-based awards at fair value on date of grant and recognizes the compensation costs over the service periods for awards expected to vest. PMI’s accounting policy is to estimate the number of awards expected to be forfeited and adjust the expense when it is no longer probable that the employee will fulfill the service condition. For further details, see Note 9.10. Stock Plans.

Note 3.

Acquisitions:

Transactions With Noncontrolling Interests

Turkey – In the first quarter of 2022, PMI acquired the remaining 25% stake of its holding in Philip Morris Tütün Mamulleri Sanayi ve Ticaret A.Ş. ("PMTM") (formerly Philsa Philip Morris Sabancı Sigara ve Tütüncülük Sanayi ve Ticaret A.Ş.) and 24.75% stake in Philip Morris Pazarlama ve Satış A.Ş. ("PMPS") (formerly Philip Morris SA, Philip Morris Sabancı Pazarlama ve Satış A.Ş.) from its Turkish partners, Sabanci Holding for a total acquisition price including transaction costs and remaining dividend entitlements of approximately $223 million. As a result of this acquisition, PMI owned 100% of these Turkish subsidiaries as of December 31, 2022. The purchase of the remaining stakes in these holdings resulted in a decrease to PMI's additional paid-in capital of $30 million and an increase to accumulated other comprehensive losses of $171 million primarily following the reclassification of accumulated currency translation losses from noncontrolling interests to PMI’s accumulated other comprehensive losses during the first quarter of 2022.

In January 2023, PMI sold the acquired stakes of its holdings in PMTM and PMPS to Pioneers Tutun Yatirim Anonim Sirketi (“Pioneers”) for a consideration of approximately $205 million plus remaining dividend entitlements. The transaction will be reflected in PMI's financial statements in 2023.

Business Combinations

Swedish Match AB – On November 11, 2022 (the acquisition date), Philip Morris Holland Holdings B.V. (“PMHH”), a wholly owned subsidiary of PMI, acquired a controlling interest of 85.87% of the total issued shares in Swedish Match AB (“Swedish Match”) and has acquired 94.81% of its outstanding shares as of December 31, 2022. The shares were acquired through acceptances of the tender offer and a series of open market and over-the-counter purchases. PMI funded the acquisition through cash on-hand and debt proceeds, as described in Note 8. Indebtedness. The aggregate cash paid as of the acquisition date was $14,460 million (or $13,976 million net of cash acquired), which was included in investing activities in the consolidated statements of cash flows. The cash paid in connection with the additional purchases of the noncontrolling interests after the acquisition date amounted to $1,495 million and was included in financing activities in the consolidated statements of cash flows.

Swedish Match is a market leader in oral nicotine delivery with a significant presence in the United States market.The acquisition will accelerate PMI’s transformation to become a smoke-free company with a comprehensive global smoke-free portfolio with leadership positions in heat-not-burn, and the fastest growing category of oral nicotine, with the potential for accelerated international expansion.

81


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. The following table summarizes the preliminary purchase price allocation for the fair value of assets acquired and liabilities assumed as of the acquisition date:
(in millions)
Cash and cash equivalents$484 
Trade receivables135 
Other receivables53 
Inventories444 
Other current assets524 
Property, plant and equipment627 
Other intangible assets4,512 
Other non-current assets214 
Current portion of long-term debt224 
Accounts payable120 
Other current liabilities531 
Income taxes14 
Long-term debt1,126 
Deferred income taxes1,253 
Other non-current liabilities187 
Identifiable net assets acquired3,538 
Noncontrolling interest2,379 
Goodwill13,301 
Total consideration transferred$14,460 

The total fair value step-up adjustment for inventories was $146 million, of which $125 million was recognized in cost of sales in the fourth quarter of 2022, with the remaining balance expected to be recognized in the first quarter of 2023.

The fair value of long-term debt was determined using readily available market prices as of the acquisition date and the total purchase price adjustment of $(102) million is being amortized as an increase to interest expense, net over the lives of the related debt.

Goodwill is primarily attributable to future growth opportunities, anticipated synergies in the U.S. and intangible assets that did not qualify for separate recognition. The goodwill is not deductible for income tax purposes.

Identifiable intangible assets of Swedish Match consist of:

TypeUseful LifeEstimated Fair Value (in millions)
TrademarksNon-amortizable$2,077 
TrademarksAmortizable20 years904 
Developed technology, including patents10 years367 
Customer relationships10 years1,164 
Note 3.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.

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. All other trademarks have been preliminarily determined to have a 20 years useful life. The preliminary fair values of the trademarks have been determined using the relief from royalty method supported by revenue growth rates assumptions and royalty rates benchmarking analysis at product category level (smoke-free brands, including
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ZYN, cigar brands and lights). In 2023, during the measurement period, the useful life, revenue growth rate and the royalty rate of each individual trademark will be reassessed to determine its final purchase price.

Developed technology, including patents, relates to the nicotine pouch technology of $367 million. The patent has been assigned a useful life of 10 years, which is in line with the patent's protection. The preliminary fair value of the patent has been determined using the relief from royalty method.

Customer relationships have been valued separately by geographic locations, namely for the US market, Scandinavia, and other markets using the multiple periods excess earnings method, preliminarily reflecting a general market attrition rate for retail and revenue allocation and profit margin assumptions by customer type, which will be further assessed during the measurement period.

PMI consolidated statements of earnings for the year ended December 31, 2022, include $316 million of net revenues and $(26) million of net losses associated with the results of operations of Swedish Match from the acquisition date to December 31, 2022. The operating results of Swedish Match are included in a separate segment.

Acquisition related transaction costs, which were comprised primarily of regulatory, financial advisory and legal fees, totaled $59 million for the year ended December 31, 2022, and were included in marketing, administration and research costs in the consolidated statements of earnings. Bridge and term loan credit agreement related fees associated with the issuance of debt amounted to $54 million, of which $37 million were capitalized at the acquisition date. 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 consolidated balance sheets at December 31, 2022.

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. In order to reflect the occurrence of the acquisition on January 1, 2021, as required, the unaudited pro forma financial information includes adjustments to reflect the following:

incremental amortization expense to be incurred based on the current preliminary fair values of the identifiable intangible assets acquired;
incremental cost of products sold related to the fair value adjustments associated with acquisition date inventory;
additional interest expense associated with the issuance of debt to finance the acquisition, including the effects of the related derivative financial instruments designated to hedge interest rate risks as well as economic hedges;
reclassification of non-recurring acquisition-related costs incurred during the year ended December 31, 2022, to the year ended December 31, 2021;
impact of a deferred tax cost of $430 million in 2022 and $321 million in 2021 related to the theoretical unrealized foreign currency gains on intercompany loans related to the acquisition financing. These theoretical unrealized pre-tax foreign currency movements were fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in PMI's consolidated statements of stockholders' (deficit) equity, while the corresponding deferred tax impacts were reflected in PMI's consolidated statements of earnings; and
other immaterial items (i.e., the alignment of accounting policies from IFRS to US GAAP.)

The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have been had the acquisition been completed on January 1, 2021. In addition, the unaudited pro forma financial information is not a projection of future results of operations of the combined company, nor does it reflect the expected realization of any synergies or cost savings associated with the acquisition.

The unaudited pro forma financial information is as follows:
For the Years Ended December 31,
(in millions)20222021
Net revenues$33,690 $33,577 
Net earnings attributable to PMI$8,875 $8,610 
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AG Snus - On May 6, 2021, PMI acquired 100% of AG Snus Aktieselskab ("AG Snus"), a company based in Denmark, and its Swedish subsidiary Tobacco House of Sweden AB fully owned by AG Snus, which operates in the oral tobacco (i.e. snus) and modern oral (i.e. nicotine pouches) product categories. The purchase price was $28 million in cash, net of cash acquired, with additional contingent payments of up to $10 million, primarily relating to product development and performance targets over a less than two-year period. In the fourth quarter of 2022, the additional contingent payment was settled for $9 million. The operating results of AG Snus are included in the European Union segment, and were not material.

Fertin Pharma – On September 15, 2021, PMI acquired 100% of Fertin Pharma A/S (“Fertin Pharma”), a company based in Denmark. Fertin Pharma is a developer and manufacturer of pharmaceutical and well-being products based on oral and intra-oral delivery systems. The acquisition was funded with existing cash. The total consideration of $821 million (DKK 5.2 billion) included cash of $580 million and the payment of $241 million related to the settlement of Fertin Pharma’s indebtedness. The purchase price of $821 million was allocated to cash ($24 million), current assets including receivables and inventories ($69 million), non-current assets including property, plant and equipment ($228 million), goodwill ($378 million), and other intangible assets ($245 million, which primarily consisted of customer relationships, developed technology, and in-process research and development ("IPR&D")), partially offset by current liabilities ($44 million, which primarily consisted of accrued liabilities and accounts payable) and non-current liabilities ($79 million, primarily deferred income tax). Goodwill is primarily attributable to future growth opportunities provided by acquired R&D capabilities and any intangibles that did not qualify for separate recognition. The goodwill is not deductible for income tax purposes. The amortizable intangible assets are being amortized over their estimated useful lives of 8 to 19 years. During 2022, PMI did not record any measurement period adjustments to the purchase price allocation. The final purchase price allocation was reflected in the consolidated balance sheets as of December 31, 2022.

Vectura – During the third quarter and up to September 15, 2021, PMI acquired a controlling interest of 74.77% of the total issued shares in Vectura Group plc (“Vectura”), an inhaled therapeutics company based in the United Kingdom. The shares were acquired through a series of open market purchases and acceptances of the tender offer at a price of 165 pence per share. As a result of additional acceptances of the offer and the exercise of the right to acquire compulsorily the Vectura shares, in accordance with the applicable English law, PMI completed the acquisition of 100% of Vectura in the fourth quarter of 2021. The acquisition was funded with existing cash from a designated account operated solely for the purpose of funding this acquisition.

The total purchase price of $1,384 million (GBP 1.0 billion) for 100% of the Vectura shares was allocated to cash ($136 million), current assets including receivables and inventories ($89 million), non-current assets including property, plant and equipment ($67 million), goodwill ($780 million), and other intangible assets ($486 million, which primarily consisted of developed technology, and IPR&D), partially offset by current liabilities ($100 million, primarily accrued liabilities), and non-current liabilities ($74 million, primarily deferred income tax). Goodwill is primarily attributable to future growth opportunities provided by acquired R&D capabilities and any intangibles that did not qualify for separate recognition. The goodwill is not deductible for income tax purposes. The amortizable intangible assets are being amortized over their estimated useful lives of 3 to 13 years. During 2022, PMI made certain measurement period adjustments to the purchase price allocation to reflect facts and circumstances in existence as of the acquisition date, which resulted in an increase to goodwill of $190 million. The increase was primarily due to a decrease in other intangible assets ($233 million), and a decrease in deferred income tax liabilities ($43 million). The final purchase price allocation was reflected in the consolidated balance sheets as of December 31, 2022.

Pro forma results of operations for AG Snus, Fertin Pharma and Vectura have not been presented as the aggregate impact is not material to PMI's consolidated statements of earnings.

Altria Group, Inc. Agreement

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. as of April 30, 2024. As a result of PMI reacquiring these rights, effective May 1, 2024, PMI will have the full rights to commercialize IQOS in the U.S. 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 consolidated balance sheets as of 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.

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Asset Acquisition

On August 9, 2021, PMI acquired 100% of OtiTopic, Inc., a U.S. respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction. The transaction price was $38 million in cash, plus transaction costs, with additional contingent payment of $13 million, primarily related to certain key milestones that PMI deemed probable. Additionally, PMI may owe up to $25 million in future additional contingent payments dependent upon the achievement of certain milestones. PMI accounted for this transaction as an asset acquisition since the IPR&D of the dry powder inhalation aspirin treatment represented substantially all of the fair value of the gross assets acquired. At the date of acquisition, PMI determined that the acquired IPR&D had no alternative future use. As a result, PMI recorded a charge of $51 million to research and development costs within marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2021.

As previously discussed in Note 1. Background and Basis of Presentation on March 31, 2022, PMI launched a new Wellness and Healthcare business, Vectura Fertin Pharma, which consolidates Fertin Pharma, Vectura and OtiTopic, Inc. into one operating segment.

Note 4.

War in Ukraine:

Since the onset of the war in Ukraine in February 2022, PMI's main priority has been the safety and security of its more than 1,300 employees and their families in the country.

Ukraine

PMI temporarily suspended its commercial and manufacturing operations in Ukraine, including the closing of its factory in Kharkiv at the end of February 2022, in order to preserve the safety of its employees. PMI subsequently resumed some retail activities where safety allowed, in order to provide product availability and service to adult consumers, and began to supply the market from production centers outside Ukraine, as well as through a contract manufacturing arrangement. 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 December 31, 2022, PMI is unable to estimate the information required to perform impairment analyses (i.e., forecast of revenues, manufacturing and commercial plans). PMI is not aware of any major damage to its production facilities, inventories or other assets in Ukraine. As a result, PMI has not recorded an impairment of long-lived assets. As of December 31, 2022, PMI’s Ukrainian operations had approximately $414 million in total assets, excluding intercompany balances. These total assets included $69 million, $279 million and $31 million in receivables, inventories and property, plant and equipment, respectively.

Russia

PMI has suspended its planned investments in the Russian Federation including all new product launches and commercial, innovation, and manufacturing investments. PMI has also taken steps to scale down its manufacturing operations in Russia amid ongoing supply chain disruptions and the evolving regulatory environment. 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 December 31, 2022, it has not recorded an impairment of long-lived and other assets. However, PMI recorded specific asset write downs as referred to in the table below. PMI’s Russian operations as of December 31, 2022 had approximately $2.5 billion in total assets, excluding intercompany balances. These total assets included $578 million, $541 million, $786 million, $334 million and $161 million in cash (primarily held in local currency), receivables, inventories, property, plant and equipment and goodwill, respectively. In addition, there was approximately $806 million of cumulative foreign currency translation losses reflected in accumulated other comprehensive losses in the consolidated statement of stockholders’ equity as of December 31, 2022.
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As of December 31, 2022, PMI recorded in its consolidated statements of earnings pre-tax charges related to circumstances driven by the war as follows:

(in millions)For the Year Ended December 31, 2022
Cost of salesMarketing, administration and research costsTotal
Ukraine 1
$42 $36 $78 
Russia 2
20 53 73 
Total$62 $89 $151 
1 The charges were primarily due to an inventory write down, additional allowance for receivables and the cost of PMI’s humanitarian efforts, which includes salary continuation for its employees.
2 The charges were primarily due to machinery and inventory write downs related to the commercial decisions noted above.

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


Note 5.

Goodwill and Other Intangible Assets, net:

The movements in goodwill were as follows:
(in millions)European UnionEastern EuropeMiddle East & AfricaSouth & Southeast AsiaEast Asia & AustraliaAmericasSwedish MatchWellness & HealthcareTotal
Balances at January 1, 2021$1,434 $317 $86 $2,915 $559 $653 $— $— $5,964 
Changes due to:
Acquisitions54 — — — — — — 944 998 
Currency(91)(22)(7)(87)(20)(42)— (13)(282)
Balances, December 31, 20211,397 295 79 2,828 539 611 — 931 6,680 
Changes due to:
Acquisitions      13,301  13,301 
Currency(82)(17)(5)(256)(46)4 (5)(109)(516)
Other       190 190 
Balances, December 31, 2022$1,315 $278 $74 $2,572 $493 $615 $13,296 $1,012 $19,655 
(in millions)European UnionEastern EuropeMiddle East & AfricaSouth & Southeast AsiaEast Asia & AustraliaLatin America & CanadaTotal
Balance at January 1, 2018$1,419
$321
$102
$3,010
$567
$2,247
$7,666
Changes due to:       
Currency(62)(18)(15)(215)(31)(136)(477)
Balances, December 31, 20181,357
303
87
2,795
536
2,111
7,189
Changes due to:       
Currency(19)(3)2
103
15
34
132
Deconsolidation of RBH     (1,463)(1,463)
Balances, December 31, 2019$1,338
$300
$89
$2,898
$551
$682
$5,858

The increase in goodwill in 2022 was due primarily to the final purchase price allocation associated with Vectura Group plc acquisition in 2021 (reflected in "changes due to other" in Wellness and Healthcare segment) and the preliminary purchase price allocation associated with the Swedish Match AB acquisition in the fourth quarter of 2022, partially offset by currency movements. For further details on these business combinations, see Note 3. Acquisitions.

At December 31, 2019,2022, goodwill primarily reflects PMI’s acquisitionsbusiness combinations in Colombia, Greece, Indonesia, Mexico, Pakistanthe Philippines and Serbia, as well as the business combinationfinal purchase price allocation of Fertin Pharma A/S and Vectura Group plc., which were acquired in September 2021, and the preliminary purchase price allocation of Swedish Match AB, which was acquired in the Philippines.

fourth quarter of 2022.
For details on
As discussed in Note 1. Background and Basis of Presentation, during the deconsolidationfirst quarter of RBH, see Note 22. Deconsolidation2022, one of RBH.Fertin Pharma's product lines was moved from the Wellness and Healthcare segment to the European Union segment. As a result, the December 31, 2021 goodwill balance in the table above included a reclassification of $24 million from the Wellness and Healthcare segment to the European Union segment (reflected in changes due to acquisitions in 2021).

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Details of other intangible assets were as follows:
  December 31, 2019 December 31, 2018
(in millions)Weighted-Average Remaining Useful LifeGross Carrying AmountAccumulated AmortizationNet Gross Carrying AmountAccumulated AmortizationNet
Non-amortizable intangible assets $1,319
 $1,319
 $1,269
 $1,269
Amortizable intangible assets:        
Trademarks14 years1,217
$526
691
 1,488
$608
880
Distribution networks8 years113
72
41
 141
82
59
Other*9 years106
44
62
 107
37
70
Total other intangible assets $2,755
$642
$2,113
 $3,005
$727
$2,278
* Includes farmer contracts and intellectual property rights
December 31, 2022December 31, 2021
(in millions)Weighted-Average Remaining Useful LifeGross Carrying AmountAccumulated AmortizationNetGross Carrying AmountAccumulated AmortizationNet
Non-amortizable intangible assets$3,346 $3,346 $1,312 $1,312 
Amortizable intangible assets:
Trademarks15 years2,050 $674 1,376 1,201 $639 562 
Developed technology, including patents8 years975 243 732 859 63 796 
Customer relationships and other10 years1,390 112 1,278 238 90 148 
Total other intangible assets$7,761 $1,029 $6,732 $3,610 $792 $2,818 

Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia and Mexico.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, 2018,2021 was due to the preliminary purchase price allocation associated with the Swedish Match acquisition in 2022 of $2,077 million, partially offset by the final purchase price allocation associated with Vectura Group plc acquisition in 2021 in the amount of $(3) million and currency movements of $50$(40) million.

The decreaseincrease in the gross carrying amount of amortizable intangible assets from December 31, 2018,2021, was mainly due to the deconsolidationpreliminary purchase price allocation associated with the Swedish Match acquisition in 2022 of RBH's trademarks of ($275 million) and distribution network of ($29 million),$2,435 million, partially offset by final purchase price allocation associated with PMI's business combinations in 2021 and other movements in the amount of $(225) million, and currency movements of $6$(93) million. For further details on these business combinations, see Note 3. Acquisitions.

The change in the accumulated amortization from December 31, 20182021, was mainly due to the deconsolidation of RBH's trademarks of ($133 million) and distribution network of ($18 million), partially offset by the 20192022 amortization of $66$159 million and impairment charge of$112 million, partially offset by currency movements of $2$34 million. The amortization of intangibles for the year ended December 31, 2022 was recorded in cost of sales ($58 million) and in marketing, administration and research costs ($101 million) on PMI's consolidated statements of earnings.

Amortization expense for each of the next five years is estimated to be $73$310 million or less, assuming no additional transactions occur that require the amortization of intangible assets. This estimate is subject to change based on the finalization of the preliminary purchase price allocation of the Swedish Match acquisition.

During the second quarter of 2019,2022, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment, and 0no impairment charges were required as a result of this review. However, there are still risks related to PMI’s Russian reporting unit’s assets as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions. For more information see Note 4. War in Ukraine. Each of PMI’s reporting units had fair values substantially in excess of its carrying value with the exception of the Wellness and Healthcare reporting unit, which had less than 20% excess of fair value over its carrying value in the period of the latest review of goodwill for potential impairment. The Wellness and Healthcare reporting unit's fair value was determined using the discounted cash flow model. PMI will continue to monitor this reporting unit as any changes in assumptions, estimates or market factors could result in a future impairment.

PMI recorded a pre-tax impairment charge of $112 million in the third quarter of 2022, reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment. The impairment reduces the carrying values of developed technology definite-lived intangible assets in the Wellness and Healthcare segment to $325 million. The fair value of these intangible assets was primarily determined using the multi-period excess earnings method. This impairment charge was recorded within cost of sales in the consolidated statements of earnings for the year ended December 31, 2022.

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Note 4.6.

Related Parties - Investments in Unconsolidated Subsidiaries, Equity SecuritiesInvestments and Other:

Investments in unconsolidated subsidiaries:Equity Method Investments:

At December 31, 20192022 and 2018,2021, PMI had total equity method investments in unconsolidated subsidiaries of $1,053$1,000 million and $981$879 million, respectively, which were accounted for under the equity method of accounting.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 December 31, 20192022 and 2018,2021, exceeded our share of the unconsolidated subsidiaries'investees' book value by $901$750 million and $835$764 million, respectively. The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $863$715 million and $793$728 million attributable to goodwill as of December 31, 20192022 and 2018,2021, respectively, which consists primarily of definite-lived intangible assets is being amortized on a straight-line basis over the underlying assets' estimated useful lives of 10 to 20 years.basis. At December 31, 20192022 and 2018,2021, PMI received year-to-date dividends from unconsolidated subsidiariesequity method investees of $100$9 million and $118$176 million, respectively.

PMI holds a 23% equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (Eastern Europe segment), which as of December 31, 2022 had a carrying value of $458 million. While as of December 31, 2022, there have been no impairment indicators based on the business’ performance, there are still risks related to this investment as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions. For more information, see Note 4. War in Ukraine. Additionally, there was approximately $469 million of cumulative foreign currency translation losses associated with Megapolis Distribution BV reflected in accumulated other comprehensive losses in the consolidated statement of stockholders’ equity as of December 31, 2022.

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

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

Equity securities:

Following the deconsolidation of RBH on March 22, 2019, PMI recorded the continuing investment in RBH, PMI's wholly owned subsidiary in Canada, at fair value of $3,280 million at the date of deconsolidation, within investments in unconsolidated subsidiaries and equity securities. For further details, see Note 22. Deconsolidation of RBH.investments. 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 $326 million and $283 million for the years ended December 31, 2022 and 2021, respectively. Unrealized pre-tax gains (losses) of $43 million and $19 million ($33 million and $15 million net of tax) on these equity securities were recorded in equity investments and securities (income)/loss, net on the consolidated statements of earnings for the years ended December 31, 2022 and 2021, respectively. For a description of the fair value hierarchy and the three levels of inputs used to measure fair values, see Note 2. Summary of Significant Accounting Policies.


Other related parties:

United Arab Emirates-based Trans-Emirates Trading and Investments (FZC) ("TTI") holds a 33% non-controlling interest in Philip Morris Misr LLC ("PMM"), an entity incorporated in Egypt which is consolidated in PMI’s financial statements in the Middle East & Africa segment. PMM sells, under license, PMI brands in Egypt through an exclusive distribution agreement with a local entity that is also controlled by TTI. Additionally, as of December 31, 2022, 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, PMI'swhich is a 56.3% owned PMI consolidated subsidiary in the South & Southeast Asia segment, has a non-controlling interest of 43.7% held by Godfrey Phillips India Ltd, whosegment. GPI also acts as contract manufacturer and distributor for IPM. Amounts in the tables below include transactions between these related parties, beginning in 2019. Prior periods do not include these transactions as they were not material.IPM India.

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Financial activity with the above related parties:

PMI’s net revenues and expenses with the above related parties were as follows:
 For the Years Ended December 31,For the Years Ended December 31,
(in millions) 201920182017(in millions)202220212020
Net revenues  
Net revenues:Net revenues:
Megapolis Group $2,236
$1,994
$1,874
Megapolis Group$2,485 $2,207 $2,174 
Other 1,015
720
647
Other1,173 1,123 1,059 
Net revenues (a)
 $3,251
$2,714
$2,521
Net revenues (a)
$3,658 $3,330 $3,233 
  
Expenses:  Expenses:
Other $63
$21
$23
Other$119 $69 $51 
Expenses $63
$21
$23
Expenses$119 $69 $51 
(a) Net revenues exclude excise taxes and VAT billed to customers. Prior year's amounts have been reclassified to conform with the current year's presentation.

PMI’s balance sheet activity with the above related parties was as follows:
  At December 31,
(in millions) 20192018
Receivables:   
Megapolis Group $375
$172
Other 148
136
Receivables $523
$308
    
Payables:   
Other $20
$8
Payables $20
$8

At December 31,
(in millions)20222021
Receivables:
Megapolis Group$478 $319 
Other210 199 
Receivables$688 $518 
Payables:
Other$31 $25 
Payables$31 $25 
The activities with the above related parties are in the ordinary course of business, and are primarily for distribution, service fees, contract manufacturing and license agreements. PMI eliminated its respective share of all significant intercompany transactions with the equity method investees.


Note 5.7.

Product Warranty:

PMI's IQOSheat-not-burn devices and e-vapor products are subject to standard product warranties generally for a period of 12 months from the date of purchase or such other periods as required by law. PMI generally provides in cost of sales for the estimated cost of warranty in the period the related revenue is recognized. PMI assesses the adequacy of its accrued product warranties and adjusts the amounts as necessary based on actual experience and changes in future estimates. Factors that affect product warranties may vary across markets but typically include device version mix, product failure rates, logistics and service delivery costs, and warranty policies. PMI accounts for its product warranties within other accrued liabilities. At December 31, 20192022 and December 31, 2018,2021, these amounts were as follows:

At December 31,
(in millions)20222021
Balance at beginning of period$113 $137 
Changes due to:
   Warranties issued107 154 
    Settlements(114)(177)
    Currency/Other(2)(1)
Balance at end of period$104 $113 
 At December 31,
(in millions)20192018
Balance at beginning of period$67
$71
Changes due to:  
   Warranties issued303
179
    Settlements(230)(183)
    Currency

Balance at end of period$140
$67


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Note 6.8.

Acquisitions:

On March 21, 2018, PMI acquired the remaining 49% interest in Tabacalera Costarricense, S.A. and Mendiola y Compañía, S.A. for a net purchase price of $95 million, which includes $2 million of contingent consideration. As a result, PMI now owns 100% of these Costa Rican affiliates. The purchase of the remaining 49% interest resulted in a decrease to PMI’s additional paid-in capital of $86 million.

Note 7.

Indebtedness:

Short-Term Borrowings

At December 31, 20192022 and 2018,2021, PMI’s short-term borrowings and related average interest rates consisted of the following:
December 31, 2022December 31, 2021
(in millions)Amount OutstandingAverage Year-End RateAmount OutstandingAverage Year-End Rate
Commercial paper$912 4.4 %$— — %
Bank loans295 7.5 225 12.0 
U.S. dollar credit facility borrowings related to Swedish Match AB acquisition4,430 4.9   
$5,637 $225 
 December 31, 2019 December 31, 2018
(in millions)Amount Outstanding
 Average Year-End Rate
 Amount Outstanding
 Average Year-End Rate
Commercial paper$
 % $
 %
Bank loans338
 5.5
 730
 5.8
 $338
   $730
  

Given the mix of subsidiaries 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.

The fair values of PMI’s short-term borrowings at December 31, 20192022 and 2018,2021, based upon current market interest rates, approximate the amounts disclosed above.


Long-Term Debt

At December 31, 20192022 and 2018,2021, PMI’s long-term debt consisted of the following:
 December 31,
(in millions)2019 2018
U.S. dollar notes, 1.875% to 6.375% (average interest rate 3.516%), due through 2044$19,783
 $20,819
Foreign currency obligations:   
Euro notes, 0.125% to 3.125% (average interest rate 1.950%), due through 20399,822
 8,656
Swiss franc notes, 1.000% to 2.000% (average interest rate 1.521%), due through 2024899
 1,374
Other (average interest rate 3.125%), due through 2025203
 180
 30,707
 31,029
Less current portion of long-term debt4,051
 4,054
 $26,656
 $26,975

Other debt:
December 31,
(in millions)20222021
U.S. dollar notes, 0.875% to 6.375% (average interest rate 3.896%), due through 2044$22,596 $19,397 
Foreign currency obligations:
Euro notes, 0.125% to 3.125% (average interest rate 1.877%), due through 20398,116 7,687 
Swiss franc notes, 1.625% to 2.125% (average interest rate 1.768%), due through 2024378 273 
Euro credit facility borrowings related to Swedish Match AB acquisition, (average interest rate 2.234%), due through 20275,850 — 
Swedish krona notes, 1.395% to 3.654% (average interest rate 2.110%), due through 2029343 — 
Other (average interest rate 3.346%), due through 2029 (a)
203 224 
Carrying value of long-term debt37,486 27,581 
Less current portion of long-term debt2,611 2,798 
$34,875 $24,783 
Other foreign currency debt above includes(a) Includes mortgage debt in Switzerland as well as $54 million and $71 million in finance lease obligationsleases at December 31, 20192022 and 2021, respectively.

The fair value of PMI’s outstanding long-term debt, which is utilized solely for disclosure purposes, is determined using quotes and market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities. At December 31, 2018.2022 and 2021 the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:
Debt Issuances
December 31,
(in millions)20222021
Level 1$28,919 $29,597 
Level 26,142 165 
90



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

Financing of the Swedish Match Acquisition

In connection with PMI’s all-cash recommended public offer to the shareholders of Swedish Match AB ("Swedish Match"), a public limited liability company organized under the laws of Sweden, for all the outstanding shares of Swedish Match, on May 11, 2022, PMI entered into a credit agreement relating to a 364-day senior unsecured bridge facility. The facility provided for borrowings up to an aggregate principal amount of $17 billion, expiring 364 days after the occurrence of certain events unless extended. On June 23, 2022, PMI entered into a new €5.5 billion (approximately $5.8 billion at the date of signing) senior unsecured term loan credit agreement consisting of a €3.0 billion (approximately $3.2 billion at the date of signing) tranche expiring three years after the occurrence of certain events and a €2.5 billion (approximately $2.6 billion at the date of signing) tranche expiring on June 23, 2027. In connection with the term loan facility, the aggregate principal amount of commitments under the 364-day senior unsecured bridge facility was reduced from $17 billion to $11 billion. On November 11, 2022, PMI acquired a controlling interest of 85.87% of the total issued shares in Swedish Match and has acquired 94.81% of its outstanding shares as of December 31, 2022.

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 will 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. On November 21, 2022, PMI repaid $4.0 billion under the bridge facility. As of December 31, 2022, outstanding borrowings under the bridge facility amounted to $4.4 billion and $1.1 billion commitments remained available for drawing. As of December 31, 2022, the €5.5 billion (approximately $5.9 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. For further details on this acquisition, see Note 3. Acquisitions.

Notes Outstanding:
PMI’s debt issuancesnotes outstanding at December 31, 2019,2022, were as follows:

(in millions)
TypeFace ValueInterest
Rate
IssuanceMaturity
U.S. dollar notes$6002.625%March 2013March 2023
U.S. dollar notes$5002.125%May 2016May 2023
U.S. dollar notes$7501.125%May 2020May 2023
U.S. dollar notes$5003.600%November 2013November 2023
U.S. dollar notes$9002.875%May 2019May 2024
U.S. dollar notes$7503.250%November 2014November 2024
U.S. dollar notes$1,0005.125%November 2022November 2024
U.S. dollar notes$7501.500%May 2020May 2025
U.S. dollar notes$7503.375%August 2015August 2025
U.S. dollar notes$7505.000%November 2022November 2025
U.S. dollar notes$7502.750%February 2016February 2026
U.S. dollar notes$7500.875%November 2020May 2026
U.S. dollar notes$5003.125%August 2017August 2027
U.S. dollar notes$1,5005.125%November 2022November 2027
U.S. dollar notes$5003.125%November 2017March 2028
U.S. dollar notes(a)$504.000%May 2013May 2028
U.S. dollar notes$7503.375%May 2019August 2029
U.S. dollar notes$1,2505.625%November 2022November 2029
U.S. dollar notes$7502.100%May 2020May 2030
U.S. dollar notes$7501.750%November 2020November 2030
U.S. dollar notes$1,5005.750%November 2022November 2032
U.S. dollar notes$1,5006.375%May 2008May 2038
91


(in millions)        
Type Face Value Interest
Rate
 Issuance Maturity
U.S. dollar notes $300 Floating February 2017 February 2020
U.S. dollar notes $1,000 2.000% February 2017 February 2020
U.S. dollar notes $1,000 4.500% March 2010 March 2020
U.S. dollar notes $750 1.875% February 2016 February 2021
U.S. dollar notes $350 4.125% May 2011 May 2021
U.S. dollar notes $750 2.900% November 2011 November 2021
U.S. dollar notes $500 2.625% February 2017 February 2022
U.S. dollar notes $750 2.375% August 2017 August 2022
U.S. dollar notes $750 2.500% August 2012 August 2022
U.S. dollar notes $750 2.500% November 2017 November 2022
U.S. dollar notes $600 2.625% March 2013 March 2023
U.S. dollar notes $500 2.125% May 2016 May 2023
U.S. dollar notes $500 3.600% November 2013 November 2023
U.S. dollar notes $900 2.875% May 2019 May 2024
U.S. dollar notes $750 3.250% November 2014 November 2024
U.S. dollar notes $750 3.375% August 2015 August 2025
U.S. dollar notes $750 2.750% February 2016 February 2026
U.S. dollar notes $500 3.125% August 2017 August 2027
U.S. dollar notes $500 3.125% November 2017 March 2028
U.S. dollar notes $750 3.375% May 2019 August 2029
U.S. dollar notes $1,500 6.375% May 2008 May 2038
U.S. dollar notes $750 4.375% November 2011 November 2041
U.S. dollar notes $700 4.500% March 2012 March 2042
U.S. dollar notes $750 3.875% August 2012 August 2042
U.S. dollar notes $850 4.125% March 2013 March 2043
U.S. dollar notes $750 4.875% November 2013 November 2043
U.S. dollar notes $750 4.250% November 2014 November 2044
U.S. dollar notes
(a) 
$500 4.250% May 2016 November 2044
EURO notes
(b) 
€1,250 (approximately $1,621) 1.750% March 2013 March 2020
EURO notes
(b) 
€750 (approximately $1,029) 1.875% March 2014 March 2021
EURO notes
(b) 
€600 (approximately $761) 2.875% May 2012 May 2024
EURO notes
(b) 
€500 (approximately $582) 0.625% November 2017 November 2024
EURO notes
(b) 
€750 (approximately $972) 2.750% March 2013 March 2025
EURO notes
(b) 
€1,000 (approximately $1,372) 2.875% March 2014 March 2026
EURO notes
(b) 
€500 (approximately $557) 0.125% August 2019 August 2026
EURO notes
(b) 
€500 (approximately $697) 2.875% May 2014 May 2029
EURO notes
(b) 
€750 (approximately $835) 0.800% August 2019 August 2031
EURO notes
(b) 
€500 (approximately $648) 3.125% June 2013 June 2033
EURO notes
(b) 
€500 (approximately $578) 2.000% May 2016 May 2036
EURO notes
(b) 
€500 (approximately $582) 1.875% November 2017 November 2037
Euro notes
(b) 
€750 (approximately $835) 1.450% August 2019 August 2039
Swiss franc notes
(b) 
CHF325 (approximately $334) 1.000% September 2012 September 2020
Swiss franc notes
(b) 
CHF300 (approximately $335) 2.000% December 2011 December 2021
Swiss franc notes
(b) 
CHF250 (approximately $283) 1.625% May 2014 May 2024
         


(in millions)
TypeFace ValueInterest
Rate
IssuanceMaturity
U.S. dollar notes$7504.375%November 2011November 2041
U.S. dollar notes$7004.500%March 2012March 2042
U.S. dollar notes$7503.875%August 2012August 2042
U.S. dollar notes$8504.125%March 2013March 2043
U.S. dollar notes$7504.875%November 2013November 2043
U.S. dollar notes$7504.250%November 2014November 2044
U.S. dollar notes(b)$5004.250%May 2016November 2044
EURO notes(c)€600 (approximately $761)2.875%May 2012May 2024
EURO notes(a)€300 (approximately $308)0.875%September 2016September 2024
EURO notes(c)€500 (approximately $582)0.625%November 2017November 2024
EURO notes(c)€750 (approximately $972)2.750%March 2013March 2025
EURO notes(a)€200 (approximately $205)1.200%November 2017November 2025
EURO notes(a)€50 (approximately $51)1.200%December 2020November 2025
EURO notes(a)€50 (approximately $51)1.200%June 2021November 2025
EURO notes(c)€1,000 (approximately $1,372)2.875%March 2014March 2026
EURO notes(c)€500 (approximately $557)0.125%August 2019August 2026
EURO notes(a)€300 (approximately $308)0.875%February 2020February 2027
EURO notes(c)€500 (approximately $697)2.875%May 2014May 2029
EURO notes(c)€750 (approximately $835)0.800%August 2019August 2031
EURO notes(c)€500 (approximately $648)3.125%June 2013June 2033
EURO notes(c)€500 (approximately $578)2.000%May 2016May 2036
EURO notes(c)€500 (approximately $582)1.875%November 2017November 2037
EURO notes(c)€750 (approximately $835)1.450%August 2019August 2039
Swiss franc notes(a)CHF100 (approximately $104)2.125%June 2013June 2023
Swiss franc notes(c)CHF250 (approximately $283)1.625%May 2014May 2024
Swedish krona notes(a)SEK800 (approximately $76)1.600%February 2018February 2023
Swedish krona notes(a)SEK200 (approximately $19)floatingFebruary 2018February 2023
Swedish krona notes(a)SEK250 (approximately $24)floatingOctober 2017October 2023
Swedish krona notes(a)SEK1,000 (approximately $95)2.710%January 2019January 2026
Swedish krona notes(a)SEK700 (approximately $67)1.395%February 2021February 2026
Swedish krona notes(a)SEK100 (approximately $10)1.395%March 2021February 2026
Swedish krona notes(a)SEK200 (approximately $19)1.395%September 2021February 2026
Swedish krona notes(a)SEK200 (approximately $19)1.395%January 2022February 2026
Swedish krona notes(a)SEK300 (approximately $29)2.190%April 2021April 2029
(a)Notes issued by Swedish Match AB. USD equivalents for foreign currency notes were calculated based on exchange rates on the date of acquisition.
(b) These notes are a further issuance of the 4.250% notes issued by PMI in November 2014.
(b) (c) USD equivalents for foreign currency notes were calculated based on exchange rates on the date of issuance.

The net proceeds from the sale of the securities listed in the table above were primarily used for general corporate purposes, including working capital requirements and repurchase of PMI's common stock until 2015.stock.
92



Aggregate maturities:
Aggregate maturities of long-term debt are as follows:
(in millions)
2023$2,613 
20244,572 
20256,560 
20263,307 
20274,979 
2028-20326,909 
2033-20371,595 
Thereafter7,348 
37,883 
Debt discounts and fair value adjustments(397)
Total long-term debt$37,486 
(in millions) 
2020$4,051
20213,015
20222,764
20231,607
20243,283
2025-20296,332
2030-20341,400
Thereafter8,510
 30,962
Debt discounts(255)
Total long-term debt$30,707


See Note 16. Fair Value Measurements for additional disclosures related to the fair value of PMI’s debt.

Revolving Credit Facilities

At December 31, 2022, PMI’s total committed revolving credit facilities were as follows:
Type
(in billions)
Committed Revolving Credit Facilities
364-day revolving credit, expiring January 31, 2023 (1)
$1.8
Multi-year revolving credit, expiring February 10, 2026 (2)
2.0
Multi-year revolving credit, expiring September 29, 2026 (3) (4)
2.5
Total facilities$6.3
(1) On January 28, 2019,25, 2023, PMI entered into an agreement to amend and extend the term of its $1.8 billion 364-day committed revolving credit facility from January 31, 2023, to January 30, 2024.
(2) On January 28, 2022, PMI entered into an agreement, effective February 10, 2022, to amend and extend the term of its $2.0 billion 364-day multi-year revolving credit facility, fromfor an additional year covering the period February 5, 2019,11, 2026 to February 4, 2020.10, 2027, in the amount of $1.9 billion.
(3) Includes pricing adjustments that may result in the reduction or increase in both the interest rate and commitment fee under the credit agreement if PMI achieves, or fails to achieve, certain specified targets.
(4) 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 December 31, 2019, PMI’s total committed credit facilities and commercial paper outstanding were as follows:
Type
(in billions of dollars)
Committed
Credit
Facilities
 Commercial
Paper
364-day revolving credit, expiring February 4, 2020$2.0
  
Multi-year revolving credit, expiring February 28, 20212.5
  
Multi-year revolving credit, expiring October 1, 20223.5
  
Total facilities$8.0
  
Commercial paper outstanding  $


At December 31, 2019,2022, there were no borrowings under these committed revolving credit facilities, and the entire committed amounts were available for borrowing.

Each of these facilities requires PMI to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“consolidated EBITDA”) to consolidated interest expense of not less than 3.5 to 1.0 on a rolling four-quarter basis. At December 31, 2019, PMI’s ratio calculated in accordance with the agreements was 11.2 to 1.0. These committed revolving credit facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require PMI to post collateral. The terms “consolidated EBITDA” and “consolidated interest expense,” both of which include certain adjustments, are defined in the facility agreements previously filed with the Securities and Exchange Commission.


On January 31, 2020, PMI entered into an agreement to amend and extend the term of its $2 billion 364-day revolving credit facility from February 4, 2020, to February 2, 2021.

In addition to the committed revolving credit facilities discussed above, certain subsidiaries maintain short-term credit arrangements to meet their respective working capital needs. These credit arrangements, which amounted to approximately $2.7$1.9 billion at December 31, 2019,2022, and $3.3approximately $2.3 billion at December 31, 2018,2021, are for the sole use of the subsidiaries. Borrowings under these arrangements and other bank loans amounted to $338$295 million at December 31, 2019,2022, and $730$225 million at December 31, 20182021.
.

93


Note 8.9.

Capital Stock:

Shares of authorized common stock are 6.0 billion; issued, repurchased and outstanding shares were as follows:
Shares IssuedShares
Repurchased
Shares
Outstanding
Balances, January 1, 20202,109,316,331 (553,421,668)1,555,894,663 
Issuance of stock awards1,479,068 1,479,068 
Balances, December 31, 20202,109,316,331 (551,942,600)1,557,373,731 
Repurchase of shares(8,514,629)(8,514,629)
Issuance of stock awards1,310,891 1,310,891 
Balances, December 31, 20212,109,316,331 (559,146,338)1,550,169,993 
Repurchase of shares(1,966,730)(1,966,730)
Issuance of stock awards2,014,448 2,014,448 
Balances, December 31, 20222,109,316,331 (559,098,620)1,550,217,711 
 Shares Issued Shares
Repurchased
 Shares
Outstanding
Balances, January 1, 20172,109,316,331
 (557,930,784) 1,551,385,547
Issuance of stock awards  1,832,215
 1,832,215
Balances, December 31, 20172,109,316,331
 (556,098,569) 1,553,217,762
Issuance of stock awards  1,361,959
 1,361,959
Balances, December 31, 20182,109,316,331
 (554,736,610) 1,554,579,721
Issuance of stock awards  1,314,942
 1,314,942
Balances, December 31, 20192,109,316,331
 (553,421,668) 1,555,894,663

On June 11, 2021, PMI's Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period. On July 22, 2021, PMI began repurchasing shares under this new share repurchase program. From July 22, 2021 through March 31, 2022, PMI repurchased 10.5 million shares of its common stock at a cost of approximately $1.0 billion. During the first three months of 2022, PMI repurchased 2.0 million shares of its common stock at a cost of $199 million. On May 11, 2022, PMI announced the suspension of its three-year share repurchase program following the recommended public offer to acquire the outstanding shares of Swedish Match from its shareholders. For further details, see Note 3. Acquisitions. Prior to the suspension of the program, PMI made no share repurchases during the second quarter of 2022.

At December 31, 2019, 27,371,4042022, 33,284,616 shares of common stock were reserved for stock awards under PMI’s stock plans, and 250 million shares of preferred stock, without par value, were authorized but unissued. PMI currently has no plans to issue any shares of preferred stock.

Note 9.10.

Stock Plans:

In May 2017,2022, PMI’s shareholders approved the Philip Morris International Inc. 2022 Performance Incentive Plan (the “2022 Plan”). The 2022 Plan replaced the 2017 Performance Incentive Plan, (the “2017 Plan”).and there will be no additional grants under the replaced plan. Under the 20172022 Plan, PMI may grant to eligible employees restricted shares and restricted share units, performance-based cash incentive awards and performance-based equity awards. Up to 25 million shares of PMI’s common stock may be issued under the 20172022 Plan. At December 31, 2019,2022, shares available for grant under the 20172022 Plan were 20,127,360.24,856,420.

In May 2017, PMI’s shareholders also approved the Philip Morris International Inc. 2017 Stock Compensation Plan for Non-Employee Directors (the “2017 Non-Employee Directors Plan”). A non-employee director is defined as a member of the PMI Board of Directors who is not a full-time employee of PMI or of any corporation in which PMI owns, directly or indirectly, stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to 1 million shares of PMI common stock may be awarded under the 2017 Non-Employee Directors Plan. At December 31, 2019,2022, shares available for grant under the plan were 954,084.894,346.

94


Restricted share unit (RSU) awards

PMI may grant RSU awards to eligible employees; recipients may not sell, assign, pledge or otherwise encumber such awards. Such awards are subject to forfeiture if certain employment conditions are not met. RSU awards generally vest on the third anniversary of the grant date. RSU awards do not carry voting rights, although they do earn dividend equivalents.


During 2019,2022, the activity for RSU awards was as follows:
Number of
Shares
Weighted-
Average Grant
Date Fair Value
Per Share
Balance at January 1, 20224,640,764 $81.96 
Granted1,657,460 104.75 
Vested(1,603,571)78.49 
Forfeited(175,183)89.37 
Balance at December 31, 20224,519,470 $91.26 
 Number of
Shares
Weighted-
Average Grant
Date Fair Value
Per Share
Balance at January 1, 20193,318,795
$96.26
Granted1,726,760
77.28
Vested(1,126,057)89.56
Forfeited(193,628)89.36
Balance at December 31, 20193,725,870
$89.85


During the years ended December 31, 2019, 20182022, 2021 and 2017,2020, the weighted-average grant date fair value of the RSU awards granted to PMI employees and the recorded compensation expense related to RSU awards were as follows:

(in millions, except per RSU award granted)Total Grant Date Fair Value of RSU Awards GrantedWeighted-Average Grant Date Fair Value Per RSU Award GrantedCompensation Expense related to RSU Awards
2022$174 $104.75 $135 
2021$166 $82.17 $139 
2020$148 $85.79 $129 
(in millions, except per RSU award granted)Total Weighted-Average Grant Date Fair Value of RSU Awards Granted Weighted-Average Grant Date Fair Value Per RSU Award GrantedCompensation Expense related to RSU Awards
2019$133
 $77.28
$118
2018$129
 $100.19
$114
2017$119
 $98.59
$111


The fair value of the RSU awards at the date of grant is amortized to expense over the restriction period, typically three years after the date of the award, or upon death, disability or reaching the age of 58. As of December 31, 2019,2022, PMI had $124$158 million of total unrecognized compensation costs related to non-vested RSU awards. These costs are expected to be recognized over a weighted-average period of approximately two years,seventeen months, or upon death, disability or reaching the age of 58.

During the years ended December 31, 2019, 20182022, 2021 and 2017,2020, share and fair value information for PMI RSU awards that vested were as follows:
(dollars in millions)Shares of RSU Awards that VestedGrant Date Fair Value of Vested Shares of RSU AwardsTotal Fair Value of RSU Awards that Vested
20221,603,571 $126 $174 
20211,256,441 $121 $111 
20201,206,871 $117 $102 
(dollars in millions)Shares of RSU Awards that Vested Grant Date Fair Value of Vested Shares of RSU AwardsTotal Fair Value of RSU Awards that Vested
20191,126,057
 $101
$95
20181,451,876
 $121
$149
20172,022,856
 $158
$208

95


Performance share unit (PSU) awards

PMI may grant PSU awards to certain executives; recipients may not sell, assign, pledge or otherwise encumber such awards. The PSU awards require the achievement of certain performance factors,metrics, which are predetermined at the time of grant, typically over a three-year performance cycle withcycle. The performance metrics for such PSUs consistingPSU's granted during 2022 consisted of PMI’sPMI's Total Shareholder Return (TSR)("TSR") relative to a predetermined peer group and on an absolute basis (50%(40% weight), PMI’s currency-neutral compound annual adjusted operating incomediluted earnings per share growth rate excluding acquisitions(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; and

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

The performance metrics for such PSU's granted during 2021 and 2020 consisted of PMI's TSR relative to a predetermined peer group and on an absolute basis (40% weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate (30% weight), and PMI’s performance against specific measures of PMI’s transformation, defined as net revenues from PMI's transformation (20%RRPs and any other non-combustible products as a percentage of PMI's total net revenues in the last year of the performance cycle (30% weight).

The aggregate of the weighted performance factors for the 3three metrics in each such PSU award determines the percentage of PSUs that will vest at the end of the three-year performance cycle. The minimum percentage of such PSUs that can vest is 0,zero, with a target percentage of 100 and a maximum percentage of 200. Each such vested PSU entitles the participant to 1one 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. PSU awards do not carry voting rights.


During 2019,2022, the activity for PSU awards was as follows:
Number of
Shares
Weighted-
Average Grant Date 
Fair Value Subject to Other Performance Metrics
Weighted-
Average Grant Date 
Fair Value Subject to TSR Performance Metric
(Per Share)(Per Share)
Balance at January 1, 20221,537,020 $82.14 $96.25 
Granted472,840 104.92 143.89 
Vested(669,960)77.26 83.59 
Adjustments for performance achievement223,320 77.26 83.59 
Forfeited(56,030)87.23 107.46 
Balance at December 31, 20221,507,190 $90.31 $115.45 
 Number of
Shares
 Grant Date 
Fair Value Subject to Other Performance Factors Per Share
Grant Date 
Fair Value Subject to TSR Performance Factor Per Share
Balance at January 1, 20191,194,970
 $95.85
$117.09
Granted647,700
 77.23
83.59
Vested(330,616) 89.02
104.60
Forfeited(164,594) 90.28
107.09
Balance at December 31, 20191,347,460
 $88.19
$107.61


During the years ended December 31, 2019, 20182022, 2021 and 2017,2020, the grant date fair value of the PSU awards granted to PMI employees and the recorded compensation expense related to PSU awards were as follows:
(in millions, except per PSU award granted)Weighted-
Average PSU Grant Date Fair Value Subject to Other Performance Factors
Weighted-
Average PSU Grant Date Fair Value Subject to TSR Performance Factor
Compensation Expense related to PSU Awards
TotalPer PSU AwardTotalPer PSU AwardTotal
2022$30 $104.92 $27 $143.89 $48 
2021$28 $81.86 $25 $106.93 $71 
2020$28 $86.04 $28 $80.36 $38 
(in millions, except per PSU award granted)PSU Grant Date Fair Value Subject to Other Performance Factors PSU Grant Date Fair Value Subject to TSR Performance Factor Compensation Expense related to PSU Awards
 TotalPer PSU Award TotalPer PSU Award Total
2019$30
$77.23
 $21
$83.59
 $54
2018$20
$100.69
 $24
$118.98
 $24
2017$19
$98.29
 $25
$128.72
 $37

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The grant date fair value of the PSU awards subject to the other performance factors was determined by using the average of the high and low market price of PMI’s stock aton 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 following assumptions were used to determine the grant date fair value of the PSU awards subject to the TSR performance factor for the years ended December 31, 2019, 20182022, 2021 and 2017:2020:
 For the Years Ended December 31, 
 2019
 2018
 2017
 
Risk-free interest rate (a)
2.4% 2.3% 1.5% 
Expected volatility21.4%
(b) 
19.6%
(c) 
15.8%
(c) 

For the Years Ended December 31,
202220212020
Average risk-free interest rate (a)
1.7 %0.2 %1.4 %
Average expected volatility (b)
28.3 %31.7 %23.5 %

(a) Based on the U.S. Treasury yield curve.
(b) Determined using the observed historical volatility.
(c)
Determined using a weighted-average of historical and implied volatility.

The fair value of the PSU award at the date of grant is amortized to expense over the performance period, which is typically three years after the date of the award, or upon death, disability or reaching the age of 58. As of December 31, 2019,2022, PMI had $33$42 million of total unrecognized compensation cost related to non-vested PSU awards. This cost is recognized over a weighted-average performance cycle period of approximately two years,seventeen months, or upon death, disability or reaching the age of 58.

During the yearyears ended December 31, 2019,2022, 2021 and 2020, share and fair value information for PMI PSU awards that vested were as follows:
(dollars in millions)Shares of PSU Awards that VestedGrant Date Fair Value of Vested Shares of PSU AwardsTotal Fair Value of PSU Awards that Vested
2022669,960 $54 $74 
2021189,839 $21 $16 
2020343,806 $35 $30 
(dollars in millions)Shares of PSU Awards that Vested Grant Date Fair Value of Vested Shares of PSU AwardsTotal Fair Value of PSU Awards that Vested
2019330,616
 $32
$28

During the years ended December 31, 2018 and 2017, there were 0 PSU awards that vested.


Note 10.11.

Earnings per Share:

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and therefore are included in PMI’s earnings per share calculation pursuant to the two-class method.

Basic and diluted earnings per share (“EPS”) were calculated using the following:
For the Years Ended December 31,
(in millions)202220212020
Net earnings attributable to PMI$9,048 $9,109 $8,056 
Less distributed and undistributed earnings attributable to share-based payment awards24 26 20 
Net earnings for basic and diluted EPS$9,024 $9,083 $8,036 
Weighted-average shares for basic EPS1,550 1,558 1,557 
Plus contingently issuable performance stock units (PSUs)2 
Weighted-average shares for diluted EPS1,552 1,559 1,558 
 For the Years Ended December 31,
(in millions)2019 2018 2017
Net earnings attributable to PMI$7,185
 $7,911
 $6,035
Less distributed and undistributed earnings attributable to share-based payment awards17
 16
 14
Net earnings for basic and diluted EPS$7,168
 $7,895
 $6,021
Weighted-average shares for basic EPS1,555
 1,555
 1,552
Plus contingently issuable performance stock units (PSUs)
1
 
 1
Weighted-average shares for diluted EPS1,556
 1,555
 1,553


For the 2019, 20182022, 2021 and 20172020 computations, there were 0no antidilutive stock options.awards.

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Note 11.12.

Income Taxes:

Earnings before income taxes and provision for income taxes consisted of the following for the years ended December 31, 2019, 20182022, 2021 and 2017:2020:
(in millions)202220212020
Earnings before income taxes$11,634 $12,232 $10,953 
Provision for income taxes:
United States federal and state:
Current$(75)$73 $(80)
Deferred(139)27 53 
Total United States(214)100 (27)
Outside United States:
Current2,553 2,616 2,600 
Deferred(95)(45)(196)
Total outside United States2,458 2,571 2,404 
Total provision for income taxes$2,244 $2,671 $2,377 
(in millions)2019 2018 2017
Earnings before income taxes$9,872
 $10,671
 $10,589
Provision for income taxes:     
United States federal and state:     
Current$17
 $120
 $1,662
Deferred24
 (113) (384)
Total United States41
 7
 1,278
Outside United States:     
Current2,417
 2,425
 3,146
Deferred(165) 13
 (117)
Total outside United States2,252
 2,438
 3,029
Total provision for income taxes$2,293
 $2,445
 $4,307


In December 2017,On August 16, 2022, the Tax Cuts and JobsInflation Reduction Act ("the Act") was signed into law. Accordingly,law in the U.S. The Act includes a new corporate alternative minimum tax and an excise tax on stock buybacks effective after December 31, 2022. As of December 31, 2022, PMI has determined that the Act had no significant tax impacts on its consolidated financial statements.

On March 11, 2021, the American Rescue Plan Act of 2021 ("the ARP Act") was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. PMI has determined that the ARP Act had no significant impact on PMI's effective tax rate.

On July 20, 2020, the U.S. Department of the Treasury and the Internal Revenue Service released final and proposed regulations under the Global Intangible Low-Taxed Income (“GILTI”) and other provisions of the Internal Revenue Code. PMI has analyzed these elective regulations and recorded a provisional charge of $1.6 billionthe impact in its 2017consolidated financial statements, as described below.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act and, on December 27, 2020, the Consolidated Appropriations Act, 2021 (“U.S. COVID-19 Acts”) were signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. PMI has determined that neither the U.S. COVID-19 Acts nor changes to income tax provision, includinglaws or regulations in other jurisdictions had a charge for the transition taxsignificant impact on accumulated foreign earnings of $1.4 billion (which represented the transition tax of $2.2 billion, net of a reversal of $0.7 billion of previously recorded deferred tax liabilities on part of its accumulated foreign earnings and other items of $0.1 billion) and $0.2 billion due to the re-measurement of U.S. deferred tax assets and liabilities applying the U.S. federal corporatePMI’s effective tax rate, of 21%.

PMI completed its analysiswith the exception of the Tax Cuts and Jobs Act during 2018 and adjusted the 2017 provisional estimates to the final amounts based on its 2017 U.S. federal2020 corporate income tax return as filed. Accordingly, PMI recordedrate reduction in its income tax provision a charge of $31 millionIndonesia.

representing a current income tax charge of $185 million, primarily due to an increase in its aggregate foreign cash position used to determine PMI's final 2017 transition tax liability, mostly offset by a deferred income tax benefit of $154 million primarily due to the recognition of deferred tax assets for net operating losses in the state of New York. Updates to the provisional estimates have been recorded in accordance with Staff Accounting Bulletin No. 118 ("SAB 118").

At December 31, 2017, PMI recorded an income tax payable of $1.7 billion attributable to the Tax Cuts and Jobs Act, of which $1.6 billion was recorded in "income taxes and other liabilities" on PMI's consolidated balance sheet. The income tax payable of $1.7 billion represented thea one-time transition tax of $2.2 billion, partially offset byliability on its accumulated foreign tax credits related to foreign withholding taxes previously paid of $0.5 billion. The income taxearnings, which is payable is due over an eight-year period beginning in 2018. In December 2018, PMI recorded an increase to income tax payable of $0.1 billion related to PMI’s transition tax liability, in accordance with SAB 118. At December 31, 20192022 and December 31, 2018, $1.22021, $0.7 billion and $1.5$0.9 billion of PMI's remaining long-term portion of transition tax liability, respectively, was recorded in "income taxes and other liabilities" on PMI's consolidated balance sheet.sheets.

At December 31, 20192022 and December 31, 2018,2021, U.S. federal and foreign deferred income taxes have been provided on all accumulated earnings of PMI's foreign subsidiaries.

In accordance with the alternatives provided by ASU 2018-02 "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," PMI has elected not to reclassify the income tax effects of the Tax Cuts and Jobs Act from accumulated other comprehensive losses to retained earnings.

PMI is regularly examined by tax authorities around the world and is currently under examination in a number of jurisdictions. The U.S. federal statute of limitations remains open for the years 20152019 and onward.onward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. Years still open to examination by foreign tax authorities in major jurisdictions include Germany (2015(2018 onward), Indonesia (2014 onward), Russia (2017(2022 onward), and Switzerland (2017 onward), and Turkey (2014 onward).

In October 2021, a subsidiary of PMI in Indonesia, PT Hanjaya Mandala Sampoerna Tbk ("HMS"), received a tax assessment in the amount of 3.8 trillion Indonesian rupiah (approximately $260 million in the period of payment) primarily relating to corporate income taxes on domestic and other intercompany transactions for the years 2017 to 2019. HMS paid the assessment in the fourth quarter of 2021 in order to avoid potential penalties and filed an objection letter with the tax office in January 2022. The amount paid was
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included in other assets in PMI’s consolidated balance sheets at December 31, 2022 and 2021, and negatively impacted net cash provided by operating activities in the consolidated statements of cash flows in the period of payment.

It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in unrecognized tax benefits along with related interest and penalties. An estimate of any possible change cannot be made at this time.

A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
(in millions)202220212020
Balance at January 1,$89 $72 $63 
Additions based on tax positions related to the current year12 12 11 
Additions for tax positions of previous years2 15 
Reductions for tax positions of prior years(18)(1)(4)
Reductions due to lapse of statute of limitations(6)(3)(1)
Settlements(4)— — 
Other(3)(6)
Balance at December 31,$72 $89 $72 
(in millions)2019 2018 2017
Balance at January 1,$56
 $145
 $79
Additions based on tax positions related to the current year10
 10
 71
Additions for tax positions of previous years1
 15
 5
Reductions for tax positions of prior years(2) (94) 
Reductions due to lapse of statute of limitations(1) (3) (7)
Settlements
 (19) (4)
Other(1) 2
 1
Balance at December 31,$63
 $56
 $145


Unrecognized tax benefits and PMI’s liability for contingent income taxes, interest and penalties were as follows:
(in millions)December 31, 2022December 31, 2021December 31, 2020
Unrecognized tax benefits$72 $89 $72 
Accrued interest and penalties13 18 17 
Tax credits and other indirect benefits(3)(7)(9)
Liability for tax contingencies$82 $100 $80 
(in millions)December 31, 2019
 December 31, 2018
 December 31, 2017
Unrecognized tax benefits$63
 $56
 $145
Accrued interest and penalties16
 12
 23
Tax credits and other indirect benefits(12) (14) (35)
Liability for tax contingencies$67
 $54
 $133


The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $50$69 million at December 31, 2019.2022. The remainder, if recognized, would principally affect deferred taxes.

For the years ended December 31, 2019, 20182022, 2021 and 2017,2020, PMI recognized income (expense) in its consolidated statements of earnings of $(4)$2 million, $4$(3) million and $(11)$(1) million, respectively, related to interest and penalties associated with uncertain tax positions.


The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons for the years ended December 31, 2019, 20182022, 2021 and 2017:2020:
202220212020
U.S. federal statutory rate21.0 %21.0 %21.0 %
Increase (decrease) resulting from:
Foreign rate differences(0.5)(0.3)0.6 
Dividend repatriation cost0.7 0.6 0.4 
Global intangible low-taxed income1.0 0.8 0.1 
U.S. state taxes0.1 0.2 0.2 
Foreign derived intangible income(0.8)(0.7)(0.6)
Foreign exchange(1.7)— — 
Other(0.5)0.2 — 
Effective tax rate19.3 %21.8 %21.7 %
 2019 2018 2017
U.S. federal statutory rate21.0 % 21.0 % 35.0 %
Increase (decrease) resulting from:     
Foreign rate differences1.8
 1.3
 (12.2)
Dividend repatriation cost(0.5) 2.5
 16.4
Global intangible low-taxed income1.4
 1.2
  
U.S. state taxes0.7
 (1.1)  
Foreign derived intangible income(1.2) (1.1)  
Other
 (0.9) 1.5
Effective tax rate23.2 % 22.9 % 40.7 %


The 20192022 effective tax rate increased 0.3decreased 2.5 percentage pointspoint to 23.2%19.3%. The change in the effective tax rate for 2019,2022, as compared to 2018,2021, was unfavorablyfavorably impacted by changes in earnings mix by taxing jurisdiction and U.S. state deferred income tax expense,reserves, a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings ($203 million), while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in its consolidated statements of stockholders' (deficit) equity, and by a reduction in
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deferred tax liabilities related to pension plan assets ($40 million), partially offset by the reversal of aan increase in deferred tax liability onliabilities related to the unremitted earningsfair value adjustment of PMI's Canadian subsidiary, RBHequity securities held by PMI ($4910 million), a reduction in estimated U.S. federal income tax on dividend repatriation for the years 2015-2018 ($67 million),. For further details, see Note 6. Related Parties - Equity Investments and other repatriation cost differences.Other.

The 20182021 effective tax rate decreased 17.8increased 0.1 percentage pointspoint to 22.9%21.8%. The change in the effective tax rate for 2018,2021, as compared to 2017,2020, was primarily dueunfavorably impacted by repatriation cost differences and foreign tax credit limitations related to GILTI, partially offset by the Tax Cuts and Jobs Act, which reduced the U.S. federalcorporate income tax rate from 35% to 21%,reduction in addition to repatriation cost differencesthe Philippines (enacted in the first quarter of 2021) and changes in earnings mix by taxing jurisdiction.

The 20172020 effective tax rate increased 12.8 percentage points to 40.7%. The change inwas favorably impacted by the effectiveabove-mentioned reduction of estimated U.S. income tax rateliabilities for 2017, as compared to 2016, was primarilyyears 2018 and 2019 due to the Tax CutsGILTI regulations and Jobs Act. In addition to the transition tax, which resulted in a net tax charge of $1.4 billion, the Tax Cuts and Jobs Act also included a reduction in the U.S.corporate income tax rate from 35% to 21%, as of January 1, 2018. This changereduction in income tax rate required a re-measurement of PMI's U.S. deferred tax assets and liabilities at December 31, 2017, resulting in a tax charge of $0.2 billion.Indonesia.

The tax effects of temporary differences that gave rise to deferred income tax assets and liabilities consisted of the following:
At December 31,
(in millions)20222021
Deferred income tax assets:
Accrued postretirement and postemployment benefits$217 $234 
Accrued pension costs277 392 
Inventory(1)
22 177 
Accrued liabilities158 168 
Net operating loss carryforwards and tax credits384 408 
Other 112 
Total deferred income tax assets1,058 1,491 
Less: valuation allowance(378)(239)
Deferred income tax assets, net of valuation allowance680 1,252 
Deferred income tax liabilities:
Intangible assets(1,485)(591)
Property, plant and equipment(200)(140)
Unremitted earnings(141)(206)
Foreign exchange(175)(146)
Other(32)— 
Total deferred income tax liabilities(2,033)(1,083)
Net deferred income tax assets (liabilities)$(1,353)$169 
 At December 31,
(in millions)2019 2018
Deferred income tax assets:   
Accrued postretirement and postemployment benefits$184
 $193
Accrued pension costs620
 390
Inventory176
 136
Accrued liabilities130
 138
Net operating loss carryforwards and tax credits486
 452
Other101
 37
Total deferred income tax assets1,697
 1,346
Less: valuation allowance(304) (257)
Deferred income tax assets, net of valuation allowance1,393
 1,089
Deferred income tax liabilities:   
Trade names(469) (508)
Property, plant and equipment(180) (222)
Unremitted earnings(243) (123)
Foreign exchange(256) (157)
Total deferred income tax liabilities(1,148) (1,010)
Net deferred income tax assets$245
 $79
(1) Includes deferred tax charges of $153 million in 2021 related to intercompany transactions.



At December 31, 2019,2022, PMI recorded deferred tax assets for net operating loss carryforwards and tax credits of $486$384 million, with varying dates of expiration, primarily after 2024,2027, including $98$173 million with an unlimited carryforward period. At December 31, 2019,2022, PMI has recorded a valuation allowance of $304$378 million against deferred tax assets that do not meet the more-likely-than not recognition threshold.

At December 31, 2018,2021, PMI recorded deferred tax assets for net operating loss carryforwards of $452$408 million, with varying dates of expiration, primarily after 2023,2026, including $87$183 million with an unlimited carryforward period. At December 31, 2018,2021, PMI has recorded a valuation allowance of $257$239 million against deferred tax assets that do not meet the more-likely-than-not recognition threshold. The increases in deferred tax assets for net operating loss carryforwards and the valuation allowance during 2018 are primarily due to law changes associated with the Tax Cuts and Jobs Act, as discussed above.

Note 12.13.

Segment Reporting:

PMI’s subsidiaries and affiliates are primarily engaged in the manufacture and sale of cigarettes and other nicotine-containingsmoke-free products, including RRPs, in markets outsideheat-not-burn, vapor, and oral nicotine products. Excluding the Wellness and Healthcare segment and the 2022 acquisition of the United States of America. In addition, PMI ships a version of its Platform 1device and its consumables authorized by the FDA to Altria Group, Inc. for sale in the United States under license. OperatingSwedish Match, PMI's segments for PMI are generally organized by geographic region and managed by segment managers who are responsible for the
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operating and financial results of the regions inclusive of allcombustible tobacco and smoke-free product categories sold in the region. PMI’s operating segments arePMI currently has six geographical segments: the European Union; Eastern Europe; Middle East & Africa; South & Southeast Asia; East Asia & Australia; and Latin America & Canada.Americas; as well as the Swedish Match segment and the Wellness and Healthcare segment. The Swedish Match segment represents the fourth quarter 2022 acquisition of the company. The Wellness and Healthcare segment reflects the operating results of PMI's new business, Vectura Fertin Pharma. For further details on these acquisitions, see Note 3. Acquisitions. PMI records net revenues and operating income to its geographical segments based upon the geographic area in which the customer resides. Revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc. for sale under license in the United States are included in Net Revenues of the Latin America & Canada segment.

PMI’s chief operating decision maker evaluates geographical segment performance and allocates resources based on regional operating income, which includes results from substantially all product categories sold in each region. Business operations in the Wellness and Healthcare segment and the Swedish Match segment are managed and evaluated separately. Interest expense, net, and provision for income taxes are centrally managed and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by management. Information about total assets by segment is not disclosed because such information is not reported to or used by PMI’s chief operating decision maker. Segment goodwill and other intangible assets, net, are disclosed in Note 3.5. Goodwill and Other Intangible Assets, net. The accounting policies of the segments are the same as those described in Note 2. Summary of Significant Accounting Policies.
PMI disaggregates its net revenuerevenues from contracts with customers by both geographic location and product category for each of PMI's 6 operatingsix geographical segments asand for the Swedish Match segment. For the Wellness and Healthcare business, Vectura Fertin Pharma discussed above, net revenues from contracts with customers are included in the Wellness and Healthcare segment. PMI believes this best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

Net revenues by segment were as follows:
For the Years Ended December 31,For the Years Ended December 31,
(in millions)2019 2018 2017(in millions)202220212020
Net revenues:     Net revenues:
European Union$9,817
 $9,298
 $8,318
European Union$12,119 $12,275 $10,702 
Eastern Europe3,282
 2,921
 2,711
Eastern Europe3,725 3,544 3,378 
Middle East & Africa4,042
 4,114
 3,988
Middle East & Africa3,901 3,293 3,088 
South & Southeast Asia5,094
 4,656
 4,417
South & Southeast Asia4,395 4,396 4,396 
East Asia & Australia5,364
 5,580
 6,373
East Asia & Australia5,132 5,953 5,429 
Latin America & Canada2,206
 3,056
 2,941
AmericasAmericas1,903 1,843 1,701 
Swedish MatchSwedish Match316 — — 
Wellness and HealthcareWellness and Healthcare271 101 — 
Net revenues$29,805
 $29,625
 $28,748
Net revenues$31,762 $31,405 $28,694 


Total net revenues attributable to customers located in Japan, PMI's largest market in terms of net revenues, were $3.9 billion, $3.8$4.6 billion and $4.7$4.1 billion in 2019, 20182022, 2021 and 2017, respectively. Total net revenues attributable to customers located in Indonesia were $3.1 billion, $3.1 billion and $3.2 billion in 2019, 2018 and 2017,2020, respectively. PMI had one customer in the East Asia & Australia segment that accounted for 13%12%, 13%15% and 16%14% of PMI’s consolidated net revenues, and one customer in the European Union segment that accounted for 10%13%, 10%13% and 10%11% of PMI’s consolidated net revenues in 2019, 20182022, 2021 and 2017,2020, respectively.

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PMI's net revenues by product category were as follows:
 For the Years Ended December 31,
(in millions)2019 2018 2017
Combustible products:     
European Union$8,093
 $8,433
 $8,048
Eastern Europe2,438
 2,597
 2,657
Middle East & Africa3,721
 3,732
 3,893
South & Southeast Asia5,094
 4,656
 4,417
East Asia & Australia2,693
 3,074
 3,156
Latin America & Canada2,179
 3,037
 2,937
Total combustible products$24,218
 $25,529
 $25,107
Reduced-risk products:     
European Union$1,724
 $865
 $269
Eastern Europe844
 324
 55
Middle East & Africa321
 382
 94
South & Southeast Asia
 
 
East Asia & Australia2,671
 2,506
 3,218
Latin America & Canada27
 19
 4
Total reduced-risk products$5,587
 $4,096
 $3,640
Total PMI net revenues$29,805
 $29,625
 $28,748


For the Years Ended December 31,
(in millions)202220212020
Combustible tobacco products:
European Union$7,212 $8,211 $8,052 
Eastern Europe2,410 2,240 2,250 
Middle East & Africa3,567 3,110 3,005 
South & Southeast Asia4,372 4,385 4,395 
East Asia & Australia2,138 2,414 2,468 
Americas1,804 1,706 1,577 
Swedish Match70 — — 
Total combustible tobacco products21,572 22,067 21,747 
Smoke-free products:
Smoke-free products excluding Wellness and Healthcare:
European Union4,907 4,064 2,650 
Eastern Europe1,315 1,304 1,128 
Middle East & Africa334 183 83 
South & Southeast Asia23 11 
East Asia & Australia2,994 3,539 2,961 
Americas99 137 124 
Swedish Match246 — — 
Total smoke-free products excluding Wellness and Healthcare9,919 9,237 6,947 
Wellness and Healthcare271 101 — 
Total smoke-free products10,190 9,338 6,947 
Total PMI net revenues$31,762 $31,405 $28,694 
Note: Sum of product categories or Regions might not foot to total PMI due to roundings.

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 segment reporting, 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. These net revenue amounts consist of the sale of PMI's cigarettes and other tobacco products combined.that are combusted. Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include reduced-risksmoke-free products.

Net revenues related to reduced-risksmoke-free 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.taxes, if applicable. These net revenue amounts consist of the sale of all of PMI's heatedproducts that are not combustible tobacco units, IQOS devicesproducts, such as heat-not-burn, e-vapor, and relatedoral nicotine, also including wellness and healthcare products, as well as consumer accessories such as lighters and other nicotine-containing products, which primarily include PMI's e-vapor products.matches.


Net revenues related to wellness and healthcare products consist of operating revenues generated from the sale of products primarily associated with inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of PMI's new Wellness and Healthcare business, Vectura Fertin Pharma.
PMI recognizes revenue, when control is transferred to the customer, typically either upon shipment or delivery of goods.

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Operating income (loss) by segment were as follows:
For the Years Ended December 31,
(in millions)202220212020
Operating income (loss):
European Union$5,788 $6,119 $5,098 
Eastern Europe1,166 1,213 871 
Middle East & Africa1,758 1,146 1,026 
South & Southeast Asia1,459 1,506 1,709 
East Asia & Australia1,919 2,556 2,400 
Americas436 487 564 
Swedish Match(22)— — 
Wellness and Healthcare(258)(52)— 
Operating income$12,246 $12,975 $11,668 
 For the Years Ended December 31,
(in millions)2019 2018 2017
Operating income:     
European Union$3,970
 $4,105
 $3,691
Eastern Europe547
 902
 887
Middle East & Africa1,684
 1,627
 1,884
South & Southeast Asia2,163
 1,747
 1,514
East Asia & Australia1,932
 1,851
 2,608
Latin America & Canada235
 1,145
 997
Operating income$10,531
 $11,377
 $11,581




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

Russia excise and VAT audit charge - See Note 18. Contingencies for details of the $374 million pre-tax charge included in the Eastern Europe segment for the year ended December 31, 2019.
Charges related to the war in Ukraine - See Note 4. War in Ukraine for details of the $151 million pre-tax charges in the Eastern Europe segment for the year ended December 31, 2022.
Swedish Match AB acquisition accounting related item - See Note 3. Acquisitions for details of the $125 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 year ended December 31, 2022.
Impairment of intangibles - See Note 5. Goodwill and Other Intangible Assets, net for the details of the $112 million pre-tax impairment charge included in the Wellness and Healthcare segment within the operating income table above for the year ended December 31, 2022.
Asset impairment and exit costs - See Note 20. Asset Impairment and Exit Costs for details of the $216 million and $149 million pre-tax charges for the year ended December 31, 2021 and 2020, respectively, as well as a breakdown of these costs by segment.
Saudi Arabia customs assessments - See Note 18. Contingencies for the details of the $246 million reduction in net revenues of combustible tobacco products included in the Middle East & Africa segment for the year ended December 31, 2021.
Asset acquisition cost - See Note 3. Acquisitions for the details of the $51 million pre-tax charge associated with the asset acquisition of OtiTopic, Inc. included in the Wellness and Healthcare segment within the operating income table above for the year ended December 31, 2021.
Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI recorded a gain of $119 million for tax credits representing overpayments of indirect taxes for the period from March 2012 through December 2019; these tax credits were applied to tax liabilities in Brazil during 2021. This amount was included as a reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2020 and was included in the operating income of the Americas segment. An additional amount of overpaid indirect taxes of approximately $90 million is dependent on the outcome of a challenge by the local tax authority.


103


Asset impairment and exit costs - See Note 21. Asset Impairment and Exit Costs for details of the $422 million pre-tax charge for the year ended December 31, 2019, as well as a breakdown of these costs by segment.
Canadian tobacco litigation-related expense - See Note 18. Contingencies and Note 22. Deconsolidation of RBH for details of the $194 million pre-tax charge included in the Latin America & Canada segment for the year ended December 31, 2019.
Loss on deconsolidation of RBH - See Note 22. Deconsolidation of RBH for details of the $239 million loss included in the Latin America & Canada segment for the year ended December 31, 2019.


Other segment data were as follows:
For the Years Ended December 31,
(in millions)202220212020
Depreciation, amortization and impairment of intangibles expense:
European Union$349 $342 $300 
Eastern Europe137 133 175 
Middle East & Africa96 97 83 
South & Southeast Asia151 164 154 
East Asia & Australia151 157 191 
Americas74 71 78 
Swedish Match34 — — 
Wellness and Healthcare197 34  
Total depreciation, amortization and impairment of intangibles expense$1,189 $998 $981 
 For the Years Ended December 31,
(in millions)2019 2018 2017
Depreciation expense:     
European Union$254
 $269
 $213
Eastern Europe147
 101
 76
Middle East & Africa90
 105
 88
South & Southeast Asia142
 154
 153
East Asia & Australia185
 173
 160
Latin America & Canada69
 94
 85
 887
 896
 775
Other11
 11
 12
Total depreciation expense$898
 $907
 $787

 For the Years Ended December 31,
(in millions)2019 2018 2017
Capital expenditures:     
European Union$466
 $813
 $956
Eastern Europe132
 136
 97
Middle East & Africa35
 65
 85
South & Southeast Asia100
 129
 140
East Asia & Australia67
 215
 87
Latin America & Canada52
 74
 175
 852
 1,432
 1,540
Other
 4
 8
Total capital expenditures$852
 $1,436
 $1,548


PMI’s total capital expenditures and total property, plant and equipment, net and other assets by geographic area were:

For the Years Ended December 31,
(in millions)202220212020
Capital expenditures:
European Union$682 $498 $384 
Eastern Europe52 71 88 
Middle East & Africa39 37 22 
South & Southeast Asia179 52 57 
East Asia & Australia24 36 13 
Americas101 54 38 
Total capital expenditures$1,077 $748 $602 
 At December 31,
(in millions)2019 2018 2017
Long-lived assets:     
European Union$4,275
 $4,216
 $4,130
Eastern Europe774
 547
 546
Middle East & Africa369
 362
 430
South & Southeast Asia1,361
 1,297
 1,419
East Asia & Australia829
 781
 659
Latin America & Canada478
 779
 885
Total long-lived assets8,086
 7,982
 8,069
Other516
 664
 1,126
Total property, plant and equipment, net and Other assets$8,602
 $8,646
 $9,195

At December 31,
(in millions)202220212020
Long-lived assets:
European Union$5,077 $4,787 $4,500 
Eastern Europe541 635 668 
Middle East & Africa244 289 375 
South & Southeast Asia1,365 1,390 1,348 
East Asia & Australia674 740 807 
Americas1,282 666 784 
Total long-lived assets9,183 8,507 8,482 
Altria Group, Inc. agreement1,002 — — 
Financial instruments456 210 650 
Total property, plant and equipment, net and Other assets$10,641 $8,717 $9,132 

Long-lived assets consist of non-current assets other than goodwill; other intangible assets, net; deferred tax assets, equity investments, in unconsolidated subsidiariesfinancial instruments and equity securities, and financial instruments.payment under the agreement with Altria Group, Inc, see Note 3, Acquisitions. PMI's largest markets in terms of long-lived assets are Switzerland, Italy Switzerland and Indonesia. Total long-lived assets located in Switzerland, which is reflected in the European Union segment above, were $1.4 billion, $1.3 billion and $1.3 billion at December 31, 2022, 2021 and 2020, respectively. Total long-lived assets located in Italy, which is reflected in the European Union segment above, were $1.1$0.9 billion, $1.1$0.9 billion and $1.2$1.1 billion at December 31, 2019, 20182022, 2021 and 2017, respectively. Total long-lived assets located in Switzerland, which is reflected in the European Union segment above, were $1.1 billion, $1.0 billion and $0.9 billion at December 31, 2019, 2018 and 2017,2020, respectively. Total long-lived assets located in Indonesia, which is reflected in the South & Southeast Asia segment above, were $0.8$0.9 billion, $0.7$0.9 billion and $0.8$0.7 billion at December 31, 2019, 20182022, 2021 and 2017,2020, respectively.
104




Note 13.14.

Benefit Plans:

Pension coverage for employees of PMI’s subsidiaries is provided, to the extent deemed appropriate, through separate plans, many of which are governed by local statutory requirements. In addition, PMI provides health care and other benefits to substantially allcertain U.S. retired employees and certain non-U.S. retired employees. In general, health care benefits for non-U.S. retired employees are covered through local government plans.

Pension and other employee benefit costs per the consolidated statements of earnings consisted of the following for December 31, 2019, 20182022, 2021 and 2017:2020:

(in millions)2019 2018 2017
Net pension costs (income)$(18) $(51) $(20)
Net postemployment costs100
 80
 85
Net postretirement costs7
 12
 13
Total pension and other employee benefit costs$89
 $41
 $78


(in millions)202220212020
Net pension costs (income)$(93)$(1)$(14)
Net postemployment costs107 108 103 
Net postretirement costs10 
Total pension and other employee benefit costs$24 $115 $97 


105


Pension and Postretirement Benefit Plans

Obligations and Funded Status

The postretirement health care plans are not funded. The projected benefit obligations, plan assets and funded status of PMI’s pension plans, and the accumulated benefit obligation, plan assets and net amount accrued for PMI's postretirement health care plans, at December 31, 20192022 and 2018,2021, were as follows:
 
Pension(1)
 Postretirement
(in millions)2019 2018 2019 2018
Benefit obligation at January 1$9,152
 $9,028
 $209
 $248
Service cost214
 210
 2
 4
Interest cost118
 109
 7
 9
Net benefits paid(250) (218) (8) (8)
Settlement and curtailment50
 1
 


 
Actuarial losses (gains)1,430
 210
 27
 (34)
Currency29
 (196) 
 (9)
Deconsolidation of RBH(166) 
 (42) 
Other35
 8
 (5) (1)
Benefit obligation at December 31,10,612
 9,152
 190
 209
Fair value of plan assets at January 1,6,888
 7,598
    
Actual return on plan assets1,211
 (447)    
Employer contributions200
 110
    
Standard employee contributions44
 24
    
Net benefits paid(250) (218)    
Settlement and curtailment
 
    
Currency7
 (179)    
Deconsolidation of RBH(172) 
    
Fair value of plan assets at December 31,7,928
 6,888
    
Net pension and postretirement liability recognized at December 31,$(2,684) $(2,264) $(190) $(209)


Pension(1)
Postretirement
(in millions)2022202120222021
Benefit obligation at January 1$10,998 $12,243 $198 $198 
Service cost233 291 2 
Interest cost78 50 6 
Benefits paid(429)(417)(9)(8)
 Employee contributions141 145  — 
 Settlement, curtailment and plan amendment(17)(194) 
Actuarial losses (gains)(2,294)(559)(46)
Currency(434)(587)(5)(4)
Acquisition of Swedish Match316 85 — 
Other14 26 (2)— 
Benefit obligation at December 31,8,606 10,998 229 198 
Fair value of plan assets at January 1,9,337 8,746  — 
Actual return on plan assets(1,061)1,054  — 
Employer contributions, net of refunds(3)269 9 — 
Employee contributions141 145  — 
Benefits paid(429)(417)(9)— 
 Settlement(14)(37) — 
Currency(333)(444) — 
Acquisition of Swedish Match303 — 3 — 
Other(2)21  — 
Fair value of plan assets at December 31,7,939 9,337 3 — 
Net pension and postretirement liability recognized at December 31,$(667)$(1,661)$(226)$(198)
(1) Primarily non-U.S. based defined benefit retirement plans.

At December 31, 2019,2022 and 2021, actuarial losses (gains) consisted primarily of lossesgains for assumption changes related to lowerhigher discount raterates year-over-year for Swiss, German and Dutch plans. At December 31, 2018, actuarial losses (gains) consisted of losses for experience differences related to the change in population profile, coupled with updated mortality table assumptions for the Swiss plan.

At December 31, 20192022 and 2018,2021, the Swiss pension plan represented 62%64% and 60%65% of the benefit obligation, respectively, and approximately 59%60% and 57%60% of the fair value of plan assets at December 31, 20192022 and 2018,2021, respectively. At December 31, 20192022 and 2018,2021, the U.S. pension planplans represented 4%7% and 4% of the benefit obligation, respectively, and approximately 4%6% and 4%3% of the fair value of plan assets at December 31, 20192022 and 2018,2021, respectively.


At December 31, 20192022 and 2018,2021, the amounts recognized on PMI's consolidated balance sheets for the pension and postretirement plans were as follows:
PensionPostretirement
(in millions)2022202120222021
Other assets$410 $323 
Accrued liabilities — employment costs(32)(24)$(11)$(9)
Long-term employment costs(1,045)(1,960)(215)(189)
$(667)$(1,661)$(226)$(198)
 Pension Postretirement
(in millions)2019 2018 2019 2018
Other assets$43
 $37
    
Accrued liabilities — employment costs(23) (20) $(8) $(10)
Long-term employment costs(2,704) (2,281) (182) (199)
 $(2,684) $(2,264) $(190) $(209)
106



The accumulated benefit obligation, which represents benefits earned to date, for the pension plans was $9,969 million$8.2 billion and $8,557 million$10.4 billion at December 31, 20192022 and 2018,2021, respectively.

For pension plans with accumulated benefit obligations in excess of plan assets, the accumulated benefit obligation and fair value of plan assets were $8,962 million$5.8 billion and $6,825 million,$5.0 billion, respectively, as of December 31, 2019.2022. The accumulated benefit obligation and fair value of plan assets were $7,641 million$7.5 billion and $5,866 million,$5.9 billion, respectively, as of December 31, 2018.2021.

For pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation and fair value of plan assets were $10,364 million$6.4 billion and $7,654 million,$5.4 billion, respectively, as of December 31, 2019.2022. The projected benefit obligation and fair value of plan assets were $8,807 million$8.6 billion and $6,504 million,$6.7 billion, respectively, as of December 31, 2018.2021.

The following weighted-average assumptions were used to determine PMI’s pension and postretirement benefit obligations at December 31:
PensionPostretirement
2022202120222021
Discount rate3.03 %0.86 %5.89 %3.08 %
Rate of compensation increase1.98 1.77 
Interest crediting rate2.97 3.15 
Health care cost trend rate assumed for next year6.14 6.27 
Ultimate trend rate4.78 4.80 
Year that rate reaches the ultimate trend rate20462029
 Pension Postretirement
 2019 2018 2019 2018
Discount rate0.83% 1.61% 3.28% 3.97%
Rate of compensation increase1.82
 1.86
    
Interest crediting rate3.20
 3.40
    
Health care cost trend rate assumed for next year    6.21
 6.17
Ultimate trend rate    5.09
 4.59
Year that rate reaches the ultimate trend rate    2023 2040


The discount rate for the largest pension plans is based on a yield curve constructed from a portfolio of high quality corporate bonds that produces a cash flow pattern equivalent to each plan’s expected benefit payments.  The discount rate for the remaining plans is developed from local bond indices that match local benefit obligations as closely as possible.


Components of Net Periodic Benefit Cost

Net periodic pension and postretirement health care costs consisted of the following for the years ended December 31, 2019, 20182022, 2021 and 2017:2020:
PensionPostretirement
(in millions)202220212020202220212020
Service cost$233 $291 $268 $2 $$
Interest cost78 50 68 6 
Expected return on plan assets(352)(371)(353) — — 
Amortization:
Net losses181 314 265 2 
Prior service cost (credit)(2) — — 
Net transition obligation —  — — 
Settlement and curtailment2 2 — — 
Net periodic pension and postretirement costs$140 $290 $254 $12 $10 $10 
 Pension Postretirement
(in millions)2019 2018 2017 2019 2018 2017
Service cost$214
 $210
 $208
 $2
 $4
 $4
Interest cost118
 109
 108
 7
 9
 8
Expected return on plan assets(328) (349) (326) 
 
 
Amortization:           
Net losses189
 172
 186
 
 4
 5
Prior service cost(1) 2
 6
 
 (1) 
Settlement and curtailment4
 15
 6
 
 
 
Net periodic pension and postretirement costs$196
 $159
 $188
 $9
 $16
 $17



Settlement and curtailment charges were due primarily to employee severance and early retirement programs.

107


The following weighted-average assumptions were used to determine PMI’s net pension and postretirement health care costs:
PensionPostretirement
202220212020202220212020
Discount rate - service cost1.03 %0.72 %1.25 %3.08 %2.84 %3.28 %
Discount rate - interest cost0.71 0.44 0.67 3.08 2.84 3.28 
Expected rate of return on plan assets4.17 4.43 4.59 
Rate of compensation increase1.77 1.79 1.82 
Interest crediting rate3.15 3.20 3.20 
Health care cost trend rate6.27 6.21 6.21 
 Pension Postretirement
 2019 2018 2017 2019 2018 2017
Discount rate - service cost2.14% 1.92% 1.68% 3.97% 3.79% 3.68%
Discount rate - interest cost1.35
 1.25
 1.27
 3.97
 3.79
 3.68
Expected rate of return on plan assets4.70
 4.76
 4.80
      
Rate of compensation increase1.86
 1.65
 1.68
      
Interest crediting rate3.40
 3.40
 3.40
      
Health care cost trend rate      6.17
 6.17
 7.15


PMI’s expected rate of return on pension plan assets is determined by the plan assets’ historical long-term investment performance, current asset allocation and estimates of future long-term returns by asset class.

PMI and certain of its subsidiaries sponsor defined contribution plans. Amounts charged to expense for defined contribution plans totaled $63$82 million, $66$71 million and $58$66 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.

Plan Assets

PMI’s investment strategy for pension plans is based on an expectation that equity securities will outperform debt securities over the long term. Accordingly, the target allocation of PMI’s plan assets is broadly characterized as approximately 60%55% in equity securities and approximately 40%45% in debt securities and other assets. The strategy primarily utilizes indexed U.S. equity securities, international equity securities and investment-grade debt securities. PMI’s plans have no investments in hedge funds, private equity or derivatives. PMI attempts to mitigate investment risk by rebalancing between equity and debt asset classes once a year or as PMI’s contributions and benefit payments are made.


108


The fair value of PMI’s pension plan assets at December 31, 20192022 and 2018,2021, by asset category was as follows:
Asset Category
(in millions)
At December 31, 2022
Quoted Prices
In Active
Markets for
Identical
Assets/Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$79 $79 
Equity securities:
U.S. securities140 140 
International securities521 521 
Investment funds(a)
6,419 4,870 $1,549 
Government bonds178 117 61 
Corporate bonds302 302 
Other35  3 32 (c)
Total assets in the fair value hierarchy$7,674 $6,029 $1,613 $32 
Investment funds measured at net asset value(b)
265 
Total assets$7,939 

Asset Category
(in millions)
At December 31, 2019 
Quoted Prices 
In Active 
Markets for 
Identical
Assets/Liabilities
(Level 1)
 Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$276
 $276
 


 


Equity securities:       
U.S. securities170
 170
 


 


International securities563
 563
 


 


Investment funds(a)
6,125
 4,625
 $1,500
 


International government bonds197
 137
 60
 


Corporate bonds282
 282
 


 


Other6
 6
 


 


Total assets in the fair value hierarchy$7,619
 $6,059
 $1,560
 $
Investment funds measured at net asset value(b)
309
      
Total assets$7,928
      

(a) Investment funds whose objective seeks to replicate the returns and characteristics of specified market indices (primarily MSCI — Europe, Switzerland, North America, Asia Pacific, Japan; Russell 3000; S&P 500 for equities, and Citigroup EMU, Citigroup Non-EGBI EuroBIG, SBI AAA-BBB and JP Morgan EMBI for bonds), primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 63%57% are invested in U.S. and international equities; 16%15% are invested in U.S. and international government bonds; 16% are invested in corporate bonds and 12% are invested in real estate and other money markets, and 9% are invested in corporate bonds.estate.

(b) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

Asset Category
(in millions)
At December 31, 2018 
Quoted Prices 
In Active 
Markets for 
Identical
Assets/Liabilities
(Level 1)
 Significant
Other
Observable
Inputs
(Level 2)
 Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$84
 $84
 


 


Equity securities:       
U.S. securities139
 139
 


 


International securities442
 442
 


 


Investment funds(a)
5,508
 3,595
 $1,913
 


International government bonds176
 120
 56
 


Corporate bonds232
 232
 


 


Other19
 19
 


 


Total assets in the fair value hierarchy$6,600
 $4,631
 $1,969
 $
Investment funds measured at net asset value(b)
288
      
Total assets$6,888
      

(c) Amount relates to annuity policies of which the fair value is calculated using an actuarial model.

Asset Category
(in millions)
At December 31, 2021
Quoted Prices
In Active
Markets for
Identical
Assets/Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents$355 $355 
Equity securities:
U.S. securities193 193 
International securities658 658 
Investment funds(a)
7,317 5,592 $1,725 
International government bonds210 139 71 
Corporate bonds278 278 
Other
Total assets in the fair value hierarchy$9,015 $7,218 $1,797 $— 
Investment funds measured at net asset value(b)
322 
Total assets$9,337 

(a) Investment funds whose objective seeks to replicate the returns and characteristics of specified market indices (primarily MSCI — Europe, Switzerland, North America, Asia Pacific, Japan; Russell 3000; S&P 500 for equities, and Citigroup EMU and Barclays Capital U.S.JP Morgan EMBI for bonds), primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 57%59% were invested in U.S. and international equities; 20%15% were invested in U.S. and international government bonds; 14% were invested in corporate bonds, and 12% were invested in real estate and other money markets, and 11% were invested in corporate bonds.estate.
109




(b) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

See Note 16. Fair Value Measurements forFor a discussiondescription of the fair value hierarchy and the three levels of pension plan assets.inputs used to measure fair values, see Note 2. Summary of Significant Accounting Policies.

PMI makes, and plans to make, contributions, to the extent that they are tax deductible and to meet specific funding requirements of its funded pension plans. Currently, PMI anticipates making contributions of approximately $77$121 million in 20202023 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.

The estimated future benefit payments from PMI pension plans at December 31, 2019,2022, are as follows:
(in millions) 
2020$317
2021340
2022341
2023351
2024361
2025 - 20292,008

(in millions)
2023$439 
2024378 
2025372 
2026384 
2027396 
2028 - 20322,209 
PMI's expected future annual benefit payments for its postretirement health care plans are estimated to be not material through 2029.2032.
Postemployment Benefit Plans

PMI and certain of its subsidiaries sponsor postemployment benefit plans covering substantially allcertain designated salaried and certain hourly employees. The cost of these plans is charged to expense over the working life of the covered employees. Net postemployment costs were $171$184 million, $158$228 million and $144$208 million for the years ended December 31, 2019, 20182022, 2021 and 2017,2020, respectively.

The amounts recognized in accrued postemployment costs net of plan assets on PMI's consolidated balance sheets at December 31, 20192022 and 2018,2021, were $751$807 million and $708$925 million, respectively. The change in the liability is primarily due to actuarial losses of $152 million in 2019 resulting from increased employee severance rate primarily in countries in the European Union segment, coupled with the periodic expense, partially offset by cash payments.


The accrued postemployment costs were determined using a weighted-average discount rate of 3.0%5.6% and 3.1% in 20192022 and 2018,2021, respectively; an assumed ultimate annual weighted-average turnover rate of 3.0%2.9% and 3.2%2.9% in 20192022 and 2018,2021, respectively; assumed compensation cost increases of 2.6%2.8% in 20192022 and 2.6%2.1% in 2018,2021, and assumed benefits as defined in the respective plans. In accordance with local regulations, certain postemployment plans are funded. As a result, the accrued postemployment costs disclosed above are presented net of the related assets of $40$30 million and $38$46 million at December 31, 20192022 and 2018,2021, respectively. Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are charged to expense when incurred.

Comprehensive Earnings (Losses)

The amounts recorded in accumulated other comprehensive losses at December 31, 2019,2022, consisted of the following:
(in millions)PensionPost-
retirement
Post-
employment
Total
Net (losses) gains$(1,437)$(14)$(753)$(2,204)
Prior service (cost) credit70 1 (21)50 
Net transition (obligation) asset(3)  (3)
Deferred income taxes138 14 183 335 
Losses to be amortized$(1,232)$1 $(591)$(1,822)

110

(in millions)Pension Post-
retirement
 Post-
employment
 Total
Net losses$(3,718) $(63) $(775) $(4,556)
Prior service cost3
 2
 
 5
Net transition obligation(4) 
 
 (4)
Deferred income taxes520
 24
 182
 726
Losses to be amortized$(3,199) $(37) $(593) $(3,829)



The amounts recorded in accumulated other comprehensive losses at December 31, 2018,2021, consisted of the following:
(in millions)Pension Post-
retirement
 Post-
employment
 Total
Net losses$(3,438) $(41) $(702) $(4,181)
Prior service cost(27) 3
 
 (24)
Net transition obligation(4) 
 
 (4)
Deferred income taxes379
 20
 164
 563
Losses to be amortized$(3,090) $(18) $(538) $(3,646)

(in millions)PensionPost-
retirement
Post-
employment
Total
Net (losses) gains$(2,495)$(64)$(884)$(3,443)
Prior service (cost) credit71 (22)50 
Net transition (obligation) asset(3)— — (3)
Deferred income taxes278 24 214 516 
Losses to be amortized$(2,149)$(39)$(692)$(2,880)

The amounts recorded in accumulated other comprehensive losses at December 31, 2017,2020, consisted of the following:
(in millions)PensionPost-
retirement
Post-
employment
Total
Net (losses) gains$(4,147)$(64)$(839)$(5,050)
Prior service (cost) credit22 (22)
Net transition (obligation) asset(3)— — (3)
Deferred income taxes570 24 204 798 
Losses to be amortized$(3,558)$(38)$(657)$(4,253)
(in millions)Pension Post-
retirement
 Post-
employment
 Total
Net losses$(2,624) $(80) $(617) $(3,321)
Prior service cost(35) 4
 
 (31)
Net transition obligation(5) 
 
 (5)
Deferred income taxes327
 28
 186
 541
Losses to be amortized$(2,337) $(48) $(431) $(2,816)


The movements in other comprehensive earnings (losses) during the year ended December 31, 2019, were as follows:
(in millions)Pension Post-
retirement
 Post-
employment
 Total
Amounts transferred to earnings as components of net periodic benefit cost:       
Amortization:       
Net losses$198
 $3
 $77
 $278
Prior service cost32
 (1) 
 31
Other income/expense:       
Net losses3
 
 
 3
Deferred income taxes(51) (1) (17) (69)
 182
 1
 60
 243
Other movements during the year:       
Net losses(521) (27) (150) (698)
Prior service cost(2) 
 
 (2)
Deconsolidation of RBH (net of deferred income taxes)26
 1
   27
Deferred income taxes206
 6
 35
 247
 (291) (20) (115) (426)
Total movements in other comprehensive earnings (losses)$(109) $(19) $(55) $(183)


The movements in other comprehensive earnings (losses) during the year ended December 31, 2018, were as follows:
(in millions)Pension Post-
retirement
 Post-
employment
 Total
Amounts transferred to earnings as components of net periodic benefit cost:       
Amortization:       
Net losses$180
 $5
 $62
 $247
Prior service cost
 (1) 
 (1)
Net transition obligation1
 
 
 1
Other income/expense:       
Net losses14
 
 
 14
Deferred income taxes(28) (1) (14) (43)
 167
 3
 48
 218
Other movements during the year:       
Net losses(1,008) 34
 (147) (1,121)
Prior service cost8
 
 
 8
Deferred income taxes80
 (7) (8) 65
 (920) 27
 (155) (1,048)
Total movements in other comprehensive earnings (losses)$(753) $30
 $(107) $(830)

The movements in other comprehensive earnings (losses) during the year ended December 31, 2017,2022, were as follows:
(in millions)PensionPost-
retirement
Post-
employment
Total
Amounts transferred to earnings:
Amortization:
Net losses (gains)$178 $3 $85 $266 
Prior service cost (credit)(4)  (4)
Other income/expense:
Net losses (gains)2 1  3 
    Prior service cost (credit)  1 1 
Deferred income taxes(28)(1)(20)(49)
148 3 66 217 
Other movements during the year:
Net (losses) gains878 46 46 970 
Prior service (cost) credit3   3 
Deferred income taxes(112)(9)(11)(132)
769 37 35 841 
Total movements in other comprehensive earnings (losses)$917 $40 $101 $1,058 
(in millions)Pension Post-
retirement
 Post-
employment
 Total
Amounts transferred to earnings as components of net periodic benefit cost:       
Amortization:       
Net losses$175
 $5
 $68
 $248
Prior service cost5
 
 
 5
Other income/expense:       
Net losses6
 
 
 6
Deferred income taxes(10) (1) (20) (31)
 176
 4
 48
 228
Other movements during the year:       
Net losses509
 (12) 28
 525
Prior service cost13
 
 
 13
Deferred income taxes(13) 5
 (9) (17)
 509
 (7) 19
 521
Total movements in other comprehensive earnings (losses)$685
 $(3) $67
 $749

111


The movements in other comprehensive earnings (losses) during the year ended December 31, 2021, were as follows:
(in millions)PensionPost-
retirement
Post-
employment
Total
Amounts transferred to earnings:
Amortization:
Net losses (gains)$294 $$85 $383 
Prior service cost (credit)(1)— 
Other income/expense:
Net losses (gains)— 
Prior service cost (credit)— — — — 
Deferred income taxes(51)(1)(20)(72)
255 65 323 
Other movements during the year:
Net (losses) gains1,353 (5)(130)1,218 
Prior service (cost) credit42 — — 42 
Deferred income taxes(241)30 (210)
1,154 (4)(100)1,050 
Total movements in other comprehensive earnings (losses)$1,409 $(1)$(35)$1,373 

The movements in other comprehensive earnings (losses) during the year ended December 31, 2020, were as follows:
(in millions)PensionPost-
retirement
Post-
employment
Total
Amounts transferred to earnings:
Amortization:
Net losses (gains)$250 $$78 $331 
Prior service cost (credit)29 — — 29 
Net transition obligation (asset)— — 
Other income/expense:
Net losses (gains)— — 
Prior service cost (credit)— — 
Deferred income taxes(49)(1)(17)(67)
236 61 299 
Other movements during the year:
Net (losses) gains(682)(4)(142)(828)
Prior service (cost) credit(12)— (22)(34)
Deferred income taxes99 39 139 
(595)(3)(125)(723)
Total movements in other comprehensive earnings (losses)$(359)$(1)$(64)$(424)

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Note 14.15.

Additional Information:
For the Years Ended December 31,
(in millions)202220212020
Research and development expense$642 $617 $495 
Advertising expense$777 $807 $637 
Foreign currency net transaction (gains)/losses$199 $45 $90 
Interest expense$768 $737 $728 
Interest income(180)(109)(110)
Interest expense, net$588 $628 $618 
 For the Years Ended December 31,
(in millions)2019 2018 2017
Research and development expense$465
 $383
 $453
Advertising expense$730
 $896
 $830
Foreign currency net transaction (gains)/losses$(95) $21
 $49
Interest expense$796
 $855
 $1,096
Interest income(226) (190) (182)
Interest expense, net$570
 $665
 $914
Total lease cost$332
(1) 
$312
 $313

(1) For additional information on total lease costs, see Note 23. Leases.

Note 15.16.

Financial Instruments:

Overview

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 exposure.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 is not a party to leveraged derivatives and, by policy, does not use derivative financial instruments for speculative purposes. Substantially all of PMI's derivative financial instruments are subject to master netting arrangements, whereby the right to offset occurs in the event of default by a participating party. While these contracts contain the enforceable right to offset through close-out netting rights, PMI elects to present them on a gross basis in the consolidated balance sheets. Collateral associated with these arrangements is in the form of cash and is unrestricted. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. PMI formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of the forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. 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 fromrelated 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. At

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The gross notional amounts for outstanding derivatives as of December 31, 20192022 and 2018, PMI had contracts with aggregate notional amounts of $24.1 billion and $27.4 billion, respectively. Of the $24.1 billion aggregate notional amount at December 31, 2019, $2.8 billion related to cash flow hedges, $9.9 billion related to hedges of net investments in foreign operations and $11.4 billion related to other derivatives that primarily offset currency exposures on intercompany financing. Of the $27.4 billion aggregate notional amount at December 31, 2018, $3.2 billion related to cash flow hedges, $10.1 billion related to hedges of net investments in foreign operations and $14.1 billion related to other derivatives that primarily offset currency exposures on intercompany financing.


2021, were as follows:

(in millions)20222021
Derivative contracts designated as hedging instruments:
Foreign exchange contracts$17,627 $9,501 
Interest rate contracts1,019 900 
Derivative contracts not designated as hedging instruments:
Foreign exchange contracts21,755 10,337 
Total$40,401 $20,738 

The fair value of PMI’s derivative exchange contracts included in the consolidated balance sheetsheets as of December 31, 20192022 and 2018,2021, were as follows:
Derivative AssetsDerivative Liabilities
Fair Value
Fair Value
(in millions)
Balance Sheet
 Classification
20222021
Balance Sheet 
Classification
20222021
Derivative contracts designated as hedging instruments:
Foreign exchange contractsOther current assets$376 $166 Other accrued liabilities$126 $31 
Other assets341 22 Income taxes and other liabilities147 187 
Interest rate contractsOther current assets Other accrued liabilities27 
Other assets  Income taxes and other liabilities56 
Derivative contracts not designated as hedging instruments:
Foreign exchange contracts
Other current assets 
156 37 Other accrued liabilities165 75 
Other assets — Income taxes and other liabilities16 — 
Total gross amount derivatives contracts presented in the consolidated balance sheets$873 $232 $537 $299 
Gross amounts not offset in the consolidated balance sheets
Financial instruments(346)(126)(346)(126)
Cash collateral received/pledged(341)(93)(48)(151)
Net amount$186 $13 $143 $22 
 Derivative Assets Derivative Liabilities
   
Fair Value
   
Fair Value
(in millions)Balance Sheet Classification 2019 2018 
Balance Sheet 
Classification
 2019 2018
Derivative contracts designated as hedging instrumentsOther current assets $319
 $54
 Other accrued liabilities $23
 $47
 Other assets 21
 99
 Income taxes and other liabilities 301
 525
Derivative contracts not designated as hedging instrumentsOther current assets  50
 67
 Other accrued liabilities 70
 46
 Other assets 
 
 Income taxes and other liabilities 25
 13
Total derivatives  $390
 $220
   $419
 $631

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. 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 December 31, 2022 and 2021.

114


For the years ended December 31, 2019, 20182022, 2021 and 2017,2020, PMI's cash flow and net investment hedging instrumentsderivative contracts impacted the consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, in millions)For the Year Ended December 31,
 Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on Derivatives Statement of Earnings
Classification of Gain/(Loss)
Reclassified from Other
Comprehensive
Earnings/(Losses) into
Earnings
 Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings/(Losses) into Earnings
 2019 2018 2017   2019 20182017
Derivatives in Cash Flow Hedging Relationship            
Derivative contracts$(20) $28
 $(52)       
       Net revenues $22
 $18
$60
       Cost of sales 1
 
1
       Marketing, administration and research costs 2
 6
(7)
       Interest expense, net (8) (1)(41)
Derivatives in Net Investment Hedging Relationship            
Derivative contracts369
 324
 (1,644)       
Total$349
 $352
 $(1,696)   $17
 $23
$13


(pre-tax, in millions)For the Years Ended December 31,
Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on DerivativesStatement of Earnings
Classification of Gain/(Loss)
on Derivatives
Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings/(Losses) into EarningsAmount of Gain/(Loss) Recognized in Earnings
202220212020202220212020202220212020
Derivative contracts designated as hedging instruments:
Cash flow hedges:
Foreign exchange contracts$288 $138 $(61)
Net revenues$233 $59 $(3)
Cost of sales — 
Marketing, administration and research costs30 (10)27 
Interest expense, net(7)(6)(6)
Interest rate contracts292 (20)Interest expense, net(2)(1)(5)
Fair value hedges:
Interest rate contracts
Interest expense, net (a)
$(83)$$— 
Net investment hedges (b):
Foreign exchange contracts300 484 (514)
Interest expense, net (c)
181 150 194 
Derivative contracts not designated as hedging instruments:
Foreign exchange contractsInterest expense, net112 55 71 
Marketing, administration and research costs (d)
(169)215 (368)
Total$880 $628 $(595)$254 $42 $20 $41 $421 $(103)

(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. dollar
(c) Represent the gains for amounts excluded from the effectiveness testing
(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

Cash Flow Hedges

PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to certain forecasted transactions. Gains and losses associated with qualifying cash flow hedge contracts are deferred as components of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s consolidated statements of earnings. As of December 31, 2019,2022, PMI has hedged forecasted transactions for periods not exceeding the next twelve months, with the exception of one derivative contract that expires incontracts expiring at various dates through May 2024.2028. The impact of these hedges is primarily included in operating cash flows on PMI’s consolidated statements of cash flows.

Fair Value Hedges

PMI has entered into fixed-to-floating interest rate contracts, designated as fair value hedges to minimize exposure to changes in the fair value of fixed rate U.S. dollar-denominated debt that results from fluctuations in benchmark interest rates. For derivative contracts that are designated and qualify as fair value hedges the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged items attributable to the hedged risk, is recognized in current earnings. The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of December 31, 2022 was $913 million, and is recorded in long-
115


term debt in the consolidated balance sheets. The cumulative amount of fair value gains/(losses) included in the carrying amount of the debt hedged was $83 million as of December 31, 2022.

Hedges of Net Investments in Foreign Operations

PMI designates derivative contracts and certain foreign currency denominated debt and derivative contractsinstruments as net investment hedges, primarily of its Euro net assets. For the years ended December 31, 2019, 2018 and 2017, these hedgesThe amount of net investments resulted in gains (losses), net of income taxes, of $470 million, $521 million and $(1,725) million, respectively, principallypre-tax gain/(loss) related to changes in the exchange rates between the Euro and U.S. dollar. These gains (losses) werethese debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $521 million, $278 million and were substantially offset by the losses and gains generated on the underlying assets. For$(465) million, for the years ended December 31, 20192022, 2021 and 2018, the gains for amounts excluded from the effectiveness testing recognized in earnings were $230 million and $260 million,2020, respectively. These gains were accounted for in interest expense, net, on the consolidated statement of earnings. The premiums paid for, and settlements of, net investment hedges are included in investing cash flows on PMI’s consolidated statements of cash flows.

Other Derivatives

PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to intercompany loans between certain subsidiaries, third-party loans and third-party loans.acquisition related transactions. While effective as economic hedges, no hedge accounting is applied for these contracts; therefore, the unrealized gains (losses) relating to these contracts are reported in marketing, administration and research costs in PMI’s consolidated statements of earnings. For the years ended December 31, 2019, 2018 and 2017, the gains (losses) from contracts for which PMI did not apply hedge accounting were $(57) million, $405 million and $382 million, respectively. The gains (losses) from these contracts substantially offset the losses and gains generated by the underlying intercompany and third-party loans being hedged.Acquisition related transactions are included in investing cash flows on PMI’s consolidated statements of cash flows.

As a result, for the years ended December 31, 2019, 2018 and 2017, these items impacted the consolidated statement of earnings as follows:
(pre-tax, in millions)
Derivatives not Designated as
Hedging Instruments
 
Statement of Earnings
Classification of Gain/(Loss)
Amount of Gain/(Loss)
Recognized in Earnings
   2019 2018 2017
Derivative contracts       
  Interest expense, net$94
 $62
 $(60)
Total  $94
 $62
 $(60)


Qualifying Hedging Activities Reported in Accumulated Other Comprehensive Losses

Derivative gains or losses reported in accumulated other comprehensive losses are a result of qualifying hedging activity. Transfers of these gains or losses to earnings are offset by the corresponding gains or losses on the underlying hedged item. Hedging activity affected accumulated other comprehensive losses, net of income taxes, as follows:

For the Years Ended December 31,
(in millions)202220212020
Gain/(loss) as of January 1,$4 $(85)$
Derivative (gains)/losses transferred to earnings(219)(35)(20)
Change in fair value481 124 (68)
Gain/(loss) as of December 31,$266 $$(85)
 For the Years Ended December 31,
(in millions)2019 2018 2017
Gain as of January 1,$35
 $42
 $97
Derivative (gains)/losses transferred to earnings(14) (31) (11)
Change in fair value(18) 24
 (44)
Gain as of December 31,$3
 $35
 $42


At December 31, 2019,2022, PMI expects $22$81 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the consolidated statement of earnings within the next 12 months. These gains are expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.

Contingent Features

PMI’s derivative instruments do not contain contingent features.


Credit Exposure and Credit Risk

PMI is exposed to credit loss in the event of non-performance by counterparties. 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.

Fair Value

See Note 16. Fair Value Measurements and Note 19. Balance Sheet Offsetting for additional discussion of derivative financial instruments.

116


Note 16.17.

Fair Value Measurements:
The authoritative guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of input that may be used to measure fair value, which are as follows:
Level 1Quoted prices in active markets for identical assets or liabilities;
Level 2Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Equity Securities

The fair value of PMI’s equity securities, which are determined by using quoted prices in active markets, have been classified within Level 1.

Derivative Financial Instruments

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. The fair value of PMI’s foreign exchange forward 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 financial instruments have been classified within Level 2 at December 31, 2019 and 2018. See Note 15. Financial Instruments for additional discussion of derivative financial instruments.

Pension Plan Assets

The fair value of pension plan assets, determined by using readily available quoted market prices in active markets, has been classified within Level 1 of the fair value hierarchy at December 31, 2019 and 2018. The fair value of pension plan assets, determined by using quoted prices in markets that are not active, has been classified within Level 2 at December 31, 2019 and 2018. See Note 13. Benefit Plans for additional discussion of pension plan assets.

Debt

The fair value of PMI’s outstanding 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. The aggregate carrying value of PMI’s debt, excluding short-term borrowings and $56 million of finance leases, was $30,651 million at December 31, 2019. The aggregate carrying value of PMI’s debt, excluding short-term borrowings and $33 million of finance leases, was $30,996 million at December 31,

2018. The fair value of PMI's outstanding debt, excluding the aforementioned short-term borrowings and finance leases, was classified within Level 1 and Level 2 at December 31, 2019 and 2018.

The aggregate fair values of PMI’s investments in equity securities, derivative financial instruments, pension plan assets and PMI's debt as of December 31, 2019, were as follows:
(in millions)Fair Value at December 31, 2019 
Quoted Prices in Active Markets for 
Identical Assets/Liabilities 
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs 
(Level 3)
Assets:       
Equity securities (1)
$332
 $332
 $
 $
Derivative contracts390
 $
 390
 
Pension plan assets7,619
 6,059
 1,560
 
Total assets in fair value hierarchy$8,341
 $6,391
 $1,950
 $
Pension plan assets measured at net asset value (2)
309
      
Total assets$8,650
      
Liabilities:       
Debt$32,988
 $32,821
 $167
 $
Derivative contracts419
 
 419
 
Total liabilities$33,407
 $32,821
 $586
 $
(1) Unrealized pre-tax gain of $44 million ($35 million net of tax) on equity securities was recorded in the consolidated statement of earnings for the year ended December 31, 2019.

(2) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.


The aggregate fair values of PMI’s investments in equity securities, derivative financial instruments, pension plan assets and PMI's debt as of December 31, 2018 , were as follows:
(in millions)Fair Value at December 31, 2018 Quoted Prices in Active Markets for
Identical Assets/Liabilities
(Level 1)
 Significant Other
Observable Inputs
(Level 2)
 
Significant
Unobservable Inputs 
(Level 3)
Assets:       
Equity securities$288
 $288
 $
 $
Derivative contracts220
 
 220
 
Pension plan assets6,600
 4,631
 1,969
 
Total assets in fair value hierarchy$7,108
 $4,919
 $2,189
 $
Pension plan assets measured at net asset value (1)
288
      
Total assets$7,396
      
Liabilities:       
Debt$31,162
 $30,997
 $165
 $
Derivative contracts631
 
 631
 
Total liabilities$31,793
 $30,997
 $796
 $

(1) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical expedient have not been classified in the fair value hierarchy. The fair value amounts presented in these tables are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.

Note 17.

Accumulated Other Comprehensive Losses:

PMI's accumulated other comprehensive losses, net of taxes, consisted of the following:

(Losses) EarningsAt December 31,
(in millions)202220212020
Currency translation adjustments$(8,003)$(6,701)$(6,843)
Pension and other benefits(1,822)(2,880)(4,253)
Derivatives accounted for as hedges266 (85)
Total accumulated other comprehensive losses$(9,559)$(9,577)$(11,181)
(Losses) EarningsAt December 31,
(in millions)2019 2018 2017
Currency translation adjustments$(5,537) $(6,500) $(5,761)
Pension and other benefits(3,829) (3,646) (2,816)
Derivatives accounted for as hedges3
 35
 42
Total accumulated other comprehensive losses$(9,363) $(10,111) $(8,535)


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 including those related to the deconsolidation of RBH, are shown on the consolidated statements of comprehensive earnings for the years ended December 31, 2019, 2018,2022, 2021, and 2017. For the year ended 2017, $2 million of net currency translation adjustment gains/(losses) were transferred from other comprehensive earnings to marketing, administration and research costs in the consolidated statements of earnings, respectively, upon liquidation of subsidiaries.2020. For additional information, see Note 13.3. Acquisitions (Transactions With Noncontrolling Interests) for disclosures related to currency translation adjustments, Note 14. Benefit Plans for disclosures related to PMI's pension and other benefits and Note 15.16. Financial Instruments for disclosures related to derivative financial instruments and Note 22. Deconsolidation of RBH for disclosures related to the deconsolidation of RBH.instruments.


Note 18.

Contingencies:

Tobacco-Related Litigation

Legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. Our indemnitees include distributors, licensees, and others that have been named as parties in certain cases and that we have agreed to defend, as well as to pay costs and some or all of judgments, if any, that may be entered against them. Pursuant to the terms of the Distribution Agreement between Altria Group, Inc. ("Altria") and PMI, PMI will indemnify Altria and Philip Morris USA Inc. ("PM USA"), a U.S. tobacco subsidiary of Altria, for tobacco product claims based in substantial part on products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for tobacco product claims based in substantial part on products manufactured by PM USA, excluding tobacco products contract manufactured for PMI.

It is possible that there could be adverse developments in pending cases against us and our subsidiaries. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation.

Damages claimed in some of the tobacco-related litigation are significant and, in certain cases in Brazil, Canada and Nigeria, range into the billions of U.S. dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. Much of the tobacco-related litigation is in its early stages, and litigation is subject to uncertainty. However, as discussed below, we have to date been largely successful in defending tobacco-related litigation.

We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, except as stated otherwise in this Note 18. Contingencies, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any. Legal defense costs are expensed as incurred.

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It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Nevertheless, although litigation is subject to uncertainty, we and each of our subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that we have valid defenses to the litigation pending against us, as well as valid bases for appeal of adverse verdicts. All such cases are, and will continue to be, vigorously defended. 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 (“CCAA”) on March 22, March 8, and March 12, 2019 respectively. CCAA is a Canadian federal law that permits a Canadian business to restructure its affairs while carrying on its business in the ordinary course. The initial CCAA order made by the Ontario Superior Court on March 22, 2019 authorizes RBH to pay all expenses incurred in carrying on its business in the ordinary course after the CCAA filing, including obligations to employees, vendors, and suppliers. As further described in Note 22. Deconsolidation of RBH, RBH is nowRBH's financial results have been deconsolidated from our consolidated financial statements.statements since March 22, 2019. As part of the CCAA proceedings, there is currently a comprehensive stay up to and including March 12, 202031, 2023 of all tobacco-related litigation pending in Canada against RBH and the other defendants, including PMI and our indemnitees (PM USA and Altria), namely, the smoking and health class actions filed in various Canadian provinces and health care cost recovery actions. These proceedings are presented below under the caption “Stayed Litigation — Canada.” Ernst & Young Inc. has been appointed as monitor of RBH in the CCAA proceedings. In accordance with the CCAA process, as the parties work towards a plan of arrangement or compromise in a confidential mediation, it is anticipated that the court will set additional hearings and further extend the stay of proceedings. On April 17, 2019, the Ontario Superior Court ruled that RBH and the other defendants will not be allowed to file an application to the Supreme Court of Canada for leave to appeal the Court of Appeal’s decision in the Létourneau and the Blais cases so long as the comprehensive stay of all tobacco-related litigation in Canada remains in effect and that the time period to file the application would be extended by the stay period. While RBH believes that the findings of liability and damages in both Létourneau and the Blais cases were incorrect, the CCAA proceedings will provide a forum for RBH to seek resolution through a plan of arrangement or compromise of all tobacco-related

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

Stayed Litigation — Canada

Smoking and Health Litigation — Canada

In the first class action pending in Canada, Conseil Québécois Sur Le Tabac Et La Santé and Jean-Yves Blais v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and JTI-Macdonald Corp., Quebec Superior Court, Canada, filed in November 1998, RBH and other Canadian cigarette manufacturers (Imperial Tobacco Canada Ltd. and JTI-Macdonald Corp.) are defendants. The plaintiffs, an anti-smoking organization and an individual smoker, sought compensatory and punitive damages for each member of the class who suffers allegedly suffers from certain smoking-related diseases. The class was certified in 2005. The trial court issued its judgment on May 27, 2015. The trial court found RBH and 2two other Canadian manufacturers liable and found that the class members’ compensatory damages totaled approximately CAD 15.5 billion, including pre-judgment interest (approximately $11.7$11.5 billion). The trial court awarded compensatory damages on a joint and several liability basis, allocating 20% to our subsidiary (approximately CAD 3.1 billion, including pre-judgment interest (approximately $2.34$2.3 billion)). In addition, the trial court awarded CAD 90,000 (approximately $67,980)$67,000) in punitive damages, allocating CAD 30,000 (approximately $22,660)$22,000) to RBH. The trial court estimated the disease class at 99,957 members. RBH appealed to the Court of Appeal of Quebec. In October 2015, the Court of Appeal ordered RBH to furnish security totaling CAD 226 million (approximately $170.7$168 million) to cover both the Létourneau and Blais cases, which RBH has paid in installments through March 2017. The Court of Appeal ordered Imperial Tobacco Canada Ltd. to furnish security totaling CAD 758 million (approximately $573$564 million) in installments through June 2017. JTI Macdonald Corp. was not required to furnish security in accordance with plaintiffs’ motion. The Court of Appeal ordered that the security is payable upon a final judgment of the Court of Appeal affirming the trial court’s judgment or upon further order of the Court of Appeal.

On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court’s findings of liability and the compensatory and punitive damages award while reducing the total amount of compensatory damages to approximately CAD 13.5 billion including interest (approximately $10.2$10.1 billion) due to the trial court’s error in the calculation of interest. The compensatory damages award is on a joint and several basis with an allocation of 20% to RBH (approximately CAD 2.7 billion, including pre-judgment interest (approximately $2.04$2.0 billion)). The Court of Appeal upheld the trial court’s findings that defendants violated the Civil Code of Quebec, the Quebec Charter of Human Rights and Freedoms, and the Quebec Consumer Protection Act by failing to warn adequately of the dangers of smoking and by conspiring to prevent consumers from learning of the dangers of smoking. The Court of Appeal further held that the plaintiffs either need not prove, or had adequately proven, that these faults were a cause of the class members’ injuries.
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In accordance with the judgment, defendants arewere required to deposit their respective portions of the damages awarded in both the Létourneau case described below and the Blais case, approximately CAD 1.1 billion (approximately $831$819 million), into trust accounts within 60 days. RBH’s share of the deposit iswas approximately CAD 257 million (approximately $194.1$194 million). PMI recorded a pre-tax charge of $194 million in its consolidated results, representing $142 million net of tax, as tobacco litigation-related expense, in the first quarter of 2019. 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.

In the second class action pending in Canada, Cecilia Létourneau v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and JTI-Macdonald Corp., Quebec Superior Court, Canada, filed in September 1998, RBH and other Canadian cigarette manufacturers (Imperial Tobacco Canada Ltd. and JTI-Macdonald Corp.) are defendants.  The plaintiff, an individual smoker, sought compensatory and punitive damages for each member of the class who is deemed addicted to smoking. The class was certified in 2005. The trial court issued its judgment on May 27, 2015. The trial court found RBH and 2two other Canadian manufacturers liable and awarded a total of CAD 131 million (approximately $99$98 million) in punitive damages, allocating CAD 46 million (approximately $34.7$34.3 million) to RBH. The trial court estimated the size of the addiction class at 918,000 members but declined to award compensatory damages to the addiction class because the evidence did not establish the claims with sufficient accuracy. The trial court found that a claims process to allocate the awarded punitive damages to individual class members would be too expensive and difficult to administer. On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court’s findings of liability and the total amount of punitive damages awarded allocating CAD 57 million including interest (approximately $43.1$42 million) to RBH. See the Blais description above and Note 22. Deconsolidation of RBH below for further detail concerning the security order pertaining to both Létourneau and Blais cases and the impact of the decision on PMI’s financial statements.

RBH and PMI believe the findings of liability and damages in both Létourneau and the Blais cases were incorrect and in contravention of applicable law on several grounds including the following: (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; and (iii) defendants cannot be liable to all class members given the individual differences between class members.
In the third class action pending in Canada, Kunta v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Winnipeg, Canada, filed June 12, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic obstructive pulmonary disease (“COPD”),

severe asthma, and mild reversible lung disease resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.
In the fourth class action pending in Canada, Adams v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Saskatchewan, Canada, filed July 10, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, emphysema, heart disease, or cancer, as well as restitution of profits.
In the fifth class action pending in Canada, Semple v. Canadian Tobacco Manufacturers' Council, et al., The Supreme Court (trial court), Nova Scotia, Canada, filed June 18, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and COPD resulting from the use of tobacco products. He is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.
In the sixth class action pending in Canada, Dorion v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Alberta, Canada, filed June 15, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic bronchitis and severe sinus infections resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. To date, we, our subsidiaries, and our indemnitees have not been properly served with the complaint.
In the seventh class action pending in Canada, McDermid v. Imperial Tobacco Canada Limited, et al., Supreme Court, British Columbia, Canada, filed June 25, 2010, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and heart disease resulting from the use of tobacco products. He is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who
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were alive on June 12, 2007, and who suffered from heart disease allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954, to the date the claim was filed.

In the eighth class action pending in Canada, Bourassa v. Imperial Tobacco Canada Limited, et al., Supreme Court, British Columbia, Canada, filed June 25, 2010, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, the heir to a deceased smoker, alleges that the decedent was addicted to tobacco products and suffered from emphysema resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from chronic respiratory diseases allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954, to the date the claim was filed. In December 2014, plaintiff filed an amended statement of claim.

In the ninth class action pending in Canada, Suzanne Jacklin v. Canadian Tobacco Manufacturers' Council, et al., Ontario Superior Court of Justice, filed June 20, 2012, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, heart disease, or cancer, as well as restitution of profits.

Health Care Cost Recovery Litigation — Canada
In the first health care cost recovery case pending in Canada, Her Majesty the Queen in Right of British Columbia v. Imperial Tobacco Limited, et al., Supreme Court, British Columbia, Vancouver Registry, Canada, filed January 24, 2001, we, RBH, our indemnitee (PM USA), and other members of the industry are defendants. The plaintiff, the government of the province of British Columbia, brought a claim based upon legislation enacted by the province authorizing the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, resulting from a “tobacco related wrong.”
In the second health care cost recovery case filed in Canada, Her Majesty the Queen in Right of New Brunswick v. Rothmans Inc., et al., Court of Queen's Bench of New Brunswick, Trial Court, New Brunswick, Fredericton, Canada, filed March 13, 2008, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of New Brunswick based on legislation enacted in the province. This legislation is similar to the law introduced in British Columbia that 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 third health care cost recovery case filed in Canada, Her Majesty the Queen in Right of Ontario v. Rothmans Inc., et al., Ontario Superior Court of Justice, Toronto, Canada, filed September 29, 2009, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Ontario based on legislation enacted in the province. This legislation is similar to the laws introduced in British Columbia and New Brunswick that authorize 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 fourth health care cost recovery case filed in Canada, Attorney General of Newfoundland and Labrador v. Rothmans Inc., et al., Supreme Court of Newfoundland and Labrador, St. Johns, Canada, filed February 8, 2011, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Newfoundland and Labrador based on legislation enacted in the province that is similar to the laws introduced in British Columbia, New Brunswick and Ontario. 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 fifth health care cost recovery case filed in Canada, Attorney General of Quebec v. Imperial Tobacco Limited, et al., Superior Court of Quebec, Canada, filed June 8, 2012, we, RBH, our indemnitee (PM USA), and other members of the industry are defendants. The claim was filed by the government of the province of Quebec based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the sixth health care cost recovery case filed in Canada, Her Majesty in Right of Alberta v. Altria Group, Inc., et al., Supreme Court of Queen's Bench Alberta, Canada, filed June 8, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Alberta based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
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In the seventh health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Manitoba v. Rothmans, Benson & Hedges, Inc., et al., The Queen's Bench, Winnipeg Judicial Centre, Canada, filed May 31, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Manitoba based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the eighth health care cost recovery case filed in Canada, The Government of Saskatchewan v. Rothmans, Benson & Hedges Inc., et al., Queen's Bench, Judicial Centre of Saskatchewan, Canada, filed June 8, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Saskatchewan based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the ninth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Prince Edward Island v. Rothmans, Benson & Hedges Inc., et al., Supreme Court of Prince Edward Island (General Section), Canada, filed September 10, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Prince Edward Island based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”

In the tenth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Nova Scotia v. Rothmans, Benson & Hedges Inc., et al., Supreme Court of Nova Scotia, Canada, filed January 2, 2015, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Nova Scotia based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
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The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our subsidiaries or indemnitees as of February 3, 2020, February 4, 2019December 31, 2022, December 31, 2021 and February 9, 2018:December 31, 2020:¹
Type of CaseNumber of Cases Pending as of December 31, 2022Number of Cases Pending as of December 31, 2021Number of Cases Pending as of December 31, 2020
Individual Smoking and Health Cases404043
Smoking and Health Class Actions999
Health Care Cost Recovery Actions171717
Label-Related Class Actions
Individual Label-Related Cases635
Public Civil Actions112
Type of Case Number of Cases Pending as of February 3, 2020 Number of Cases Pending as of February 4, 2019 Number of Cases Pending as of February 9, 2018
Individual Smoking and Health Cases 50 55 57
Smoking and Health Class Actions 10 10 11
Health Care Cost Recovery Actions 17 16 16
Label-Related Class Actions  1 1
Individual Label-Related Cases 5 7 1
Public Civil Actions 2 2 2


Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 501528 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. NaNFourteen cases have had decisions in favor of plaintiffs. NaNTen of these cases have subsequently reached final resolution in our favor and 4four remain on appeal.

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¹ Includes cases pending in Canada.



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The table below lists the verdict and significant post-trial developments in the 4four pending cases where a verdict was returned in favor of the plaintiff:

DateLocation of
Court/Name of
Plaintiff
Type of
Case
VerdictPost-Trial
Developments
February 2004Brazil/The Smoker Health Defense AssociationClass ActionThe Civil Court of São Paulo found defendants liable without hearing evidence. In April 2004, the court awarded “moral damages” of R$1,000 (approximately $233) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not assess actual damages, which were to be assessed in a second phase of the case. The size of the class was not defined in the ruling.
Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In May 2011, the trial court dismissed the claim. In March 2017, plaintiff filed an en banc appeal to the Superior Court of Justice. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that plaintiff did not have standing to bring the lawsuit. Both appeals are still pending.
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¹ Includes cases pending in Canada.

DateLocation of
Court/Name of
Plaintiff
Type of
Case
VerdictPost-Trial
Developments
May 27, 2015
Canada/Conseil Québécois Sur Le Tabac Et La Santé and Jean-Yves Blais

Class Action
On May 27, 2015, the Superior Court of the District of Montreal, Province of Quebec ruled in favor of the Blais class on liability and found the class members’ compensatory damages totaled approximately CAD 15.5 billion (approximately $11.7$11.5 billion), including pre-judgment interest. The trial court awarded compensatory damages on a joint and several liability basis, allocating 20% to our subsidiary (approximately CAD 3.1 billion including pre-judgment interest (approximately $2.34$2.3 billion)). The trial court awarded CAD 90,000 (approximately $67,980)$67,000) in punitive damages, allocating CAD 30,000 (approximately $22,660)$22,000) to our subsidiary. The trial court ordered defendants to pay CAD 1 billion (approximately $755.3$745 million) of the compensatory damage award, CAD 200 million (approximately $151.1$149 million) of which is our subsidiary’s portion, into a trust within 60 days.
In June 2015, RBH commenced the appellate process with the Court of Appeal of Quebec. On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court's decision. (See “Stayed Litigation — Canada” for further detail.)


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DateLocation of
Court/Name of
Plaintiff
Type of
Case
VerdictPost-Trial
Developments
May 27, 2015Canada/Cecilia Létourneau
Class Action
On May 27, 2015, the Superior Court of the District of Montreal, Province of Quebec ruled in favor of the Létourneau class on liability and awarded a total of CAD 131 million (approximately $99$98 million) in punitive damages, allocating CAD 46 million (approximately $34.7$34.3 million) to RBH. The trial court ordered defendants to pay the full punitive damage award into a trust within 60 days. The court did not order the payment of compensatory damages.
In June 2015, RBH commenced the appellate process with the Court of Appeal of Quebec. On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court's decision. (See “Stayed Litigation — Canada” for further detail.)

DateLocation of
Court/Name of
Plaintiff
Type of
Case
VerdictPost-Trial
Developments
August 5, 2016Argentina/Hugo LespadaIndividual ActionOn August 5, 2016, the Civil Court No. 14 - Mar del Plata, issued a verdict in favor of plaintiff, an individual smoker, and awarded him ARS 110,000 (approximately $1,825)$584), plus interest, in compensatory and moral damages. The trial court found that our subsidiary failed to warn plaintiff of the risk of becoming addicted to cigarettes.On August 23, 2016, our subsidiary filed its notice of appeal. On October 31, 2017, the Civil and Commercial Court of Appeals of Mar del Plata ruled that plaintiff's claim was barred by the statute of limitations and it reversed the trial court's decision. On November 28, 2017,May 17, 2021 plaintiff filed ana federal extraordinary appeal of the reversal of the trial court's decision toappeal. On November 1, 2021, the Supreme Court of the Province of Buenos Aires.Aires dismissed plaintiff's federal extraordinary appeal. On November 10, 2021, plaintiff filed a direct appeal before the Federal Supreme Court.


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DateLocation of
Court/Name of
Plaintiff
Type of
Case
VerdictPost-Trial
Developments
June 17, 2021Argentina/Claudia MilanoIndividual ActionOn June 17, 2021, the Civil Court No. 9 - Mar del Plata, issued a verdict in favor of plaintiff, an individual smoker, and awarded her smoking cessation treatments, ARS 150,000 (approximately $796), in compensatory and moral damages, and ARS 4,000,000 (approximately $21,218) in punitive damages, plus interest and costs. The trial court found that our subsidiary failed to warn plaintiff of the risk of becoming addicted to cigarettes.
On July 2, 2021, our subsidiary filed its notice of appeal. In addition, plaintiff filed an appeal challenging the dismissal of the claim for psychological damages.As required by local law, our subsidiary deposited the damages awarded, plus interest and costs, in total ARS 6,114,428 (approximately $32,435), into a court escrow account. Our subsidiary challenged the amount determined by the court. The Civil and Commercial Court of Appeals of Mar del Plata granted our subsidiary's challenge to the escrow amount determined by the trial court. As a result, on December 16, 2021, ARS 893,428 (approximately $4,739) was returned to our subsidiary. If our subsidiary ultimately prevails, the remaining deposited amounts will be returned to our subsidiary. On May 31, 2022, the Civil and Commercial Court of Appeals of Mar del Plata ruled that the statute of limitations barred plaintiff's claim and reversed the trial court's decision. On June 15, 2022, plaintiff filed an extraordinary appeal.

Pending claims related to tobacco products generally fall within the following categories:
Smoking and Health Litigation: These cases primarily allege personal injury and are brought by individual plaintiffs or on behalf of a class or purported class of individual plaintiffs. Plaintiffs' allegations of liability in these cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of express and implied warranties, violations of deceptive trade practice laws and consumer protection statutes. Plaintiffs in these cases seek various forms of relief, including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include licit activity, failure to state a claim, lack of defect, lack of proximate cause, assumption of the risk, contributory negligence, and statute of limitations.

As of February 3, 2020,December 31, 2022, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:


5040 cases brought by individual plaintiffs in Argentina (31), Brazil (5)(30), Canada (2), Chile (5), Costa Rica (1), Italy (1)(4), the Philippines (1), Poland (2), Turkey (1) and Scotland (1), as well as 1 case brought by an individual plaintiff in the United States District Court for the District of Oregon in May 2021. (See information regarding the provisions of the 2008 Share Distribution Agreement between PMI and Altria that provide for indemnities to PMI for certain liabilities concerning tobacco products under the caption "Tobacco-Related Litigation" described above), compared with 5540 such cases on February 4, 2019,December 31, 2021, and 5743 cases on February 9, 2018;December 31, 2020; and
109 cases brought on behalf of classes of individual plaintiffs, in Brazil (1) and Canada (9), compared with 109 such cases on February 4, 2019December 31, 2021 and 119 such cases on February 9, 2018.December 31, 2020.

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

In the class action pending in Brazil, The Smoker Health Defense Association (ADESF) v. Souza Cruz, S.A. and Philip Morris Marketing, S.A., Nineteenth Lower Civil Court of the Central Courts of the Judiciary District of São Paulo, Brazil, filed July 25, 1995, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer organization, is seeking damages for all addicted smokers and former smokers, and injunctive relief. In 2004, the trial court found defendants liable without hearing evidence and awarded “moral damages” of R$1,000 (approximately $233) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not award actual damages, which were to be assessed in the second phase of the case. The size of the class was not estimated. Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In May 2011, the trial court dismissed the claim. In February 2015, the appellate court unanimously dismissed plaintiff's appeal. In September 2015, plaintiff appealed to the Superior Court of Justice. In February 2017, the Chief Justice of the Superior Court of Justice denied plaintiff's appeal. In March 2017, plaintiff filed an en banc appeal to the Superior Court of Justice. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that plaintiff did not have standing to bring the lawsuit. Both appeals are still pending.

Health Care Cost Recovery Litigation: These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of health care cost expenditures allegedly caused by tobacco products. Plaintiffs' allegations of liability in these cases are based on
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various theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied warranties, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, defective product, failure to warn, sale of cigarettes to minors, and claims under statutes governing competition and deceptive trade practices. Plaintiffs in these cases seek various forms of relief including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, remoteness of injury, failure to state a claim, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), and statute of limitations.

As of February 3, 2020,December 31, 2022, there were 17 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Brazil (1), Canada (10), Korea (1) and Nigeria (5), compared with 1617 such cases on February 4, 2019December 31, 2021 and 1617 such cases on February 9, 2018.December 31, 2020.

The health care cost recovery actions pending in Canada are described above under the caption “Health Care Cost Recovery Litigation — Canada.
In the health care cost recovery case in Brazil, The Attorney General of Brazil v. Souza Cruz Ltda., et al., Federal Trial Court, Porto Alegre, Rio Grande do Sul, Brazil, filed May 21, 2019, we, our subsidiaries, and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past fivein certain prior years, payment of anticipated costs of treating future alleged smoking-related diseases, and moral damages. Our subsidiaries were served with the complaint. A challengeDefendants filed answers to the service of PMI as improper is pending.complaint in May 2020.
In the first health care cost recovery case in Nigeria, The Attorney General of Lagos State v. British American Tobacco (Nigeria) Limited, et al., High Court of Lagos State, Lagos, Nigeria, filed March 13, 2008, we and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. We are in the process of making challenges to service and the court's jurisdiction. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections.
In the second health care cost recovery case in Nigeria, The Attorney General of Kano State v. British American Tobacco (Nigeria) Limited, et al., High Court of Kano State, Kano, Nigeria, filed May 9, 2007, we and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. We are in the process of making challenges to service andchallenging the court's jurisdiction. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections.
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. 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. In February 2011, the court ruled that the plaintiff had not complied with the procedural steps necessary to serve us. As a result of this ruling, plaintiff must re-serve its claim. We have not yet been re-served.
In the fourth health care cost recovery case in Nigeria, The Attorney General of Oyo State, et al., v. British American Tobacco (Nigeria) Limited, et al., High Court of Oyo State, Ibadan, Nigeria, filed May 25, 2007, we and other members of the industry are defendants. Plaintiffs seek reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. We challenged service as improper. In June 2010, the court ruled that plaintiffs did not have leave to serve the writ of summons on the defendants and that they must re-serve the writ. We have not yet been re-served.
In the fifth health care cost recovery case in Nigeria, The Attorney General of Ogun State v. British American Tobacco (Nigeria) Limited, et al., High Court of Ogun State, Abeokuta, Nigeria, filed February 26, 2008, we and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In May 2010, the trial court rejected our service objections.objections to the court's jurisdiction. We have appealed. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections.
In the health care cost recovery case in Korea, the National Health Insurance Service v. KT&G, et. al., filed April 14, 2014, our subsidiary and other Korean manufacturers are defendants. Plaintiff alleges that defendants concealed the health hazards of smoking, marketed to youth, added ingredients to make their products more harmful and addictive, and misled consumers into believing that Lights cigarettes are safer than regular cigarettes. The National Health Insurance Service seeks to recover damages allegedly incurred in treating 3,484 patients with small cell lung cancer, squamous cell lung cancer, and squamous cell laryngeal cancer from 2003 to 2012. The trial court dismissed the case is now in its entirety on November 20, 2020. The Appellate court granted the evidentiary phase.Plaintiff a de novo
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appeal in 2021 and determined that the appellate proceedings will take place in stages: wrongful conduct/product defect allegations first, then causation and finally issues such as standing/direct action.

Label-Related Cases: These cases, now brought only by individual plaintiffs, or on behalf of a class or purported class of individual plaintiffs, allege that the use of the descriptor “Lights” or other alleged misrepresentations or omissions of labeling information constitute fraudulent and misleading conduct. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including misrepresentation, deception, and breach of consumer protection laws. Plaintiffs seek various forms of relief including restitution, injunctive relief, and compensatory and other damages. Defenses raised include lack of causation, lack of reliance, assumption of the risk, and statute of limitations.

As of February 3, 2020,December 31, 2022, there were 56 label-related cases brought by individual plaintiffs in Italy (1) and Chile (4)(5) pending against our subsidiaries, compared with 73 such casecases on February 4, 2019,December 31, 2021, and 15 such casecases on February 9, 2018.

December 31, 2020.
An individual plaintiff filed a purported class action certification motion,
Aharon Ringer v. Philip Morris Ltd. and Globrands Ltd., on July 18, 2017, in the Central District Court of Israel. Our Israeli affiliate and an Israeli importer and distributor for other multinational tobacco companies were defendants. Plaintiff sought to represent a class of smokers in Israel who have purchased cigarettes imported by defendants since July 18, 2010. Plaintiff estimated the class size to be 7,000,000 smokers. Plaintiff alleged that defendants misled consumers by not disclosing sufficient information about carbon monoxide, tar, and nicotine yields of, and tobacco contained in, the imported cigarettes. Plaintiff sought various forms of relief, including an order for defendants to label cigarette packs in accordance with plaintiff’s demands, and damages for misleading consumers, breach of autonomy and unjust enrichment. In September 2019, plaintiff voluntarily withdrew the class certification motion, and the trial court dismissed the case with prejudice.

Public Civil Actions: Claims have been filed either by an individual, or a public or private entity, seeking to protect collective or individual rights, such as the right to health, the right to information or the right to safety. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including product defect, concealment, and misrepresentation. Plaintiffs in these cases seek various forms of relief including injunctive relief such as banning cigarettes, descriptors, smoking in certain places and advertising, as well as implementing communication campaigns and reimbursement of medical expenses incurred by public or private institutions.

As of February 3, 2020,December 31, 2022, there were 2was 1 public civil actionsaction pending against our subsidiariessubsidiary in Argentina (1) and Venezuela (1), compared with 21 such casescase on February 4, 2019,December 31, 2021, and 2 such cases on February 9, 2018.December 31, 2020.

In the public civil action in Argentina, Asociación Argentina de Derecho de Danos v. Massalin Particulares S.A., et al., Civil Court of Buenos Aires, Argentina, filed February 26, 2007, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer association, seeks the establishment of a relief fund for reimbursement of medical costs associated with diseases allegedly caused by smoking. Our subsidiary filed its answer in September 2007. In March 2010, the case file was transferred to the Federal Court on Administrative Matters after the Civil Court granted plaintiff's request to add the national government as a co-plaintiff in the case. The case is currently awaiting a court decision on the merits.

In the public civil action in Venezuela, Federation of Consumers and Users Associations (“FEVACU”), et al. v. National Assembly of Venezuela and the Venezuelan Ministry of Health, Constitutional Chamber of the Venezuelan Supreme Court, filed April 29, 2008, we were not named as a defendant, but the plaintiffs published a notice pursuant to court order, notifying all interested parties to appear in the case. In January 2009, our subsidiary appeared in the case in response to this notice. The plaintiffs purport to represent the right to health of the citizens of Venezuela and claim that the government failed to protect adequately its citizens' right to health. 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 October 2008, the court ruled that plaintiffs have standing to file the claim and that the claim meets the threshold admissibility requirements. In December 2012, the court admitted our subsidiary and BAT's subsidiary as interested third parties. In February 2013, our subsidiary answered the complaint.

Reduced-Risk Products

In Colombia, an individual filed a purported class action, Ana Ferrero Rebolledo vs.v. Philip Morris Colombia S.A., et al., in April 2019 against our subsidiaries with the Civil Court of Bogota related to the marketing of our Platform 1 product. Plaintiff allegesalleged that our subsidiaries advertise the product in contravention of law and in a manner that misleads consumers by portraying the product in a positive light, and further asserts that the Platform 1 vapor contains many toxic compounds, creates a high level of dependence, and has damaging second-hand effects. Plaintiff seekssought injunctive relief and damages on her behalf and on a behalf of two classes (class 1 - all Platform 1 consumers in Colombia who seek damages for the purchase price of the product and personal injuries related to the alleged addiction, and class 2 - all residents of the neighborhood where the advertising allegedly took place who seek damages for exposure to the alleged illegal advertising). Our subsidiaries answered the complaint in January 2020.2020, and in February 2020, plaintiff filed an amended complaint. The amended complaint modifies the relief sought on behalf of the named plaintiff and on behalf of a single class (all consumers of Platform 1 products in Colombia who seek damages for the product purchase price and personal injuries related to the use of an allegedly harmful product). In June 2021, our subsidiaries answered the amended complaint. The court has scheduled evidentiary hearings to take place in February 2023.

Other Litigation

The Department of Special Investigations of the government of Thailand ("DSI") conducted an investigation into alleged underpayment by our subsidiary, Philip Morris (Thailand) Limited ("PM Thailand"), of customs duties and excise taxes relating to imports from the Philippines covering the period 2003-2007. On January 18, 2016, the Public Prosecutor filed charges against our subsidiary and seven former and current employees in the Bangkok Criminal Court alleging that PM Thailand and the individual defendants jointly and with the intention to defraud the Thai government, under-declared import prices of cigarettes to avoid full payment of taxes and duties in connection with import entries of cigarettes from the Philippines during the period of July 2003 to June 2006. The government is seekingsought a fine of approximately THB 80.8 billion (approximately $2.58$2.4 billion). In May 2017, Thailand enacted a new customs act. 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
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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 other Thai governmental agencies. Trial in the case began in November 2017 and concluded in September 2019. In November 2019, the trial court found our subsidiary guilty of under-declaration of the prices and imposed a fine of approximately THB 1.2 billion (approximately $38.4$36 million). The trial court dismissed all charges against the individual defendants. In December 2019, as required by the Thai law, our subsidiary paid the fine. This payment is included in other assets on the consolidated balance sheets and innegatively impacted net cash used inprovided by operating activities in the consolidated statements of cash flows.flows in the period of payment. Both our subsidiary and the Public Prosecutor filed an appeal of the trial court's decision. The appellate court issued its decision on the appeals on June 1, 2022. The appellate court affirmed the findings of under-declaration of import prices of cigarettes but reduced the fine to approximately THB 122 million (approximately $3.6 million) finding the trial court erred in its calculation of the under-declaration and fine. The appellate court affirmed the acquittals of the individual defendants. Our subsidiary willhas appealed the decision to the Supreme Court of Thailand. The Public Prosecutor has also filed an appeal challenging the trial court’s decision. Ifdismissal of charges against the individual defendants and the amount of the fine imposed. Thailand is required to refund any payment made by our subsidiary ultimately prevails on appeal, then Thailand will be required to return this payment to our subsidiary.in excess of any fine asserted by the courts.

The DSI also conducted an investigation into alleged underpayment by PM Thailand of customs duties and excise taxes relating to imports from Indonesia covering the period 2000-2003. On January 26, 2017, the Public Prosecutor filed charges against PM Thailand and its former Thai employee in the Bangkok Criminal Court alleging that PM Thailand and its former employee jointly and with the intention to defraud the Thai government under-declared import prices of cigarettes to avoid full payment of taxes and duties in connection with import entries during the period from January 2002 to July 2003. The government is seeking a fine of approximately THB 19.8 billion (approximately $633$588 million). In May 2017, Thailand enacted a new customs act. 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. Trial in the case began in November 2018 and concluded in December 2019. In March 2020, the trial court found our subsidiary guilty of under-declaration of the prices and imposed a fine of approximately THB 130 million (approximately $3.9 million). The casetrial court dismissed all charges against the individual defendant. In April 2020, as required by Thai law, our subsidiary paid the fine. This payment is awaitingincluded in other assets on the consolidated balance sheets and negatively impacted net cash provided by operating activities in the consolidated statements of cash flows in the period of payment. Our subsidiary filed an appeal of the trial court's decision. In addition, the Public Prosecutor filed an appeal of the trial court's decision challenging the dismissal of charges against the individual defendant and the amount of the fine imposed. The appellate court issued its decision on the appeals on January 31, 2023. The appellate court affirmed the findings of under-declaration of import prices of cigarettes but reduced the fine imposed by the trial court. The appellate court directed the Public Prosecutor to coordinate with customs officials to calculate such reduced fine in accordance with the appellate court’s decision, which will occur at a later date. 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. Thailand is required to refund any payment made by our subsidiary in March 2020.excess of any fine assessed by the courts.

The South Korean Board of Audit and Inspection (“BAI”) conducted an audit of certain Korean government agencies and the tobacco industry into whether inventory movements ahead of the January 1, 2015 increase of cigarette-related taxes by tobacco companies, including Philip Morris Korea Inc. ("PM Korea"), our South Korean affiliate,subsidiary, were in compliance with South Korean tax laws.  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 $227$217 million), of which KRW 100 billion (approximately $83.5$80 million) was paid in 2016 and KRW 172 billion (approximately $143.7$137 million) was paid in the first quarter of 2017.  These paid amounts are included in other assets in the consolidated balance sheets and innegatively impacted net cash used inprovided by operating activities in the consolidated statements of cash flows.flows in the period of payment.  PM Korea appealed the assessments. In January 2020, a trial court ruled that PM Korea did not

underpay taxes in the amount of approximately KRW 218 billion (approximately $182$173 million) in taxes that were subject. The tax authorities appealed this decision to its jurisdiction.the appellate court. In September 2020, the appellate court upheld the trial court's decision. The tax authorities have appealed to the Supreme Court of South Korea. In June 2020, another trial court ruled that PM Korea did not underpay approximately KRW 54 billion (approximately $43 million) of alleged underpayments. The government agencies appealed this decision. In January 2021, the appellate court upheld the trial court's decision. 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. PM Korea's appeal

The Saudi Arabia Customs General Authority issued its assessments requiring our distributors to pay additional customs duties in the amount of approximately KRW 541.5 billion of alleged underpayments (approximately $45 million) is pending at another court. The tax authorities have also referred the matterSaudi Riyal, or approximately $396 million, in relation to the Public Prosecutor. On June 19, 2018,fees paid by these distributors under their agreements with our subsidiary for exclusive rights to distribute our products in Saudi Arabia. In order to challenge these assessments, the Public Prosecutor decided notdistributors posted bank guarantees. To enable the distributors' challenge, our subsidiary agreed with the banks to file criminal charges against PM Korea and/or other alleged co-offenders. The Public Prosecutor also decided not to prosecute PM Korea and its managing director in connection withbear a criminal complaint against them that had been filed byportion of the South Korean Ministry of Strategy and Finance (“MOSF”). Inamount the criminal complaint, the MOSF alleged that PM Korea exceeded the monthly product withdrawal limits that the MOSF had set in its notice. In March 2019, the Supreme Prosecutor's Office dismissed both the tax authorities' and the MOSF's appealsauthority may draw on the decisionsbank guarantees. In September and October 2020, respectively, the distributors lost their challenges of the Public Prosecutor, concludingassessments. Both distributors appealed, and in June 2021, the criminal investigationsCustoms Appeal Committee in these matters.

The Moscow Tax Inspectorate for Major Taxpayers (“MTI”) conducted an auditRiyadh notified the distributors of AO Philip Morris Izhora (“PM Izhora”), our Russian affiliate, forits decisions to largely reject their appeals. On the 2015-2017 financial years. On July 26, 2019, MTI issued its initial assessment, claiming that intercompany sales of cigarettes between PM Izhora and another Russian affiliate prior to excise tax increases and submission by PM Izhorabasis of the maximum retail sales price notifications for cigarettes to the tax authorities were improper under Russian tax laws and resultedabove-mentioned decisions, in underpayment of excise taxes and VAT. In August 2019, PM Izhora submitted its objections disagreeing with MTI’s allegations set forth in the initial assessment and MTI’s methodology for calculating the alleged underpayments. MTI accepted some of PM Izhora’s arguments and in September 2019, issued the final tax assessment claiming an underpayment of RUB 24.3 billion (approximately $374 million), including penalties and interest. In accordance with Russian tax laws, PM Izhora paid the entire amount of MTI’s final assessment. This amount was neither imposed on, nor concurrent with, the specific revenue-producing transaction, nor was it collected from customers of our Russian affiliates. PMI believes that the loss of $374 million in this matter is probable and estimable. Consequently, in the third quarter of 2019,June 2021, PMI recorded a pre-tax charge of $374$246 million in marketing, administrationrelation to the period of 2014 through 2020 in line with existing and research costs
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contemplated arrangements with the distributors. The estimated amounts for 2021 and 2022 are immaterial. In accordance with U.S. GAAP, the charge was recorded as a reduction in net revenues on the consolidated statements of earnings representing $315 million net of income tax. Underfor the Russianthree months and six months ended June 30, 2021. Despite the unfavorable decisions, our subsidiary believes that customs duties paid in Saudi Arabia were in compliance with the applicable law PM Izhora has until mid-September 2020 to challengeand the final tax assessment to the Federal Tax Service and is considering whether to pursue such challenge.WTO Customs Valuation Agreement.

A putative shareholder class action lawsuit, In re Philip Morris International Inc. Securities Litigation, is pending in the United States District Court for the Southern District of New York, purportedly on behalf of purchasers of Philip Morris International Inc. stock between July 26, 2016 and April 18, 2018.  The lawsuit names Philip Morris International Inc. and certain officers and employees as defendants and includes allegations that the defendants made false and/or misleading statements and/or failed to disclose information about PMI’s business, operations, financial condition, and prospects, related to product sales of, and alleged irregularities in clinical studies of, PMI’s Platform 1 product.  The lawsuit seeks various forms of relief, including damages. In November 2018, the court consolidated three putative shareholder class action lawsuits with similar allegations previously filed in the Southern District of New York (namely, City of Westland Police and Fire Retirement System v. Philip Morris International Inc., et al,al., Greater Pennsylvania Carpenters’ Pension Fund v. Philip Morris International Inc., et al., and Gilchrist v. Philip Morris International Inc., et al.) into these proceedings. A putative shareholder class action lawsuit, Rubenstahl v. Philip Morris International Inc., et al., that had been previously filed in December 2017 in the United States District Court for the District of New Jersey, was voluntarily dismissed by the plaintiff due to similar allegations in these proceedings. On February 4, 2020, the court granted defendants’ motion in its entirety, dismissing all but one of the plaintiffs’ claims with prejudice.  The court noted that one of plaintiffs’ claims (allegations relating to four non-clinical studies of PMI’s Platform 1 product) did not state a viable claim but allowed plaintiffs to replead that claim by March 3, 2020.  On February 18, 2020, the plaintiffs filed a motion for reconsideration of the court's February 4th decision; this motion was denied on September 21, 2020. 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. Plaintiffs have filed an appeal with the U.S. Court of Appeal for the Second Circuit. We believe that this lawsuit is without merit and in the event that plaintiffs take further action, will continue to defend it vigorously.

In April 2020, affiliates of British American Tobacco plc (“BAT”) commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. 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. 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"). Plaintiffs seek an order to prevent the importation of Platform 1 products into the United States. The ITC evidentiary hearing closed on February 1, 2021. On May 14, 2021, the administrative law judge issued an Initial and Recommended Determination ("ID/RD") finding that the Platform 1 blade products infringe two of the three patents asserted by Plaintiffs, recommending that the ITC issue a Limited Exclusion order against infringing products, and recommending against a cease-and-desist, as well as recommending against a bond pending Presidential review of the ITC's Final Determination ("FD"). Defendants and Plaintiffs filed separate Petitions for Review with the ITC of the ID on May 28, 2021; on July 27, 2021, the ITC granted each of the petitions in part, deciding to review certain issues in the ID. Plaintiffs and Defendants also submitted brief statements of the public interest factors in issue to the ITC on June 15, 2021. On September 29, 2021, the ITC issued its FD finding a violation of section 337 of the U.S. Tariff Act and issued (a) a limited exclusion order against Philip Morris Products S.A., prohibiting, inter alia, the importation of Platform 1 product and infringing components; and (b) a cease-and-desist order against Altria Client Services, LLC and its affiliate prohibiting, inter alia, sales of imported Platform 1 products. The ITC predicated the orders on its finding that Platform 1 blade products infringe two patents owned by a BAT affiliate. The ITC also found that Platform 1 blade products do not infringe a third patent owned by a BAT affiliate. The ITC further held that there were insufficient concerns over public interest to prevent the issuance of remedial orders. Following the Presidential Review period, the orders became effective and Defendants filed a petition for review of the FD with the U.S. Court of Appeals for the Federal Circuit. Defendants also filed motions in the ITC and Federal Circuit for a stay of the orders pending disposition of the appeal; the ITC denied the motion on January 20, 2022 and the Federal Circuit denied the motion on January 25, 2022. The Federal Circuit heard oral argument on defendants' appeal of the FD on October 3, 2022 and a decision is awaited. We estimate that an adverse ruling is probable due to our inability to import the products and components impacted by the ITC's FD with immaterial financial impact. 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. The trial of Defendant PMPSA’s counterclaims took place from June 8-14, 2022 and, on June 15, 2022, the jury returned a verdict for PMPSA awarding approximately $10.8 million in damages for infringement up to December 31, 2021 of two PMPSA patents by BAT’s affiliate and two of BAT’s e-vapor products; the jury also found BAT’s affiliate did not infringe one of the two PMPSA patents and that the BAT affiliates had failed to prove one of the two PMPSA patents was invalid. PMPSA filed a motion for an injunction or, in the alternative, an ongoing royalty on August 12, 2022 which remains pending. Upon petition of Philip Morris Products S.A., the Patent Trial and Appeal Board ("PTAB") of the United States Patent and Trademark Office has instituted review of certain claims pertaining to four of the six patents asserted by BAT affiliates in both proceedings. 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. On March 30, 2022, PTAB issued its final decision on the second of the two patents underlying the ITC's FD, finding the challenged claims patentable. The parties have filed appeals of these PTAB results to the U.S. Court of Appeals for the Federal Circuit. On July 21, 2022, PMPSA filed a Request for Rehearing of PTAB's November 2020
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decision not to institute review of certain claims in the second of the two patents underlying the ITC's FD; PTAB denied the Request on October 13, 2022.

In April 2020, BAT’s affiliate commenced patent infringement proceedings, Nicoventures Trading Limited v. 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. Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 blade products in Germany. In June 2021, the court stayed the proceeding in respect of one of the two patents asserted by BAT’s Affiliate. Following the December 2022 confirmation of the revocation of the other BAT patent by the European Patent Office Board of Appeal, BAT withdrew its initial claim based on that patent; the stayed action based on the second patent remains pending.

In September 2020, BAT’s affiliates commenced patent infringement and unfair competition proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Products S.A., et al., against Philip Morris Products S.A. and PMI’s Italian subsidiaries, Philip Morris Manufacturing & Technology Bologna S.p.A. and Philip Morris Italia S.r.l., in the Court of Milan, Italy. Plaintiffs seek damages, as well as injunctive relief against the manufacture in Italy of the Platform 1 blade heated tobacco units allegedly infringing the asserted patents and the commercialization of the Platform 1 blade products in Italy. As part of this proceeding, in October 2020, BAT’s affiliates filed a request based on one of the two asserted patents seeking preliminary injunctive relief against the manufacture and commercialization of the Platform 1 blade products in Italy. In July 2022, the court dismissed plaintiffs’ request for preliminary injunction in its entirety and plaintiffs did not appeal this ruling.

In October 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Japan, Limited, et al., against PMI’s Japanese subsidiary, Philip Morris Japan Limited, and a third-party distributor in the Tokyo District Court. Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 blade products in Japan. On December 23, 2022, the Court dismissed BAT’s claims with respect to one of the two patents that it asserted, finding no infringement; BAT filed an appeal of this dismissal.

In November 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Romania SRL, et al., against PMI’s Romanian subsidiaries, Philip Morris Romania S.R.L. and Philip Morris Trading S.R.L., and a third-party distributor in the Court of Law of Bucharest, Civil Registry. Plaintiffs seek damages and preliminary and permanent injunctive relief against the manufacture and commercialization of the Platform 1 blade products in Romania. In February 2021, the court dismissed plaintiffs’ request for a preliminary injunction. In April 2021, the appellate court denied plaintiffs' appeal, confirming the dismissal of plaintiffs' request for preliminary injunction. Plaintiffs' proceeding requesting damages and a permanent injunction remains pending before the Court of Law of Bucharest, Civil Registry. In an October 14, 2021 hearing, the court stayed the proceeding.

In March 2021, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Korea, Co., Ltd., against PM Korea in the Seoul Central District Court. Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 blade heated tobacco units in South Korea. 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 trial took place from September 21-28, 2022, and a decision is awaited.

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

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

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

Third-Party Guarantees
Until November 1, 2022, Medicago Inc. ("Medicago") was an equity method investee of Philip Morris Investments B.V. (“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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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. In August 2022, Medicago received the final tranche of the contribution from the Canadian government in relation to the First Stage, confirming thereby the completion of such first stage and consequently reducing by approximately CAD 123 million (approximately $93 million on the date of signing) the Repayment Obligations (as defined below).

PMIBV and Mitsubishi Tanabe Pharma Corporation (“MTPC”) are also parties to the Contribution Agreement and the Contribution Agreement Amendment as guarantors of Medicago’s obligations thereunder on a joint and several basis (“Co-Guarantors”). The Co-Guarantors agreed to repay amounts contributed by the Canadian government plus interest, if Medicago fails to do so (the "Repayment Obligations"), and could be responsible for the costs of Medicago’s other obligations (such as the achievement of specific milestones of the Project). The guarantees are in effect through March 31, 2026. It is reasonably possible that PMI will be responsible for a portion of these costs and obligations. The maximum amount of these obligations is currently non-estimable.

On November 1, 2022, PMIBV transferred all of the shares it owned in Medicago to MTPC Holdings Canada Inc., the majority shareholder of Medicago. MTPC assumed and agreed to perform all of PMIBV's obligations under the guarantees and to indemnify and save PMIBV harmless in respect of any and all claims related to the guaranteed obligations. 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.

PMI has determined that these guarantees did not have a material impact on its consolidated financial statements for the year ended December 31, 2022.


Note 19.

Balance Sheet Offsetting:

Derivative Financial Instruments

PMI uses foreign exchange contracts and interest rate contracts to mitigate its exposure to changes in exchange and interest rates from third-party and intercompany actual and forecasted transactions. Substantially all of PMI's derivative financial instruments are subject to master netting arrangements, whereby the right to offset occurs in the event of default by a participating party. While these contracts contain the enforceable right to offset through close-out netting rights, PMI elects to present them on a gross basis in the consolidated balance sheets. Collateral associated with these arrangements is in the form of cash and is unrestricted. See Note 15. Financial Instruments for disclosures related to PMI's derivative financial instruments.


The effects of these derivative financial instrument assets and liabilities on PMI's consolidated balance sheets were as follows:
 (in millions)Gross Amounts RecognizedGross Amount Offset in the Consolidated Balance SheetNet Amounts Presented in the Consolidated Balance Sheet
Gross Amounts Not Offset in the
Consolidated
Balance Sheet
Net Amount
 Financial InstrumentsCash Collateral Received/Pledged
 
        
 At December 31, 2019      
 Assets      
 Derivative contracts$390
$
$390
$(297)$(91)$2
 Liabilities      
 Derivative contracts$419
$
$419
$(297)$(59)$63
 At December 31, 2018      
 Assets      
 Derivative contracts$220
$
$220
$(124)$(80)$16
 Liabilities      
 Derivative contracts$631
$
$631
$(124)$(427)$80


Note 20.

Sale of Accounts Receivable:

To mitigate risk and enhance cash and liquidity management PMI sells trade receivables to unaffiliated financial institutions. These arrangements allow PMI to sell, on an ongoing basis, certain trade receivables without recourse. The trade receivables sold are generally short-term in nature and are removed from the consolidated balance sheets. PMI sells trade receivables under two types of arrangements, servicing and non-servicing. For servicing arrangements, PMI continues to service the sold trade receivables on an administrative basis and does not act on behalf of the unaffiliated financial institutions. When applicable, a servicing liability is recorded for the estimated fair value of the servicing. The amounts associated with the servicing liability were not material for the years ended December 31, 20192022 and 2018.2021. Under the non-servicing arrangements, PMI does not provide any administrative support or servicing after the trade receivables have been sold to the unaffiliated financial institutions.

Cumulative trade receivables sold, including excise taxes, for the years ended December 31, 20192022 and 2018,2021, were $10.7$11.9 billion and $11.0$11.8 billion, respectively. PMI’s operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions. The trade receivables sold that remained outstanding under these arrangements as of December 31, 2019, 20182022, 2021 and 2017,2020, were $1.0 billion, $0.9 billion $1.0 billion and $1.1$1.2 billion, respectively. The net proceeds received are included in cash provided by operating activities in the 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 consolidated statements of earnings. For the years ended December 31, 2019, 20182022, 2021 and 20172020 the loss on sale of trade receivables was immaterial.$26 million, $9 million and $9 million, respectively.

Note 21.20.

Asset Impairment and Exit Costs:

Global Manufacturing Infrastructure Optimization

In light of decliningFor the year ended December 31, 2022, PMI cigarette volumes resulting from lower total industry volumesdid not record any charges for asset impairment and the shiftexit costs related to smoke-free alternatives, PMI continues to optimize its global manufacturing infrastructure.



Germany

On November 4, 2019, PMI announced that, as part of its global manufacturing infrastructure optimization, its German affiliate, Philip Morris Manufacturing GmbH ("PMMG"), reached an agreement with employee representatives to end cigarette production in its factory in Berlin, Germany, by January 1, 2020.restructuring activities. As a result of this agreement, during 2019,previously discussed, PMI recorded a pre-tax impairment charge on intangibles of $112 million for the year ended December 31, 2022 within the Wellness and Healthcare segment. For further details, see Note 5. Goodwill and Other Intangible Assets, net. For the years ended December 31, 2021 and 2020, PMI recorded total pre-tax asset impairment and exit costs of $342 million in the European Union segment. This amount included pension and employee separation costs of $251 million, which will be paid in cash, and asset impairment costs of $91 million, primarily related to machinery
130


restructuring activities of $216 million and equipment, which are non-cash charges.

Other

During 2019, PMI also recorded$149 million, respectively. These pre-tax asset impairment and exit costs were included in marketing, administration and research costs on the consolidated statements of $80earnings.

South Korea

In 2021, PM Korea implemented a new business operating model, which required the restructuring of its current distribution agreements. As a result, PMI recorded exit costs of $57 million asin the year ended December 31, 2021, related to contract terminations and restructuring with certain distributors.

Organizational Design Optimization

As part of PMI’s transformation to a smoke-free future, PMI sought to optimize its global manufacturing infrastructure optimization. These costsorganizational design, which included the elimination, relocation and outsourcing of certain operations center and centralized activities. In January 2020, PMI commenced a multi-phase restructuring project in Switzerland. PMI initiated the employee consultation procedures, as required under Swiss law, for the impacted employees. The consultation procedures for the first two phases were completed in 2020 with the final phases initiated and completed in 2021. Additionally, since the commencement of this multi-phase restructuring project in 2020, PMI launched a voluntary separation program in Switzerland for certain eligible employees and announced the outsourcing of certain activities in Argentina, Indonesia, Poland and the United States. This multi-phase restructuring project was completed in the fourth quarter of 2021.

For the years ended December 31, 2021 and 2020, PMI recorded pre-tax charges of $159 million and $149 million, respectively, related to a cigarette plant closurethe organizational design optimization. Since inception of this multi-phase restructuring project in Argentina ($15 million), Colombia ($45 million)January 2020 through December 31, 2021, approximately 1,020 positions in total were impacted, resulting in cumulative pre-tax charges of $308 million related to the organizational design optimization program. Of this cumulative pre-tax amount, $300 million related to separation program charges and Pakistan ($20 million). The charges were reflected in the Latin America & Canada segment (Argentina and Colombia) and the South & Southeast Asia segment (Pakistan).$8 million related to asset impairment charges.

Asset Impairment and Exit Costs by Segment

During 2019,2021 and 2020, PMI recorded the following pre-tax asset impairment and exit costs consisted of the following:by segment related to restructuring activities:

 (in millions)
2019
Separation programs: 
European Union$251
South & Southeast Asia3
Latin America & Canada49
Total separation programs303
Asset impairment charges 
European Union91
South & Southeast Asia17
Latin America & Canada11
Total asset impairment charges119
Asset impairment and exit costs$422


 (in millions)
20212020
Separation programs: (1)
European Union$68$53
Eastern Europe1414
Middle East & Africa1718
South & Southeast Asia2122
East Asia & Australia3125
Americas89
Total separation programs159 141 
Contract termination charges:
East Asia & Australia57
Total contract termination charges57
Asset impairment charges (1)
European Union4
Eastern Europe1
Middle East & Africa1
South & Southeast Asia1
East Asia & Australia1
Americas
Total asset impairment charges8
Asset impairment and exit costs216149
The total(1) Organizational design optimization pre-tax asset impairmentcharges in 2021 and exit costs above2020 were included in marketing, administration and research costs on the consolidated statements of earnings. During 2018 and 2017, PMI did not incur asset impairment and exit costs.allocated across all geographical segments.

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Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the year ended December 31, 20192022 was as follows:
(in millions) 
Liability balance, January 1, 2019$
Charges, net303
Cash spent(49)
Currency/other(a)
(63)
Liability balance, December 31, 2019$191

(in millions)
Liability balance, January 1, 2022$142 
Charges, net— 
Cash spent(93)
Currency/other(9)
Liability balance, December 31, 2022$40 
(a)
Relates primarily to the reclassification of pension amounts.

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2021, with approximately $115 million expected to be paid in 2020.2023.


Note 22.21.

Deconsolidation of RBH:

As discussed in Note 18. Contingencies, following the March 1, 2019, judgment of the Court of Appeal of Québec in 2 class action lawsuits against PMI's Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH"), PMI recorded in its consolidated results a pre-tax charge of $194 million, representing $142 million net of tax, in the first quarter of 2019. This pre-tax Canadian tobacco litigation-related expense was included in marketing, administration and research costs on PMI's consolidated statement of earnings for the year ended December 31, 2019. 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. RBH’s share of the deposit is approximately CAD 257 million.

On March 22, 2019, RBH obtained an initial order from the Ontario Superior Court of Justice granting it protection under the Companies’ Creditors Arrangement Act ("CCAA"), which is a Canadian federal law that permits a Canadian business to restructure its affairs while carrying on its business in the ordinary course with minimal disruption to its customers, suppliers and employees.

The administration of the CCAA process, principally relating to the powers provided to the court and the court appointed monitor, removes certain elements of control of the business from both PMI and RBH. As a result, PMI has determined that it no longer has a controlling financial interest over RBH as defined in ASC 810 (Consolidation), and PMI deconsolidated RBH as of the date of the CCAA filing. PMI has also determined that it does not exert "significant influence" over RBH as that term is defined in ASC 323 (Investments-Equity Method and Joint Ventures). Therefore, as of March 22, 2019, PMI accounted for its continuing investment in RBH in accordance with ASC 321 (Investments-Equity Securities) as an equity security, without readily determinable fair value.

Following the deconsolidation, the carrying value of assets and liabilities of RBH was removed from the consolidated balance sheet of PMI, and the continuing investment in RBH was recorded at fair value at the date of deconsolidation. The total amount deconsolidated from PMI’s balance sheet was $3,519 million, including $1,323 million of cash, $1,463 million of goodwill, $529 million of accumulated other comprehensive earnings, primarily related to historical currency translation and $204 million of other assets and liabilities, net. While PMI is accounting for its investment in RBH as an equity security, PMI would recognize dividends as income upon receipt. However, while it remains under creditor protection, RBH does not anticipate paying dividends.

The fair value of PMI’s continuing investment in RBH of $3,280 million was determined at the date of deconsolidation, recorded within Investments in unconsolidated subsidiaries and equity securities and is assessed for impairment on an ongoing basis. The estimated fair value of the underlying business was determined based on an income approach using a discounted cash flow analysis, as well as a market approach for certain contingent liabilities. The information used in the estimate includes observable inputs, primarily a discount rate of 8%, a terminal growth rate of 2.5% and information about total tobacco market size in Canada and RBH’s share of the market, as well as unobservable inputs such as operating budgets and strategic plans, various inflation scenarios, estimated shipment volumes, and expected product pricing and projected margins.

The difference between the carrying value of the assets and liabilities of RBH that were deconsolidated and the fair value of the continuing investment, as determined at the date of deconsolidation, was $239 million, before tax, and this loss on deconsolidation is reflected within marketing, administration and research costs on PMI’s consolidated statement of earnings for the year ended December 31, 2019. PMI also recorded a tax benefit of $49 million within the provision for income taxes for the year ended December 31, 2019, related to the reversal of a deferred tax liability on unremitted earnings of RBH.

RBH is party to transactions with PMI and its consolidated subsidiaries entered into in the normal course of business; these transactions include royalty payments and recharge of various corporate expenses for services benefiting RBH. Up to the date of CCAA filing, these transactions were eliminated on consolidation and had no impact on PMI’s consolidated statement of earnings. After deconsolidating RBH, these transactions are treated as third-party transactions in PMI’s financial statements. The amount of these related-party transactions is included within Note 4. Related Parties - Investments in Unconsolidated Subsidiaries, Equity Securitiesand Other.

Developments in the CCAA process, including resolution through a plan of arrangement or compromise of all pending tobacco-related litigation currently stayed in Canada, as discussed in Note 18. Contingencies, could result in a material change in the fair value of PMI’s continuing investment in RBH.



Note 23.

Leases:

PMI’sPMI has operating and finance leases that are principally for real estate (office space, warehouses and retail store space), machinery and equipment, and vehicles. Lease terms range from 1 year to 7471 years, some of which include options to renew, which are reasonably certain to be renewed. Lease terms may also include options to terminate the lease. The exercise of a lease renewal or termination option is at PMI’s discretion.

PMI’s operating and finance leases at December 31, 2019,2022 and 2021, were as follows:
At December 31,
(in millions)20222021
Operating LeasesFinance LeasesOperating LeasesFinance Leases
Assets:
Machinery and equipment$ $123 $— $108 
Other assets594  526 — 
Total lease assets$594 $123 $526 $108 
Liabilities:
Current
Current portion of long-term debt$ $34 $— $48 
Accrued liabilities - Other178  192 — 
Noncurrent
Long-term debt 20 — 23 
Income taxes and other liabilities436  344 — 
Total lease liabilities$614 $54 $536 $71 
(in millions)December 31, 2019
Assets: 
Other assets

$766
  
Liabilities:

 
Current

 
Accrued liabilities - Other$194
Noncurrent

 
Income taxes and other liabilities

569
Total lease liabilities

$763


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For information regarding PMI’s immaterial finance leases, see Note 16. Fair Value Measurements.

The components of PMI’s lease cost were as follows for the yearyears ended December 31, 2019:2022, 2021 and 2020:
For the Years Ended December 31,
(in millions)202220212020
Operating lease cost$248 $259 $237 
Finance lease cost:
Amortization of right-of-use assets83 54 31 
Interest on lease liabilities1 
Short-term lease cost59 55 49 
Variable lease cost23 25 31 
Total lease cost$414 $394 $349 
(in millions)December 31, 2019
Operating lease cost

$242
Short-term lease cost61
Variable lease cost29
Total lease cost

$332


For the year ended December 31, 2019, lease cost of $79 million was recorded in cost of sales and $253 million was recorded in marketing, administration and research cost.

Maturity of PMI’s operating lease liabilities, on an undiscounted basis, as of December 31, 2019, was2022, were as follows (as calculated under the new guidance ASC 842 (Leases)):follows:
(in millions)Total(in millions)Operating LeasesFinance Leases
2020$222
2021162
2022124
202392
2023$202 $34 
202466
2024138 14 
2025202597 4 
2026202660 1 
2027202739 1 
Thereafter283
Thereafter176 1 
Total lease payments

949
Total lease payments712 55 
Less: Interest

186
Less: Interest98 1 
Present value of lease liabilities

$763
Present value of lease liabilities$614 $54 




Minimum rental commitments under non-cancelable operating leases in effect at December 31, 2018, were as follows (as calculated under legacy guidance ASC 840 (Leases)):
(in millions)Total
2019$147
2020103
202173
202252
202343
Thereafter354
 $772


Other information related to PMI’s operating leases was as follows for the year ended December 31, 2022, 2021 and 2020:
December 31,
(in millions)202220212020
Operating LeasesFinance LeasesOperating LeasesFinance LeasesOperating LeasesFinance Leases
Cash paid for amounts included in the measurement of lease liabilities in operating cash flows (1)
$243 $ $259 $— $238 $— 
Cash paid for amounts included in the measurement of lease liabilities in financing cash flows$ $76 $— $26 $— $19 
Leased assets obtained in exchange for new lease liabilities$255 $100 $64 $89 $149 $32 
Weighted-average remaining lease term (years)10.32.18.31.710.11.6
Weighted-average discount rate(2) (3)
3.4 %4.4 %3.6 %5.3 %4.3 %6.7 %
(1)2019: Cash paid included in the operating cash flows of finance leases is not material.
(in millions)December 31, 2019
Cash paid for amounts included in the measurement of lease liabilities in Operating cash flows

$240
Leased assets obtained in exchange for new operating lease liabilities

$221
Weighted-average remaining lease term (years)

9.6
Weighted-average discount rate(1)

4.4%
(1)(2) PMI’s weighted-average discount rate for operating leases is based on its estimated pre-tax cost of debt adjusted for country-specific risk.

For further details, see Note 24. (3)New Accounting Standards.

Note 24.

New Accounting Standards:

Recently adopted

On February 25, 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update ASU 2016-02, “Leases” (“ASU 2016-02”). ASU 2016-02 requires organizations that lease assets to recognize on the balance sheet the assets and liabilities PMI’s weighted-average discount rate for the rights and obligations created by those leases. Additionally, ASU 2016-02 modifies current guidance for lessors' accounting. ASU 2016-02finance leases, excluding embedded leases, is effective for interim and annual reporting periods beginning on or after January 1, 2019, with early adoption permitted. PMI has identified its lease management system and has identified and evaluated the applicable leases. In addition to the guidance in ASU 2016-02, PMI has evaluated ASU 2018-11, which was issued in July 2018 and provides an optional transitional method. As a result of this evaluation, PMI elected to use the optional transition method, which allows companies to use the effective date as the date of initial application on transition and not adjust comparative period financial information or make the new required disclosures for periods prior to the effective date. Additionally, PMI elected to use the hindsight practical expedient, as well as the package of practical expedients permitted under the transition guidance within the new standard. Upon adoption, PMI recognized lease liabilities and the corresponding right-of-use assets (at the present value of future payments) for predominately all of its operating leases in place at that time. At January 1, 2019, PMI's adoption of ASU 2016-02 resulted in an increase of approximately $0.7 billionbased on its assetsestimated pre-tax cost of debt adjusted for country-specific risk and liabilities in its statement of financial position. ASU 2016-02 did not have a material impact on its results of operations or cash flows. For further details, see Note 23. Leases.where applicable the interest rate explicit to lease contracts.

On January 1, 2019, PMI elected to early adopt ASU 2018-15 “Intangibles - Goodwill and Other - Internal - Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.”  The adoption of ASU 2018-15 did not have a material impact on PMI's consolidated financial position or results of operations.


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Note 25.

Quarterly Financial Data (Unaudited):

 2019 Quarters
(in millions, except per share data)1st 2nd 3rd 4th
Net revenues$6,751
 $7,699
 $7,642
 $7,713
Gross profit$4,286
 $5,034
 $5,037
 $4,935
Net earnings attributable to PMI$1,354
 $2,319
 $1,896
 $1,616
Per share data:       
Basic EPS$0.87
 $1.49
 $1.22
 $1.04
Diluted EPS$0.87
 $1.49
 $1.22
 $1.04
Dividends declared$1.14
 $1.14
 $1.17
 $1.17
  
 2018 Quarters
(in millions, except per share data)1st 2nd 3rd 4th
Net revenues$6,896
 $7,726
 $7,504
 $7,499
Gross profit$4,281
 $4,982
 $4,886
 $4,718
Net earnings attributable to PMI$1,556
 $2,198
 $2,247
 $1,910
Per share data:       
Basic EPS$1.00
 $1.41
 $1.44
 $1.23
Diluted EPS$1.00
 $1.41
 $1.44
 $1.23
Dividends declared$1.07
 $1.14
 $1.14
 $1.14
        

Basic and diluted EPS are computed independently for each of the periods presented. Accordingly, the sum of the quarterly EPS amounts may not agree to the total for the year.



Report of Independent Registered Public Accounting Firm

To the Board of Directors and Stockholders of
Philip Morris International Inc.:


Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Philip Morris International Inc. and its subsidiaries (the "Company"“Company”) as of December 31, 20192022 and 2018,2021, and the related consolidated statements of earnings, comprehensive earnings, stockholders’ (deficit) equity and of cash flows for each of the three years in the period ended December 31, 2019,2022, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20192022 and 2018,2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 20192022 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019,2022, based on criteria established in Internal Control - Integrated Framework(2013) issued by theCOSO.


Basis for Opinions

The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control overOver Financial Reporting. Our responsibility is to express opinions on the Company'sCompany’s consolidated financial statements and on the Company’sCompany's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

As described in the Report of Management on Internal Control Over Financial Reporting, management has excluded Swedish Match AB from its assessment of internal control over financial reporting as of December 31, 2022 because it was acquired by the Company in a purchase business combination during 2022. We have also excluded Swedish Match AB from our audit of internal control over financial reporting. Swedish Match AB is a majority-owned subsidiary whose total assets and total third-party net revenues excluded from management’s assessment and our audit of internal control over financial reporting represent 4% and 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2022.


Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
134


maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.



Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.


Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Fair Value of Equity Investment in Rothmans, Benson & Hedges Inc. ("RBH")

As described in Note 22 to the consolidated financial statements, the Company recorded the fair value of its continuing investment in RBH of $3.28 billion within Investments in unconsolidated subsidiaries and equity securities in the consolidated balance sheets. This investment was recorded as of March 22, 2019, which represented the fair value at the date of deconsolidation. The estimated fair value of the underlying business was determined based on an income approach using a discounted cash flow analysis, as well as a market approach for certain contingent liabilities. The discounted cash flow analysis and market approach include management assumptions relevant for forecasting operating cash flows, which are subject to changes in business conditions, such as volumes, pricing, the terminal growth rate, discount rates, inflation scenarios, and other strategic plans. The difference between the carrying value of the assets and liabilities of RBH that were deconsolidated and the fair value of the continuing investment was recorded as a $239 million pre-tax loss on deconsolidation within marketing, administration and research costs on the Company’s consolidated statement of earnings.

The principal considerations for our determination that performing procedures relating to the deconsolidation of RBH is a critical audit matter are that there was significant judgment by management required when developing the fair value measurement of the continuing investment in RBH. This led to a high degree of auditor subjectivity, judgment and effort in performing procedures and evaluating the estimated fair value of RBH which included significant assumptions related to the terminal growth rate, discount rates, inflation scenarios, and operating cash flow projections; and to evaluate management's estimate of the value of certain contingent liabilities. The audit effort involved the use of professionals with specialized skill and knowledge to assist in evaluating the audit evidence obtained from these procedures.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the estimated fair value of the RBH investment, including controls over the discounted cash flow analysis and market approach, input data and key assumptions utilized in determination of the fair value. These procedures also included, among others, testing management’s process for determining the fair value of the continuing investment in RBH as of the date of deconsolidation. This included evaluating the appropriateness of the discounted cash flow analysis and market approach to value the contingent liabilities including the reasonableness of the input data and significant assumptions used by management in developing the fair value measurement including the terminal growth rate, discount rates, inflation scenarios, operating cash flow projections, market size and market share data. Professionals with specialized skill and knowledge were used to assist in evaluating the Company’s discounted cash flow analysis and market approach, and evaluation of significant assumptions, including the terminal growth rate, discount rates and inflation scenarios utilized by the Company. Evaluating whether the significant assumptions were reasonable involved considering (i) the past performance of the associated Canadian reporting unit, and (ii) whether they were consistent with evidence obtained in other areas of the audit.

Tobacco-Related Litigation for Smoking and Health Class Actions and Health Care Cost Recovery ContingenciesActions

As describeddescribed in Note 18 to the consolidated financial statements, the Company has 779 smoking and health casesclass actions and 17 health care cost recovery actions pending. The Company records provisions in the consolidated financial statements for pending litigation when they determinemanagement determines that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. Except as stated otherwise in Note 18, whilewhile it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available, (i) management has not concluded that it is probable that a loss has been incurred in any of the pending smoking and health class actions and health care cost recovery tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending smoking and health class actions and health care cost recovery tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any.

The principal considerations for our determination that performing procedures relating to tobacco-related litigation for smoking and health class actions and health care cost recovery contingenciesactions is a critical audit matter are that there was significant judgment by management when determining the probability of a loss being incurred and an estimate of the amount or range of the potential loss for each case, which in turn led to a high degree of auditor


subjectivity, judgment and effort in evaluating management’s assessment related to the loss contingencies associated with smoking and health class actions and health care cost recovery actions related claims.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s evaluation of smoking and health class actions and health care cost recovery litigation matters,actions, including controls over determining the probability and range of loss as well as controls over financial statement disclosures. These procedures also included, among others, evaluating the completeness of the Company’s description of smoking and health and health care cost recovery contingencies, obtaining and evaluating the letters of audit inquiry with external and internal legal counsel, evaluating the reasonableness of management’s assessment regarding whether an unfavorable outcome is reasonably possible or probable and reasonably estimable, and evaluating the sufficiency of the Company’s smoking and health class actions and health care cost recovery actions contingencies disclosures.


Preliminary Valuation of Trademarks and Customer Relationships - Acquisition of Swedish Match AB

As described in Note 3 to the consolidated financial statements, the Company acquired a controlling interest in Swedish Match AB for consideration of $14.5 billion in 2022, which resulted in $4.5 billion of intangible assets preliminarily being recorded, of which $4.1 billion relate to trademarks and customer relationships. Management applied significant judgment in estimating the preliminary fair value of intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the timing and amounts of revenue growth rates, royalty rates, and discount rates for trademarks, and profit margins, customer attrition rates, and discount rates for customer relationships.

The principal considerations for our determination that performing procedures relating to the preliminary valuation of trademarks and customer relationships acquired in the acquisition of Swedish Match AB is a critical audit matter are the significant judgment by management when developing the preliminary fair value estimate of the trademarks and customer relationships acquired, which in turn led to a high degree of auditor judgment, and subjectivity in performing procedures and evaluating management’s significant assumptions of revenue growth rates, royalty rates, and discount rates for trademarks, and profit margins, customer attrition rates, and
135


discount rates for customer relationships. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.

Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition accounting, including controls over management’s preliminary valuation of the trademarks and customer relationships acquired and controls over the development of significant assumptions related to revenue growth rates, profit margins, customer attrition rates, royalty rates, and discount rates. These procedures also included, among others, testing management’s process for estimating the preliminary fair value of trademarks and customer relationships. Testing management’s process included evaluating the appropriateness of the valuation methods, testing the completeness and accuracy of data provided by management, and evaluating the reasonableness of significant assumptions related to revenue growth rates, profit margins, customer attrition rates, royalty rates, and discount rates. Evaluating the reasonableness of the revenue growth rates and profit margins involved considering the past performance of the acquired business, as well as economic and industry forecasts. Professionals with specialized skill and knowledge were used to assist in the evaluation of the Company’s valuation methods, the appropriateness of the discounted cash flow model, and the reasonableness of the customer attrition rate, royalty rate, and discount rate assumptions.


/S/ PRICEWATERHOUSECOOPERS SA
PricewaterhouseCoopers SA
/S/    CHAD MUELLER/S/    CLAUDIA BENZ
Chad MuellerClaudia Benz
Lausanne, Switzerland
February 7, 202010, 2023

PricewaterhouseCoopers SA hasWe have served as the Company’s auditor since 2008.




136


Report of Management on Internal Control Over Financial Reporting
Management of Philip Morris International Inc. (“PMI” or "we") is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended. PMI’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes those written policies and procedures that:
 
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of PMI;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America;
provide reasonable assurance that receipts and expenditures of PMI are being made only in accordance with the authorization of management and directors of PMI; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of assets that could have a material effect on the consolidated financial statements.
 
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken to correct deficiencies as identified.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In November 2022 we acquired Swedish Match. We have excluded the Swedish Match acquisition from our assessment of the effectiveness of internal control over financial reporting. Total assets excluding goodwill and intangible assets (which are included in our assessment) represent 4% of consolidated assets as of December 31, 2022. Total third-party net revenues represent 1% of consolidated net revenues for the year ended December 31, 2022.
Management assessed the effectiveness of PMI’s internal control over financial reporting as of December 31, 2019.2022. Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment included an evaluation of the design of PMI’s internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors.
Based on this assessment, management determined that, as of December 31, 2019,2022, PMI maintained effective internal control over financial reporting.
PricewaterhouseCoopers SA, an independent registered public accounting firm, who audited and reported on the consolidated financial statements of PMI included in this report, has audited the effectiveness of PMI’s internal control over financial reporting as of December 31, 2019,2022, as stated in their report herein.
February 7, 202010, 2023


137



Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
 
None.

Item 9A.Controls and Procedures.
Item 9A.Controls and Procedures.
 
PMI carried out an evaluation, with the participation of PMI’s management, including PMI’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of PMI’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, PMI’s Chief Executive Officer and Chief Financial Officer concluded that PMI’s disclosure controls and procedures are effective. There have been no changes in PMI’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, PMI’s internal control over financial reporting.

In connection with the acquisition of Swedish Match, management is in the process of analyzing, evaluating and where necessary, implementing changes in controls and procedures. This may result in additions or changes to PMI’s internal control over financial reporting. The Swedish Match acquisition has been excluded from the Report of Management on Internal Control over Financial Reporting as of December 31, 2022.
 
The Report of Management on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm are included in Item 8.
 

Item 9B.Other Information.
Item 9B.Other Information.
 
None.Not applicable.

Item 9C. Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.

PART III
 
Except for the information relating to the executive officers set forth in Item 10 and the information relating to equity compensation plans set forth in Item 12, the information called for by Items 10-14 is hereby incorporated by reference to PMI’s definitive proxy statement for use in connection with its annual meeting of stockholders to be held on May 6, 2020,3, 2023, that will be filed with the SEC on or about March 26, 202023, 2023 (the “proxy statement”), and, except as indicated therein, made a part hereof.
 


Item 10.
Item 10.Directors, Executive Officers and Corporate Governance.
 
Information About Our Executive Officers as of February 6, 2020:10, 2023
:
NameOfficeAge
André CalantzopoulosJacek OlczakChief Executive Officer6258 
Massimo AndolinaSenior Vice President, OperationsEurope Region5154 
Drago AzinovicEmmanuel BabeauPresident, Middle East & Africa Region and PMI Duty FreeChief Financial Officer5755 
Werner BarthSenior Vice President, CommercialCombustibles Category & Global Combustibles Marketing5558 
Charles BendottiLars DahlgrenSenior Vice President, People and CultureSmoke-Free Oral Products & Chief Executive Officer Swedish Match4752 
Frank de RooijVice President, Treasury and Corporate Finance54
Frederic de WildePresident, European Union Region52
Marc S. FirestonePresident, External Affairs and General Counsel60
Stacey KennedyPresident, South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region4755 
Martin G. KingReginaldo DobrowolskiChief Financial Officer55
Michael KunstSenior Vice President, Commercial Transformation51
Andreas KuraliVice President and Controller5448 
Bin LiSuzanne Rich FolsomChief Product OfficerSenior Vice President and General Counsel4861 
Marco MariottiStacey KennedyPresident, Eastern EuropeAmericas Region & CEO of PMI's U.S. Business5550 
Mario MasseroliPresident, Latin America & Canada Region49
Deepak MishraChief Strategy Officer48
John O'MullaneChief Life Sciences Officer66
Jacek OlczakChief Operating Officer55
Paul RileyPresident, East Asia, Australia, and AustraliaPMI Duty Free Region5457 
Marian SalzmanSenior Vice President, Global Communications61
Jaime SuarezChief Digital Officer46
Michael VoegeleChief Technology Officer47
Stefano VolpettiPresident, Smoke-Free Products Category & Chief Consumer Officer4851 
Jerry E. WhitsonDeputy General Counsel and Corporate Secretary64
Miroslaw ZielinskiChief New Ventures Officer58

138


Jacek Olczak – Age 58
All of the above-mentioned officers, except Ms. Salzman, Mr. Mishra, Mr. Kunst, Mr. Voegele, Mr. O'Mullane, Mr. Volpetti and Mr. Li, have been employed by us in various capacities during the past five years.

Before joining Philip Morris International Inc. in April 2018, Ms. Salzman headed Havas PR North America, where she had servedMr. Olczak was appointed as our Chief Executive Officer in May 2021. From January 2018 until May 2021, Mr. Olczak has served as our Chief Operating Officer, and from 2011.August 2012 until December 31, 2017, he served as our Chief Financial Officer. He joined PMI’s Polish affiliate in 1993 and progressed through various roles in finance and general management positions across Europe, including as Managing Director of PMI’s markets in Poland and Germany and as President of the European Union Region, before being appointed Chief Financial Officer. Prior to joining PMI, Mr. Olczak worked for BDO, an international network of public accounting, tax, consulting and business advisory firms.

BeforeMassimo Andolina – Age 54

Mr. Andolina was appointed as our President, Europe Region in January 2023, prior to which he served as our Senior Vice President, Operations since January 2018. He joined PMI in 2008 as Director, Operations Planning, and has held several various roles at PMI, including Vice President, Operations of Latin America & Canada Region from December 2010 to July 2013; Vice President, EU Operations, from August 2013 to June 2016; and Vice President, PMI Transformation from July 2016 to December 2017. Prior to joining PMI, Mr. Andolina held a variety of international positions in strategic marketing and general management for Tetra Pak International and in operations for R.J. Reynolds International.

Emmanuel Babeau – Age 55

Mr. Babeau was appointed as our Chief Financial Officer in May 2020. Prior to joining PMI in May 2020, Mr. Babeau served as the Deputy Chief Executive Officer of Schneider Electric, an energy and automation digital solutions company. In this position, he was in charge of Finance and Legal Affairs. Mr. Babeau joined Schneider Electric in 2009 as Executive Vice President Finance and a member of the Management Board. Mr. Babeau also served on the board of Sanofi S.A., a French multinational healthcare company, from 2018 to 2020. Mr. Babeau started his career in 1990 at Arthur Andersen, and from 1993 to 2009, he progressed through various positions at Pernod Ricard, a beverage company, the latest being Chief Financial Officer and Group Deputy Managing Director. Mr. Babeau also served as a non-executive director at Sodexo, a French food services and facilities management company, from January 2016 until December 2021. He currently sits on the board of Davide Campari-Milano N.V.

Werner Barth – Age 58

Mr. Barth was appointed as our President Combustibles Category & Global Combustibles Marketing in November 2021. Mr. Barth joined PMI in 1990 as Marketing Trainee at Philip Morris International Inc.Germany and throughout his career he progressed through various roles at PMI in Septembermarketing, product management, brand supervision and general management. Prior to his current position, from 2015, Mr. Barth held the role of Senior Vice President, Marketing & Sales, and from 2018, he held the role of Senior Vice President, Commercial.

Lars Dahlgren – Age 52

Mr. Dahlgren was appointed as our President Smoke Free Oral Products and CEO Swedish Match in January 2023. Prior to PMI’s acquisition of Swedish Match, he served as President and Chief Executive Officer of Swedish Match since June 2008, and as its Chief Financial Officer and Senior Vice President from July 2004 until June 2008. Prior to that, from April 2004 to July 2004, he was Acting Chief Financial Officer and Vice President of Finance at Swedish Match. Mr. Dahlgren joined Swedish Match in 1996 and has been a member of its Group Management Team since 2004.

Frederic de Wilde – Age 55

Mr. de Wilde was appointed as our President, South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Regions in January 2023, prior to which he served as President, European Union Region from July 2015. From July 2011 until July 2015, Mr. de Wilde held the role of Senior Vice President, Marketing & Sales. Mr. de Wilde joined PMI in 1992 as Brand Manager L&M at Philip Morris Belgium, and throughout his career, he progressed through various roles at PMI in marketing, sales and general management.

Reginaldo Dobrowolski – Age 48

Mr. Dobrowolski was appointed as our Vice President and Controller in August 2021. From May 2019 until August 2021, Mr. Dobrowolski was our Vice President, Corporate Financial Planning, Data & Reporting. Prior to that, Mr. Dobrowolski held various roles in our Finance department, including Director Corporate Financial Planning & Reporting from October 2014 until May 2019.

139


Suzanne Rich Folsom - Age 61

Ms. Folsom was appointed as our Senior Vice President and General Counsel in July 2020. She is responsible for all legal, compliance and governance matters at PMI. From March 2019 until July 2020, Ms. Folsom was a Partner and Co-Chair of the Investigations, Compliance and Strategic Response Group at Manatt, Phelps & Phillips, LLP, a U.S. law firm. From 2014 to 2018, Ms. Folsom served as the General Counsel, Chief Compliance Officer and Senior Vice President, Government Affairs and Global Public Policy at United States Steel Corporation, an American integrated steel producer. Ms. Folsom is an accomplished C-suite executive and attorney with deep experience advising management and boards of directors.

Stacey Kennedy – Age 50

Ms. Kennedy was appointed as our President, Americas Region & CEO of PMI's U.S. Business in January 2023. Previously, she served as our President, South and Southeast Asia Region from January 2018. From 2015 until 2018, Ms. Kennedy served as Managing Director for Germany, Austria, Croatia, and Slovenia. Ms. Kennedy began her career with Philip Morris USA in 1995 as a Territory Sales Manager. Throughout her career, she held a number of positions of increasing responsibility in commercial and general management.

Paul Riley – Age 57

Mr. Riley was appointed as our President, East Asia, Australia, and PMI Duty Free Region in January 2023. Previously, he served as our President, East Asia and Australia Region from January 2018. From 2015 until 2018, Mr. Mishra wasRiley served as President of Philip Morris Japan. Mr. Riley joined Philip Morris Australia in 1988. Over the following two decades, he held a number of positions in Australia, Hong Kong, and Japan, before being named Managing Director, Portfolio Operations at Centerbridge Partners, a private equity firm, from 2014, whereSerbia & Montenegro in 2010. Mr. Riley returned to the Asia Region in 2013, when he led commercial, operational and digital transformation in various business sectors. From 2001 to 2014, Mr. Mishra was Partner and partbecame President of the Consumer Goods, Retail and Operations leadership team of McKinsey & Co, where he supported clients in their transformation projects.

Before joining Philip Morris International Inc.Fortune Tobacco Corporation in Januarythe Philippines.

Stefano Volpetti – Age 51
Mr. Volpetti was appointed as our President Smoke-Free Products Category & Chief Consumer Officer in November 2021. Mr. Volpetti joined PMI in June 2019 Mr. Kunst was Partner at Bain & Company from 2009, most recently working with us on our transformation projects.

Before joining Philip Morris International Inc. inas Chief Consumer Officer. From February 2019, Mr. Voegele had served in various senior capacities at Adidas Group from 2011, most recently, as Global CIO and part of the core leadership team at Adidas Group.

Before joining Philip Morris International Inc. in2016 until May 2019, Mr. O'Mullane was Global Head SVP Innovation and Development for Consumer Health at Bayer AG from 2014.

Before joining Philip Morris International Inc. in June 2019, Mr. Volpetti served in various executive capacitiesas the Vice President & Brand Franchise Leader of a multi-functional, global business unit at the Procter & Gamble, Company from 1996, most recently, as Vice President of a global business unit. Hemultinational consumer goods company. Mr. Volpetti spent 22 years at Procter & Gamble, progressing through various roles with increasing responsibility locally in Italy and Mexico, and on a regional level for the European market. Mr. Volpetti also served as Chief Marketing Officer at Luxottica Group S.p.A.S.p.A, an Italian eyewear conglomerate, in 2015.

Before joining Philip Morris International Inc. in August 2019, Mr. Li served in various executive capacities at Harman International, a subsidiary of Samsung Electronics Co. Ltd., from 2010, most recently, as Senior Vice President and General Manager, Consumer Audio Product Development and Operations.


Codes of ConductEthics and Corporate Governance
 
We have adopted a code of ethics, which we call the Philip Morris International Code of Conduct, whichGuidebook for Success. The Guidebook for Success complies with requirements set forth in Item 406 of Regulation S-K. This Code of ConductS-K, applies to all of our employees, including our principal executive officer, principal financial officer, principal accounting officer or controller, and persons performing similar functions. We have also adopted a code of business conduct and ethics that applies to the members of our Board of Directors. These documents are available free of charge on our website at www.pmi.com.
 
In addition, we have adopted corporate governance guidelines and charters for our Audit, Finance, Compensation and Leadership Development, Product Innovation and Regulatory Affairs, Consumer Relationships and Regulation, and Nominating and Corporate Governance committees of the Board of Directors. All of these documents are available free of charge on our website at www.pmi.com. Any waiver granted by Philip Morris International Inc. to its principal executive officer, principal financial officer or controller, or any person performing similar functions under the Codeour code of Conduct,ethics, or certain amendments to the Codecode of Conduct,ethics, will be disclosed on our website at www.pmi.com.
 
The information on our website is not, and shall not be deemed to be, a part of this Report or incorporated into any other filings made with the SEC.
 
Also refer to Board Operations and Governance—Committees of the Board, Election of Directors—Process for Nominating Directors and Election of Directors—Director Nomineesand Delinquent Section 16(a) ReportsStock Ownership Information sections of the proxy statement.

Item 11.Executive Compensation.
Item 11.Executive Compensation.
 
Refer to Compensation Discussion and Analysis, and Compensation of Directors,and Pay Ratio sections of the proxy statement.
 
140



Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The number of shares to be issued upon exercise or vesting and the number of shares remaining available for future issuance under PMI’s equity compensation plans at December 31, 2019,2022, were as follows:
Number of Securities
to be Issued upon
Exercise of Outstanding
Options and Vesting of RSUs and PSUs
(a)
Weighted Average
Exercise Price of
Outstanding Options
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding Securities
reflected in column (a))
(c)
Equity compensation plans
   approved by stockholders
6,289,960 (1)
$
21,081,444
Number of Securities
to be Issued upon
Exercise of Outstanding
Options and Vesting of RSUs and PSUs
(a)
Weighted Average
Exercise Price of
Outstanding Options
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding Securities
reflected in column (a))
(c)
Equity compensation plans
   approved by stockholders
7,533,850 1$— 25,750,766 
 

(1) 1 Represents 3,725,8704,519,470 shares of common stock that may be issued upon vesting of the restricted share units and 2,564,0903,014,380 shares that may be issued upon vesting of the performance share units if maximum performance targets are achieved for each performance cycle. PMI has not granted options since the spin-off from Altria on March 28, 2008.

Also refer to Stock Ownership Information—Ownership of Equity Securities section of the proxy statement.



Item 13. Certain Relationships and Related Transactions, and Director Independence.
 
Refer to Related Person Transactions and Code of Conduct and Election of Directors—Independence of Nominees sections of the proxy statement.
 

Item 14.
Item 14.Principal Accounting Fees and Services.
 
Refer to Audit Committee Matters section of the proxy statement.

141


PART IV

Item 15.
Item 15.Exhibits and Financial Statement Schedules.
 
(a) Index to Consolidated Financial Statements and Schedules
 
Page
Consolidated Statements of Earnings for the years ended December 31, 2019, 20182022, 2021 and 2017202053
Consolidated Statements of Comprehensive Earnings for the years ended December 31, 2022,
   2019, 20182021 and 20172020
54
Consolidated Balance Sheets at December 31, 20192022 and 2018202155
72 - 5673
Consolidated Statements of Cash Flows for the years ended December 31, 2019, 2018
2022, 2021
and 20172020
57
74 - 5875
Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended
   December 31, 2019, 20182022, 2021 and 20172020
59
Notes to Consolidated Financial Statements60
77 - 109133
Report of Independent Registered Public Accounting Firm (PCAOB ID 1358)110
134 - 112136
Report of Management on Internal Control Over Financial Reporting113
 
Schedules have been omitted either because such schedules are not required or are not applicable.
 

(b) The following exhibits are filed as part of this Report:    
 
2.1
3.12.2
3.1
3.2
4.1
4.2
4.3
4.4
10.1
4.6The Registrant agrees to furnish copies of any instruments defining the rights of holders of long-term debt of the Registrant and its consolidated subsidiaries that does not exceed 10 percent of the total assets of the Registrant and its consolidated subsidiaries to the Commission upon request.
10.1
10.2

10.3
10.410.3__
10.5__
142


10.610.4__
10.710.5__
10.810.6__
10.9__
10.1010.7__
10.11__
10.1210.8
10.1310.9



10.14
10.1510.10

10.1610.11
10.1710.12

10.1810.13

10.1910.14
10.15
10.16
143


10.17
10.18
10.19
10.20
10.21
10.22
10.23
10.24
10.25
10.26
10.27
10.2010.28
10.29
10.30
10.2110.31
10.22
10.2310.32
10.24
10.25
10.26
10.2710.33
10.2810.34
10.2910.35

144


10.3010.36
10.37
10.38
10.39
10.40
10.41
10.42
10.3110.43
10.44
10.45
10.46
10.47
10.48
10.3210.49
10.33
10.3410.50
10.3510.51
10.52
10.53
10.3610.54
10.55
10.56
145


10.57
10.58
10.59
10.60
10.61
10.62
10.63
10.64
10.3710.65
10.66
10.67
10.3810.68
10.3910.69
10.4010.70
10.41
10.42

10.71
10.43
10.4410.72
10.4510.73
10.46
10.4710.74
10.4810.75
10.4910.76
10.5010.77
10.5110.78
146


10.79
10.80
10.81
10.82
10.83
10.5210.84
10.85
10.86
10.87
21
23
2431.1
31.1
31.2
32.1
32.2
101.INSXBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCHXBRL Taxonomy Extension Schema.
101.CALXBRL Taxonomy Extension Calculation Linkbase.
101.DEFXBRL Taxonomy Extension Definition Linkbase.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
*Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.

________
 * Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to participate.
** Schedules and certain portions of this exhibit have been omitted pursuant to Item 601(a)(5) and Item 601(b)(10)(iv) of Regulation S-K.
x Denotes exhibits filed herewith.

The exhibits filed herewith do not include certain instruments with respect to long-term debt of PMI, inasmuch as the total amount of debt authorized under any such instrument does not exceed 10 percent of the total assets of PMI on a consolidated basis. PMI agrees, pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request.

147


SIGNATURES
 
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

PHILIP MORRIS INTERNATIONAL INC.
PHILIP MORRIS INTERNATIONAL INC.
By:
/s/    AJACEK OLCZAKNDRÉ CALANTZOPOULOS   
(André Calantzopoulos
Jacek Olczak
Chief Executive Officer)
 
Date: February 7, 202010, 2023

POWER OF ATTORNEY

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jacek Olczak, Emmanuel Babeau, and Darlene Quashie Henry and each of them, acting individually, as his or her true and lawful attorney-in-fact, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K for the year ended December 31, 2022, and other documents in connection herewith and therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection herewith and therewith and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.


Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated:


SignatureTitleDate
SignatureTitleDate
/s/    ANDRÉ CALANTZOPOULOS   JACEK OLCZAK   Chief Executive Officer and DirectorFebruary 7, 202010, 2023
(André Calantzopoulos)Jacek Olczak)
/s/    MARTIN G. KING  EMMANUEL BABEAU  Chief Financial OfficerFebruary 7, 202010, 2023
(Martin G. King)Emmanuel Babeau)
/s/    ANDREAS KURALIREGINALDO DOBROWOLSKIVice President and ControllerFebruary 7, 202010, 2023
(Reginaldo Dobrowolski)
/s/ ANDRÉ CALANTZOPOULOSExecutive ChairmanFebruary 10, 2023
(André Calantzopoulos)
/s/ BONIN BOUGHDirectorFebruary 10, 2023
(Bonin Bough)
/s/ MICHEL COMBESDirectorFebruary 10, 2023
(Michel Combes)
/s/ DR. JUAN JOSÉ DABOUBDirectorFebruary 10, 2023
(Andreas Kurali)
*LOUIS C. CAMILLERI,
MASSIMO FERRAGAMO,
WERNER GEISSLER,
LISA A. HOOK,
JENNIFER LI,
JUN MAKIHARA,
KALPANA MORPARIA,
LUCIO A. NOTO,
FREDERIK PAULSEN,
ROBERT B. POLET,
STEPHEN M. WOLF
DirectorsJuan José Daboub)

148


*By:/s/ WERNER GEISSLERDirectorFebruary 10, 2023
(Werner Geissler)
/s/ ANDRÉ CALANTZOPOULOS        LISA A. HOOKDirectorFebruary 7, 202010, 2023
(Lisa A. Hook)
/s/ JUN MAKIHARA
(André Calantzopoulos
Attorney-in-fact)
Director
February 10, 2023
(Jun Makihara)
/s/ KALPANA MORPARIADirectorFebruary 10, 2023
(Kalpana Morparia)
/s/ LUCIO A. NOTODirectorFebruary 10, 2023
(Lucio A. Noto)
/s/ FREDERIK PAULSENDirectorFebruary 10, 2023
(Frederik Paulsen)
/s/ ROBERT B. POLETDirectorFebruary 10, 2023
(Robert B. Polet)
/s/ DESSISLAVA TEMPERLEYDirectorFebruary 10, 2023
(Dessislava Temperley)
/s/ SHLOMO YANAIDirectorFebruary 10, 2023
(Shlomo Yanai)


123
149