Philip Morris International Annual Report 2016

FY2016 Annual Report · Philip Morris International
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Philip Morris International 
2016 Annual Report

T H I S   C H A N G E S   E V E R Y T H I N G

We’ve built the world’s most successful 
cigarette company with the world’s 
most popular and iconic brands. Now 
we’ve made a dramatic decision. 
We’ve started building PMI’s future 
on breakthrough smoke-free products 
that are a much better choice than 
cigarette smoking. We’re investing to 
make these products the Philip Morris 
icons of the future. In these changing 
times, we’ve set a new course for 
the company. We’re going to lead a 
full-scale effort to ensure that smoke-
free products replace cigarettes to the 

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company and our shareholders.

Reduced-Risk  Products - Our Product Platforms

Heated Tobacco Products

Products Without Tobacco

Platform
1

IQOS, using the consumables 
HeatSticks or HEETS,
features an electronic holder 
that heats tobacco rather 
than burning it, thereby 
creating a nicotine-containing 
(cid:89)(cid:68)(cid:83)(cid:82)(cid:85)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:73)(cid:72)(cid:90)(cid:72)(cid:85)(cid:3)
harmful toxicants compared to 
cigarette smoke.

Platform
2

TEEPS uses a pressed 
carbon heat source that, once 
ignited, heats the tobacco 
without burning it, to generate 
a nicotine-containing vapor 
with a reduction in harmful 
toxicants similar to IQOS. A
city launch of the product is 
planned in 2017.

Platform
3

Platform 3 is based on 
acquired technology that 
uses a chemical process to 
create a nicotine-containing 
vapor. We are exploring two 
routes for this platform: one 
with electronics and one 
without. A city launch of the 
product is planned in 2017.

Platform
4

Products under this platform 
are e-vapor products – 
battery-powered devices 
that produce an aerosol by 
vaporizing a nicotine solution. 
One of these – MESH – uses 
new proprietary vaporization 
technology.

Note: RRPs (Reduced-Risk Products) 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 continued smoking. Product visuals in this report are for illustrative purposes only.

Dear Shareholder,

(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:83)(cid:76)(cid:89)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:51)(cid:48)(cid:44)(cid:15)(cid:3)(cid:85)(cid:72)(cid:193)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:70)(cid:76)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:68)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:76)(cid:86)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)
(cid:53)(cid:72)(cid:71)(cid:88)(cid:70)(cid:72)(cid:71)(cid:16)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:17)(cid:3)(cid:58)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:69)(cid:72)(cid:74)(cid:68)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:72)(cid:72)(cid:3)(cid:70)(cid:79)(cid:72)(cid:68)(cid:85)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:81)(cid:82)(cid:85)(cid:80)(cid:82)(cid:88)(cid:86)(cid:3)
(cid:83)(cid:82)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:53)(cid:53)(cid:51)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:17)

Higher-than-anticipated cigarette industry volume 
declines in select markets had an adverse 
impact on our cigarette shipment volume and net 
(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:17)(cid:3)(cid:43)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:69)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:73)(cid:68)(cid:89)(cid:82)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
pricing and judicious cost management drove 
(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:16)(cid:81)(cid:72)(cid:88)(cid:87)(cid:85)(cid:68)(cid:79)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)
increase in full-year adjusted diluted earnings per 
(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:11)(cid:40)(cid:51)(cid:54)(cid:12)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:191)(cid:85)(cid:86)(cid:87)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:15)(cid:3)(cid:71)(cid:72)(cid:86)(cid:83)(cid:76)(cid:87)(cid:72)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:75)(cid:72)(cid:68)(cid:71)(cid:90)(cid:76)(cid:81)(cid:71)(cid:86)(cid:17)

2016 Results
Our cigarette volume of 812.9 billion units in 
(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:23)(cid:17)(cid:20)(cid:8)(cid:3)(cid:89)(cid:72)(cid:85)(cid:86)(cid:88)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:82)(cid:85)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:83)(cid:85)(cid:76)-
(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:192)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:82)(cid:90)(cid:72)(cid:85)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:15)(cid:3)
(cid:81)(cid:82)(cid:87)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:36)(cid:86)(cid:76)(cid:68)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:54)(cid:82)(cid:80)(cid:72)(cid:3)(cid:23)(cid:19)(cid:8)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)-
(cid:70)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:51)(cid:68)(cid:78)(cid:76)(cid:86)(cid:87)(cid:68)(cid:81)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:51)(cid:75)(cid:76)(cid:79)(cid:76)(cid:83)(cid:83)(cid:76)(cid:81)(cid:72)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:72)(cid:85)(cid:82)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:90)(cid:68)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:70)(cid:72)(cid:81)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:79)(cid:82)(cid:90)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:3)(cid:80)(cid:68)(cid:85)(cid:74)(cid:76)(cid:81)(cid:3)(cid:69)(cid:85)(cid:68)(cid:81)(cid:71)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)
had a limited impact on our bottom line. 

(cid:36)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)

(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:76)(cid:81)(cid:16)(cid:86)(cid:90)(cid:76)(cid:87)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:82)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:82)(cid:90)(cid:81)(cid:3)HeatSticks
from our cigarette brands. HeatSticks volume 
(cid:85)(cid:72)(cid:68)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:26)(cid:17)(cid:23)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:86)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:85)(cid:72)(cid:192)(cid:72)(cid:70)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
(cid:80)(cid:68)(cid:91)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:17)(cid:3)
HeatSticks(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:90)(cid:82)(cid:88)(cid:79)(cid:71)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)(cid:80)(cid:88)(cid:70)(cid:75)(cid:3)
(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:69)(cid:86)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:75)(cid:68)(cid:86)(cid:3)
obliged us to limit IQOS device sales in Japan 
since June.

Marlboro(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:20)(cid:17)(cid:23)(cid:8)(cid:15)(cid:3)
(cid:71)(cid:88)(cid:72)(cid:3)(cid:80)(cid:68)(cid:76)(cid:81)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:36)(cid:79)(cid:74)(cid:72)(cid:85)(cid:76)(cid:68)(cid:15)(cid:3)(cid:85)(cid:72)(cid:192)(cid:72)(cid:70)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:68)(cid:71)(cid:88)(cid:79)(cid:87)(cid:3)
(cid:86)(cid:80)(cid:82)(cid:78)(cid:72)(cid:85)(cid:3)(cid:85)(cid:72)(cid:77)(cid:72)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:21)(cid:17)(cid:19)(cid:3)(cid:36)(cid:85)(cid:70)(cid:75)(cid:76)(cid:87)(cid:72)(cid:70)(cid:87)(cid:88)(cid:85)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)
Marlboro(cid:3)(cid:53)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3)(cid:55)(cid:68)(cid:86)(cid:87)(cid:72)(cid:17)(cid:3)(cid:43)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:85)(cid:68)(cid:81)(cid:71)(cid:182)(cid:86)(cid:3)
(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:89)(cid:82)(cid:79)(cid:88)(cid:80)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
(cid:68)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:80)(cid:68)(cid:81)(cid:92)(cid:3)(cid:74)(cid:72)(cid:82)(cid:74)(cid:85)(cid:68)(cid:83)(cid:75)(cid:76)(cid:72)(cid:86)(cid:15)(cid:3)(cid:76)(cid:81)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)
the European Union (EU) and Asia Regions. 
Excluding Algeria, Marlboro(cid:182)(cid:86)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)
volume increased.

Our international cigarette market share, 
i.e., excluding China and the U.S., declined 
(cid:69)(cid:92)(cid:3)(cid:19)(cid:17)(cid:25)(cid:3)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:26)(cid:17)(cid:28)(cid:8)(cid:15)(cid:3)(cid:71)(cid:88)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:80)(cid:68)(cid:85)(cid:76)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:79)(cid:82)(cid:90)(cid:3)
price Fortune(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:88)(cid:83)(cid:72)(cid:85)(cid:16)(cid:79)(cid:82)(cid:90)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)Jackpot in 
the Philippines. Market share for our remaining 
(cid:69)(cid:85)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:72)(cid:86)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:192)(cid:68)(cid:87)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)
(cid:74)(cid:85)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:85)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:20)(cid:26)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:82)(cid:83)(cid:3)
(cid:22)(cid:19)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:76)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:70)(cid:82)(cid:80)(cid:72)(cid:3)(cid:11)(cid:50)(cid:38)(cid:44)(cid:12)(1) markets. 
(cid:36)(cid:74)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:76)(cid:89)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:72)(cid:87)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:90)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:3)
segment put pressure on our share in some 
markets, such as Italy and the Philippines.

Marlboro(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:71)(cid:72)(cid:86)(cid:83)(cid:85)(cid:72)(cid:68)(cid:71)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)

(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)
in the EU, Asia and Latin America & Canada 
(cid:53)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:86)(cid:17)(cid:3)(cid:44)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:81)(cid:87)(cid:79)(cid:92)(cid:15)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:85)(cid:68)(cid:81)(cid:71)(cid:182)(cid:86)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)
(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:36)(cid:86)(cid:76)(cid:68)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:70)(cid:75)(cid:76)(cid:72)(cid:89)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:86)(cid:83)(cid:76)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
impact of HeatSticks(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:45)(cid:68)(cid:83)(cid:68)(cid:81)(cid:17)(cid:3)

(cid:3) (cid:50)(cid:88)(cid:85)(cid:3)(cid:82)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:78)(cid:72)(cid:92)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:69)(cid:85)(cid:68)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:74)(cid:85)(cid:72)(cid:90)(cid:3)
cigarette market share. L&M, the third-largest 
international cigarette brand, excluding China, 
(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:19)(cid:17)(cid:20)(cid:3)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:22)(cid:17)(cid:23)(cid:8)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)Parliament
and (cid:38)(cid:75)(cid:72)(cid:86)(cid:87)(cid:72)(cid:85)(cid:191)(cid:72)(cid:79)(cid:71)(cid:3)(cid:72)(cid:68)(cid:70)(cid:75)(cid:3)(cid:74)(cid:85)(cid:72)(cid:90)(cid:3)(cid:69)(cid:92)(cid:3)(cid:19)(cid:17)(cid:20)(cid:3)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:20)(cid:17)(cid:25)(cid:8)(cid:17)
Net revenues, excluding excise taxes, of 
(cid:7)(cid:21)(cid:25)(cid:17)(cid:26)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:19)(cid:17)(cid:23)(cid:8)(cid:3)(cid:89)(cid:72)(cid:85)(cid:86)(cid:88)(cid:86)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:15)(cid:3)
mainly due to an unfavorable currency impact 
(cid:82)(cid:73)(cid:3)(cid:7)(cid:20)(cid:17)(cid:22)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:50)(cid:81)(cid:3)(cid:68)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:16)(cid:81)(cid:72)(cid:88)(cid:87)(cid:85)(cid:68)(cid:79)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:15)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)
(cid:85)(cid:72)(cid:89)(cid:72)(cid:81)(cid:88)(cid:72)(cid:86)(cid:15)(cid:3)(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:72)(cid:91)(cid:70)(cid:76)(cid:86)(cid:72)(cid:3)(cid:87)(cid:68)(cid:91)(cid:72)(cid:86)(cid:15)(cid:3)(cid:74)(cid:85)(cid:72)(cid:90)(cid:3)(cid:69)(cid:92)(cid:3)(cid:23)(cid:17)(cid:23)(cid:8)(cid:15)(cid:3)
(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:73)(cid:68)(cid:89)(cid:82)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:25)(cid:8)(cid:3)
of the prior year net revenues, excluding excise 
taxes, and the strong performance of RRPs.

Adjusted OCI of $11.1 billion increased by 
(cid:19)(cid:17)(cid:28)(cid:8)(cid:3)(cid:89)(cid:72)(cid:85)(cid:86)(cid:88)(cid:86)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:17)(cid:3)(cid:40)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:50)(cid:38)(cid:44)(cid:3)(cid:74)(cid:85)(cid:72)(cid:90)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)(cid:20)(cid:19)(cid:17)(cid:22)(cid:8)(cid:15)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)
currency-neutral net revenues, excluding excise 
taxes, and a favorable cost comparison versus 
(cid:21)(cid:19)(cid:20)(cid:24)(cid:15)(cid:3)(cid:81)(cid:82)(cid:87)(cid:90)(cid:76)(cid:87)(cid:75)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:89)(cid:72)(cid:86)(cid:87)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)
(cid:69)(cid:72)(cid:75)(cid:76)(cid:81)(cid:71)(cid:3)(cid:53)(cid:53)(cid:51)(cid:86)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:82)(cid:81)(cid:74)(cid:3)
(cid:68)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:3)(cid:53)(cid:72)(cid:74)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:16)(cid:81)(cid:72)(cid:88)(cid:87)(cid:85)(cid:68)(cid:79)(cid:3)
(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:50)(cid:38)(cid:44)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:85)(cid:68)(cid:81)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:27)(cid:17)(cid:26)(cid:8)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
(cid:40)(cid:56)(cid:3)(cid:87)(cid:82)(cid:3)(cid:20)(cid:21)(cid:17)(cid:25)(cid:8)(cid:3)(cid:76)(cid:81)(cid:3)(cid:40)(cid:68)(cid:86)(cid:87)(cid:72)(cid:85)(cid:81)(cid:3)(cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:15)(cid:3)(cid:48)(cid:76)(cid:71)(cid:71)(cid:79)(cid:72)(cid:3)(cid:40)(cid:68)(cid:86)(cid:87)(cid:3)(cid:9)(cid:3)
Africa (EEMA). Adjusted OCI margin increased 
(cid:69)(cid:92)(cid:3)(cid:19)(cid:17)(cid:25)(cid:3)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:23)(cid:20)(cid:17)(cid:27)(cid:8)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:69)(cid:92)(cid:3)(cid:21)(cid:17)(cid:23)(cid:3)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:23)(cid:22)(cid:17)(cid:25)(cid:8)(cid:15)(cid:3)
(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:68)(cid:70)(cid:85)(cid:82)(cid:86)(cid:86)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)
four Regions.
(cid:3) (cid:36)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)(cid:71)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:51)(cid:54)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:23)(cid:17)(cid:23)(cid:27)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)
(cid:20)(cid:17)(cid:23)(cid:8)(cid:3)(cid:89)(cid:72)(cid:85)(cid:86)(cid:88)(cid:86)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:15)(cid:3)(cid:71)(cid:72)(cid:86)(cid:83)(cid:76)(cid:87)(cid:72)(cid:3)(cid:68)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:75)(cid:72)(cid:68)(cid:71)(cid:90)(cid:76)(cid:81)(cid:71)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:7)(cid:19)(cid:17)(cid:23)(cid:25)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:17)(cid:3)(cid:40)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:68)(cid:71)(cid:77)(cid:88)(cid:86)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:71)(cid:76)(cid:79)(cid:88)(cid:87)(cid:72)(cid:71)(cid:3)(cid:40)(cid:51)(cid:54)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:3)(cid:85)(cid:82)(cid:69)(cid:88)(cid:86)(cid:87)(cid:3)(cid:20)(cid:20)(cid:17)(cid:27)(cid:8)(cid:17)
(cid:3) (cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:192)(cid:82)(cid:90)(2)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:68)(cid:87)(cid:3)(cid:7)(cid:25)(cid:17)(cid:28)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)
(cid:71)(cid:72)(cid:86)(cid:83)(cid:76)(cid:87)(cid:72)(cid:3)(cid:88)(cid:81)(cid:73)(cid:68)(cid:89)(cid:82)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:22)(cid:23)(cid:19)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)
(cid:40)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:15)(cid:3)(cid:73)(cid:85)(cid:72)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:192)(cid:82)(cid:90)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)
(cid:23)(cid:17)(cid:28)(cid:8)(cid:15)(cid:3)(cid:71)(cid:85)(cid:76)(cid:89)(cid:72)(cid:81)(cid:3)(cid:69)(cid:92)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)(cid:72)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:86)(cid:15)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:79)(cid:92)(cid:3)(cid:82)(cid:73)(cid:73)(cid:86)(cid:72)(cid:87)(cid:3)
(cid:69)(cid:92)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:90)(cid:82)(cid:85)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:85)(cid:72)(cid:84)(cid:88)(cid:76)(cid:85)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:17)

In September, the Board of Directors ap-
proved an increase in our quarterly dividend to 
(cid:68)(cid:81)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:23)(cid:17)(cid:20)(cid:25)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:15)(cid:3)(cid:85)(cid:72)(cid:192)(cid:72)(cid:70)(cid:87)-
(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:87)(cid:86)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:70)(cid:82)(cid:81)(cid:191)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)
fundamentals and future prospects. This marked 
the ninth consecutive dividend increase since 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)(cid:86)(cid:83)(cid:76)(cid:81)(cid:16)(cid:82)(cid:73)(cid:73)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:81)(cid:15)(cid:3)
(cid:85)(cid:72)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:21)(cid:25)(cid:17)(cid:20)(cid:8)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:68)(cid:3)
(cid:70)(cid:82)(cid:80)(cid:83)(cid:82)(cid:88)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:20)(cid:19)(cid:17)(cid:26)(cid:8)(cid:17)
(cid:3) (cid:58)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:68)(cid:83)(cid:76)(cid:87)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:3)
(cid:68)(cid:87)(cid:3)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)(cid:73)(cid:68)(cid:89)(cid:82)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:15)(cid:3)(cid:85)(cid:68)(cid:76)(cid:86)(cid:76)(cid:81)(cid:74)(cid:3)(cid:7)(cid:22)(cid:17)(cid:25)(cid:3)
billion over the course of the year and reducing 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:68)(cid:79)(cid:79)(cid:16)(cid:76)(cid:81)(cid:3)(cid:191)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:70)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:69)(cid:92)(cid:3)(cid:19)(cid:17)(cid:21)(cid:3)(cid:83)(cid:72)(cid:85)(cid:70)(cid:72)(cid:81)(cid:87)(cid:68)(cid:74)(cid:72)(cid:3)(cid:83)(cid:82)(cid:76)(cid:81)(cid:87)(cid:86)(cid:3)(cid:87)(cid:82)(cid:3)(cid:21)(cid:17)(cid:27)(cid:8)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)
(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:68)(cid:87)(cid:88)(cid:85)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)
(cid:79)(cid:82)(cid:81)(cid:74)(cid:16)(cid:87)(cid:72)(cid:85)(cid:80)(cid:3)(cid:71)(cid:72)(cid:69)(cid:87)(cid:3)(cid:86)(cid:87)(cid:82)(cid:82)(cid:71)(cid:3)(cid:68)(cid:87)(cid:3)(cid:20)(cid:19)(cid:17)(cid:25)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:15)(cid:3)(cid:72)(cid:86)(cid:86)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:86)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
prior year.

André Calantzopoulos
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)

Louis C. Camilleri 
Chairman of the Board

(1) Operating companies income, 
(cid:82)(cid:85)(cid:3)(cid:179)(cid:50)(cid:38)(cid:44)(cid:15)(cid:180)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:191)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:83)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
income, excluding general corporate 
expenses and the amortization of 
intangibles, plus equity (income)/loss 
in unconsolidated subsidiaries, net.

(2) (cid:41)(cid:85)(cid:72)(cid:72)(cid:3)(cid:70)(cid:68)(cid:86)(cid:75)(cid:3)(cid:192)(cid:82)(cid:90)(cid:3)(cid:76)(cid:86)(cid:3)(cid:71)(cid:72)(cid:191)(cid:81)(cid:72)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:81)(cid:72)(cid:87)(cid:3)
cash provided by operating activities 
less capital expenditures.

1

(cid:53)(cid:82)(cid:69)(cid:88)(cid:86)(cid:87)(cid:3)(cid:40)(cid:91)(cid:16)(cid:38)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)
(cid:40)(cid:51)(cid:54)(cid:3)(cid:42)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)

$4.94(2)

$4.48(1)

+11.8%

$4.42(1)

2015

2016

(1) Reported diluted EPS.
(2) Reported diluted EPS, 
(cid:72)(cid:91)(cid:70)(cid:79)(cid:88)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:88)(cid:81)(cid:73)(cid:68)(cid:89)(cid:82)(cid:85)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:70)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:19)(cid:17)(cid:23)(cid:25)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:17)

(cid:49)(cid:76)(cid:81)(cid:72)(cid:3)(cid:38)(cid:82)(cid:81)(cid:86)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)
(cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:44)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:86)(cid:3)
(cid:54)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:183)(cid:86)(cid:3)
(cid:54)(cid:83)(cid:76)(cid:81)(cid:16)(cid:50)(cid:895)(cid:3)(3)

$4.16

+126.1%

$1.84

2008

2016

(cid:11)(cid:22)(cid:12) (cid:39)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)
(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)
(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:19)(cid:17)(cid:23)(cid:25)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:15)(cid:3)
(cid:71)(cid:72)(cid:70)(cid:79)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:45)(cid:88)(cid:81)(cid:72)(cid:3)(cid:20)(cid:27)(cid:15)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)
(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:76)(cid:86)(cid:3)(cid:69)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:79)(cid:92)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:20)(cid:17)(cid:19)(cid:23)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)
(cid:70)(cid:82)(cid:80)(cid:80)(cid:82)(cid:81)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:15)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:68)(cid:85)(cid:72)(cid:71)(cid:3)(cid:54)(cid:72)(cid:83)(cid:87)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:23)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25).

Fiscal, Regulatory and 
Illicit Trade Environment
(cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)
(cid:90)(cid:68)(cid:86)(cid:3)(cid:86)(cid:88)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:68)(cid:3)(cid:191)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)
combustible tobacco products that remained 
(cid:79)(cid:68)(cid:85)(cid:74)(cid:72)(cid:79)(cid:92)(cid:3)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:72)(cid:76)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:81)(cid:82)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:71)(cid:72)(cid:85)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)
excise tax increases in most of our major 
markets.

(cid:55)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:15)(cid:3)(cid:75)(cid:82)(cid:90)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:86)(cid:82)(cid:80)(cid:72)(cid:3)(cid:72)(cid:91)(cid:70)(cid:72)(cid:83)-
(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:15)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:68)(cid:69)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:36)(cid:85)(cid:74)(cid:72)(cid:81)(cid:87)(cid:76)(cid:81)(cid:68)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)
government, facing severe macroeconomic 
and budget challenges, increased the total 
tax incidence for cigarettes to approximately 
(cid:27)(cid:19)(cid:8)(cid:15)(cid:3)(cid:72)(cid:73)(cid:73)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:71)(cid:82)(cid:88)(cid:69)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:85)(cid:72)(cid:87)(cid:68)(cid:76)(cid:79)(cid:3)(cid:83)(cid:85)(cid:76)(cid:70)(cid:72)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)

(cid:68)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:16)(cid:82)(cid:81)(cid:16)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:90)(cid:72)(cid:76)(cid:74)(cid:75)(cid:87)(cid:72)(cid:71)(cid:16)(cid:68)(cid:89)(cid:72)(cid:85)(cid:68)(cid:74)(cid:72)(cid:3)(cid:76)(cid:81)(cid:71)(cid:88)(cid:86)(cid:87)(cid:85)(cid:92)(cid:3)
basis, assuming full tax pass-on.

From a regulatory standpoint, the 
implementation of the latest European 
Union Tobacco Products Directive (TPD 2) 
across the majority of EU member states 
(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:49)(cid:82)(cid:87)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
areas covered by the Directive include 
(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)(cid:90)(cid:68)(cid:85)(cid:81)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:76)(cid:93)(cid:72)(cid:15)(cid:3)(cid:80)(cid:76)(cid:81)(cid:76)(cid:80)(cid:88)(cid:80)(cid:3)(cid:83)(cid:68)(cid:70)(cid:78)(cid:3)(cid:86)(cid:76)(cid:93)(cid:72)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:69)(cid:68)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:75)(cid:68)(cid:85)(cid:68)(cid:70)(cid:87)(cid:72)(cid:85)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:192)(cid:68)(cid:89)(cid:82)(cid:85)(cid:86)(cid:15)(cid:3)(cid:68)(cid:79)(cid:69)(cid:72)(cid:76)(cid:87)(cid:3)
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:68)(cid:3)(cid:74)(cid:85)(cid:68)(cid:70)(cid:72)(cid:3)(cid:83)(cid:72)(cid:85)(cid:76)(cid:82)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:80)(cid:72)(cid:81)(cid:87)(cid:75)(cid:82)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)
(cid:88)(cid:81)(cid:87)(cid:76)(cid:79)(cid:3)(cid:21)(cid:19)(cid:21)(cid:19)(cid:17)(cid:3)(cid:58)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:76)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)
(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:87)(cid:68)(cid:78)(cid:76)(cid:81)(cid:74)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:68)(cid:3)
manufacturing standpoint, our organization 
(cid:75)(cid:68)(cid:81)(cid:71)(cid:79)(cid:72)(cid:71)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:192)(cid:68)(cid:90)(cid:79)(cid:72)(cid:86)(cid:86)(cid:79)(cid:92)(cid:17)

Plain packaging continues to be one of 
the main long-term regulatory challenges 
facing our combustible tobacco portfolio. 
(cid:41)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:76)(cid:81)(cid:74)(cid:3)(cid:36)(cid:88)(cid:86)(cid:87)(cid:85)(cid:68)(cid:79)(cid:76)(cid:68)(cid:182)(cid:86)(cid:3)(cid:72)(cid:91)(cid:68)(cid:80)(cid:83)(cid:79)(cid:72)(cid:15)(cid:3)(cid:41)(cid:85)(cid:68)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
the U.K. have implemented plain packaging, 
(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:44)(cid:85)(cid:72)(cid:79)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:43)(cid:88)(cid:81)(cid:74)(cid:68)(cid:85)(cid:92)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:49)(cid:72)(cid:90)(cid:3)(cid:61)(cid:72)(cid:68)(cid:79)(cid:68)(cid:81)(cid:71)(cid:3)
have adopted plain packaging legislation 
and are in various stages of implementation. 
Legislative proposals for plain packaging 
have been raised, or are actively being 
considered, in other countries.

In May, the English High Court issued 
a judgment rejecting our claim for judicial 
(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:56)(cid:17)(cid:46)(cid:17)(cid:182)(cid:86)(cid:3)(cid:83)(cid:79)(cid:68)(cid:76)(cid:81)(cid:3)(cid:83)(cid:68)(cid:70)(cid:78)(cid:68)(cid:74)(cid:76)(cid:81)(cid:74)(cid:3)(cid:79)(cid:72)(cid:74)(cid:76)(cid:86)(cid:79)(cid:68)-
tion. Despite the important principles in this 
(cid:70)(cid:68)(cid:86)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:71)(cid:72)(cid:70)(cid:76)(cid:71)(cid:72)(cid:71)(cid:3)(cid:81)(cid:82)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:83)(cid:83)(cid:72)(cid:68)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:72)(cid:68)(cid:71)(cid:3)
maintain our focus on developing and 
(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:76)(cid:93)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:53)(cid:53)(cid:51)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:90)(cid:72)(cid:3)(cid:191)(cid:85)(cid:80)(cid:79)(cid:92)(cid:3)(cid:69)(cid:72)(cid:79)(cid:76)(cid:72)(cid:89)(cid:72)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:88)(cid:79)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)
(cid:69)(cid:72)(cid:81)(cid:72)(cid:191)(cid:87)(cid:3)(cid:56)(cid:17)(cid:46)(cid:17)(cid:3)(cid:68)(cid:71)(cid:88)(cid:79)(cid:87)(cid:3)(cid:86)(cid:80)(cid:82)(cid:78)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:70)(cid:3)(cid:75)(cid:72)(cid:68)(cid:79)(cid:87)(cid:75)(cid:3)
far more than plain packaging.

Despite continued progress, notably 
in the EU Region and Turkey, illicit trade 
(cid:85)(cid:72)(cid:80)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:75)(cid:68)(cid:79)(cid:79)(cid:72)(cid:81)(cid:74)(cid:72)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
industry, particularly in markets such as 
(cid:37)(cid:85)(cid:68)(cid:93)(cid:76)(cid:79)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:51)(cid:68)(cid:78)(cid:76)(cid:86)(cid:87)(cid:68)(cid:81)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
playing our part in combating illicit trade 
(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)(cid:68)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:15)(cid:3)(cid:179)(cid:51)(cid:48)(cid:44)(cid:3)
IMPACT,” to help confront tobacco smuggling 
and related crimes. The centerpiece of the 
initiative is a council of external independent 
(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:87)(cid:86)(cid:3)(cid:90)(cid:75)(cid:82)(cid:86)(cid:72)(cid:3)(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:86)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:76)(cid:80)(cid:83)(cid:72)(cid:70)(cid:70)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
(cid:70)(cid:85)(cid:72)(cid:71)(cid:72)(cid:81)(cid:87)(cid:76)(cid:68)(cid:79)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:191)(cid:72)(cid:79)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:79)(cid:68)(cid:90)(cid:15)(cid:3)(cid:68)(cid:81)(cid:87)(cid:76)(cid:16)(cid:70)(cid:82)(cid:85)(cid:85)(cid:88)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:79)(cid:68)(cid:90)(cid:3)(cid:72)(cid:81)(cid:73)(cid:82)(cid:85)(cid:70)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:86)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:85)(cid:87)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)
oversee grants to enable innovation in three 
(cid:78)(cid:72)(cid:92)(cid:3)(cid:68)(cid:85)(cid:72)(cid:68)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:191)(cid:74)(cid:75)(cid:87)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:86)(cid:87)(cid:3)(cid:86)(cid:80)(cid:88)(cid:74)(cid:74)(cid:79)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
related crimes – research, education and 
(cid:68)(cid:90)(cid:68)(cid:85)(cid:72)(cid:81)(cid:72)(cid:86)(cid:86)(cid:15)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)

Reduced-Risk Products and 
Research & Development 
(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:68)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:182)(cid:86)(cid:3)
development of Reduced-Risk Products. 
On all fronts – product development, 
(cid:70)(cid:82)(cid:80)(cid:80)(cid:72)(cid:85)(cid:70)(cid:76)(cid:68)(cid:79)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:70)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)
third-party engagement and the regulatory 
(cid:68)(cid:81)(cid:71)(cid:3)(cid:191)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:177)(cid:3)(cid:90)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)
important milestones.

(cid:58)(cid:72)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:88)(cid:79)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:83)(cid:79)(cid:72)(cid:68)(cid:86)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)
ongoing progress in commercializing IQOS.
(cid:55)(cid:75)(cid:76)(cid:86)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:89)(cid:76)(cid:86)(cid:76)(cid:69)(cid:79)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:45)(cid:68)(cid:83)(cid:68)(cid:81)(cid:15)(cid:3)
(cid:90)(cid:75)(cid:72)(cid:85)(cid:72)(cid:3)IQOS(cid:3)(cid:90)(cid:68)(cid:86)(cid:3)(cid:85)(cid:82)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:87)(cid:3)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:76)(cid:81)(cid:3)(cid:36)(cid:83)(cid:85)(cid:76)(cid:79)(cid:17)(cid:3)
HeatSticks(cid:182)(cid:3)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:3)(cid:85)(cid:72)(cid:68)(cid:70)(cid:75)(cid:72)(cid:71)(cid:3)

(cid:23)(cid:17)(cid:28)(cid:8)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:82)(cid:88)(cid:85)(cid:87)(cid:75)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:72)(cid:86)(cid:87)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:25)(cid:17)(cid:27)(cid:8)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:191)(cid:81)(cid:68)(cid:79)(cid:3)(cid:90)(cid:72)(cid:72)(cid:78)(cid:3)(cid:82)(cid:73)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)
(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:71)(cid:72)(cid:86)(cid:83)(cid:76)(cid:87)(cid:72)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:76)(cid:80)(cid:76)(cid:87)(cid:86)(cid:3)(cid:90)(cid:72)(cid:3)(cid:83)(cid:79)(cid:68)(cid:70)(cid:72)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)IQOS
device sales in response to HeatSticks(cid:182)(cid:3)
manufacturing capacity constraints.

Based on our initial market intelligence, 

(cid:90)(cid:72)(cid:3)(cid:71)(cid:72)(cid:89)(cid:72)(cid:79)(cid:82)(cid:83)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:71)(cid:72)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:80)(cid:83)(cid:85)(cid:82)(cid:89)(cid:72)(cid:71)(cid:3)
commercialization approach focused on 
(cid:68)(cid:71)(cid:88)(cid:79)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:86)(cid:87)(cid:68)(cid:81)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
heated tobacco concept, commitment to the 
exclusive use of IQOS(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:3)(cid:73)(cid:82)(cid:79)(cid:79)(cid:82)(cid:90)(cid:16)(cid:88)(cid:83)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:68)(cid:79)(cid:79)(cid:3)(cid:68)(cid:71)(cid:88)(cid:79)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:72)(cid:85)(cid:86)(cid:182)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:3)
journey. This led to full or predominant 
conversion rates(cid:11)(cid:23)(cid:12)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:26)(cid:19)(cid:8)(cid:3)(cid:82)(cid:85)(cid:3)
(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:17)(cid:3)(cid:55)(cid:82)(cid:3)(cid:71)(cid:68)(cid:87)(cid:72)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)
launched IQOS in key cities in 21 markets 
across all PMI Regions and, by the end 
(cid:82)(cid:73)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3)IQOS to be in key cities 
(cid:82)(cid:85)(cid:3)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:76)(cid:81)(cid:3)(cid:68)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:3)(cid:82)(cid:73)(cid:3)(cid:22)(cid:19)(cid:3)(cid:87)(cid:82)(cid:3)(cid:22)(cid:24)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:86)(cid:15)(cid:3)
subject to capacity.

(cid:36)(cid:86)(cid:3)(cid:68)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:74)(cid:85)(cid:82)(cid:90)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)
HeatSticks(cid:3)(cid:71)(cid:72)(cid:80)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:71)(cid:85)(cid:68)(cid:80)(cid:68)(cid:87)(cid:76)(cid:70)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)
accelerated our manufacturing capacity 
(cid:69)(cid:88)(cid:76)(cid:79)(cid:71)(cid:16)(cid:88)(cid:83)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
capacity of HeatSticks to increase from 
(cid:86)(cid:72)(cid:89)(cid:72)(cid:81)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:3)(cid:87)(cid:82)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:22)(cid:21)(cid:3)
(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:15)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:76)(cid:81)(cid:86)(cid:87)(cid:68)(cid:79)(cid:79)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)
(cid:70)(cid:68)(cid:83)(cid:68)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:91)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:3)(cid:24)(cid:19)(cid:3)(cid:69)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:88)(cid:81)(cid:76)(cid:87)(cid:86)(cid:3)
(cid:69)(cid:92)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:81)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:79)(cid:82)(cid:82)(cid:78)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
unlocking the true potential of IQOS once the 
pressure on HeatSticks capacity eases as 
the year unfolds.

(cid:50)(cid:88)(cid:85)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:70)(cid:3)(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:68)(cid:80)(cid:3)

for IQOS advanced at a rapid pace in 
(cid:21)(cid:19)(cid:20)(cid:25)(cid:15)(cid:3)(cid:71)(cid:88)(cid:85)(cid:76)(cid:81)(cid:74)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:15)(cid:3)
(cid:70)(cid:79)(cid:76)(cid:81)(cid:76)(cid:70)(cid:68)(cid:79)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:90)(cid:72)(cid:79)(cid:79)(cid:3)(cid:68)(cid:86)(cid:3)(cid:51)(cid:72)(cid:85)(cid:70)(cid:72)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
Behavioral Assessment (PBA) studies, using 
innovative and validated measurement 
(cid:76)(cid:81)(cid:86)(cid:87)(cid:85)(cid:88)(cid:80)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:72)(cid:71)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:191)(cid:85)(cid:86)(cid:87)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:53)(cid:53)(cid:51)(cid:86)(cid:15)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:79)(cid:72)(cid:87)(cid:72)(cid:71)(cid:17)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:87)(cid:82)(cid:87)(cid:68)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
evidence collected to date on IQOS is very 
encouraging, both in terms of the individual 
risk-reduction potential and the pre-market 
assessment of population harm effects 
through our PBA program.

(cid:47)(cid:68)(cid:86)(cid:87)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)

(cid:48)(cid:82)(cid:71)(cid:76)(cid:191)(cid:72)(cid:71)(cid:3)(cid:53)(cid:76)(cid:86)(cid:78)(cid:3)(cid:55)(cid:82)(cid:69)(cid:68)(cid:70)(cid:70)(cid:82)(cid:3)(cid:51)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:36)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
to the U.S. Food and Drug Administration 
(cid:11)(cid:41)(cid:39)(cid:36)(cid:12)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:15)(cid:3)(cid:76)(cid:73)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:83)(cid:87)(cid:72)(cid:71)(cid:15)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:88)(cid:81)(cid:71)(cid:72)(cid:85)(cid:74)(cid:82)(cid:3)(cid:68)(cid:3)
(cid:86)(cid:88)(cid:69)(cid:86)(cid:87)(cid:68)(cid:81)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:70)(cid:3)(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:17)(cid:3)(cid:54)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:72)(cid:79)(cid:92)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)
remain on track to submit our Premarket 
Tobacco Product Application to the FDA in 
(cid:87)(cid:75)(cid:72)(cid:3)(cid:191)(cid:85)(cid:86)(cid:87)(cid:3)(cid:84)(cid:88)(cid:68)(cid:85)(cid:87)(cid:72)(cid:85)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)

(cid:44)(cid:81)(cid:3)(cid:68)(cid:71)(cid:71)(cid:76)(cid:87)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:90)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)
dossiers to a number of EU Member 
(cid:54)(cid:87)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:68)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:16)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:3)(cid:81)(cid:82)(cid:87)(cid:76)(cid:191)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)
requirements under the TPD 2. Summaries 
(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:85)(cid:72)(cid:74)(cid:88)(cid:79)(cid:68)(cid:87)(cid:82)(cid:85)(cid:92)(cid:3)(cid:86)(cid:88)(cid:69)(cid:80)(cid:76)(cid:86)(cid:86)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)
provided to key external stakeholders, 
(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:72)(cid:81)(cid:75)(cid:68)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:70)(cid:3)
(cid:72)(cid:81)(cid:74)(cid:68)(cid:74)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:17)(cid:3)(cid:44)(cid:80)(cid:83)(cid:82)(cid:85)(cid:87)(cid:68)(cid:81)(cid:87)(cid:79)(cid:92)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:85)(cid:72)(cid:70)(cid:72)(cid:76)(cid:89)(cid:72)(cid:3)(cid:72)(cid:91)(cid:87)(cid:72)(cid:85)(cid:81)(cid:68)(cid:79)(cid:3)(cid:89)(cid:68)(cid:79)(cid:76)(cid:71)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:70)(cid:3)
(cid:71)(cid:68)(cid:87)(cid:68)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:72)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:24)(cid:19)(cid:3)(cid:68)(cid:85)(cid:87)(cid:76)(cid:70)(cid:79)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)
(cid:90)(cid:72)(cid:85)(cid:72)(cid:3)(cid:83)(cid:88)(cid:69)(cid:79)(cid:76)(cid:86)(cid:75)(cid:72)(cid:71)(cid:3)(cid:69)(cid:92)(cid:3)(cid:79)(cid:72)(cid:68)(cid:71)(cid:76)(cid:81)(cid:74)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:70)(cid:3)(cid:83)(cid:72)(cid:72)(cid:85)(cid:16)
(cid:85)(cid:72)(cid:89)(cid:76)(cid:72)(cid:90)(cid:72)(cid:71)(cid:3)(cid:77)(cid:82)(cid:88)(cid:85)(cid:81)(cid:68)(cid:79)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:86)(cid:17)

(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:80)(cid:68)(cid:71)(cid:72)(cid:3)(cid:86)(cid:76)(cid:74)(cid:81)(cid:76)(cid:191)(cid:70)(cid:68)(cid:81)(cid:87)(cid:3)(cid:83)(cid:85)(cid:82)(cid:74)(cid:85)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:71)(cid:72)(cid:86)(cid:76)(cid:74)(cid:81)(cid:15)(cid:3)(cid:80)(cid:68)(cid:85)(cid:78)(cid:72)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:86)(cid:70)(cid:76)(cid:72)(cid:81)(cid:87)(cid:76)(cid:191)(cid:70)(cid:3)
substantiation of our other RRP platforms. 

(cid:11)(cid:23)(cid:12) Full conversion means the estimated number of legal age (minimum 18-year-old) IQOS users that used HeatSticks(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:28)(cid:24)(cid:8)(cid:3)(cid:82)(cid:85)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:71)(cid:68)(cid:76)(cid:79)(cid:92)(cid:3)(cid:87)(cid:82)(cid:69)(cid:68)(cid:70)(cid:70)(cid:82)(cid:3)
(cid:70)(cid:82)(cid:81)(cid:86)(cid:88)(cid:80)(cid:83)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:83)(cid:68)(cid:86)(cid:87)(cid:3)(cid:86)(cid:72)(cid:89)(cid:72)(cid:81)(cid:3)(cid:71)(cid:68)(cid:92)(cid:86)(cid:3)(cid:11)(cid:82)(cid:85)(cid:3)(cid:26)(cid:19)(cid:8)(cid:3)(cid:87)(cid:82)(cid:3)(cid:28)(cid:23)(cid:17)(cid:28)(cid:8)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:83)(cid:85)(cid:72)(cid:71)(cid:82)(cid:80)(cid:76)(cid:81)(cid:68)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:89)(cid:72)(cid:85)(cid:86)(cid:76)(cid:82)(cid:81)(cid:12)(cid:17)

2

(cid:38)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72)(cid:3)(cid:44)(cid:81)(cid:81)(cid:82)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)
(cid:44)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:85)(cid:72)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:76)(cid:74)(cid:68)(cid:85)(cid:72)(cid:87)(cid:87)(cid:72) product innovation strategy 
(cid:87)(cid:82)(cid:3)(cid:73)(cid:72)(cid:90)(cid:72)(cid:85)(cid:15)(cid:3)(cid:69)(cid:88)(cid:87)(cid:3)(cid:69)(cid:76)(cid:74)(cid:74)(cid:72)(cid:85)(cid:15)(cid:3)(cid:76)(cid:81)(cid:76)(cid:87)(cid:76)(cid:68)(cid:87)(cid:76)(cid:89)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:70)(cid:68)(cid:81)(cid:3)(cid:69)(cid:72)(cid:3)(cid:71)(cid:72)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:71)(cid:3)(cid:74)(cid:79)(cid:82)(cid:69)(cid:68)(cid:79)(cid:79)(cid:92)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)

(cid:80)(cid:88)(cid:70)(cid:75)(cid:3)(cid:73)(cid:68)(cid:86)(cid:87)(cid:72)(cid:85)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:191)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:85)(cid:72)(cid:86)(cid:88)(cid:79)(cid:87)(cid:3)(cid:76)(cid:81)(cid:3)(cid:75)(cid:76)(cid:74)(cid:75)(cid:72)(cid:85)(cid:3)

(cid:86)(cid:88)(cid:70)(cid:70)(cid:72)(cid:86)(cid:86)(cid:3)(cid:85)(cid:68)(cid:87)(cid:72)(cid:86)(cid:3)(cid:73)(cid:82)(cid:85)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:76)(cid:81)(cid:87)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:15)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:68)(cid:80)(cid:72)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:15)(cid:3)
free up additional resources for the deployment of RRPs.

The promise of a next generation e-vapor 
(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:82)(cid:78)(cid:3)(cid:68)(cid:3)(cid:80)(cid:72)(cid:68)(cid:81)(cid:76)(cid:81)(cid:74)(cid:73)(cid:88)(cid:79)(cid:3)(cid:86)(cid:87)(cid:72)(cid:83)(cid:3)(cid:73)(cid:82)(cid:85)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)
(cid:79)(cid:68)(cid:86)(cid:87)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:72)(cid:86)(cid:87)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:51)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)
(cid:23)(cid:3)MESH vaporization technology in 
(cid:37)(cid:76)(cid:85)(cid:80)(cid:76)(cid:81)(cid:74)(cid:75)(cid:68)(cid:80)(cid:15)(cid:3)(cid:56)(cid:17)(cid:46)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:83)(cid:79)(cid:68)(cid:81)(cid:3)(cid:70)(cid:76)(cid:87)(cid:92)(cid:3)(cid:79)(cid:68)(cid:88)(cid:81)(cid:70)(cid:75)(cid:72)(cid:86)(cid:3)
(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:51)(cid:79)(cid:68)(cid:87)(cid:73)(cid:82)(cid:85)(cid:80)(cid:3)(cid:21)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:22)(cid:3)(cid:83)(cid:85)(cid:82)(cid:71)(cid:88)(cid:70)(cid:87)(cid:86)(cid:3)(cid:87)(cid:75)(cid:76)(cid:86)(cid:3)(cid:92)(cid:72)(cid:68)(cid:85)(cid:17)
(cid:58)(cid:76)(cid:87)(cid:75)(cid:3)(cid:85)(cid:72)(cid:74)(cid:68)(cid:85)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:53)(cid:53)(cid:51)(cid:3)(cid:191)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:72)(cid:81)(cid:89)(cid:76)(cid:85)(cid:82)(cid:81)(cid:16)

ment, HeatSticks are either taxed in all 
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excise category or as other tobacco 
products, depending on national legislation.
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(cid:70)(cid:82)(cid:81)(cid:86)(cid:87)(cid:76)(cid:87)(cid:88)(cid:87)(cid:72)(cid:3)(cid:68)(cid:3)(cid:81)(cid:72)(cid:90)(cid:15)(cid:3)(cid:86)(cid:72)(cid:83)(cid:68)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:191)(cid:86)(cid:70)(cid:68)(cid:79)(cid:3)(cid:70)(cid:68)(cid:87)(cid:72)(cid:74)(cid:82)(cid:85)(cid:92)(cid:15)(cid:3)
(cid:87)(cid:68)(cid:91)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:3)(cid:79)(cid:76)(cid:81)(cid:72)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:76)(cid:85)(cid:3)(cid:85)(cid:76)(cid:86)(cid:78)(cid:16)(cid:85)(cid:72)(cid:71)(cid:88)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:83)(cid:85)(cid:82)(cid:191)(cid:79)(cid:72)(cid:17)
There has also been notable progress 

in many markets on RRP regulatory 
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labeling, public use and the ability to 
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is very complex, as RRPs are uncharted 
territory for the vast majority of regulators, is 
exacerbated by the fact that the public health 
community itself is divided on the subject of 
harm reduction. 

The majority of EU Member States 
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TPD 2 on Novel Tobacco Products (NTPs). 
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impediments to RRP commercialization. In 
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on NTPs are in the process of being adopted 
by key governments.

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(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:79)(cid:79)(cid:72)(cid:70)(cid:87)(cid:88)(cid:68)(cid:79)(cid:3)(cid:83)(cid:85)(cid:82)(cid:83)(cid:72)(cid:85)(cid:87)(cid:92)(cid:3)(cid:83)(cid:82)(cid:85)(cid:87)(cid:73)(cid:82)(cid:79)(cid:76)(cid:82)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)(cid:15)(cid:3)
(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:20)(cid:22)(cid:19)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:83)(cid:68)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:83)(cid:83)(cid:79)(cid:76)(cid:70)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:191)(cid:79)(cid:72)(cid:71)(cid:15)(cid:3)
(cid:68)(cid:81)(cid:71)(cid:3)(cid:90)(cid:72)(cid:3)(cid:72)(cid:91)(cid:83)(cid:72)(cid:70)(cid:87)(cid:15)(cid:3)(cid:82)(cid:81)(cid:70)(cid:72)(cid:3)(cid:68)(cid:74)(cid:68)(cid:76)(cid:81)(cid:15)(cid:3)(cid:87)(cid:82)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:3)
(cid:68)(cid:80)(cid:82)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:87)(cid:82)(cid:83)(cid:3)(cid:20)(cid:19)(cid:19)(cid:3)(cid:191)(cid:79)(cid:72)(cid:85)(cid:86)(cid:3)(cid:68)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:40)(cid:88)(cid:85)(cid:82)(cid:83)(cid:72)(cid:68)(cid:81)(cid:3)
(cid:51)(cid:68)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:70)(cid:88)(cid:85)(cid:85)(cid:72)(cid:81)(cid:87)(cid:79)(cid:92)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:80)(cid:82)(cid:85)(cid:72)(cid:3)
(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:20)(cid:15)(cid:24)(cid:19)(cid:19)(cid:3)(cid:53)(cid:53)(cid:51)(cid:16)(cid:85)(cid:72)(cid:79)(cid:68)(cid:87)(cid:72)(cid:71)(cid:3)(cid:83)(cid:68)(cid:87)(cid:72)(cid:81)(cid:87)(cid:86)(cid:3)(cid:74)(cid:85)(cid:68)(cid:81)(cid:87)(cid:72)(cid:71)(cid:3)
(cid:90)(cid:82)(cid:85)(cid:79)(cid:71)(cid:90)(cid:76)(cid:71)(cid:72)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:82)(cid:89)(cid:72)(cid:85)(cid:3)(cid:22)(cid:15)(cid:24)(cid:19)(cid:19)(cid:3)(cid:86)(cid:88)(cid:70)(cid:75)(cid:3)(cid:83)(cid:68)(cid:87)(cid:72)(cid:81)(cid:87)(cid:3)
applications pending.

Business Development 
and Manufacturing 
Footprint Optimization
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number of ongoing business development 
initiatives, notably in Sub-Saharan Africa 
through our Pan-Africa Entrepreneurs 
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(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:87)(cid:85)(cid:72)(cid:81)(cid:74)(cid:87)(cid:75)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:85)(cid:68)(cid:81)(cid:71)(cid:86)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:79)(cid:82)(cid:70)(cid:68)(cid:79)(cid:3)
(cid:78)(cid:81)(cid:82)(cid:90)(cid:79)(cid:72)(cid:71)(cid:74)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:83)(cid:68)(cid:85)(cid:87)(cid:81)(cid:72)(cid:85)(cid:86)(cid:17)

(cid:58)(cid:72)(cid:3)(cid:68)(cid:79)(cid:86)(cid:82)(cid:3)(cid:73)(cid:88)(cid:85)(cid:87)(cid:75)(cid:72)(cid:85)(cid:3)(cid:82)(cid:83)(cid:87)(cid:76)(cid:80)(cid:76)(cid:93)(cid:72)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:68)(cid:81)(cid:88)(cid:73)(cid:68)(cid:70)(cid:87)(cid:88)(cid:85)-
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of production facilities and the closure of 
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the process of identifying combustible tobac-
co factories that are suitable for conversion 
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our footprint optimization efforts.

Sustainability
(cid:58)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:76)(cid:81)(cid:88)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:80)(cid:82)(cid:81)(cid:86)(cid:87)(cid:85)(cid:68)(cid:87)(cid:72)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)-
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(cid:68)(cid:90)(cid:68)(cid:85)(cid:71)(cid:72)(cid:71)(cid:3)(cid:179)(cid:38)(cid:79)(cid:76)(cid:80)(cid:68)(cid:87)(cid:72)(cid:3)(cid:181)(cid:36)(cid:182)(cid:3)(cid:47)(cid:76)(cid:86)(cid:87)(cid:180)(cid:3)(cid:86)(cid:87)(cid:68)(cid:87)(cid:88)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:38)(cid:39)(cid:51)(cid:3)
Global Climate Leaders Report for the third 
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their carbon footprint.

Our Agricultural Labor Practices program 

roll-out remains on track, including the 
implementation of systematic monitoring 
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(cid:56)(cid:81)(cid:76)(cid:82)(cid:81)(cid:15)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:71)(cid:72)(cid:83)(cid:72)(cid:81)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:68)(cid:88)(cid:71)(cid:76)(cid:87)(cid:3)(cid:191)(cid:85)(cid:80)(cid:15)(cid:3)(cid:68)(cid:86)(cid:86)(cid:72)(cid:86)(cid:86)(cid:72)(cid:71)(cid:3)
the status of the program in Brazil, Greece, 
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strong progress. Importantly, the disclosure 
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(cid:83)(cid:82)(cid:86)(cid:76)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:3)(cid:69)(cid:92)(cid:3)(cid:43)(cid:88)(cid:80)(cid:68)(cid:81)(cid:3)(cid:53)(cid:76)(cid:74)(cid:75)(cid:87)(cid:86)(cid:3)(cid:58)(cid:68)(cid:87)(cid:70)(cid:75)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)
context of their research on child labor in the 
tobacco sector in Indonesia.

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nication on progress to the United Nations 
Global Compact, reporting comprehensively 
on our sustainability practices across human 
rights, labor rights, environment and anti-
corruption. The cornerstone of our report 
is our determination to address the health 
impact of combustible tobacco products 
through our RRPs and related business 
transformation.

The Organization
Enhancing organizational effectiveness 
and employee engagement remains a top 
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business-transformation journey to becoming 
an RRP-focused company.

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nized PMI for its excellence in professional 
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ment and opportunities for career advance-
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(cid:20)(cid:24)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:17)(cid:3)

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ambition to improve gender diversity is 
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to the Board for its invaluable contributions 
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(cid:80)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:15)(cid:3)(cid:48)(cid:68)(cid:86)(cid:86)(cid:76)(cid:80)(cid:82)(cid:3)(cid:41)(cid:72)(cid:85)(cid:85)(cid:68)(cid:74)(cid:68)(cid:80)(cid:82)(cid:15)(cid:3)(cid:90)(cid:75)(cid:82)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:68)(cid:71)(cid:71)(cid:3)
to an already formidable group through his 
entrepreneurial spirit and deep experience 
in the global luxury consumer products 
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ment and board positions at Ferragamo 

USA Inc. and its parent company, Salvatore 
Ferragamo S.p.A.

Last year, Jim Mortensen, Senior Vice 
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(cid:75)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:87)(cid:72)(cid:81)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:85)(cid:72)(cid:87)(cid:76)(cid:85)(cid:72)(cid:3)(cid:68)(cid:73)(cid:87)(cid:72)(cid:85)(cid:3)(cid:68)(cid:3)(cid:81)(cid:72)(cid:68)(cid:85)(cid:79)(cid:92)(cid:3)(cid:22)(cid:19)(cid:16)(cid:92)(cid:72)(cid:68)(cid:85)(cid:3)
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gratitude for all of his extraordinary accom-
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The Year Ahead
Our business fundamentals are robust, 
supported by our leading brand portfolio and 
a broadly rational excise tax environment. 
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should serve to further extend our leadership 
position in the combustible tobacco category 
internationally and continue to drive strong 
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(cid:74)(cid:72)(cid:81)(cid:72)(cid:85)(cid:82)(cid:88)(cid:86)(cid:79)(cid:92)(cid:3)(cid:85)(cid:72)(cid:90)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:17)(cid:3)(cid:48)(cid:82)(cid:85)(cid:72)(cid:3)
(cid:87)(cid:75)(cid:68)(cid:81)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:80)(cid:76)(cid:87)(cid:87)(cid:72)(cid:71)(cid:3)(cid:87)(cid:82)(cid:3)(cid:68)(cid:70)(cid:70)(cid:72)(cid:79)(cid:72)(cid:85)(cid:68)(cid:87)(cid:76)(cid:81)(cid:74)(cid:3)
the success of RRPs and continuing to be 
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Our highly ambitious objective is that RRPs 
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deploy the necessary resources – both incre-
mentally and through a judicious reallocation 
from the combustible tobacco category – to 
make this happen.

This complex undertaking entails a 
(cid:80)(cid:68)(cid:77)(cid:82)(cid:85)(cid:3)(cid:82)(cid:85)(cid:74)(cid:68)(cid:81)(cid:76)(cid:93)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:68)(cid:79)(cid:3)(cid:87)(cid:85)(cid:68)(cid:81)(cid:86)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)
(cid:68)(cid:83)(cid:83)(cid:85)(cid:82)(cid:68)(cid:70)(cid:75)(cid:76)(cid:81)(cid:74)(cid:3)(cid:76)(cid:87)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:81)(cid:72)(cid:3)(cid:70)(cid:82)(cid:80)(cid:83)(cid:68)(cid:81)(cid:92)(cid:3)(cid:90)(cid:76)(cid:87)(cid:75)(cid:3)(cid:73)(cid:82)(cid:70)(cid:88)(cid:86)(cid:15)(cid:3)(cid:68)(cid:3)
(cid:75)(cid:76)(cid:74)(cid:75)(cid:3)(cid:71)(cid:72)(cid:74)(cid:85)(cid:72)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:80)(cid:82)(cid:87)(cid:76)(cid:89)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:68)(cid:3)(cid:81)(cid:72)(cid:90)(cid:3)(cid:80)(cid:76)(cid:81)(cid:71)(cid:86)(cid:72)(cid:87)(cid:15)(cid:3)
(cid:90)(cid:75)(cid:76)(cid:79)(cid:72)(cid:3)(cid:83)(cid:85)(cid:72)(cid:86)(cid:72)(cid:85)(cid:89)(cid:76)(cid:81)(cid:74)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:82)(cid:85)(cid:72)(cid:3)(cid:84)(cid:88)(cid:68)(cid:79)(cid:76)(cid:87)(cid:76)(cid:72)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)
made PMI successful. The task is enormous, 
(cid:69)(cid:88)(cid:87)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:86)(cid:76)(cid:93)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:82)(cid:83)(cid:83)(cid:82)(cid:85)(cid:87)(cid:88)(cid:81)(cid:76)(cid:87)(cid:92)(cid:3)(cid:76)(cid:86)(cid:3)(cid:90)(cid:82)(cid:85)(cid:87)(cid:75)(cid:3)(cid:72)(cid:89)(cid:72)(cid:85)(cid:92)(cid:3)
(cid:72)(cid:73)(cid:73)(cid:82)(cid:85)(cid:87)(cid:17)(cid:3)(cid:58)(cid:72)(cid:3)(cid:68)(cid:85)(cid:72)(cid:3)(cid:70)(cid:82)(cid:81)(cid:191)(cid:71)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:80)(cid:82)(cid:86)(cid:87)(cid:3)(cid:89)(cid:68)(cid:79)(cid:88)(cid:68)(cid:69)(cid:79)(cid:72)(cid:3)
(cid:68)(cid:86)(cid:86)(cid:72)(cid:87)(cid:3)(cid:177)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:72)(cid:80)(cid:83)(cid:79)(cid:82)(cid:92)(cid:72)(cid:72)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:51)(cid:48)(cid:44)(cid:3)(cid:177)(cid:3)(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:88)(cid:83)(cid:3)(cid:87)(cid:82)(cid:3)
(cid:87)(cid:75)(cid:72)(cid:3)(cid:70)(cid:75)(cid:68)(cid:79)(cid:79)(cid:72)(cid:81)(cid:74)(cid:72)(cid:15)(cid:3)(cid:68)(cid:86)(cid:3)(cid:87)(cid:75)(cid:72)(cid:92)(cid:3)(cid:75)(cid:68)(cid:89)(cid:72)(cid:3)(cid:68)(cid:79)(cid:90)(cid:68)(cid:92)(cid:86)(cid:3)(cid:69)(cid:72)(cid:72)(cid:81)(cid:17)

(cid:36)(cid:81)(cid:71)(cid:85)(cid:112)(cid:3)(cid:38)(cid:68)(cid:79)(cid:68)(cid:81)(cid:87)(cid:93)(cid:82)(cid:83)(cid:82)(cid:88)(cid:79)(cid:82)(cid:86)(cid:15)(cid:3)(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)

Louis C. Camilleri, Chairman of the Board

(cid:48)(cid:68)(cid:85)(cid:70)(cid:75)(cid:3)(cid:22)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:26)(cid:3)

3

Board of Directors

Harold Brown (cid:21)(cid:15)(cid:22)(cid:15)(cid:24)
Counselor, Center 
for Strategic and 
International Studies
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)

André Calantzopoulos
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)

Louis C. Camilleri
Chairman of the Board
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)

Massimo Ferragamo (cid:22)(cid:15)(cid:24)
Chairman,
Ferragamo USA Inc.
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:25)

Werner Geissler (cid:20)(cid:15)(cid:21)(cid:15)(cid:22)(cid:15)(cid:24)
Operating Partner, 
Advent International 
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)

Jennifer Li (cid:20)(cid:15)(cid:22)(cid:15)(cid:23)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:15)(cid:3)
Baidu, Inc.
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:19)

Jun Makihara (cid:20)(cid:15)(cid:22)(cid:15)(cid:24)
Retired Businessman 
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)

Sergio Marchionne (cid:22)(cid:15)(cid:24)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:15)(cid:3)
Fiat Chrysler 
Automobiles N.V.
Chairman, Ferrari N.V.
Chairman, CNH 
Industrial N.V. 
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)

Kalpana Morparia (cid:22)(cid:15)(cid:23)(cid:15)(cid:24)
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:15)
South and South East Asia 
J.P. Morgan Chase 
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)

Lucio A. Noto (cid:20)(cid:15)(cid:21)(cid:15)(cid:22)(cid:15)(cid:23)
Managing Partner, 
Midstream Partners, LLC
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)

Frederik Paulsen (cid:22)(cid:15)(cid:24)
Chairman, Ferring Group
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:23)

Robert B. Polet (cid:21)(cid:15)(cid:22)(cid:15)(cid:23)(cid:15)(cid:24)
(cid:38)(cid:75)(cid:68)(cid:76)(cid:85)(cid:80)(cid:68)(cid:81)(cid:15)(cid:3)(cid:54)(cid:68)(cid:191)(cid:79)(cid:82)(cid:3)
Group S.p.A. 
Chairman, Rituals B.V.
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:20)(cid:20)

Stephen M. Wolf (cid:20)(cid:15)(cid:21)(cid:15)(cid:22)(cid:15)(cid:23)(cid:15)(cid:24)
Managing Partner, 
Alpilles, LLC
(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:3)(cid:86)(cid:76)(cid:81)(cid:70)(cid:72)(cid:3)(cid:21)(cid:19)(cid:19)(cid:27)

Committees
Presiding Director, Lucio A. Noto
1 Member of Audit Committee, 
Jennifer Li, Chair
2 Member of Compensation and 

Leadership Development Committee,
Werner Geissler, Chair
(cid:22)(cid:3)(cid:3)Member of Finance Committee, 
Jun Makihara, Chair
(cid:23)(cid:3)(cid:3)Member of Nominating and 

Corporate Governance Committee, 
Kalpana Morparia, Chair
(cid:24)(cid:3)(cid:3)Member of Product Innovation and 

Regulatory Affairs Committee,
(cid:43)(cid:68)(cid:85)(cid:82)(cid:79)(cid:71)(cid:3)(cid:37)(cid:85)(cid:82)(cid:90)(cid:81), Chair

Company Management

André Calantzopoulos
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:40)(cid:91)(cid:72)(cid:70)(cid:88)(cid:87)(cid:76)(cid:89)(cid:72)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)

Drago Azinovic
President, Eastern Europe, 
Middle East & Africa Region
and PMI Duty Free

Werner Barth
Senior Vice President, 
Marketing & Sales

Charles Bendotti
Senior Vice President, 
Human Resources

Patrick Brunel
Senior Vice President and
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:44)(cid:81)(cid:73)(cid:82)(cid:85)(cid:80)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)

Frank de Rooij
Vice President,
Treasury & Corporate 
Finance

Frederic de Wilde
President, European 
Union Region

Marc S. Firestone
Senior Vice President 
and General Counsel

Paul Janelle
Vice President, 
Corporate Planning & 
Business Development

Martin King
President, Asia Region

Andreas Kurali
Vice President and 
Controller

Marco Mariotti
Senior Vice President, 
Corporate Affairs

Antonio Marques
Senior Vice President, 
Operations

Jacek Olczak
(cid:38)(cid:75)(cid:76)(cid:72)(cid:73)(cid:3)(cid:41)(cid:76)(cid:81)(cid:68)(cid:81)(cid:70)(cid:76)(cid:68)(cid:79)(cid:3)(cid:50)(cid:73)(cid:191)(cid:70)(cid:72)(cid:85)(cid:3)

Jeanne Pollès
President, Latin America 
& Canada Region

Jerry Whitson
Deputy General Counsel
and Corporate Secretary

Miroslaw Zielinski
President, Reduced-Risk 
Products

4

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, 2016 
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)

Virginia
(State or other jurisdiction of
incorporation or organization)

120 Park Avenue, New York, New York
(Address of principal executive offices)

13-3435103
(I.R.S. Employer
Identification No.)

10017
(Zip Code)

917-663-2000
(Registrant’s telephone number, including area code)
 Securities registered pursuant to Section 12(b) of the Act: 

Title of each class                    

Common Stock, no par value

Name of each exchange on which registered
New York Stock Exchange

1.625% Notes due 2017

1.250% Notes due 2017

1.125% Notes due 2017

1.250% Notes due 2017

5.650% Notes due 2018

1.875% Notes due 2019

1.375% Notes due 2019

2.125% Notes due 2019

1.750% Notes due 2020

4.500% Notes due 2020

1.875% Notes due 2021

1.875% Notes due 2021

4.125% Notes due 2021

2.900% Notes due 2021

2.500% Notes due 2022

2.625% Notes due 2023

2.125% Notes due 2023

3.600% Notes due 2023

2.875% Notes due 2024

3.250% Notes due 2024

2.750% Notes due 2025

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

New York Stock Exchange

 
 
 
 
 
Title of each class                    

3.375% Notes due 2025
2.750% Notes due 2026
2.875% Notes due 2026
2.875% Notes due 2029
3.125% Notes due 2033
2.000% Notes due 2036
6.375% Notes due 2038
4.375% Notes due 2041
4.500% Notes due 2042
3.875% Notes due 2042
4.125% Notes due 2043
4.875% Notes due 2043
4.250% Notes due 2044

Name of each exchange on which registered
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New 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  
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  
  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 and posted on its corporate website, if any, every Interactive 
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter 
period that the registrant was required to submit and post such files).  Yes  

  No  

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be 
contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this 
Form 10-K or any amendment to this Form 10-K.  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting 
company.  See  the  definitions  of  “large  accelerated  filer,”  “accelerated  filer”  and  “smaller  reporting  company”  in  Rule 12b-2  of  the 
Exchange Act.

Large accelerated filer  

Accelerated filer

Non-accelerated filer
(Do not check if a smaller reporting company)

Smaller reporting company

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, 2016, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was approximately 
$158 billion based on the closing sale price of the common stock as reported on the New York Stock Exchange.

        Class                                

Outstanding at January 31, 2017

Common Stock,
no par value

1,551,385,884 shares

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s definitive proxy statement for use in connection with its annual
meeting of shareholders to be held on May 3, 2017, to be filed with the Securities and
Exchange Commission (“SEC”) on or about March 23, 2017.

Document

Parts Into Which Incorporated

Part III

 
 
 
 
 
 
 
 
TABLE OF CONTENTS

Page

PART I

Item 1.

Item 1A.

Item 1B.

Item 2.

Item 3.

Item 4.

PART II

Item 5.

Item 6.

Item 7.

Business

Risk Factors

Unresolved Staff Comments

Properties

Legal Proceedings

Mine Safety Disclosures

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

Selected Financial Data

Management’s Discussion and Analysis of Financial Condition and Results of 
Operations

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

Financial Statements and Supplementary Data

Changes in and Disagreements with Accountants on Accounting and Financial 
Disclosure

Controls and Procedures

Other Information

Directors, Executive Officers and Corporate Governance

Executive Compensation

Security Ownership of Certain Beneficial Owners and Management and Related 
Stockholder Matters

Certain Relationships and Related Transactions, and Director Independence

Principal Accounting Fees and Services

Exhibits and Financial Statement Schedules

Item 8.

Item 9.

Item 9A.

Item 9B.

PART III

Item 10.

Item 11.

Item 12.

Item 13.

Item 14.

PART IV

Item 15.

Signatures

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

1

6

10

11

11

22

22

25

26

77

78

131

131

131

131

132

132

133

133

133

139

 
 
 
 
 
 
 
Item 1. 

Business.

(a) General Development of Business 

PART I

General

Philip Morris International Inc. is a Virginia holding company incorporated in 1987. Our subsidiaries and affiliates and their licensees 
are engaged in the manufacture and sale of cigarettes, other tobacco products and other nicotine-containing products in markets outside 
of the United States of America. Our products are sold in more than 180 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.

Our portfolio of international and local brands is led by Marlboro, the world’s best-selling international cigarette, which accounted for 
approximately 35% of our total 2016 shipment volume. Marlboro is complemented in the premium-price category by Parliament and 
Virginia S. Our leading mid-price brands are L&M, Lark, Merit, Muratti and Philip Morris. Other leading international brands include 
Bond Street, Chesterfield, Next and Red & White.

We also own a number of important local cigarette brands, such as Dji Sam Soe, Sampoerna and U Mild in Indonesia; Champion, Fortune 
and Jackpot in the Philippines; Apollo-Soyuz and Optima in Russia; Morven Gold in Pakistan; Boston in Colombia;  Belmont, Canadian 
Classics and Number 7 in Canada; f6 in Germany; Delicados in Mexico; Assos in Greece, and Petra in the Czech Republic and Slovakia. 
While there are a number of markets where local brands remain important, international brands are expanding their share in numerous 
markets. With international brands contributing approximately 77% of our shipment volume in 2016, we are well positioned to continue 
to benefit from this trend. 

In addition to the manufacture and sale of cigarettes and other tobacco products, 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 continued smoking.  We have a range of RRPs in various 
stages of development, scientific assessment and commercialization.  Because our RRPs do not burn tobacco, they produce far lower 
quantities of harmful and potentially harmful compounds than found in cigarette smoke.  Further details on our RRPs are described in 
the Research and Development section below and Item 7. Management’s Discussion and Analysis of Financial Condition and Results of 
Operations of this Annual Report on Form 10-K ("Item 7"), Business Environment — Reduced-Risk Products.

Separation from Altria Group, Inc.

We were a wholly owned subsidiary of Altria Group, Inc. ("Altria") until the distribution of all of our shares owned by Altria (the “Spin-
off”) was made on March 28, 2008 (the "Distribution Date").

Acquisitions and Other Business Arrangements 

Details about our acquisitions and other business arrangements are described in Item 8. Financial Statements and Supplementary Data 
of this Annual Report on Form 10-K ("Item 8") in Note 6. Acquisitions and Other Business Arrangements to our consolidated financial 
statements.

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. 

(b) Financial Information About Segments 

We divide our markets into four geographic regions, which constitute our segments for financial reporting purposes:

1

 
 
 
 
 
 
 
 
 
 
 
 
 
•  The European Union (“EU”) Region is headquartered in Lausanne, Switzerland, and covers all the EU countries  and also comprises 

Switzerland, Norway and Iceland, which are linked to the EU through trade agreements;

•  The Eastern Europe, Middle East & Africa (“EEMA”) Region is also headquartered in Lausanne and includes Eastern Europe, 

certain Balkan countries, Turkey, the Middle East and Africa and our international duty free business;

•  The Asia Region is headquartered in Hong Kong and covers all other Asian markets as well as Australia, New Zealand and the 

Pacific Islands; and

•  The Latin America & Canada Region is headquartered in New York and covers the South American continent, Central America, 

Mexico, the Caribbean and Canada.

Net revenues and operating companies income* (together with a reconciliation to operating income) attributable to each segment for 
each of the last three years are set forth in Note 12. Segment Reporting to the consolidated financial statements in Item 8. See Item 7 of 
this Annual Report on Form 10-K for a discussion of our operating results by business segment.

The relative percentages of operating companies income attributable to each reportable segment were as follows:

European Union
Eastern Europe, Middle East & Africa
Asia
Latin America & Canada

2016

2015

2014

35.8%
27.1
28.7
8.4
100.0%

32.6%
31.2
26.3
9.9
100.0%

31.6%
33.5
26.4
8.5
100.0%

______________________________
* 

Our management evaluates segment performance and allocates resources based on operating companies income, which we 
define as operating income, excluding general corporate expenses and amortization of intangibles, plus equity (income)/loss in 
unconsolidated subsidiaries, net.  The accounting policies of the segments are the same as those described in Note 2. Summary 
of Significant Accounting Policies to the consolidated financial statements in Item 8.

We use the term net revenues to refer to our operating revenues from the sale of our products, net of sales and promotion incentives. 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). We often collect excise taxes from our 
customers and then remit them to local governments, and, in those circumstances, we include excise taxes in our net revenues and excise 
taxes on products. Our cost of sales consists principally of tobacco leaf, non-tobacco raw materials, labor and manufacturing costs.

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.

(c) Narrative Description of Business 

Our subsidiaries and affiliates and their licensees are engaged in the manufacture, market and sale of cigarettes, other tobacco products 
and other nicotine-containing products in markets outside the United States of America.

Our total cigarette shipments decreased by 4.1% in 2016 to 812.9 billion units.  We estimate that international cigarette market shipments 
were approximately 5.3 trillion units in 2016, a 3.0% decrease over 2015.  We estimate that our reported share of the international cigarette 
market (which is defined as worldwide cigarette volume, excluding the United States of America) was approximately 15.3% in 2016, 
15.5% in 2015 and 15.4% in 2014.  Excluding the People’s Republic of China (“PRC”), we estimate that our reported share of the 
international cigarette market was approximately 27.9%, 28.5%, and 28.3% in 2016, 2015 and 2014, respectively. 

Shipments of our principal cigarette brand, Marlboro, decreased by 1.4% in 2016 and represented approximately 9.6% of the international 
cigarette market, excluding the PRC, in 2016, 9.6% in 2015 and 9.4% in 2014. 

We have a cigarette market share of at least 15% and, in a number of instances, substantially more than 15%, in approximately 100 
markets,  including  Algeria, Argentina, Australia, Austria,  Belgium,  Canada,  the  Czech  Republic,  France,  Germany,  Hong  Kong, 

2

 
 
 
 
 
 
 
Indonesia, Israel, Italy, Japan, Korea, Kuwait, Mexico, the Netherlands, Norway, the Philippines, Poland, Portugal, Russia, Saudi Arabia, 
Spain, Switzerland, Thailand, Turkey and United Arab Emirates. 

The term IQOS Consumables refers to the consumable used in our IQOS device.  Total shipment volume of IQOS Consumables reached 
7.4 billion units, up from 396 million units during the year ended December 31, 2015.  

Our other tobacco products ("OTP") primarily include tobacco for roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and 
cigarillos, and do not include Reduced-Risk Products.  Total shipment volume of OTP, in cigarette equivalent units, decreased by 4.5% 
to 32.6 billion units.

References to total international cigarette market, defined as worldwide cigarette volume excluding the United States, total cigarette 
market, total market and market shares in this Form 10-K are our tax-paid estimates based on the latest available data from a number of 
internal and external sources. 

Consumer Focused Marketing & Sales 

In 2016, we continued to deploy our new strategic framework that combines our marketing and sales expertise with our in-depth knowledge 
of various sales territories. This framework allows us not only to engage more effectively with our adult smokers but also to enhance the 
success of our direct and indirect trade partners.  The main benefits are:

• 

Improved effectiveness of direct adult smoker engagement activities;

•  More effective communication with our retailers about our brands;

• 

Increased speed, efficiency and widespread availability of our products; and 

•  Distribution and Sales Strategies and Trade Engagement Programs tailored to the individual characteristics of each market. 

The four main types of distribution that we use globally, often simultaneously in a given market, are: 

•  Direct Sales and Distribution, where we have set up our own distribution selling directly to the retailers; 

•  Distribution  through  Independent  Distributors  who  also  are  distributing  other  fast-moving  consumer  goods  and  are 

responsible for distribution in a single market;

•  Exclusive Zonified Distribution, where the distributors are dedicated to us in tobacco products distribution and assigned 

to exclusive territories within a market, enabling them to get an appropriate return on their investment; and  

•  Distribution through national or regional wholesalers that then supply the retail trade. 

In many markets we also directly supply key accounts, including gas stations, retail chains and supermarkets. 

Our distribution and sales systems are supported by sales forces that total approximately 19,800 employees worldwide. Our sales forces 
are well trained and recognized by trade surveys for their professionalism.

Our  products  are  marketed  and  promoted  through  various  media  and  channels,  including,  where  permitted  by  law,  point  of  sale 
communications, brand events, access-restricted websites and printed and direct communication to verified adult smokers. Our direct 
communication with verified adult smokers utilizes mail, e-mail and other electronic communication tools. Promotional activities include, 
where permitted by law, competitions, invitations to events, interactive programs, consumer premiums and price promotions. To support 
advertising  and  promotional  activities  in  the  markets,  we  have  a  dedicated  consumer  engagement  group  that  develops  innovative 
engagement tools for adult smokers based on the latest technologies and adult smoker trends. In addition, we developed digital and non-
digital engagement programs for retailers.

Our IQOS distribution strategy is tailored to the individual characteristic of each market. We have adopted a scalable strategy for the 
IQOS commercialization focused on retail experience, guided consumer trials and customer care. We are also developing several ways 
to connect with adult smokers through digital communication tools such as mobile apps in several markets.

3

 
 
 
 
 
 
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, innovation, packaging, service, marketing, advertising and retail price. Our competitors include 
three large international tobacco companies and 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. We predominantly sell American 
blend cigarette brands, such as Marlboro, L&M, Parliament and Chesterfield, which are the most popular across many of our markets. 
We seek to compete in all profitable retail price categories, although our brand portfolio is weighted towards the premium-price category.

 Procurement and Raw Materials 

We purchase tobacco leaf of various types, grades and styles throughout the world, mostly through independent tobacco suppliers. We 
also contract directly with farmers in several countries, including Argentina, Brazil, Colombia, Ecuador, Italy, Kazakhstan, Pakistan, the 
Philippines and Poland. Direct sourcing from farmers represents approximately 17% of PMI’s global leaf requirements. The largest 
supplies of tobacco leaf are sourced from Brazil, Indonesia (mostly for domestic use in kretek products), China, Malawi, India, the United 
States, Mozambique, Argentina, Philippines and Tanzania.

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

In addition to tobacco leaf, we purchase a wide variety of direct materials from a total of approximately 450 suppliers. Our top ten suppliers 
of  direct  materials  combined  represent  approximately  50%  of  our  total  direct  materials  purchases. The  three  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 cigarette 
manufacturing. In addition, the adequate supply and procurement of cloves are of particular importance to our Indonesian business.

 Business Environment 

Information called for by this Item is hereby incorporated by reference to the paragraphs in Item 7, Business Environment.

Customers 

Other Matters

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.

Employees 

At December 31, 2016, we employed approximately 79,500 people worldwide, including employees under temporary contracts and 
hourly paid 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.  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 our relations with our employees and their representative organizations are excellent.

Executive Officers of the Registrant  

The disclosure regarding executive officers is set forth under the heading “Executive Officers as of February 14, 2017” in Item 10. 
Directors, Executive Officers and Corporate Governance of this Annual Report on Form 10-K ("Item 10").

Research and Development 

Our  product  development  is  based  on  the  elimination  of  combustion  via  tobacco  heating  and  other  innovative  systems  for  aerosol 
generation, which we believe is the most promising path to providing a better 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 

4

 
 
 
 
 
 
 
  
 
 
 
appeal to a variety of distinct tastes. Four RRP platforms are in various stages of development and commercialization readiness. We 
describe each of them in more detail in Item 7, Business Environment—Reduced-Risk Products.

The research and development expense for the years ended December 31, 2016, 2015 and 2014, is set forth in Item 8, Note 14. Additional 
Information to the consolidated financial statements. 

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, or have the right to use them in all countries where we use them.

In addition, we have more than 5,900 granted patents worldwide and approximately 6,400 pending patent applications. 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 and proprietary secrets, technology, know-how, processes and other intellectual property rights that are not registered.

Effective January 1, 2008, PMI entered into an Intellectual Property Agreement with Philip Morris USA Inc. (“PM USA”). The Intellectual 
Property Agreement governs the ownership of intellectual property between PMI and PM USA. Ownership of the jointly funded intellectual 
property has been allocated as follows:

• 

• 

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

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

Ownership of intellectual property related to patent applications and resulting patents based solely on the jointly funded intellectual 
property, regardless of when filed or issued, will be exclusive to PM USA in the United States, its territories and possessions and exclusive 
to PMI everywhere else.

The Intellectual Property Agreement contains provisions concerning intellectual property that is independently developed by us or PM 
USA following the Distribution Date. For ten years following the Distribution Date, independently developed intellectual property may 
be subject to rights under certain circumstances that would allow either us or PM USA a priority position to obtain the rights to the new 
intellectual property from the other party, with the price and other commercial terms to be negotiated.

In the event of a dispute between us and PM USA under the Intellectual Property Agreement, we have agreed with PM USA to submit 
the dispute first to negotiation between our and PM USA’s senior executives and then to binding arbitration.

Seasonality 

Our business segments are not significantly affected by seasonality, although in certain markets cigarette consumption trends rise during 
the summer months due to longer daylight time 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 climate 
change. We have developed and implemented a consistent environmental and occupational health, safety and security management system 
("EHSS"), which involves 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 our EHSS 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.

5

 
 
 
 
 
 
 
(d) Financial Information About Geographic Areas 

The amounts of net revenues and long-lived assets attributable to each of our geographic segments for each of the last three fiscal years 
are set forth in Item 8, Note 12. Segment Reporting to the consolidated financial statements.

(e) 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”). Investors may read and copy any document that we file, including 
this Annual Report on Form 10-K, at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Investors may 
obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, 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.

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," 
"estimates," "intends," "projects," "goals," "targets" 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. 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.

6

 
 
 
 
 
  
Risks Related to Our Business and Industry  

•  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, 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.

•  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 
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 us 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 sales of cigarettes, due to resulting lower consumption 
levels, a shift in sales from manufactured cigarettes to other 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."

•  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 volume 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. Significant regulatory 
developments will take place over the next few years in most of our markets, driven principally by the World Health Organization's 
Framework Convention on Tobacco Control (“FCTC”). The FCTC is the first international public health treaty on tobacco, and its objective 
is to establish a global agenda for tobacco regulation. 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 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 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 cigarette vending 
machines;

requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke 
constituents;

disclosure, restrictions, or bans of tobacco product ingredients;

increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;

restrictions on the sale of novel tobacco or nicotine-containing products;

elimination of duty free sales and duty free allowances for travelers; and

encouraging litigation against tobacco companies.

Our operating income 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, as well as any significant increase in the cost of complying 
with new regulatory requirements.

7

•  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 tobacco 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 3. Legal Proceedings and Item 8, Financial Statements and Supplementary 
Data, Note 19. Contingencies for a discussion of pending litigation.

•  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, innovation, packaging, service, marketing, 
advertising and price. We are subject to highly competitive conditions 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 products 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. Competitors include three large 
international tobacco companies and several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, 
principally in Algeria, the PRC, Egypt, 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.

•  Because we have operations in numerous countries, our results may be influenced by economic, regulatory and political 

developments, natural disasters 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 have a significant impact on the business environment. Economic, political, regulatory or 
other developments or natural disasters 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.

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 in 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 international partners.

•  We may be unable to anticipate changes in consumer preferences or to respond to consumer behavior influenced by economic 

downturns.

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

• 

• 

• 

• 

• 

• 

promote brand equity successfully;

anticipate and respond to new consumer trends;

develop new products and markets and broaden brand portfolios;

improve productivity;

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, 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. 

8

•  We lose revenues as a result of counterfeiting, contraband, cross-border purchases and non-tax-paid volume produced by 

local manufacturers.

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 and non-tax-paid volume produced by local manufacturers.

•  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 customs duties and/or excise taxes, allegations of false and misleading usage of descriptors and allegations 
of unlawful advertising. 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 affected by an unfavorable outcome of pending or future investigations. See Item  
3,  Legal  Proceedings-Other  Litigation  and  Item  7,  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 health-related 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 
consumers to make better health choices.  We might not succeed in our efforts.  If we do not succeed, but others do, we may be at a 
competitive disadvantage. Furthermore, we cannot predict whether regulators will permit the sale and/or marketing of RRPs with health-
related claims. Such restrictions could limit the success of our RRPs.

•  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 and operating income 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.

•  The repatriation of our foreign earnings, changes in the earnings mix, and changes in tax laws may increase our effective tax 
rate. Our ability to receive payments from foreign subsidiaries or to repatriate royalties and dividends could be restricted 
by local country currency exchange controls.

Because we are a U.S. holding company, our most significant source of funds is distributions from our non-U.S. subsidiaries. Under 
current U.S. tax law, in general we do not pay U.S. taxes on our foreign earnings until they are repatriated to the U.S. as distributions 
from  our  non-U.S.  subsidiaries. These  distributions  may  result  in  a  residual  U.S.  tax  cost.  It  may  be  advantageous  to  us  in  certain 
circumstances to significantly increase the amount of such distributions, which could result in a material increase in our overall effective 
tax rate under current U.S. tax law.  Furthermore, our effective tax rate could be increased due to changes in the earnings mix or applicable 
tax laws.  In addition, 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.

9

•  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 plant less tobacco. Any significant change in tobacco leaf and clove 
prices, quality and quantity could affect our profitability and our business.

•  Our ability to implement our strategy of attracting and retaining the best global talent may be impaired by the decreasing 

social acceptance of cigarette smoking.

The tobacco industry competes for talent with consumer products and other companies that enjoy greater societal acceptance. As a result, 
we may be unable to attract and retain the best global talent.

•  The failure of our information systems to function as intended or their penetration by outside parties with the intent to corrupt 
them could result in business disruption, litigation and regulatory action, and loss of revenue, assets or personal or other 
sensitive data.

We use information systems to help manage business processes, collect and interpret business data and communicate internally and 
externally  with  employees,  suppliers,  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 to us.

•  We may be required to replace third-party contract manufacturers or service providers with our own resources.

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, 
our costs may increase significantly if we must replace such third parties with our own resources.

Item 1B.  Unresolved Staff Comments. 

None.

10

 
 
Item 2.  Properties.

At December 31, 2016, we operated and owned 48 manufacturing facilities and maintained contract manufacturing relationships with 
22 third-party manufacturers across 21 markets. In addition, we work with 38 third-party operators in Indonesia who manufacture our 
hand-rolled cigarettes.

PMI-Owned Manufacturing Facilities

Fully integrated
Make-pack
Other

Total

(1)

EU 

EEMA

Asia

Latin
America
&
Canada

TOTAL

9
—
4
13

8
—
1
9

9
1
3
13

8
2
3
13

34
3
11
48

(1) Includes facilities that produced IQOS Consumables in 2016.

In 2016, 27 of our facilities each manufactured over 10 billion cigarettes, of which eight facilities each produced over 30 billion units. 
Our largest factories are in St. Petersburg and Krasnodar (Russia), Sukorejo and Karawang (Indonesia), Izmir (Turkey), Marikina and 
Batangas (Philippines), Krakow (Poland), Berlin (Germany), Kharkiv (Ukraine), and Klaipeda (Lithuania).  Our smallest factories are 
mostly in Latin America and Asia, where due to tariff and other constraints we have established small manufacturing units in individual 
markets. We will continue to optimize our manufacturing base, taking into consideration the evolution of trade blocks. 

The plants and properties owned or leased and operated by our subsidiaries are maintained in good condition and are believed to be 
suitable and adequate for our present needs.

We are integrating IQOS Consumables production into our existing manufacturing facilities in Europe and progressing with our plans to 
build manufacturing capacity for our other RRP platforms.  For further details on our IQOS Consumables capacity, see Item 7, Business 
Environment-Reduced-Risk Products.

Item 3. 

Legal Proceedings. 

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, 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 

11

 
 
 
 
 
 
 
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.

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.

To date, no tobacco-related case has been finally resolved in favor of a plaintiff against us, our subsidiaries or indemnitees.

The table below lists the number of tobacco-related cases pending against us and/or our subsidiaries or indemnitees as of February 10, 
2017, December 31, 2015 and December 31, 2014:

Type of Case
Individual Smoking and Health Cases
Smoking and Health Class Actions
Health Care Cost Recovery Actions
Lights Class Actions
Individual Lights Cases
Public Civil Actions

Number of
Cases Pending as of
February 10, 2017

Number of Cases
Pending as of
December 31, 2015

Number of Cases
Pending as of
December 31, 2014

63
11
16
—
2
2

68
11
16
—
3
3

63
11
15
—
2
2

Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 456 Smoking and Health, Lights, Health Care Cost 
Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated 
in our favor. Thirteen cases have had decisions in favor of plaintiffs. Nine of these cases have subsequently reached final resolution in 
our favor and four remain on appeal.

12

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

Date
February 2004

Location of
Court/Name of
Plaintiff
Brazil/The Smoker
Health Defense
Association

Type of
Case
Class Action

Date
May 27, 2015

Location of
Court/Name of
Plaintiff
Canada/Cecilia
Létourneau

Type of
Case
Class Action

Verdict

The Civil Court of São
Paulo found defendants
liable without hearing
evidence. In April 2004,
the court awarded “moral
damages” of R$1,000
(approximately $321) 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.

Post-Trial
Developments
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.
Plaintiff appealed the decision. In
February 2015, the appellate court
unanimously dismissed plaintiff's
appeal. In September 2015, plaintiff
appealed 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. This appeal is still
pending.

Verdict

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 $100
million) in punitive
damages, allocating CAD
46 million (approximately
$35 million) to our
subsidiary. 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.

Post-Trial
Developments

In June 2015, our subsidiary 
commenced the appellate process with 
the Court of Appeal of Quebec.  Our 
subsidiary also filed a motion to cancel 
the trial court’s order for payment into 
a trust notwithstanding appeal. In July 
2015, the Court of Appeal granted the 
motion to cancel and overturned the 
trial court’s ruling that our subsidiary 
make the payment into a trust. In 
August 2015, plaintiffs filed a motion 
for security with the Court of Appeal 
covering both the Létourneau case and 
the Blais case described below.  In 
October 2015, the Court of Appeal 
granted the motion and ordered our 
subsidiary to furnish security totaling 
CAD 226 million (approximately $173 
million) to cover both the Létourneau 
and Blais cases.  The hearing for the 
merits appeal took place in November 
2016.  (See below for further detail.)

13

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Date
May 27, 2015

Location of
Court/Name of
Plaintiff
Canada/Conseil 
Québécois Sur Le Tabac 
Et La Santé and Jean-
Yves Blais

Type of
Case
Class Action

Post-Trial
Developments

In June 2015, our subsidiary 
commenced the appellate process 
with the Court of Appeal of 
Quebec.  Our subsidiary also 
filed a motion to cancel the trial 
court’s order for payment into a 
trust notwithstanding appeal.  In 
July 2015, the Court of Appeal 
granted the motion to cancel and 
overturned the trial court’s ruling 
that our subsidiary make the 
payment into a trust. In August 
2015, plaintiffs filed a motion for 
security with the Court of 
Appeal. In October 2015, the 
Court of Appeal granted the 
motion and ordered our 
subsidiary to furnish security 
totaling, together with the 
Létourneau case, CAD 226 
million (approximately $173 
million).  The hearing for the 
merits appeal took place in 
November 2016. (See below for 
further detail.)

Verdict

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 $11.8 
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 $2.4 
billion)). The trial court 
awarded CAD 90,000 
(approximately $68,800) 
in punitive damages, 
allocating CAD 30,000 
(approximately $22,900) 
to our subsidiary. The 
trial court ordered 
defendants to pay CAD 1 
billion (approximately 
$764 million) of the 
compensatory damage 
award, CAD 200 million 
(approximately $153 
million) of which is our 
subsidiary’s portion, into 
a trust within 60 days. 

14

  
  
  
  
  
  
  
  
Date

Location of
Court/Name of
Plaintiff

August 5, 2016 Argentina/Hugo Lespada

Type of
Case
Individual
Action

Post-Trial
Developments
On August 23, 2016, our
subsidiary filed its notice of
appeal.

Verdict

On 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 
$7,100), plus interest, in 
compensatory and moral 
damages.
The Court found that our 
subsidiary failed to warn 
plaintiff of the risk of 
becoming addicted to 
cigarettes.  

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 10, 2017, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 

• 

63 cases brought by individual plaintiffs in Argentina (35), Brazil (16), Canada (2), Chile (5), Costa Rica (2), Italy (1), the 
Philippines (1) and Scotland (1), compared with 68 such cases on December 31, 2015, and 63 cases on December 31, 2014; and

11 cases brought on behalf of classes of individual plaintiffs in Brazil (2) and Canada (9), compared with 11 such cases on 
December 31, 2015 and December 31, 2014.

In the first 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 $321) 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 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.

In the second class action pending in Brazil, Public Prosecutor of São Paulo v. Philip Morris Brasil Industria e Comercio Ltda., Civil 
Court of the City of São Paulo, Brazil, filed August 6, 2007, our subsidiary is a defendant. The plaintiff, the Public Prosecutor of the State 
of São Paulo, is seeking (i) damages on behalf of all smokers nationwide, former smokers, and their relatives; (ii) damages on behalf of 
people exposed to environmental tobacco smoke nationwide, and their relatives; and (iii) reimbursement of the health care costs allegedly 
incurred for the treatment of tobacco-related diseases by all Brazilian States and Municipalities, and the Federal District. In an interim 
ruling issued in December 2007, the trial court limited the scope of this claim to the State of São Paulo only. In December 2008, the 
Seventh Civil Court of São Paulo issued a decision declaring that it lacked jurisdiction because the case involved issues similar to the 
ADESF case discussed above and should be transferred to the Nineteenth Lower Civil Court in São Paulo where the ADESF case is 

15

  
  
  
  
pending. The court further stated that these cases should be consolidated for the purposes of judgment. In April 2010, the São Paulo Court 
of Appeals reversed the Seventh Civil Court's decision that consolidated the cases, finding that they are based on different legal claims 
and are progressing at different stages of proceedings. This case was returned to the Seventh Civil Court of São Paulo, and our subsidiary 
filed its closing arguments in December 2010. In March 2012, the trial court dismissed the case on the merits. In January 2014, the São 
Paulo Court of Appeals rejected plaintiff’s appeal and affirmed the trial court decision.  In July 2014, plaintiff appealed to the Superior 
Court of Justice.

In the first 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, our subsidiary and other Canadian 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.  Trial began in March 2012 
and concluded in December 2014.  The trial court issued its judgment on May 27, 2015.  The trial court found our subsidiary and two 
other Canadian manufacturers liable and awarded a total of CAD 131 million (approximately $100 million) in punitive damages, allocating 
CAD 46 million (approximately $35 million) to our subsidiary.  The trial court found 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.  The trial court also found that defendants conspired to prevent consumers from learning the dangers of smoking. 
The trial court further held that these civil faults were a cause of the class members’ addiction.  The trial court rejected other grounds of 
fault advanced by the class, holding that:  (i) the evidence was insufficient to show that defendants marketed to youth, (ii) defendants’ 
advertising did not convey false information about the characteristics of cigarettes, and (iii) defendants did not commit a fault by using 
the descriptors light or mild for cigarettes with a lower tar delivery. 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 ordered defendants to pay the full punitive damage award into a trust within 60 days and found that 
a claims process to allocate the awarded damages to individual class members would be too expensive and difficult to administer.  The 
trial court ordered a briefing on the proposed process for the distribution of sums remaining from the punitive damage award after payment 
of attorneys’ fees and legal costs.  In June 2015, our subsidiary commenced the appellate process by filing its inscription of appeal of the 
trial court’s judgment with the Court of Appeal of Quebec.  Our subsidiary also filed a motion to cancel the trial court’s order for payment 
into a trust within 60 days notwithstanding appeal.  In July 2015, the Court of Appeal granted the motion to cancel and overturned the 
trial court’s ruling that our subsidiary make the payment into a trust within 60 days.  In August 2015, plaintiffs filed a motion with the 
Court of Appeal seeking security in both the Létourneau case and the Blais case described below.  In October 2015, the Court of Appeal 
granted the motion and ordered our subsidiary to furnish security totaling CAD 226 million (approximately $173 million), in the form 
of  cash  into  a  court  trust  or  letters  of  credit,  in  six  equal  consecutive  quarterly  installments  of  approximately  CAD  37.6  million 
(approximately $28.7 million) beginning in December 2015 through March 2017.  See the Blais description for further detail concerning 
the security order.  The Court of Appeal heard oral arguments on the merits appeal in November 2016.  Our subsidiary and PMI believe 
that the findings of liability and damages were incorrect and should ultimately be set aside on any one of many grounds, including the 
following:  (i) holding that defendants violated Quebec law by failing to warn class members of the risks of smoking even after the court 
found that class members knew, or should have known, of the risks, (ii) finding that plaintiffs were not required to prove that defendants’ 
alleged misconduct caused injury to each class member in direct contravention of binding precedent, (iii) creating a factual presumption, 
without any evidence from class members or otherwise, that defendants’ alleged misconduct caused all smoking by all class members, 
(iv) holding that the addiction class members’ claims for punitive damages were not time-barred even though the case was filed more 
than three years after a prominent addiction warning appeared on all packages, and (v) awarding punitive damages to punish defendants 
without proper consideration as to whether punitive damages were necessary to deter future misconduct.

In the second 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, our subsidiary 
and other Canadian manufacturers (Imperial Tobacco Canada Ltd. and JTI-MacDonald Corp.) are defendants. The plaintiffs, an anti-
smoking organization and an individual smoker, sought compensatory and punitive damages for each member of the class who allegedly 
suffers from certain smoking-related diseases. The class was certified in 2005. Trial began in March 2012 and concluded in December 
2014.  The trial court issued its judgment on May 27, 2015.  The trial court found our subsidiary and two other Canadian manufacturers 
liable and found that the class members’ compensatory damages totaled approximately CAD 15.5 billion, including pre-judgment interest 
(approximately $11.8 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 $2.4 billion)). In addition, the trial court 
awarded CAD 90,000 (approximately $68,800) in punitive damages, allocating CAD 30,000 (approximately $22,900) to our subsidiary 
and found 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.  The trial court also found that defendants conspired 
to prevent consumers from learning the dangers of smoking. The trial court further held that these civil faults were a cause of the class 
members’ diseases. The trial court rejected other grounds of fault advanced by the class, holding that:  (i) the evidence was insufficient 
to show that defendants marketed to youth, (ii) defendants’ advertising did not convey false information about the characteristics of 
cigarettes, and (iii) defendants did not commit a fault by using the descriptors light or mild for cigarettes with a lower tar delivery. The 

16

trial court estimated the disease class at 99,957 members. The trial court ordered defendants to pay CAD 1 billion (approximately $764 
million) of the compensatory damage award into a trust within 60 days, CAD 200 million (approximately $153 million) of which is our 
subsidiary’s portion and ordered briefing on a proposed claims process for the distribution of damages to individual class members and 
for payment of attorneys’ fees and legal costs. In June 2015, our subsidiary commenced the appellate process by filing its inscription of 
appeal of the trial court’s judgment with the Court of Appeal of Quebec.  Our subsidiary also filed a motion to cancel the trial court’s 
order for payment into a trust within 60 days notwithstanding appeal.  In July 2015, the Court of Appeal granted the motion to cancel 
and overturned the trial court’s ruling that our subsidiary make an initial payment within 60 days.  In August 2015, plaintiffs filed a motion 
with the Court of Appeal seeking an order that defendants place irrevocable letters of credit totaling CAD 5 billion (approximately $3.8 
billion) into trust, to secure the judgments in both the Létourneau and Blais cases. Plaintiffs subsequently withdrew their motion for 
security against JTI-MacDonald Corp. and proceeded only against our subsidiary and Imperial Tobacco Canada Ltd.  In October 2015, 
the Court of Appeal granted the motion and ordered our subsidiary to furnish security totaling CAD 226 million (approximately $173 
million) to cover both the Létourneau and Blais cases. Such security may take the form of cash into a court trust or letters of credit, in 
six equal consecutive quarterly installments of approximately CAD 37.6 million (approximately $28.7 million) beginning in December 
2015 through March 2017.  The Court of Appeal ordered Imperial Tobacco Canada Ltd. to furnish security totaling CAD 758 million 
(approximately $579 million) in seven equal consecutive quarterly installments of approximately CAD 108 million (approximately $83 
million) beginning in December 2015 through June 2017.  In December 2016, our subsidiary made its fifth quarterly installment of 
security for approximately CAD 37.6 million (approximately $28.7 million) into a court trust. This payment is included in other assets 
on the consolidated balance sheets and in cash used in operating activities in the consolidated statements of cash flows.  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. The Court of Appeal heard oral arguments on the merits appeal in November 2016.  Our subsidiary 
and PMI believe that the findings of liability and damages were incorrect and should ultimately be set aside on any one of many grounds, 
including the following:  (i) holding that defendants violated Quebec law by failing to warn class members of the risks of smoking even 
after the court found that class members knew, or should have known, of the risks, (ii) finding that plaintiffs were not required to prove 
that defendants’ alleged misconduct caused injury to each class member in direct contravention of binding precedent, (iii) creating a 
factual presumption, without any evidence from class members or otherwise, that defendants’ alleged misconduct caused all smoking by 
all class members, (iv) relying on epidemiological evidence that did not meet recognized scientific standards, and (v) awarding punitive 
damages to punish defendants without proper consideration as to whether punitive damages were necessary to deter future misconduct. 

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, our subsidiaries, 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 September 2009, 
plaintiff's counsel informed defendants that he did not anticipate taking any action in this case while he pursues the class action filed in 
Saskatchewan (see description of Adams, below). 

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, our subsidiaries, 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. Preliminary motions are pending.

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, our subsidiaries, 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. No activity in this case is anticipated while plaintiff's counsel pursues the class action filed in Saskatchewan 
(see description of Adams, above).

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, our subsidiaries, 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 

17

the complaint. No activity in this case is anticipated while plaintiff's counsel pursues the class action filed in Saskatchewan (see description 
of Adams, above).

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, our subsidiaries, 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 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, our subsidiaries, 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, our subsidiaries, 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. Plaintiff's counsel has indicated that he does not intend to take any action in this case in the near future.

Health Care Cost Recovery Litigation: These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of 
health care cost expenditures allegedly caused by tobacco products. Plaintiffs' allegations of liability in these cases are based on various 
theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied warranties, 
violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, defective product, 
failure to warn, sale of cigarettes to minors, and claims under statutes governing 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 10, 2017, there were 16 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Canada 
(10), Korea (1) and Nigeria (5), compared with 16 such cases on December 31, 2015 and 15 such cases on December 31, 2014. 

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, our subsidiaries, 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.” The Supreme Court of Canada 
has held that the statute is constitutional. We and certain other non-Canadian defendants challenged the jurisdiction of the court. The 
court rejected the jurisdictional challenge. Pre-trial discovery is ongoing.

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, our subsidiaries, 
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.” Pre-trial discovery is ongoing.  In September 2016, the trial court entered 
a consent order establishing a discovery timetable that contemplates the province of New Brunswick applying by September 2017 for a 
trial date.

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, our subsidiaries, 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 

18

 
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.” Pre-trial discovery is ongoing.

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, our subsidiaries, 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.” Pre-trial discovery is ongoing.

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, our subsidiary, 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.” Pre-trial discovery is ongoing. 

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, our subsidiaries, 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.” Pre-trial discovery is ongoing.

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, our subsidiaries, 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.” Defendants filed their defenses in September 2014. Pre-trial discovery 
is ongoing.

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, our subsidiaries, 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.” Defendants filed their defenses in February 2015. Discovery is scheduled to begin in 2017.

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, our subsidiaries, 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.” Defendants filed their defenses in 
February 2015. Discovery is scheduled to begin in 2017.

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, our subsidiaries, 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.” Defendants filed their defenses in July 2015. Discovery is scheduled to begin in 2017.

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 

19

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 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 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. We have appealed.

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 approximately $53.7 million 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 case is now in the evidentiary phase.

Lights Cases: These cases, brought by individual plaintiffs, allege that the use of the term “lights” constitutes 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 10, 2017, there were 2 lights cases brought by individual plaintiffs pending against our subsidiaries or indemnitees in 
Chile (1) and Italy (1), compared with 3 such cases on December 31, 2015, and 2 such cases on December 31, 2014.

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 10, 2017, there were 2 public civil actions pending against our subsidiaries in Argentina (1) and Venezuela (1), compared 
with 3 such cases on December 31, 2015, and 2 such cases on December 31, 2014.

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 

20

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 in the evidentiary stage.

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.

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, underdeclared import prices of cigarettes to avoid full payment of taxes and duties in 
connection with 272 import entries of cigarettes from the Philippines during the period of July 2003 to June 2006. The government is 
seeking a fine of approximately THB 80.8 billion (approximately $2.29 billion). The case is in the pre-trial evidentiary phase. Trials are 
scheduled to begin during the last quarter of 2017.  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 other Thai governmental agencies.

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 
Thai ex-employee in the Bangkok Criminal Court alleging that PM Thailand and its Thai ex-employee jointly and with the intention to 
defraud the Thai government underdeclared import prices of cigarettes to avoid full payment of taxes and duties in connection with 780 
import entries during the period from January 2002 to July 2003. The government is seeking a fine of approximately THB 19.8 billion 
(approximately $562 million). The first hearing, which will focus on preliminary procedural matters, is scheduled for April 2017.  PM 
Thailand disagrees with the allegations and believes that its declared import prices are in compliance with the Customs Valuation Agreement 
of the WTO and Thai law.

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,  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 the total amount that the tax authorities demanded, namely, approximately KRW 100 billion 
(approximately $85 million)  in December 2016 and approximately KRW 118 billion (approximately $100 million) in January 2017.  The 
total demanded amount is included in other assets, and the January 2017 payment is included in accrued liabilities, in the consolidated 
balance sheets for the year ended 2016.  The December 2016 payment is reflected in cash used in operating activities in the consolidated 
statements of cash flows for the year ended 2016.  In the beginning of 2017, PM Korea received demand notices from other government 
authorities for other amounts of approximately KRW 54 billion (approximately $46 million) in the aggregate.  PM Korea will appeal the 
assessments. The tax authorities have also referred the matter to the Public Prosecutor, who will further investigate and decide whether 
to file criminal charges against PM Korea and/or other alleged co-offenders. If the Public Prosecutor decides to prosecute, it may seek 
up to three times the underpaid tax for company criminal penalties and up to five times the underpaid tax for individual criminal penalties. 
PM Korea believes that it has paid cigarette-related taxes in compliance with the South Korean tax laws. In addition, the South Korean 
Ministry of Strategy and Finance (“MOSF”) filed a criminal complaint with the Public Prosecutor against PM Korea and its managing 
director. In its criminal complaint, the MOSF alleged that PM Korea exceeded the monthly product withdrawal limits that the MOSF 
had set in its notice. The Public Prosecutor will investigate the MOSF’s criminal complaint and decide whether to prosecute.  PM Korea 
disagrees with the MOSF’s allegations.

21

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.

Item 4.  Mine Safety Disclosures.

Not applicable.

PART II

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. At January 31, 2017, 
there were approximately 61,000 holders of record of our common stock.

Our common stock is also listed on the NYSE Euronext in Paris and the SIX Swiss Exchange.

22

 
 
 
 
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 Groups (Old and New) and the S&P 500 Index.  The graph assumes the investment of $100 as of December 31, 
2011, 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.

Date

December 31, 2011

December 31, 2012

December 31, 2013

December 31, 2014

December 31, 2015

December 31, 2016

PMI

$100.00

$110.60

$120.00

$117.50

$133.30

$144.70

PMI Peer Group-
Old (1,3)
$100.00

PMI Peer Group-
New (2,3)
$100.00

$112.30

$143.30

$149.00

$156.20

$153.60

$113.90

$140.00

$151.90

$164.70

$168.00

S&P 500 Index

$100.00

$116.00

$153.60

$174.60

$177.00

$198.20

(1) The PMI Peer Group-Old (formerly, the PMI Compensation Survey Group) consists of the following companies with substantial global sales that are 
direct competitors; or have similar market capitalization; or are primarily focused on consumer products (excluding high technology and financial 
services); and are companies for which comparative executive compensation data are readily available:  Bayer AG, British American Tobacco p.l.c., 
The Coca-Cola Company, Diageo plc, GlaxoSmithKline, Heineken N.V., Imperial Brands PLC (formerly, Imperial Tobacco Group PLC), Johnson & 
Johnson, McDonald's Corp., 
International, Inc., Nestlé S.A., Novartis AG, PepsiCo, Inc., Pfizer Inc., Roche Holding AG, Unilever NV and 
PLC and Vodafone Group Plc.
(2) In 2016, PMI determined that it should use a single customized peer group both to benchmark its compensation programs and to compare its Total 
Shareholder Return when calculating its Performance Share Unit performance factor. The new 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, Altria Group, Inc., Anheuser-Busch InBev SA/NV, 
Colgate-Palmolive Co., Japan Tobacco Inc., Kimberly-Clark Corporation, The Kraft-Heinz Company, The Procter & Gamble Company and Reynolds 
American Inc. were added to the new Peer Group and Bayer AG, GlaxoSmithKline, Novartis AG, Pfizer Inc. and Vodafone Group Plc. were removed.

23

(3) On October 1, 2012, 
International, Inc., formerly Kraft Foods Inc., announced that it had completed the spin-off of its North American 
International, Inc. was retained in the PMI Peer Group-Old (formerly, PMI Compensation Survey 
grocery business, Kraft Foods Group, Inc. 
Group) and in the PMI Peer Group-New indices because of its global footprint.  The PMI Peer Group-Old and in the PMI Peer Group-New indices total 
cumulative return calculation weight 
International, Inc.'s total shareholder return at 65% of historical Kraft Foods Inc.'s market capitalization 
on December 31, 2011, based on 
International, Inc. and Kraft Foods Group, Inc. in October 2012. Although included in the PMI Peer Group-New, Kraft Heinz Company is not included 
in the total cumulative return calculation, having become publicly traded only in October 2012.

International, Inc.'s initial market capitalization relative to the combined market capitalization of 

Note: Figures are rounded to the nearest $0.10. 

Issuer Purchases of Equity Securities During the Quarter Ended December 31, 2016 

Our share repurchase activity for each of the three months in the quarter ended December 31, 2016, was as follows:

Period

October 1, 2016 –
October 31, 2016 (1)

November 1, 2016 –
November 30, 2016 (1)

December 1, 2016 –
December 31, 2016 (1)
Pursuant to Publicly Announced
   Plans or Programs

October 1, 2016 –
October 31, 2016 (3)

November 1, 2016 –
November 30, 2016 (3)

December 1, 2016 –
December 31, 2016 (3)

For the Quarter Ended
   December 31, 2016

Total
Number of
Shares
Repurchased

Average
Price Paid
per Share

Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs (2)

Approximate
Dollar Value
of Shares that
May Yet be
Purchased
Under the Plans
or Programs

— $

— $

— $

—

—

—

— $

— $

— $

— $

424

1,144

20,088

21,656

$

$

$

$

—

—

—

—  

97.91

96.18

91.70

92.06

(1)  Our authorized three-year share repurchase program of $18 billion expired in August 2015. During this reporting period, we did 

not have an authorized share repurchase program.

(2)  Aggregate number of shares repurchased under the above-mentioned share repurchase program as of the end of the period presented.

(3)  Shares repurchased represent shares tendered to us by employees who vested in restricted share unit awards and used shares to 

pay all, or a portion of, the related taxes. 

The other information called for by this Item is included in Item 8, Note 23. Quarterly Financial Data (Unaudited) to the consolidated 
financial statements.

24

 
 
 
 
 
 
 
 
 
 
 
Item 6.        Selected Financial Data

(in millions of dollars, except per share data) 

Summary of Operations:

Net revenues

Cost of sales

Excise taxes on products

Gross profit

Operating income

Interest expense, net

Earnings before income taxes

Pre-tax profit margin

Provision for income taxes

Net earnings

Net earnings attributable to noncontrolling

interests

Net earnings attributable to PMI

Basic earnings per share

Diluted earnings per share

Dividends declared per share

Capital expenditures

Depreciation and amortization

Property, plant and equipment, net

Inventories

Total assets

Long-term debt

Total debt
Stockholders' deficit

2016

2015

2014

2013

2012

$

74,953

$

73,908

$

9,391

48,268

17,294

10,815

891

9,924

9,365

47,114

17,429

10,623

1,008

9,615

$

80,106

10,436

50,339

19,331

11,702

1,052

10,650

80,029

10,410

48,812

20,807

13,515

973

12,542

$

77,393

10,373

46,016

21,004

13,863

859

13,004

13.2%

13.0%

13.3%

15.7%

16.8%

2,768

7,250

283

6,967

4.48

4.48

4.12

1,172

743

6,064

9,017

36,851

25,851

29,067

(10,900)

2,688

7,032

159

6,873

4.42

4.42

4.04

960

754

5,721

8,473

33,956

25,250

28,480
(11,476)

3,097

7,658

165

7,493

4.76

4.76

3.88

1,153

889

6,071

8,592

35,187

26,929

29,455
(11,203)

3,670

8,850

274

8,576

5.26

5.26

3.58

1,200

882

6,755

9,846

38,168

24,023

27,678
(6,274)

3,833

9,154

354

8,800

5.17

5.17

3.24

1,056

898

6,645

8,949

37,670

17,639

22,839
(3,154)

Common dividends declared as a % of

Diluted EPS

92.0%

91.4%

81.5%

68.1%

62.7%

Market price per common share — high/low 104.20-84.46

90.27-75.27

91.63-75.28

96.73-82.86

94.13-72.85

Closing price of common share at year end

Price/earnings ratio at year end — Diluted

Number of common shares outstanding at

year end (millions)

Number of employees

91.49

20

1,551

79,500

87.91

20

1,549

80,200

81.45

17

1,547

82,500

87.13

17

1,589

91,100

83.64

16

1,654

87,100

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

25

 
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 holding company whose subsidiaries and affiliates, and their licensees, are engaged in the manufacture and sale of cigarettes, 
other tobacco products and other nicotine-containing products in markets outside the United States of America.  We manage our business 
in four segments:

•  European Union;

•  Eastern Europe, Middle East & Africa (“EEMA”);

•  Asia; and 

•  Latin America & Canada.

Our products are sold in more than 180 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.    In  addition  to  the  manufacture  and  sale  of  cigarettes  and  other  tobacco  products,  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 continued smoking.  We have a range 
of RRPs in various stages of development, scientific assessment and commercialization.  Because our RRPs do not burn tobacco, they 
produce far lower quantities of harmful and potentially harmful compounds than found in cigarette smoke. 

We use the term net revenues to refer to our operating revenues from the sale of our products, net of sales and promotion incentives.  
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).  We often collect excise taxes from our 
customers and then remit them to governments, and, in those circumstances, we include the excise taxes in our net revenues and in excise 
taxes on products.  Our cost of sales consists principally of tobacco leaf, non-tobacco raw materials, labor and manufacturing costs.

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 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.

26

 
Executive Summary 

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

•  Consolidated Operating Results – The changes in our reported diluted earnings per share (“diluted EPS”) for the year ended 

December 31, 2016, from the comparable 2015 amounts, were as follows:

For the year ended December 31, 2015

$

4.42

Diluted EPS % Growth

2015 Asset impairment and exit costs

2015 Tax items

Subtotal of 2015 items

2016 Asset impairment and exit costs

2016 Tax items

Subtotal of 2016 items

Currency
Interest
Change in tax rate
Operations
For the year ended December 31, 2016

0.03
(0.03)
—

—

—
—

(0.46)
0.05
0.03
0.44
4.48

$

1.4%

See the discussion of events affecting the comparability of statement of earnings amounts in the Consolidated Operating Results section 
of the following Discussion and Analysis.

•  Asset Impairment and Exit Costs – During 2015, we recorded pre-tax asset impairment and exit costs of $68 million ($52 million 
after tax or $0.03 per share) related to severance costs for the organizational restructuring in the European Union segment.  During 
2016, we did not have an EPS impact related to asset impairment and exit costs.

• 

Income Taxes – Our effective income tax rate for 2016 decreased by 0.1 percentage point to 27.9%.  The 2015 tax items that 
increased our diluted EPS by $0.03 per share in 2015 in the table above represents a reduction in unrecognized tax benefits of $41 
million following the conclusion of the IRS examinations of Altria Group, Inc.'s ("Altria") consolidated tax returns for the years 
2007 and 2008 and PMI's consolidated tax returns for the years 2009 through 2011.  Prior to March 28, 2008, PMI was a wholly 
owned subsidiary of Altria.  The change in tax rate that increased our diluted EPS by $0.03 per share in 2016 in the table above was 
primarily due to earnings mix by taxing jurisdiction and repatriation cost differences.

•  Currency – The unfavorable currency impact during 2016 results from the strengthening of the U.S. dollar, especially against the  
Egyptian pound, Indonesian rupiah, Kazakh tenge, Mexican peso, Russian ruble and Turkish lira, partially offset by the Japanese 
yen.  This unfavorable currency movement has impacted our profitability across our primary revenue markets and local currency 
cost bases.

• 

Interest – The favorable impact of interest was due primarily to lower effective interest rates on debt and higher interest income.

•  Operations – The increase in diluted EPS of $0.44 from our operations in the table above was due primarily to the following 

segments: 

•  EEMA: Higher pricing and lower marketing, administration and research costs, partially offset by unfavorable volume/mix; 

•  European Union: Higher pricing, lower manufacturing costs and lower  marketing, administration and research costs, partially 

offset by unfavorable volume/mix; 

•  Asia: Higher pricing and lower marketing, administration and research costs, partially offset by unfavorable volume/mix; and

•  Latin America & Canada: Higher pricing, partially offset by unfavorable volume/mix, higher manufacturing costs and higher 

27

marketing, administration and research costs.

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

• 2017 Forecasted Results – On February 2, 2017, we announced our forecast for 2017 full-year reported diluted EPS to be in a range 
of $4.70 to $4.85, at prevailing exchange rates at that time, versus $4.48 in 2016.  Excluding an unfavorable currency impact at then-
prevailing exchange rates of approximately $0.18 per share for the full-year 2017, the reported diluted earnings per share range represents 
an increase of approximately 9% to 12% versus adjusted diluted earnings per share of $4.48 in 2016.  This forecast reflects net revenue 
growth, excluding excise taxes, in excess of our current annual growth target range of 4%-6%, excluding currency and acquisitions.  This 
forecast does not include any share repurchases in 2017. 

Our 2016 reported and adjusted diluted EPS was $4.48.  During 2016, we did not have an EPS impact related to asset impairment and 
exit costs, and discrete tax items.

Adjusted diluted EPS is not a measure under accounting principles generally accepted in the United States of America ("U.S. GAAP").  
We define adjusted diluted EPS as reported diluted EPS adjusted for asset impairment and exit costs, discrete tax items and unusual 
items.  We believe it is appropriate to disclose this measure as it represents core earnings, improves comparability and helps investors 
analyze business performance and trends.  Adjusted diluted EPS should be considered neither in isolation nor as a substitute for reported 
diluted EPS prepared in accordance with U.S. GAAP.

This 2017 guidance excludes the impact of any future acquisitions, unanticipated asset impairment and exit cost charges, future changes 
in currency exchange rates and any unusual events. The factors described in Item 1A. Risk Factors represent continuing risks to this 
forecast.

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:

• Revenue Recognition - We recognize revenue when persuasive evidence of an arrangement exists, delivery of product has occurred, 
the sales price is fixed or determinable and collectability is reasonably assured. For our company, this means that revenue is recognized 
when title and risk of loss is transferred to our customers.  Title transfers to our customers upon shipment or upon receipt at the customer's 
location as determined by the sales terms for each transaction.  The company estimates the cost of sales returns based on historical 
experience, and these estimates are immaterial.  

• 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.  During the second quarter of 2016, we changed the date of 
our  annual  goodwill  impairment  test  from  the  first  quarter  to  the  second  quarter.  The  change  was  made  to  more  closely  align  the 
impairment testing date with our long-range planning and forecasting process.  We have determined that this change in accounting 
principle is preferable under the circumstances and believe that the change in the annual impairment testing date did not delay, accelerate, 
or avoid an impairment charge.  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 each reporting 

28

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, 
2016, the carrying value of our goodwill was $7.3 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, 2016.  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, we have not recorded a charge to earnings for an impairment of goodwill or non-amortizable intangible assets.

• Marketing and Advertising 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.  We 
have not made any material changes in the accounting methodology used to estimate our marketing programs during the past three years.  

• Employee Benefit Plans - As discussed 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 pensions and postretirement plans are as follows:

U.S. pension plans
Non-U.S. pension plans
Postretirement plans

2016
4.07%
1.39%
3.68%

2015
4.30%
1.68%
4.45%

We anticipate that assumption changes will decrease 2017 pre-tax U.S. and non-U.S. pension and postretirement expense to approximately 
$199  million  as  compared  with  approximately  $215  million  in  2016,  excluding  amounts  related  to  early  retirement  programs. The 
anticipated decrease is primarily due to lower interest cost, partially offset by lower expected return on assets.

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 2017 pension and postretirement expense 
by approximately $43 million, and a fifty-basis-point increase in our discount rate would decrease our 2017 pension and postretirement 
expense by approximately $40 million. Similarly, a fifty-basis-point decrease (increase) in the expected return on plan assets would 
increase (decrease) our 2017 pension expense by approximately $33 million.  See Item 8, Note 13. Benefit Plans to our consolidated 
financial statements for a sensitivity discussion of the assumed health care cost trend rates.

Beginning January 1, 2017, we changed the method used to calculate the service and interest cost components for the net periodic pension 
benefit costs.  Specifically, service costs will be determined based on duration-specific spot rates applied to service cost cash flows and 
interest costs will be determined by applying duration specific spot rates to the year-by-year projected benefit.   The change will not have 
a material impact to our consolidated results of operations, financial position or cash flows and will be accounted for prospectively as a 
change in accounting estimate.

• 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.

29

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.

The effective tax rates used for interim reporting are based on our full-year geographic earnings mix projections and cash repatriation 
plans.  Changes in currency exchange rates, earnings mix by taxing jurisdiction or in cash repatriation plans could 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. 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 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 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 - As discussed in Item 8, Note 19. 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, 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.

30

Consolidated Operating Results 

Our cigarette volume, net revenues, excise taxes on products and operating companies income by segment were as follows:

(in millions)
Cigarette Volume

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

  Total cigarette volume

(in millions)

Net Revenues

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

   Net revenues

(in millions)

Excise Taxes on Products

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

   Excise taxes on products

(in millions)

Operating Income

Operating companies income:

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

Amortization of intangibles

General corporate expenses

Less:

2016

2015

2014

193,586

271,393

260,029

87,938

812,946

194,589

279,411

281,350

91,920

847,270

194,746

278,374

288,128

94,706

855,954

2016

2015

2014

$

27,129

$

26,563

$

30,517

18,286

20,531

9,007

18,328

19,469

9,548

$

74,953

$

73,908

$

20,469

19,255

9,865

80,106

2016

2015

2014

$

18,967

$

18,495

$

21,370

11,286

11,850

6,165

10,964

11,266

6,389

$

48,268

$

47,114

$

11,855

10,527

6,587

50,339

2016

2015

2014

$

3,994

$

3,576

$

3,016

3,196

938
(74)
(161)

3,425

2,886

1,085
(82)
(162)

3,815

4,033

3,187

1,030
(93)
(165)

Equity (income)/loss in unconsolidated subsidiaries, net
   Operating income

(94)
10,815

$

(105)
10,623

$

(105)
11,702

$

As discussed in Item 8, Note 12. Segment Reporting to our consolidated financial statements, we evaluate segment performance and 
allocate resources based on operating companies income, which we define as operating income, excluding general corporate expenses 
and amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. We believe it is appropriate to disclose 
this measure to help investors analyze the business performance and trends of our various business segments.

31

References to total international cigarette market, defined as worldwide cigarette volume excluding the United States, total cigarette 
market, total market and market shares throughout this Discussion and Analysis are our tax-paid estimates based on the latest available 
data from a number of internal and external sources. 

The following events that occurred during 2016, 2015 and 2014 affected the comparability of our statement of earnings amounts: 

•  Asset Impairment and Exit Costs – For the year ended December 31, 2016, we did not incur asset impairment and exit costs.  For 
the years ended December 31, 2015 and 2014, pre-tax asset impairment and exit costs by segment were as follows: 

(in millions)
Separation programs:

   European Union

   Eastern Europe, Middle East & Africa

   Asia

   Latin America & Canada

      Total separation programs

Asset impairment charges:

   European Union

   Latin America & Canada

      Total asset impairment charges

Asset impairment and exit costs

2015

2014

$

$

68

—

—

—

68

—

—

—

68

$

$

351

2

35

3

391

139

5

144

535

For further details, see Item 8, Note 5. Asset Impairment and Exit Costs to our consolidated financial statements.

•  Acquisitions  and  Other  Business Arrangements  –  For  further  details,  see  Item  8,  Note  6.  Acquisitions  and  Other  Business 
Arrangements to our consolidated financial statements.

2016 compared with 2015 

The  following  discussion  compares  our  consolidated  operating  results  for  the  year  ended  December 31,  2016,  with  the  year  ended 
December 31, 2015.

Our cigarette shipment volume decreased by 4.1%, or by 4.7% excluding net estimated inventory movements, due to:

•  European Union, principally Italy, Germany and Greece, partly offset by Poland and Spain;

•  EEMA, mainly North Africa, primarily Algeria, and Russia, partly offset by Saudi Arabia and Ukraine; 

•  Asia, principally Indonesia, Pakistan, the Philippines and Thailand, partly offset by Korea; and

•  Latin America & Canada, predominantly Argentina, partly offset by Mexico.

Our cigarette market share increased in a number of markets, including Brazil, Canada, Colombia, the Czech Republic, France, Kuwait, 
Mexico, the Netherlands, Norway, Poland, Saudi Arabia, Spain, Switzerland, Turkey and the United Arab Emirates.

32

 
Our cigarette shipment volume by brand is shown in the table below:

PMI Cigarette Shipment Volume by Brand (Million Units)

Marlboro

L&M

Parliament

Bond Street

Chesterfield

Philip Morris

Lark

Others

Total PMI

2016

281,720

96,770

45,671

44,567

46,291

35,914

27,571

234,442

812,946

Full-Year

2015

Change

285,583

97,884

44,879

43,608

41,397

35,815

28,828

269,276

847,270

(1.4)%

(1.1)%

1.8 %

2.2 %

11.8 %

0.3 %

(4.4)%

(12.9)%

(4.1)%

Cigarette shipment volume of Marlboro decreased, driven by Algeria, Argentina, Egypt and Vietnam, as well as in-switching from that 
brand to IQOS Consumables, partly offset by Korea, Mexico, the Philippines, Saudi Arabia and Spain.

Cigarette shipment volume of L&M decreased, notably in Russia, Thailand and Turkey, partly offset by Algeria, Kazakhstan and Ukraine.  
Cigarette shipment volume of Parliament increased, mainly driven by Korea, Turkey and Ukraine, partly offset by Japan and Russia.  
Cigarette shipment volume of Bond Street increased, mainly driven by Ukraine, partly offset by Kazakhstan.  Cigarette shipment volume 
of Chesterfield increased, mainly driven by Argentina, the Czech Republic, reflecting the morphing of Red & White, Turkey and the 
United Kingdom, partly offset by Russia.  Cigarette shipment volume of Philip Morris increased, driven mainly by Italy and Russia, 
partly offset by Argentina.  Cigarette shipment volume of Lark decreased, principally due to Japan and Turkey.  Cigarette shipment volume 
of "Others" decreased, mainly due to local, largely low-margin brands in Pakistan, the Philippines, Russia and Ukraine.  

Our other tobacco products ("OTP") primarily include tobacco for roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and 
cigarillos, and do not include Reduced-Risk Products.  Total shipment volume of OTP, in cigarette equivalent units, decreased by 4.5% 
to 32.6 billion units.

Total shipment volume for cigarettes and OTP, in cigarette equivalent units, decreased by 4.1%.

Total shipment volume of IQOS Consumables reached 7.4 billion units, up from 396 million units in 2015.

Our net revenues and excise taxes on products were as follows:

(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

For the Years Ended
December 31,

2016

2015

Variance

%

$

$

74,953

48,268

26,685

$

$

73,908

47,114

26,794

$

$

1,045

1,154
(109)

1.4 %

2.4 %

(0.4)%

Net revenues, which include excise taxes billed to customers, increased by $1.0 billion.  Excluding excise taxes, net revenues decreased 
by $109 million, due to:

• 

• 

• 

unfavorable currency ($1.3 billion) and

unfavorable volume/mix ($450 million), partly offset by

price increases ($1.6 billion).

33

 
The unfavorable currency was due primarily to the Argentine peso, Canadian dollar, Egyptian pound, Euro, Kazakh tenge, Mexican peso, 
Philippine peso, Russian ruble and Turkish lira, partially offset by the Japanese yen.

Net revenues include $739 million in 2016 related to sale of RRPs, mainly driven by Japan.  This amount includes excise taxes billed to 
customers.  Excluding excise taxes, net revenues for RRPs were $733 million in 2016.  In some jurisdictions, including Japan, we are 
not responsible for collecting excise taxes.  Approximately 22% of our $733 million in 2016 RRP net revenues, excluding excise taxes, 
were from IQOS devices.

Net revenues related to RRPs represent the sale of heat-not-burn consumables, including IQOS Consumables, IQOS devices and related 
accessories, and other nicotine-containing products, primarily e-vapor products, net of sales and promotion incentives.

Net revenues include $1.8 billion in 2016 and 2015 related to sales of OTP.  These net revenue amounts include excise taxes billed to 
customers.  Excluding excises taxes, net revenues for OTP were $644 million in 2016 and $673 million in 2015.

Excise taxes on products increased by $1.2 billion, due to:

• 

• 

• 

higher excise taxes resulting from changes in retail prices and tax rates ($5.3 billion), partly offset by 

favorable currency ($3.9 billion) and 

lower excise taxes resulting from volume/mix ($236 million). 

Governments have consistently increased excise taxes in most of the markets in which we operate.  As discussed in Business Environment, 
we expect excise taxes to continue to increase.

Our cost of sales; marketing, administration and research costs; and operating income were as follows:

For the Years Ended
December 31,

(in millions)

Cost of sales

Marketing, administration and research costs

Operating income

2016

2015

Variance

%

$

9,391

$

9,365

$

6,405

10,815

6,656

10,623

26
(251)
192

0.3 %

(3.8)%

1.8 %

Cost of sales increased by $26 million, due to:

• 

• 

higher cost of sales resulting from volume/mix ($242 million), partly offset by

favorable currency ($216 million).  

Marketing, administration and research costs decreased by $251 million, due to:

• 

• 

lower expenses ($210 million, driven by a favorable comparison to 2015, notably related to cigarette brand building and business 
optimization initiatives, partly offset by increased support behind Reduced-Risk Products) and

favorable currency ($41 million).

Operating income increased by $192 million, due primarily to:

• 

• 

• 

• 

• 

price increases ($1.6 billion) and 

lower marketing, administration and research costs ($210 million) and 

the non-recurrence of the 2015 pre-tax charges for asset impairment and exit costs ($68 million), partly offset by

unfavorable currency ($1.0 billion) and 

unfavorable volume/mix ($692 million).

34

 
 
 
Interest expense, net, of $891 million decreased by $117 million, due primarily to lower effective interest rates on debt and higher interest 
income.

Our effective tax rate decreased by 0.1 percentage point to 27.9%.  The 2015 effective tax rate was unfavorably impacted by changes to 
repatriation assertions on certain foreign subsidiary historical earnings ($58 million), partially offset by a reduction in unrecognized tax 
benefits of $41 million following the conclusion of the IRS examinations of Altria's consolidated tax returns for the years 2007 and 2008 
and PMI's consolidated tax returns for the years 2009 through 2011.  Prior to March 28, 2008, PMI was a wholly owned subsidiary of 
Altria.  Changes in currency exchange rates, earnings mix by taxing jurisdiction or in our cash repatriation plans could have an impact 
on the effective tax rate, which we monitor each quarter.  Significant judgment is required in determining income tax provisions and in 
evaluating tax positions.  Based upon tax regulations in existence at December 31, 2016, and our cash repatriation plans, we estimate 
that our 2017 effective tax rate will be approximately 28%.

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 charge cannot be made at this time.

Net earnings attributable to PMI of $7.0 billion increased by $94 million (1.4%).  This increase was due primarily to higher operating 
income as discussed above, and lower interest expense, net.  Diluted and basic EPS of $4.48 increased by 1.4%.  Excluding an unfavorable 
currency impact of $0.46, diluted EPS increased by 11.8%.

2015 compared with 2014

The  following  discussion  compares  our  consolidated  operating  results  for  the  year  ended  December 31,  2015,  with  the  year  ended 
December 31, 2014.

Our cigarette shipment volume was down by 1.0%, excluding acquisitions, reflected declines in:

•  Asia, mainly due to Korea, Pakistan and the Philippines; and 

•  Latin America & Canada, mainly due to Argentina, Brazil, Ecuador and Mexico;

partially offset by growth in:

•  EEMA, notably Egypt, Saudi Arabia and Turkey, partially offset by Kazakhstan and Ukraine.  

Total cigarette volume in the European Union was essentially flat, with declines in Greece, Italy and the United Kingdom largely offset 
by growth in France, Germany and Spain. 

For the year ended December 31, 2015, estimated inventory movements were favorable, driven principally by a favorable comparison 
in Japan as a result of the 2014 correction of distributor inventory movements partly related to the VAT increase of April 2014.  Excluding 
these estimated inventory movements, our total cigarette shipment volume decreased by 1.6%, excluding acquisitions.

Our cigarette market share increased in a number of key markets, including Argentina, Austria, Belgium, Egypt, France, Germany, Korea, 
the Netherlands, the Philippines, Poland, Russia, Saudi Arabia, Spain and Switzerland.

35

 
Our cigarette shipment volume by brand is shown in the table below:

PMI Cigarette Shipment Volume by Brand (Million Units)

Marlboro

L&M

Parliament

Bond Street

Chesterfield

Philip Morris

Lark

Others

Total PMI

2015

285,583

97,884

44,879

43,608

41,397

35,815

28,828

269,276

847,270

Full-Year

2014

Change

282,997

94,168

47,199

43,585

42,144

31,948

28,473

285,440

855,954

0.9 %

3.9 %

(4.9)%

0.1 %

(1.8)%

12.1 %

1.2 %

(5.7)%

(1.0)%

The increase in cigarette shipment volume of Marlboro reflected growth in: the European Union, notably France, Germany and Spain, 
partly offset by Italy and the United Kingdom; EEMA, notably Saudi Arabia and Turkey, partly offset by North Africa and Ukraine; and 
Asia, notably the Philippines and Vietnam, partly offset by Japan and Korea.  Cigarette shipment volume of Marlboro decreased in Latin 
America & Canada, mainly due to Argentina, Brazil and Mexico, partly offset by Colombia.

The increase in cigarette shipment volume of L&M was predominantly driven by growth in EEMA, notably Egypt, Turkey and Ukraine, 
partly offset by Russia.  The decrease in cigarette shipment volume of Parliament was primarily due to Kazakhstan, Korea, Russia and 
Ukraine, partly offset by Japan and Turkey.  Cigarette shipment volume of Bond Street was essentially flat, with growth, notably driven 
by Australia, Russia and Serbia, largely offset by declines in the European Union, Kazakhstan and Ukraine.  The decrease in cigarette 
shipment volume of Chesterfield was due to EEMA, mainly Russia, Turkey and Ukraine, partly offset by the European Union, mainly 
the Czech Republic, Italy and Poland, and by Latin America & Canada, mainly Mexico.  The increase in cigarette shipment volume of 
Philip Morris primarily reflects the morphing of Diana in Italy.  The increase in cigarette shipment volume of Lark was principally driven 
by Japan, partly offset by Korea.

Total shipment volume of OTP, in cigarette equivalent units, increased by 1.0% to 34.1 billion units. 

Total shipment volume for cigarettes and OTP, in cigarette equivalent units, decreased by 1.0%, excluding acquisitions.

Our net revenues and excise taxes on products were as follows:

(in millions)

Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

For the Years Ended
December 31,

2015

2014

Variance

%

$

$

73,908

47,114

26,794

$

$

80,106

50,339

29,767

$

$

(6,198)
(3,225)
(2,973)

(7.7)%

(6.4)%

(10.0)%

36

Net revenues, which include excise taxes billed to customers, decreased by $6.2 billion. Excluding excise taxes, net revenues decreased 
by $3.0 billion due primarily to:

• 

• 

• 

unfavorable currency ($4.7 billion) and

unfavorable volume/mix ($325 million), partly offset by

price increases ($2.1 billion).

Currency movements decreased net revenues by $13.5 billion and net revenues, excluding excise taxes on products, by $4.7 billion. The 
$4.7 billion decrease was due primarily to the Argentine peso, Australian dollar, Canadian dollar, Euro, Indonesian rupiah, Japanese yen, 
Mexican peso, Russian ruble, Turkish lira and the Ukrainian hryvnia.

Net revenues include $1.8 billion in 2015 and $2.0 billion in 2014 related to sales of OTP.  These net revenue amounts include excise 
taxes billed to customers.  Excluding excises taxes, net revenues for OTP were $673 million in 2015 and $753 million in 2014.

Excise taxes on products decreased by $3.2 billion, due primarily to:

• 

• 

• 

favorable currency ($8.8 billion), partly offset by 

higher excise taxes resulting from changes in retail prices and tax rates ($5.4 billion) and 

higher excise taxes resulting from volume/mix ($142 million). 

Our cost of sales; marketing, administration and research costs; and operating income were as follows:

For the Years Ended
December 31,

(in millions)

Cost of sales

Marketing, administration and research costs
Operating income

2015

2014

Variance

%

$

9,365

$

10,436

$

6,656

10,623

7,001

11,702

(1,071)
(345)
(1,079)

(10.3)%

(4.9)%

(9.2)%

Cost of sales decreased by $1.1 billion, due primarily to:

• 

• 

• 

favorable currency ($1.4 billion), partly offset by

higher manufacturing costs ($166 million) and 

higher cost of sales resulting from volume/mix ($148 million).

Marketing, administration and research costs decreased by $345 million, due primarily to:

• 

• 

favorable currency ($979 million), partly offset by

higher expenses ($628 million, primarily higher marketing and selling expenses).

Operating income decreased by $1.1 billion, due primarily to:

• 

• 

• 

• 

• 

• 

unfavorable currency ($2.3 billion),

higher marketing, administration and research costs ($628 million),

unfavorable volume/mix ($473 million) and

higher manufacturing costs ($166 million), partly offset by

price increases ($2.1 billion) and

lower pre-tax charges for asset impairment and exit costs ($467 million).

37

Our effective tax rate decreased by 1.1 percentage points to 28.0%.  The 2015 effective tax rate was unfavorably impacted by changes 
to repatriation assertions on certain foreign subsidiary historical earnings ($58 million), partially offset by a reduction in unrecognized 
tax benefits of $41 million following the conclusion of the IRS examinations of Altria's consolidated tax returns for the years 2007 and 
2008 and PMI's consolidated tax returns for the years 2009 through 2011.  The 2014 effective tax rate was unfavorably impacted by the 
asset impairment and exit costs related to the factory closures.  The effective tax rate is based on our full-year earnings mix by taxing 
jurisdiction and cash repatriation plans. 

Net earnings attributable to PMI of $6.9 billion decreased by $620 million (8.3%). This decrease was due primarily to lower operating 
income as discussed above, partially offset by a lower effective tax rate.  Diluted and basic EPS of $4.42 decreased by 7.1%.  Excluding 
an unfavorable currency impact of $1.20, diluted EPS increased by 18.1%.

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 business 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 portfolio of products, including restrictions on the packaging, marketing, and sale of tobacco or 
other  nicotine-containing  products  that  could  reduce  our  competitiveness,  eliminate  our  ability  to  communicate  with  adult 
smokers, or even ban certain of our products;

fiscal challenges, such as excise tax increases and discriminatory tax structures;

illicit trade in cigarettes and other tobacco products, including counterfeit, contraband and so-called “illicit  whites”; 

intense competition, including from non-tax paid volume by certain local manufacturers;

pending and threatened litigation as discussed in Item 8, Note 19. 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”), which entered into force in 2005. The FCTC is the first international public 
health treaty and has as its main objective to establish a global agenda for tobacco regulation, with the purpose of reducing tobacco use.  
To date, 179 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.

We have opposed certain measures and continue to engage in a dialogue with regulators with respect to those 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 to adult smokers, or increase illicit trade.  Certain measures are discussed in more detail below.  It is not possible to predict 
whether or to what extent measures recommended in the FCTC guidelines will be implemented.

38

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 tobacco products, such as fine cut tobacco and illicit products. In addition, in certain jurisdictions, our combustible 
products, mainly, cigarettes, 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 the illicit trade for cheaper tobacco 
products 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. 

EU Tobacco Products Directive: In April 2014, the EU adopted the text of a significantly revised EU Tobacco Products Directive (TPD), 
which entered into force in May 2016. To date, 23 Member States and Norway have adopted laws transposing the TPD, while the remaining 
ones are concluding the national transposition.  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 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 expiring in May 2020; 

security features and tracking and tracing measures some of which could increase operational expenses depending on the scope 
of the implementing regulation; 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.

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, Australia, France, 
Hungary, Ireland, New Zealand, Norway and the U.K., have adopted plain packaging legislation. In Australia, plain packaging has been 
implemented since December 2012. In France, plain packaging has been fully implemented since January 2017, and in the U.K., full 
compliance is required as of May 2017. In Hungary, full compliance is required immediately for new product launches and no later than 
May 2019 for other products. No implementation date has yet been set in New Zealand, Norway, or Ireland. 

Several countries have initiated World Trade Organization ("WTO") dispute settlement proceedings against Australia related to Australia's 
plain packaging legislation.  The matter is still pending before the WTO panel.  In May 2015, three of our subsidiaries filed papers in 
the English High Court seeking judicial review of the U.K.’s plain packaging legislation.  In May 2016, the Court issued a judgment 
rejecting our claims as well as those from other tobacco companies.  We chose not to appeal the decision.  In December 2016, the Conseil 
d’Etat in France upheld the decree that implements France’s plain packaging legislation.  

Other countries are also considering adopting plain packaging legislation, including, but not limited to, Canada, Turkey and Singapore.  

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.  Menthol bans would eliminate the entire category of mentholated tobacco products.  The European Union has banned 
flavored tobacco products, subject to an exemption until May 2020 for menthol.  Other countries may follow the EU’s approach.  For 
instance, Turkey has banned menthol as of May 2020.  More sweeping ingredient bans have been adopted by Canada and Brazil.  While 
the Canadian ingredient ban currently exempts menthol at the national level, the majority of Canadian provinces have adopted or are in 
the process of adopting menthol bans.  The Canadian federal government also recently published draft regulations that would prohibit 
menthol in cigarettes. The Brazil ingredients ban, which would prohibit the use of virtually all ingredients with flavoring or aromatic 
properties, is not in force due to a legal challenge by a tobacco industry union, of which our Brazilian subsidiary is a member.  Other 
lawsuits are also pending against the Brazil ingredients ban.  It is not possible to predict the outcome of these legal proceedings. 

39

Bans on Display of Tobacco Products at Retail: In a number of our markets, including, but not limited to, Australia, Canada, Norway, 
Russia, and Singapore, governments have banned the display of tobacco products at the point of sale.  Other countries are also 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 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.  Reduced cigarette ignition propensity (“RCIP”) standards previously 
recommended by the FCTC guidelines have been adopted in several of our markets (e.g., Australia, Canada, South Africa, South Korea, 
and the EU), and are being considered in others. 

Restrictions on Public Smoking: The pace and scope of public smoking restrictions 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 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 by, for example, reducing 
the overall number of tobacco retail licenses available or banning the sale of tobacco within arbitrary distances of certain public facilities. 

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

Illicit Trade: The illicit tobacco trade creates a cheap and unregulated supply of tobacco products, undermines efforts to reduce smoking, 
especially among youth, damages legitimate businesses, stimulates organized crime, increases corruption and reduces government tax 
revenue.  Illicit trade may account for as much as 10% of global cigarette consumption; this includes counterfeit, contraband and the 
growing problem of “illicit whites,” which are cigarettes legally produced in one jurisdiction for the sole purpose of being exported and 
illegally sold in another jurisdiction where they have no legitimate market. We estimate that illicit trade in the European Union accounted 
for slightly less than 10% of total cigarette consumption in 2016.

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 in free trade zones, controls on duty free and Internet sales and the implementation of tracking and tracing 
technologies.  To date, 54 countries have signed the Protocol, and 24 countries and the European Union have ratified it.  The Protocol 
will come into force once the fortieth country ratifies it, after which countries must implement its measures via national legislation.  We 
expect, and welcome, that other countries will ratify the Protocol.

We and our subsidiaries have entered into cooperation agreements with governments and authorities to support their anti-illicit trade 
efforts.  In 2004, we entered into a cooperation agreement with the EU and its member states that provided for cooperation with European 
law  enforcement  agencies  on  anti-contraband  and  on  anti-counterfeit  efforts.  Under  the  terms  of  this  agreement  we  made  financial 
contributions of approximately $75 million per year to support these efforts. The EU Commission decided not to renew the agreement, 
which expired in July 2016. 

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 provides $200 
million in funding over a 20-year period to address issues such as combating the illegal cigarette trade and increasing the quality and 
quantity of locally grown tobacco.

In May 2016, PMI launched PMI IMPACT, a new 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 with impeccable credentials in the fields of law, anti-corruption and law enforcement.  The experts are 

40

responsible for evaluating and approving funding proposals for PMI IMPACT grants.  PMI has pledged $100 million to fund projects 
within PMI IMPACT during a three-year period.  We expect that the first round of grants will be awarded in the second quarter of 2017.

In November 2016, PMI signed a joint Declaration of Intent to Prevent the Maritime Transportation of Counterfeit Goods together with 
eight other global brand owners and five of the world’s largest shipping companies. This commitment was a result of a dialogue with the 
International Chamber of Commerce’s Business Action to Stop Counterfeiting and Piracy. The signatories aim to tackle the infiltration 
of shipping services by criminal networks that exploit vessels to transport counterfeit goods, including “illicit whites,” across the oceans.

Reduced-Risk Products 

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 decade 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, Reduced-Risk Products do not burn tobacco and produce significantly lower levels of harmful or potentially harmful compounds 
than found in smoke.

For smokers who would otherwise continue to smoke, we believe that RRPs offer a much better choice.  Accordingly, 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 Reduced-Risk 
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 
solution to the smoking problem. We also recognize that the transformation must be funded from our existing cigarette business. For so 
long as a significant number continues to smoke, it is critical that the industry be led by responsible and ethical manufacturers. Therefore, 
during the transformation, we intend to remain the leading international cigarette manufacturer.

We have a range of RRPs in various stages of development, scientific assessment and commercialization.  We conduct rigorous scientific 
assessment of our RRP platforms to establish 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. We draw upon a team of expert scientists and engineers from a broad spectrum of scientific disciplines 
and  our  extensive  learnings  of  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 consumers to make better health 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 is the most promising path to providing a better 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 tastes.

Four RRP platforms are in various stages of development and commercialization readiness:

Platform 1 uses a precisely controlled heating device that we are commercializing under the IQOS brand name, into which a 
specially designed and proprietary consumable tobacco product (“IQOS Consumables”) is inserted and heated to generate an aerosol. 
Eight clinical studies have been completed (including two with the duration of three months). The study results show a substantial 
reduction in relevant biomarkers of exposure to harmful or potentially harmful constituents (“HPHCs”) in those adult smokers who 
switched to IQOS compared to those who continued to smoke cigarettes for the duration of the study.   The reductions measured in those 

41

  
 
who switched to IQOS approached those that were observed in study participants who quit smoking for the duration of the study. While 
these reduced exposure clinical studies were primarily designed to focus on biomarkers of exposure, in our three-month studies, we also 
measured six clinical risk markers. These clinical risk markers are associated with disease mechanisms known to be affected by smoking 
and to reverse upon cessation. The results are generally consistent with the expected direction of change and indicate that switching 
completely to IQOS led to an overall improvement of clinical risk markers affected by smoking after only three months. We also initiated 
a 6+6 month exposure response study in December 2014 and expect the results regarding the first six-month term in the third quarter of 
2017. We have developed a new version of IQOS to further improve the consumer experience and plan to introduce this new version in 
the second quarter of 2017.

Platform 2 uses a pressed carbon heat source, which when ignited, generates an aerosol by heating tobacco.  A pharmacokinetic 
study and a five-day reduced-exposure study with Platform 2 have now been completed.  In the pharmacokinetic study, we observed that 
the nicotine pharmacokinetic profile and the subjective user satisfaction are comparable to smoking cigarettes, indicating that this platform 
could be an acceptable substitute for adult smokers who want to continue to use tobacco products but seek an alternative to cigarettes. 
The results of the reduced exposure study show a substantial reduction in relevant biomarkers of exposure to HPHCs in those who 
switched to Platform 2 compared to those who continued to smoke cigarettes over a five-day period.  The clinical phase of a three-month 
reduced-exposure study has also been completed; we expect the results to be reported in 2017.

Platform 3 creates an aerosol of nicotine salt formed by the chemical reaction of nicotine with a weak organic acid. We are 
exploring two routes for this platform, one with electronics and one without. We have begun pre-clinical and clinical testing of this 
platform,  including  a  pharmacokinetic  study  in  New  Zealand  for  the  electronic  version.   The  study  assessed  this  product's  nicotine 
pharmacokinetic profile in comparison to a nicotine inhalator.  The study showed that nicotine absorption with this product reached peak 
levels six times faster than with the inhalator, in line with the pharmacokinetic profile of a cigarette, suggesting a significantly higher 
potential for acceptance by smokers. We have also completed the clinical phase of a pharmacodynamics study in the U.S. and expect 
final results for this study in the first half of 2017.   We expect to commence a safety and efficacy study in the first half of 2017. 

Platform 4 covers e-vapor products, which are battery-powered devices that produce an aerosol by vaporizing a liquid nicotine 
solution. Our e-vapor products comprise devices using current generation technology, and we are well advanced in the development and 
commercialization of our next generation of e-vapor technology, MESH, which addresses certain challenges presented by some e-vapor 
products currently on the market. Our MESH products are designed to ensure the consistency and quality of the generated aerosol.  We 
have commenced non-clinical studies, and our planned clinical assessment includes a pharmacokinetic study scheduled to start in 2017 
and a reduced-exposure study that we expect to start in 2018.

We are also developing other potential product platforms.

Commercialization of RRPs: In 2014, we introduced the IQOS system in pilot city launches in Nagoya, Japan, and in Milan, Italy. Since 
then, we have expanded our commercialization activities to include all of Japan, as well as multiple cities in Italy. We also launched IQOS
in various cities in Switzerland, Russia, Romania, Ukraine, Portugal, Germany, New Zealand, Canada and other markets. By the end of 
December 2016, IQOS was available for sale nationwide in Japan and in key cities in 20 markets, and approximately 1.4 million adult 
smokers had converted to it.  We expect to expand IQOS nationally in many of these markets in 2017 as IQOS Consumables capacity 
increases. We are also targeting launches of IQOS in key cities in an additional ten to fifteen markets by the end of 2017 as capacity 
permits.

On the basis of our experience in Japan and Italy, we estimate that only a very small percentage of adult smokers who fully convert to 
IQOS switch back to cigarettes.  

In the first quarter of 2016, we started broad commercial production of IQOS Consumables. To date, we have experienced supply shortages 
resulting from stronger-than-anticipated demand, primarily in Japan, and expect capacity limitations to ease as 2017 unfolds.  Our 2016 
year-end installed capacity was approximately 15 billion IQOS Consumables, and we expect that our 2017 year-end installed IQOS
Consumables capacity will reach approximately 50 billion units. This installed capacity is expected to allow us to produce approximately 
32 billion units in 2017, up from 7 billion in 2016. We estimate that as of 2018, we can increase installed annual capacity, as needed, by 
approximately four billion units per month, with a lead time of 12 months. 

As a result of the supply shortages of IQOS Consumables, in June 2016, we began to limit the sale of our IQOS devices in Japan.  While 
we currently have sufficient capacity with respect to IQOS devices, we plan to expand our supplier base. Our IQOS devices are subject 
to product warranties for a period of 12 months from the date of purchase or such other periods as required by law.  Warranty claims for 
these devices have not had a material impact on our consolidated financial position, results of operations or cash flows in any of the 
periods presented, although they may become more significant as the number of units sold increases.  

42

  
  
  
We currently market our e-vapor products in several markets, including the United Kingdom, Spain, and Israel. In November 2016, we 
began the city test of MESH, our Platform 4 product, in Birmingham, United Kingdom. We also expect to conduct city tests of our Platform 
2 and Platform 3 products in 2017.

RRP Regulation and Taxation: RRPs contain nicotine and are not risk-free. We therefore support science-based regulation and taxation 
of RRPs. 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.  Regulation should provide 
minimum standards for RRPs and specific rules for, among other things, ingredients, labelling and consumer communication, and should 
ensure that the public is informed about the health risks of all tobacco and nicotine-containing products.  Regulation, as well as tobacco 
industry activities, 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. These regulations might foreclose or unreasonably restrict consumer access even to products that might be shown to be a better 
health choice than continuing to smoke.  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 and propels 
innovation to benefit adult smokers.

In the United States, an established regulatory framework for assessing “Modified Risk Tobacco Products” and “New Tobacco Products” 
exists under the jurisdiction of the Food and Drug Administration (“FDA”).  Future FDA actions may influence the regulatory approach 
of other interested governments.  In December 2016, we submitted a Modified Risk Tobacco Product Application for Platform 1 to the 
FDA.   We plan to submit a Premarket Tobacco Application in the first quarter of 2017 for Platform 1. 

In the EU, a majority of Member States have transposed the EU Tobacco Products Directive, including the provisions on Novel Tobacco 
Products, such as IQOS Consumables, and e-cigarettes.  Most of the EU Member States require a notification submitted six months before 
the intended placing on the market of a Novel Tobacco Product, while some require pre-market authorizations for the introduction of 
such products.  To date, pursuant to these requirements, we have filed a comprehensive dossier summarizing our scientific assessment 
of Platform 1 in 14 Member States. 

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 or treat RRPs differently from combustible tobacco products such as cigarettes.

Our RRP Business Development Initiatives: In December 2013, we established a strategic framework with Altria Group, Inc. (“Altria”) 
under which Altria will make available its e-vapor products exclusively to us for commercialization outside the United States, and we 
will make available two of our RRPs exclusively to Altria for commercialization in the United States.  In March 2015, we launched 
Solaris, a Platform 4 e-vapor product licensed from Altria, in Spain. In December 2015, we introduced Solaris in Israel.

In  July  2015,  we  extended  the  strategic  framework  with Altria  to  include  a  Joint  Research,  Development  and Technology  Sharing 
Agreement. The additional agreement provides the framework under which PMI and Altria will collaborate to develop the next generation 
of e-vapor products for commercialization in the United States by Altria and in markets outside the United States by PMI. The collaboration 
between  PMI  and Altria  in  this  endeavor  is  enabled  by  exclusive  technology  cross  licenses  and  technical  information  sharing. The 
agreements also provide for cooperation on the scientific assessment of, and for the sharing of improvements to, the existing generation 
of licensed products.

In June 2014, we acquired 100% of Nicocigs Limited, a leading U.K.-based e-vapor company whose principal brand is Nicolites. This 
acquisition provided PMI with immediate access to, and a significant presence in, the U.K. e-vapor market.

Governmental Investigations

From time to time, we are subject to governmental investigations on a range of matters.  We describe certain matters pending in Thailand 
and South Korea in Item 3. Legal Proceedings-Other Litigation.

In November 2010, a 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 from 
the Philippines (see Item 3. Legal Proceedings-Other Litigation for 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 also 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. The Philippines contends that to date Thailand has not fully complied and commenced formal proceedings 

43

at the WTO to address the outstanding issues. 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 3. Legal Proceedings-Other Litigation, noting that 
these investigations 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.

Acquisitions and Other Business Arrangements

We discuss our acquisitions and other business arrangements in Item 8, Note 6. Acquisitions and Other Business Arrangements to our 
consolidated financial statements.

Investments in Unconsolidated Subsidiaries

We  discuss  our  investments  in  unconsolidated  subsidiaries  in  Item  8,  Note  4.  Investments  in  Unconsolidated  Subsidiaries  to  our 
consolidated financial statements.

Asset Impairment and Exit Costs

In November 2015, we commenced the implementation of a restructuring program within our European Union segment. The program is 
expected to be completed by the end of 2017.  In total, we have incurred a total pre-tax charge of approximately $93 million for the 
program.  During 2015, we recorded pre-tax exit costs of $68 million related to employee separation costs.  In addition, as part of the 
total program, up to $25 million of pre-tax implementation costs, primarily related to costs for the project team and notice period payments, 
have been reflected in cost of sales and marketing, administration and research costs in our consolidated statement of earnings.  

On April 4, 2014, we announced the initiation by our affiliate Philip Morris Holland B.V. ("PMH") of consultations with employee 
representatives on a proposal to discontinue cigarette production at its factory located in Bergen op Zoom, the Netherlands. PMH reached 
an agreement with the trade unions and their members on a social plan, and ceased cigarette production on September 1, 2014.  In total, 
we have incurred a total pre-tax charge of approximately $549 million for the program. During 2014, we recorded pre-tax asset impairment 
and exit costs of $489 million. This amount included employee separation costs of $343 million, asset impairment costs of $139 million 
and other separation costs of $7 million.  In addition, as part of the total program, approximately $60 million of pre-tax implementation 
costs, primarily related to notice period payments, have been reflected in cost of sales and marketing, administration and research costs 
in  our  consolidated  statement  of  earnings,  of  which  $50  million  were  recognized  during  2014.  Excluding  asset  impairment  costs, 
substantially all of these charges have resulted in cash expenditures.  The program was substantially completed as of December 31, 2015.

Trade Policy 

We are subject to various trade restrictions imposed by the United States of America and countries 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 are not technological or strategic in nature.  From time to time we make 
sales in countries subject to Trade Sanctions, either where such sanctions do not apply to our business or pursuant to exemptions or 
licenses. 

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 sell products in Iran, Sudan, North Korea, Cuba and Syria. We may from time to time explore opportunities to sell our products 
in one or more of these countries, as permitted by law.

Certain states within the U.S. have enacted legislation permitting 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.  We do not believe such legislation has had a material 
effect on the price of our shares.

44

2016 compared with 2015 

The following discussion compares operating results within each of our reportable segments for 2016 with 2015.

European Union: 

European Union

(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

Operating companies income

For the Years Ended
December 31,

2016

2015

Variance

%

$

27,129

$

26,563

$

18,967

8,162

3,994

18,495

8,068

3,576

566

472

94

418

2.1%

2.6%

1.2%

11.7%

Net revenues, which include excise taxes billed to customers, increased by $566 million.  Excluding excise taxes, net revenues increased 
by $94 million, due to:

• 

• 

• 

price increases ($390 million), party offset by

unfavorable volume/mix ($149 million) and

unfavorable currency ($147 million).

The net revenues of the European Union segment include $1.4 billion in 2016 and $1.5 billion in 2015 related to sales of OTP.  Excluding 
excise taxes, OTP net revenues for the European Union segment were $485 million in 2016 and $509 million in 2015. 

Operating companies income increased by $418 million during 2016.  This increase was due primarily to:

• 

• 

• 

• 

• 

• 

price increases ($390 million),

the non-recurrence of the 2015 pre-tax charges for asset impairment and exit costs ($68 million),

lower manufacturing costs ($49 million), 

lower marketing, administration and research costs ($47 million) and 

favorable currency ($34 million), partly offset by

unfavorable volume/mix ($168 million).

European Union - Industry Volume 

The estimated total cigarette market decreased by 1.6% to 501.0 billion units.  The moderate decline of the estimated total cigarette market  
reflected improved macroeconomics, a lower prevalence of illicit trade and, in certain geographies, the estimated positive impact of 
immigration, which was concentrated in the first half of 2016.

The estimated total OTP market decreased by 2.3% to 152.5 billion cigarette equivalent units, reflecting a lower total fine cut market, 
down by 2.4% to 141.7 billion cigarette equivalent units.

45

 
European Union - PMI Shipment Volume and Market Share 

Cigarette shipment volume and market share performance by brand are shown in the tables below:

European Union Cigarette Shipment Volume by Brand (Million Units)

Marlboro

L&M

Chesterfield

Philip Morris

Others

Total EU

Marlboro

L&M

Chesterfield

Philip Morris

Others

Total EU

2016

96,245

34,691

30,140

16,290

16,220

Full-Year

2015

95,588

35,010

28,278

14,205

21,508

193,586

194,589

European Union Cigarette Market Shares by Brand

Full-Year

2016

19.0%

6.9%

5.9%

3.2%

3.3%

38.3%

2015

18.8%

6.9%

5.6%

3.2%

3.8%

38.3%

Change

0.7 %

(0.9)%

6.6 %

14.7 %

(24.6)%

(0.5)%

Change

p.p.

0.2

—

0.3

—
(0.5)
—

Our cigarette shipment volume decreased by 0.5% to 193.6 billion units, mainly due to Italy, Germany and Greece, partly offset by Poland 
and Spain. Cigarette shipment volume of Marlboro increased by 0.7%, mainly driven by Spain, partly offset by Greece.  Our total cigarette 
market share was flat at 38.3%, with gains, notably in the Czech Republic, France, Poland and Spain, offset by declines, mainly in Greece 
and Italy.  Cigarette shipment volume of "Others" decreased, mainly due the morphing of various trademarks in the Czech Republic and 
Italy into international brands.

Our shipments of OTP decreased by 5.3% to 22.2 billion cigarette equivalent units.  Our total OTP market share decreased by 0.4 points 
to 14.6%. 

46

European Union - Key Market Commentaries 

In France, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

France Key Market Data

Full-Year

2016

44.9

2015

45.5

Change

% / p.p.

(1.2)%

PMI Shipments (million units)

19,243

18,943

1.6 %

PMI Cigarette Market Share
Marlboro

Philip Morris

Chesterfield

Others
Total

26.4%

10.2%

3.1%
2.7%

42.4%

25.9%

9.5%

3.3%

2.9%

41.6%

0.5

0.7

(0.2)

(0.2)

0.8

The estimated total cigarette market decreased moderately by 1.2%, partly reflecting a lower prevalence of illicit trade and e-vapor 
products.  The increase in our cigarette shipment volume mainly reflected market share growth, driven by Marlboro, as well as the launch 
of certain Philip Morris variants in January 2016.  The estimated total industry fine cut category of 14.7 billion cigarette equivalent units 
increased by 1.2%.  Our market share of the category increased by 0.6 points to 25.6%.

In Germany, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

Germany Key Market Data

Full-Year

2016

78.1

2015

80.0

Change

% / p.p.

(2.4)%

PMI Shipments (million units)

28,950

29,778

(2.8)%

PMI Cigarette Market Share
Marlboro

L&M

Chesterfield

Others
Total

22.5%

11.6%

1.6%

1.4%

37.1%

22.1%

11.9%

1.7%

1.5%

37.2%

0.4

(0.3)

(0.1)

(0.1)

(0.1)

The estimated total cigarette market decreased by 2.4%, primarily reflecting the impact of price increases.  The decrease in our cigarette 
shipment volume primarily reflected the lower total market.  The estimated total industry fine cut category of 40.6 billion cigarette 
equivalent units decreased by 0.8%.  Our market share of the category decreased by 1.4 points to 11.3%.

47

In Italy, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

Italy Key Market Data

Full-Year

2016

72.1

2015

73.8

Change

% / p.p.

(2.4)%

PMI Shipments (million units)

38,624

39,717

(2.8)%

PMI Cigarette Market Share
Marlboro

Chesterfield

Philip Morris

Others
Total

24.2%

11.5%

8.5%

8.2%

52.4%

24.6%

11.0%

9.2%

8.9%

53.7%

(0.4)

0.5

(0.7)

(0.7)

(1.3)

The estimated total cigarette market decreased by 2.4%, primarily reflecting the impact of price increases.  The decline of our cigarette 
shipments, down by 4.8% excluding the net impact of distributor inventory movements, reflected the lower total market, and lower 
cigarette market share, notably due to Marlboro as a result of its price increase in the second quarter of 2016, and low-price Philip Morris, 
impacted by the growth of the super-low price segment, partly offset by super-low price Chesterfield.  The estimated total industry fine 
cut category of 6.6 billion cigarette equivalent units increased by 3.5%.  Our market share of the category decreased by 1.9 points to 
39.2%.

In Poland, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

Poland Key Market Data

Full-Year

2016

41.3

2015

41.1

PMI Shipments (million units)

17,485

16,763

PMI Cigarette Market Share
Marlboro

L&M

Chesterfield

Others
Total

11.6%

18.5%

9.1%

3.1%

42.3%

11.4%

18.1%

8.6%

2.7%

40.8%

Change

% / p.p.

0.5%

4.3%

0.2

0.4

0.5

0.4

1.5

The estimated total cigarette market increased by 0.5%, primarily reflecting a lower prevalence of non-duty paid products.  The increase 
in our cigarette shipment volume was mainly driven by higher cigarette market share, principally L&M, reflecting the positive impact of 
brand support, Chesterfield, benefiting from its 100s and super-slims variants, and RGD in "Others," up by 0.4 points to 2.6%.  The 
estimated total industry fine cut category of 4.1 billion cigarette equivalent units increased by 3.3%.  Our market share of the category 
decreased by 4.7 points to 26.7%, mainly due to increased price competition at the bottom of the market.

48

In Spain, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

Spain Key Market Data

Full-Year

2016

46.7

2015

46.7

Change

% / p.p.

(0.1)%

PMI Shipments (million units)

16,365

15,435

6.0 %

PMI Cigarette Market Share
Marlboro

Chesterfield

L&M

Others
Total

18.0%

8.6%

5.4%

1.9%

33.9%

17.0%

9.1%

5.8%

1.5%

33.4%

1.0

(0.5)

(0.4)

0.4

0.5

The estimated total cigarette market decreased by 0.1%, reflecting an improved economy and the favorable estimated impact of in-
switching from other tobacco products.  Excluding the net impact of distributor inventory movements, our cigarette shipment volume 
increased by 1.6%, driven by higher market share reflecting the strong performance of Marlboro, benefiting from its round price point 
in the vending channel and the new Architecture 2.0. The estimated total industry fine cut category of 9.3 billion cigarette equivalent 
units decreased by 2.7%.  Our market share of the fine cut category decreased by 1.9 points to 11.6%. 

Eastern Europe, Middle East & Africa: 

Eastern Europe, Middle East & Africa

For the Years Ended
December 31,

(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

Operating companies income

2016

2015

Variance

%

$

18,286

$

18,328

$

11,286

7,000

3,016

10,964

7,364

3,425

(42)
322
(364)
(409)

(0.2)%

2.9 %

(4.9)%

(11.9)%

Net revenues, which include excise taxes billed to customers, decreased by $42 million.  Excluding excise taxes, net revenues decreased
by $364 million, due to:

• 

• 

• 

unfavorable currency ($600 million) and 

unfavorable volume/mix ($348 million), partly offset by

price increases ($584 million).

49

 
Operating companies income decreased by $409 million during 2016.  This decrease was due primarily to:

• 

• 

• 

• 

unfavorable currency ($839 million) and

unfavorable volume/mix ($333 million), partly offset by 

price increases ($584 million) and 

lower marketing, administration and research costs ($170 million).

Eastern Europe, Middle East & Africa - PMI Cigarette Shipment Volume 

Our cigarette shipment volume decreased by 2.9% to 271.4 billion units, mainly due to North Africa, primarily Algeria, and Russia, 
partially offset by Saudi Arabia and Ukraine.  Cigarette shipment volume of Marlboro decreased by 8.5% to 73.8 billion units, principally 
due to Algeria and Egypt, partly offset by Saudi Arabia.  Cigarette shipment volume of Parliament increased by 1.0% to 33.9 billion
units, driven by Saudi Arabia, Turkey and Ukraine, partly offset by Russia.  Cigarette shipment volume of L&M increased by 1.9% to 
52.2 billion units, driven notably by Algeria, Kazakhstan and Ukraine, partly offset by Russia and Turkey.

Eastern Europe, Middle East & Africa - Key Market Commentaries 

In North Africa (defined as Algeria, Egypt, Libya, Morocco and Tunisia), estimated industry size, our cigarette shipment volume and 
market share performance are shown in the table below.

Total Cigarette Market (billion units)

North Africa Key Market Data

Full-Year

2016

139.0

2015

138.5

Change

% / p.p.

0.4 %

PMI Shipments (million units)

34,035

38,111

(10.7)%

PMI Cigarette Market Share
Marlboro

L&M

Others
Total

8.5%

12.5%

2.7%

23.7%

13.7%

11.9%

2.3%

27.9%

(5.2)

0.6

0.4

(4.2)

The estimated total cigarette market increased by 0.4%, driven by Egypt, Morocco and Tunisia, partly offset by Algeria.  The decrease 
in our cigarette shipment volume reflected lower market share, mainly due to Marlboro in Algeria, principally resulting from the impact 
of excise tax-driven price increases, as well as lower-than-anticipated acceptance of Architecture 2.0 for Marlboro Round Taste.

50

In Russia, estimated industry size, our cigarette shipment volume and market share performance, as measured by Nielsen, are shown in 
the table below. 

Total Cigarette Market (billion units)

Russia Key Market Data
Full-Year

2016

280.7

2015

294.1

Change

% / p.p.

(4.6)%

PMI Shipments (million units)

79,651

84,422

(5.7)%

PMI Cigarette Market Share
Marlboro

Parliament

Bond Street

Others
Total

1.4%

3.8%

8.4%

13.6%
27.2%

1.4%

3.9%

8.4%

14.7%

28.4%

—

(0.1)

—

(1.1)

(1.2)

The estimated total cigarette market decreased by 4.6%, mainly due to the impact of excise tax-driven price increases.  The decrease in 
our cigarette shipment volume, down by 8.3% excluding the impact of estimated distributor inventory movements, mainly reflected the 
lower total market, and lower cigarette market share primarily due to a decline in "Others" of mid-price L&M and Chesterfield and super-
low Optima, resulting from the timing of retail price increases compared to competition.

In Turkey, estimated industry size, our cigarette shipment volume and market share performance, as measured by Nielsen, are shown in 
the table below. 

Total Cigarette Market (billion units)

Turkey Key Market Data

Full-Year

2016

105.5

2015

103.2

PMI Shipments (million units)

49,624

49,014

PMI Cigarette Market Share
Marlboro

Parliament

Lark

Others
Total

10.2%

11.7%

7.4%

15.0%

44.3%

9.5%

11.6%

7.6%

15.1%

43.8%

Change

% / p.p.

2.2%

1.2%

0.7

0.1
(0.2)
(0.1)
0.5

The estimated total cigarette market increased by 2.2%, primarily reflecting a lower prevalence of illicit trade.  The increase in our 
cigarette shipment volume was mainly driven by the higher total market.  Our higher market share, led by Marlboro, primarily reflecting 
the growth of its slimmer Touch variant, and Chesterfield, partly offset by L&M in "Others." 

51

In Ukraine, estimated industry size, our cigarette shipment volume and market share performance, as measured by Nielsen, are shown 
in the table below. 

Total Cigarette Market (billion units)

Ukraine Key Market Data
Full-Year

2016

72.7

2015

70.6

Change

% / p.p.

2.9%

PMI Shipments (million units)

22,014

19,195

14.7%

PMI Cigarette Market Share
Marlboro

Parliament

Bond Street

Others
Total

3.2%

3.0%

10.1%

13.6%
29.9%

3.8%

2.9%

8.3%

15.0%

30.0%

(0.6)
0.1

1.8
(1.4)
(0.1)

The estimated total cigarette market increased by 2.9%, mainly driven by a lower prevalence of illicit trade.  The increase in our cigarette 
shipment volume reflected the higher total cigarette market.  The decrease in our market share was primarily due to Marlboro, reflecting 
the impact of widened price gaps, and mid-price Chesterfield and super-low President in "Others," mainly resulting from competitive 
price pressure in the low price segment, partly offset by Bond Street and L&M in "Others."

Asia: 

Asia
(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

Operating companies income

For the Years Ended
December 31,

2016

2015

Variance

%

$

20,531

$

19,469

$

1,062

11,850

8,681

3,196

11,266

8,203

2,886

584

478

310

5.5%

5.2%

5.8%

10.7%

Net revenues, which include excise taxes billed to customers, increased by $1.1 billion.  Excluding excise taxes, net revenues increased
by $478 million, due primarily to:

• 

• 

price increases ($335 million) and 

favorable volume/mix ($151 million).

Net revenues include $666 million in 2016 related to sale of RRPs, mainly driven by Japan.  Excluding excise taxes, net revenues for 
RRPs were $666 million in 2016.  In some jurisdictions, including Japan, we are not responsible for collecting excise taxes.

52

 
Operating companies income increased by $310 million during 2016.  This increase was due primarily to:

• 

• 

• 

• 

price increases ($335 million),

favorable currency ($52 million) and 

lower marketing, administration and research costs ($28 million), partly offset by

unfavorable volume/mix ($106 million).

Asia - PMI Cigarette Shipment Volume 

Our cigarette shipment volume decreased by 7.6% to 260.0 billion units, mainly due to: Indonesia; Pakistan, reflecting a lower total 
estimated cigarette market resulting from excise tax-driven price increases and the growth of illicit trade; the Philippines; and Thailand, 
primarily reflecting the impact of excise tax-driven price increases in the first quarter of 2016, as well as lower market share; and in-
switching from our cigarette brands to IQOS Consumables; partly offset by Korea, reflecting a normalization of the total estimated 
cigarette market following the disruptive excise tax increase in January 2015.

Cigarette shipment volume of Marlboro increased by 4.0% to 76.5 billion units, mainly driven by Korea and the Philippines, partly offset 
by Vietnam, as well as in-switching from that brand to IQOS Consumables.  Cigarette shipment volume of Parliament increased by 7.5% 
to 10.1 billion units, driven by Korea.  Cigarette shipment volume of Lark decreased by 3.8% to 17.6 billion units, principally due to 
Japan. 

Asia - Key Market Commentaries 

In Indonesia, estimated industry size, our cigarette shipment volume, market share and segmentation performance are shown in the tables 
below.

Total Cigarette Market (billion units)

Indonesia Key Market Data

Full-Year

2016

315.6

2015

320.0

Change

% / p.p.

(1.4)%

PMI Shipments (million units)

105,524

109,840

(3.9)%

PMI Cigarette Market Share
Sampoerna A

Dji Sam Soe

U Mild

Others
Total

14.0%

6.5%

4.2%

8.7%

33.4%

14.6%

6.9%

4.7%

8.1%

34.3%

(0.6)

(0.4)

(0.5)

0.6

(0.9)

53

Segment % of Total Market
Hand-Rolled Kretek (SKT)

Machine-Made Kretek (SKM)

Whites (SPM)

Total

PMI % Share of Segment
Hand-Rolled Kretek (SKT)

Machine-Made Kretek (SKM)

Whites (SPM)

Indonesia Segmentation Data

Full-Year

2016

2015

Change

p.p.

18.2%

75.8%

6.0%

100.0%

37.3%

28.9%

79.5%

19.1%

74.7%

6.2%

100.0%

37.7%

29.7%

80.3%

(0.9)
1.1
(0.2)
—

(0.4)
(0.8)
(0.8)

The estimated total cigarette market decreased by 1.4%, mainly reflecting a soft economic environment and the impact of excise tax-
driven price increases.  The decrease in our cigarette shipments was mainly due to lower market share, reflecting the soft performance 
of our SKM portfolio, due to competitors' discounted product offerings, and our SKT portfolio, broadly in line with industry trends, as 
well as a lower estimated total market.

In Japan, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

Japan Key Market Data
Full-Year

2016

173.8

2015

182.3

Change

% / p.p.

(4.6)%

PMI Shipments (million units)

43,915

45,690

(3.9)%

PMI Cigarette Market Share
Marlboro

Parliament

Lark

Others
Total

10.9%

2.4%

9.9%

1.7%

24.9%

11.3%

2.3%

9.9%

1.8%

25.3%

(0.4)

0.1

—

(0.1)

(0.4)

The estimated total cigarette market decreased by 4.6%, reflecting the continued underlying cigarette consumption decline, the growth 
of Reduced-Risk Products, and the impact of the April price increases of certain brands of our key competitor.  Excluding the net impact 
of distributor inventory movements, our cigarette shipment volume decreased by 6.5%.  The decline was mainly due to a lower total 
cigarette market, as well as lower cigarette market share, reflecting the impact of competitors' retail pricing, competitors' differentiated 
menthol taste product offerings and in-switching from our cigarette brands to IQOS Consumables.   

The estimated national market share of IQOS Consumables was 2.9%, bringing our total combined national market share to 27.1%, up
by 1.7 points.  We calculate national market share for IQOS Consumables in Japan as the total sales volume for IQOS Consumables as 
a percentage of the total estimated sales volume for cigarettes and IQOS Consumables.  

54

In Korea, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

Korea Key Market Data

Full-Year

2016

73.6

2015

67.3

PMI Shipments (million units)

15,490

14,201

PMI Cigarette Market Share
Marlboro

Parliament

Virginia S.

Others
Total

9.6%

8.5%

2.4%

0.5%

21.0%

9.6%

8.4%

2.6%

0.6%

21.2%

Change

% / p.p.

9.4%

9.1%

—

0.1
(0.2)
(0.1)
(0.2)

Excluding a favorable comparison with the prior year driven by estimated trade inventory movements, the estimated total cigarette market 
increased by 4.3%, reflecting the normalization of the market following the disruptive excise tax increase of 120% in January 2015.  The 
growth in our cigarette shipment volume primarily reflected the higher estimated total market.

In the Philippines, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below. 

Total Cigarette Market (billion units)

Philippines Key Market Data

Full-Year

2016

79.3

2015

90.2

Change

% / p.p.

(12.0)%

PMI Shipments (million units)

56,611

66,236

(14.5)%

PMI Cigarette Market Share
Marlboro

Fortune

Jackpot

Others
Total

28.4%

23.4%

7.9%

11.6%

71.3%

20.0%

29.2%

12.4%

11.8%

73.4%

8.4

(5.8)

(4.5)

(0.2)

(2.1)

The estimated total cigarette market decreased by 12.0%, mainly due to the impact of excise tax-driven price increases.  The decline in 
our cigarette shipment volume reflected the lower total market, as well as the impact of these price increases on market share, particularly 
on our low and super-low price brands, Fortune and Jackpot, partly offset by an increase in market share of Marlboro, benefiting from 
its narrowed price gap with lower-priced brands as a result of the price increases.

55

 
Latin America & Canada: 

Latin America & Canada

(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

Operating companies income

For the Years Ended
December 31,

2016

2015

Variance

%

$

9,007

$

9,548

$

6,165

2,842

938

6,389

3,159

1,085

(541)
(224)
(317)
(147)

(5.7)%

(3.5)%

(10.0)%

(13.5)%

Net revenues, which include excise taxes billed to customers, decreased by $541 million.  Excluding excise taxes, net revenues decreased
by $317 million, due to:

• 

• 

• 

unfavorable currency ($525 million) and

unfavorable volume/mix ($104 million), partly offset by

price increases ($312 million).

Operating companies income decreased by $147 million during 2016.  This decrease was due to:

• 

• 

• 

• 

• 

unfavorable currency ($282 million),

unfavorable volume/mix ($85 million),

higher manufacturing costs ($57 million) and

higher marketing, administration and research costs ($35 million), partly offset by

price increases ($312 million).

Latin America & Canada - PMI Cigarette Shipment Volume 

Our cigarette shipment volume decreased by 4.3% to 87.9 billion units, mainly due to Argentina, partly offset by Mexico.  While cigarette 
shipment volume of Marlboro decreased by 1.8% to 35.2 billion units, its market share increased by 0.6 points to an estimated 15.8%, 
primarily driven by Brazil, up by 0.6 points to 10.3%, Colombia, up by 0.3 points to 9.3%, and Mexico, up by 1.3 points to 48.9%, partly 
offset by Argentina, down by 1.9 points to 22.4%.  Cigarette shipment volume of Philip Morris decreased by 15.3% to 16.5 billion units, 
mainly due to Argentina.

56

 
 
Latin America & Canada - Key Market Commentaries 

In Argentina, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

Argentina Key Market Data

Full-Year

2016

36.1

2015

40.8

Change

% / p.p.

(11.6)%

PMI Shipments (million units)

27,512

31,910

(13.8)%

PMI Cigarette Market Share
Marlboro

Parliament

Philip Morris

Others
Total

22.4%

1.9%

41.6%
10.4%

76.3%

24.3%

2.1%

44.7%

7.1%

78.2%

(1.9)

(0.2)

(3.1)

3.3

(1.9)

The decline of the estimated total cigarette market of 11.6% mainly reflected a soft economic environment and the impact of the May 
2016 excise tax increase that drove a more than 50% increase in average industry retail prices.  The decrease in our cigarette shipment 
volume was principally due to the lower total market.  Our lower cigarette market share primarily reflected growth in competitors' super-
low priced products benefiting from down-trading, partly offset by low-price Chesterfield in "Others."  The capsule segment was up by 
1.0 point to 17.4% of the total market; our share of the segment increased by 0.4 points to 73.9%.

In Canada, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

PMI Shipments (million units)

PMI Cigarette Market Share
Belmont

Canadian Classics

Next

Others
Total

Canada Key Market Data

Full-Year

2015

26.7

9,926

3.3%

10.3%

10.6%

13.1%

37.3%

2016

26.3

10,049

3.7%

10.2%

11.3%

13.2%

38.4%

Change

% / p.p.

(1.6)%

1.2 %

0.4

(0.1)

0.7

0.1

1.1

The estimated total cigarette market decreased by 1.6%.  The increase in our cigarette shipment volume was principally driven by higher 
cigarette market share, favorably impacted by estimated trade inventory movements, partly offset by a lower total market.

57

In Mexico, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Mexico Key Market Data

Full-Year

Total Cigarette Market (billion units)

2016

36.2

2015

33.9

PMI Shipments (million units)

25,080

23,246

PMI Cigarette Market Share
Marlboro

Delicados

Benson & Hedges

Others
Total

48.9%

9.7%

4.7%

6.0%

69.3%

47.6%

10.6%

4.5%

5.8%

68.5%

Change

% / p.p.

6.7%

7.9%

1.3
(0.9)
0.2

0.2

0.8

The estimated total cigarette market increased by 6.7%, or by 1.9% excluding the net impact of estimated trade inventory movements, 
primarily reflecting improved market conditions and a lower prevalence of illicit trade.  The increase in our cigarette shipment volume 
reflected the higher total market.  Our cigarette market share, benefiting from the impact of estimated inventory movements, was up by 
0.8 points, with growth of Marlboro and Benson & Hedges, reflecting the impact of new product launches, partly offset by low-price 
Delicados.  Our share of the premium segment, representing 56.8% of the total market, increased by 1.1 points to 93.5%. 

2015 compared with 2014 

The following discussion compares operating results within each of our reportable segments for 2015 with 2014.

European Union:

European Union

(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

Operating companies income

For the Years Ended
December 31,

2015

2014

Variance

%

$

26,563

$

30,517

$

18,495

8,068

3,576

21,370

9,147

3,815

(3,954)
(2,875)
(1,079)
(239)

(13.0)%

(13.5)%

(11.8)%

(6.3)%

Net revenues, which include excise taxes billed to customers, decreased by $4.0 billion.  Excluding excise taxes, net revenues decreased 
by $1.1 billion, due primarily to:

• 

• 

• 

unfavorable currency ($1.5 billion) and

unfavorable volume/mix ($29 million), partly offset by

price increases ($442 million).

The net revenues of the European Union segment include $1.5 billion in 2015 and $1.7 billion in 2014 related to sales of OTP.  Excluding 
excise taxes, OTP net revenues for the European Union segment were $509 million in 2015 and $574 million in 2014.

58

 
Operating companies income decreased by $239 million during 2015.  This decrease was due primarily to:

• 

• 

• 

• 

• 

• 

unfavorable currency ($857 million),

higher marketing, administration and research costs ($242 million) and

unfavorable volume/mix ($47 million), partly offset by

price increases ($442 million),

lower pre-tax charges for asset impairment and exit costs ($422 million, primarily due to the non-recurrence of the 2014 pre-
tax charge related to the decision to discontinue cigarette production in the Netherlands) and 

lower manufacturing costs ($46 million).

European Union - Industry Volume 

The estimated total cigarette market in the European Union of 508.9 billion units decreased by 0.7%.  The net impact of estimated trade 
inventory movements was neutral.  The moderate decline of the estimated total cigarette market reflected, in certain key geographies, 
improving economies, a decrease in the prevalence of illicit trade, lower out-switching to the fine cut category and a lower prevalence 
of e-vapor products. 

The estimated total OTP market in the European Union of 156.1 billion cigarette equivalent units increased by 0.3%.  The total fine cut 
market was up by 0.8% to 145.1 billion cigarette equivalent units.

European Union - PMI Shipment Volume and Market Share 

Cigarette shipment volume and market share performance by brand are shown in the tables below:

European Union Cigarette Shipment Volume by Brand (Million Units)

Marlboro

L&M

Chesterfield

Philip Morris

Others

Total EU

Marlboro

L&M

Chesterfield

Philip Morris

Others

Total EU

2015

Full-Year
2014

Change

95,588

35,010

28,278

14,205

21,508

94,537

34,943

27,100

10,224

27,942

194,589

194,746

1.1 %

0.2 %

4.3 %

38.9 %

(23.0)%

(0.1)%

European Union Cigarette Market Shares by Brand

Full-Year

Change

2015

2014

18.8%

6.9%

5.6%

3.2%

3.8%

38.3%

18.7%

6.8%

5.3%

3.2%

4.2%

38.2%

p.p.

0.1

0.1

0.3

—
(0.4)
0.1

Our cigarette shipment volume of 194.6 billion units decreased by 0.1%, or by 0.4% excluding favorable net trade inventory movements, 
mainly in Italy.  Market share increased by 0.1 point to 38.3%, with gains notably in France, Germany, Poland and Spain largely offset 
by the Czech Republic, Greece, Italy and Portugal.  

59

Our shipments of OTP of 23.4 billion cigarette equivalent units increased by 2.2%.  Our total OTP market share increased by 0.1 point 
to 15.0%.

European Union - Key Market Commentaries 

In France, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

France Key Market Data

Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

45.5

45.0

PMI Shipments (million units)

18,943

18,563

PMI Cigarette Market Share
Marlboro

Philip Morris
Chesterfield

Others
Total

25.9%

9.5%
3.3%

2.9%

41.6%

25.1%

9.4%
3.4%

3.1%

41.0%

1.0%

2.0%

0.8

0.1
(0.1)
(0.2)
0.6

The increase in the estimated total cigarette market reflected its general recovery since the second half of 2014 and a lower prevalence 
of e-vapor products and illicit trade.  The increase in our cigarette shipment volume mainly reflected market share growth, notably of 
premium brands Marlboro, benefiting from a round retail price point of €7.00 per pack and the launch of Marlboro 25s in the first quarter 
of 2015, and Philip Morris.  The estimated total industry fine cut category of 14.5 billion cigarette equivalent units increased by 6.9%.  
Our market share of the category decreased by 1.2 share points to 25.0%.

In Germany, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Germany Key Market Data

Full-Year

2015

2014

Total Cigarette Market (billion units)

80.0

80.4

PMI Shipments (million units)

29,778

29,411

Change
% / p.p.

(0.4)%

1.2 %

PMI Cigarette Market Share
Marlboro

L&M

Chesterfield

Others
Total

22.1%

11.9%

1.7%

1.5%

37.2%

21.7%

11.8%

1.7%

1.4%

36.6%

0.4

0.1

—

0.1

0.6

The decline of the estimated total cigarette market was partly due to the impact of price increases, partially offset by a lower prevalence 
of illicit trade.  The increase in our cigarette shipment volume principally reflected market share growth, driven by Marlboro, mainly 
reflecting the positive impact of the new Architecture 2.0, and L&M, benefiting from a rounded retail price point of €5.00 per pack of 
19s.  The estimated total industry fine cut category of 41.0 billion cigarette equivalent units decreased by 0.6%.  Our market share of the 
category decreased by 0.2 points to 12.7%.

60

In Italy, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Italy Key Market Data

Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

73.8

74.4

PMI Shipments (million units)

39,717

40,439

PMI Cigarette Market Share
Marlboro

Chesterfield

Philip Morris

Others
Total

24.6%

11.0%

9.2%

8.9%

53.7%

25.7%

9.2%

10.4%

9.6%

54.9%

(0.8)%

(1.8)%

(1.1)

1.8

(1.2)

(0.7)

(1.2)

The moderate decrease in the estimated total cigarette industry was driven by an improved macro-economic environment and a lower 
prevalence of illicit trade and e-vapor products.  Excluding the favorable net impact of estimated trade inventory movements, our cigarette 
shipment volume declined by 2.9%, mainly reflecting market share loss, notably of: Marlboro, largely due to its price increase in the 
first quarter of 2015 to €5.20 per pack from its round retail price point of €5.00 per pack; and Philip Morris, including the morphed Diana 
that had been impacted by the growth of the super-low price segment; partly offset by super-low price Chesterfield.   The estimated total 
industry fine cut category of 6.4 billion cigarette equivalent units increased by 5.1%.  Our market share of the category decreased by 0.4
points to 41.1%.

In Poland, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Poland Key Market Data

Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

41.1

42.1

PMI Shipments (million units)

16,763

16,630

PMI Cigarette Market Share
Marlboro

L&M

Chesterfield

Others
Total

11.4%

18.1%

8.6%

2.7%

40.8%

11.2%

18.2%

7.6%

3.1%

40.1%

(2.3)%

0.8 %

0.2

(0.1)

1.0

(0.4)

0.7

The decrease in the estimated total cigarette market reflected the impact of price increases and an increase in the prevalence of illicit 
products, partly offset by a lower prevalence of e-vapor products.  The increase in our cigarette shipment volume reflected higher market 
share, driven by Marlboro, partly reflecting the positive impact of the new Architecture 2.0, and Chesterfield, benefiting from its super-
slims variants, partly offset by declines from super-low price brands.  The estimated total industry fine cut category of 4.0 billion cigarette 
equivalent units increased by 11.0%, mainly reflecting the retail price impact of excise tax restructuring on the cigar and cigarillo categories 
that drove higher in-switching to the fine cut category, as well as a lower prevalence of illicit OTP.  Our market share of the category 
decreased by 3.3 points to 31.4%, mainly due to increased price competition at the bottom end of the market.

61

In Spain, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Spain Key Market Data

Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

46.7

47.0

PMI Shipments (million units)

15,435

14,879

PMI Cigarette Market Share
Marlboro

Chesterfield

L&M

Others
Total

17.0%

9.1%

5.8%

1.5%

33.4%

15.9%

9.2%

6.1%

0.9%

32.1%

(0.6)%

3.7 %

1.1

(0.1)

(0.3)

0.6

1.3

The decrease in the estimated total cigarette market mainly reflected the impact of price increases, partly offset by an improving economy, 
and a lower prevalence of illicit trade and e-vapor products.  The increase in our cigarette shipment volume principally reflected higher 
market share, driven mainly by Marlboro, benefiting from a round price point in the vending channel, the new Architecture 2.0, and an 
improving economy.  The estimated total industry fine cut category of 9.5 billion cigarette equivalent units decreased by 2.1%.  Our 
market share of the fine cut category decreased by 1.3 points to 13.5%.

Eastern Europe, Middle East & Africa:

Eastern Europe, Middle East & Africa

For the Years Ended
December 31,

(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

Operating companies income

2015

2014

Variance

%

$

18,328

$

20,469

$

10,964

7,364

3,425

11,855

8,614

4,033

(2,141)
(891)
(1,250)
(608)

(10.5)%

(7.5)%

(14.5)%

(15.1)%

Net revenues, which include excise taxes billed to customers, decreased by $2.1 billion.  Excluding excise taxes, net revenues decreased 
by $1.3 billion, due primarily to:

• 

• 

• 

unfavorable currency ($1.8 billion) and 

unfavorable volume/mix ($53 million), partly offset by

price increases ($637 million).

62

 
Operating companies income decreased by $608 million during 2015.  This decrease was due primarily to:

• 

• 

• 

• 

• 

• 

unfavorable currency ($938 million),

higher marketing, administration and research costs ($175 million), 

unfavorable volume/mix ($123 million) and 

higher manufacturing costs ($54 million), partially offset by

price increases ($637 million) and 

higher equity income from unconsolidated subsidiaries ($44 million).

Eastern Europe, Middle East & Africa - PMI Cigarette Shipment Volume

Our cigarette shipment volume of 279.4 billion units increased by 0.4%, driven notably by Egypt, Saudi Arabia and Turkey, partially 
offset by Kazakhstan and Ukraine.  Excluding favorable net estimated trade inventory movements, our cigarette shipment volume was 
essentially flat.  Our cigarette shipment volume of premium brands decreased by 0.6%, mainly due to Parliament, down by 3.2% to 33.6 
billion units, mainly due to Kazakhstan, Russia and Ukraine, partly offset by Turkey, partly offset by growth from Marlboro, up by 0.7% 
to 80.7 billion units, driven by Saudi Arabia and Turkey, partly offset by North Africa and Ukraine.  Our cigarette shipment volume of 
L&M increased by 8.4% to 51.2 billion units, driven notably by Egypt, Turkey and Ukraine, partly offset by Russia.

Eastern Europe, Middle East & Africa - Key Market Commentaries 

In North Africa, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

North Africa Key Market Data

Full-Year

Total Cigarette Market (billion units)

2015

138.5

2014

143.3

PMI Shipments (million units)

38,111

37,782

PMI Cigarette Market Share
Marlboro
L&M

Others
Total

13.7%
11.9%

2.3%

27.9%

15.3%
8.9%

1.9%

26.1%

Change

% / p.p.

(3.4)%

0.9 %

(1.6)
3.0

0.4

1.8

The decline of the estimated total market was principally due to Egypt, reflecting the impact of excise tax-driven price increases.  The 
increase in our cigarette shipment volume was primarily driven by Egypt, reflecting higher market share, mainly of L&M, resulting from 
improved territorial coverage and brand building activities, partly offset by Algeria and Tunisia.

63

In Russia, estimated industry size, our cigarette shipment volume and market share performance, as measured by Nielsen, are shown in 
the table below.

Russia Key Market Data
Full-Year

Total Cigarette Market (billion units)

2015

294.1

2014

314.1

PMI Shipments (million units)

84,422

84,948

PMI Cigarette Market Share
Marlboro

Parliament

Bond Street

Others
Total

1.4%

3.9%

8.4%

14.7%

28.4%

1.6%

3.7%

7.7%

14.5%

27.5%

Change

% / p.p.

(6.4)%

(0.6)%

(0.2)

0.2

0.7

0.2

0.9

The decline of the estimated total cigarette market was mainly due to the unfavorable impact of excise tax-driven price increases and 
lower consumer purchasing power as a result of a weak economy.  The decrease in our cigarette shipment volume mainly reflected the 
lower total market, largely offset by market share gains, primarily by premium Parliament, low-price Bond Street, notably its Compact 
7.0 variant, and super-low price Next in "Others."

In Turkey, estimated industry size, our cigarette shipment volume and market share performance, as measured by Nielsen, are shown in 
the table below.

Turkey Key Market Data

Full-Year

Total Cigarette Market (billion units)

2015

103.2

2014

94.7

PMI Shipments (million units)

49,014

46,309

PMI Cigarette Market Share
Marlboro

Parliament

Lark

Others
Total

9.5%

11.6%

7.6%

15.1%

43.8%

8.6%

11.2%

9.0%

15.2%

44.0%

Change

% / p.p.

9.0%

5.8%

0.9

0.4
(1.4)
(0.1)
(0.2)

The increase in the estimated total cigarette market mainly reflected a significantly lower prevalence of illicit trade.  The increase in our 
cigarette shipment volume was driven by a higher total market.  The decline in our market share was mainly due to low-price Lark, 
reflecting the impact of price repositioning by our principal competitor in May 2014, partly offset by Marlboro, notably its Touch 7.0 
variants, and Parliament, benefiting from the growth of Parliament Night Blue KS, the leading SKU sold on the market, and from up-
trading from the mid-price segment.

64

In Ukraine, estimated industry size, our cigarette shipment volume and market share performance, as measured by Nielsen, are shown 
in the table below.

Ukraine Key Market Data
Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

70.6

69.7

1.3 %

PMI Shipments (million units)

19,195

23,273

(17.5)%

PMI Cigarette Market Share
Marlboro

Parliament

Bond Street

Others
Total

3.8%

2.9%

8.3%

15.0%

30.0%

4.9%

3.1%

8.9%

15.8%

32.7%

(1.1)

(0.2)

(0.6)

(0.8)

(2.7)

The increase in the estimated total market was mainly driven by a lower prevalence of illicit trade.  The decrease in our cigarette shipment 
volume largely reflected lower market share, primarily due to Marlboro, reflecting the impact of widened price gaps, and Bond Street, 
mainly resulting from competitive price pressure in the low-price segment.

Asia:

Asia

(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

Operating companies income

For the Years Ended
December 31,

2015

2014

Variance

%

$

19,469

$

19,255

$

11,266

8,203

2,886

10,527

8,728

3,187

214

739
(525)
(301)

1.1 %

7.0 %

(6.0)%

(9.4)%

Net revenues, which include excise taxes billed to customers, increased by $214 million.  Excluding excise taxes, net revenues decreased 
by $525 million, due to:

• 

• 

• 

unfavorable currency ($875 million) and

unfavorable volume/mix ($100 million), partly offset by

price increases ($450 million).

65

 
Operating companies income decreased by $301 million during 2015. This decrease was due primarily to:

• 

• 

• 

• 

• 

• 

unfavorable currency ($388 million),

higher marketing, administration and research costs ($165 million),

unfavorable volume/mix ($162 million) and

higher manufacturing costs ($70 million), partly offset by

price increases ($450 million) and 

the non-recurrence of the 2014 pre-tax charges for asset impairment and exit costs ($35 million) due to the factory closure in 
Australia.

Asia - PMI Cigarette Shipment Volume

Our cigarette shipment volume of 281.4 billion units decreased by 2.4%, mainly due to: Korea; Pakistan, reflecting a lower total estimated 
market resulting from the June and December 2015 excise tax-driven price increases, coupled with an increase in the prevalence of illicit 
trade and lower market share; and the Philippines.  Excluding distributor inventory movements in Japan, reflecting a favorable comparison 
in 2015 resulting from the correction in 2014 of distributor inventory movements related to the VAT increase of April 2014, our cigarette 
shipment volume decreased by 3.1%.  

Our cigarette shipment volume of Marlboro of 73.5 billion units increased by 3.0%, mainly driven by the Philippines and Vietnam, partly 
offset by Japan and Korea.  Cigarette shipment volume of Parliament of 9.4 billion units decreased by 11.5%, primarily due to Korea, 
partly offset by Japan.  Cigarette shipment volume of Lark of 18.3 billion units increased by 3.3%, principally driven by Japan, partly 
offset by Korea. 

Asia - Key Market Commentaries 

In Indonesia, estimated industry size, our cigarette shipment volume, market share and segmentation performance are shown in the tables 
below.  

Indonesia Key Market Data

Full-Year

Total Cigarette Market (billion units)

2015

320.0

2014

319.0

PMI Shipments (million units)

109,840

109,694

PMI Cigarette Market Share
Sampoerna A

Dji Sam Soe

U Mild

Others
Total

14.6%

6.9%

4.7%

8.1%

34.3%

14.2%

6.2%

5.3%

8.7%

34.4%

Change

% / p.p.

0.3%

0.1%

0.4

0.7
(0.6)
(0.6)
(0.1)

66

Segment % of Total Market
Hand-Rolled Kretek (SKT)

Machine-Made Kretek (SKM)

Whites (SPM)

Total

PMI % Share of Segment
Hand-Rolled Kretek (SKT)

Machine-Made Kretek (SKM)

Whites (SPM)

Indonesia Segmentation Data

Full-Year

2015

2014

Change

p.p.

19.1%

74.7%

6.2%

100.0%

37.7%

29.7%

80.3%

20.6%

73.0%

6.4%

100.0%

37.5%

29.6%

79.1%

(1.5)
1.7
(0.2)
—

0.2

0.1

1.2

The estimated total cigarette market increased slightly, reflecting a soft economic environment.  The slight change in our market share 
reflected a strong performance from our machine-made kretek brands, notably Sampoerna A, Dji Sam Soe Magnum and Dji Sam Soe 
Magnum Blue, offset by U Mild, and a decline in our hand-rolled kretek portfolio, notably due to Sampoerna Hijau in "Others," down
by 0.4 share points to 2.9%.

In Japan, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below. 

Japan Key Market Data

Full-Year

Total Cigarette Market (billion units)

2015

182.3

2014

186.2

PMI Shipments (million units)

45,690

45,556

PMI Cigarette Market Share
Marlboro
Parliament
Lark

Others
Total

11.3%
2.3%
9.9%

1.8%

25.3%

11.6%
2.2%
10.0%

2.1%

25.9%

Change

% / p.p.

(2.1)%

0.3 %

(0.3)
0.1
(0.1)

(0.3)

(0.6)

The decrease of the estimated total cigarette market moderated to 2.1%.  Excluding estimated inventory movements, driven principally 
by a favorable comparison as a result of the 2014 correction of distributor inventory movements partly related to the VAT increase of 
April 2014, our cigarette shipment volume decreased by 4.3%.  The decline was mainly due to a lower total market, and lower market 
share principally reflecting the impact of competitive retail price and new menthol taste product offerings.

67

In Korea, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Korea Key Market Data

Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

67.3

88.1

(23.6)%

PMI Shipments (million units)

14,201

17,346

(18.1)%

PMI Cigarette Market Share
Marlboro

Parliament

Virginia S.

Others
Total

9.6%

8.4%

2.6%

0.6%

21.2%

7.8%

8.6%

2.6%

0.7%

19.7%

1.8

(0.2)

—

(0.1)

1.5

The decline of the estimated total cigarette market reflected the impact of the January 2015 excise tax increase and related retail price 
increases.  Excluding the impact of estimated inventory movements associated with the timing of the excise tax increase, the total cigarette 
market declined by approximately 17.3%.  The decline in our cigarette shipment volume reflected the lower estimated total market, partly 
offset by share growth, driven by Marlboro, benefiting from the positive impact of pricing for our principal domestic competitor's main 
brands.

In the Philippines, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below. 

Philippines Key Market Data

Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

90.2

94.9

PMI Shipments (million units)

66,236

68,358

PMI Cigarette Market Share
Marlboro

Fortune

Jackpot

Others
Total

20.0%

29.2%

12.4%

11.8%

73.4%

16.0%

28.9%

15.0%

12.1%

72.0%

(4.9)%

(3.1)%

4.0

0.3

(2.6)

(0.3)

1.4

The estimated total cigarette market decreased by 4.9%, mainly due to the impact of price increases.  The decline in our cigarette shipment 
volume  reflected  the  lower  total  market  combined  with  lower  consumption  of  our  low  and  super-low  price  brands,  following  price 
increases in late 2014 and early 2015, partly offset by higher market share, driven by adult smoker uptrading to Marlboro, combined 
with market share growth of Fortune, reflecting the narrowing of retail price gaps with brands at the bottom end of the market.

68

Latin America & Canada: 

Latin America & Canada

(in millions)
Net revenues

Excise taxes on products

Net revenues, excluding excise taxes on products

Operating companies income

For the Years Ended
December 31,

2015

2014

Variance

%

$

9,548

$

9,865

$

6,389

3,159

1,085

6,587

3,278

1,030

(317)
(198)
(119)
55

(3.2)%

(3.0)%

(3.6)%

5.3 %

Net revenues, which include excise taxes billed to customers, decreased by $317 million.  Excluding excise taxes, net revenues decreased 
by $119 million, due primarily to:

• 

• 

• 

unfavorable currency ($505 million) and

unfavorable volume/mix ($143 million), partly offset by

price increases ($525 million).

Operating companies income increased by $55 million during 2015. This increase was due primarily to:

• 

• 

• 

• 

• 

price increases ($525 million), partly offset by

unfavorable currency ($210 million),

unfavorable volume/mix ($141 million),

higher manufacturing costs ($88 million) and 

higher marketing, administration and research costs ($42 million). 

Latin America & Canada - PMI Cigarette Shipment Volume and Market Share

Our cigarette shipment volume of 91.9 billion units decreased by 2.9%, mainly due to Argentina, Brazil, Canada and Mexico.  Although 
shipment volume of Marlboro of 35.8 billion units decreased by 3.2%, our Regional market share increased by 0.2 points to an estimated 
15.2%.  Market share of Marlboro increased notably in Brazil and Colombia, by 0.4 and 1.1 points to 9.7% and 9.0%, respectively.  
Shipment volume of Philip Morris of 19.4 billion units increased by 1.7%, driven mainly by Canada.

69

 
Latin America & Canada - Key Market Commentaries

In Argentina, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Argentina Key Market Data
Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

40.8

41.9

PMI Shipments (million units)

31,910

32,323

PMI Cigarette Market Share
Marlboro

Parliament

Philip Morris

Others
Total

24.3%

2.1%

44.7%

7.1%

78.2%

24.3%

2.2%

43.4%

7.3%

77.2%

(2.5)%

(1.3)%

—

(0.1)

1.3

(0.2)

1.0

The decline of the estimated total cigarette market was mainly due to the impact of price increases and a challenging economic environment.  
The decrease in our shipment volume was mainly due to a lower estimated total market, partly offset by market share growth, driven 
primarily by Philip Morris, reflecting the positive impact of the brand's capsule variants.  Our share of the growing capsule segment, 
representing 16.4% of the total market, grew by 4.4 points to 73.5%.

In Canada, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Total Cigarette Market (billion units)

PMI Shipments (million units)

PMI Cigarette Market Share
Belmont

Canadian Classics

Next

Others
Total

Canada Key Market Data

Full-Year

2015

2014

Change

% / p.p.

26.7

9,926

3.3%

10.3%

10.6%

13.1%

37.3%

27.3

10,275

3.0%

10.4%

10.6%

13.6%

37.6%

(2.3)%

(3.4)%

0.3

(0.1)

—

(0.5)

(0.3)

The  estimated  total  cigarette  market  decreased  by  2.3%.    Excluding  the  favorable  impact  of  estimated  competitors'  trade  inventory 
movements, the total market declined by 4.6%, mainly due to the impact of tax-driven price increases.  The decrease in our cigarette 
shipment volume was principally due to a lower estimated total market.  Our market share was also negatively impacted by the above-
mentioned estimated competitors' trade inventory movements.

70

In Mexico, estimated industry size, our cigarette shipment volume and market share performance are shown in the table below.

Mexico Key Market Data

Full-Year

2015

2014

Change

% / p.p.

Total Cigarette Market (billion units)

33.9

33.5

PMI Shipments (million units)

23,246

23,861

PMI Cigarette Market Share
Marlboro

Delicados

Benson & Hedges

Others
Total

47.6%

10.6%

4.5%

5.8%

68.5%

49.7%

11.1%

5.2%

5.3%

71.3%

1.4 %

(2.6)%

(2.1)

(0.5)

(0.7)

0.5

(2.8)

The estimated total cigarette market increased by 1.4%.  Excluding the unfavorable impact of estimated trade inventory movements, the 
total market increased by 3.8%, primarily reflecting a lower prevalence of illicit trade.  The decrease in our cigarette shipment volume 
was mainly driven by: lower market share, mainly due to Marlboro, reflecting adult smoker down-trading; and the timing of price increases 
by our principal competitor in the first quarter of 2015; partly offset by gains for certain low-price local trademark brands.

Financial Review 

Net Cash Provided by Operating Activities 

Net cash provided by operating activities of $8.1 billion for the year ended December 31, 2016, increased by $212 million from the 
comparable 2015 period.  Excluding unfavorable currency movements of $409 million, the change was due primarily to net earnings 
growth and lower cash payments related to exit costs, partly offset by higher working capital requirements and 2016 installment payments 
of security into a court trust pertaining to the Létourneau and Blais cases as well as a 2016 payment to the South Korean tax authorities 
(see Item 8, Note 19. Contingencies for additional information). 

Excluding currency, the unfavorable variance in working capital was due primarily to the following:

•  more  cash  used  for  accounts  receivable,  primarily  due  to  the  timing  of  sales  and  cash  collections  (including  unfavorable 
comparisons to the cash flows provided for accounts receivable in 2015 following the expansion of arrangements to sell accounts 
receivable to unaffiliated financial institutions as disclosed in Item 8, Note 21. Sale of Accounts Receivable), partly offset by

•  more cash provided by accrued liabilities and other current assets, primarily due to the timing of payments for excise taxes.

Net cash provided by operating activities of $7.9 billion for the year ended December 31, 2015, increased by $126 million from the 
comparable 2014 period.  The change was due primarily to net earnings growth (excluding unfavorable currency of $1.9 billion) and 
working capital initiatives.

Excluding currency, the favorable variance in working capital was due primarily to the following:

•  more cash provided by accounts receivable, primarily due to the timing of sales and cash collections (including the sale of 
accounts receivable in 2015 to unaffiliated financial institutions as disclosed in Item 8, Note 21. Sale of Accounts Receivable);
and

• 

less cash used for accrued liabilities and other current assets, primarily due to the timing of payments for excise taxes; partially 
offset by

•  more cash used for inventories, primarily related to higher finished goods inventories.

71

Net Cash Used in Investing Activities 

Net cash used in investing activities of $968 million for the year ended December 31, 2016, increased by $260 million from the comparable 
2015 period, due primarily to higher capital expenditures.

Net cash used in investing activities of $708 million for the year ended December 31, 2015, decreased by $288 million from the comparable 
2014 period, due primarily to lower capital expenditures and purchases of businesses in 2014.

In June 2014, we acquired 100% of Nicocigs Limited, a leading U.K.-based e-vapor company, for the final purchase price of $103 million, 
net of cash acquired.  For further details, see Item 8, Note 6. Acquisitions and Other Business Arrangements to our consolidated financial 
statements.

Our capital expenditures were $1.2 billion in 2016, $1.0 billion in 2015 and $1.2 billion in 2014.  The 2016 expenditures were primarily 
related to investments in RRPs, productivity-enhancing programs, and equipment for new products.  We expect total capital expenditures 
in 2017 of approximately $1.5 billion (including additional capital expenditures related to our ongoing investment in RRPs to support 
capacity expansion, notably for IQOS Consumables), to be funded by operating cash flows.

Net Cash Used in Financing Activities 

During 2016, net cash used in financing activities was $5.4 billion, compared with net cash used in financing activities of $4.7 billion 
during 2015 and $6.8 billion in 2014.

The 2016 change was due primarily to lower net proceeds received from the sale of subsidiary shares to noncontrolling interests, partially 
offset by higher proceeds from long-term debt issuances.

The 2015 change was due primarily to the cash used in 2014 to repurchase our common stock pursuant to our share repurchase program, 
as well as the 2015 net proceeds received from the sale of subsidiary shares to noncontrolling interests, partially offset by lower net cash 
proceeds in 2015 from long-term debt.

On January 30, 2014, the Indonesian Stock Exchange (“IDX”) adopted a regulation requiring all listed public companies to have at least 
a 7.5% public shareholding by January 30, 2016.  In order to comply with this requirement, our subsidiary PT HM Sampoerna Tbk. 
(“Sampoerna”), of which we held a 98.18% interest, conducted a rights issue.  In connection with the rights issue, PT Philip Morris 
Indonesia (“PMID”), a fully consolidated subsidiary of PMI, sold 264,209,711 of the rights to third-party investors.  Delivery of the rights 
sold took place on October 26, 2015.  The total net proceeds from the rights issue were $1.5 billion at prevailing exchange rates on the 
closing date.  For further details, see Item 8, Note 6. Acquisitions and Other Business Arrangements to our consolidated financial statements.

During 2014, we used a total of $13.2 billion to repurchase our common stock, pay dividends and repay debt.  These uses were partially 
offset by proceeds from our debt offerings and short-term borrowings in 2014 of $6.6 billion.

Dividends paid in 2016, 2015 and 2014 were $6.4 billion, $6.3 billion and $6.0 billion, respectively.

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.

72

Credit Ratings – The cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected 
by applicable credit ratings.  On March 21, 2016, Standard & Poor's affirmed our long-term credit rating at "A" and short-term at "A-1," 
but revised our outlook to "Negative" from "Stable."  On August 1, 2016, Fitch affirmed our long-term credit rating at "A" and short-
term at "F1," as well as our "Negative" outlook.  We do not expect the Standard & Poor's and Fitch negative outlooks to impact our 
borrowing costs.  On August 10, 2016, Moody's affirmed our long-term credit rating at "A2" and short-term at "P-1," as well as our 
"Stable" outlook.  At February 13, 2017, our credit ratings and outlook by major credit rating agencies were as follows:

Moody’s

Standard & Poor’s

Fitch

Short-term
P-1

Long-term
A2

A-1

F1

A

A

Outlook
Stable

Negative

Negative

Credit Facilities – On January 27, 2016, we entered into an agreement to extend the term of our existing $2.5 billion multi-year revolving 
credit facility from February 28, 2020, to February 28, 2021.  On January 27, 2017, we entered into an agreement to extend the term of 
our $2.0 billion 364-day revolving credit facility from February 7, 2017, to February 6, 2018.

At February 13, 2017, our committed credit facilities were as follows:

(in billions)

Type

364-day revolving credit, expiring February 6, 2018

Multi-year revolving credit, expiring February 28, 2021

Multi-year revolving credit, expiring October 1, 2020 (1)

Total facilities

Committed
Credit
Facilities

2.0

2.5

3.5

8.0

$

$

(1) On August 30, 2016, we entered into an agreement, effective October 1, 2016, to extend the term of our multi-year revolving 
credit facility, for an additional year covering the period October 1, 2020 to October 1, 2021 in the amount of $3.35 billion. 

At February 13, 2017, 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.  

Each of these facilities requires us to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization 
(“consolidated EBITDA”) to consolidated interest expense of not less than 3.5 to 1.0 on a rolling four-quarter basis.  At December 31, 
2016, our ratio calculated in accordance with the agreements was 10.6 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.

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 $2.9 billion at December 31, 2016, 
and December 31, 2015, are for the sole use of our subsidiaries.  Borrowings under these arrangements amounted to $643 million at 
December 31, 2016, and $825 million at December 31, 2015.

Commercial Paper Program – We have commercial paper programs in place in the U.S. and in Europe.  Our commercial paper programs 
in place in the U.S. and in Europe currently have an aggregate issuance capacity of $8.0 billion.  At December 31, 2016 and December 31, 
2015, we had no commercial paper outstanding. 

73

 
 
We expect that the existence of the commercial paper program and the committed credit facilities, coupled with our operating cash flows, 
will enable us to meet our liquidity requirements.

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 non-servicing.  

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, 2016, 2015 and 2014, were $729 million, $888 million and $120 million, 
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 21. Sale of Accounts Receivable to our consolidated financial statements.

Debt – Our total debt was $29.1 billion at December 31, 2016, and $28.5 billion at December 31, 2015.  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 
2.8% in 2016, compared to 3.0% in 2015.  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 21, 2014, 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 2017, we 
plan to file a new shelf registration statement with the U.S. Securities and Exchange Commission.

Our debt issuances in 2016 were as follows: 

(in millions)

Type

Face Value

Interest Rate

Issuance

Maturity

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

EURO notes

(a)

(a)

(a)

(b)

(b)

(c)

$500

$750

$750

$500

$500
€500 (approximately $578)

1.375%

1.875%

2.750%

2.125%

4.250%
2.000%

February 2016

February 2016

February 2016

May 2016
May 2016 (d)
May 2016

February 2019

February 2021

February 2026

May 2023

November 2044
May 2036

(a) Interest on these notes is payable semi-annually in arrears beginning in August 2016. 
(b) Interest on these notes is payable semi-annually in arrears beginning in November 2016. 
(c) Interest on these notes is payable annually in arrears beginning in May 2017. 
(d) These notes are a further issuance of the 4.25% notes issued by PMI in November 2014.

The net proceeds from the sale of the securities listed in the table above were used for general corporate purposes. 

The weighted-average time to maturity of our long-term debt was 10.6 years at the end of 2016 and 10.5 years at the end of 2015. 

•  Off-Balance Sheet Arrangements and Aggregate Contractual Obligations 

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

Guarantees – At December 31, 2016, we were contingently liable for $0.8 billion of guarantees of our own performance, which were 
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, 2016, our third-party guarantees were insignificant. 

74

Aggregate Contractual Obligations – The following table summarizes our contractual obligations at December 31, 2016:

(in millions)
Long-term  debt (1)

Interest on borrowings (2)

Operating leases (3)

Purchase obligations (4):

Inventory and production costs

Other

Other long-term liabilities (5)

Payments Due

Total

2017

2018-2019 2020-2021

2022 and
Thereafter

$28,674

$2,573

$5,006

$5,549

$15,546

10,969

662

3,871

1,474

5,345

462

911

182

1,571

1,122

2,693

62

1,529

208

1,010

298

1,308

75

1,261

108

525

46

571

38

7,268

164

765

8

773

287

$46,112

$6,421

$8,126

$7,527

$24,038

(1) Amounts represent the expected cash payments of our long-term debt and capital lease obligations.
(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. 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 minimum rental commitments under non-cancelable operating leases. 
(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. 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 postretirement health care costs and accruals established for employment 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 $70 million in 2017, based on current tax and benefit laws (as discussed in Item 8, Note 13. Benefit Plans to our consolidated 
financial statements).

Equity and Dividends

We discuss our stock awards as of December 31, 2016, in Item 8, Note 9. Stock Plans to our consolidated financial statements. 

On August 1, 2012, we began repurchasing shares under a three-year $18.0 billion share repurchase program that was authorized by our 
Board of Directors in June 2012.  From August 1, 2012, through December 31, 2014, we repurchased 144.6 million shares of our common 
stock at a cost of $12.7 billion under this repurchase program.  Our authorized three-year share repurchase program of $18.0 billion 
expired in August 2015.  During 2016 and 2015, we did not repurchase any shares of our common stock and we do not presently intend 
to repurchase shares of our common stock in 2017.

Dividends paid in 2016 were $6.4 billion.  During the third quarter of 2016, our Board of Directors approved a 2.0% increase in the 
quarterly dividend to $1.04 per common share.  As a result, the present annualized dividend rate is $4.16 per common share.

Market Risk

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 within less than 30 
days.

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

75

Derivative Financial Instruments - We operate in markets outside of the U.S., with manufacturing and sales facilities in various 
locations throughout 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 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. Financial Instruments, Item 8, Note 16. Fair Value Measurements and Item 8, Note 20. Balance Sheet Offsetting
to our consolidated financial statements for further details on our derivative financial instruments and the related collateral arrangements.

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 
financial instruments and to estimate the potential one-day loss in pre-tax earnings of our foreign currency price-sensitive derivative 
financial instruments. This computation includes our debt, short-term investments, 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. We use a “variance/co-
variance”  model  to  determine  the  observed  interrelationships  between  movements  in  interest  rates  and  various  currencies.  These 
interrelationships  were  determined  by  observing  interest  rate  and  forward  currency  rate  movements  over  the  preceding  quarter  for 
determining value at risk at December 31, 2016 and 2015, and over each of the four preceding quarters for the calculation of average 
value at risk amounts during each year. The values of foreign currency options do not change on a one-to-one basis with the underlying 
currency and were valued accordingly in the computation.

The estimated potential one-day loss in fair value of our interest-rate-sensitive instruments, primarily debt, under normal market conditions 
and the estimated potential one-day loss in pre-tax earnings from foreign currency instruments under normal market conditions, as 
calculated in the value at risk model, were as follows:

(in millions)

Instruments sensitive to:

Pre-Tax Earnings Impact  

 At
12/31/16

Average  

High  

Low  

    Foreign currency rates

$63

$58

$87

$34

(in millions)

Instruments sensitive to:

Interest rates

(in millions)

Instruments sensitive to:

Fair Value Impact

At
12/31/16

Average

High

Low

$143

$147

$217

$112

Pre-Tax Earnings Impact  

 At
12/31/15

Average  

High  

Low  

    Foreign currency rates

$65

$74

$96

$62

(in millions)

Instruments sensitive to:

Interest rates

Fair Value Impact

At
12/31/15

Average

High

Low

$102

$120

$147

$102

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 
76

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 19. Contingencies to our consolidated financial statements for a discussion of contingencies.

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," "estimates," "intends," "projects," "goals," "targets" 
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. 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 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.

Item 7A.  Quantitative and Qualitative Disclosures About Market Risk.

The information called for by this Item is included in Item 7, Market Risk.

77

 
 
Item 8. 

Financial Statements and Supplementary Data.

Consolidated Balance Sheets
(in millions of dollars, except share data)

at December 31,

Assets

Cash and cash equivalents

2016

2015

$

4,239

$

3,417

Receivables (less allowances of $42 in 2016 and $58 in 2015)

3,499

2,778

Inventories:

Leaf tobacco

Other raw materials

Finished product

Deferred income taxes

Other current assets

Total current assets

Property, plant and equipment, at cost:

Land and land improvements

Buildings and building equipment

Machinery and equipment

Construction in progress

Less: accumulated depreciation

Goodwill (Note 3)

Other intangible assets, net (Note 3)

Investments in unconsolidated subsidiaries (Note 4)

Deferred income taxes

Other assets

Total Assets

2,498

1,569

4,950
9,017

—

853

2,640

1,613

4,220

8,473

488

648

17,608

15,804

590

3,474

7,366

930

12,360

6,296

6,064

7,324

2,470

1,011

859

1,515

583

3,361

6,978

845

11,767

6,046

5,721

7,415

2,623

890

360

1,143

$

36,851

$

33,956

See notes to consolidated financial statements.

78

 
 
at December 31,

Liabilities

Short-term borrowings (Note 7)

Current portion of long-term debt (Note 7)

Accounts payable

Accrued liabilities:

Marketing and selling

Taxes, except income taxes

Employment costs

Dividends payable

Other

Income taxes

Deferred income taxes

Total current liabilities

Long-term debt (Note 7)

Deferred income taxes

Employment costs

Other liabilities

Total liabilities

Contingencies (Note 19)

Stockholders’ (Deficit) Equity

Common stock, no par value (2,109,316,331 shares issued in 2016 and 2015)

Additional paid-in capital

Earnings reinvested in the business

Accumulated other comprehensive losses

Less: cost of repurchased stock  (557,930,784 and 559,972,262 shares in 2016 and

2015, respectively)

Total PMI stockholders’ deficit

Noncontrolling interests

Total stockholders’ deficit

2016

2015

$

643

$

825

2,573

1,666

575

6,204

800

1,621

1,553

832

—

16,467

25,851

1,897

2,800

736

2,405

1,289

640

5,121

903

1,589

1,438

970

206

15,386

25,250

1,543

2,566

687

47,751

45,432

—

—

1,964

1,929

30,397

29,842

(9,559)

(9,402)

22,802

22,369

35,490

35,613

(12,688)

(13,244)

1,788

1,768

(10,900)

(11,476)

Total Liabilities and Stockholders’ (Deficit) Equity

$ 36,851

$ 33,956

See notes to consolidated financial statements.

79

Consolidated Statements of Earnings
(in millions of dollars, except per share data)

for the years ended December 31,

Net revenues

Cost of sales

Excise taxes on products

Gross profit

Marketing, administration and research costs

Asset impairment and exit costs (Note 5)

Amortization of intangibles

Operating income

Interest expense, net (Note 14)

Earnings before income taxes

Provision for income taxes

Equity (income)/loss in unconsolidated subsidiaries, net

Net earnings

Net earnings attributable to noncontrolling interests

Net earnings attributable to PMI

Per share data (Note 10):

Basic earnings per share

Diluted earnings per share

2016

2015

2014

$

74,953

$

73,908

$

80,106

9,391

9,365

10,436

48,268

47,114

50,339

17,294

17,429

19,331

6,405

6,656

7,001

—

74

68

82

535

93

10,815

10,623

11,702

891

9,924

2,768

1,008

9,615

2,688

1,052

10,650

3,097

(94)

(105)

(105)

7,250

283

7,032

159

7,658

165

6,967

$

6,873

$

7,493

4.48

4.48

$

$

4.42

4.42

$

$

4.76

4.76

$

$

$

See notes to consolidated financial statements.

80

Consolidated Statements of Comprehensive Earnings
(in millions of dollars)

for the years ended December 31,

2016

2015

2014

Net earnings

$

7,250

$

7,032

$

7,658

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

Change in currency translation adjustments:

Unrealized gains (losses), net of income taxes of ($101) in 2016,

($143) in 2015 and ($161) in 2014

(14)

(2,248)

(1,746)

(Gains)/losses transferred to earnings, net of income taxes of $- in

2016, 2015 and 2014

5

(1)

(5)

Change in net loss and prior service cost:

Net losses and prior service costs, net of income taxes of $78 in

2016, $17 in 2015 and $167 in 2014

(460)

(536)

(1,148)

Amortization of net losses, prior service costs and net transition
costs, net of income taxes of ($43) in 2016, ($48) in 2015 and
($42) in 2014

224

227

173

Change in fair value of derivatives accounted for as hedges:

Gains (losses) recognized, net of income taxes of ($4) in 2016,

($5) in 2015 and ($13) in 2014

(Gains) losses transferred to earnings, net of income taxes of ($3)

in 2016, $14 in 2015 and $10 in 2014

8

30

38

98

(102)

(38)

Total other comprehensive losses

(207)

(2,622)

(2,666)

Total comprehensive earnings

7,043

4,410

4,992

Less comprehensive earnings attributable to:

Noncontrolling interests

233

113

135

Comprehensive earnings attributable to PMI

$

6,810

$

4,297

$

4,857

See notes to consolidated financial statements.

81

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, 2014

$

— $

723

$

27,843

$

(4,190) $

(32,142) $

1,492

$

(6,274)

Net earnings

Other comprehensive earnings

(losses), net of income taxes

Issuance of stock awards and exercise

of stock options

Dividends declared ($3.88 per share)

Payments to noncontrolling interests

Common stock repurchased

Other

7,493

(2,636)

(13)

(6,087)

180

(3,800)

Balances, December 31, 2014

—

710

29,249

6,873

(6,826)

(35,762)

165

7,658

(30)

(2,666)

167

(6,087)

(207)

(3,800)

6

(11,203)

7,032

(207)

6

1,426

159

Net earnings

Other comprehensive earnings

(losses), net of income taxes

Issuance of stock awards

Dividends declared ($4.04 per share)

Payments to noncontrolling interests

Sale (purchase) of subsidiary shares 

to/(from) noncontrolling interests 
(Note 6)

Balances, December 31, 2015

—

Net earnings

Other comprehensive earnings

(losses), net of income taxes

Issuance of stock awards

Dividends declared ($4.12 per share)

Payments to noncontrolling interests

Other

(2,576)

(46)

(2,622)

(3)

(6,280)

149

1,222

1,929

37

(2)

29,842

6,967

(6,412)

(9,402)

(35,613)

(157)

123

146

(6,280)

(171)

1,622

(11,476)

7,250

(207)

160

(6,412)

(219)

4

(171)

400

1,768

283

(50)

(219)

6

Balances, December 31, 2016

$

— $

1,964

$

30,397

$

(9,559) $

(35,490) $

1,788

$

(10,900)

See notes to consolidated financial statements.

82

  Consolidated Statements of Cash Flows

(in millions of dollars)

for the years ended December 31,
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

2016

2015

2014

   Net earnings

$

7,250

$

7,032

$

7,658

   Adjustments to reconcile net earnings to operating cash flows:

Depreciation and amortization

Deferred income tax (benefit) provision

Asset impairment and exit costs, net of cash paid

Cash effects of changes, net of the effects from acquired

companies:

Receivables, net

Inventories

Accounts payable

Income taxes

Accrued liabilities and other current assets

Pension plan contributions

Other

743

182

(31)

(1,009)

(695)

373

(209)

1,477

(191)

187

754

(18)

(164)

647

(841)

310

(42)

(8)

(154)

349

889

(62)

175

(463)

105

177

(230)

(507)

(191)

188

Net cash provided by operating activities

8,077

7,865

7,739

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

Capital expenditures

Investments in unconsolidated subsidiaries

Purchase of businesses, net of acquired cash

Other

Net cash used in investing activities

(1,172)

(960)

(1,153)

(41)

—

245

(55)

—

307

(968)

(708)

(29)

(110)

296

(996)

See notes to consolidated financial statements.

83

 
for the years ended December 31,

2016

2015

2014

CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Short-term borrowing activity by original maturity:

    Net repayments - maturities of 90 days or less

$

(12) $

(266) $

(516)

    Issuances - maturities longer than 90 days

    Repayments - maturities longer than 90 days

Long-term debt proceeds

Long-term debt repaid

Repurchases of common stock

Dividends paid

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

interests (Note 6)

Other

—

—

—

—

3,536

1,539

(2,393)

(1,229)

—

(48)

(6,378)

(6,250)

7

(173)

1,622

(104)

1,007

(1,571)

5,591

(1,240)

(3,833)

(6,035)

—

(242)

Net cash used in financing activities

(5,413)

(4,736)

(6,839)

Effect of exchange rate changes on cash and cash equivalents

(874)

(686)

(376)

Cash and cash equivalents:

Increase (Decrease)

Balance at beginning of year

Balance at end of year

Cash Paid:

                   Interest

                   Income taxes

822

3,417

4,239

$

1,735

1,682

3,417

1,052

2,829

$

$

1,045

2,771

(472)
2,154

1,682

1,068

3,577

$

$

$

$

$

$

See notes to consolidated financial statements.

84

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., whose subsidiaries and affiliates and their licensees 
are engaged in the manufacture and sale of cigarettes, other tobacco products and other nicotine-containing products in markets outside 
of the United States of America. Throughout these financial statements, the term "PMI" refers to Philip Morris International Inc. and its 
subsidiaries.

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; 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 in which PMI has an ownership interest of less than 20%, or does not exercise significant influence, are accounted for under 
the cost method of accounting.  All intercompany transactions and balances have been eliminated.

Certain prior years' amounts have been reclassified to conform with the current year's presentation, due primarily to new accounting 
guidance related to deferred income taxes and fair value of certain assets that are to be measured at net asset value.  For further details, 
see Note 13. Benefit Plans, Note 16. Fair Value Measurements and Note 22. New Accounting Standards.  The reclassifications did not 
have an impact on PMI's consolidated financial position, results of operations or cash flows in any of the periods presented.

Note 2.

Summary of Significant Accounting Policies:

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 by the straight-line method over the estimated useful lives of 
the assets.  Machinery and equipment are depreciated over periods ranging from 3 to 15 years, and buildings and building improvements 
over periods up to 40 years.  

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 

85

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.

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.  During the second quarter of 2016, PMI changed the date of its annual goodwill impairment test from the first quarter to 
the second quarter.  The change was made to more closely align the impairment testing date with PMI’s long-range planning and forecasting 
process.  PMI has determined that this change in accounting principle is preferable under the circumstances and believes that the change 
in the annual impairment testing date did not delay, accelerate, or avoid an impairment charge.  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 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 estimated proceeds to be received, less costs of disposal. 

Impairment of investments in unconsolidated subsidiaries

Investments in unconsolidated subsidiaries 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 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 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. 

86

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.

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 revenues, net of sales incentives and including shipping and handling charges billed to customers, either upon shipment 
or delivery of goods when title and risk of loss pass to customers. Excise taxes billed by PMI to customers are reported in net revenues.  
Shipping and handling costs are classified as part of cost of sales. 

On May 28, 2014, the Financial Accounting Standards Board issued Accounting Standards Update ASU 2014-09, "Revenue from Contracts 
with Customers."  For further details, see Note 22. New Accounting Standards.

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.  For further details, see Note 9. Stock Plans.

Note 3.

Goodwill and Other Intangible Assets, net:

Goodwill and other intangible assets, net, by segment were as follows:

(in millions)

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

Total

Goodwill

December 31,
2016

December 31,
2015

Other Intangible Assets, net
December 31,
December 31,
2015
2016

$

1,238

$

1,310

$

479

$

372

3,596

2,118

374

3,581

2,150

200

1,074

717

$

7,324

$

7,415

$

2,470

$

516

201

1,087

819

2,623

87

Goodwill primarily reflects PMI’s acquisitions in Canada, Colombia, Greece, Indonesia, Mexico, Pakistan and Serbia, as well as the 
business combination in the Philippines.  

The movements in goodwill were as follows:

(in millions)

Eastern 
Europe, 
Middle East 
&
Africa

European
Union

Latin
America 
&
Canada

Total

Asia

Balance at January 1, 2015

$

1,439

$

476

$ 3,904

$

2,569

$ 8,388

Changes due to:

Currency

Balance at December 31, 2015

Changes due to:

Currency

(129)

1,310

(72)

Balance at December 31, 2016

$

1,238

$

(102)
374

(323)
3,581

(419)
2,150

(973)
7,415

(2)
372

15

$ 3,596

$

(32)
2,118

(91)
$ 7,324

Additional details of other intangible assets were as follows: 

(in millions)

Non-amortizable intangible assets

Amortizable intangible assets

Total other intangible assets

December 31, 2016
Gross
Carrying
Amount

Accumulated
Amortization

December 31, 2015
Gross
Carrying
Amount

Accumulated
Amortization

$

$

1,455

1,598

3,053

$

$

$

1,527

583

1,609

583

$

3,136

$

$

513

513

Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia in 2005 and Mexico in 2007. 
Amortizable intangible assets primarily consist of certain trademarks and distribution networks associated with business combinations. 
The gross carrying amount, the range of useful lives as well as the weighted-average remaining useful life of amortizable intangible assets 
at December 31, 2016, were as follows:

Description
(dollars in millions)

Trademarks

Distribution networks

Other (including farmer contracts and intellectual

property rights)

Gross
Carrying
Amount

Initial
Estimated
Useful Lives

Weighted-Average
Remaining Useful Life

$

$

1,364

2 - 40 years     

5 - 30 years     

4 - 17 years     

147

87

1,598

20 years

10 years

10 years

Pre-tax amortization expense for intangible assets during the years ended December 31, 2016, 2015 and 2014, was $74 million, $82 
million and $93 million, respectively.  Amortization expense for each of the next five years is estimated to be $87 million or less, assuming 
no additional transactions occur that require the amortization of intangible assets.

The decrease in the gross carrying amount of other intangible assets from December 31, 2015, was due to currency movements.

88

    
Note 4.

Investments in Unconsolidated Subsidiaries:

At December 31, 2016 and 2015, PMI had total investments in unconsolidated subsidiaries of $1,011 million and $890 million, respectively, 
which were accounted for under the equity method of accounting.  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 and movements in currency 
translation adjustments.  The carrying value of our equity method investments at December 31, 2016 and 2015 exceeded our share of the 
unconsolidated subsidiaries' book value by $867 million and $806 million, respectively.  The difference between the investment carrying 
value  and  the  amount  of  underlying  equity  in  net  assets,  excluding  $810  million  and  $744  million  attributable  to  goodwill  as  of 
December 31, 2016 and 2015, respectively, is being amortized on a straight-line basis over the underlying assets' estimated useful lives 
as of the date of the acquisition of 3 to 20 years.  At December 31, 2016 and 2015, PMI received year-to-date dividends from unconsolidated 
subsidiaries of $117 million and $127 million, respectively.

PMI holds a 49% equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”), formerly Arab Investors-TA 
(FZC).  As a result of this transaction, 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 Société Nationale des Tabacs et 
Allumettes SpA.  STAEM manufactures and distributes under license some of PMI’s brands.  The initial investment in EITA was recorded 
at cost and is included in investments in unconsolidated subsidiaries on the consolidated balance sheets.

In 2013, PMI acquired from Megapolis Investment BV a 20% equity interest in Megapolis Distribution BV, the holding company of 
CJSC TK Megapolis ("Megapolis"), PMI's distributor in Russia, for a purchase price of $760 million.  An additional payment of up to 
$100 million, which was contingent on  Megapolis's  operational performance over the four fiscal years following the closing of  the 
transaction, was also to be made by PMI if the performance criteria were satisfied.  PMI had also agreed to provide Megapolis Investment 
BV with a $100 million interest-bearing loan.  PMI and Megapolis Investment BV had agreed to set off any future contingent payments 
owed by PMI against the future repayments due under the loan agreement.  Any loan repayments in excess of the contingent consideration 
earned by the performance of Megapolis were to be repaid, in cash, to PMI on March 31, 2017.  PMI had initially recorded a $100 million
asset related to the loan receivable and a discounted liability of $86 million related to the contingent consideration.  The initial investment 
in Megapolis was recorded at cost and is included in investments in unconsolidated subsidiaries on the consolidated balance sheets.  As 
of December 31, 2016, Megapolis had satisfied the performance criteria, which resulted in total contingent consideration of $100 million.  
As required under the terms of the agreement, the amount of the contingent consideration was fully offset against the future repayments 
due under the loan agreement.

PMI’s earnings activity from unconsolidated subsidiaries was as follows:

(in millions)

Net revenues

For the Years Ended December 31,

2016

2015

$

3,985 $

4,172

PMI’s balance sheet activity related to unconsolidated subsidiaries was as follows:

(in millions)

Receivables
Notes receivable
Other liabilities

At December 31,

2016

2015

$
$
$

289 $
— $
— $

64
100
100

The activity primarily related to agreements with PMI’s unconsolidated subsidiaries within the Eastern Europe, Middle East & Africa 
segment.  These agreements, which are in the ordinary course of business, are primarily for distribution, contract manufacturing and 
licenses.  PMI eliminated its respective share of all significant intercompany transactions with the equity method investees.

89

   
Note 5.

Asset Impairment and Exit Costs:

During 2016, PMI did not incur asset impairment and exit costs. During 2015 and 2014, pre-tax asset impairment and exit costs 
consisted of the following: 

(in millions)

Separation programs:

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

Total separation programs

Asset impairment charges:

European Union

Latin America & Canada

Total asset impairment charges

Asset impairment and exit costs

Movement in Exit Cost Liabilities

The movement in exit cost liabilities for PMI was as follows: 

(in millions)

Liability balance, January 1, 2015

Charges, net

Cash spent

Currency/other

Liability balance, December 31, 2015

Charges, net

Cash spent

Currency/other

Liability balance, December 31, 2016

2015

2014

$

$

68

—

—

—

68

—

—

—

68

$

$

$

$

351

$

2

35

3

391

139

5

144

535

270

68

(232)

(52)

54

—

(31)

(4)

19

Cash payments related to exit costs at PMI were $31 million, $232 million and $360 million for the years ended December 31, 2016, 
2015 and 2014, respectively.  Future cash payments for exit costs incurred to date are expected to be approximately $19 million and will 
be substantially paid by the end of 2017.

The pre-tax asset impairment and exit costs shown above are primarily a result of the following:

The Netherlands

On April 4, 2014, PMI announced the initiation by its affiliate, Philip Morris Holland B.V. (“PMH”), of consultations with employee 
representatives on a proposal to discontinue cigarette production at its factory located in Bergen op Zoom, the Netherlands.  PMH reached 
an agreement with the trade unions and their members on a social plan and ceased cigarette production on September 1, 2014.  During 
2014, total pre-tax asset impairment and exit costs of $489 million were recorded for this program in the European Union segment.  This 
amount includes employee separation costs of $343 million, asset impairment costs of $139 million and other separation costs of $7 
million.   

90

Other 

Separation Program Charges

PMI recorded other pre-tax separation program charges of $68 million and $41 million for the years ended December 31, 2015 and 2014, 
respectively.  The 2015 other pre-tax separation program charges primarily related to severance costs for the organizational restructuring 
in the European Union segment.  The 2014 other pre-tax separation program charges were primarily related to severance costs for factory 
closures in Australia and Canada and the restructuring of the U.S. leaf purchasing model. 

Asset Impairment Charges

During 2014, PMI recorded other pre-tax asset impairment charges of $5 million related to a factory closure in Canada. 

Note 6.

Acquisitions and Other Business Arrangements:

As announced in June 2015, PMI’s subsidiary PT HM Sampoerna Tbk. (“Sampoerna”), of which PMI held a 98.18% interest, was required  
to comply with the January 30, 2014, Indonesian Stock Exchange (“IDX”) regulation requiring all listed public companies to have at 
least a 7.5% public shareholding by January 30, 2016.  In order to comply with this requirement, Sampoerna conducted a rights issue 
(the “Rights Issue”).  The exercise price for the rights was set at Rp. 77,000 per share, a 1.349% premium to the closing price on the IDX 
as of September 30, 2015.  In connection with the Rights Issue, PT Philip Morris Indonesia (“PMID”), a fully consolidated subsidiary 
of PMI, sold 264,209,711 of the rights to third-party investors.  Delivery of the rights sold took place on October 26, 2015.  The total net 
proceeds from the Rights Issue were $1.5 billion at prevailing exchange rates on the closing date.  The sale of the rights resulted in an 
increase to PMI's additional paid-in capital of $1.1 billion.

In June 2014, PMI acquired 100% of Nicocigs Limited, a leading U.K.-based e-vapor company, for the final purchase price of $103 
million, net of cash acquired, with additional contingent payments of up to $77 million, primarily relating to performance targets over a 
three-year period.  As of December 31, 2016, the performance targets over the three-year period were not met.  The effect of this acquisition 
was not material to PMI's consolidated financial position, results of operations or cash flows in any of the periods presented.

In September 2013, Grupo Carso, S.A.B. de C.V. ("Grupo Carso") sold to PMI its remaining 20% interest in PMI's Mexican tobacco 
business for $703 million.  As a result, PMI now owns 100% of its Mexican tobacco business.  A former director of PMI, whose term 
expired at the Annual Meeting of Shareholders in May 2015, had an affiliation with Grupo Carso.  The final purchase price was subject 
to an adjustment based on the actual performance of the Mexican tobacco business over the three-year period ending two fiscal years 
after the closing of the purchase.  In May 2015, PMI received a payment of $113 million from Grupo Carso as the final purchase price 
adjustment.  This resulted in a total net purchase price of $590 million.  In addition, PMI agreed to pay a dividend of approximately $38 
million to Grupo Carso related to the earnings of the Mexican tobacco business for the nine months ended September 30, 2013.  In March 
2014, the dividend was declared and paid.  The purchase of the remaining 20% interest resulted in a net decrease to PMI's additional 
paid-in capital of $559 million.

91

Note 7.

Indebtedness:

Short-Term Borrowings

At December 31, 2016 and 2015, PMI’s short-term borrowings and related average interest rates consisted of the following:

December 31, 2016

December 31, 2015

(in millions)

Commercial paper

Bank loans

Amount
Outstanding

Average Year-
End Rate

Amount
Outstanding

Average Year-
End Rate

$

$

—

643
643

—% $

5.0

$

—

825
825

—%

6.1

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, 2016 and 2015, based upon current market interest rates, approximate 
the amounts disclosed above.

Long-Term Debt

At December 31, 2016 and 2015, PMI’s long-term debt consisted of the following:

(in millions)

U.S. dollar notes, 1.125% to 6.375% (average interest rate 3.662%), due through 2044

Foreign currency obligations:

Euro notes, 1.750% to 3.125% (average interest rate 2.400%), due through 2036

Swiss franc notes, 0.750% to 2.000% (average interest rate 1.269%), due through 2024

Other (average interest rate 3.162%), due through 2024

Less current portion of long-term debt

Other debt:

December 31,

2016

2015

$

19,857

$

18,091

6,828

1,312

427

28,424

2,573

7,423

1,690

451

27,655

2,405

$

25,851

$

25,250

Other foreign currency debt above includes mortgage debt in Switzerland, capital lease obligations and a bank loan in the Philippines.

92

Debt Issuances Outstanding: 

PMI’s debt issuances outstanding at December 31, 2016, were as follows:

(in millions)

Type

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes
U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

U.S. dollar notes

EURO notes
EURO notes

EURO notes
EURO notes

EURO notes
EURO notes

EURO notes

EURO notes

EURO notes

Swiss franc notes
Swiss franc notes

Swiss franc notes

Swiss franc notes

Swiss franc notes

Face Value
$550

$750

$500

$500

$2,500

$750

$500

$1,000

$750

$350

$750

$750

$600

$500

$500

$750

$750

$750

$1,500

$750

$700

$750

$850

$750

$750

$500

(b)

(b)

(b)

(b)

(b)

(b)

(b)

(b)

(b)

(b)

(b)

(b)

(b)

(b)

€750 (approximately $951)

€1,250 (approximately $1,621)

€750 (approximately $1,029)

€600 (approximately $761)

€750 (approximately $972)

€1,000 (approximately $1,372)

€500 (approximately $697)

€500 (approximately $648)

€500 (approximately $578)

CHF200 (approximately $217)

CHF275 (approximately $311)

CHF325 (approximately $334)

CHF300 (approximately $335)

CHF250 (approximately $283)

Interest
Rate
1.625%

1.125%

Issuance
March 2012

August 2012

August 2015

1.250%
1.250% November 2014
5.650%
1.875% November 2013
1.375%
February 2016

May 2008

Maturity
March 2017

August 2017

August 2017

November 2017

May 2018

January 2019

February 2019

4.500%

1.875%

March 2010

March 2020

February 2016

February 2021

May 2011

4.125%
2.900% November 2011
2.500%

August 2012

2.625%

March 2013

May 2016

2.125%
3.600% November 2013
3.250% November 2014
3.375%

August 2015

May 2021

November 2021

August 2022

March 2023

May 2023

November 2023

November 2024

August 2025

2.750%

February 2016

February 2026

May 2008

6.375%
4.375% November 2011
4.500%

March 2012

3.875%

August 2012

March 2013

4.125%
4.875% November 2013
4.250% November 2014
4.250%

May 2016(a)
May 2012

March 2013
March 2014

May 2012

March 2013

March 2014

May 2014

June 2013

May 2016

2.125%

1.750%

1.875%

2.875%

2.750%

2.875%

2.875%

3.125%

2.000%

0.875%

May 2038

November 2041

March 2042

August 2042

March 2043

November 2043

November 2044

November 2044

May 2019

March 2020
March 2021

May 2024

March 2025

March 2026

May 2029

June 2033

May 2036

March 2013

March 2019

May 2014

0.750%
1.000% September 2012
2.000% December 2011
1.625%

May 2014

December 2019

September 2020

December 2021

May 2024

(a) These notes are a further issuance of the 4.250% notes issued by PMI in November 2014.
(b) USD equivalents for foreign currency notes were calculated based on exchange rates on the date of issuance.

93

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

Aggregate maturities:

Aggregate maturities of long-term debt are as follows:

(in millions)

2017

2018

2019

2020

2021

2022-2026

2027-2031

Thereafter

Debt discounts

Total long-term debt

$

2,573

2,506

2,500

2,623

2,926

7,430

522

7,594

28,674

(250)

$

28,424

See Note 16. Fair Value Measurements for additional disclosures related to the fair value of PMI’s debt.

Credit Facilities

On January 27, 2016, PMI entered into an agreement to amend and extend its existing $2.0 billion 364-day revolving credit facility from 
February 9, 2016, to February 7, 2017.  On January 27, 2016, PMI also entered into an agreement to extend the term of its existing $2.5 
billion multi-year revolving credit facility from February 28, 2020, to February 28, 2021.

At December 31, 2016, PMI’s total committed credit facilities and commercial paper outstanding were as follows:

Type
(in billions of dollars)

364-day revolving credit, expiring February 7, 2017

Multi-year revolving credit, expiring February 28, 2021

Multi-year revolving credit, expiring October 1, 2020 (1)

Total facilities

Commercial paper outstanding

Committed
Credit
Facilities

Commercial
Paper

$

$

2.0

2.5

3.5

8.0

$

—

(1) On August 30, 2016, PMI entered into an agreement, effective October 1, 2016, to extend the term of its multi-year revolving credit 
facility, for an additional year covering the period October 1, 2020, to October 1, 2021, in the amount of $3.35 billion. 

At December 31, 2016, there were no borrowings under these committed credit facilities, and the entire committed amounts were available 
for borrowing.

On January 27, 2017, PMI entered into an agreement to extend the term of its $2.0 billion 364-day revolving credit facility from February 
7, 2017, to February 6, 2018. 

94

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, 
2016, PMI’s ratio calculated in accordance with the agreements was 10.6 to 1.0.  These 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.

In addition to the committed credit facilities discussed above, certain subsidiaries maintain short-term credit arrangements to meet their 
respective working capital needs.  These credit arrangements, which amounted to approximately $2.9 billion at December 31, 2016 and 
December 31, 2015, respectively, are for the sole use of the subsidiaries.  Borrowings under these arrangements amounted to $643 million
at December 31, 2016, and $825 million at December 31, 2015.

Note 8.

Capital Stock:

Shares of authorized common stock are 6.0 billion; issued, repurchased and outstanding shares were as follows:

Balances, January 1, 2014

Repurchase of shares

Issuance of stock awards and exercise of stock options

Balances, December 31, 2014

Issuance of stock awards

Balances, December 31, 2015

Issuance of stock awards

Shares Issued

Shares
Repurchased

Shares
Outstanding

2,109,316,331

(520,313,919)

1,589,002,412

(45,206,473)

(45,206,473)

3,103,757

3,103,757

2,109,316,331

(562,416,635)

1,546,899,696

2,444,373

2,444,373

2,109,316,331

(559,972,262)

1,549,344,069

2,041,478

2,041,478

Balances, December 31, 2016

2,109,316,331

(557,930,784)

1,551,385,547

On August 1, 2012, PMI commenced a three-year $18 billion share repurchase program that was authorized by PMI's Board of Directors 
in June 2012.  From August 1, 2012, through December 31, 2014, PMI repurchased 144.6 million shares of its common stock at a cost 
of $12.7 billion, or $87.48 per share, under this repurchase program.  During 2016 and 2015, PMI did not repurchase any shares of its 
common stock.  During 2014, PMI repurchased $3.8 billion of its common stock under the repurchase program.

At December 31, 2016, 27,213,699 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.

Stock Plans: 

In May 2012, PMI's shareholders approved the Philip Morris International Inc. 2012 Performance Incentive Plan (the "2012 Plan").  
Under the 2012 Plan, PMI may grant to eligible employees restricted stock, restricted stock units and deferred stock units (collectively 
referred to as restricted share units), performance-based cash incentive awards and performance-based equity awards.  Up to 30 million
shares of PMI’s common stock may be issued under the 2012 Plan.  At December 31, 2016, shares available for grant under the 2012 
Plan were 21,180,030.

95

In  2008,  PMI  adopted  the  Philip  Morris  International  Inc.  2008  Stock  Compensation  Plan  for  Non-Employee  Directors  (the  “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 Non-Employee Directors Plan.  As of December 31, 2016, shares available for grant under the plan were 
677,539.

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 2016, the activity for RSU awards was as follows:

Balance at January 1, 2016

Granted

Vested

Forfeited

Balance at December 31, 2016

Number of
Shares

Weighted-
Average Grant
Date Fair Value
Per Share

5,702,000

$

1,212,600
(2,302,525)
(111,085)

4,500,990

$

82.92

89.03

87.81

82.38

82.08

During the years ended December 31, 2016, 2015 and 2014, 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)

2016

2015

2014

Total Weighted-
Average Grant
Date Fair Value of
RSU Awards
Granted

Weighted-
Average Grant
Date Fair Value
Per RSU Award
Granted

Compensation
Expense related
to RSU Awards

$

$

$

108

126

189

$

$

$

89.03 $

82.28 $

77.79 $

126

166

210

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, 2016, PMI had $105 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 two
years, or upon death, disability or reaching the age of 58.

During the years ended December 31, 2016, 2015 and 2014, share and fair value information for PMI RSU awards that vested were as 
follows:

(dollars in millions)

Shares of RSU
Awards that Vested

Grant Date Fair
Value of Vested
Shares of RSU
Awards

Total Fair Value
of RSU Awards
that Vested

2016

2015

2014

2,302,525

2,711,974

3,974,560

$

$

$

96

202 $

217 $

255 $

210

224

320

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, which are predetermined at the time of grant, over a three-year performance 
cycle.    PMI’s  performance  metrics  consist  of  PMI’s Total  Shareholder  Return  (TSR)  relative  to  a  predetermined  peer  group,  PMI’s 
currency-neutral compound annual adjusted operating companies income growth rate, excluding acquisitions, and PMI’s performance 
against specific measures of  innovation.  The aggregate of the weighted performance factors for the three metrics determines the percentage 
of PSUs that will vest at the end of the three-year performance cycle.  Each vested PSU entitles the participant to one share of common 
stock.  An aggregate weighted PSU performance factor of 100 will result in the targeted number of PSUs being vested.  The minimum 
percentage of PSUs that can vest is zero, with a maximum percentage of 200.  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 2016, the activity for PSU awards was as follows:

Balance at January 1, 2016

Granted

Vested

Forfeited

Balance at December 31, 2016

Grant Date 
Fair Value 
Subject to TSR 
Performance 
Factor Per Share

Grant Date 
Fair Value 
Subject to Other 
Performance 
Factors Per Share

Number of 
Shares

— $

— $

428,400

—
(830)

104.60

—

104.60

427,570

$

104.60 $

—

89.02

—

89.02

89.02

The grant date fair value of the PSU awards granted to employees during the year ended December 31, 2016, was $22 million or $104.60 
per PSU for market based awards subject to the TSR performance factor, which was determined by using the Monte Carlo simulation 
model, and $19 million or $89.02 per PSU for awards subject to the other performance factors, which was determined by using the average 
of the high and low market price of PMI’s stock at the date of grant.  PMI recorded compensation expense related to PSU awards of $27 
million for the year ended December 31, 2016.  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, 2016, PMI had $25 million of total unrecognized compensation cost related to non-vested PSU awards.  This cost is 
recognized over a weighted-average performance cycle period of two years, or upon death, disability or reaching the age of 58.  PMI did 
not grant any PSU awards during 2015 and 2014.

Note 10.

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:

(in millions)

Net earnings attributable to PMI

Less distributed and undistributed earnings attributable to share-based payment awards

Net earnings for basic and diluted EPS

Weighted-average shares for basic and diluted EPS

For the 2016, 2015 and 2014 computations, there were no antidilutive stock options. 

97

For the Years Ended December 31,

2016

2015

2014

$

$

6,967

$

6,873

$

7,493

19

24

34

6,948

$

6,849

$

7,459

1,551

1,549

1,566

Note 11.

Income Taxes: 

Earnings before income taxes and provision for income taxes consisted of the following for the years ended December 31, 2016, 2015 
and 2014:

(in millions)

Earnings before income taxes

Provision for income taxes:

United States federal and state:

Current

Deferred

Total United States

Outside United States:

Current

Deferred

Total outside United States

Total provision for income taxes

$

$

2016

2015

2014

9,924

$

9,615

$

10,650

(39) $
293

254

(56) $
117

61

2,625
(111)
2,514

2,762
(135)
2,627

(56)
162

106

3,215
(224)
2,991

$

2,768

$

2,688

$

3,097

United States income tax is primarily attributable to repatriation costs.

At  December 31,  2016,  applicable  United  States  federal  income  taxes  and  foreign  withholding  taxes  have  not  been  provided  on 
approximately $23 billion of accumulated earnings of foreign subsidiaries that are expected to be permanently reinvested.  These earnings 
have been or will be invested to support the growth of PMI's international business.  Further, PMI does not foresee a need to repatriate 
these earnings to the U.S. since its U.S. cash requirements are supported by distributions from foreign entities of earnings that have not 
been designated as permanently reinvested and existing credit facilities.  Repatriation of earnings from foreign subsidiaries for which 
PMI has asserted that the earnings are permanently reinvested would result in additional U.S. income and foreign withholding taxes.  The 
determination of the amount of deferred tax related to these earnings is not practicable due to the complexity of the U.S. foreign tax credit 
regime, as well as differences between earnings determined for book and tax purposes mainly resulting from intercompany transactions, 
purchase accounting and currency fluctuations.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:

(in millions)

Balance at January 1,

Additions based on tax positions related to the current year

Additions for tax positions of previous years

Reductions for tax positions of prior years

Reductions due to lapse of statute of limitations

Settlements

Other

Balance at December 31,

2016

2015

2014

$

$

88

13

1
(7)
(14)

(2)
—

79

$

123

$

114

17

6
(42)
(7)

(1)
(8)
88

$

20

11
(3)
(8)

(3)
(8)
123

$

98

Unrecognized tax benefits and PMI’s liability for contingent income taxes, interest and penalties were as follows:

(in millions)

Unrecognized tax benefits

Accrued interest and penalties

Tax credits and other indirect benefits

Liability for tax contingencies

December 31, 2016 December 31, 2015 December 31, 2014

$

$

79

15

(31)
63

$

$

88

28

(40)
76

$

$

123

40

(54)
109

The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $47 million at December 31, 2016. 
The remainder, if recognized, would principally affect deferred taxes.

For the years ended December 31, 2016, 2015 and 2014, PMI recognized income (expense) in its consolidated statements of earnings of 
$13 million, $3 million and $(19) million, respectively, related to interest and penalties.

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 2013 and 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 (2011 onward), Indonesia (2012 onward), Russia (2015 onward) and Switzerland (2016 onward).

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.

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, 2016, 2015 and 2014:

U.S. federal statutory rate

Increase (decrease) resulting from:

Foreign rate differences

Dividend repatriation cost

Other

Effective tax rate

2016

2015

2014

35.0%

35.0%

35.0%

(12.6)

5.8

(0.3)

27.9%

(12.3)
5.7
(0.4)
28.0%

(11.2)
5.0

0.3

29.1%

The 2016 effective tax rate decreased 0.1 percentage point to 27.9%.  The change in the effective tax rate for 2016, as compared to 2015, 
was primarily due to earnings mix by taxing jurisdiction and repatriation cost differences.

The 2015 effective tax rate decreased 1.1 percentage points to 28.0%.  The effective tax rate for 2015 was unfavorably impacted by 
changes to repatriation assertions on certain foreign subsidiary historical earnings ($58 million), partially offset by the recognition of tax 
benefits of $41 million following the conclusion of the IRS examinations of Altria's consolidated tax returns for the years 2007 and 2008 
and PMI's consolidated tax returns for the years 2009 through 2011.  Prior to March 28, 2008, PMI was a wholly owned subsidiary of 
Altria.  Excluding the effect of these items, the change in the effective tax rate for 2015, as compared to 2014, was primarily due to 
earnings mix by taxing jurisdiction and repatriation cost differences.

The 2014 effective tax rate decreased 0.2 percentage points to 29.1%.  Excluding 2013 special tax items associated with the American 
Taxpayer Relief Act of 2012 that was enacted in January 2013 ($17 million) and the enactment of tax law changes in Mexico during 2013 
($14 million), the change in the effective tax rate for the year ended December 31, 2014, was primarily due to earnings mix by taxing 
jurisdiction and repatriation cost differences.

99

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

(in millions)

Deferred income tax assets:

Accrued postretirement and postemployment benefits

Accrued pension costs

Inventory

Accrued liabilities

Other
Total deferred income tax assets

Deferred income tax liabilities:

Trade names
Property, plant and equipment
Unremitted earnings
Foreign exchange
Total deferred income tax liabilities

Net deferred income tax liabilities

At December 31,

2016

2015

$

$

$

287

256

241

137

173

1,094

(554)
(217)
(636)
(725)
(2,132)
(1,038) $

275

230

174

153

164

996

(593)
(218)
(554)
(532)
(1,897)
(901)

Note 12.

Segment Reporting: 

PMI’s subsidiaries and affiliates are engaged in the manufacture and sale of cigarettes, other tobacco products and other nicotine-containing 
products in markets outside of the United States of America.  Reportable segments for PMI are organized and managed by geographic 
region.  PMI’s reportable segments are the European Union; Eastern Europe, Middle East & Africa; Asia; and Latin America & Canada.  
PMI records net revenues and operating companies income to its segments based upon the geographic area in which the customer resides.

PMI’s management evaluates segment performance and allocates resources based on operating companies income, which PMI defines 
as operating income, excluding general corporate expenses and amortization of intangibles, plus equity (income)/loss in unconsolidated 
subsidiaries, net.  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. 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.  

Segment data were as follows:

(in millions)

Net revenues:

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

Net revenues(1)

For the Years Ended December 31,

2016

2015

2014

$

27,129

$

26,563

$

18,286

20,531

9,007

18,328

19,469

9,548

$

74,953

$

73,908

$

30,517

20,469

19,255

9,865

80,106

(1) Total net revenues attributable to customers located in Indonesia, PMI’s largest market in terms of net revenues, were $7.7 billion, $7.1 billion
and $7.2 billion for the years ended December 31, 2016, 2015 and 2014, respectively.  Total net revenues attributable to customers located in 
Germany were $7.1 billion, $7.2 billion and $8.3 billion for the years ended December 31, 2016, 2015 and 2014, respectively.

100

For the Years Ended December 31,

2016

2015

2014

$

3,994

$

3,576

$

3,016

3,196

938
(74)
(161)

3,425

2,886

1,085
(82)
(162)

(94)
10,815
(891)
9,924

$

(105)
10,623
(1,008)
9,615

$

3,815

4,033

3,187

1,030
(93)
(165)

(105)
11,702
(1,052)
10,650

For the Years Ended December 31,

2016

2015

2014

$

247

150

184

79

660

9

$

230

163

184

85

662

10

$

669

$

672

$

206

212

278

90

786

10

796

$

$

For the Years Ended December 31,
2014
2015
2016

$

$

665

223

180

103

1,171

1

$

497

147

185

130

959

1

537

216

272

125

1,150

3

$

1,172

$

960

$

1,153

(in millions)

Earnings before income taxes:

Operating companies income:

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

Amortization of intangibles
General corporate expenses
Less:

Equity (income)/loss in unconsolidated subsidiaries, net

Operating income

Interest expense, net
Earnings before income taxes

(in millions)

Depreciation expense:

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

Other

Total depreciation expense

(in millions)

Capital expenditures:

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

Other

Total capital expenditures

101

(in millions)

Long-lived assets:

European Union

Eastern Europe, Middle East & Africa

Asia

Latin America & Canada

Total long-lived assets

Other

At December 31,

2016

2015

2014

$

3,282

$

3,129

$

866

1,916

765

6,829

750

743

1,743

605

6,220

644

3,242

836

1,838

704

6,620

269

6,889

Total property, plant and equipment, net and Other assets

$

7,579

$

6,864

$

Long-lived  assets  consist  of  non-current  assets  other  than  goodwill;  other  intangible  assets,  net;  deferred  tax  assets,  investments  in 
unconsolidated subsidiaries, and financial instruments.  PMI's largest markets in terms of long-lived assets are Switzerland, Indonesia 
and Italy.  Total long-lived assets located in Switzerland, which is reflected in the European Union segment above, were $0.9 billion, 
$0.9 billion and $1.0 billion at December 31, 2016, 2015 and 2014, respectively.  Total long-lived assets located in Indonesia, which is 
reflected in the Asia segment above, were $0.8 billion, $0.7 billion and $0.7 billion at December 31, 2016, 2015 and 2014, respectively.  
Total long-lived assets located in Italy, which is reflected in the European Union segment above, were $0.7 billion, $0.4 billion and $0.3 
billion at December 31, 2016, 2015 and 2014, respectively.

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

•  Asset Impairment and Exit Costs - See Note 5. Asset Impairment and Exit Costs for a breakdown of asset impairment and exit 

costs by segment.

•  Acquisitions and Other Business Arrangements - For further details, see Note 6. Acquisitions and Other Business Arrangements.

Note 13.

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 all 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.

102

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 and net amount accrued for PMI's postretirement health care plans, at December 31, 2016
and 2015, were as follows:

(in millions)

Pension

U.S. Plans

Non-U.S. Plans

Postretirement

2016

2015

2016

2015

2016

2015

Benefit obligation at January 1,

$

389

$

438

$ 7,697

$ 7,638

$

211

$

238

Service cost

Interest cost

Benefits paid
Settlement and curtailment

Actuarial losses (gains)

Currency
Other

Benefit obligation at December 31,

Fair value of plan assets at January 1,

Actual return on plan assets

Employer contributions

Employee contributions

Benefits paid
Settlement and curtailment

Currency

Fair value of plan assets at December 31,

Net pension and postretirement liability recognized at

December 31,

3

9
(10)
—

15
(2)
1

227

4

9
(11)
—
(12)
(17)
—

211

5

17
(18)
—
12

—
—

405

298

13

4

—
(18)
—

—

297

5

17
(51)
—
(20)
—
—

389

312

—

37

—
(51)
—

—

298

202

129
(222)
(1)
415
(329)
91

7,982

6,106

309

187

39
(222)
—
(259)
6,160

200

139
(225)
(16)
261
(365)
65

7,697

6,410

56

117

37
(225)
(14)
(275)
6,106

$

(108) $

(91) $ (1,822) $ (1,591) $

(227) $

(211)

At December 31, 2016 and 2015, the Swiss pension plan represented 60% and 61% of the non-U.S. benefit obligation, respectively, and 
approximately 60% of the non-U.S. fair value of plan assets for each of the years.

At December 31, 2016 and 2015, the amounts recognized on PMI's consolidated balance sheets for the combined U.S. and non-U.S. 
pension plans, and postretirement plans were as follows:

(in millions)

Other assets

Accrued liabilities — employment costs

Long-term employment costs

Pension

Postretirement

2016

2015

2016

2015

$

$

$

33
(23)

47
(23) $

(10) $

(9)

(1,940)
(1,930) $

(1,706)
(1,682) $

(217)
(227) $

(202)
(211)

The accumulated benefit obligation, which represents benefits earned to date, for the U.S. pension plans was $376 million and $360 
million at December 31, 2016 and 2015, respectively.  The accumulated benefit obligation for non-U.S. pension plans was $7,555 million
and $7,157 million at December 31, 2016 and 2015, respectively.

For U.S. pension plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, accumulated benefit 
obligation and fair value of plan assets were $405 million, $376 million and $297 million, respectively, as of December 31, 2016.  The 
projected benefit obligation, accumulated benefit obligation and fair value of plan assets were $389 million, $360 million and $298 

103

million, respectively, as of December 31, 2015.  The underfunding relates to plans for salaried employees that cannot be funded under 
IRS regulations.  For non-U.S. plans with accumulated benefit obligations in excess of plan assets, the projected benefit obligation, 
accumulated benefit obligation and fair value of plan assets were $6,529 million, $6,246 million, and $4,712 million, respectively, as of 
December 31, 2016, and $6,355 million, $5,961 million, and $4,766 million, respectively, as of December 31, 2015.

The  following  weighted-average  assumptions  were  used  to  determine  PMI’s  pension  and  postretirement  benefit  obligations  at 
December 31:

Discount rate

Rate of compensation increase

Health care cost trend rate assumed for next year

Ultimate trend rate

Year that rate reaches the ultimate trend rate

Pension

U.S. Plans

2016

2015

Non-U.S. Plans
2015
2016

Postretirement
2015
2016

4.07% 4.30% 1.39% 1.68% 3.68% 4.45%

3.00

3.00

1.61

1.98

7.15

5.08

6.23

4.75

2029

2029

The discount rate for the largest U.S. and non-U.S. 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 
non-U.S. 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, 2016, 2015 and 
2014:

(in millions)

Service cost

Interest cost

Expected return on plan

assets

Amortization:

Net losses

Prior service cost

Settlement and curtailment

Net periodic pension and
postretirement costs

Pension

U.S. Plans

Non-U.S. Plans

Postretirement

2016

2015

2014

2016

2015

2014

2016

2015

2014

$

5

$

5

$

5

$ 202

$ 200

$ 211

$

17

17

17

129

139

205

$

3

9

$

4

9

(14)

(15)

(16)

(332)

(325)

(357)

—

—

9

—

—

14

—

1

6

1

5

177

180

115

4

4

4

2

5

1

2

—

—

4

—

—

4

10

—

2

(1)

—

$ 17

$ 22

$ 18

$ 184

$ 200

$ 180

$ 14

$ 17

$

15

As of December 31, 2016, PMI elected to change the method used to calculate the service and interest cost components of the net periodic 
pension benefit costs.  Historically, these costs were determined utilizing a single weighted-average discount rate based on a yield curve 
used to measure the benefit obligation at the beginning of the period.  As of January 1, 2017, PMI will utilize a full yield curve approach 
in the estimation of the service and interest costs by applying the specific spot rates along the yield curve to the relevant projected cash 
flows.  Specifically, service costs will be determined based on duration-specific spot rates applied to service cost cash flows, and interest 
costs will be determined by applying duration specific spot rates to the year-by-year projected benefit payments.  PMI has changed to 
the new method to provide a more precise measurement of service and interest costs by improving the correlation between the projected 
benefit cash flows to the corresponding spot rates along the yield curve.  PMI will account for this change as a change in accounting 
estimate on a prospective basis.  This change does not affect the measurement of PMI’s pension plan obligations and will not have a 
material impact on PMI’s consolidated results of operations, financial position or cash flows.  

Settlement and curtailment charges were due primarily to early retirement programs.

104

For the combined U.S. and non-U.S. pension plans, the estimated net loss and prior service cost that are expected to be amortized from 
accumulated other comprehensive earnings into net periodic benefit cost during 2017 are $177 million and $13 million, respectively.

The following weighted-average assumptions were used to determine PMI’s net pension and postretirement health care costs:

Pension

U.S. Plans
2015

2016

2014

Non-U.S. Plans
2015

2016

2014

2016

Postretirement
2015

2014

Discount rate

Expected rate of return on

plan assets

Rate of compensation

increase

Health care cost trend rate

4.30% 3.95% 4.80% 1.68% 1.92% 3.09% 4.45% 4.20% 5.01%

4.60

3.00

5.10

3.00

5.70

5.39

3.00

1.98

5.38

2.06

5.63

2.34

6.23

6.62

6.60

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 
$56 million, $52 million and $62 million for the years ended December 31, 2016, 2015 and 2014, respectively.

Plan Assets 

PMI’s investment strategy for U.S. and non-U.S. 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 a 60%/40% 
split between equity and debt securities.  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.

The fair value of PMI’s pension plan assets at December 31, 2016 and 2015, by asset category was as follows:

Asset Category
(in millions)

Cash and cash equivalents

Equity securities:
U.S. securities

International securities
Investment funds(a)

International government bonds
Other

Total assets in the fair value hierarchy

Investment funds measured at net 
asset value(b)

Total assets

Quoted Prices 
In Active 
Markets for 
Identical 
Assets/Liabilities 
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant 
Unobservable 
Inputs 
(Level 3)

At
December 31,
2016

$

$

$

8

$

131

432

5,270

309

10

8

131

432

3,530

$

1,740

309

10

6,160

$

4,420

$

1,740

$

—

297

6,457

(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. for bonds), 
primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 60% are invested in U.S. and international equities; 
19% are invested in U.S. and international government bonds; 11% are invested in real estate and other money markets, and 10% are invested in 
corporate bonds.

105

(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)

Quoted Prices 
In Active 
Markets for 
Identical 
Assets/Liabilities 
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

At
December 31,
2015

Cash and cash equivalents

$

225

$

Equity securities:
U.S. securities

International securities
Investment funds(a)

International government bonds

Other

Total assets in the fair value hierarchy

Investment funds measured at net 
asset value(b)

Total assets

$

$

120

409

5,039

289

24

225

120

409

3,446

289

24

1,593

6,106

$

4,513

$

1,593

$

—

298

6,404

(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. for bonds), 
primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 61% were invested in U.S. and international equities; 
18% were invested in U.S. and international government bonds; 11% were invested in real estate and other money markets, and 10% were invested 
in corporate bonds.

(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 for a discussion of the fair value of pension plan assets.

PMI makes, and plans to make, contributions to the extent that they are tax deductible and to meet specific funding requirements of its 
funded U.S. and non-U.S. pension plans.  Currently, PMI anticipates making contributions of approximately $70 million in 2017 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, 2016, are as follows: 

(in millions)

U.S. Plans

Non-U.S. Plans

2017

2018

2019

2020

2021

2022 - 2026

$

$

18

18

24

22

21

124

247

272

265

280

300

1,675

PMI's expected future annual benefit payments for its postretirement health care plans are estimated to be not material through 2026.

106

Assumed health care cost trend rates have a significant effect on the amounts reported for the health care plans. A one-percentage-point 
change in assumed health care trend rates would have the following effects as of December 31, 2016:

Effect on total service and interest cost

Effect on postretirement benefit obligation

23.9%

19.4

(18.1)%

(15.3)

One-Percentage-Point Increase

One-Percentage-Point Decrease

Postemployment Benefit Plans

PMI and certain of its subsidiaries sponsor postemployment benefit plans covering substantially all 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 $166 
million,  $187 million and $167 million for the years ended December 31, 2016, 2015 and 2014, respectively.

The estimated net loss for the postemployment benefit plans that will be amortized from accumulated other comprehensive losses into 
net postemployment costs during 2017 is approximately $67 million.

The  amounts recognized in accrued postemployment costs on PMI's consolidated balance sheets at December 31, 2016 and 2015, were 
$727 million and $745 million, respectively.

During 2016, 2015 and 2014, certain salaried employees left PMI under separation programs.  These programs resulted in incremental 
postemployment costs and benefit obligations.  For further details see Note 5. Asset Impairment and Exit Costs.

The  accrued  postemployment  costs  were  determined  using  a  weighted-average  discount  rate  of  2.8%  and  3.5%  in  2016  and  2015, 
respectively; an assumed ultimate annual weighted-average turnover rate of 2.8% and 2.7% in 2016 and 2015, respectively; assumed 
compensation cost increases of 2.6% in 2016 and 2.2% in 2015, 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 $25 million and $26 million at December 31, 2016 and 2015, 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, 2016, consisted of the following: 

(in millions)

Net losses

Prior service cost

Net transition obligation

Deferred income taxes
Losses to be amortized

Pension

$

(3,314) $

(53)

(5)

350

$

(3,022) $

Post-
retirement

Post-
employment

Total

(73) $
4

—

24
(45) $

(713) $
—

—

215
(498) $

(4,100)
(49)
(5)
589
(3,565)

107

The amounts recorded in accumulated other comprehensive losses at December 31, 2015, consisted of the following:

(in millions)

Net losses

Prior service cost

Net transition obligation

Deferred income taxes
Losses to be amortized

Pension

$

(3,074) $

(40)

(5)

320

$

(2,799) $

Post-
retirement

Post-
employment

Total

(61) $
5

—

20
(36) $

(710) $
—

—

213
(497) $

(3,845)
(35)
(5)
553
(3,332)

The amounts recorded in accumulated other comprehensive losses at December 31, 2014, consisted of the following:

(in millions)

Net losses

Prior service cost

Net transition obligation
Deferred income taxes
Losses to be amortized

Pension

$

(2,760) $

(45)

(6)
342

$

(2,469) $

Post-
retirement

Post-
employment

Total

(77) $
6

—
25
(46) $

(721) $
—

—
216
(505) $

(3,558)
(39)
(6)
583
(3,020)

The movements in other comprehensive earnings (losses) during the year ended December 31, 2016, were as follows:

(in millions)

Amounts transferred to earnings as components of net periodic

Pension

Post-
retirement

Post-
employment

Total

benefit cost:

Amortization:

Net losses
Prior service cost

Other income/expense:

Net losses

    Prior service cost
Deferred income taxes

Other movements during the year:

Net losses

Prior service cost

Deferred income taxes

$

$

193
6

4
—
(26)
177

(437)
(18)
55
(400)

2
—

—
—
—
2

(15)
—

4
(11)

$

$

62
—

257
6

—
—
(17)
45

(65)
—

19
(46)

4
—
(43)
224

(517)
(18)
78
(457)

Total movements in other comprehensive earnings (losses)

$

(223) $

(9) $

(1) $ (233)

108

The movements in other comprehensive earnings (losses) during the year ended December 31, 2015, were as follows:

(in millions)

Amounts transferred to earnings as components of net periodic

Pension

Post-
retirement

Post-
employment

Total

benefit cost:

Amortization:

Net losses

Prior service cost

Other income/expense:

Net losses

Prior service cost

Deferred income taxes

Other movements during the year:

Net losses

Deferred income taxes

$

194

$

4

3

1
(26)
176

(510)
4
(506)

$

4

—

—

—
(2)
2

12
(4)
8

69

—

—

—
(20)
49

(58)
17
(41)

$

267

4

3

1
(48)
227

(556)
17
(539)

Total movements in other comprehensive earnings (losses)

$

(330) $

10

$

8

$

(312)

The movements in other comprehensive earnings (losses) during the year ended December 31, 2014, were as follows:

(in millions)

Amounts transferred to earnings as components of net periodic

Pension

Post-
retirement

Post-
employment

Total

benefit cost:

Amortization:

Net losses

Prior service cost

Other income/expense:

Net losses

Prior service cost

Deferred income taxes

Other movements during the year:

Net losses

Prior service cost

Deferred income taxes

$

121

$

6

14

5
(21)
125

(1,149)
(5)
118
(1,036)

$

2
(1)

66

—

$

189

5

2

—
(1)
2

(34)
—

12
(22)

—

—
(20)
46

16

5
(42)
173

(126)
—

37
(89)

(1,309)
(5)
167
(1,147)

Total movements in other comprehensive earnings (losses)

$

(911) $

(20) $

(43) $ (974)

109

Note 14.

Additional Information: 

(in millions)

Research and development expense

Advertising expense

Foreign currency net transaction losses

Interest expense

Interest income

Interest expense, net

Rent expense

For the Years Ended December 31,

2016

2015

2014

$

$

$

$

$

$

429

405

272

1,069

(178)

891

284

$

$

$

$

$

$

423

448

102

1,132

(124)

1,008

286

$

$

$

$

$

$

433

439

174

1,170

(118)

1,052

336

Minimum rental commitments under non-cancelable operating leases in effect at December 31, 2016, were as follows:

(in millions)

2017

2018

2019

2020

2021

Thereafter

Note 15.

Financial Instruments:

Overview

$

$

182

119

89

62

46

164

662

PMI operates in markets outside of the United States of America, with manufacturing and sales facilities in various locations around the 
world.  PMI utilizes certain financial instruments to manage foreign currency and interest rate exposure.  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.    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 reports its net transaction gains or losses in marketing, administration 
and research costs on the consolidated statements of earnings.

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

110

to which PMI is exposed include the Australian dollar, Euro, Indonesian rupiah, Japanese yen, Mexican peso, Russian ruble, Swiss franc 
and Turkish lira.  At December 31, 2016 and 2015, PMI had contracts with aggregate notional amounts of $29.2 billion and $24.9 billion, 
respectively.  Of the $29.2 billion aggregate notional amount at December 31, 2016, $5.0 billion related to cash flow hedges, $10.6 billion
related to hedges of net investments in foreign operations and $13.6 billion related to other derivatives that primarily offset currency 
exposures on intercompany financing.  Of the $24.9 billion aggregate notional amount at December 31, 2015, $3.2 billion related to cash 
flow hedges, $6.4 billion related to hedges of net investments in foreign operations and $15.3 billion related to other derivatives that 
primarily offset currency exposures on intercompany financing.

The fair value of PMI’s foreign exchange contracts included in the consolidated balance sheet as of December 31, 2016 and 2015, were 
as follows:

(in millions)

Foreign exchange contracts

designated as hedging instruments

Foreign exchange contracts not

designated as hedging instruments

Asset Derivatives

Liability Derivatives

Balance Sheet 
Classification

Fair Value

2016

2015

Balance Sheet 
Classification

Fair Value

2016

2015

Other current 
  assets

Other assets

Other current 
  assets

Other assets

$

207

436

161

9

$

301

Other accrued 
  liabilities

$

181 Other liabilities

Other accrued 
  liabilities

7

85 Other liabilities

$

66

36

61

—

26

117

29

—

172

Total derivatives

$

813

$

574

$

163

$

For  the  years  ended  December 31,  2016,  2015  and  2014,  PMI's  cash  flow  and  net  investment  hedging  instruments  impacted  the  
consolidated statements of earnings and comprehensive earnings as follows:

(pre-tax, millions)

Amount of Gain/(Loss)
Recognized in Other
Comprehensive Earnings/
(Losses) on Derivatives
2015

2016

2014

For the Year Ended December 31,
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
2015

2014

2016

Derivatives in Cash Flow
Hedging Relationship
Foreign exchange contracts $

12

$

43

$

111

Net revenues

Cost of sales

$

(38) $
46

149 $
(3)

Marketing, administration and
research costs

Interest expense, net

(11)
(30)

1
(31)

115

—

(28)

(39)

Derivatives in Net
Investment Hedging
Relationship

Foreign exchange contracts
Total

$

296

308

$

253

296

$

269

380

$

(33) $

116 $

48

Cash Flow Hedges

PMI has entered into foreign exchange contracts to hedge the foreign currency exchange and interest rate risks related to certain forecasted 
transactions.  The effective portion of gains and losses associated with qualifying cash flow hedge contracts is deferred as a component 
of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s consolidated statements of 
earnings.  During the years ended December 31, 2016, 2015 and 2014, ineffectiveness related to cash flow hedges was not material.  As 

111

of December 31, 2016, PMI has hedged forecasted transactions for periods not exceeding the next eighteen months, with the exception 
of one foreign exchange contract that expires in May 2024.  The impact of these hedges is primarily included in operating cash flows on 
PMI’s consolidated statements of cash flows. 

Hedges of Net Investments in Foreign Operations

PMI  designates  certain  foreign  currency  denominated  debt  and  foreign  exchange  contracts  as  net  investment  hedges  of  its  foreign 
operations.  For the years ended December 31, 2016, 2015 and 2014, these hedges of net investments resulted in gains, net of income 
taxes, of $430 million, $761 million and $952 million, respectively.  These gains were reported as a component of accumulated other 
comprehensive losses within currency translation adjustments.  For the years ended December 31, 2016, 2015 and 2014, ineffectiveness 
related to net investment hedges was not material.  Other investing cash flows on PMI’s consolidated statements of cash flows include 
the premiums paid for, and settlements of, net investment hedges.

Other Derivatives

PMI has entered into foreign exchange contracts to hedge the foreign currency exchange and interest rate risks related to intercompany 
loans between certain subsidiaries, and third-party loans.  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 PMI’s consolidated statements of earnings.  
For the years ended December 31, 2016, 2015 and 2014, the losses from contracts for which PMI did not apply hedge accounting were 
$85 million, $587 million and $481 million, respectively.  The losses from these contracts substantially offset the gains generated by the 
underlying intercompany and third-party loans being hedged.

For the years ended December 31, 2016, 2015 and 2014, the net impact of these contracts on the consolidated statements of earnings was 
not material.  

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:

(in millions)

Gain as of January 1,

Derivative (gains)/losses transferred to earnings

Change in fair value

Gain as of December 31,

For the Years Ended December 31,

2016

2015

2014

$

$

59

30

8

97

$

$

123
(102)

38

59

$

$

63

(38)

98

123

At December 31, 2016, PMI expects $60 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. 

112

Fair Value

See Note 16. Fair Value Measurements and Note 20. Balance Sheet Offsetting for additional discussion of derivative financial instruments.

Note 16.

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 1 — Quoted prices in active markets for identical assets or liabilities;

Level 2 — Observable 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 3 — Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets 

or liabilities.

PMI's policy is to reflect transfers between hierarchy levels at the end of the reporting period.

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, 
2016 and 2015.  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, 2016 and 2015.  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, 2016 and 2015.  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 $13 million of capital lease obligations, was $28,411 million at December 31, 2016.  The 
aggregate carrying value of PMI’s debt, excluding short-term borrowings and $13 million of capital lease obligations, was $27,642 million 
at December 31, 2015.  The fair value of PMI's outstanding debt, excluding the aforementioned short-term borrowings and capital lease 
obligations, was classified within Level 1 and Level 2 at December 31, 2016 and 2015.

113

 
The aggregate fair values of PMI’s derivative financial instruments, pension plan assets and debt as of December 31, 2016 and 2015, 
were as follows:

(in millions)

Assets:

Foreign exchange contracts

Pension plan assets

Total assets in fair value

hierarchy

Pension plan assets 

measured at net asset 
value(a)

Total assets

Liabilities:

Debt

Foreign exchange contracts

Total liabilities

(in millions)

Assets:

Foreign exchange contracts

Pension plan assets

Total assets in fair value

hierarchy

Pension plan assets 

measured at net asset 
value(a)

Total assets

Liabilities:

Debt

Foreign exchange contracts

Total liabilities

Fair Value At 
December 31, 2016

Quoted Prices in 
Active Markets for 
Identical Assets/
Liabilities 
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant 
Unobservable 
Inputs 
(Level 3)

$

$

$

$

$

813

$

6,160

— $

4,420

813

$

1,740

6,973

$

4,420

$

2,553

$

297

7,270

30,192

$

29,756

$

163

—

30,355

$

29,756

$

436

$

163

599

$

—

—

—

—

—

—

Fair Value At 
December 31, 2015

Quoted Prices in
Active Markets for
Identical Assets/
Liabilities
(Level 1)

Significant Other
Observable Inputs
(Level 2)

Significant 
Unobservable 
Inputs 
(Level 3)

$

$

$

$

$

574

$

6,106

— $

4,513

574

$

1,593

6,680

$

4,513

$

2,167

$

298

6,978

29,287

$

28,822

$

172

—

29,459

$

28,822

$

465

$

172

637

$

—

—

—

—

—

—

(a) 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.

114

Note 17.

Accumulated Other Comprehensive Losses:

PMI's accumulated other comprehensive losses, net of taxes, consisted of the following:

(Losses) Earnings

(in millions)

Currency translation adjustments

Pension and other benefits

Derivatives accounted for as hedges

At December 31,

2016

2015

2014

$

(6,091) $

(6,129) $

(3,929)

(3,565)

(3,332)

(3,020)

97

59

123

Total accumulated other comprehensive losses

$

(9,559) $

(9,402) $

(6,826)

Reclassifications from Other Comprehensive Earnings

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due 
to  current  period  activity  and  reclassifications  to  the  income  statement  are  shown  on  the  consolidated  statements  of  comprehensive 
earnings for the years ended December 31, 2016, 2015, and 2014.  For the years ended December 31, 2016, 2015, and 2014, $(5) million,  
$1 million and $5 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.  
For additional information, see Note 13. Benefit Plans and Note 15. Financial Instruments for disclosures related to PMI's pension and 
other benefits and derivative financial instruments.

Note 18.

E.C. Agreement:

In 2004, PMI entered into an agreement with the European Commission (“E.C.”) and 10 Member States of the European Union that 
provides for broad cooperation with European law enforcement agencies on anti-contraband and anti-counterfeit efforts.  This agreement 
was signed by all 27 Member States.  The agreement resolved all disputes between the parties relating to these issues.  Under the terms 
of the agreement, PMI made 13 payments over 12 years, including an initial payment of $250 million, which was recorded as a pre-tax 
charge against its earnings in 2004.  The agreement called for additional payments of approximately $150 million on the first anniversary 
of the agreement (this payment was made in July 2005), approximately $100 million on the second anniversary (this payment was made 
in July 2006) and approximately $75 million each year thereafter for 10 years, each of which was adjusted based on certain variables, 
including PMI’s market share in the European Union in the year preceding payment.  Because the additional payments were subject to 
these variables, PMI recorded charges for them as an expense in cost of sales when product was shipped.  In addition, PMI was also 
responsible to pay the excise taxes, VAT and customs duties on qualifying product seizures of up to 90 million cigarettes and was subject 
to payments of five times the applicable taxes and duties if qualifying product seizures exceeded 90 million cigarettes in a given year.  
In October 2014, this agreement was amended, and the threshold was increased to 450 million cigarettes in a given year.  This modification 
was effective as of July 2012.  PMI’s annual payments related to product seizures have been immaterial.  Total charges related to the E.C. 
Agreement of $34 million, $79 million and $71 million were recorded in cost of sales in 2016, 2015 and 2014, respectively.  The E.C. 
decided not to renew the agreement, which expired in July 2016.

115

Note 19.

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, 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.

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.

To date, no tobacco-related case has been finally resolved in favor of a plaintiff against us, our subsidiaries or indemnitees.

The table below lists the number of tobacco-related cases pending against us and/or our subsidiaries or indemnitees as of  December 31, 
2016, December 31, 2015 and December 31, 2014:

Type of Case

Individual Smoking and Health Cases

Smoking and Health Class Actions

Health Care Cost Recovery Actions

Lights Class Actions

Individual Lights Cases

Public Civil Actions

Number of Cases
Pending as of
December 31, 2016

Number of Cases
Pending as of
December 31, 2015

Number of Cases
Pending as of
December 31, 2014

64

11

16

—

3

2

68

11

16

—

3

3

63

11

15

—

2

2

Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 454 Smoking and Health, Lights, Health Care Cost 
Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated 
in our favor. Thirteen cases have had decisions in favor of plaintiffs. Nine of these cases have subsequently reached final resolution in 
our favor and four remain on appeal. 

116

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

Date
February 2004

Location of
Court/Name of
Plaintiff
Brazil/The Smoker Health
Defense Association

Type of
Case
Class Action

Date
May 27, 2015

Location of
Court/Name of
Plaintiff

Canada/Cecilia 
Létourneau

Type of
Case
Class Action

Verdict

The Civil Court of São
Paulo found defendants
liable without hearing
evidence. In April 2004,
the court awarded “moral
damages” of R$1,000
(approximately $319) 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.

Verdict

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 $100 
million) in punitive 
damages, allocating CAD 
46 million (approximately 
$35 million) to our 
subsidiary. 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.

Post-Trial
Developments
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.
Plaintiff appealed the decision. In
February 2015, the appellate
court unanimously dismissed
plaintiff's appeal. In September
2015, plaintiff appealed 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.
This appeal is still pending.

Post-Trial
Developments

In June 2015, our subsidiary 
commenced the appellate process 
with the Court of Appeal of 
Quebec.  Our subsidiary also 
filed a motion to cancel the trial 
court’s order for payment into a 
trust notwithstanding appeal. In 
July 2015, the Court of Appeal 
granted the motion to cancel and 
overturned the trial court’s ruling 
that our subsidiary make the 
payment into a trust. In August 
2015, plaintiffs filed a motion for 
security with the Court of Appeal 
covering both the Létourneau 
case and the Blais case described 
below.  In October 2015, the 
Court of Appeal granted the 
motion and ordered our 
subsidiary to furnish security 
totaling CAD 226 million 
(approximately $172 million) to 
cover both the Létourneau and 
Blais cases.  The hearing for the 
merits appeal took place in 
November 2016.  (See below for 
further detail.)

117

  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
  
Date
May 27, 2015

Location of
Court/Name of
Plaintiff
Canada/Conseil 
Québécois Sur Le Tabac 
Et La Santé and Jean-
Yves Blais

Type of
Case
Class Action

Date

Location of
Court/Name of
Plaintiff

August 5, 2016 Argentina/Hugo Lespada

Type of
Case
Individual
Action

Post-Trial
Developments

In June 2015, our subsidiary 
commenced the appellate process 
with the Court of Appeal of 
Quebec.  Our subsidiary also 
filed a motion to cancel the trial 
court’s order for payment into a 
trust notwithstanding appeal.  In 
July 2015, the Court of Appeal 
granted the motion to cancel and 
overturned the trial court’s ruling 
that our subsidiary make the 
payment into a trust. In August 
2015, plaintiffs filed a motion for 
security with the Court of 
Appeal. In October 2015, the 
Court of Appeal granted the 
motion and ordered our 
subsidiary to furnish security 
totaling, together with the 
Létourneau case, CAD 226 
million (approximately $172 
million).  The hearing for the 
merits appeal took place in 
November 2016. (See below for 
further detail.)

Post-Trial
Developments
On August 23, 2016, our
subsidiary filed its notice of
appeal.

Verdict

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 $11.8 
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 $2.4 
billion)). The trial court 
awarded CAD 90,000 
(approximately $68,500) 
in punitive damages, 
allocating CAD 30,000 
(approximately $22,800) 
to our subsidiary. The 
trial court ordered 
defendants to pay CAD 1 
billion (approximately 
$761 million) of the 
compensatory damage 
award, CAD 200 million 
(approximately $152 
million) of which is our 
subsidiary’s portion, into 
a trust within 60 days. 

Verdict

On 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
$6,900), plus interest, in
compensatory and moral
damages.
The Court found that our
subsidiary failed to warn
plaintiff of the risk of
becoming addicted to
cigarettes.

118

  
  
  
  
  
  
  
  
  
  
  
  
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 December 31, 2016, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as 
follows:

• 

• 

64 cases brought by individual plaintiffs in Argentina (35), Brazil (16), Canada (2), Chile (6), Costa Rica (2), Italy (1), the 
Philippines (1) and Scotland (1), compared with 68 such cases on December 31, 2015, and 63 cases on December 31, 2014; and

11 cases brought on behalf of classes of individual plaintiffs in Brazil (2) and Canada (9), compared with 11 such cases on 
December 31, 2015 and December 31, 2014.

In the first 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 $319) 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 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.

In the second class action pending in Brazil, Public Prosecutor of São Paulo v. Philip Morris Brasil Industria e Comercio Ltda., Civil 
Court of the City of São Paulo, Brazil, filed August 6, 2007, our subsidiary is a defendant. The plaintiff, the Public Prosecutor of the State 
of São Paulo, is seeking (i) damages on behalf of all smokers nationwide, former smokers, and their relatives; (ii) damages on behalf of 
people exposed to environmental tobacco smoke nationwide, and their relatives; and (iii) reimbursement of the health care costs allegedly 
incurred for the treatment of tobacco-related diseases by all Brazilian States and Municipalities, and the Federal District. In an interim 
ruling issued in December 2007, the trial court limited the scope of this claim to the State of São Paulo only. In December 2008, the 
Seventh Civil Court of São Paulo issued a decision declaring that it lacked jurisdiction because the case involved issues similar to the 
ADESF case discussed above and should be transferred to the Nineteenth Lower Civil Court in São Paulo where the ADESF case is 
pending. The court further stated that these cases should be consolidated for the purposes of judgment. In April 2010, the São Paulo Court 
of Appeals reversed the Seventh Civil Court's decision that consolidated the cases, finding that they are based on different legal claims 
and are progressing at different stages of proceedings. This case was returned to the Seventh Civil Court of São Paulo, and our subsidiary 
filed its closing arguments in December 2010. In March 2012, the trial court dismissed the case on the merits. In January 2014, the São 
Paulo Court of Appeals rejected plaintiff’s appeal and affirmed the trial court decision.  In July 2014, plaintiff appealed to the Superior 
Court of Justice.

In the first 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, our subsidiary and other Canadian 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.  Trial began in March 2012 
and concluded in December 2014.  The trial court issued its judgment on May 27, 2015.  The trial court found our subsidiary and two
other Canadian manufacturers liable and awarded a total of CAD 131 million (approximately $100 million) in punitive damages, allocating 
CAD 46 million (approximately $35 million) to our subsidiary.  The trial court found 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.  The trial court also found that defendants conspired to prevent consumers from learning the dangers of smoking. 
The trial court further held that these civil faults were a cause of the class members’ addiction.  The trial court rejected other grounds of 
fault advanced by the class, holding that:  (i) the evidence was insufficient to show that defendants marketed to youth, (ii) defendants’ 
advertising did not convey false information about the characteristics of cigarettes, and (iii) defendants did not commit a fault by using 

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the descriptors light or mild for cigarettes with a lower tar delivery. 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 ordered defendants to pay the full punitive damage award into a trust within 60 days and found that 
a claims process to allocate the awarded damages to individual class members would be too expensive and difficult to administer.  The 
trial court ordered a briefing on the proposed process for the distribution of sums remaining from the punitive damage award after payment 
of attorneys’ fees and legal costs.  In June 2015, our subsidiary commenced the appellate process by filing its inscription of appeal of the 
trial court’s judgment with the Court of Appeal of Quebec.  Our subsidiary also filed a motion to cancel the trial court’s order for payment 
into a trust within 60 days notwithstanding appeal.  In July 2015, the Court of Appeal granted the motion to cancel and overturned the 
trial court’s ruling that our subsidiary make the payment into a trust within 60 days.  In August 2015, plaintiffs filed a motion with the 
Court of Appeal seeking security in both the Létourneau case and the Blais case described below.  In October 2015, the Court of Appeal 
granted the motion and ordered our subsidiary to furnish security totaling CAD 226 million (approximately $172 million), in the form 
of  cash  into  a  court  trust  or  letters  of  credit,  in  six  equal  consecutive  quarterly  installments  of  approximately  CAD  37.6  million
(approximately $28.6 million) beginning in December 2015 through March 2017.  See the Blais description for further detail concerning 
the security order.  The Court of Appeal heard oral arguments on the merits appeal in November 2016.  Our subsidiary and PMI believe 
that the findings of liability and damages were incorrect and should ultimately be set aside on any one of many grounds, including the 
following:  (i) holding that defendants violated Quebec law by failing to warn class members of the risks of smoking even after the court 
found that class members knew, or should have known, of the risks, (ii) finding that plaintiffs were not required to prove that defendants’ 
alleged misconduct caused injury to each class member in direct contravention of binding precedent, (iii) creating a factual presumption, 
without any evidence from class members or otherwise, that defendants’ alleged misconduct caused all smoking by all class members, 
(iv) holding that the addiction class members’ claims for punitive damages were not time-barred even though the case was filed more 
than three years after a prominent addiction warning appeared on all packages, and (v) awarding punitive damages to punish defendants 
without proper consideration as to whether punitive damages were necessary to deter future misconduct.

In the second 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, our subsidiary 
and other Canadian manufacturers (Imperial Tobacco Canada Ltd. and JTI-MacDonald Corp.) are defendants. The plaintiffs, an anti-
smoking organization and an individual smoker, sought compensatory and punitive damages for each member of the class who allegedly 
suffers from certain smoking-related diseases. The class was certified in 2005. Trial began in March 2012 and concluded in December 
2014.  The trial court issued its judgment on May 27, 2015.  The trial court found our subsidiary and two other Canadian manufacturers 
liable and found that the class members’ compensatory damages totaled approximately CAD 15.5 billion, including pre-judgment interest 
(approximately $11.8 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 $2.4 billion)). In addition, the trial court 
awarded CAD 90,000 (approximately $68,500) in punitive damages, allocating CAD 30,000 (approximately $22,800) to our subsidiary 
and found 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.  The trial court also found that defendants conspired 
to prevent consumers from learning the dangers of smoking. The trial court further held that these civil faults were a cause of the class 
members’ diseases. The trial court rejected other grounds of fault advanced by the class, holding that:  (i) the evidence was insufficient 
to show that defendants marketed to youth, (ii) defendants’ advertising did not convey false information about the characteristics of 
cigarettes, and (iii) defendants did not commit a fault by using the descriptors light or mild for cigarettes with a lower tar delivery. The 
trial court estimated the disease class at 99,957 members. The trial court ordered defendants to pay CAD 1 billion (approximately $761 
million) of the compensatory damage award into a trust within 60 days, CAD 200 million (approximately $152 million) of which is our 
subsidiary’s portion and ordered briefing on a proposed claims process for the distribution of damages to individual class members and 
for payment of attorneys’ fees and legal costs. In June 2015, our subsidiary commenced the appellate process by filing its inscription of 
appeal of the trial court’s judgment with the Court of Appeal of Quebec.  Our subsidiary also filed a motion to cancel the trial court’s 
order for payment into a trust within 60 days notwithstanding appeal.  In July 2015, the Court of Appeal granted the motion to cancel 
and overturned the trial court’s ruling that our subsidiary make an initial payment within 60 days.  In August 2015, plaintiffs filed a motion 
with the Court of Appeal seeking an order that defendants place irrevocable letters of credit totaling CAD 5 billion (approximately $3.8 
billion) into trust, to secure the judgments in both the Létourneau and Blais cases. Plaintiffs subsequently withdrew their motion for 
security against JTI-MacDonald Corp. and proceeded only against our subsidiary and Imperial Tobacco Canada Ltd.  In October 2015, 
the Court of Appeal granted the motion and ordered our subsidiary to furnish security totaling CAD 226 million (approximately $172 
million) to cover both the Létourneau and Blais cases. Such security may take the form of cash into a court trust or letters of credit, in 
six equal consecutive quarterly installments of approximately CAD 37.6 million (approximately $28.6 million) beginning in December 
2015 through March 2017.   The Court of Appeal ordered Imperial Tobacco Canada Ltd. to furnish security totaling CAD 758 million
(approximately $577 million) in seven equal consecutive quarterly installments of approximately CAD 108 million (approximately $82 
million) beginning in December 2015 through June 2017.  In December 2016, our subsidiary made its fifth quarterly installment of 
security for approximately CAD 37.6 million (approximately $28.6 million) into a court trust. This payment is included in other assets 
on the consolidated balance sheets and in cash used in operating activities in the consolidated statements of cash flows.  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. The Court of Appeal heard oral arguments on the merits appeal in November 2016.  Our subsidiary 
and PMI believe that the findings of liability and damages were incorrect and should ultimately be set aside on any one of many grounds, 

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including the following:  (i) holding that defendants violated Quebec law by failing to warn class members of the risks of smoking even 
after the court found that class members knew, or should have known, of the risks, (ii) finding that plaintiffs were not required to prove 
that defendants’ alleged misconduct caused injury to each class member in direct contravention of binding precedent, (iii) creating a 
factual presumption, without any evidence from class members or otherwise, that defendants’ alleged misconduct caused all smoking by 
all class members, (iv) relying on epidemiological evidence that did not meet recognized scientific standards, and (v) awarding punitive 
damages to punish defendants without proper consideration as to whether punitive damages were necessary to deter future misconduct. 

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, our subsidiaries, 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 September 2009, 
plaintiff's counsel informed defendants that he did not anticipate taking any action in this case while he pursues the class action filed in 
Saskatchewan (see description of Adams, below). 

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, our subsidiaries, 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. Preliminary motions are pending.

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, our subsidiaries, 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. No activity in this case is anticipated while plaintiff's counsel pursues the class action filed in Saskatchewan 
(see description of Adams, above).

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, our subsidiaries, 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. No activity in this case is anticipated while plaintiff's counsel pursues the class action filed in Saskatchewan (see description 
of Adams, above).

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, our subsidiaries, 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 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, our subsidiaries, 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, our subsidiaries, 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 

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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. Plaintiff's counsel has indicated that he does not intend to take any action in this case in the near future.

Health Care Cost Recovery Litigation: These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of 
health care cost expenditures allegedly caused by tobacco products. Plaintiffs' allegations of liability in these cases are based on various 
theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied warranties, 
violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, defective product, 
failure to warn, sale of cigarettes to minors, and claims under statutes governing 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 December 31, 2016, there were 16 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Canada 
(10), Korea (1) and Nigeria (5), compared with 16 such cases on December 31, 2015 and 15 such cases on December 31, 2014. 

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, our subsidiaries, 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.” The Supreme Court of Canada 
has held that the statute is constitutional. We and certain other non-Canadian defendants challenged the jurisdiction of the court. The 
court rejected the jurisdictional challenge. Pre-trial discovery is ongoing.

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, our subsidiaries, 
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.” Pre-trial discovery is ongoing.  In September 2016,  the trial court 
entered a consent order establishing a discovery timetable that contemplates the province of New Brunswick applying by September 
2017 for a trial date.

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, our subsidiaries, 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.”  Pre-trial discovery is ongoing.

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, our subsidiaries, 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.”  Pre-trial discovery is ongoing.

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, our subsidiary, 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.”  Pre-trial discovery is ongoing.

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, our subsidiaries, 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.”  Pre-trial discovery is ongoing.

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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, our subsidiaries, 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.”  Defendants filed their defenses in September 2014.  Pre-trial discovery 
is ongoing.

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, our subsidiaries, 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.”  Defendants filed their defenses in February 2015. Discovery is scheduled to begin in 2017.

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, our subsidiaries, 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.”  Defendants filed their defenses in 
February 2015. Discovery is scheduled to begin in 2017.

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, our subsidiaries, 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.”  Defendants filed their defenses in July 2015. Discovery is scheduled to begin in 2017.

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 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 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. 

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Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs 
of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In May 2010, 
the trial court rejected our service objections. We have appealed.

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 approximately $53.7 million 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 case is now in the evidentiary phase.

Lights Cases: These cases, brought by individual plaintiffs, allege that the use of the term “lights” constitutes 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 December 31, 2016, there were 3 lights cases brought by individual plaintiffs pending against our subsidiaries or indemnitees in 
Chile (2) and Italy (1), compared with 3 such cases on December 31, 2015, and 2 such cases on December 31, 2014.

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 December 31, 2016, there were 2 public civil actions pending against our subsidiaries in Argentina (1) and Venezuela (1), compared 
with 3 such cases on December 31, 2015, and 2 such cases on December 31, 2014.

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 in the evidentiary stage.

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.

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, underdeclared import prices of cigarettes to avoid full payment of taxes and duties in 
connection with 272 import entries of cigarettes from the Philippines during the period of July 2003 to June 2006. The government is 
seeking a fine of approximately THB 80.8 billion (approximately $2.29 billion).  The case is in the pre-trial evidentiary phase. Trials are 
scheduled to begin during the last quarter of 2017.  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 other Thai governmental agencies. 

124

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 
Thai ex-employee in the Bangkok Criminal Court alleging that PM Thailand and its Thai ex-employee jointly and with the intention to 
defraud the Thai government underdeclared import prices of cigarettes to avoid full payment of taxes and duties in connection with 780
import entries during the period from January 2002 to July 2003. The government is seeking a fine of approximately THB 19.8 billion
(approximately $561 million). The first hearing, which will focus on preliminary procedural matters, is scheduled for April 2017.  PM 
Thailand disagrees with the allegations and believes that its declared import prices are in compliance with the Customs Valuation Agreement 
of the WTO and Thai law.

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,  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  charges,  PM  Korea  paid  the  total  amount  that  the  tax  authorities  demanded,  namely,  approximately  KRW  100  billion
(approximately $85 million)  in December 2016 and  KRW 118 billion (approximately $101 million) in January 2017.  The total demanded 
amount is included in other assets, and the January 2017 payment is included in accrued liabilities, in the consolidated balance sheets for 
the year ended 2016.  The December 2016 payment is reflected in cash used in operating activities in the consolidated statements of cash 
flows for the year ended 2016.  In the beginning of 2017, PM Korea received demand notices from other government authorities for other 
amounts of approximately KRW 54 billion (approximately $47 million) in the aggregate.  PM Korea will appeal the assessments. The 
tax authorities have also referred the matter to the Public Prosecutor, who will further investigate and decide whether to file criminal 
charges against PM Korea and/or other alleged co-offenders. If the Public Prosecutor decides to prosecute, it may seek up to three times 
the underpaid tax for company criminal penalties and up to five times the underpaid tax for individual criminal penalties. PM Korea 
believes that it has paid cigarette-related taxes in compliance with the South Korean tax laws. In addition, the South Korean Ministry of 
Strategy and Finance (“MOSF”) filed a criminal complaint with the Public Prosecutor against PM Korea and its managing director. In 
its criminal complaint, the MOSF alleged that PM Korea exceeded the monthly product withdrawal limits that the MOSF had set in its 
notice. The Public Prosecutor will investigate the MOSF’s criminal complaint and decide whether to prosecute.  PM Korea disagrees 
with the MOSF’s allegations.

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.

Note 20.

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. 

125

The effects of these derivative financial instrument assets and liabilities on PMI's consolidated balance sheets were as follows:

Gross
Amounts
Recognized

Gross Amount
Offset in the
Consolidated
Balance Sheet

Net Amounts
Presented in the
Consolidated
Balance Sheet

Gross Amounts Not Offset in the
Consolidated 
Balance Sheet

Financial
Instruments

Cash Collateral
Received/
Pledged

Net
Amount

$

$

$

$

813 $

163 $

574 $

172 $

— $

— $

— $

— $

813 $

(126) $

(607) $

163 $

(126) $

(31) $

574 $

(131) $

(432) $

172 $

(131) $

(30) $

80

6

11

11

(in millions)

At December 31, 2016

Assets

Foreign exchange contracts
Liabilities

Foreign exchange contracts

At December 31, 2015

Assets

Foreign exchange contracts
Liabilities

Foreign exchange contracts

Note 21.

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, 2016 
and 2015.  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, 2016 and 2015, were $9,447 million and 
$3,299 million, 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, 2016, 2015 and 2014, were $729 million, $888 
million and $120 million, 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, 2016, 2015 and 2014 the loss on sale of trade receivables was immaterial.

Note 22.

New Accounting Standards:

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 
for the rights and obligations created by those leases.  Additionally, ASU 2016-02 modifies current guidance for lessors' accounting.  ASU 
2016-02 is effective for interim and annual reporting periods beginning on or after January 1, 2019, with early adoption permitted.  PMI is 
currently assessing the impact that the adoption of ASU 2016-02 will have on its financial position or results of operations.

126

On January 5, 2016, the FASB issued Accounting Standard Update ASU 2016-01, “Financial Instruments - Overall (Subtopic 825-10): 
Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”).  ASU 2016-01 will require equity investments 
(except those accounted for under the equity method of accounting, or those that result in consolidation of the investee) to be measured at 
fair value with changes in fair value recognized in net income.  Additionally, ASU 2016-01 also changes certain disclosure requirements 
and other aspects of current U.S. GAAP.   ASU 2016-01 is effective for interim and annual reporting periods beginning on or after January 
1, 2018.  PMI is currently assessing its cost method investments and the impact that the adoption of ASU 2016-01 will have on its financial 
position or results of operations.

On  November  20,  2015,  the  FASB  issued  Accounting  Standard  Update  ASU  2015-17,  “Balance  Sheet  Classification  of  Deferred 
Taxes” (“ASU 2015-17”).  ASU 2015-17 requires that all deferred tax assets and liabilities, along with any related valuation allowance, be 
classified as noncurrent on the balance sheet.  ASU 2015-17 is effective for interim and annual reporting periods beginning on or after 
January 1, 2017, with early adoption permitted.  PMI elected to adopt ASU 2015-17 prospectively as of October 1, 2016.  Prior periods 
have not been retrospectively adjusted.  Had ASU 2015-17 been adopted retrospectively, the amounts in the consolidated balance sheets as 
of December 31, 2015, would have been as follows: 

(in millions)

Assets

Current deferred income taxes

Noncurrent deferred income taxes

Other assets

Total assets

Liabilities

Current deferred income taxes

Noncurrent deferred income taxes

Total liabilities

At December 31, 2015

As Reported

Retrospective
Adoption

$

$

$

$

$

$

$

488

360

1,143

33,956

206

1,543

45,432

$

$

$

$

$

$

$

—

769

1,143

33,877

—

1,670

45,353

The adoption of ASU 2015-17 did not have a material impact on PMI’s consolidated results of operations, financial position or cash flows.

On  May  28,  2014,  the  FASB  issued Accounting  Standards  Update ASU  2014-09,  “Revenue  from  Contracts  with  Customers”  (“ASU 
2014-09”).  ASU 2014-09 contains principles that an entity will need to apply to determine the measurement of revenue and timing of when 
it is recognized. The underlying principle is that an entity will recognize revenue to depict the transfer of promised goods or services to 
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

Entities can apply the final standard using one of the following two methods:

1. 

retrospectively to each prior period presented; or 

2. 

retrospectively, with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application, with 
additional disclosures in reporting periods that include the date of initial application.

ASU 2014-09 is effective for interim and annual reporting periods beginning on or after January 1, 2017.  In July 2015, the FASB approved 
a proposal which allows for a deferral of the implementation until January 1, 2018, and permits early application, but not before the original 
effective date of January 1, 2017.  PMI plans to adopt ASU 2014-09 on January 1, 2018, and does not expect the adoption to have a material 
impact on its consolidated financial position or results of operations.  Following the release of ASU 2016-12 in May 2016, which provided 
some practical expedients to the original standard, PMI is continuing to assess the standard’s policy election for gross versus net presentation 
of excise taxes and, related to this assessment, the method of adoption. 

127

Note 23.

Quarterly Financial Data (Unaudited):

(in millions, except per share data)
Net revenues

Gross profit

Net earnings attributable to PMI

Per share data:

Basic EPS

Diluted EPS

Dividends declared

Market price:

— High

— Low

(in millions, except per share data)

Net revenues

Gross profit

Net earnings attributable to PMI

Per share data:

Basic EPS

Diluted EPS

Dividends declared

Market price:

— High

— Low

2016 Quarters

1st

2nd

3rd

4th

16,788

3,987

1,530

0.98

0.98

1.02

99.53

84.46

1st

17,352

4,387

1,795

1.16

1.16

1.00

85.29

75.30

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

19,041

4,285

1,788

1.15

1.15

1.02

102.55

95.91

$

$

$

$

$

$

$

$

19,935

4,550

1,938

1.25

1.25

1.04

104.20

96.95

2015 Quarters

2nd

3rd

18,763

4,481

1,887

1.21

1.21

1.00

86.91

75.27

$

$

$

$

$

$

$

$

19,422

4,544

1,942

1.25

1.25

1.02

86.51

76.54

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

19,189

4,472

1,711

1.10

1.10

1.04

98.21

86.78

4th

18,371

4,017

1,249

0.80

0.80

1.02

90.27

78.41

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

$

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.

128

Report of Independent Registered Public Accounting Firm 

To the Board of Directors and Stockholders of 
      Philip Morris International Inc. and Subsidiaries: 

In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of earnings, comprehensive earnings, 
stockholders’ (deficit) equity, and cash flows, present fairly, in all material respects, the financial position of Philip Morris International 
Inc. and its subsidiaries (“PMI”) at December 31, 2016 and 2015, and the results of their operations and their cash flows for each of the 
three years in the period ended December 31, 2016 in conformity with accounting principles generally accepted in the United States of 
America.  Also  in  our  opinion,  PMI  maintained,  in  all  material  respects,  effective  internal  control  over  financial  reporting  as  of  
December 31,  2016,  based  on  criteria  established  in  Internal  Control  —  Integrated  Framework  (2013)  issued  by  the  Committee  of 
Sponsoring Organizations of the Treadway Commission (COSO). PMI’s management is responsible for these 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 over Financial Reporting. Our responsibility is to 
express opinions on these financial statements and on PMI’s internal control over financial reporting based on our integrated audits. We 
conducted  our  audits  in  accordance  with  the  standards  of  the  Public  Company Accounting  Oversight  Board  (United  States). Those 
standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of 
material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits 
of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, 
assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement 
presentation. 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. 

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 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. 

PricewaterhouseCoopers SA 

/S/    BARRY J. MISTHAL
Barry J. Misthal

Lausanne, Switzerland
February 2, 2017

/S/    DR. MICHAEL ABRESCH
Dr. Michael Abresch

129

 
Report of Management on Internal Control Over Financial Reporting 

Management of Philip Morris International Inc. (“PMI”) 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. 

Management assessed the effectiveness of PMI’s internal control over financial reporting as of December 31, 2016. 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, 2016, 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, 
2016, as stated in their report herein. 

February 2, 2017 

130

 
 
Item 9. 

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

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.

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. 

None.

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 3, 2017, that will be filed with the SEC on or about 
March 23, 2017 (the “proxy statement”), and, except as indicated therein, made a part hereof. 

Item 10.  Directors, Executive Officers and Corporate Governance.

Executive Officers as of February 14, 2017:

Name

Office

Age

André Calantzopoulos

Chief Executive Officer

Drago Azinovic

Werner Barth

Charles Bendotti

Patrick Brunel

Frank de Rooij

Frederic de Wilde

Marc S. Firestone

Paul Janelle

Martin King

Andreas Kurali

Marco Mariotti

Antonio Marques

Jacek Olczak

Jeanne Pollès

Jerry E. Whitson

Miroslaw Zielinski

President, Eastern Europe, Middle East & Africa Region & PMI Duty Free

Senior Vice President, Marketing & Sales

Senior Vice President, Human Resources

Senior Vice President and Chief Information Officer

Vice President, Treasury and Corporate Finance

President, European Union Region

Senior Vice President and General Counsel

Vice President, Corporate Planning and Business Development

President, Asia Region

Vice President and Controller

Senior Vice President, Corporate Affairs

Senior Vice President, Operations

Chief Financial Officer

President, Latin America & Canada Region

Deputy General Counsel and Corporate Secretary
President, Reduced-Risk Products

59

54

52

44

51

51

49

57

51

52

51

52

61

52

52

61
55

All of the above-mentioned officers, except for Mr. Firestone, have been employed by us in various capacities during the past five years. 

131

 
 
 
 
 
 
 
 
Before joining Philip Morris International Inc. in April 2012, Mr. Firestone was Executive Vice President, Corporate and Legal Affairs 
and General Counsel of Kraft Foods Inc., where he served since 2003. From 1988 to 2003, Mr. Firestone held numerous positions in the 
law departments of Philip Morris Companies Inc. and Philip Morris International Inc., lastly as Senior Vice President & General Counsel 
of PMI.

Codes of Conduct and Corporate Governance 

We have adopted the Philip Morris International Code of Conduct, which complies with requirements set forth in Item 406 of Regulation S-
K. This Code of Conduct 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  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 Code of Conduct, or certain amendments to the Code of Conduct, 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 Nominees and Section 16(a) Beneficial Ownership Reporting Compliance sections of the proxy 
statement.

Item 11.  Executive Compensation. 

Refer to Compensation Discussion and Analysis and Compensation of Directors sections of the proxy statement.

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, 2016, 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 
and Vesting of RSUs 
and PSUs
(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(1) 

5,356,130(2)

$

—

21,857,569

(1) The 2008 Stock Compensation Plan for Non-Employee Directors was approved by our former parent company in connection with 
the Spin-off.

(2) Represents 4,500,990 shares of common stock that may be issued upon vesting of the restricted share units granted under the Philip 
Morris International Inc. 2012 Performance Incentive Plan (the "2012 Plan") and 855,140 shares that may be issued upon vesting of 
the performance share units granted under the 2012 Plan if maximum performance targets are achieved for each performance cycle. 
PMI has not granted options since the Spin-off.

Refer to Stock Ownership Information section of the proxy statement. 

132

 
 
 
 
 
 
 
 
 
 
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.  Principal Accounting Fees and Services. 

Refer to Audit Committee Matters section of the proxy statement.

PART IV

Item 15.  Exhibits and Financial Statement Schedules.

(a) Index to Consolidated Financial Statements and Schedules

Consolidated Balance Sheets at December 31, 2016 and 2015

Consolidated Statements of Earnings for the years ended December 31, 2016, 2015 and 2014
Consolidated Statements of Comprehensive Earnings for the years ended December 31, 
   2016, 2015 and 2014

Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended 
   December 31, 2016, 2015 and 2014

Consolidated Statements of Cash Flows for the years ended December 31, 2016, 2015 
   and 2014

Notes to Consolidated Financial Statements

Report of Independent Registered Public Accounting Firm

Report of Management on Internal Control Over Financial Reporting

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: 

Page

78 - 79

80

81

82

83 - 84

85 - 128

129

130

133

 
 
 
 
 
 
 
 
2.1

— Distribution Agreement between Altria Group, Inc. and Philip Morris International Inc. dated

January 30, 2008 (incorporated by reference to Exhibit 2.1 to the Registration Statement on Form
10 filed February 7, 2008).

3.1

3.2

4.1

4.2

— Amended and Restated Articles of Incorporation of Philip Morris International Inc. (incorporated
by reference to Exhibit 3.1 to the Registration Statement on Form 10 filed February 7, 2008).

— Amended and Restated By-laws of Philip Morris International Inc. (incorporated by reference to

Exhibit 3.1 to the Current Report on Form 8-K filed December 9, 2016).

— Specimen Stock Certificate of Philip Morris International Inc. (incorporated by reference to Exhibit

4.1 to the Registration Statement on Form 10 filed February 7, 2008).

— Indenture dated as of April 25, 2008, between Philip Morris International Inc. and HSBC Bank

USA, National Association, as Trustee (incorporated by reference to Exhibit 4.3 to the Registration
Statement on Form S-3, dated April 25, 2008).

4.3

— Issue and Paying Agency Agreement, dated March 13, 2009, by and among Philip Morris

International Inc., HSBC Private Bank (C.I.) Limited, Jersey Branch, as registrar, HSBC Bank
PLC, as principal paying agent and HSBC Corporate Trustee Company (UK) Limited, as trustee
(incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K filed March 19, 2009).

4.4

— Trust Deed relating to Euro Medium Term Note Programme, dated March 13, 2009, between Philip
Morris International Inc., as issuer, and HSBC Corporate Trustee Company (UK) Limited, as
trustee (incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K filed March 19,
2009).

4.5

— Deed of Termination and Release, dated April 28, 2016, of the Euro Medium Term Note 

Programme, between Philip Morris International Inc., as issuer, HSBC Private Bank (C.I.) Limited, 
as registrar, HSBC Bank PLC, as principal paying agent, HSBC Bank PLC, as the transfer agent, 
and HSBC Corporate Trustee Company (UK) Limited, as trustee (incorporated by reference to 
Exhibit 4.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2016).

4.6

— The 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

— Employee Matters Agreement between Altria Group, Inc. and Philip Morris International Inc.,
dated as of March 28, 2008 (incorporated by reference to Exhibit 10.2 to the Current Report on
Form 8-K filed March 31, 2008).

10.2

— Intellectual Property Agreement between Philip Morris International Inc. and Philip Morris USA

Inc., dated as of January 1, 2008 (incorporated by reference to Exhibit 10.4 to the Registration
Statement on Form 10 filed March 5, 2008).

10.3

— Credit Agreement relating to a US$3,500,000,000 Revolving Credit Facility (including a US

$800,000,000 swingline option) dated as of October 25, 2011, among Philip Morris International
Inc. and the Initial Lenders named therein and Citibank International plc, as Facility Agent, and
Citibank, N.A., as Swingline Agent, and Citigroup Global Markets Limited, Barclays Capital, BNP
Paribas, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc., Goldman Sachs
International, HSBC Bank PLC, J.P. Morgan Limited, RBS Securities Inc. and Société Générale as
Mandated Lead Arrangers and Bookrunners (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed October 26, 2011).

10.4

__

10.5

__

Amendment No. 1, dated as of August 31, 2012, to the Credit Agreement, dated as of October 25, 
2011, among Philip Morris International Inc., the lenders named therein and Citibank International 
plc, as Facility Agent  (incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 
10-Q for the quarter ended September 30, 2012).

Credit Agreement, dated as of February 12, 2013, among Philip Morris International Inc., the
lenders named therein and Citibank Europe PLC, UK Branch (formerly, The Royal Bank of
Scotland plc), as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed February 15, 2013).

134

10.6

__

Extension Agreement, effective January 31, 2014, to Credit Agreement, dated as of February 12, 
2013, among Philip Morris International Inc., the lenders party thereto and Citibank Europe PLC, 
UK Branch (formerly, The Royal Bank of Scotland plc), as Administrative Agent (incorporated by 
reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 
2014).

10.7

__

Credit Agreement, dated as of February 28, 2014, among Philip Morris International Inc., the 
lenders named therein, J.P. Morgan Europe Limited, as Facility Agent, and JPMorgan Chase Bank, 
N.A., as Swingline Agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 
8-K filed March 3, 2014).

10.8

__

Extension Agreement, effective as of February 10, 2015, to Credit Agreement dated as of February
12, 2013, among Philip Morris International Inc., the lenders named therein and Citibank Europe
PLC, UK Branch (formerly, The Royal Bank of Scotland plc), as Administrative Agent
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed January 29,
2015).

10.9

__

Extension Agreement, effective as of February 28, 2015, to the Credit Agreement, dated as of
February 28, 2014, among Philip Morris International Inc., the lenders named therein, J.P. Morgan
Europe Limited, as Facility Agent, and JPMorgan Chase Bank, N.A. as Swingline Agent
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed January 29,
2015).

10.10

__

Amendment No. 1, dated as of July 20, 2015, to the Credit Agreement, dated as of February 12, 
2013, among Philip Morris International Inc., the lenders named therein, The Royal Bank of 
Scotland plc, as resigning administrative agent, and Citibank Europe PLC, UK Branch (formerly, 
Citibank International Limited), as successor administrative agent (incorporated by reference to 
Exhibit 10.52 to the Annual Report on Form 10-K for the year ended December 31, 2015).

10.11

— Credit Agreement, dated as of October 1, 2015, among Philip Morris International Inc., the lenders

named therein, Citibank Europe PLC, UK Branch (formerly, Citibank International Limited), as
Facility Agent, and Citibank, N.A., as Swingline Agent (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K filed October 5, 2015).

10.12

10.13

10.14

10.15

— Amendment No. 2, effective as of February 9, 2016, to the Credit Agreement dated as of February 
12, 2013, with the lenders named therein and Citibank Europe PLC, UK Branch (formerly, 
Citibank International Limited), as administrative agent (incorporated by reference to Exhibit 10.1 
to the Current Report on Form 8-K filed January 28, 2016).

— Extension Agreement, effective February 28, 2016, to the Credit Agreement, dated as of February 
28, 2014, among Philip Morris International Inc., each lender named therein, J.P. Morgan Europe 
Limited, as facility agent, and JPMorgan Chase Bank, N.A., as swingline agent (incorporated by 
reference to Exhibit 10.2 to the Current Report on Form 8-K filed January 28, 2016).

— Extension Agreement, effective as of October 1, 2016, to the Credit Agreement dated as of October
1, 2015, among Philip Morris International Inc., lenders named therein, Citibank Europe PLC, UK
Branch (formerly, Citibank International Limited), as facility agent, and Citibank, N.A., as
swingline agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
August 31, 2016).

— Anti-Contraband and Anti-Counterfeit Agreement and General Release, dated as of July 9, 2004,
and Appendices (Portions of this exhibit have been omitted pursuant to a request for confidential
treatment filed with the Securities and Exchange Commission) (incorporated by reference to
Exhibit 10.7 to the Registration Statement on Form 10 filed February 7, 2008).

10.16

— Modification Agreement, dated as of October 14, 2014, to the Anti-Contraband and Anti-

Counterfeit Agreement and General Release, dated as of July 9, 2004  (incorporated by reference to
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2014).

10.17

— Philip Morris International Inc. Automobile Policy (incorporated by reference to Exhibit 10.8 to the

Registration Statement on Form 10 filed February 7, 2008).*

135

10.18

— Philip Morris International Benefit Equalization Plan, as amended and in effect on August 6, 2012

(incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2012).*

10.19

— Philip Morris International Inc. 2012 Performance Incentive Plan, effective May 9, 2012

(incorporated by reference to Exhibit A to the Definitive Proxy Statement filed on March 30,
2012).*

10.20

— Pension Fund of Philip Morris in Switzerland (IC) (incorporated by reference to Exhibit 10.2 to the

Quarterly Report on Form 10-Q for the quarter ended March 31, 2015).*

10.21

10.22

10.23

— Summary of Supplemental Pension Plan of Philip Morris in Switzerland (incorporated by reference
to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2015).*

— Form of Restated Employee Grantor Trust Enrollment Agreement (Executive Trust Arrangement)
(incorporated by reference to Exhibit 10.18 to the Registration Statement on Form 10 filed
February 7, 2008).*

— Form of Restated Employee Grantor Trust Enrollment Agreement (Secular Trust Arrangement)
(incorporated by reference to Exhibit 10.19 to the Registration Statement on Form 10 filed
February 7, 2008).*

10.24

— Philip Morris International Inc. 2008 Stock Compensation Plan for Non-Employee Directors

(amended and restated as of January 1, 2015) (incorporated by reference to Exhibit 10.1 to the
Current Report on Form 8-K filed December 15, 2014).*

10.25

— Philip Morris International Inc. 2008 Deferred Fee Plan for Non-Employee Directors (incorporated

by reference to Exhibit 10.21 to the Registration Statement on Form 10 filed February 7, 2008).*

10.26

— Supplemental Letter to the Employment Agreement (as amended) with André Calantzopoulos

(incorporated by reference to Exhibit 10.25 to the Annual Report on Form 10-K for the year ended
December 31, 2014). The Employment Agreement was previously filed as Exhibit 10.22 to the
Registration Statement on Form 10 filed February 7, 2008 and is incorporated by reference to this
Exhibit 10.26. The Amendment to the Employment Agreement was previously filed as Exhibit 10.1
to the Current Report on Form 8-K/A filed June 13, 2013, and is incorporated by reference to this
Exhibit 10.26.*

10.27

— Amendment to Employment Agreement with Marc S. Firestone (incorporated by reference to

Exhibit 10.25 to the Annual Report on Form 10-K for the year ended December 31, 2013). The
Employment Agreement was previously filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q
for the quarter ended March 31, 2013, and is incorporated by reference to this Exhibit 10.27.*

10.28

— Amendment to Employment Agreement with Matteo Pellegrini (incorporated by reference to

Exhibit 10.26 to the Annual Report on Form 10-K for the year ended December 31, 2013). The
Employment Agreement was previously filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 2011, and is incorporated by reference to this Exhibit 10.28.*

10.29

— Agreement with Louis C. Camilleri (incorporated by reference to Exhibit 10.25 to the Registration

Statement on Form 10 filed February 7, 2008).*

10.30

— Amendment to Employment Agreement with Martin King (incorporated by reference to Exhibit
10.2 to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2015). The
Employment Agreement was previously filed as Exhibit 10.1 to the Quarterly Report on Form 10-Q
for the quarter ended March 31, 2015, and is incorporated by reference to this Exhibit 10.30.*

10.31

— Supplemental Letter to the Employment Agreement (as amended) with Miroslaw Zielinski

(incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter
ended September 30, 2015). The Employment Agreement was previously filed as Exhibit 10.2 to
the Quarterly Report on Form 10-Q for the quarter ended March 31, 2013 and is incorporated by
reference to this Exhibit 10.31. The Amendment to the Employment Agreement was previously
filed as Exhibit 10.28 to the Annual Report on Form 10-K for the year ended December 31, 2013,
and is incorporated by reference to this Exhibit 10.31.*

10.32

— Early Retirement and Release Agreement with Matteo Pellegrini (incorporated by reference to

Exhibit 10.1 to the Current Report on Form 8-K filed July 27, 2015).*

136

10.33

— Time Sharing Agreement between PMI Global Services Inc. and Louis C. Camilleri dated August

18, 2010 (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed August
19, 2010).*

10.34

10.35

10.36

— Amendment No. 1 to the Time Sharing Agreement between PMI Global Services Inc. and Louis C.
Camilleri, dated August 22, 2012 (incorporated by reference to Exhibit 10.4 to the Quarterly Report
on Form 10-Q for the quarter ended September 30, 2012).*

— Amendment No. 2  to the Time Sharing Agreement between PMI Global Services Inc. and Louis C.
Camilleri, dated October 23, 2012 (incorporated by reference to Exhibit 10.27 to the Annual Report
on Form 10-K for the year ended December 31, 2012).*

— Amendment No. 3 to the Time Sharing Agreement between PMI Global Services Inc. and Louis C.
Camilleri, dated December 31, 2014 (incorporated by reference to Exhibit 10.34 to the Annual
Report on Form 10-K for the year ended December 31, 2014).*

10.37

— Time Sharing Agreement between PMI Global Services Inc. and André Calantzopoulos, dated May

8, 2013 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 2013).*

10.38

— Amendment No. 1 to the Time Sharing Agreement between PMI Global Services Inc. and André
Calantzopoulos, dated December 23, 2014 (incorporated by reference to Exhibit 10.36 to the
Annual Report on Form 10-K for the year ended December 31, 2014).*

10.39

— Amendment to the Employment Agreement with Jacek Olczak (incorporated by reference to

Exhibit 10.33 to the Annual Report on Form 10-K for the year ended December 31, 2013). The
Employment Agreement was previously filed as Exhibit 10.4 to the Quarterly Report on Form 10-Q
for the quarter ended June 30, 2012, and is incorporated by reference to this Exhibit 10.39.*

10.40

— Amended and Restated Supplemental Management Employees’ Retirement Plan (incorporated by

reference to Exhibit 10.27 to the Annual Report on Form 10-K for the year ended December 31,
2008).*

10.41

— Supplemental Equalization Plan, amended and restated as of June 29, 2015 (incorporated by

reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended June 30,
2015).*

10.42

— Form of Supplemental Equalization Plan Employee Grantor Trust Enrollment Agreement (Secular
Trust) (incorporated by reference to Exhibit 10.31 to the Annual Report on Form 10-K for the year
ended December 31, 2008).*

10.43

— Form of Supplemental Equalization Plan Employee Grantor Trust Enrollment Agreement

(Executive Trust) (incorporated by reference to Exhibit 10.32 to the Annual Report on Form 10-K
for the year ended December 31, 2008).*

10.44

— Philip Morris International Inc. Form of Indemnification Agreement with Directors and Executive
Officers (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
September 18, 2009).*

10.45

— Form of Deferred Stock Agreement (2013 Grants) (incorporated by reference to Exhibit 10.1 to the

Current Report on Form 8-K filed February 12, 2013).*

10.46

— Form of Deferred Stock Agreement (2014 Grants) (incorporated by reference to Exhibit 10.1 to the

Current Report on Form 8-K filed February 7, 2014).*

10.47

— Form of Deferred Stock Agreement (2015 Grants) (incorporated by reference to Exhibit 10.1 to the

Current Report on Form 8-K filed February 10, 2015).*

10.48

— Philip Morris International Inc. Tax Return Preparation Services Policy (incorporated by reference
to Exhibit 10.51 to the Annual Report on Form 10-K for the year ended December 31, 2014).*

10.49

— Form of Restricted Stock Unit Agreement (2016 Grants) (incorporated by reference to Exhibit 10.1

to the Current Report on Form 8-K filed February 9, 2016).*

10.50

— Form of Performance Share Unit Agreement (2016 Grants) (incorporated by reference to Exhibit

10.2 to the Current Report on Form 8-K filed February 9, 2016).*

137

10.51

— Form of Restricted Stock Unit Agreement (2017 Grants) (incorporated by reference to Exhibit 10.1 

to the Current Report on Form 8-K filed February 7, 2017).*

10.52

— Form of Performance Share Unit Agreement (2017 Grants) (incorporated by reference to Exhibit

10.2 to the Current Report on Form 8-K filed February 7, 2017).*

12

18

21

23

24

— Statement regarding computation of ratios of earnings to fixed charges.

— Letter from PricewaterhouseCoopers SA, Independent Registered Accounting Firm of the Registrant, 
Regarding Change in Accounting Principle (incorporated by reference to Exhibit 18 to the Quarterly 
Report on Form 10-Q for the quarter ended June 30, 2016).

— Subsidiaries of Philip Morris International Inc.

— Consent of independent registered public accounting firm.

— Powers of attorney.

31.1

— Certification of the Registrant’s Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the

Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.

31.2

— Certification of the Registrant’s Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the

Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.

32.1

32.2

— Certification of the Registrant’s Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant

to Section 906 of the Sarbanes-Oxley Act of 2002.

— Certification of the Registrant’s Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant

to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS — XBRL Instance Document.

101.SCH — XBRL Taxonomy Extension Schema.

101.CAL — XBRL Taxonomy Extension Calculation Linkbase.
101.DEF — XBRL Taxonomy Extension Definition Linkbase.
101.LAB — XBRL Taxonomy Extension Label Linkbase.
101.PRE — XBRL Taxonomy Extension Presentation Linkbase.

*

Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to 
participate.

138

 
 
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.

SIGNATURES

PHILIP MORRIS INTERNATIONAL INC.

By:

/s/    ANDRÉ CALANTZOPOULOS   
(André Calantzopoulos
Chief Executive Officer)

Date: February 14, 2017 

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:

Signature

Title

Date

/s/    ANDRÉ CALANTZOPOULOS   

Chief Executive Officer

February 14, 2017

Chief Financial Officer

February 14, 2017

Vice President and Controller

February 14, 2017

Directors

(André Calantzopoulos)

/s/    JACEK OLCZAK  

(Jacek Olczak)

/s/    ANDREAS KURALI

(Andreas Kurali)

*HAROLD BROWN,
LOUIS C. CAMILLERI,
MASSIMO FERRAGAMO, 
WERNER GEISSLER,
JENNIFER LI,
JUN MAKIHARA, 
SERGIO MARCHIONNE,
KALPANA MORPARIA,
LUCIO A. NOTO,
ROBERT B. POLET,
STEPHEN M. WOLF

*By:

/s/    ANDRÉ CALANTZOPOULOS        

February 14, 2017

(André Calantzopoulos
Attorney-in-fact)

139

 
 
 
 
 
Reconciliation of Non-GAAP Measures

Adjustments for the Impact of Currency and Acquisitions
For the Years Ended December 31,

(in millions)
(Unaudited)                                                         2016

2015

% Change in Net Revenues excluding
Excise Taxes

Net
Revenues

Less
Excise
Taxes

Net
Revenues
excluding
Excise
Taxes

Less
Currency

Net
Revenues
excluding
Excise
Taxes &
Currency

Net
Revenues
excluding
Excise Taxes,
Currency &
Acquisitions

Less
Acquisitions

Net
Revenues

Less
Excise
Taxes

Net
Revenues
excluding
Excise
Taxes

     Total

Excluding
Currency

Excluding
Currency &
Acquisitions

$

27,129

$18,967

$ 8,162

$

(147)

$

8,309

$

— $

8,309

European Union

$ 26,563

$18,495

$

8,068

1.2 %

3.0 %

18,286

11,286

20,531

11,850

7,000

8,681

(600)

(8)

9,007

6,165

2,842

(525)

7,600

8,689

3,367

—

—

—

7,600

8,689

3,367

EEMA

Asia

Latin America &
Canada

18,328

10,964

7,364

(4.9 )%

3.2 %

19,469

11,266

8,203

5.8 %

5.9 %

9,548

6,389

3,159

(10.0 )%

6.6 %

$

74,953

$48,268

$ 26,685

$ (1,280)

$

27,965

$

— $

27,965

PMI Total

$ 73,908

$47,114

$

26,794

(0.4)%

4.4%

3.0 %

3.2 %

5.9 %

6.6 %

4.4%

Operating
Companies
Income

2016

Operating
Companies
Income
excluding
Currency

Less
Currency

Less
Acquisitions

Operating
Companies
Income
excluding
Currency &
Acquisitions

2015

% Change in Operating Companies
Income

Operating
Companies
Income

     Total

Excluding
Currency

Excluding
Currency &
Acquisitions

$

3,994

$

34

$

3,960

$

— $

3,960

European Union

$

3,576

11.7 %

10.7 %

3,016

3,196

938

(839)

52

3,855

3,144

(282)

1,220

—

—

—

3,855

3,144

1,220

EEMA

Asia

Latin America &
Canada

3,425

(11.9 )%

12.6 %

2,886

10.7 %

8.9 %

1,085

(13.5 )%

12.4 %

$

11,144

$ (1,035)

$

12,179

$

— $

12,179

PMI Total

$

10,972

1.6 % 11.0%

10.7 %

12.6 %

8.9 %

12.4 %

11.0%

Reconciliation of Operating Companies Income to Adjusted Operating Companies Income, excluding Currency and Acquisitions

For the Years Ended December 31,

(in millions)
(Unaudited)                                                    2016

2015

% Change in Adjusted
Operating Companies Income

Operating
Companies
Income

Less
Asset
Impairment
& Exit
Costs

Adjusted
Operating
Companies
Income

Less
Currency

Adjusted
Operating
Companies
Income
excluding
Currency

Less
Acquisitions

Adjusted
Operating
Companies
Income
excluding
Currency &
Acquisitions

Operating
Companies
Income

Less
Asset
Impairment
& Exit
Costs

Adjusted
Operating
Companies
Income

Adjusted
excluding
Currency

Adjusted
excluding
Currency &
Acquisitions

Adjusted

$

3,994

$

— $

3,994

$

34

$

3,960

$

— $

3,016

3,196

938

—

—

—

3,016

3,196

(839)

52

3,855

3,144

938

(282)

1,220

—

—

—

3,960

3,855

3,144

1,220

European
Union

EEMA

Asia

Latin
America &
Canada

$

3,576

$

(68)

$

3,644

9.6 %

8.7 %

3,425

2,886

1,085

—

—

—

3,425

2,886

(11.9)%

12.6 %

10.7 %

8.9 %

1,085

(13.5)%

12.4 %

$

11,144

$

— $ 11,144

$ (1,035)

$

12,179

$

— $

12,179

PMI Total

$ 10,972

$

(68)

$ 11,040

0.9 % 10.3%

8.7 %

12.6 %

8.9 %

12.4 %

10.3%

R-1

Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions
For the Years Ended December 31,

(in millions)

(Unaudited)                                                  2016

2015

% Points Change

Adjusted
Operating
Companies
Income
excluding
Currency

Net
Revenues
excluding
Excise
Taxes &
Currency
(1)

Adjusted
Operating
Companies
Income
Margin
excluding
Currency

$

3,960

$

8,309

3,855

3,144

7,600

8,689

1,220

3,367

$ 12,179

$ 27,965

47.7 %

50.7 %

36.2 %

36.2 %

43.6%

Adjusted
Operating
Companies
Income
excluding
Currency &
Acquisitions

Net
Revenues
excluding
Excise
Taxes,
Currency &
Acquisitions
(1)

Adjusted
Operating
Companies
Income
Margin
excluding
Currency &
Acquisitions

Adjusted
Operating
Companies
Income

Net
Revenues
excluding
Excise
Taxes(1)

Adjusted
Operating
Companies
Income
Margin(2)

$

3,960

$

3,855

3,144

8,309

7,600

8,689

47.7 %

50.7 %

36.2 %

1,220

3,367

36.2 %

European
Union

EEMA

Asia

Latin
America &
Canada

$

3,644

$ 8,068

3,425

2,886

7,364

8,203

1,085

3,159

$

12,179

$

27,965

43.6% PMI Total

$ 11,040

$ 26,794

45.2 %

46.5 %

35.2 %

34.3 %

41.2%

Adjusted
Operating
Companies
Income
Margin
excluding
Currency

Adjusted
Operating
Companies
Income
Margin
excluding
Currency &
Acquisitions

2.5

4.2

1.0

1.9

2.4

2.5

4.2

1.0

1.9

2.4

(1)  For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to the "Adjustments for the Impact of Currency and Acquisitions" reconciliation in this
section.
(2) 2016 Adjusted Operating Companies Income Margin for PMI Total was 41.8%, calculated as 2016 Adjusted Operating Companies Income of $11,144 divided by 2016 Net Revenues,
excluding Excise Taxes of $26,685.  For the calculation of Net Revenues, excluding Excise Taxes, and Adjusted Operating Companies Income, refer to the tables above.

Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency

For the Years Ended December 31, (Unaudited)

Reported Diluted EPS

Less:

Currency impact

Reported Diluted EPS, excluding Currency

2016

2015

% Change

4.48

$

4.42

1.4%

(0.46)

4.94

$

4.42

11.8%

$

$

Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency

For the Years Ended December 31, (Unaudited)

Reported Diluted EPS

2016

2015

% Change

$

4.48

$

4.42

1.4%

Adjustments:

Asset impairment and exit costs

Tax items

Adjusted Diluted EPS

Less:

Currency impact

Adjusted Diluted EPS, excluding Currency

—

—

0.03

(0.03)

4.48

$

4.42

1.4%

(0.46)

4.94

$

4.42

11.8%

$

$

R-2

Reconciliation of Operating Income to Operating Companies Income

For the Years Ended December 31, (in millions) (Unaudited)

2016

2015

% Change

Operating Income

Excluding:

- Amortization of intangibles

- General corporate expenses (included in marketing, administration and research costs)

Plus: Equity (income)/loss in unconsolidated subsidiaries, net

Operating Companies Income

$

$

10,815 $

10,623

1.8%

74

161

(94)

11,144 $

82

162

(105)

10,972

1.6%

Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow, excluding Currency

For the Years Ended December 31, (in millions) (Unaudited)

2016

2015

% Change

Net cash provided by operating activities (1)

Less:

Capital expenditures

Free cash flow

Less:

Currency impact

Free cash flow, excluding currency

(1) Operating cash flow.

$

$

$

8,077 $

7,865

2.7%

1,172

6,905 $

(340)

7,245 $

960

6,905

—%

6,905

4.9%

R-3

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Shareholder Information

Mailing Addresses:

Headquarters:
Philip Morris International Inc.
120 Park Avenue
New York, NY 10017-5579 
USA
www.pmi.com

Operations Center:
Philip Morris International 
Management SA
Avenue de Rhodanie 50 
1007 Lausanne
Switzerland
www.pmi.com 

Independent Auditors:
PricewaterhouseCoopers SA
Avenue C.F. Ramuz 45
1001 Lausanne
Switzerland

Transfer Agent and Registrar:
Computershare Trust Company, N.A.
P.O. Box 43078
Providence, RI 02940-3078 
USA

2017 Annual Meeting:
The Philip Morris International Inc. 
Annual Meeting of Shareholders will 
be held at 9:00 a.m. on Wednesday, 
May 3, 2017, in the Empire State 
Ballroom at the Grand Hyatt New York 
109 East 42nd Street
New York, NY 10017 
USA
For further information, call 
toll-free: 1-866-713-8075

Shareholder Publications:
Philip Morris International Inc. makes 
a variety of publications and reports 
available. These include the Annual 
Report, news releases and other
publications. For copies, please visit: 
www.pmi.com/investors
Philip Morris International Inc. makes 
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proxy statements and Reports on Forms 
10-K, 10-Q and 8-K) with the U.S. Securities 
and Exchange Commission. For copies, 
please visit: 
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If you do not have Internet access, 
you may call our Shareholder 
Publications Center toll-free: 
1-866-713-8075

Shareholder Response Center:
Computershare Trust Company, N.A., our 
transfer agent, will answer questions about 
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the Direct Stock Purchase and Dividend 
Reinvestment Plan. U.S. and Canadian 
shareholders may call toll-free: 
1-877-745-9350
From outside the U.S. or Canada, 
shareholders may call: 
1-781-575-4310
Postal address:
Computershare Trust Company, N.A.
P.O. Box 43078 
Providence, RI 02940-3078 
USA
E-mail address: 
pmi@computershare.com

Direct Stock Purchase and 
Dividend Reinvestment Plan:
Philip Morris International Inc. offers a Direct 
Stock Purchase and Dividend Reinvestment 
Plan, administered by Computershare. For 
more information, or to purchase shares 
directly through the Plan, please contact 
Computershare.

Trademarks: 
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 or shown in their logo 
form.

Stock Exchange Listings:
Philip Morris International Inc. is listed on 
the New York Stock Exchange and NYSE 
Euronext/Paris (ticker symbol “PM”). The 
company is also listed on the SIX Swiss 
Exchange (ticker symbol “PMI”).

Internet Access Helps Reduce Costs:
As a convenience to shareholders and 
an important cost-reduction measure, you 
can register to receive future shareholder 
materials (i.e., Annual Report and proxy 
statement) via the Internet. Shareholders 
also can vote their proxies via the 
Internet. For complete instructions, 
please visit: 
www.pmi.com/investors

To eliminate duplicate mailings, please 
contact Computershare (if you are a 
registered shareholder) or your broker 
(if you hold your stock through a 
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Download the PMI IR App 
Stay up to date with access to all PMI’s previously disclosed 
investor relations materials, such as press releases, SEC 
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playback of earnings calls and investor presentations. The free 
Investor Relations Mobile Application is available to download 
at the Apple App Store for iOS devices and at Google Play for 
Android mobile devices at: www.pmi.com/irapp. 

iOS

Android

About Philip Morris International Inc. (“PMI”)
PMI is the world’s leading international tobacco company, with six of the 
world’s top 15 international brands and products sold in more than 180 
markets. In addition to the manufacture and sale of cigarettes, including 
Marlboro, the number one global cigarette brand, and other tobacco 
products, PMI is engaged in the development and commercialization of 
Reduced-Risk Products (“RRPs”). 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 continued 
smoking. Through multidisciplinary capabilities in product development, 
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PMI aims to provide an RRP portfolio that meets a broad spectrum of 
adult smoker preferences and rigorous regulatory requirements. For more 
information, see www.pmi.com and www.pmiscience.com. 

Design: RWI www.rwidesign.com  
Photography: Vickers & Beechler, Todd Rosenberg
Printer: Phoenix Lithographing, USA      
© Copyright 2017 Philip Morris International Inc.

Philip Morris International Inc. | 120 Park Avenue, New York, NY 10017-5579 USA | www.pmi.com