P H I L I P M O R R I S I N T E R N A T I O N A L
2 0 2 2 A N N U A L R E P O R T
2022 Philip Morris Annual Report_Feb 10, 2023 2022 Financial Highlights
Adjusted
Net Revenues
+7.7%
vs. 20211,2
Adjusted
Operating
Income
+6.2%
vs. 20211,2
Adjusted
Operating
Income Margin
-0.6pp
vs. 20211,2
Adjusted
Diluted EPS
+11.9%
vs. 20211,3
Operating
Cash Flow
$10.8
Billion
Annualized
Dividend
$5.08
Per Share4
Since becoming a
public company in 2008,
PMI has increased its regular
quarterly dividend by
176.1%
representing a compound
annual growth rate of
7.5%
2022 Smoke-Free Highlights
Total
IQOS Users5
24.9
Million
Market Share
of PMI HTUs5
in IQOS Markets6
8.0%
PMI HTUs
#2
Tobacco “Brand”
in IQOS Markets6
HTU
Shipment Volume
Smoke-Free Product5
Net Revenues
109.2
Billion Units
32.1%
of Total
“We continue to make exciting progress on our smoke-free transformation, with smoke-free products
accounting for almost one-third of PMI’s total net revenues in 2022.”
– Jacek Olczak, Chief Executive Officer
Smoke-Free Product Portfolio7
IQOS 3
IQOS ILUMA
BONDS
VEEV
General
(Snus)
ZYN
(Nicotine Pouch)
(1) Excluding Russia and Ukraine. See page G-1 for further discussion.
(2) On an organic basis. See page G-1 for definition.
(3) On a currency-neutral basis.
(4) Annualized rate based on a quarterly dividend of $1.27 per common share, declared September 14, 2022.
(5) See page G-1 for definition.
(6) Excluding the U.S.
(7) Select smoke-free products.
2022 Philip Morris Annual Report_Feb 10, 2023
Dear Shareholder,
In 2022, PMI delivered an excellent performance despite a
challenging operating environment linked to the war in Ukraine,
significant supply chain disruptions and global inflationary
pressures. This performance reflected the continued strong growth
of IQOS – enhanced by the roll-out of ILUMA in initial launch
markets – and positive momentum for the combustible business.
We also reached two critical strategic milestones last year: the
finalization of an agreement to take full control of IQOS in the U.S.
as of April 30, 2024, and the successful completion of the Swedish
Match acquisition. These developments will accelerate our smoke-
free journey and further position PMI to lead the transformation of
the wider industry, including in the U.S.
The company’s achievements in 2022 were the product of
the collective skills, drive, and innovative thinking of the entire
organization. We salute our nearly 80,000 employees globally and
thank them for another year of their dedication and hard work.
2022 vs. 2021 Results
Total international industry1 volume for cigarettes and heated
tobacco units (HTUs) increased by 0.2%. Excluding Russia and
Ukraine, total international industry volume increased by 0.9%,
driven by volume recoveries in many markets as the lingering
effects of the pandemic dissipated.
Total cigarette and HTU shipment volume increased by 1.6%, to
731.1 billion units, representing a second consecutive year of volume
growth for PMI. Excluding Russia and Ukraine, total shipment
volume increased by 3.2%, driven by a 21.5% increase in HTUs and a
0.8% increase in cigarettes.
Total cigarette and HTU market share increased by 0.4
percentage points, to 27.6% of the international market. Excluding
Russia and Ukraine, total international share increased by 0.6
percentage points, to 27.3%, driven by the strong performance
of our HTU brands (also up by 0.6 percentage points) and stable
share for cigarettes.
Net revenues of $31.8 billion increased by 1.1%. Excluding Russia
and Ukraine, adjusted net revenues increased by 7.7% on an organic
basis, driven primarily by HTU shipment volume growth and a
corresponding positive product mix impact, as well as favorable
combustible tobacco pricing.
Operating income (OI) of $12.2 billion decreased by 5.6%.
Excluding Russia and Ukraine, adjusted OI increased by 6.2% on an
organic basis, driven by adjusted net revenue growth, partly offset
by a contraction in adjusted operating margin of 0.6 percentage
points on the same basis. The margin decline was mainly due to
inflationary pressures on cost of sales, transitory cost impacts
related to the roll-out of ILUMA, and higher air freight costs due to
supply chain disruptions, less the favorable impact of productivities
and cost efficiencies.
Diluted EPS of $5.81 decreased by 0.3%. Excluding Russia and
Ukraine, adjusted diluted EPS of $5.34 increased by 11.9% excluding
currency.
Operating cash flow of $10.8 billion decreased by 9.7%. On a
currency-neutral basis, operating cash flow increased by 3.0%,
driven primarily by higher net earnings.
In September, the Board of Directors approved a 1.6% increase
in the quarterly dividend, to an annualized rate of $5.08 per share.
This represented the fifteenth consecutive year in which we
increased our dividend since becoming a public company in 2008.
War in Ukraine
The war in Ukraine has presented a number of unprecedented
challenges for the company, and our focus has naturally been on
supporting our employees and their families who are impacted.
Our business in Ukraine was heavily disrupted last year. We
suspended production at our manufacturing facility in Kharkiv,
which was supplying both the domestic market and a number of
important export markets. Following an initial suspension of our
broader commercial activities in the market, we subsequently
resumed some retail activities, where safety allowed, and began to
supply the market from production centers outside Ukraine, as well
as through a local contract manufacturing arrangement.
Jacek Olczak,
Chief Executive Officer
André Calantzopoulos,
Executive Chairman of the Board
In Russia, we took a range of concrete steps in 2022 to suspend
planned investments and scale down manufacturing operations.
PMI is continuously assessing the evolving situation in Russia,
including: recent regulatory constraints in the market that entail
very complex terms and conditions that must be met for any
divestment transaction to be granted approval by the authorities;
and restrictions resulting from international regulations.
Delivering a Smoke-Free Future
In 2022, our smoke-free portfolio accounted for 32.1% of total
net revenues, with 17 markets generating more than 50% of their
total net revenues from smoke-free products. As of year-end, our
smoke-free products were available in 73 markets, of which 30 are
classified as low- and middle-income markets.
IQOS continues to drive the strong growth of our smoke-free
product portfolio. The estimated number of total IQOS users
increased by 3.2 million in 2022 to reach 24.9 million as of year-end,
with an estimated 17.8 million of these users – or around 71% –
having switched to IQOS and stopped smoking. This performance
reflected IQOS user growth across key geographies, including the
EU Region, Japan, and low- and middle-income markets broadly.
ILUMA generated excellent growth in its initial launch markets
in 2022, with upgrades from existing IQOS users and new-user
acquisition outperforming our expectations. The acceleration in
heat-not-burn category growth in the diverse launch geographies
highlights its exciting future growth opportunity across the world.
While the speed of ILUMA market launches was impacted by
supply constraints for its HTU consumables, the product was
available in 16 markets as of year-end, including Italy and Korea.
To complement IQOS, PMI continues to invest in a broader
range of innovative and high-quality heat-not-burn alternatives
across multiple price tiers. This includes licensed lil products, which
were available in over 30 markets as of year-end and are delivering
high levels of adult smoker conversion while successfully competing
in lower price segments. In January 2023, we extended our
successful commercial relationship with KT&G through a long-term
agreement.
Additionally, in the fourth quarter, PMI introduced BONDS by
IQOS – our new proprietary heat-not-burn device with external
heating technology – through pilot launches in Colombia and
the Philippines. The product, with its BLENDS consumables, is
tailored to low- and middle-income markets, and offers a simple,
convenient, and affordable heat-not-burn proposition, which can
cater to local taste preferences without compromising on harm
reduction.
In e-vapor, we complemented our VEEV closed-system products
with a range of disposable products under the VEEBA brand, based
on licensed technology. As of year-end, VEEBA was available in
four markets, including Canada and the U.K. The launches were
supported by responsible marketing practices, a rigorous focus on
preventing unintended use, and a sustainability take-back program.
Last year will be remembered for the achievement of two
major milestones in our smoke-free journey that unlock significant
(1) References to “international industry” and the “international market” exclude China and the U.S.
1
2022 Philip Morris Annual Report_March 10, 2023
new growth opportunities. First, following an agreement with our
existing U.S. partner for heat-not-burn products, PMI will have the
full rights to commercialize IQOS in the U.S. – the world’s largest
total nicotine market (and largest smoke-free market) by value,
with an estimated industry profit pool of around $20 billion – as of
April 30, 2024.
Second, the acquisition of Swedish Match positions us as the
clear multicategory leader globally for smoke-free products, with
IQOS and ZYN the leading brands in their respective categories.
Swedish Match also provides a substantial operating platform in
the U.S., which we intend to leverage for the commercialization
of IQOS, while we harness PMI’s international capabilities for the
expansion of Swedish Match’s oral nicotine brands. Please see the
inside back cover of this report for additional information related
to the acquisition.
Smoke-Free Product Regulation
The regulatory environment for smoke-free products remains
complex, as many tobacco-control advocates, non-governmental
organizations and the World Health Organization continue to
radicalize the discourse around such products. Nevertheless, we
remain at the forefront of the debate, aiming to increase category
understanding and advance Tobacco Harm Reduction (THR)
among regulators and consumers.
Importantly, there have been a number of encouraging
international developments related to smoke-free product
regulation over the past year. Most notably, the government in the
Philippines passed a new law clearly differentiating combustible
and non-combustible tobacco products.
There were also a few negative regulatory developments, most
notably the European Union's ban on the use of characterizing
flavors in heated tobacco products (effective later this year),
which was formulaic under existing regulation resulting from HTU
sales reaching a predefined threshold.
Combustible Tobacco Product Portfolio
Maintaining our competitive position in the combustible tobacco
category as we transition to a smoke-free future is critical, as
it best positions us to significantly accelerate our smoke-free
journey.
Our combustible tobacco business delivered a very robust
performance in 2022, with 0.8% growth in our cigarette shipment
volume, a 0.3 percentage point increase in cigarette category share
and 3.7% growth in organic net revenues (all metrics exclude Russia
and Ukraine).
In 2022, we celebrated Marlboro's 50th anniversary as the
world’s leading cigarette brand. Marlboro remains extremely
resilient despite the recent pressure on disposable income in many
markets, as well as its over-indexing to IQOS cannibalization.
The brand’s share of the international cigarette category in 2022
reached 10.3%, up by 0.2 percentage points, excluding Russia and
Ukraine.
Organization
There were a number of important organizational developments
at PMI in 2022. Following our establishment of a new category
management structure in 2021, we designed and implemented
accountabilities and decision-rights, overall governance, and
change management. This has positioned our organization to
become more focused – seamlessly delivering on what matters, at
the right speed, quality, and cost – and ensures greater end-to-end
accountability from development to deployment.
In addition, as announced late last year, we are realigning our
regional structure and operations with existing and emerging
business opportunities, resulting in a reduction to four regions
(from six). This will further position the company for success, with
regions organized by similarity of consumer needs, opportunities
for growth, and geographic proximity.
The new structure will better position us to further grow and
build our leadership in smoke-free products across the globe.
Additionally, it will boost our speed of innovation and deployment
as we become a multicategory business. It will also enhance our
ability to identify and grow talent, deepening the bench of leaders
who will spearhead PMI’s smoke-free future for years to come.
In 2022 we also continued to build the development engine
of our new wellness and healthcare business with the creation
of Vectura Fertin Pharma. The new company combines the
capabilities of Vectura, Fertin Pharma and PMI with the aim of
delivering innovative, best- or first-in-class inhalable and oral
products that can have a net positive impact on society.
Sustainability
Progress against our sustainability strategies continues apace as
we seek to tackle the impacts of both (i) our products (what we
produce) and (ii) our operations (how we produce). Below are some
of our 2022 sustainability highlights.
From a product perspective, we continued to: make progress
towards our transformation, focus on ensuring that our products
do not reach unintended audiences, and put in place youth access
prevention safeguards in our direct and indirect retail channels.
We also made progress in implementing end-of-life take-back
programs for our smoke-free devices and consumables, while also
increasing our repair capabilities.
With regard to our operations, we published a strengthened
Commitment to Human Rights and completed our sixth and
seventh human rights impact assessments, in Brazil and Malaysia.
In addition, we were recognized by CDP with a Triple A score
for climate, forest, and water security for the third consecutive
year and had 13 PMI factories certified as carbon neutral. We will
continue to focus on areas where we faced challenges in 2022,
including reducing our scope 3 greenhouse gas emissions and
improving our gender balance in senior roles.
To further strengthen our commitment to sustainability, last
year we introduced a new bespoke Sustainability Index comprised
of 19 KPIs across our most material sustainability issues, weighted
toward product health impact. The index, which provides additional
transparency on how we define success and measure ESG
performance, has been integrated into our long-term executive
compensation to further align management incentives with our
smoke-free transformation.
For more information on PMI’s sustainability progress and
ambitions, we invite you to read our 2022 Integrated Report, which
we plan to publish in the coming weeks.
Board of Directors
In January 2023, Lucio A. Noto informed the Board that he would
not stand for re-election this year. On behalf of the entire organi-
zation, we would like to thank Lou for his invaluable contributions
to the company throughout his 15 years as a Director of PMI since
the company’s spin-off in 2008, including his service as Interim
Chairman, Lead Independent Director and Chair of the Audit
Committee. We also sincerely thank Frederik Paulsen, who joined
the Board in 2014 and will also not stand for re-election this year,
for his valued contributions to the company as a Director and Chair
of the Product Innovation and Regulatory Affairs Committee.
Looking Ahead
Last year brought new and unexpected challenges for the world
and PMI, including those related to the war in Ukraine. In response,
we believe the organization demonstrated enormous solidarity,
agility, resilience and learning ability. Our people spared no effort
to deliver excellent business performance, while achieving major
milestones in the company’s smoke-free transformation.
We are confident in our strong position as the global smoke-free
champion and our ability to lead the industry’s transformation. Our
smoke-free portfolio now includes the world’s leading heat-not-
burn brand, IQOS, and the world’s leading nicotine pouch franchise,
ZYN. We have a rich pipeline of smoke-free innovation, as well as
the foundation in place to drive further growth in wellness and
healthcare over the long term. We are excited to continue our
journey toward a smoke-free future and firmly believe that we are
well positioned to achieve our bold smoke-free ambitions.
Jacek Olczak,
Chief Executive Officer
André Calantzopoulos,
Executive Chairman of the Board
March 10, 2023
2
2022 Philip Morris Annual Report_Feb 10, 2023
Board of Directors
André Calantzopoulos 3,4,6
Executive Chairman
of the Board
Director since 2013
Lisa A. Hook 1,2,3,6
Managing Partner,
Two Island Partners LLC
Director since 2018
Bonin Bough 3,6
Founder & Chief
Growth Officer,
Digilience LLC dba
Bonin Ventures
Director since 2021
Michel Combes 1,3,4
Executive Vice President,
Claure Group LLP
Director since 2020
Dr. Juan José Daboub 2,4,5,6
Chairman, President
and CEO, Daboub
Partnership of Arcis, LLC
Director since 2021
Werner Geissler 1,2,3
Operating Partner,
Advent International
Director since 2015
Jun Makihara 1,2,3,4
Retired Businessman
Director since 2014
Kalpana Morparia 4,5,6
Founder & Managing
Partner, KalMor
Advisors LLP
Director since 2011
Lucio A. Noto † 1,2,3,4,5,6
Lead Independent
Director of the Board
Managing Partner,
Midstream Partners, LLC
Director since 2008
Jacek Olczak 3,4,6
Chief Executive Officer
Director since 2021
Company Management
Frederik Paulsen † 6
Chairman,
Ferring Group
Director since 2014
Robert B. Polet 2,3,5
Chairman,
Rituals Cosmetics
Enterprise B.V.
Chairman, Arica
Holding B.V.
Chairman, SFMS B.V.
Director since 2011
Dessislava Temperley 1,3,4
Former Group CFO and
Executive Board Member
of Beiersdorf AG
Director since 2021
Shlomo Yanai 5,6
Chairman,
Lumenis Ltd.
Director since 2021
Board and Committee
Leadership
1 Member of Audit Committee,
Lucio A. Noto, Chair
2 Member of Compensation and
Leadership Development
Committee,
Werner Geissler, Chair
3 Member of Consumer
Relationships and Regulation
Committee,
Lisa A. Hook, Chair
4 Member of Finance
Committee,
Jun Makihara, Chair
5 Member of Nominating and
Corporate Governance
Committee,
Kalpana Morparia, Chair
6 Member of Product Innovation
and Regulatory Affairs
Committee,
Frederik Paulsen, Chair
Jacek Olczak††
Chief Executive Officer
Massimo Andolina††
President,
Europe Region
Emmanuel Babeau††
Chief Financial Officer
Werner Barth††
President, Combustibles
Category & Global
Combustibles Marketing
Charles Bendotti
Global Head,
People & Culture
Badrul Chowdhury
Chief Life Sciences Officer
Scott Coutts
Senior Vice President,
Operations
Lars Dahlgren††
President, Smoke-Free
Oral Products &
CEO Swedish Match
Frank de Rooij
Vice President,
Treasury & Corporate Finance
Frederic de Wilde††
President, SSEA, CIS &
MEA Region
Reginaldo Dobrowolski††
Vice President & Controller
Suzanne R. Folsom††
Senior Vice President &
General Counsel
Jorge Insuasty
President,
Vectura Fertin Pharma
Stacey Kennedy††
President, Americas Region &
CEO of PMI's U.S. Business
Silke Muenster
Chief Diversity Officer
Michael Kunst
Chief Strategy Officer,
Vectura Fertin Pharma
Andreas Kurali
Deputy CFO & Head of
Finance Transformation
Bin Li
Chief Product Officer
Marco Mariotti
President, CIS,
Central Asia & Israel
Mario Masseroli
President,
Latin America Region
Paul Riley††
President, East Asia, Australia,
and PMI Duty Free Region
Marian Salzman
Senior Vice President,
Global Communications
Grégoire Verdeaux
Senior Vice President,
External Affairs
Michael Voegele
Chief Digital &
Information Officer
Stefano Volpetti††
President, Smoke-Free
Inhaled Products &
Chief Consumer Officer
† Not standing for re-election at the Annual Meeting of Shareholders on May 3, 2023.
†† Executive Officer
Note: SSEA, CIS & MEA are acronyms for South and South East Asia, Commonwealth of Independent States & Middle East and Africa.
3
2022 Philip Morris Annual Report_March 10, 2023
Shareholder Information
Mailing Addresses
Headquarters
Philip Morris International Inc.
677 Washington Blvd.
Ste. 1100
Stamford, CT 06901
USA
www.pmi.com
Operations Center
Philip Morris Products S.A.
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
2023 Virtual Annual
Meeting of Shareholders
The Philip Morris International Inc.
Annual Meeting of Shareholders
will be held solely online via a live
webcast on Wednesday, May 3, 2023,
at 9:00 a.m. Eastern Daylight Time.
For further information, call toll-free:
1-866-713-8075
Shareholder Publications
Philip Morris International Inc. makes
a variety of publications and reports
publicly available. These include the
Annual Report, news releases and other
publications. For copies, please visit:
www.pmi.com/investors
Philip Morris International Inc. makes
available free of charge its filings
(including 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:
www.pmi.com/SECfilings
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 your accounts, certificates,
dividends or 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
PMI Investor Relations Mobile App
Our Investor Relations mobile application provides users with easy, dynamic and
comprehensive access to the company’s Investor Relations information, such as stock
quotes, press releases, SEC filings, investor materials, and live and archived webcast
playback of earnings calls and investor presentations. The free mobile application is
available to download from the Apple App Store for iOS devices and Google Play for
Android devices.
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 (ticker
symbol “PM”) and 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 (e.g., 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
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brokerage firm).
Additional Information
Information on our website is not, and shall
not be deemed to be, a part of this report
or incorporated into any filings we make
with the SEC.
iOS
Android
Philip Morris International: Delivering a Smoke-Free Future
Philip Morris International (PMI) is a leading international tobacco company working to deliver a smoke-free future and evolving its
portfolio for the long term to include products outside of the tobacco and nicotine sector. The company’s current product portfolio
primarily consists of cigarettes and smoke-free products. Since 2008, PMI has invested more than USD 10.5 billion to develop,
scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with
the goal of completely ending the sale of cigarettes. This includes the building of world-class scientific assessment capabilities, notably
in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies. In November 2022, PMI
acquired Swedish Match – a leader in oral nicotine delivery – creating a global smoke-free champion led by the companies’ IQOS and
ZYN brands. The U.S. Food and Drug Administration (FDA) has authorized versions of PMI’s IQOS Platform 1 devices and consumables
and Swedish Match’s General snus as Modified Risk Tobacco Products (MRTPs). As of December 31, 2022, PMI's smoke-free products
were available for sale in 73 markets, and PMI estimates that approximately 17.8 million adults around the world had already switched
to IQOS and stopped smoking. Smoke-free products accounted for approximately 32% of PMI’s total full-year 2022 net revenues. With
a strong foundation and significant expertise in life sciences, PMI announced in February 2021 its ambition to expand into wellness
and healthcare areas and, through its Vectura Fertin Pharma subsidiary, aims to enhance life through the delivery of seamless health
experiences. For more information, please visit www.pmi.com and www.pmiscience.com.
4
2022 Philip Morris Annual Report_Feb 10, 2023 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, 2022
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)
677 Washington Blvd, Suite 1100
Stamford
Connecticut
(Address of principal executive offices)
13-3435103
(I.R.S. Employer
Identification No.)
06901
(Zip Code)
Securities registered pursuant to Section 12(b) of the Act:
203-905-2410
(Registrant’s telephone number, including area code)
Title of each class
Common Stock, no par value
2.625% Notes due 2023
2.125% Notes due 2023
3.600% Notes due 2023
2.875% Notes due 2024
2.875% Notes due 2024
0.625% Notes due 2024
3.250% Notes due 2024
2.750% Notes due 2025
3.375% Notes due 2025
2.750% Notes due 2026
2.875% Notes due 2026
0.125% Notes due 2026
3.125% Notes due 2027
3.125% Notes due 2028
Trading Symbol(s)
PM
PM23
PM23B
PM23A
PM24
PM24C
PM24B
PM24A
PM25
PM25A
PM26A
PM26
PM26B
PM27
PM28
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
New York Stock Exchange
New York Stock Exchange
Title of each class
2.875% Notes due 2029
3.375% Notes due 2029
0.800% Notes due 2031
3.125% Notes due 2033
2.000% Notes due 2036
1.875% Notes due 2037
6.375% Notes due 2038
1.450% Notes due 2039
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
Trading Symbol(s)
PM29
PM29A
PM31
PM33
PM36
PM37A
PM38
PM39
PM41
PM42
PM42A
PM43
PM43A
PM44
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
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 ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act. Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller
reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer
Non-accelerated filer
☑
☐
Accelerated filer
Smaller reporting company
Emerging growth company
☐
☐
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness
of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered
public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based
compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
As of June 30, 2022, the aggregate market value of the registrant’s common stock held by non-affiliates of the registrant was
approximately $153 billion based on the closing sale price of the common stock as reported on the New York Stock Exchange.
Class
Common Stock,
no par value
Outstanding at January 31, 2023
1,550,232,895 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, 2023, to be filed with the Securities and
Exchange Commission on or about March 23, 2023.
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.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
Item 9C.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Signatures
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
[Reserved]
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
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
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
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
1
8
18
18
19
19
19
22
22
69
70
138
138
138
138
138
140
141
141
141
142
148
In this report, “PMI,” “we,” “us” and “our” refers to Philip Morris International Inc. and its subsidiaries.
Trademarks and service marks in this report are the registered property of, or licensed by, the subsidiaries of Philip Morris
International Inc. and are italicized.
Item 1.
Business.
General Development of Business
PART I
General
Philip Morris International Inc. is a Virginia holding company incorporated in 1987. We are a leading international tobacco company
working to deliver a smoke-free future and to evolve our portfolio for the long term to include products outside of the tobacco and
nicotine sector. Our current product portfolio primarily consists of cigarettes and smoke-free products, which include heat-not-burn,
vapor, and oral nicotine products. Since 2008, we have invested more than $10.5 billion to develop, scientifically substantiate and
commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending
the sale of cigarettes. This investment includes the building of world-class scientific assessment capabilities, notably in the areas of
pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies. In November 2022, we acquired
Swedish Match AB ("Swedish Match") – a leader in oral nicotine delivery – creating a global smoke-free combination led by the
companies’ IQOS and ZYN brands. The U.S. Food and Drug Administration ("FDA") has authorized versions of our IQOS Platform 1
devices and consumables, and Swedish Match's General snus, as Modified Risk Tobacco Products ("MRTPs"). We describe the
MRTP orders in more detail in the "Business Environment" section of Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.
In March 2008, we became a U.S. public company listed on the New York Stock Exchange and subject to the rules of the Securities
and Exchange Commission (the "SEC").
In 2021, we laid the foundation for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the
milestone acquisitions of Vectura Group PLC and Fertin Pharma A/S, which provide essential capabilities for future product
development. Now, through our Vectura Fertin Pharma subsidiary, with a strong foundation and significant expertise in life sciences,
we aim to expand into wellness and healthcare areas.
In the fourth quarter of 2022, we acquired Swedish Match, a market leader in oral nicotine delivery with a significant presence in the
United States market. The Swedish Match acquisition is a key milestone in PMI’s transformation to becoming a smoke-free company.
PMI consolidated statements of earnings for the year ended December 31, 2022, include the results of operations of Swedish Match
from November 11, 2022 (acquisition date) to December 31, 2022. The operating results of Swedish Match are included in a separate
segment.
In the fourth quarter of 2022, we also completed an agreement with Altria Group, Inc. to end our commercial relationship in the U.S.
covering IQOS as of April 30, 2024. Thereafter, PMI will have the full rights to commercialize IQOS in the U.S.
For further details of our 2021 and 2022 acquisitions, see Item 8, Note 3. Acquisitions and Note 13. Segment Reporting.
Smoke-free products ("SFPs") is the term we primarily use to refer to all of our products that are not combustible tobacco products,
such as heat-not-burn, e-vapor, and oral nicotine. In addition, SFPs include wellness and healthcare products, as well as consumer
accessories such as lighters and matches.
Reduced-risk products ("RRPs") is the term we use to refer to products that present, are likely to present, or have the potential to
present less risk of harm to smokers who switch to these products versus continuing to smoke. We have a range of RRPs in various
stages of development, scientific assessment and commercialization. Our RRPs are smoke-free products that contain and/or generate
far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.
Our IQOS smoke-free product brand portfolio includes heated tobacco and nicotine-containing vapor products. Our leading smoke-
free platform ("Platform 1") uses a precisely controlled heating device into which a specially designed and proprietary tobacco unit is
inserted and heated to generate an aerosol. Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables,
which include our BLENDS, HEETS, HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO
(defined collectively as "HEETS"), Marlboro Dimensions, Marlboro HeatSticks, Parliament HeatSticks, SENTIA and TEREA, as well
as the KT&G-licensed brands, Fiit and Miix (outside of South Korea). Platform 1 was first introduced in Nagoya, Japan, in 2014. As
of December 31, 2022, our smoke-free products were available for sale in 73 markets.
Swedish Match already has a leading nicotine pouch franchise in the U.S. under the ZYN brand name. The Swedish Match product
portfolio is complementary to our existing portfolio, permitting us to bring together a leading oral nicotine product with the leading
1
heat-not-burn product. By joining forces with Swedish Match, we expect to accelerate the achievement of our joint smoke-free
ambitions, switching more adults who would otherwise continue to smoke to better alternatives faster than either company could
achieve separately.
Our cigarettes are sold in approximately 175 markets, and in many of these markets they hold the number one or number two market
share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio comprises both international and
local brands and is led by Marlboro, the world’s best-selling international cigarette, which accounted for approximately 39% of our
total 2022 cigarette shipment volume. Marlboro is complemented in the premium-price category by Parliament. Our other leading
international cigarette brands are Chesterfield, L&M, and Philip Morris. These five international cigarette brands contributed
approximately 77% of our cigarette shipment volume in 2022. We also own a number of important local cigarette brands, such as Dji
Sam Soe and Sampoerna A in Indonesia, and Fortune and Jackpot in the Philippines.
Source of Funds — Dividends
We are a legal entity separate and distinct from our direct and indirect subsidiaries. Accordingly, our right, and thus the right of our
creditors and stockholders, to participate in any distribution of the assets or earnings of any subsidiary is subject to the prior rights of
creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be recognized. As a holding
company, our principal sources of funds, including funds to make payment on our debt securities, are from the receipt of dividends
and repayment of debt from our subsidiaries. Our principal wholly owned and majority-owned subsidiaries currently are not limited by
long-term debt or other agreements in their ability to pay cash dividends or to make other distributions that are otherwise compliant
with law.
Description of Business
As of December 31, 2022, we managed our business in six geographical segments, a Swedish Match segment and a Wellness and
Healthcare segment:
•
•
•
•
•
•
•
The European Union Region (“EU”) is headquartered in Lausanne, Switzerland, and covers all the European Union countries
and also Switzerland, Norway, Iceland and the United Kingdom;
The Eastern Europe Region (“EE”) is also headquartered in Lausanne, and includes Southeast Europe, Central Asia, Ukraine,
Israel and Russia;
The Middle East & Africa Region (“ME&A”) is also headquartered in Lausanne, and covers the African continent, the
Middle East, Turkey and our international duty free business;
The South & Southeast Asia Region (“S&SA”) is headquartered in Hong Kong, and includes Indonesia, the Philippines and
other markets in this region;
The East Asia & Australia Region (“EA&A”) is also headquartered in Hong Kong, and includes Australia, Japan, South
Korea, the People's Republic of China ("China") and other markets in this region, as well as Malaysia and Singapore;
The Americas Region (“AMCS”) is headquartered in Stamford, Connecticut, and covers the South American continent,
Central America, Mexico, the Caribbean and Canada;
Swedish Match, which reflects our fourth quarter 2022 acquisition of the company; and
• Wellness and Healthcare ("W&H"), which includes the operating results of our new Wellness and Healthcare business,
Vectura Fertin Pharma. In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc. (also known as
Vectura Group Ltd.) and OtiTopic, Inc. On March 31, 2022, we launched a new Wellness and Healthcare business
consolidating these entities, Vectura Fertin Pharma. The operating results of this new business are reported in the Wellness
and Healthcare segment.
To further support the growth of our smoke-free business, reinforce consumer centricity, and increase the speed of innovation and
deployment, in January 2023, we rearranged our operations in four geographical segments, down from the current six and as follows:
•
•
Europe Region is headquartered in Lausanne, Switzerland, and covers all the European Union countries, Switzerland, the
United Kingdom, and also Ukraine, Moldova and Southeast Europe;
South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region is headquartered in Dubai,
United Arab Emirates. It covers South and Southeast Asia, the African continent, the Middle East, Turkey, as well as Israel,
Central Asia, Caucasus and Russia;
2
•
•
East Asia, Australia, and PMI Duty Free Region is headquartered in Hong Kong, and includes the consolidation of our
international duty free business with East Asia & Australia; and
Americas Region is headquartered in Stamford, Connecticut, and covers the United States, Canada and Latin America.
The operations of Swedish Match and our Wellness and Healthcare segment remained unchanged. We will report our financial
results based on the new geographical segments as of the first quarter of 2023.
In November 2022, we completed the relocation of our corporate headquarters, including our AMCS headquarters, from New York,
New York, to Stamford, Connecticut.
Our total shipment volume, including cigarettes and heated tobacco units, increased by 1.6% in 2022 to 731.1 billion units, with
shipment volume of heated tobacco units reaching 109.2 billion units in 2022, up from 95.0 billion units in 2021. Shipment volume of
our principal cigarette brand, Marlboro, increased by 2.0% in 2022.
References in this Form 10-K to total international market, defined as worldwide cigarette and heated tobacco unit volume, excluding
the United States, total industry, total market and market shares, are our estimates for tax-paid products based on the latest available
data from a number of internal and external sources, and may, in defined instances, exclude China and/or our duty free business.
Unless otherwise stated, references to total industry, total market, our shipment volume and our market share performance reflect
cigarettes and heated tobacco units.
Estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of
industry data during pandemic-related restrictions.
Key data regarding total market and market share were as follows:
Total Market, billion units (excluding China and the U.S.)
2,626
2,620
2,561
2022
2021
2020
Total International Market Share (1)
Cigarettes
HTU
PMI Cigarette over Cigarette Market Share (2)
Marlboro Cigarette over Cigarette Market Share (3)
27.6 %
23.6 %
4.1 %
24.9 %
9.8 %
27.2 %
23.7 %
3.5 %
24.8 %
9.5 %
27.6 %
24.6 %
3.0 %
25.6 %
9.4 %
(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume,
excluding China and the U.S., including cigarillos in Japan
(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in
Japan
(3) Defined as Marlboro's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos
in Japan
Note: Sum of share of market by product categories might not foot to total due to roundings
We have a market share of at least 15% in approximately 100 markets, including Algeria, Argentina, Australia, Austria, Belgium,
Brazil, the Czech Republic, Egypt, France, Germany, Greece, Hong Kong, Hungary, Indonesia, Israel, Italy, Japan, Kazakhstan,
Kuwait, Mexico, the Netherlands, the Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, the Slovak Republic, South
Korea, Spain, Switzerland, Turkey and Ukraine.
3
Distribution & Sales
Our main types of distribution and sales are tailored to the characteristics of each market and are often used simultaneously:
•
•
•
•
•
•
Direct sales and distribution, where we have set up our own distribution selling directly to the retailers;
Distribution through independent distributors that often distribute other fast-moving consumer goods and are
responsible for distribution in a particular market;
Exclusive zonified distribution, where the dedicated multicategory product distributors are assigned to exclusive
territories within a market;
Distribution through national or regional wholesalers that then supply the retail trade;
Our own e-commerce infrastructure for product sales to trade partners and to consumers; and
Our own brand retail infrastructure for our RRP products and accessories for sales to consumers.
Competition
We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality,
brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and,
increasingly, adult smoker willingness to convert to our RRPs. In the combustible product category, we predominantly sell American
blend cigarette brands, such as Marlboro, L&M, Parliament, Philip Morris and Chesterfield, which are the most popular across many
of our markets. In the RRP product category, we primarily sell Platform 1 devices and heated tobacco units under the IQOS brand. We
also sell other smoke-free products, including those commercialized through Swedish Match. We seek to compete in all profitable
retail price categories, although our brand portfolio is weighted towards the premium-price category.
The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of
consumer confidence; competitors' introduction of lower-price products or innovative products; novel products which given their taste
characteristics may be more commercially successful; higher tobacco product taxes; higher absolute prices and larger gaps between
retail price categories; and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer
access to truthful and non-misleading information about our RRPs.
Competitors in our industry include British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants,
particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned
tobacco enterprises, principally in Algeria, Egypt, China, Taiwan, Thailand and Vietnam. Some competitors have different profit,
volume and regulatory objectives, and some international competitors may be less susceptible to changes in currency exchange rates
than we are. Certain new market entrants in the non-combustible product category may alienate consumers from innovative products
through inappropriate marketing campaigns, messaging and inferior product satisfaction, while not relying on scientific substantiation
based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extent of the
dissemination of inaccurate and misleading information about our RRPs, all of which could have a material adverse effect on our
profitability and results of operations.
Procurement and Raw Materials
We purchase tobacco leaf of various types, grades and styles throughout the world, mostly through independent tobacco suppliers. In
2022, we also contracted directly with farmers in several countries, including Argentina, Brazil, Italy, Pakistan and Poland. In 2022,
direct sourcing from farmers represented approximately 16% of PMI’s global leaf requirements. The largest supplies of tobacco leaf
are sourced from Argentina, Brazil, China, Italy, Indonesia (mostly for domestic use in kretek products), Malawi, Mozambique, the
Philippines, Turkey and the United States. We believe that there is an adequate supply of tobacco leaf in the world markets to satisfy
our current and anticipated production requirements.
Given the global reach of our value chain, properly managing land and water resources and utilizing a geographically diversified
sourcing strategy for agricultural products are priorities as we seek to increase the resilience of our production systems and minimize
operational risks. We conduct a global water risk assessment annually in tobacco-growing regions to identify potential hotspots for
physical water risks that require adaptation measures. Our water stewardship strategy includes guidance for applying a landscape
approach to water optimization projects, protecting natural resources and recharge areas, and improving the efficiency of irrigation
systems to integrate better farm water management. These business practices are intended to mitigate the risk that climate change
could influence weather patterns in ways that negatively impact the quality or cost of the agricultural products used to manufacture our
products.
4
In addition to tobacco leaf, we purchase a wide variety of direct materials from a total of approximately 360 suppliers. In 2022, our top
ten suppliers of direct materials combined represented approximately 60% of our total direct materials purchases. The four most
significant direct materials that we purchase are printed paper board used in packaging, acetate tow used in filter making and fine
paper used in the manufacturing of cigarettes and heated tobacco units, as well as susceptors used for the TEREA heated tobacco units.
In addition, the adequate supply and procurement of cloves are of particular importance to our Indonesian business.
We discuss the details of our supply chain for our RRPs in Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations of this Annual Report on Form 10-K (“Item 7”) in Business Environment—Reduced-Risk Products.
Business Environment
Information called for by this Item is hereby incorporated by reference to the paragraphs in Item 7, Business Environment to this
Annual Report on Form 10-K.
Customers
Other Matters
As described in more detail in “Distribution & Sales” above, in many of our markets we sell our products to distributors. In 2022,
sales to a distributor in the European Union Region and a distributor in the East Asia & Australia Region each amounted to 10 percent
or more of our consolidated net revenues. See Item 8, Note 13. Segment Reporting for more information. We believe that none of our
business segments is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on
our consolidated results of operations. In some of our markets, particularly in the European Union, Eastern Europe, the Middle East
and Africa, and in the East Asia & Australia Regions, a loss of a distributor may result in a temporary market disruption.
Human Capital
Our Workforce. At December 31, 2022, including Swedish Match's employees, we employed approximately 79,800 people worldwide
of more than 130 different nationalities, including full-time, temporary and part-time staff. Our businesses are subject to a number of
laws and regulations relating to our relationship with our employees. Generally, these laws and regulations are specific to the location
of each business. We engage with legally recognized employee representative bodies and we have collective bargaining agreements in
several of the countries in which we operate. In addition, in accordance with European Union requirements, we have established a
European Works Council composed of management and elected members of our workforce. We believe we maintain good relations
with our employees and their representative organizations.
Our Internal Transformation. To be successful in our transformation to a smoke-free future, we must continue transforming our culture
and ways of working, align our talent with our business needs, successfully integrate acquired businesses and innovate to become a
truly consumer-centric business. To achieve our strategic goals, we need to attract, retain and motivate the best global talent with the
right degree of diversity, experience, competencies and skills. Therefore, we strive to ensure the development of our existing talent
while increasingly recruiting those with the expertise in areas that are relatively new to us such as digital and technical solutions. Our
compensation and benefit programs are set at the levels that we believe are necessary to attract the best talent and remain competitive
with other consumer product companies.
Oversight and Management. Our Board of Directors (the "Board") provides oversight of various matters pertaining to our workforce.
The Compensation and Leadership Development Committee of the Board is responsible for executive compensation matters and
oversight of the risks and programs related to talent management. Our Code of Conduct highlights our commitment to ethical business
conduct and honesty, respect, fairness in our ways of working.
Inclusion & Diversity. At PMI, we believe that a diverse workforce and an inclusive culture are strategic priorities which help fuel
innovation and business success. As part of our commitment to workplace diversity, in 2020, our Chief Executive Officer appointed a
Chief Diversity Officer. Improving gender balance, especially in management positions, continues to be one of our priorities:
•
•
•
In 2022, we achieved the global target of 40% female representation in management positions;
In 2021, we started our Women in Leadership program to support our female talents; and
We were the first multinational company to receive a global EQUAL-SALARY certification from the EQUAL-SALARY
Foundation in 2019. In 2022, we were re-certified as a global EQUAL-SALARY organization for the second time, verifying
that PMI continues to pay female and male employees equally for equal work everywhere where we operate. This
achievement is an important milestone toward the creation of a more inclusive gender-balanced workplace and the
continuation of our reputation as a top employer.
5
In recognition of our efforts, we were again added to the 2022 Bloomberg Gender-Equality Index for transparency in gender reporting
and advancing women’s equity (among the 414 companies from 11 different sectors in 45 countries, who scored at or above the global
threshold established by Bloomberg L.P.).
Creation of employee resource groups ("ERGs") was another important milestone to drive further inclusion at PMI. We believe these
groups serve as a platform for building an enhanced sense of belonging, visibility, and greater understanding of different experiences
and dimensions of diversity in our company. Currently, we have established global ERGs for race and ethnicity, LGBTQ+, gender and
disability matters concerning our employees. Each global ERG is sponsored by a member of the PMI senior leadership team, to
reinforce the fact that our strong commitment to Inclusion & Diversity comes from the top. In 2022, we continued to focus on the
growth of our global ERGs and to expand them locally, to be able to meet the specific needs of different markets and regions.
By the end of 2022, our global parental leave principles were implemented in every market in which we operate, with the exception of
Russia. PMI’s minimum leave principles provide primary caregivers with a minimum of 18 weeks fully paid parental leave and
secondary caregivers with a minimum of 8 weeks fully paid parental leave. These global and gender-neutral guidelines demonstrate
how PMI is creating a more inclusive, diverse work environment to meet the challenges and expectations of our people for the 21st
century workplace.
To further strengthen our commitment to drive inclusion and equality, we also commissioned an independent academic study
exploring the methods organizations can adopt to drive lasting cultural change. Findings of this study informed the development of
practices and programs focused on employee inclusion at PMI.
Our Initiatives in Response to COVID-19. Since the outbreak of the global COVID-19 pandemic, we have focused on business
continuity, health and safety of our employees, and have adapted our ways of working to a new environment. We have implemented
additional safety measures for essential employees in our facilities and offices. We have also enhanced remote and flexible work
arrangements and digital collaboration, and related risk management, and to date, many of our employees continue to have the ability
work remotely for up to 60% of their working time, where applicable.
Government Regulation
As a company with global operations in a heavily regulated industry, we are subject to multiple laws and regulations of jurisdictions in
which we operate. We discuss our regulatory environment in Item 7, Business Environment.
The regulatory landscape related to environmental, social, and governance ("ESG”) matters is rapidly evolving. We closely monitor
these developments and implement initiatives addressing PMI’s priority ESG areas in line with our sustainability strategy. In
particular, we are subject to international, national and local environmental laws and regulations in the countries in which we do
business. We have specific programs across our business units designed to meet applicable environmental compliance requirements
and reduce our carbon footprint, wastage, as well as water and energy consumption. We report externally about our climate change
mitigation strategy, together with associated targets and results in reducing our carbon footprint, through CDP (formerly known as the
Carbon Disclosure Project), the leading international non-governmental organization assessing the work of thousands of companies
worldwide in the area of environmental impact, including climate change.
Our environmental and occupational health and safety management program includes policies, standard practices and procedures at all
our manufacturing centers. Furthermore, we have engaged an external certification body to validate the effectiveness of this
management program at our manufacturing centers around the world, in accordance with internationally recognized standards for
safety and environmental management. Our subsidiaries expect to continue to make investments in order to drive improved
performance and maintain compliance with environmental laws and regulations. We assess and report to our management the
compliance status of all our legal entities on a regular basis. Based on current regulations, the management and controls we have in
place and our review of climate change risks (both physical and regulatory), environmental expenditures have not had, and are not
expected to have, a material adverse effect on our consolidated results of operations, capital expenditures, financial position, earnings
or competitive position.
Based on current regulations, compliance with government regulations, including environmental regulations, has not had, and is not
expected to have a material adverse effect on our results of operations, capital expenditures, financial position, earnings, or
competitive position.
As discussed in more detail in Item 1A. Risk Factors, our financial results could be significantly affected by regulatory initiatives that
could result in a significant decrease in demand for our brands or by climate-related regulations that increase our cost of operation.
More specifically, any regulatory requirements that lead to a commoditization of tobacco products or impede adult consumers' ability
to convert to our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements could have a
6
material adverse effect on our financial results. Further, tightened climate-related regulation may lead to additional carbon taxation or
energy price increases impacting our cost of operation. These shifts in regulation and other market trends could, amongst others,
impact current deforestation rates. Availability of deforestation-free materials, could be impacted by increased demand for alternative
energy sources and low-carbon fuels, such as biomass, which could result in increased sourcing costs.
We discuss additional information regarding regulatory matters relating to climate change in Item 7, Climate Change Laws and
Regulations.
Information About Our Executive Officers
The disclosure regarding executive officers is hereby incorporated by reference to the discussion under the heading “Information about
our Executive Officers as of February 10, 2023” in Part III, Item 10. Directors, Executive Officers and Corporate Governance of this
Annual Report on Form 10-K (“Item 10”).
Intellectual Property
Our trademarks are valuable assets, and their protection and reputation are essential to us. We own the trademark rights to all of our
principal brands, including Marlboro, HEETS, IQOS, IQOS ILUMA, TEREA, and ZYN or have the right to use them in all countries in
which these brands are advertised or sold.
In addition, we have a large number of granted patents and pending patent applications worldwide. Our patent portfolio, as a whole, is
material to our business. However, no one patent, or group of related patents, is material to us. We also have registered industrial
designs, as well as unregistered proprietary trade secrets, technology, know-how, processes and other unregistered intellectual
property rights.
Effective January 1, 2008, PMI entered into an Intellectual Property Agreement with Philip Morris USA Inc., a wholly owned
subsidiary of Altria Group, Inc. (“PM USA”). The Intellectual Property Agreement allocates ownership of jointly funded intellectual
property as follows:
•
•
PMI owns all rights to jointly funded intellectual property outside the United States, its territories and possessions; and
PM USA owns all rights to jointly funded intellectual property in the United States, its territories and possessions.
The parties agreed to submit disputes under the Intellectual Property Agreement first to negotiation between senior executives and
then to binding arbitration.
An agreement reached with PM USA in 2022 relating to IQOS commercialization rights in the U.S. includes, among other things, an
agreement relating to intellectual property rights consistent with the commercialization rights for relevant IQOS products.
Seasonality
Our business segments are not significantly affected by seasonality, although in certain markets cigarette consumption may be lower
during the winter months due to the cold weather and may rise during the summer months due to outdoor use, longer daylight, and
tourism.
Available Information
We are required to file with the SEC annual, quarterly and current reports, proxy statements and other information required by the
Securities Exchange Act of 1934, as amended (the “Exchange Act”). The SEC maintains an Internet website at http://www.sec.gov
that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC,
from which investors can electronically access our SEC filings.
We make available free of charge on, or through, our website at www.pmi.com our Annual Report on Form 10-K, Quarterly Reports
on Form 10-Q, Current Reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of
the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Investors
can access our filings with the SEC by visiting www.pmi.com.
The information on our website is not, and shall not be deemed to be, a part of this report or incorporated into any other filings we
make with the SEC.
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Item 1A.
Risk Factors.
The following risk factors should be read carefully in connection with evaluating our business and the forward-looking statements
contained in this Annual Report on Form 10-K. Any of the following risks could materially adversely affect our business, our
operating results, our financial condition and the actual outcome of matters as to which forward-looking statements are made in this
Annual Report on Form 10-K.
Forward-Looking and Cautionary Statements
We may from time to time make written or oral forward-looking statements, including statements contained in this Annual Report on
Form 10-K and other filings with the SEC, in reports to stockholders and in press releases and investor webcasts. You can identify
these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will,"
"aspires," "estimates," "intends," "projects," "aims," "goals," "targets," "forecasts" and other words of similar meaning. You can also
identify them by the fact that they do not relate strictly to historical or current facts.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and
assumptions. Our RRPs constitute a new product category that is less predictable than our mature cigarette business. Achievement of
future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated
or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain
invested in our securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we
are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially
from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following
cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in Item 7, Business
Environment. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider
the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking
statement that we may make from time to time, except in the normal course of our public disclosure obligations.
Overall Business Risks
We may be unsuccessful in our attempts to introduce reduced-risk products, and regulators may not permit the
commercialization of these products or the communication of scientifically substantiated information and claims.
Our key strategic priorities are to: (i) develop and commercialize products that present less risk of harm to adult smokers who switch
to those products versus continued smoking; and (ii) encourage and educate current adult smokers who would otherwise continue to
smoke to switch to those RRPs. For our efforts to be successful, we must:
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develop RRPs that adult smokers find acceptable alternatives to smoking;
conduct rigorous scientific studies to substantiate that RRPs reduce exposure to harmful and potentially harmful
constituents in smoke and, ultimately, that these products present, are likely to present, or have the potential to present less
risk of harm to adult smokers who switch to them versus continued smoking; and
effectively advocate for a timely development of science-based regulatory frameworks for the development and
commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to
make better consumer choices.
We might not succeed in our efforts. If we do not succeed, but others do, or if heat-not-burn products are inequitably regulated
compared to other RRP categories without regard to the totality of the scientific evidence available for such products, we may be at a
competitive disadvantage. In addition, actions of some market entrants, such as the inappropriate marketing of e-vapor products to
youth, as well as alleged health consequences associated with the use of certain e-vapor products, may unfavorably impact public
opinion and/or mischaracterize all e-vapor products or other RRPs to consumers, regulators and policy makers without regard to the
totality of scientific evidence available for specific products. This may impede our efforts to advocate for the development of science-
based regulatory frameworks for the development and commercialization of RRPs. We cannot predict whether regulators will permit
the sale and/or marketing of RRPs with scientifically substantiated information and claims. Such restrictions could limit the success of
our RRPs.
The WHO study group on tobacco product regulation published their eighth report on the scientific basis of tobacco product regulation
in May 2021. The report is based on a review of scientific evidence related to novel and emerging nicotine and tobacco products, such
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as electronic nicotine delivery systems ("ENDS"), electronic non-nicotine delivery systems and heated tobacco products ("HTPs") on a
number of scientific topics. The report concludes by making a number of policy recommendations on HTPs and ENDS that, if
implemented, could restrict both the availability of these products, and the access to accurate information about them. In August 2021,
the World Health Organization's Framework Convention on Tobacco Control (the "FCTC") Secretariat published two reports on novel
and emerging tobacco products to the ninth session of the Conference of the Parties ("CoP") of the FCTC, which are not materially
different from the WHO study group report. Substantive decisions based on these reports were deferred to CoP 10, currently
scheduled to take place in the fourth quarter of 2023. It is not possible to predict whether or to what extent measures recommended by
the WHO's reports will be implemented as the reports are not binding to the WHO Member States.
Additionally, any claims, regardless of merit, challenging our research and clinical data available to date, may impact the development
of science-based regulatory frameworks for the commercialization of the RRP category and the commercialization of the RRP
category in general.
Our RRPs and commercial activities for these products are designed for, and directed toward, current adult smokers and users of
nicotine-containing products, and not for non-smokers or youth. We put significant effort to restrict access of our products from non-
smokers or youth. Nevertheless, technological, operational, regulatory and/or commercial setbacks might impact the implementation
or effectiveness of youth access prevention mechanisms and surrounding infrastructure. If nonetheless there is a significant usage of
our products or competitive products among youth or non-smokers, even in situations over which we have no control, our reputation
and credibility may suffer, the regulatory approach to our products may become more restrictive, and our efforts to advocate for the
development of science-based regulatory frameworks for the development and commercialization of RRPs may be significantly
impacted.
Moreover, the FDA’s premarket tobacco product and modified risk tobacco product authorizations of two versions of our Platform 1
product are subject to strict marketing, reporting and other requirements. Although we have received these authorizations from the
FDA, there is no guarantee that the product will remain authorized for sale in the U.S., or whether new versions of the products
(Platform 1 or other smoke-free platforms) will receive necessary authorizations, particularly if there is a significant uptake in youth or
non-smoker initiation.
The financial and business performance of our reduced-risk products is less predictable than our cigarette business.
Our RRPs are novel products in a new category, and the pace at which adult smokers adopt them may vary, depending on the
competitive, regulatory, fiscal and cultural environment, and other factors in a specific market. There may be periods of accelerated
growth and periods of slower growth for these products, the timing and drivers of which may be more difficult for us to predict versus
our mature cigarette business. The impact of this lower predictability on our projected results for a specific period may be significant,
particularly during the early stages of this new product category, during the COVID-19 pandemic as a result of unpredictability due to
shortage of key components in our supply chain, or due to geopolitical or macroeconomic events that negatively impact RRP
availability or adoption, which in turn may have a material adverse effect on our results of operation.
We may be unsuccessful in our efforts to differentiate reduced-risk products and cigarettes with respect to taxation.
To date, we have been largely successful in demonstrating to regulators that our RRPs are not cigarettes due to the absence of
combustion, and as such they are generally taxed either as a separate category or as other tobacco products, which typically yields
more favorable tax rates than cigarettes. Nevertheless, we are unable to predict whether regulators will be issuing new regulations
where RRP will be equally taxed in line with other tobacco products such as ordinary cigarettes. However, if we cease to be successful
in these efforts, RRP unit margins may be materially adversely affected, which in turn may have a material adverse effect on our
results of operation.
Consumption of tax-paid cigarettes continues to decline in many of our markets.
This decline is due to multiple factors, including increased taxes and pricing, governmental actions, the diminishing social acceptance
of smoking and health concerns, competition, continuing economic and geopolitical uncertainty, and the continuing prevalence of
illicit products. These factors and their potential consequences are discussed more fully below and in Item 7, Business Environment. A
continuous decline in the consumption of cigarettes could have a material adverse effect on our revenue and profitability, which in
turn may have a material adverse effect on our ability to fund our smoke-free transformation.
Cigarettes are subject to substantial taxes. Significant increases in cigarette-related taxes have been proposed or enacted and
are likely to continue to be proposed or enacted in numerous jurisdictions. These tax increases may disproportionately affect
our profitability and make us less competitive versus certain of our competitors.
Tax regimes, including excise taxes, sales taxes and import duties, can disproportionately affect the retail price of cigarettes versus
other combustible tobacco products, or disproportionately affect the relative retail price of our cigarette brands versus cigarette brands
manufactured by certain of our competitors. Because our portfolio is weighted toward the premium-price cigarette category, tax
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regimes based on sales price can place us at a competitive disadvantage in certain markets. Furthermore, our volume and profitability
may be adversely affected in these markets.
In addition, increases in cigarette taxes are expected to continue to have an adverse impact on our sales of cigarettes, due to resulting
lower consumption levels, a shift in sales from manufactured cigarettes to other combustible tobacco products and from the premium-
price to the mid-price or low-price cigarette categories, where we may be under-represented, from local sales to legal cross-border
purchases of lower price products, or to illicit products such as contraband, counterfeit and "illicit whites."
Each of these risks could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and
profitability.
Our business faces significant governmental action aimed at increasing regulatory requirements with the goal of reducing or
preventing the use of tobacco products.
Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have
resulted in reduced industry volumes for our products in many of our markets, and we expect that such factors will continue to reduce
consumption levels and will increase down-trading and the risk of counterfeiting, contraband, "illicit whites" and legal cross-border
purchases. Significant regulatory developments will continue to take place over the next few years in most of our markets, driven
principally by the FCTC. Since it came into force in 2005, the FCTC has led to increased efforts by tobacco control advocates and
public health organizations to promote increasingly restrictive regulatory measures on the marketing and sale of tobacco products to
adult smokers. Regulatory initiatives that have been proposed, introduced or enacted by governmental authorities in various
jurisdictions include:
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restrictions on or licensing of outlets permitted to sell cigarettes;
the levying of substantial and increasing tax and duty charges;
restrictions or bans on advertising, marketing and sponsorship;
the display of larger health warnings, graphic health warnings and other labeling requirements;
restrictions on packaging design, including the use of colors, and mandating plain packaging;
restrictions on packaging and cigarette formats and dimensions;
restrictions or bans on the display of tobacco product packaging at the point of sale and restrictions or bans on vending
machines;
generation sales bans, under which the sale of certain tobacco or nicotine products to people born after a certain year would
be prohibited;
requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke
constituents;
disclosure, restrictions, or bans of tobacco product ingredients, including bans on the flavors of certain tobacco products;
increased restrictions on smoking and use of tobacco and nicotine-containing products in public and work places and, in
some instances, in private places and outdoors;
restrictions or prohibitions of novel tobacco or nicotine-containing products or related devices;
elimination of duty free sales and duty free allowances for travelers;
restrictions in terms of importing or exporting our products impacting our logistics activities and ability to ship our
products;
encouraging litigation against tobacco companies; and
excluding tobacco companies from transparent public dialogue regarding public health and other policy matters.
Our financial results could be materially affected by regulatory initiatives resulting in a significant decrease in demand for our brands.
More specifically, requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to
our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements could have a material adverse
effect on our financial results.
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Changes in the earnings mix and changes in tax laws may result in significant variability in our effective tax rates. Our ability
to receive payments from foreign subsidiaries or to repatriate royalties and dividends could be restricted by local country
currency exchange controls and other regulations.
We are subject to income tax laws in the United States and numerous foreign jurisdictions. Changes in the U.S. tax system, including
significant increases in the U.S. corporate income tax rate and the minimum tax rate on certain earnings of foreign subsidiaries could
be enacted. Such changes could have a material adverse impact on our effective tax rate thereby reducing our net earnings. Further
changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the
Organisation for Economic Co-operation and Development, which recommended changes to numerous long-standing tax principles. If
implemented, such changes, as well as changes in taxing jurisdictions’ administrative interpretations, decisions, policies, or positions,
could also have a material adverse impact on our effective tax rate thereby reducing our net earnings. In future periods, our ability to
recover deferred tax assets could be subject to additional uncertainty as a result of such developments. Furthermore, changes in the
earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates.
As a result of Russia’s invasion of Ukraine, certain taxing jurisdictions, including the U.S., have proposed punitive tax legislation
applicable to companies doing business in Russia, which could also have a material adverse impact on our effective tax rate if enacted
thereby reducing our net earnings.
Because we are a U.S. holding company, our most significant source of funds is distributions from our non-U.S. subsidiaries. Certain
countries in which we operate have adopted or could institute currency exchange controls and other regulations that limit or prohibit
our local subsidiaries' ability to convert local currency into U.S. dollars or to make payments outside the country. This could subject us
to the risks of local currency devaluation and business disruption.
Risks Related to the Impact of the War in Ukraine on our Business
Our business, results of operations, cash flows and financial position may be adversely impacted by the continuation and
consequences of the war in Ukraine.
In 2022, Russia accounted for around 9% of our total cigarette and heated tobacco unit shipment volume, and around 7% of our total
net revenues. Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume, and around 1% of our
total net revenues. Historically, we also produced finished goods in Ukraine for export and manufactured products in Russia. In 2022,
as a result of Russia’s invasion of Ukraine, we suspended planned investments and scaled down our manufacturing operations in
Russia. In Ukraine, we have temporarily reduced operations, including closing our factory in the country.
The short and long-term implications of the Russian invasion of Ukraine for our operations in those countries are impossible to predict
at this time. The likelihood of retaliatory action by the Russian government against companies, including us, as a result of actions and
statements made in response to the Russian invasion, including the possibility of legal action against us or our employees or
nationalization of foreign businesses or assets, including cash reserves held in Russia and intangible assets such as trademarks, is
impossible to predict. We are continuously assessing the evolving situation in Russia, including: recent regulatory constraints in the
market that entail very complex terms and conditions that must be met for any divestment transaction to be granted approval by the
authorities; and restrictions resulting from international regulations. In Ukraine, there is no way to know when and to what extent we
will be able to fully normalize our operations or to what extent our workforce, facilities, inventory, and other assets will remain intact.
These developments have and will continue to have a material adverse impact on our business, results of operations, cash flows and
financial position, and may result in impairment charges.
The conflict also continues to elevate the likelihood of supply chain disruptions, both in the region and globally, and may inhibit our
ability to timely source materials and services needed to make and sell our products. For example, historically we sourced certain
finished goods, production materials and components from both Russia and Ukraine, including printed materials and filters, and the
invasion has, and may continue to, disrupt the availability of and impact our supply chain for these materials. These disruptions, to the
extent we are unable to find alternative sources or otherwise address these supply constraints, may impact the availability and cost of
our products in other markets, which would adversely impact our business, results of operations, cash flows and financial position, and
may result in impairment charges. Furthermore, the imposition of various restrictions on transactions with parties from certain
jurisdictions, the ban on exports of various products, and other economic and financial restrictions may adversely affect certain third
parties with which we do business in Russia, such as customers, suppliers, intermediaries, service providers and banks.
The broader consequences of the invasion are also impossible to predict, but could include reputational consequences, further
sanctions, financial or currency restrictions, punitive tax law changes, embargoes, regional instability, and geopolitical shifts as well as
adverse effects on macroeconomic conditions, security conditions, currency exchange rates, and financial markets. Given the nature of
our business and global operations, such geo-political instability and uncertainty could increase the costs of our materials and
operations; reduce demand for our products; have a negative impact on our supply chains, manufacturing capabilities, or distribution
capabilities; increase our exposure to currency fluctuations; constrain our liquidity or our ability to access capital markets; create
staffing or operations difficulties; or subject us to increased cyber-attacks. While we will continue to monitor this fluid situation and
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develop contingency plans as necessary to address any disruptions to our business operations as they develop, the extent of the
conflict’s effect on our business and results of operations as well as the global economy, cannot be predicted.
The conflict may also have the effect of heightening many other risks disclosed in this Form 10-K, any of which could adversely affect
our business, results of operations, cash flows or financial position. Such risks could affect, without limitation, the achievement of our
strategic priorities, including achievement of our RRP growth targets; the availability of third-party manufacturing resources; the
availability of attractive acquisition and strategic business opportunities and our ability to fully realize the benefits of these
transactions; our ability to attract, motivate, and retain the best global talent; and our loss of revenue from counterfeiting and similar
illicit activities.
Risks Related to Sourcing and Distribution of Products, Services and Materials
Use of third-parties may negatively impact the distribution, quality, and availability of our products and services, and we may
be required to replace third-party contract distributors, manufacturers or service providers.
We increasingly rely on third-parties and their subcontractors/suppliers, sometimes concentrated in a specific geographic area, for
product distribution and to manufacture some of our products and product parts (particularly, the electronic devices and accessories),
as well as to provide services, including to support our finance, commercialization and information technology processes. While many
of these arrangements improve efficiencies and decrease our operating costs, they also diminish our direct control. Such diminished
control may lead to disruption in the distribution of our products and may have a material adverse effect on the quality and availability
of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult
consumer preferences, all of which may place us at a competitive disadvantage. In addition, we may be unable to renew these
agreements on satisfactory terms for numerous reasons, including government regulations, and our costs may increase significantly if
we must replace such third parties with other partners or our own resources.
The effects of climate change and legal or regulatory responses related to climate change may have a negative impact on our
business and results of operations.
While we seek to mitigate our business risks associated with climate change by establishing environmental goals and standards and
seeking business partners, including within our supply chain, that are committed to operating in ways that protect the environment or
mitigate environmental impacts, we recognize that there are inherent climate-related risks wherever business is conducted. Among
other potential impacts, climate change could influence the quality and volume of the agricultural products we rely on, including
tobacco, due to a number of factors beyond our control, including more frequent variations in weather patterns, extreme weather
events causing unexpected downtime and inventory losses, other adverse weather conditions, and governmental restrictions on trade,
all of which may lead to disruption of operations at factories, warehouses and other premises.
Furthermore, risks related to natural ecosystems degradation, decreased agricultural productivity in certain regions of the world,
biodiversity loss, water resource depletion and deforestation, which are partially driven or exacerbated by climate change, may disrupt
our business operations or those of our suppliers and business partners.
There is an increased focus by foreign, federal, state and local regulatory and legislative bodies regarding environmental policies
relating to climate change. New climate-related legal or regulatory requirements may lead to additional carbon taxation, energy price
increases, new compliance costs, increased distribution and supply chain costs, and other expenses impacting our cost of operation.
Even if we make changes to align ourselves with legal or regulatory requirements, we may still be subject to significant penalties if
such laws or regulations are interpreted and applied in a manner inconsistent with our practices.
Government mandated prices, production control programs, and shifts in crops driven by economic conditions may increase
the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.
As with other agricultural commodities, the price of tobacco leaf and cloves can be influenced by imbalances in supply and demand
and the impacts of natural disasters and pandemics such as COVID-19. Tobacco production in certain countries is subject to a variety
of controls, including government mandated prices and production control programs. Changes in the patterns of demand for
agricultural products could cause farmers to produce less tobacco or cloves. Any significant change in tobacco leaf and clove prices,
quality and quantity could affect our profitability and our business.
Risks Related to our International Operations
Because we have operations in numerous countries, our results may be adversely impacted by economic, regulatory and
political developments, natural disasters, pandemics or conflicts.
Some of the countries in which we operate face the threat of civil unrest and can be subject to regime changes. In others,
nationalization, terrorism, conflict and the threats of war or acts of war may have a significant impact on the business environment.
Natural disasters, extreme weather events, pandemics, economic, political, regulatory, acts of war or threats of war, or other
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developments could disrupt or increase the expenses related to our supply chain, manufacturing capabilities, distribution capabilities,
or the energy and other utility services required to operate our factories, warehouses, and other premises. Our business continuity plans
and other safeguards might not always be effective to fully mitigate their impact. In addition, such developments – including the
impact on energy prices and availability in the EU and elsewhere resulting from the invasion of Ukraine by Russia – could increase
costs of our materials and operations and lead to loss of property or equipment that are critical to our business in certain markets and
difficulty in staffing and managing our operations, all of which could have a material adverse effect on our operations, volumes,
revenue, net earnings and profitability. We discuss additional risks associated with Russia's invasion of Ukraine and climate change
above and with the COVID-19 pandemic below.
In certain markets, we are dependent on governmental approvals of various actions such as price changes, and failure to obtain such
approvals could impair growth of our profitability.
In addition, despite our high ethical standards and rigorous controls and compliance policies aimed at preventing and detecting
unlawful conduct, given the breadth and scope of our international operations, we may not be able to detect all potential improper or
unlawful conduct by our employees and partners. Such improper or unlawful conduct (actual or alleged) could lead to litigation and
regulatory action, cause damage to our reputation and that of our brands, and result in substantial costs.
Our reported results could be adversely affected by unfavorable currency exchange rates, and currency fluctuations could
impair our competitiveness.
We conduct our business primarily in local currency and, for purposes of financial reporting, the local currency results are translated
into U.S. dollars based on average exchange rates prevailing during a reporting period. Foreign currencies may fluctuate significantly
against the U.S. dollar reducing our net revenues, operating income and EPS. Our primary local currency cost bases may be different
from our primary currency revenue markets, and U.S. dollar fluctuations against various currencies may have disproportionate
negative impact on net revenues as compared to our gross profit and operating income margins.
A sustained period of elevated inflation across the markets in which we operate could result in higher operating and financing
costs and lead to reduced demand for our products.
Increasing inflationary pressures may result in significant increases to our expenses, including direct materials, wages, energy, and
transportation costs. While we take actions, wherever possible, to reduce the impact of the effects of inflation, in cases of sustained
and elevated inflation across several of our major markets, it may be difficult to effectively control the increases to our costs.
Increased inflation also has and may continue to lead to interest rate increases, thereby increasing our interest expense. Increasing
inflationary pressures may also negatively impact consumer purchasing power, which could result in reduced demand for our
products. If we are unable to increase our prices or take other actions to mitigate the effect of increasing inflationary pressures, our
profitability and financial position could be negatively impacted.
Risks Related to Legal Challenges and Investigations
Litigation related to tobacco use and exposure to environmental tobacco smoke could substantially reduce our profitability
and could severely impair our liquidity.
There is litigation related to tobacco products pending in certain jurisdictions in which we operate. Damages claimed in some tobacco-
related litigation are significant and, in certain cases in Brazil, Canada, and Nigeria, range into the billions of U.S. dollars. We
anticipate that 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 adversely affected in a
particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. We face various
administrative and legal challenges related to certain RRP activities, including allegations concerning product classification,
advertising restrictions, corporate communications, product coach activities, scientific substantiation, product liability, antitrust, and
unfair competition. While we design our programs to comply with relevant regulations, we expect these or similar challenges to
continue as we expand our efforts to commercialize RRPs and to communicate publicly. The outcomes of these matters may affect our
RRP commercialization and public communication activities and performance in one or more markets. Also see Item 8, Note 18.
Contingencies to our consolidated financial statements for a discussion of pending litigation.
From time to time, we are subject to governmental investigations on a range of matters.
Investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain
markets, allegations of underpayment of income taxes, customs duties and/or excise taxes, allegations of false and misleading usage of
descriptors, allegations of unlawful advertising, and allegations of unlawful labor practices. We cannot predict the outcome of those
investigations or whether additional investigations may be commenced, and it is possible that our business could be materially
adversely affected by an unfavorable outcome of pending or future investigations. See Item 8, Note 18. Contingencies—Other
Litigation and "Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Results
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by Business Segment—Business Environment—Governmental Investigations” for a description of certain governmental investigations
to which we are subject.
We may be unable to adequately protect our intellectual property rights, and disputes relating to intellectual property rights
could harm our business.
Our intellectual property rights are valuable assets, their protection is important to our business, and that protection may not be
equally available in every country in which we operate or in which our products are sold. If the steps we take to protect our
intellectual property rights globally, including through applying for, prosecuting, maintaining and enforcing, where relevant, a
combination of trademark, design, copyright, patent, trade secrets and other intellectual property rights, are inadequate, or if others
infringe or misappropriate our intellectual property rights, notwithstanding legal protection, our business, financial condition, and
results of operations could be adversely impacted. Moreover, failing to manage our existing and/or future intellectual property may
place us at a competitive disadvantage. Intellectual property rights of third parties may limit our ability to develop, manufacture and/
or commercialize our products in one or more markets. Competitors or other third parties may claim that we infringe their intellectual
property rights. Any such claims, regardless of merit, could divert management’s attention, be costly, disruptive, time-consuming and
unpredictable and expose us to significant litigation costs and damages, and may impede our ability to develop, manufacture and/or
commercialize new RRPs and improve our products, and thus have a material adverse effect on our revenue and our profitability. In
addition, if, as a result, we are unable to manufacture or sell our RRPs or improve their quality in one or more markets, our ability to
convert adult smokers to our RRPs in such markets would be adversely affected. See Item 8, Note 18. Contingencies—Other
Litigation to our consolidated financial statements for a description of certain intellectual property proceedings.
Risks Related to our Competitive Environment
We face intense competition, and our failure to compete effectively could have a material adverse effect on our profitability
and results of operations.
We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality,
brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and,
increasingly, adult smoker willingness to convert to our RRPs. The competitive environment and our competitive position can be
significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price
products or innovative products, novel products which given their taste characteristics may be more commercially successful, higher
tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes
the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our
RRPs.
Competitors in our industry include British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants,
particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned
tobacco enterprises, principally in Algeria, Egypt, China, Taiwan, Thailand and Vietnam. Some competitors have different profit,
volume and regulatory objectives, and some international competitors may be less susceptible to changes in currency exchange rates
than we are. Certain new market entrants in the non-combustible product category may alienate consumers from innovative products
through inappropriate marketing campaigns, messaging and inferior product satisfaction, while not relying on scientific substantiation
based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extent of the
dissemination of inaccurate and misleading information about our RRPs, all of which could have a material adverse effect on our
profitability and results of operations.
We may be unable to anticipate changes in adult consumer preferences.
Our business is subject to changes in adult consumer preferences, which may be influenced by local economic conditions, accessibility
to our products and availability of accurate information related to our products.
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To be successful, we must:
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promote brand equity successfully;
anticipate and respond to new adult consumer trends;
ensure that our products meet our quality standards;
develop new products and markets and broaden brand portfolios;
improve productivity;
educate and encourage adult smokers to convert to our RRPs;
ensure effective adult consumer engagement, including communication about product characteristics and usage of RRPs;
provide excellent customer care;
ensure adequate production capacity to meet demand for our products; and
be able to protect or enhance margins through price increases.
In periods of economic uncertainty, adult consumers may tend to purchase lower-price brands, and the volume of our premium-price
and mid-price brands and our profitability could be materially adversely impacted as a result. Such down-trading trends may be
reinforced by regulation that limits branding, communication and product differentiation.
Our ability to grow profitability may be limited by our inability to introduce new products, enter new markets or improve our
margins through higher pricing and improvements in our brand and geographic mix.
Our profit growth may be materially adversely impacted if we are unable to introduce new products or enter new markets successfully,
to raise prices or to improve the proportion of our sales of higher margin products and in higher margin geographies.
We may be unable to expand our brand portfolio through successful acquisitions or the development of strategic business
relationships, and the intended benefits from our investments may not materialize.
One element of our growth strategy is to expand our brand portfolio and market positions through selective acquisitions and the
development of strategic business relationships. Acquisition and strategic business development opportunities are limited and present
risks of failing to achieve efficient and effective integration, strategic objectives and/or anticipated revenue improvements and cost
savings. There is no assurance that we will be able to acquire attractive businesses or enter into strategic business relationships on
favorable terms ahead of our competitors, or that such acquisitions or strategic business development relationships will be accretive to
earnings or improve our competitive position. In addition, we may not have a controlling position in certain strategic investments or
relationships, which could impact the extent to which the intended financial growth and other benefits from these investments or
relationships may ultimately materialize.
Our ability to achieve our strategic goals may be impaired if we fail to attract, motivate and retain the best global talent and
effectively align our organizational design with the goals of our transformation.
To be successful, we must continue transforming our culture and ways of working, align our talent and organizational design with our
increasingly complex business needs, and innovate and transform to a consumer-centric business. We compete for talent, including in
areas that are new to us, such as digital, information technology, life sciences, with companies in the consumer products, technology,
pharmaceutical and other sectors that enjoy greater societal acceptance. As a result, we may be unable to attract, motivate and retain
the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.
15
Risks Related to the Impact of a Pandemic on our Business
Our business, results of operations, cash flows and financial position may be materially adversely impacted by an epidemic,
endemic or pandemic, such as COVID-19.
The outbreak of the global COVID-19 pandemic in 2020 has created significant societal and economic disruption, and resulted in the
closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which have and may continue
to adversely impact our business, results of operations, cash flows and financial position. Our business continuity plans and other
safeguards may not be effective to mitigate the ongoing or potential impact of COVID-19 or other epidemics, endemics, or pandemics.
The production of our RRP portfolio requires various components and materials, and we believe that there is an adequate supply of
such components and materials in the world markets to satisfy our current and anticipated production requirements. However, some
components and materials necessary for the production of our RRPs, including those for the electronic devices, are obtained from
single or limited sources, and can be subject to industry-wide shortages and price fluctuations. While we have been successful in
maintaining adequate supply of such components and materials during the ongoing COVID-19 pandemic so far, the COVID-19
pandemic, or another epidemic, endemic or pandemic, may disrupt that supply, whether through regulatory enforced actions taken to
contain its spread, or through other supply chain disruptions caused by such epidemic, endemic or pandemic. This could negatively
impact the commercialization of our RRPs.
Significant risks to our business during an epidemic, endemic or pandemic, such as the ongoing consequences of the COVID-19
outbreak, also include:
•
•
•
•
•
our diminished ability to convert adult smokers to our RRPs;
significant volume declines in our duty-free business and certain other key markets;
disruptions or delays in our manufacturing and supply chain, including delays and increased costs in the shipment of parts to
manufacture our products or for the products themselves;
increased currency volatility; and
delays in certain cost saving, transformation and restructuring initiatives.
The significant adverse effect of an epidemic, endemic or pandemic on the economic or political conditions in markets in which we
operate could result in changes to the preferences of our adult consumers and lower demand for our products, particularly for our mid-
price or premium-price brands.
Each of these risks could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and
profitability.
Risks Related to Illicit Trade
We lose revenues as a result of counterfeiting, contraband, cross-border purchases, "illicit whites," non-tax-paid volume
produced by local manufacturers, and counterfeiting of our Platform 1 device and heated tobacco units.
Large quantities of counterfeit cigarettes are sold in the international market. We believe that Marlboro is the most heavily
counterfeited international cigarette brand, although we cannot quantify the revenues we lose as a result of this activity. In addition,
our revenues are reduced by contraband, legal cross-border purchases, "illicit whites" and non-tax-paid volume produced by local
manufacturers. Our revenues and consumer satisfaction with our Platform 1 device and heated tobacco units may be materially
adversely affected by counterfeit products that do not meet our product quality standards and scientific validation procedures.
16
Risks Related to Cybersecurity and Data Governance
The failure or disruption of our information technology networks and systems, or those managed by third-party service
providers or owned by our business partners and used in furtherance of PMI’s business, due to cybersecurity attacks;
unauthorized attempts to corrupt or extract data; security vulnerabilities; misconfigurations; human error; or failure or
inability by us, third-parties, or our business partners to adhere to cybersecurity industry best practices, could place us at a
competitive disadvantage, cause reputational damage, impact our operations, result in data breaches, significant business
disruption, litigation, regulatory action including significant fines or penalties, financial impact, loss of revenue or assets,
including our intellectual property, personal, confidential, or sensitive data.
We and our business partners heavily rely on information technology networks and systems, including those connected to the Internet,
to help manage business processes and operations, including the collection, storage, interpretation, and processing of confidential,
sensitive, personal and other data; internal and external communications; marketing and e-commerce activities; the manufacture, sale,
and distribution of our products; management of third-party business relationships; engagement with governmental authorities;
innovation through research and development; and other activities necessary for business operations. Some of these information
systems and networks are developed, supplied, or managed by third-party service providers that may make us vulnerable to “supply
chain” style cyberattacks.
Cyberattacks, security incidents and vulnerabilities impacting PMI, newly acquired companies, our business partners, or our third-
party providers, continue to dynamically evolve in sophistication and volume, making it difficult for us to predict probability,
frequency, and impact severity of security incidents. Further, it may be inherently difficult to detect vulnerabilities during due
diligence, for long periods of time, or soon enough to mitigate exploitation. There can be no assurance that such security incidents or
vulnerabilities will not have a material adverse effect on us in the future.
We continue to make investments in administrative, technical, and physical safeguards to maintain information security protections in
line with industry standards and best practices. We evaluate the adequacy of preventative actions to reduce security incidents on an
ongoing basis.
Our safeguards may not, however, be effective in mitigating the impact of service disruptions or other failures of these information
technology networks and systems. Failure to timely respond and mitigate security incidents, could result in wide-ranging business
interruptions. Such security incidents could place us at a competitive disadvantage; result in financial impacts, a loss of revenue,
assets, including our intellectual property, personal or other sensitive data; result in litigation and regulatory action including
significant fines or penalties; impact our operations; cause damage to our reputation and that of our brands; and result in significant
remediation and other costs.
Our or our business partners’ failure or inability to adhere to privacy, data, artificial intelligence and information security
laws could result in business disruption, loss of reputation and consumer trust, litigation, regulatory action including
significant fines or penalties, financial impact, and loss of revenue, assets or personal, confidential, or sensitive data.
An actual or alleged failure to comply with complex and changing privacy, data, artificial intelligence and information security laws
and regulations under the EU General Data Protection Regulation, various United States state and federal laws, and other similar
privacy and information security laws across the jurisdictions in which PMI operates, such as the failure to protect personal data;
implement appropriate technological and reasonable security measures; respect the privacy rights of data subjects; provide sufficient
detailed notices of personal data processing; retrieve consent and provide opt-outs; meet stringent timeframe requirements for incident
reporting to regulatory authorities; comply with artificial intelligence regulations; and others, could have a material adverse effect on
us, subject us to substantial fines and/or legal challenges, and/or harm our business, reputation, financial condition, or operating
results. Such laws and regulations across the jurisdictions in which PMI operates may vary, resulting in inconsistent or conflicting
legal obligations.
Risks Related to the Acquisitions of Swedish Match, OtiTopic, Inc. ("OtiTopic"), Fertin Pharma A/G ("Fertin Pharma") and Vectura
Group Ltd. ("Vectura") (collectively, the "Acquisitions")
As previously disclosed in this Form 10-K, since 2021, we have acquired Swedish Match, OtiTopic, Fertin Pharma and Vectura, and
have launched a new Wellness and Healthcare business consolidating OtiTopic, Fertin Pharma and Vectura: Vectura Fertin Pharma.
We may be unable to successfully integrate and realize the expected benefits from the Acquisitions.
The successful integration of the acquired businesses and their operations into those of our own and our ability to realize the benefits
of the Acquisitions, are subject to a number of risks and uncertainties, many of which are not in our control. The risks and
uncertainties relating to integrating the businesses acquired include, among other things: (i) the challenge of integrating complex
organizations, systems, operating procedures, industry specific compliance programs, technology, networks and other assets of the
businesses that we acquire, and the costs related to such integration efforts; (ii) the possibility that we are unable to gain access to
17
differentiated intellectual property, proprietary technology, and pharmaceutical development expertise as anticipated by these
Acquisitions, and thus fail to realize our desired entry into additional smoke-free, wellness, therapeutic and healthcare platforms; (iii)
the challenge of integrating the cultures and business practices of each of Swedish Match, Fertin Pharma and Vectura to our culture
and business practices, which if not managed correctly, could lead to difficulties in retaining key management and other key
employees; and (iv) the challenge of achieving a successful integration as a result of our affiliation to our combustible product
portfolio. In addition, even if we are able to successfully integrate, the anticipated benefits of the Acquisitions may not be realized
fully, or at all, or may take longer to realize than expected. Furthermore, the success of the Acquisitions also depends on Swedish
Match's continued growth in highly competitive markets and on the success of the research and development efforts of Vectura Fertin
Pharma, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new
products developed by them. Moreover, our combustible product portfolio may stand in the way of introducing and growing new
product categories, and may prevent our business from developing a long-term sustainable ecosystem of products in the wellness,
therapeutic, and healthcare categories.
The businesses that we acquire in the Acquisitions may have liabilities that are not known to us.
The businesses that we have acquired in the Acquisitions may have liabilities that we were unable to identify, or were unable to
discover, in the course of performing our due diligence investigations during the Acquisitions thereof. We cannot assure you that the
indemnification available to us under the respective acquisition agreements, will be sufficient in amount, scope or duration to fully
offset the possible liabilities associated with the respective business or property that we will assume upon consummation of each
acquisition. Furthermore, the acquisition of Swedish Match was structured as a direct purchase of shares from Swedish Match
shareholders and therefore did not include an acquisition agreement or indemnification rights. Any such liabilities, individually or in
the aggregate, could have a material adverse effect on our business, financial condition and results of operations.
Accounting adjustments related to the Acquisitions could adversely affect our financial results.
We have accounted for the completion of the Acquisitions using the acquisition method of accounting. Differences between
preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the
consolidated financial statements and our future results of operations and financial position in combination with the businesses
acquired. Furthermore, given the nature of the assets being acquired in the Acquisitions, we may not be able to avoid future
impairments of those assets, which may also have a material impact on our future results of operation and financial position.
PMI, Swedish Match and Vectura Fertin Pharma may be subject to uncertainties that could adversely affect our respective
businesses, and adversely affect the financial results of our combined businesses.
Our success following these Acquisitions will depend in part upon our ability and the ability of each of Swedish Match and Vectura
Fertin Pharma to maintain business relationships. Uncertainty about the effect of the Acquisitions on customers, suppliers, employees
and other constituencies of each of Swedish Match, Fertin Pharma and Vectura, may have a material adverse effect on us and/or the
businesses that we have acquired through the Acquisitions. Customers, suppliers and others who do business with Swedish Match or
Vectura Fertin Pharma may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take
other actions as a result of the Acquisitions, which could negatively affect the revenues, earnings and cash flows of our company or
the businesses that we have acquired. Regulatory changes may have an impact on the development and/or commercialization of
products which originate from the Swedish Match or Vectura Fertin Pharma value chains, as well as our revenues, earnings and cash
flow. If we are unable to maintain the business and operational relationships of Swedish Match, or of Vectura Fertin Pharma, our
financial position, results of operations or cash flows upon combining with these companies could be adversely affected.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
We own or lease various manufacturing, office and research and development facilities in locations around the world. We own
properties in Switzerland where our operations center and state-of-the-art research and development facility are located.
At December 31, 2022, we operated and owned a total of 53 manufacturing facilities across our segments. Among them, 8 factories
produced heated tobacco units. The Swedish Match acquisition expanded our manufacturing footprint with the addition of 14 owned
manufacturing facilities, which are included in the total above. The manufacturing facilities acquired from Swedish Match are
primarily engaged in the production of smoke-free products.
In 2022, certain facilities each manufactured over 30 billion units (cigarettes and heated tobacco units combined). The largest
manufacturing facilities, in terms of volume, are located in Turkey (ME&A), Indonesia (S&SA), Poland (EU), Russia (EE), Italy
(EU), the Philippines (S&SA), Lithuania (EU), Czech Republic (EU) and Portugal (EU). As part of our global operating model,
18
products manufactured in a particular manufacturing facility are not necessarily distributed in the operating segment where the facility
is located.
We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, and we are
progressing with our plans to build manufacturing capacity for our other RRP and smoke-free platforms. We will continue to optimize
our manufacturing infrastructure.
We believe the properties owned or leased by our subsidiaries are maintained in good condition and are believed to be suitable and
adequate for our present needs.
Item 3.
Legal Proceedings.
The information called for by this Item is incorporated herein by reference to Item 8, Note 18. Contingencies.
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 (ticker symbol
"PM"). At January 31, 2023, there were approximately 43,700 holders of record of our common stock.
19
Performance Graph
The graph below compares the cumulative total shareholder return on PMI's common stock with the cumulative total return for the
same period of PMI's Peer Group and the S&P 500 Index. The graph assumes the investment of $100 as of December 31, 2017, in
PMI common stock (at prices quoted on the New York Stock Exchange), and each of the indices as of the market close and
reinvestment of dividends on a quarterly basis.
Date
December 31, 2017
December 31, 2018
December 31, 2019
December 31, 2020
December 31, 2021
December 31, 2022
PMI
$100.00
$66.80
$90.10
$93.60
$113.10
$127.00
PMI Peer Group (1)
$100.00
$89.40
$110.80
$118.50
$137.10
$132.90
S&P 500 Index
$100.00
$93.80
$120.80
$140.50
$178.30
$143.60
(1) The PMI Peer Group presented in this graph is the same as that used in the prior year. The PMI Peer Group was established based on a review of
four characteristics: global presence; a focus on consumer products; and net revenues and a market capitalization of a similar size to those of PMI.
The review also considered the primary international tobacco companies. As a result of this review, the following companies constitute the PMI Peer
Group: Altria Group, Inc., Anheuser-Busch InBev SA/NV, British American Tobacco p.l.c., The Coca-Cola Company, Colgate-Palmolive Co.,
Diageo plc, Heineken N.V., Imperial Brands PLC, Japan Tobacco Inc., Johnson & Johnson, Kimberly-Clark Corporation, The Kraft-Heinz Company,
McDonald's Corp., Mondelēz International, Inc., Nestlé S.A., PepsiCo, Inc., The Procter & Gamble Company, Roche Holding AG, and Unilever NV
and PLC.
Note: Figures are rounded to the nearest $0.10.
20
Comparison of Five-Year Cumulative Total Shareholder ReturnPMIPMI Peer Group (1)S&P 500 Index201720182019202020212022$50$75$100$125$150$175$200 Issuer Purchases of Equity Securities During the Quarter Ended December 31, 2022
Our share repurchase activity for each of the three months in the quarter ended December 31, 2022, was as follows:
Total Number
of Shares
Purchased as
Part of Publicly
Announced
Plans or
Programs
Approximate
Dollar Value
of Shares that
May Yet be
Purchased
Under the Plans
or Programs
10,481,359 $
6,016,847,275
10,481,359 $
6,016,847,275
10,481,359 $
6,016,847,275
Period
October 1, 2022 –
October 31, 2022 (1)
November 1, 2022 –
November 30, 2022 (1)
December 1, 2022 –
December 31, 2022 (1)
Pursuant to Publicly Announced
Plans or Programs
October 1, 2022 –
October 31, 2022 (2)
November 1, 2022 –
November 30, 2022 (2)
December 1, 2022 –
December 31, 2022 (2)
For the Quarter Ended
December 31, 2022
Total
Number of
Shares
Repurchased
Average
Price Paid
per Share
$
$
$
— $
3,753 $
3,421 $
1,703 $
8,877 $
—
—
—
—
85.29
90.52
97.40
89.63
(1) On June 11, 2021, our Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending
of $5 billion to $7 billion over a three-year period that commenced in July 2021. These share repurchases have been made
pursuant to the $7 billion program. On May 11, 2022, we announced the suspension of our three-year share repurchase
program following the recommended public offer to acquire the outstanding shares of Swedish Match from its shareholders.
For further details on the offer, see the Acquisitions and Other Business Arrangements section of Part II, Item 7 of this Form
10-K.
(2) Shares repurchased represent shares tendered to us by employees who vested in restricted and performance share unit awards
and used shares to pay all, or a portion of, the related taxes.
21
Item 6. [Reserved].
Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the
consolidated financial statements and related notes contained in Item 8, and the discussion of risks and cautionary factors that may
affect future results in Item 1A. Risk Factors.
Description of Our Company
We are a leading international tobacco company working to deliver a smoke-free future and to evolve our portfolio for the long term
to include products outside of the tobacco and nicotine sector. Our current product portfolio primarily consists of cigarettes and
smoke-free products, which include heat-not-burn, vapor, and oral nicotine products. Since 2008, we have invested more than $10.5
billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise
continue to smoke, with the goal of completely ending the sale of cigarettes. This investment includes the building of world-class
scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as
post-market studies. In November 2022, we acquired Swedish Match AB ("Swedish Match") – a leader in oral nicotine delivery –
creating a global smoke-free combination led by the companies’ IQOS and ZYN brands. The U.S. Food and Drug Administration
("FDA") has authorized versions of our IQOS Platform 1 devices and consumables, and Swedish Match's General snus, as Modified
Risk Tobacco Products (MRTPs). We describe the MRTP orders in more detail in the "Business Environment" section of this Item 7.
As of December 31, 2022, we managed our business in six geographical segments, a Swedish Match segment and a Wellness and
Healthcare segment:
•
•
European Union ("EU");
Eastern Europe ("EE");
• Middle East & Africa ("ME&A"), which includes our international duty free business;
•
•
•
•
South & Southeast Asia ("S&SA");
East Asia & Australia ("EA&A");
Americas ("AMCS");
Swedish Match, which reflects our fourth quarter 2022 acquisition of the company; and
• Wellness and Healthcare ("W&H"), which includes the operating results of our new Wellness and Healthcare business,
Vectura Fertin Pharma. In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc. (also known as
Vectura Group Ltd.) and OtiTopic, Inc. On March 31, 2022, we launched a new Wellness and Healthcare business
consolidating these entities, Vectura Fertin Pharma. The operating results of this new business are reported in the Wellness
and Healthcare segment.
To further support the growth of our smoke-free business, reinforce consumer centricity, and increase the speed of innovation and
deployment, in January 2023, we rearranged our operations in four geographical segments, down from the current six and as follows:
•
•
•
•
Europe Region is headquartered in Lausanne, Switzerland, and covers all the European Union countries, Switzerland, the
United Kingdom, and also Ukraine, Moldova and Southeast Europe;
South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region is headquartered in Dubai,
United Arab Emirates. It covers South and Southeast Asia, the African continent, the Middle East, Turkey, as well as Israel,
Central Asia, Caucasus and Russia;
East Asia, Australia, and PMI Duty Free Region is headquartered in Hong Kong, and includes the consolidation of our
international duty free business with East Asia & Australia; and
Americas Region is headquartered in Stamford, Connecticut, and covers the United States, Canada and Latin America.
22
The operations of Swedish Match and our Wellness and Healthcare segment remained unchanged. We will report our financial
results based on the new geographical segments as of the first quarter of 2023.
In November 2022, we completed the relocation of our corporate headquarters, including our AMCS headquarters, from New York,
New York, to Stamford, Connecticut.
Our cigarettes are sold in approximately 175 markets, and in many of these markets they hold the number one or number two market
share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio comprises both international and
local brands.
Smoke-free products ("SFPs") is the term we primarily use to refer to all of our products that are not combustible tobacco products,
such as heat-not-burn, e-vapor, and oral nicotine. In addition, SFPs include wellness and healthcare products, as well as consumer
accessories such as lighters and matches.
In addition to the manufacture and sale of cigarettes, we are engaged in the development and commercialization of reduced-risk
products ("RRPs"). RRPs is the term we use to refer to products that present, are likely to present, or have the potential to present less
risk of harm to smokers who switch to these products versus continuing smoking. We have a range of RRPs in various stages of
development, scientific assessment and commercialization. Our RRPs are SFPs that contain and/or generate far lower quantities of
harmful and potentially harmful constituents than found in cigarette smoke. IQOS is the leading brand in our SFP portfolio. As of
December 31, 2022, our smoke-free products were available for sale in 73 markets.
In 2021, we laid the foundation for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the
milestone acquisitions of Vectura Group plc and Fertin Pharma A/S, as noted above, which provide essential capabilities for future
product development. Now, through our Vectura Fertin Pharma subsidiary, with a strong foundation and significant expertise in life
sciences, we aim to expand into wellness and healthcare areas.
In 2022, we acquired Swedish Match AB, a market leader in oral nicotine delivery with a significant presence in the United States
market. The Swedish Match acquisition is a key milestone in PMI’s transformation to becoming a smoke-free company. Swedish
Match already has a leading nicotine pouch franchise in the U.S. under the ZYN brand name. The Swedish Match product portfolio is
complementary to our existing portfolio, permitting us to bring together a leading oral nicotine product with the leading heat-not-burn
product. By joining forces with Swedish Match, we expect to accelerate the achievement of our joint smoke-free ambitions,
switching more adults who would otherwise continue to smoke to better alternatives faster than either company could achieve
separately.
For further details of our 2021 and 2022 acquisitions, see Item 8, Note 3. Acquisitions and Note 13. Segment Reporting
We use the term net revenues to refer to our operating revenues from the sale of our products, including shipping and handling
charges billed to customers, net of sales and promotion incentives, and excise taxes. Our net revenues and operating income are
affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange rates
and the mix of products we sell. Mix is a term used to refer to the proportionate value of premium-price brands to mid-price or low-
price brands in any given market (product mix). Mix can also refer to the proportion of shipment volume in more profitable markets
versus shipment volume in less profitable markets (geographic mix).
Our cost of sales consists principally of: tobacco leaf, non-tobacco raw materials, labor and manufacturing costs; shipping and
handling costs; and the cost of devices produced by third-party electronics manufacturing service providers. Estimated costs
associated with device warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.
Our marketing, administration and research costs include the costs of marketing and selling our products, other costs generally not
related to the manufacture of our products (including general corporate expenses), and costs incurred to develop new products. The
most significant components of our marketing, administration and research costs are marketing and sales expenses and general and
administrative expenses.
Philip Morris International Inc. is a legal entity separate and distinct from its direct and indirect subsidiaries. Accordingly, our right,
and thus the right of our creditors and stockholders, to participate in any distribution of the assets or earnings of any subsidiary is
subject to the prior rights of creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be
recognized. As a holding company, our principal sources of funds, including funds to make payment on our debt securities, are from
the receipt of dividends and repayment of debt from our subsidiaries. Our principal wholly owned and majority-owned subsidiaries
currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions
that are otherwise compliant with law.
23
Executive Summary
The following executive summary provides the business update and significant highlights from the Discussion and Analysis that
follows.
War in Ukraine
Since the onset of the war in Ukraine, our main priority has been the safety and security of our more than 1,300 employees and their
families in the country. PMI has helped to evacuate more than 1,000 people from Ukraine and relocate over 2,700 others from conflict
zones to locations in the country away from the heaviest fighting; provided critical aid to employees who cannot leave or who decide
to remain in Ukraine; and provided those who have left the country with a range of support in neighboring countries. We are
continuing to pay salaries to all our Ukrainian employees and are also providing substantial in-kind support to them and their families.
In addition, we have contributed approximately $10 million in funds and donated essential items across the country.
On February 25, 2022, in order to preserve the safety of our employees, we announced the temporary suspension of our commercial
and manufacturing operations in Ukraine, including at our factory in Kharkiv. We subsequently resumed some retail activities where
safety allowed, in order to provide product availability and service to adult consumers, and began to supply the market from
production centers outside Ukraine, as well as through a contract manufacturing arrangement. Production at our factory in Kharkiv
remains suspended.
In 2022, Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume and around 1% of our total
net revenues. As of December 31, 2022, our Ukrainian operations had approximately $0.4 billion in total assets, excluding
intercompany balances.
We employ more than 3,200 people in Russia and will continue to support our employees there, including paying their salaries, while
continuing to fulfill our legal obligations. We will continue to make decisions with employee safety and security as a priority.
On March 24, 2022, we announced the concrete steps we had taken to suspend planned investments and scale down our manufacturing
operations in Russia, including: the discontinuation of a number of cigarette products; the suspension of our marketing activities; the
cancellation of all product launches planned for 2022, including ILUMA; and the cancellation of our plans to manufacture heated
tobacco units for ILUMA in Russia.
We are continuously assessing the evolving situation in Russia, including: recent regulatory constraints in the market that entail very
complex terms and conditions that must be met for any divestment transaction to be granted approval by the authorities; and
restrictions resulting from international regulations.
In 2022, Russia accounted for approximately 9% of total shipment volumes and around 7% of our total net revenues. As of December
31, 2022, our Russian operations had approximately $2.5 billion in total assets, excluding intercompany balances, of which
approximately $0.6 billion consisted of cash and equivalents held mostly in local currency (Russian rubles).
We recorded pre-tax charges related to the war in Ukraine of approximately $151 million in 2022 (including humanitarian efforts).
This includes charges in Russia related to the cancellation of the planned launch of ILUMA and the planned production of related
heated tobacco units.
These developments above have and will continue to have a material adverse impact on our business, results of operations, cash flows
and financial position, and may result in impairment charges.
For further details, see Item 8, Note 4. War in Ukraine to our consolidated financial statements as well as Item 1A. Risk Factors and
the "Trade Policy" section of this MD&A.
Agreement with Altria Group, Inc. regarding Commercialization of IQOS in the U.S.
On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc. to end the companies' relationship
regarding the IQOS commercialization rights in the U.S. as of April 30, 2024. As a result of PMI reacquiring these rights, effective
May 1, 2024, PMI will have the full rights to commercialize IQOS in the U.S. As part of the agreement, PMI agreed to pay a total cash
consideration of $2.7 billion, with $1.0 billion paid at the inception of the agreement and the remaining $1.7 billion (plus interest, at a
per annum rate equal to six percent (6%)), to be paid by July 2023 at the latest.
For further details, see Item 8, Note 3. Acquisitions.
24
Swedish Match Acquisition
On November 11, 2022, Philip Morris Holland Holdings B.V. (“PMHH”), a wholly owned subsidiary of PMI, acquired a controlling
interest of 85.87% of the total issued and outstanding shares in Swedish Match. Swedish Match's operating results beginning on
November 11, 2022 through December 31, 2022, are included in PMI's consolidated statement of earnings and disclosed as a separate
segment.
On November 28, 2022, PMHH announced that it had acquired 93.11% of the shares in Swedish Match and intended to: (i) initiate
compulsory redemption under the Swedish Companies Act to acquire all remaining shares in Swedish Match; and (ii) request delisting
of Swedish Match’s shares from Nasdaq Stockholm.
On December 16, 2022, Swedish Match announced that the compulsory redemption process had been initiated. On December 30,
2022, the shares of Swedish Match were delisted from Nasdaq Stockholm, by which time PMHH had become the owner of 94.81% of
Swedish Match's shares.
For further details, see Item 8, Note 3. Acquisitions.
KT&G
On January 30, 2023, PMI announced a long-term collaboration with KT&G, South Korea’s leading tobacco and nicotine
manufacturer, to continue to commercialize KT&G’s innovative smoke-free devices and consumables on an exclusive, worldwide
basis (excluding South Korea).
The agreement covers fifteen years, to January 29, 2038, with performance-review cycles and associated commitments, based on
volume, to be confirmed for each three-year period, to allow flexibility for evolving market conditions.
For further details, see "Acquisitions and Other Business Arrangements" section of this MD&A.
Consolidated Operating Results
•
Net Revenues – Net revenues of $31.8 billion for the year ended December 31, 2022, increased by $0.4 billion, or 1.1%, from
the comparable 2021 amount. The change in our net revenues from the comparable 2021 amount was driven by the following
(variances not to scale):
Net revenues, excluding currency and acquisitions, increased by 8.0%, mainly reflecting: favorable volume/mix, primarily driven
by higher heated tobacco units ("HTU") volume and device volume, partly offset by lower cigarette volume and unfavorable
device mix, cigarette mix and HTU mix; a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset
by lower device pricing and lower HTU (net) pricing; and a favorable comparison related to the Saudi Arabia customs
assessments of $246 million in 2021, shown in "Other" and further described in the following "Diluted Earnings Per Share"
discussion.
In 2022, Russia and Ukraine accounted for around 8% of PMI's total net revenues.
25
(in millions)$31,405$(2,656)$515$528$1,719$251$31,7622021CurrencyAcquisitionsPriceVolume/MixOther2022 Net revenues by product category for the years ended December 31, 2022 and 2021, are shown below:
Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI
reclassified certain of its own products previously reported under its combustible tobacco product category to the newly created
smoke-free product category to better reflect the characteristics of these products. This reclassification did not impact PMI’s
segment reporting, consolidated financial position, results of operations or cash flows in any of the periods presented. For further
details, see Item 8, Note 13. Segment Reporting.
26
2022 ($ in millions)Combustible Tobacco$21,57267.9%Smoke-Free $10,19032.1%2021 ($ in millions)Combustible Tobacco$22,06770.3%Smoke-Free $9,33829.7%
•
Diluted Earnings Per Share – The changes in our reported diluted earnings per share (“diluted EPS”) for the year ended
December 31, 2022, from the comparable 2021 amounts, were as follows:
Diluted EPS
% Change
$
5.83
For the year ended December 31, 2021
2021 Asset impairment and exit costs
2021 Saudi Arabia customs assessments
2021 Asset acquisition cost
2021 Equity investee ownership dilution
2021 Amortization and impairment of intangibles
2021 Tax items
Subtotal of 2021 items
2022 Charges related to the war in Ukraine
2022 Fair value adjustment for equity security investments
2022 Amortization and impairment of intangibles
2022 Costs associated with Swedish Match AB offer
2022 Swedish Match AB acquisition accounting related item
2022 Tax benefit associated with Swedish Match AB financing
2022 Tax items
Subtotal of 2022 items
Currency
Interest
Change in tax rate
Operations
0.12
0.14
0.03
(0.04)
0.05
—
0.30
(0.08)
0.02
(0.15)
(0.06)
(0.06)
0.13
0.03
(0.17)
(0.77)
0.02
0.03
0.57
5.81
(0.3) %
For the year ended December 31, 2022
$
Asset impairment and exit costs – During 2021, we recorded pre-tax asset impairment and exit costs of $216 million, representing
$181 million net of income tax and a diluted EPS charge of $0.12 per share, related to the organizational design optimization plan,
primarily in Switzerland, and the product distribution restructuring in South Korea. The pre-tax charge was recorded in
marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2021.
For further details, see Item 8, Note 20. Asset Impairment and Exit Costs.
Saudi Arabia customs assessments – In June 2021, the Customs Appeal Committee in Riyadh notified our distributors in Saudi
Arabia of its decisions to largely reject their challenges of the Saudi Arabia Customs General Authority assessments as described
in Item 8, Note 18. Contingencies. On the basis of these decisions and in line with arrangements with the distributors, we
recorded a pre-tax charge of $246 million in the second quarter of 2021 (representing $215 million net of income tax and a diluted
EPS charge of $0.14 per share). The pre-tax charge was recorded as a reduction of net revenues on the consolidated statement of
earnings for the year ended December 31, 2021, and was included in the Middle East & Africa segment results.
Asset acquisition cost – In August 2021, we acquired 100% of OtiTopic, Inc., a U.S. respiratory drug development company with
a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction. We accounted for this transaction as an asset
acquisition since the acquired in-process research and development ("IPR&D") of the dry powder inhalation aspirin treatment
represented substantially all of the fair value of the gross assets acquired. At the date of acquisition, we determined that the
acquired IPR&D had no alternative future use. As a result, we recorded a pre-tax charge of $51 million (representing a $0.03 per
share charge to diluted EPS) to research and development costs within marketing, administration and research costs in the
consolidated statements of earnings for the year ended December 31, 2021. For further details, see Item 8, Note 3. Acquisitions.
Equity investee ownership dilution – In 2021, our equity method investee, Medicago Inc., initiated additional rounds of equity
funding in which we did not participate. As a result, our share of holdings in Medicago Inc. was reduced from approximately
32% at December 31, 2020, to approximately 23% as of December 31, 2021. The ownership dilution resulted in a $0.04 per share
27
favorable impact to diluted EPS and income of $55 million to equity investments and securities (income)/loss, net in the
consolidated statements of earnings for the year ended December 31, 2021. For further details, see Item 8, Note 18.
Contingencies - Third Party Guarantees.
Amortization and impairment of intangibles – During 2022 and 2021, we recorded amortization and impairment of intangibles of
$271 million (representing $227 million net of income tax or $0.15 per share decrease in diluted EPS) and $96 million
(representing $78 million net of income tax or $0.05 per share decrease in diluted EPS), respectively. The pre-tax amortization
and impairment of intangibles amount in 2022 consisted of amortization expense of $159 million primarily due to increased
acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021, and an impairment charge of $112
million reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on
certain products within the Wellness and Healthcare segment. For further details, see Item 8, Note 3. Acquisitions and Note 5.
Goodwill and Other Intangible Assets, net.
Charges related to the war in Ukraine – During 2022, we recorded a pre-tax charge of $151 million, representing $128 million
net of income tax and a diluted EPS charge of $0.08 per share, related to circumstances driven by the war, including machinery
and inventory write-downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts. For further details,
see Item 8, Note 4. War in Ukraine.
Fair Value adjustment for equity security investments – During 2022, we recorded a favorable fair value adjustment for our equity
security investments in India and Sri Lanka ($0.02 per share increase in diluted EPS). For further details, see Item 8, Note 6.
Related Parties - Equity Investments and Other.
Costs associated with Swedish Match AB offer – During 2022, we incurred pre-tax costs associated with the Swedish Match
acquisition of $116 million (representing $99 million net of income tax and a diluted EPS charge of $0.06 per share) primarily
related to financing costs, derivative financials instruments and certain transaction related costs. These pre-tax costs of $116
million were recorded in marketing, administration and research costs ($115 million expense) and interest expense, net ($1
million expense) on our consolidated statement of earnings for the year ended December 31, 2022.
Swedish Match AB acquisition accounting related item – Following the Swedish Match acquisition, we recorded pre-tax purchase
accounting adjustments of $125 million related to the sale of acquired inventories stepped up to fair value (representing $94
million net of income tax and a diluted EPS charge of $0.06 per share). These pre-tax adjustments were recorded in cost of sales
in the consolidated statements of earnings for the year ended December 31, 2022. For further details, see Item 8, Note 3.
Acquisitions.
Income taxes – The 2022 Tax benefit associated with Swedish Match AB financing that increased our 2022 diluted EPS by $0.13
per share in the table above was due to a deferred tax benefit for unrealized foreign currency losses on intercompany loans related
to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax
foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation
adjustments in the consolidated statements of stockholders' (deficit) equity at December 31, 2022. The 2022 Tax items that
increased our 2022 diluted EPS by $0.03 per share in the table above were due to a reduction in deferred tax liabilities related to
pension plan assets of $40 million. The change in the tax rate that increased our diluted EPS by $0.03 per share in the table above
was primarily due to changes in income tax reserves.
Currency – The unfavorable impact of $0.77 per share during the reporting period primarily results from the fluctuations of the
U.S. dollar, especially against the Egyptian pound, Euro, Hungarian forint, Japanese yen and Polish zloty, partially offset by the
Russian ruble and Swiss franc. This unfavorable currency movement has impacted our profitability across our primary revenue
markets and local currency cost bases.
Interest – The favorable impact of $0.02 per share from interest in the table above was primarily driven by the repayment of long-
term debt maturing in 2021 and 2022, and higher net interest income driven by higher interest rates, partially offset by higher
interest expense in connection with the Swedish Match acquisition.
Operations – The increase in diluted EPS of $0.57 per share from our operations in the table above was due primarily to the
following segments:
•
European Union: Favorable volume/mix, partly offset by unfavorable pricing, higher manufacturing costs and higher
marketing, administration and research costs;
• Middle East & Africa: Favorable volume/mix, favorable pricing and lower marketing, administration and research costs,
partly offset by higher manufacturing costs; and
28
•
South & Southeast Asia: Lower marketing, administration and research costs and favorable pricing, partly offset by
unfavorable volume/mix;
partially offset by
•
East Asia & Australia: Unfavorable volume/mix and higher manufacturing costs, partly offset by lower marketing,
administration and research costs;
• Wellness and Healthcare: Primarily reflecting investments in research and development, as well as expenses related to
employee retention programs;
•
•
Americas: Higher marketing, administration and research costs and higher manufacturing costs, partly offset by favorable
pricing; and
Eastern Europe: Unfavorable volume/mix, higher manufacturing costs and higher marketing, administration and research
costs, partly offset by favorable pricing.
For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following
Discussion and Analysis.
Discussion and Analysis
Critical Accounting Estimates
Item 8, Note 2. Summary of Significant Accounting Policies to our consolidated financial statements includes a summary of the
significant accounting policies and methods used in the preparation of our consolidated financial statements. In most instances, we
must use a particular accounting policy or method because it is the only one that is permitted under U.S. GAAP.
The preparation of financial statements requires that we use estimates and assumptions that affect the reported amounts of our assets,
liabilities, net revenues and expenses, as well as our disclosure of contingencies. If actual amounts differ from previous estimates, we
include the revisions in our consolidated results of operations in the period during which we know the actual amounts. Historically,
aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant impact on our
consolidated financial statements.
The selection and disclosure of our critical accounting estimates have been discussed with our Audit Committee. The following is a
discussion of the more significant assumptions, estimates, accounting policies and methods used in the preparation of our
consolidated financial statements:
Acquisitions - PMI accounts for business combinations using the acquisition method of accounting. PMI allocates the purchase price
of an acquired business to the assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with
the excess recorded as Goodwill. The fair value of the applicable assets acquired and liabilities assumed is determined through
established valuation techniques, such as the income, cost or market approach. PMI may utilize third-party valuation experts to assist
in the fair value determination of certain assets acquired and liabilities assumed. The determination of fair value requires management
to make judgements and may involve the use of significant estimates, including assumptions with respect to estimated projected
revenue growth, future cash flows, terminal growth rates, useful economic lives of intangible assets acquired, discount rates, royalty
rates and other factors. Certain acquired intangibles are expected to have indefinite lives based on their history and PMI’s intent to
continue to support and build the intangible.
Although PMI believes its estimates of fair value are reasonable, actual financial results could differ from those estimates. Changes in
assumptions related to future financial results or other underlying assumptions could have a significant impact on the determination of
the fair value of the intangible assets acquired.
See Item 8, Note 3. Acquisitions to our consolidated financial statements for details of the critical accounting estimates relevant to the
business combinations in the periods presented in this Form 10-K.
Revenue Recognition - We recognize revenue as performance obligations are satisfied. Our primary performance obligation is the
distribution and sales of cigarettes and smoke-free products, including heat-not-burn, vapor and oral nicotine products. Our
performance obligations are typically satisfied upon shipment or delivery to our customers. PMI estimates the cost of sales returns
based on historical experience, and these estimates are immaterial. Estimated costs associated with warranty programs for IQOS
devices are generally provided for in cost of sales in the period the related revenues are recognized, based on a number of factors,
including historical experience, product failure rates and warranty policies. The transaction price is typically based on the amount
29
billed to the customer and includes estimated variable consideration where applicable. Such variable consideration is typically not
constrained and is estimated based on the most likely amount that PMI expects to be entitled to under the terms of the contracts with
customers, historical experience of discount or rebate redemption, where relevant, and the terms of any underlying discount or rebate
programs, which may change from time to time as the business and product categories evolve.
Inventories - Our inventories are valued at the lower of cost or market based upon assumptions about future demand and market
conditions. The valuation of inventory also requires us to estimate obsolete and excess inventory. We perform regular reviews of our
inventory on hand, as well as our future purchase commitments with our suppliers, considering multiple factors, including demand
forecasts, product life cycle, current sales levels, pricing strategy and cost trends. If our review indicates that inventories of raw
materials, components or finished products have become obsolete or are in excess of anticipated demand or that inventory cost
exceeds net realizable value, we may be required to make adjustments that will impact the results of operations.
Goodwill and Non-Amortizable Intangible Assets Valuation - We test goodwill and non-amortizable intangible assets for
impairment annually or more frequently if events occur that would warrant such review. While PMI has the option to perform a
qualitative assessment for both goodwill and non-amortizable intangible assets to determine if it is more likely than not that an
impairment exists, PMI elects to perform the quantitative assessment for our annual impairment analysis. The impairment analysis
involves comparing the fair value of each reporting unit or non-amortizable intangible asset to the carrying value. If the carrying value
exceeds the fair value, goodwill or a non-amortizable intangible asset is considered impaired. To determine the fair value of goodwill,
we primarily use the market approach using earnings multiples of comparable global companies within the tobacco industry,
supported by a discounted cash flow model. At December 31, 2022, the carrying value of our goodwill was $19.7 billion, which is
related to ten geographical reporting units, each of which consists of a group of markets with similar operating and economic
characteristics, Wellness and Healthcare business, Vectura Fertin Pharma and our 2022 acquisition. The acquisition of Swedish Match
in 2022 is considered a separate operating segment. For additional information, see Item 8, Note 3. Acquisitions. The estimated fair
value of each of our ten geographical reporting units, Wellness and Healthcare business and Swedish Match exceeded the carrying
value as of December 31, 2022. To determine the fair value of non-amortizable intangible assets, we primarily use a discounted cash
flow model applying the relief-from-royalty method. We concluded that the fair value of our non-amortizable intangible assets
exceeded the carrying value. These discounted cash flow models include management assumptions relevant for forecasting operating
cash flows, which are subject to changes in business conditions, such as volumes and prices, costs to produce, discount rates and
estimated capital needs. Management considers historical experience and all available information at the time the fair values are
estimated, and we believe these assumptions are consistent with the assumptions a hypothetical marketplace participant would use.
Since the March 28, 2008, spin-off from Altria Group, Inc., we have not recorded a charge to earnings for an impairment of goodwill
or non-amortizable intangible assets.
Marketing Costs - We incur certain costs to support our products through programs that include advertising, marketing, consumer
engagement and trade promotions. The costs of our advertising and marketing programs are expensed in accordance with U.S.
GAAP. Recognition of the cost related to our consumer engagement and trade promotion programs contain uncertainties due to the
judgment required in estimating the potential performance and compliance for each program. For volume-based incentives provided
to customers, management continually assesses and estimates, by customer, the likelihood of the customer's achieving the specified
targets, and records the reduction of revenue as the sales are made. For other trade promotions, management relies on estimated
utilization rates that have been developed from historical experience. Changes in the assumptions used in estimating the cost of any
individual marketing program would not result in a material change in our financial position, results of operations or operating cash
flows.
Employee Benefit Plans - As discussed in Item 8, Note 14. Benefit Plans to our consolidated financial statements, we provide a range
of benefits to our employees and retired employees, including pensions, postretirement health care and postemployment benefits
(primarily severance). We record annual amounts relating to these plans based on calculations specified by U.S. GAAP. These
calculations include various actuarial assumptions, such as discount rates, assumed rates of return on plan assets, compensation
increases, mortality, turnover rates and health care cost trend rates. We review actuarial assumptions on an annual basis and make
modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As permitted by U.S.
GAAP, any effect of the modifications is generally amortized over future periods. We believe that the assumptions utilized in
calculating our obligations under these plans are reasonable based upon our historical experience and advice from our actuaries.
Weighted-average discount rate assumptions for pension and postretirement plan obligations at December 31, 2022 and 2021 are as
follows:
Pension plans
Postretirement plans
2022
3.03%
5.89%
30
2021
0.86%
3.08%
We anticipate that assumption changes will decrease 2023 pre-tax pension and postretirement expense to approximately $91 million
as compared with approximately $152 million in 2022, excluding amounts related to employee severance and early retirement
programs. The anticipated decrease is primarily due to lower amortization of unrecognized actuarial losses of $168 million, coupled
with lower service cost of $74 million, partially offset by higher interest cost of $167 million and other movements of $14 million.
Weighted-average expected rate of return and discount rate assumptions have a significant effect on the amount of expense reported
for the employee benefit plans. A fifty-basis-point decrease in our discount rate would increase our 2023 pension and postretirement
expense by approximately $40 million, and a fifty-basis-point increase in our discount rate would increase our 2023 pension and
postretirement expense by approximately $1 million. Similarly, a fifty-basis-point decrease (increase) in the expected return on plan
assets would increase (decrease) our 2023 pension expense by approximately $37 million.
Income Taxes - Income tax provisions for jurisdictions outside the United States, as well as state and local income tax provisions, are
determined on a separate company basis, and the related assets and liabilities are recorded in our consolidated balance sheets.
The extent of our operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a
multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in
various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. In accordance with the
authoritative guidance for income taxes, we evaluate potential tax exposures and record tax liabilities for anticipated tax audit issues
based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing
facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a
payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less
than the ultimate assessment, an additional charge to expense would generally result. If payment of these amounts ultimately proves
to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we
determine the liabilities are no longer necessary.
We are required to assess the likelihood of recovering deferred tax assets against future sources of taxable income. If we determine,
using all available evidence, that we do not reach the more likely than not threshold for recovery, a valuation allowance is recorded.
Significant judgment is required in determining the need for and amount of valuation allowances for deferred tax assets including
estimates of future taxable income in the applicable jurisdictions and the feasibility of on-going tax planning strategies, as applicable.
The effective tax rates used for interim reporting are based on our full-year geographic earnings mix projections. Changes in currency
exchange rates, earnings mix by taxing jurisdiction or future regulatory developments may have an impact on the effective tax rates.
Significant judgment is required in determining income tax provisions and in evaluating tax positions.
For further details, see Item 8, Note 12. Income Taxes to our consolidated financial statements.
Hedging - As discussed below in “Market Risk,” we use derivative financial instruments principally to reduce exposures to market
risks resulting from fluctuations in foreign currency exchange and interest rates by creating offsetting exposures. For derivative
contracts that are designated and qualify as fair value hedges the gain or loss on the derivative, as well as the offsetting gain or loss on
the hedged items attributable to the hedged risk, is recognized in the consolidated statement of earnings. For our other derivatives to
which we have elected to apply hedge accounting, gains and losses on these derivatives are initially deferred in accumulated other
comprehensive losses on the consolidated balance sheet and recognized in the consolidated statement of earnings into the same line
item as the impact of the underlying transaction and in the periods when the related hedged transactions are also recognized in
operating results. If we had elected not to use the hedge accounting provisions, gains (losses) deferred in stockholders’ (deficit) equity
would have been recorded in our net earnings for these derivatives.
Contingencies - As discussed in Item 8, Note 18. Contingencies, to our consolidated financial statements, legal proceedings covering
a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions.
We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an
unfavorable outcome is probable and the amount of the loss can be reasonably estimated. The variability in pleadings in multiple
jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be
specified in a lawsuit bears little relevance to the ultimate outcome. Much of the tobacco-related litigation is in its early stages, and
litigation is subject to uncertainty. At the present time, except as stated otherwise in Item 8, Note 18. Contingencies, while it is
reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it: (i) management
has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is
unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated
loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any. Legal defense costs are
expensed as incurred.
31
Consolidated Operating Results
Our net revenues and operating income by segment were as follows:
(in millions)
Net Revenues
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
Wellness and Healthcare
Net revenues
Operating Income (Loss)
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
Wellness and Healthcare
Operating income
2022
2021
2020
$
12,119 $
12,275 $
10,702
$
$
3,725
3,901
4,395
5,132
1,903
316
271
3,544
3,293
4,396
5,953
1,843
—
101
3,378
3,088
4,396
5,429
1,701
—
—
31,762 $
31,405 $
28,694
5,788 $
6,119 $
1,166
1,758
1,459
1,919
436
(22)
(258)
1,213
1,146
1,506
2,556
487
—
(52)
5,098
871
1,026
1,709
2,400
564
—
—
$
12,246 $
12,975 $
11,668
Items affecting the comparability of results from operations were as follows:
•
•
•
•
•
•
Charges related to the war in Ukraine - See Item 8, Note 4. War in Ukraine for details of the $151 million pre-tax charges in
the Eastern Europe segment for the year ended December 31, 2022.
Swedish Match AB acquisition accounting related item - See Item 8, Note 3. Acquisitions for details of the $125 million pre-
tax purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value included in the Swedish
Match segment for the year ended December 31, 2022.
Impairment of intangibles - See Item 8, Note 5. Goodwill and Other Intangible Assets, net for the details of the $112 million
pre-tax impairment charge included in the Wellness and Healthcare segment within the operating income table above for the year
ended December 31, 2022.
Asset impairment and exit costs - See Item 8, Note 20. Asset Impairment and Exit Costs for details of the $216 million and $149
million pre-tax charges for the year ended December 31, 2021 and 2020, respectively, as well as a breakdown of these costs by
segment.
Saudi Arabia customs assessments - See Item 8, Note 18. Contingencies for the details of the $246 million reduction in net
revenues of combustible tobacco products included in the Middle East & Africa segment for the year ended December 31, 2021.
Asset acquisition cost - See Item 8, Note 3. Acquisitions for the details of the $51 million pre-tax charge associated with the asset
acquisition of OtiTopic, Inc. included in the Wellness and Healthcare segment within the operating income table above for the
year ended December 31, 2021.
• Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI
recorded a gain of $119 million for tax credits representing overpayments of indirect taxes for the period from March 2012
through December 2019; these tax credits were applied to tax liabilities in Brazil during 2021. This amount was included as a
32
reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December
31, 2020 and was included in the operating income of the Americas segment. An additional amount of overpaid indirect taxes of
approximately $90 million is dependent on the outcome of a challenge by the local tax authority.
Our net revenues by product category were as follows:
PMI Net Revenues by Product Category
(in millions)
Combustible tobacco products
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
2022
2021
2020
$
7,212 $
8,211 $
2,410
3,567
4,372
2,138
1,804
70
2,240
3,110
4,385
2,414
1,706
—
8,052
2,250
3,005
4,395
2,468
1,577
—
Total combustible tobacco products
21,572
22,067
21,747
Smoke-free products
Smoke-free products excluding Wellness and Healthcare:
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
Total smoke-free products excluding Wellness and Healthcare
Wellness and Healthcare
Total smoke-free products
4,907
1,315
334
23
2,994
99
246
9,919
271
10,190
4,064
1,304
183
11
3,539
137
—
9,237
101
9,338
2,650
1,128
83
1
2,961
124
—
6,947
—
6,947
Total PMI net revenues
$
31,762 $
31,405 $
28,694
Note: Sum of product categories or Regions might not foot to total PMI due to rounding.
Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified
certain of its own products previously reported under its combustible tobacco product category to the newly created smoke-free
product category to better reflect the characteristics of these products. This reclassification did not impact PMI’s segment reporting,
consolidated financial position, results of operations or cash flows in any of the periods presented. For further details, see Item 8, Note
13. Segment Reporting.
Net revenues related to combustible tobacco products refer to the operating revenues generated from the sale of these products,
including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net
revenue amounts consist of the sale of our cigarettes and other tobacco products that are combusted. Other tobacco products primarily
include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include smoke-free products.
Net revenues related to smoke-free products refer to the operating revenues generated from the sale of these products, including
shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes, if applicable. These net
revenue amounts consist of the sale of all of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor,
and oral nicotine, also including wellness and healthcare products, as well as consumer accessories such as lighters and matches.
Net revenues related to wellness and healthcare products consist of operating revenues generated from the sale of products primarily
associated with inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of PMI's new
33
Wellness and Healthcare business, Vectura Fertin Pharma.
PMI's heat-not-burn products include licensed KT&G heat-not-burn products.
References to "Cost/Other" in the Consolidated Financial Summary table of total PMI and the six geographical segments throughout
this "Discussion and Analysis" reflects the currency-neutral variances of: cost of sales (excluding the volume/mix cost component);
marketing, administration and research costs (including asset impairment and exit costs); and amortization and impairment of
intangibles. “Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components,
attributable to: fees for certain distribution rights billed to customers in certain markets in the ME&A Region, and the Saudi Arabia
customs assessment net revenue adjustment.
Our shipment volume by segment for cigarettes and heated tobacco units was as follows:
PMI Shipment Volume (Million Units)
Cigarettes
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Total Cigarettes
Heated Tobacco Units
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Total Heated Tobacco Units
Cigarettes and Heated Tobacco Units
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
2022
2021
2020
153,890
81,460
134,110
143,982
42,493
65,973
157,843
88,698
127,911
141,923
43,913
64,587
621,908
624,875
39,515
24,806
4,456
469
39,391
532
109,169
193,405
106,266
138,566
144,451
81,884
66,505
28,208
25,650
2,140
240
38,162
576
94,976
186,051
114,348
130,051
142,163
82,075
65,163
163,420
93,462
117,999
144,788
45,100
63,749
628,518
19,842
20,898
1,022
36
33,862
451
76,111
183,262
114,360
119,021
144,824
78,962
64,200
Total Cigarettes and Heated Tobacco Units
731,077
719,851
704,629
Following the deconsolidation of our Canadian subsidiary, we continue to report the volume of brands sold by RBH for which other
PMI subsidiaries are the trademark owners. These include HEETS, Next, Philip Morris and Rooftop.
Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables, which include our BLENDS, HEETS,
HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO (defined collectively as HEETS),
Marlboro Dimensions, Marlboro HeatSticks, Parliament HeatSticks, SENTIA and TEREA, as well as the KT&G-licensed brands, Fiit
and Miix (outside of South Korea).
Market share for HTUs is defined as the in-market sales volume for HTUs as a percentage of the total estimated industry sales volume
for cigarettes and HTUs.
34
References to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated
tobacco units, unless otherwise stated.
As of 2022 and on a comparative basis, total industry volume, PMI in-market sales volume and PMI market share for the following
geographies include the cigarillo category in Japan: the total international market, East Asia & Australia Region, and Japanese
domestic market.
References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States,
total industry, total market and market shares throughout this "Discussion and Analysis" are our estimates for tax-paid products based
on the latest available data from a number of internal and external sources and may, in defined instances, exclude China and/or our
duty free business.
Estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of
industry data during pandemic-related restrictions.
In-market sales ("IMS") is defined as sales to the retail channel, depending on the market and distribution model.
Central Asia is defined as Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan.
North Africa is defined as Algeria, Egypt, Libya, Morocco and Tunisia.
The Gulf Cooperation Council ("GCC") is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates
(UAE).
Southeast Europe is defined as Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia.
From time to time, PMI’s shipment volumes are subject to the impact of distributor inventory movements, and estimated total
industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade
inventory movements of PMI’s competitors arising from market-specific factors that significantly distort reported volume disclosures.
Such factors may include changes to the manufacturing supply chain, shipment methods, consumer demand, timing of excise tax
increases or other influences that may affect the timing of sales to customers. In such instances, in addition to reviewing PMI
shipment volumes and certain estimated total industry/market volumes on a reported basis, management reviews these measures on an
adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements. Management also believes that
disclosing PMI shipment volumes and estimated total industry/market volumes in such circumstances on a basis that excludes the
impact of distributor and/or estimated trade inventory movements improves the comparability of performance and trends for these
measures over different reporting periods.
2022 compared with 2021
The following discussion compares our consolidated operating results for the year ended December 31, 2022, with the year ended
December 31, 2021.
Estimated international industry cigarette and heated tobacco unit volume (excluding China and the U.S.) of 2.6 trillion, increased by
0.2%, driven by the EU, South & Southeast Asia and Americas Regions, partly offset by the Eastern Europe, Middle East & Africa
and East Asia & Australia Regions, as described in the Regional sections.
Excluding Russia and Ukraine, estimated international industry volume increased by 0.9%.
Our total shipment volume increased by 1.6%, driven by an increase of 14.9% for HTUs, partly offset by a 0.5% decline for
cigarettes.
Excluding Russia and Ukraine, our total shipment volume increased by 3.2%, reflecting increases of 21.5% and 0.8% for HTUs and
cigarettes, respectively. Our total shipment volume in the Eastern Europe Region increased by 2.7%, on the same basis.
For additional detail on PMI's shipment volume performance by Region, please refer to the "Total Market, PMI Shipment & Market
Share Commentaries" sections for PMI's regional operating segments.
35
Impact of Inventory Movements
The net unfavorable impact of estimated distributor inventory movements was immaterial in the year, with PMI’s total in-market sales
increasing by 1.7%, or by 3.2% excluding Russia and Ukraine, both essentially in-line with the respective shipment volumes.
Our total HTU in-market sales volume for the year was 106.9 billion units, or 86.4 billion units excluding Russia and Ukraine,
representing growth of 15.6% and 21.4%, respectively.
Our cigarette shipment volume by brand and heated tobacco unit shipment volume was as follows:
PMI Shipment Volume by Brand (Million Units)
Cigarettes
Marlboro
L&M
Chesterfield
Parliament
Philip Morris
Others
Total Cigarettes
Heated Tobacco Units
Total Cigarettes and Heated Tobacco Units
Note: Philip Morris includes Philip Morris/Dubliss.
2022
2021
Change
244,649
239,905
82,588
67,054
43,999
39,620
143,998
621,908
109,169
731,077
84,342
58,800
41,621
42,395
157,812
624,875
94,976
719,851
2.0 %
(2.1) %
14.0 %
5.7 %
(6.5) %
(8.8) %
(0.5) %
14.9 %
1.6 %
Shipment volume for our HTU brands increased, primarily driven by the EU, Middle East & Africa and East Asia & Australia
Regions, partly offset by the Eastern Europe Region.
Our cigarette shipment volume of the following international brands increased:
• Marlboro, mainly driven by the Eastern Europe, Middle East & Africa and Americas Regions, partly offset by the EU Region;
•
•
Chesterfield, primarily driven by the Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East &
Africa Region; and
Parliament, mainly driven by the Middle East & Africa Region.
Our cigarette shipment volume of the following international brands decreased:
•
•
L&M, primarily due to the EU, Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East & Africa
and Americas Regions; and
Philip Morris, mainly due to the Eastern Europe and Americas Regions, partly offset by the East Asia & Australia Region.
The cigarette shipment volume decline for "Others" was mainly due to: Bond Street (primarily Eastern Europe) and Lark (mainly
Japan and Turkey), partly offset by Dji Sam Soe (Indonesia).
Excluding Russia and Ukraine, our cigarette shipment volume increased by 1.8% for Marlboro, 5.6% for Chesterfield, 10.3% for
Parliament and 6.3% for Philip Morris, and decreased by 0.3% for L&M.
36
International Share of Market (Excluding China and the United States)
Total International Market Share (1)
Cigarettes
HTU
Cigarette over Cigarette Market Share (2)
2022
2021
Change
(pp)
27.6 %
27.2 %
0.4
23.6 %
23.7 %
(0.1)
4.1 %
3.5 %
0.6
24.9 %
24.8 %
0.1
(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume,
excluding China and the U.S., including cigarillos in Japan
(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including
cigarillos in Japan
Note: Sum of share of market by product categories might not foot to total due to roundings
International Share of Market (Excluding China and the United States, as well as Russia and Ukraine)
Total International Market Share (1)
Cigarettes
HTU
Cigarette over Cigarette Market Share (2)
2022
2021
Change
(pp)
27.3 %
26.7 %
23.7 %
23.7 %
3.6 %
3.0 %
0.6
—
0.6
24.9 %
24.6 %
0.3
(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume,
excluding China and the U.S., including cigarillos in Japan
(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including
cigarillos in Japan
Note: Sum of share of market by product categories might not foot to total due to roundings
37
Key Market Data
Key market data regarding total market size, our shipments and market share were as follows:
Market
Total Market
(billion units)
Total
Cigarette
Heated
Tobacco Unit
PMI Shipments (billion units)
2022
2021
2022
2021
2022
2021
2022
2021
2,626.4 2,620.5
731.1 719.9
621.9 624.9
109.2
95.0
PMI Market Share (%)(1)
Heated
Tobacco Unit
Total
2022
27.6
2021
27.2
2022
2021
4.1
3.5
32.5
70.3
72.8
55.7
44.6
34.3
74.1
70.4
49.3
42.7
14.0
28.2
40.8
21.7
13.6
15.2
28.6
38.6
18.4
13.2
13.7
24.8
28.6
17.1
12.7
15.0
26.3
29.7
15.3
12.6
0.2
3.4
12.3
4.5
0.9
0.2
2.3
8.9
3.1
0.5
43.6
40.1
54.1
38.9
30.0
43.9
38.6
53.0
37.3
31.1
0.7
4.8
0.7
3.1
14.6
11.5
8.2
1.7
6.3
1.2
208.9
216.8
64.7
68.8
49.3
52.5
15.4
16.3
31.1
31.7
7.6
7.4
Total (2)
European Union
France
Germany
Italy
Poland
Spain
Eastern Europe
Russia
Middle East & Africa
Egypt
Turkey
South & Southeast Asia
1.0
—
—
0.2
0.2
—
—
0.2
22.2
47.9
28.0
62.1
33.4
37.6
19.2
63.8
65.1
20.7
44.5
28.0
62.3
32.3
35.7
19.7
66.3
64.1
0.8
—
—
0.4
0.2
—
—
0.3
—
23.6
6.2
—
21.3
6.5
—
0.4
—
0.3
93.6
93.4
117.2
125.1
21.0
56.1
19.5
55.7
20.0
56.1
19.2
55.7
Indonesia
Philippines
309.6
296.2
51.8
55.2
86.8
32.2
82.8
34.4
86.8
32.0
82.8
34.2
East Asia & Australia
Australia
Japan (2)
South Korea
Americas
Argentina
Mexico
8.9
9.7
148.3
150.5
72.6
71.7
3.0
55.5
13.9
3.1
55.2
14.1
3.0
21.1
9.4
3.1
22.1
9.4
—
34.4
4.5
—
33.1
4.7
30.3
32.2
30.0
31.9
19.3
21.0
19.9
20.5
19.3
20.8
19.9
20.4
—
0.1
—
0.1
(1) Market share estimates are calculated using IMS data
(2) Total market and market share estimates include cigarillos in Japan
38
Financial Summary -
Years Ended December 31,
(in millions)
Net Revenues (1)
Cost of Sales (2)
Marketing, Administration and
Research Costs (3)
Financial Summary
2022
2021
Change
Fav./(Unfav.)
Excl.
Curr. &
Acquis.
Total
Variance
Fav./(Unfav.)
Total
Cur-
rency
Acqui-
sitions
Price
Vol/
Mix
Cost/
Other
$ 31,762 $ 31,405
1.1 % 8.0 % $ 357 $ (2,656) $ 515 $ 528 $ 1,719 $ 251
(11,402) (10,030)
(13.7) % (16.5) % (1,372)
695
(414) — (1,089)
(564)
(8,114) (8,400)
3.4 % 0.3 %
286
454
(197) — —
29
Operating Income
(96) $ 528 $ 630 $ (284)
(1) Favorable Cost/Other variance includes a $246 million reduction in net revenues in 2021 related to the Saudi Arabia customs assessments. For
(5.6) % 6.7 % $ (729) $ (1,507) $
$ 12,246 $ 12,975
more details, see Item 8, Note 18. Contingencies.
(2) Cost/Other variance includes charges in 2022 of $112 million related to an impairment charge of intangible assets, $62 million related to the war in
Ukraine and $125 million of Swedish Match AB acquisition accounting related item. For more details, Item 8, see Note 3. Acquisitions, Note 4.
War in Ukraine and Note 5. Goodwill and Other Intangible Assets, net.
(3) Cost/Other variance includes charges in 2022 of $89 million related to the war in Ukraine and $115 million in 2022 related to costs associated with
the Swedish Match AB offer, offset by charges in 2021 of $216 million related to asset impairment and exit costs and $51 million in 2021
associated with the asset acquisition cost of OtiTopic, Inc. For more details, see Item 8, Note 3. Acquisitions, Note 4. War in Ukraine and Note 20.
Asset Impairment and Exit Costs.
Net revenues, excluding currency and acquisitions, increased by 8.0%, mainly reflecting: favorable volume/mix, primarily driven by
higher HTU volume and device volume, partly offset by lower cigarette volume and unfavorable device mix, cigarette mix and HTU
mix; a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing and lower HTU
(net) pricing; and a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/
Other".
In 2022, Russia and Ukraine accounted for around 8% of PMI's total net revenues.
The unfavorable currency in net revenues was due primarily to the Egyptian pound, Euro, Japanese yen, Philippine peso, Polish zloty
and Turkish lira, partly offset by the Russian ruble.
Net revenues include $10.2 billion in 2022 and $9.3 billion in 2021 related to the sale of smoke-free products. In 2022, IQOS devices
accounted for approximately 5% of our full year smoke-free net revenues both including and excluding Russia and Ukraine.
Operating income decreased by 5.6%. Operating income, excluding currency and acquisitions, increased by 6.7%, which included:
favorable comparisons versus the prior year period related to the 2021 Saudi Arabia customs assessments of $246 million (as noted
above for net revenues), 2021 asset impairment and exit costs of $216 million and 2021 asset acquisition cost of $51 million, partly
offset by the impact of 2022 costs associated with the Swedish Match AB offer of $115 million, higher amortization and impairment
of intangibles (primarily $112 million related to impairment charges in 2022), 2022 charges related to the war in Ukraine of $151
million and $125 million of Swedish Match AB acquisition accounting related item in 2022. In addition to these items, operating
income was impacted by: a favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume,
unfavorable cigarette mix, HTU mix and device mix, and the unfavorable impact on profitability of higher device volume; and a
favorable pricing variance; partially offset by higher manufacturing costs (primarily due to higher logistics costs and other inflationary
impacts, partly offset by productivity); and higher marketing, administration and research costs.
As reduced-risk products grow as a proportion of our business, notably for IQOS ILUMA where unit costs of devices and both the unit
costs and weight of consumables are not yet fully optimized, a temporary dilutive margin impact is likely to continue in the coming
quarters.
Like many other global companies, we are facing significant inflationary forces in the world economy. Inflationary pressures are
growing as we renew pricing arrangements, notably for certain direct materials, wages, energy, and transportation costs. These
inflationary pressures, including margin pressure from inflation as well as the cost of capital, could continue to grow in the upcoming
quarters.
39
Interest expense, net, of $588 million decreased by $40 million (6.4%) primarily driven by the repayment of long-term debt maturing
in 2021 and 2022 and higher net interest income driven by higher interest rates, partially offset by higher interest expense in
connection with the Swedish Match acquisition.
Our effective tax rate decreased by 2.5 percentage points to 19.3%. We estimate that our 2023 effective tax rate will be approximately
20.5% to 21.5%, excluding discrete tax events. For further details, see Item 8, Note 12. Income Taxes.
Net earnings attributable to PMI of $9.0 billion decreased by $0.1 billion or 0.7%. This decrease was due primarily to lower operating
income as discussed above, partially offset by a lower effective income tax rate. Basic EPS of $5.82 and diluted EPS of $5.81
decreased by 0.2% and 0.3%, respectively. Excluding an unfavorable currency impact of $0.77, diluted EPS increased by 12.9%.
2021 compared with 2020
For a discussion comparing our consolidated operating results for the year ended December 31, 2021, with the year ended December
31, 2020, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation -
Discussion and Analysis - Consolidated Operating Results in our Annual Report on Form 10-K for the year ended December 31,
2021, which was filed with the U.S. Securities and Exchange Commission on February 11, 2022. This section is incorporated by
reference into this Annual Report on Form 10-K for the year ended December 31, 2022.
Operating Results by Business Segment
Business Environment
Taxes, Legislation, Regulation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco Products
The tobacco industry and our company face a number of challenges that may adversely affect our business, volume, results of
operations, cash flows and financial position. These challenges, which are discussed below and in “Cautionary Factors That May
Affect Future Results,” include:
•
•
•
•
•
•
regulatory restrictions on our products, including restrictions on the packaging, marketing, and sale of tobacco or other
nicotine-containing products or related devices that could reduce our competitiveness, eliminate our ability to communicate
with adult consumers, or even ban certain of our products;
fiscal challenges, such as excessive excise tax increases and discriminatory tax structures;
illicit trade in cigarettes and other tobacco and nicotine-containing products, including counterfeit, contraband and so-called
"illicit whites";
intense competition, including from non-tax paid volume by certain local manufacturers;
pending and threatened litigation as discussed in Item 8, Note 18. Contingencies; and
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.
Much of the regulation that shapes the business environment in which we operate is driven by the FCTC, which entered into force in
2005. The FCTC has as its main objective to establish a global agenda for tobacco regulation, with the purpose of reducing tobacco
use. To date, 182 countries and the European Union are Parties to the FCTC. The treaty requires Parties to have in place various
tobacco control measures and recommends others. The FCTC governing body, the Conference of the Parties (“CoP”), has also adopted
non-binding guidelines and policy recommendations related to certain articles of the FCTC that go beyond the text of the treaty. In
October 2018, the CoP recognized the need for more scientific assessment and improved reporting to define policy on heated tobacco
products. Similar to its previous policy recommendations on e-cigarettes, the CoP invited countries to regulate, restrict or prohibit
heated tobacco products, as appropriate under their national laws.
Prior to CoP 9 that took place in November 2021, the WHO and the WHO FCTC Secretariat published two reports on novel and
emerging tobacco products. The reports were noted by CoP 9 and related substantive discussions and decisions were deferred to CoP
10, currently scheduled for 2023. It is not possible to predict whether or to what extent measures recommended by the WHO's reports
will be implemented as the reports are not binding to the WHO Member States.
40
We believe that when better alternatives to cigarettes exist, the discussion should not be whether these alternatives should be made
available to the more than one billion people who smoke today, but how fast, and within what regulatory framework to maximize their
adoption while minimizing unintended use. Therefore, we advocate for regulatory frameworks that are based on a continuum of risk
where non-combustible products fall below combustible cigarettes. Product regulation should include measures that encourage and
accelerate switching to non-combustible products, for example, by allowing adult consumers who would not otherwise quit to receive
truthful and non-misleading information about such products to enable them to make informed decisions and by applying uniform
product standards to enable manufacturers to demonstrate the reduction in harmful and potentially harmful constituents, as well as the
absence of combustion. Regulation should also include specific rules for ingredients, labeling and consumer communication, and
should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-
containing products. Importantly, regulation must include measures designed to prevent initiation by youth and non-smokers. We
support mandated health warnings, minimum age laws, restrictions on advertising, and public place smoking restrictions. We also
support regulatory measures that help reduce illicit trade.
Certain measures are discussed in more detail below and in the Reduced-Risk Products (RRPs) section.
Fiscal Challenges: Excessive and disruptive excise, sales and other tax increases and discriminatory tax structures are expected to
continue to have an adverse impact on our profitability, due to lower consumption and consumer down-trading to non-premium,
discount, other low-price or low-taxed combustible tobacco products such as fine cut tobacco and illicit cigarettes. In addition, in
certain jurisdictions, some of our combustible tobacco products are subject to tax structures that discriminate against premium-price
products and manufactured cigarettes. We believe that such tax policies undermine public health by encouraging consumers to turn to
illicit trade, and ultimately undercut government revenue objectives, disrupt the competitive environment, and encourage criminal
activity. Other jurisdictions have imposed, or are seeking to impose, levies or other taxes specifically on tobacco companies, such as
taxes on revenues and/or profits.
World Customs Organization Developments: In 2020, the World Customs Organization (the “WCO”) amended the harmonized system
nomenclature to introduce dedicated custom codes for novel tobacco and nicotine products, including heated tobacco products, e-
cigarettes and other nicotine-containing products. The amendments became effective as of January 1, 2022. These amendments are not
expected to significantly impact current customs duty rates. As of December 2022, and out of 160 contracting parties to the WCO’s
Harmonized System Convention, 94 contracting parties, including the EU, U.S., have notified the WCO that they have implemented
the 2022 edition of the Harmonized System creating new dedicated customs codes for novel tobacco and nicotine products.
EU Tobacco Products Directive: In April 2014, the EU adopted a significantly revised TPD, which entered into force in May 2016.
All member states have adopted laws transposing the TPD. The TPD sets forth a comprehensive set of regulatory requirements for
tobacco products, including:
•
•
•
•
health warnings covering 65% of the front and back panels of cigarette packs, with an option for member 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 that expired in May 2020;
security features and tracking and tracing measures that became effective in May 2019; and
a framework for the regulation of novel tobacco products and e-cigarettes, including requirements for health warnings and
information leaflets, a prohibition on product packaging text related to reduced risk, and the introduction of notification
requirements or authorization procedures in advance of commercialization.
In May 2021, the European Commission published its first report on the application of the TPD. The report identifies significant
progress made due to the implementation of the TPD and where there is still room for improvement. Most notably, it finds that the EU
legislation has enhanced tobacco control, contributed to protecting the health of EU citizens by providing Member States with strong
rules to address the use of tobacco products in the EU. The TPD reportedly achieved the 2% reduction target of the impact assessment
with decreased smoking prevalence among youth. The report also concludes that there is scope for improvement in certain areas, such
as enforcement at national level, assessment of ingredients, and a better consideration for novel and emerging products.
In November 2021, the European Commission published the implementation roadmap to Europe's Beating Cancer Plan (the "Plan").
According to the Plan, a revision of the TPD is planned for 2024.
EU Tobacco Excise Directive ("TED"): The EU Commission is preparing a legislative proposal for the revision of the 2011 EU
Tobacco Excise Directive that may include definitions and tax treatment for novel tobacco and nicotine-containing products, including
heated tobacco products, e-cigarettes and nicotine pouches. The proposal, after several delays, is now expected to be published during
41
the first half of 2023 and adopted by the EU Council in the course of 2024. Any final amendments to TED require unanimous
agreement by all EU member states, followed by transposition of TED into national legislation. The earliest potential effective date for
any changes to TED, after the transposition period, is 2025.
Plain Packaging and Other Packaging Restrictions: Plain packaging legislation bans the use of branding, logos and colors on
packaging other than the brand name and variant that may be printed only in specified locations and in a uniform font. To date, plain
packaging laws have been adopted in certain markets in all of our operating segments, including the key markets of Australia, France,
Saudi Arabia and Turkey. Some countries, such as Canada, Denmark and Israel adopted plain packaging regulations that apply to all
tobacco products, including RRPs. Other countries are also considering plain packaging legislation.
Some countries have adopted, or are considering adopting, packaging restrictions that could have an impact similar to plain packaging.
Examples of such restrictions include standardizing the shape and size of packages, prohibiting certain colors or the use of certain
descriptive phrases on packaging, and requiring very large graphic health warnings that leave little space for branding.
Restrictions and Bans on the Use of Ingredients: The WHO and others in the public health community have recommended restrictions
or total bans on the use of some or all ingredients in tobacco products, including menthol. Broad restrictions and ingredient bans
would require us to reformulate our American blend tobacco products and could reduce our ability to differentiate these products in
the market in the long term. In many countries, menthol bans would eliminate the entire category of mentholated tobacco products.
The European Union banned cigarettes and roll-your-own tobacco products with characterizing flavors. Other tobacco products,
including heated tobacco products, are currently exempted from this characterizing flavor ban. However, on November 23, 2022, the
European Union Commission published a delegated directive that will end this exemption. All EU Member States are required to
apply the delegated directive as of October 23, 2023, and ban the use of characterizing flavors in heated tobacco products in the
European Union, impacting a significant proportion of our RRP products currently sold in the European Union. While we cannot
predict the ultimate impact on our business from this ban, consumer switching to non-flavored products was high in reaction to past
bans on flavors in other categories and markets. We therefore believe any impact will be manageable, with consumers switching to
non-flavored products partially mitigating the effect of the ban. We will actively monitor relevant developments in the European
Union market. Other countries may follow the EU’s approach toward tobacco product ingredients. Turkey banned menthol as of May
2020. Broader ingredient bans have been adopted by Brazil and Canada.
Bans on Display of Tobacco Products at Retail: In a number of our markets, including, but not limited to, Australia and Russia,
governments have banned the display of tobacco products at the point of sale. Other countries are considering similar bans.
Bans and Restrictions on Advertising, Marketing, Promotions and Sponsorships: For many years, the FCTC has called for, and
countries have imposed, partial or total bans on tobacco advertising, marketing, promotions and sponsorships, including bans and
restrictions on advertising on radio and television, in print and on the Internet. The FCTC's non-binding guidelines recommend that
governments prohibit all forms of communication with adult smokers.
Restrictions on Product Design: Some members of the public health community are calling for the further standardization of tobacco
products by requiring, for example, that cigarettes have a certain minimum diameter, which would amount to a ban on slim cigarettes,
or requiring the use of standardized filter and cigarette paper designs. In addition, at its meeting in November 2016, the CoP adopted
non-binding guidelines recommending that countries regulate product design features that increase the attractiveness of tobacco
products, such as the diameter of cigarettes and the use of flavor capsules.
Restrictions on Public Smoking and Use of Nicotine-Containing Products in Public: The pace and scope of restrictions on the use of
our products have increased significantly in most of our markets. Many countries around the world have adopted, or are likely to
adopt, regulations that restrict or ban smoking and use of nicotine-containing products in public and/or work places, restaurants, bars
and nightclubs. Some public health groups have called for, and some countries, regional governments and municipalities have adopted
or proposed, bans on smoking in outdoor places, as well as bans on smoking in cars (typically, when minors are present) and private
homes.
Other Regulatory Issues: Some regulators are considering, or in some cases have adopted, regulatory measures designed to reduce the
supply of tobacco products. These include regulations intended to reduce the number of retailers selling tobacco products by, for
example, reducing the overall number of tobacco retail licenses available or banning the sale of tobacco products within specified
distances of certain public facilities. Other regulators are also considering generation sales bans, under which the sale of certain
tobacco or nicotine products to people born after a certain year would be prohibited. On December 13, 2022 the New Zealand
parliament passed a bill introducing regulatory measures restricting the sale and supply of smoked tobacco products, including
reducing the number of retail outlets licensed to sell smoked tobacco products, imposing a maximum limit of nicotine content for
smoked tobacco products and prohibiting the sale of smoked tobacco products to anyone born on or after January 1, 2009. These
measures are limited to smoked tobacco products and do not apply to heated tobacco products and e-cigarettes. In Mexico, a new law
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came into force on December 12, 2022 prohibiting imports and exports of certain nicotine and non-nicotine delivery and consumption
systems, as well as the consumables used in those systems, including much of our RRP portfolio. On December 16, 2022, the Federal
Government enacted an implementation regulation for the tobacco control law, which includes (i) a point of sale display ban of
tobacco products; (ii) restrictions on where tobacco products can be consumed, and (iii) prohibition to communicate corporate social
responsibility programs funded by the tobacco industry.
On January 1, 2023 a law regulating the marketing of nicotine pouches went into effect in Slovakia. The regulatory framework
contains a minimum purchase legal age (18 years), a nicotine limit, and a labelling requirement. On December 6, 2022 the Dutch
Government published a draft bill to ban the placing on the market of nicotine pouches in the Netherlands. On December 16, 2022 a
notification period to the EU Commission expired for a Belgian Royal Decree to ban nicotine pouches. Based on this decree the
Belgian Government could ban the placing on the market of nicotine pouches in Belgium.
In a limited number of markets, most notably Japan, we are dependent on governmental approvals that may limit our pricing
flexibility.
The EU Single-Use Plastics Directive, which will require tobacco manufacturers and importers to cover the costs of public collection
systems for tobacco product filters, under Extended Producer Responsibility ("EPR") schemes, entered into force on July 2, 2019. To
date, some member states transposed the Directive into national legislation. We expect remaining member states to transpose the EU
Single-Use Plastics Directive into national legislation including EPR schemes by January 2023. While we cannot predict the impact of
this initiative on our business at this time, we are monitoring developments in this area.
In some countries, including in the EU, cigarettes are subject to testing, disclosure and mandatory emissions limits for tar, nicotine,
carbon monoxide and other smoke constituents. In the Netherlands, several public health organizations have requested that the Dutch
enforcement body enforce the requirements for maximum tar, nicotine, and carbon monoxide ("TNCO") emissions levels for
cigarettes using a test method other than the method currently set forth in the EU TPD and transposed into national legislation. This
request followed publication of a report by the Dutch State Institute for Public Health & Environment, which found that all cigarette
brands sold in the Netherlands exceeded the maximum TNCO levels when measured under an alternative method. While the Dutch
enforcement body declined the request, the applicants have challenged that decision in pending legal proceedings in the Netherlands.
While we are not parties to the proceeding and cannot predict the outcome, a decision to enforce the existing TNCO ceilings in the
Netherlands using an alternative test method could impact a significant portion of the manufactured cigarettes available on the market
in the Netherlands and could lead to similar actions in other EU countries.
Illicit Trade: Illicit tobacco trade creates a cheap and unregulated supply of tobacco products, undermines efforts to reduce smoking
prevalence, especially among youth, damages legitimate businesses and intellectual property rights, stimulates organized crime,
increases corruption and reduces government tax revenue. We generally estimate that, excluding China and the U.S., illicit trade may
account for as much as 12% of global cigarette consumption; this includes counterfeit, contraband and the persistent problem of "illicit
whites," which are cigarettes legally purchased in one jurisdiction for the sole purpose of being exported and illegally sold in another
jurisdiction where they have no legitimate market. Currently, we estimate that illicit trade in the European Union accounted for
approximately 8% of total cigarette consumption in 2022.
A number of jurisdictions are considering actions to prevent illicit trade. In November 2012, the FCTC adopted the Protocol to
Eliminate Illicit Trade in Tobacco Products (the “Protocol”), which includes supply chain control measures, such as licensing of
manufacturers and distributors, enforcement of these control measures in free trade zones, controls on duty free and Internet channels
and the implementation of tracking and tracing technologies. To date, 66 Parties, including the European Union, have ratified it. The
Protocol came into force in September 2018. Parties must start implementing its provisions in their national legislation. In November
2021, the second Meeting of the Parties to the Protocol decided, among others, to focus on the implementation of a framework for
global information sharing to combat illicit tobacco trade and enable the parties to exchange products' tracking and tracing information
in a secure manner. We welcome this decision and expect that other Parties will ratify the Protocol.
We devote substantial resources to help prevent illicit trade in combustible tobacco products and RRPs. For example, we engage with
governments, our business partners and other stakeholders to implement effective measures to combat illicit trade and, in some
instances, pursue legal remedies to protect our intellectual property rights.
The tracking and tracing regulations for cigarettes and roll-your-own products manufactured or destined for the EU became effective
on May 20, 2019. The effective date for other tobacco-containing products, including some of our RRPs such as heated tobacco units,
is May 20, 2024. While we expect that this regulation will increase our operating expenses, we do not expect this increase to be
significant.
In 2009, our Colombian subsidiaries entered into an Investment and Cooperation Agreement with the national and regional
governments of Colombia to promote investment in, and cooperation on, anti-contraband and anti-counterfeit efforts. The agreement
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provides $200 million in funding over a 20-year period to address issues such as combating illegal cigarette trade and increasing the
quality and quantity of locally-grown tobacco.
In May 2016, PMI launched PMI IMPACT, a global initiative that supports third-party projects dedicated to fighting illegal trade and
related crimes such as corruption, organized criminal networks and money laundering. The centerpiece of PMI IMPACT is a council
of external independent experts in the fields of law, anti-corruption and law enforcement. The experts are responsible for evaluating
and approving funding proposals for PMI IMPACT grants. PMI has pledged $100 million to fund projects within PMI IMPACT over
three funding rounds.
Reduced-Risk Products (RRPs)
Our Approach to RRPs: We recognize that smoking cigarettes causes serious diseases and that the best way to avoid the harms of
smoking is never to start or to quit. Nevertheless, it is predicted that by 2025, the number of smokers will remain largely unchanged
from the current estimate of 1.1 billion, despite the considerable efforts to discourage smoking.
Cigarettes burn tobacco, which produces smoke. As a result of the combustion process, the smoker inhales various toxic substances.
In contrast, RRPs do not burn tobacco and therefore contain significantly lower levels of harmful and potentially harmful constituents
("HPHCs") than found in cigarette smoke.
For adult smokers who would otherwise continue to smoke, we believe that RRPs, while not risk-free, offer a much better consumer
choice. Accordingly, our key strategic priorities are to: (i) to develop and commercialize products that present less risk of harm to
adult smokers who switch to those products versus continued smoking; and (ii) educate and encourage current adult smokers who
would otherwise continue to smoke to switch to those products.
We recognize that this transformation from cigarettes to RRPs will take time and that the speed of transformation will depend in part
upon factors beyond our control, such as the willingness of governments, regulators and other policy groups to embrace RRPs as a
desired alternative to continued cigarette smoking. For as long as a significant number of adult smokers continues to smoke,
responsible leadership of the category is critical. We aim to maintain our competitive position in the cigarette market through selective
investment. As a leading international cigarette manufacturer, we will continue to accelerate this transformation by using our
regulatory and commercial expertise and extensive commercial and distribution infrastructure as an effective platform for the
commercialization of our RRPs and communication with adult smokers and trade partners about the benefits of switching to our RRPs.
While seeking to remain competitive in the cigarette market, we are judiciously reallocating resources from cigarettes to RRPs and are
streamlining our cigarette portfolio.
We have a range of RRPs in various stages of development, scientific assessment and commercialization. We conduct rigorous
scientific assessments of our RRP platforms to substantiate that they reduce exposure to HPHCs and, ultimately, that these products
present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued
smoking. We draw upon a team of expert scientists and engineers from a broad spectrum of scientific disciplines and our extensive
learnings of adult consumer preferences to develop and assess our RRPs. Our efforts are guided by the following key objectives:
•
•
•
•
to develop RRPs that adult smokers who would otherwise continue to smoke find to be satisfying alternatives to smoking;
for those adult smokers, our goal is to offer RRPs with a scientifically substantiated risk-reduction profile that approaches as
closely as possible that associated with smoking cessation;
to substantiate the reduction of risk for the individual adult smoker and the reduction of harm to the population as a whole,
based on scientific evidence of the highest standard that is made available for scrutiny and review by external independent
scientists and relevant regulatory bodies; and
to advocate for the development of science-based regulatory frameworks for the development and commercialization of
RRPs, including the communication of scientifically substantiated information to enable adult smokers to make better
consumer choices.
Our RRP Platforms: Our product development is based on the elimination of combustion via tobacco heating and other innovative
systems, which we believe are the most promising path to providing a better consumer choice for those who would otherwise continue
to smoke. We recognize that no single product will appeal to all adult smokers. Therefore, we are developing a portfolio of products
intended to appeal to a variety of distinct adult consumer preferences.
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Five PMI-developed or improved RRP platforms are in various stages of development and commercialization readiness:
Platform 1 uses a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially
designed and proprietary tobacco unit is inserted and heated to generate an aerosol. We have conducted a series of clinical studies for
this platform, the results of which were included in our submission to the U.S. Food and Drug Administration (“FDA”). In addition to
the original version of Platform 1 which relies on a heating technology using a blade, a new version of Platform 1 is now available
using induction instead of heating a blade. All studies referenced above were conducted with the blade version of Platform 1. We
believe that there is full comparability between the subsequent Platform 1 versions, and therefore the data from these studies remain
valid. In 2022, we also began the initial launch of a heated tobacco product using external resistive heating technology and
commercialized under the BONDS brand.
Platform 2 used a pressed carbon heat source which, when ignited, generates a nicotine-containing aerosol by heating
tobacco. As a result of consumer testing feedback, the design of our current Platform 2 technology has been discontinued. We are
assessing alternative designs for this consumer segment.
Platform 3 is a product using nicotine salt that is composed of two parts: a consumable that contains a highly soluble
encapsulated nicotine powder and a non-electric device that activates it. Once a consumable is inserted into the mechanical device, the
nicotine powder is aerosolized and inhaled. The results of our pharmacokinetic study related to this version indicate this product's
potential as an acceptable alternative to continued cigarette smoking in terms of product satisfaction. We are working on product
modifications to enable switching by those adult smokers who are looking for better alternatives to cigarettes.
Platform 4 covers e-vapor products, which are battery-powered devices that produce an aerosol by vaporizing a tobacco-free
liquid solution.
Recently, we developed a new e-liquid for our e-vapor mesh technology to deliver real tobacco taste satisfaction in an E-Vapor
product liquid-using patented technology, where flavors and nicotine are extracted directly from the tobacco leaves and captured in a
liquid solution, without having to add flavoring ingredients.
We also entered into a licensing agreement with Kaival Brands International, LLC in June 2022 to distribute an e-vapor product,
known in the U.S. as the BIDI® Stick. The agreement grants PMI certain intellectual property rights relating to the premium e-vapor
device and, potentially, other newly developed devices, to permit PMI to manufacture, promote, sell, and distribute the e-vapor device
and, to the extent included, other newly developed devices in international markets outside of the U.S. We have begun
commercializing an improved version of the BIDI® Stick under the brand VEEV now in Canada, U.K., Serbia and Ukraine.
Platform 5 covers Snus and Modern Oral Nicotine Pouches. Snus refers to dried loose tobacco, or snuff, which is consumed
by sniffing the product through the nose, moist loose tobacco which is put in the mouth between the lower or upper lip and gum, and
Snus pouches which contain grinded tobacco, water, salt and flavors. Modern Oral Nicotine Pouches consist of white pre-conditioned
pouches containing nicotine derived from tobacco. Users place a pouch between the upper lip and gum and leave it there while the
nicotine and taste are being released. At the end of the use, the user can dispose of the pouch. Nicotine pouches are inherently smoke-
free as they are consumed orally, and no combustion process occurs during use. They contain primarily nicotine, flavors, and a
cellulose substrate. The nicotine used in the pouches is of pharmaceutical-grade like the nicotine used in medicinal products, such as
gums and inhalers, while the flavors are approved for use in food in accordance with the product quality standards for nicotine
pouches developed by the Swedish Institute for Standards. In 2021, PMI acquired AG Snus as well as Fertin Pharma, two companies
manufacturing and/or marketing nicotine pouches. In 2022, we significantly expanded our Platform 5 products portfolio with the
acquisition of Swedish Match. The acquisition also represented an expansion of our RRP presence in the United States market, where
Swedish Match's ZYN brand is the leading nicotine pouch franchise.
We aim to expand our brand portfolio and market positions with additional RRPs. In addition, we are continuing to use our expertise,
technology and capabilities to explore new growth opportunities beyond our current business, including products that do not contain
nicotine or tobacco.
After we receive the results of our scientific studies, including those mentioned above, in accordance with standard scientific practices,
we share the conclusions in scientific forums and submit them for inclusion in peer-reviewed publications.
The research and development expense for our smoke-free portfolio accounted for 99% of our total research and development expense
for each of the three years ended December 31, 2022, 2021 and 2020. The research and development expense for the years ended
December 31, 2022, 2021 and 2020, is set forth in Item 8, Note 15. Additional Information to the consolidated financial statements.
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Commercialization of RRPs: We are developing a multicategory product approach and tailoring our commercialization strategy to the
characteristics of each specific market. We focus our commercialization efforts on consumer retail experience, guided consumer trials
and customer care, and increasingly, digital communication programs and e-commerce. In order to accelerate switching to our
Platform 1 products, our initial market introductions typically entail one-to-one consumer engagement (in person or by digital means)
and device discounts. These initial commercialization efforts require substantial investment, which we believe will moderate over
time and further benefit from the increased use of digital engagement capabilities. During the COVID-19 pandemic, we accelerated
our investments in, and pivot to, digital consumer engagement.
As of December 31, 2022, PMI's smoke-free products were available for sale in 73 markets.
In 2014, we introduced our Platform 1 product in pilot city launches in Nagoya, Japan, and in Milan, Italy. Since then, we have
continuously expanded our commercialization activities.
Data shows that only a very small percentage of adult smokers who convert to our Platform 1 product switch back to cigarettes.
We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, are progressing
with our plans to build manufacturing capacity for our other RRP platforms, continue to optimize our manufacturing infrastructure and
expand our commercialization activities to new products and markets. We discuss certain risks related to the commercialization and
supply of our RRP portfolio in Item 1.A. Risk Factors.
We discuss product warranties in more detail in Item 8, Note 7. Product Warranty. The significance of warranty claims is dependent
on a number of factors, including device version mix, product failure rates, logistics and service delivery costs, and warranty policies,
and may increase with the number of devices sold.
On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc. to end the companies' commercial
relationship covering Platform 1 in the U.S. as of April 30, 2024. Thereafter, PMI will have the full rights to commercialize Platform 1
in the U.S.- the world’s largest smoke-free market, as of April 30, 2024. This agreement provides a clear path to fulfilling Platform 1
international success in a market where around 31 million adults continue to smoke.
Our near-term planned commercialization efforts for the other PMI-developed RRP platforms are as follows:
•
•
In late 2022, we began commercializing our BONDS product in the Philippines and Colombia.
Following the consumer test conducted in 2020, and the results of the product use and adaptation study described above, we
are incorporating our learnings into our plans to improve our Platform 3 product.
• We started commercializing a new version of IQOS MESH in Canada, Croatia, the Czech Republic, Finland, France, Greece,
Italy, Ukraine, New Zealand and the Slovak Republic under the IQOS VEEV or VEEV brand names.
• We launched a Platform 5 product in Sweden in January 2022, and have since launched it in ten additional markets, that is a
reformulated version of the already commercialized nicotine pouches bearing the Shiro brand by our newly acquired affiliate
AG Snus.
In addition, Swedish Match’s commercialization efforts in 2022 included the launch of several variants of existing snus and nicotine
pouch brands in different markets, such as the launch of various ZYN variants in multiple markets, as well as the new Volt Pearls
nicotine pouch product in Denmark, Iceland and Sweden.
RRP Regulation and Taxation: RRPs contain nicotine and are not risk-free. As we describe in more detail above, we support science-
based regulation and taxation of RRPs, and believe that regulation and taxation should differentiate between cigarettes and products
that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products
versus continued smoking and should recognize a continuum of risk for tobacco and other nicotine-containing products. Regulation, as
well as industry practices, should reflect the fact that youth should not consume nicotine in any form.
Some governments have banned or are seeking to ban or severely restrict emerging tobacco and nicotine-containing products such as
our RRPs and communication of truthful and non-misleading information about such products.
These regulations might foreclose or unreasonably restrict adult consumer access even to products that might be shown to be a better
consumer choice than continuing to smoke. During the COVID-19 pandemic, some governments have been and may continue to be
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temporarily unable to focus on the development of science-based regulatory frameworks for the development and commercialization
of RRPs or on the enforcement or implementation of regulations that are significant to our business.
We oppose blanket bans and unreasonable restrictions of products that have the potential to present less risk of harm compared to
continued smoking. By contrast, we support regulation that sets clear standards for all RRP categories and propels innovation to
benefit adult smokers who would otherwise continue to smoke.
In the United States, an established regulatory framework for assessing “Modified Risk Tobacco Products” and “New Tobacco
Products” exists under the jurisdiction of the FDA. We submitted to the FDA a Modified Risk Tobacco Product Application
(“MRTPA”) for our Platform 1 product in December 2016, and a Premarket Tobacco Product Application (“PMTA”) for our Platform
1 product in March 2017.
On April 30, 2019, the FDA determined that a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, is
appropriate for the protection of public health ("APPH") and authorized it for sale in the United States. The FDA’s decision followed
its comprehensive assessment of our PMTA. On December 7, 2020, the FDA reached the same determination for the IQOS 3 device
and authorized that version of our Platform 1 product for sale in the United States.
On July 7, 2020, the FDA determined that the available scientific evidence demonstrates that the issuance of an exposure modification
order would be appropriate for the promotion of public health and authorized the marketing of a version of our Platform 1 product,
namely IQOS 2.4 and three related consumables, as a "modified risk tobacco product." The FDA authorized the marketing of this
product in the U.S. with the following information:
"AVAILABLE EVIDENCE TO DATE:
•
•
•
the IQOS system heats tobacco but does not burn it.
this significantly reduces the production of harmful and potentially harmful chemicals.
scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly
reduces your body’s exposure to harmful or potentially harmful chemicals."
We must request and receive authorization from the FDA in order to continue marketing this product with the same modified exposure
information after the present order expires in four years from the date of the orders.
On March 18, 2021, we submitted to the FDA a supplemental MRTPA ("sMRTPA") for IQOS 3 requesting authorization to market
this version of the device as a Modified Risk Tobacco Product with reduced exposure information like IQOS 2.4. In June 2021, the
FDA formally accepted and filed our sMRTPA for substantive scientific review, following a period for the public to provide
comments on our application. The FDA authorized our sMRTPA for IQOS 3 by issuing a Modified Risk Granted Order – Exposure
Modification on March 11, 2022.
There are two types of MRTP orders the FDA may issue: a “risk modification” order or an “exposure modification” order. We had
requested both types of orders for IQOS 2.4 and an initial selection of 3 consumables' variants. After review, the FDA determined that
the evidence did not support issuing a "risk modification" order at this time but that it did support issuing an "exposure modification"
order for the product. This determination included a finding that issuance of the exposure modification order is expected to benefit the
health of the population as a whole. We also received an exposure modification order for IQOS 3.
On April 29, 2022, we submitted the Annual Report for the IQOS Tobacco Heating System ("THS") to the US Food and Drug
Administration. The report included a systematic review of the literature covering publications related to the IQOS THS between
March 1, 2021 and February 28, 2022. 226 publications were identified, of which 132 were in English and contained original research
or data on Heated Tobacco Products (27 from PMI or other tobacco manufacturers and 105 from independent researchers). The report
concludes that, although the scientific evidence continues to develop and evolve, the extensive data reviewed confirms that while
HTPs are not risk-free, the risks of HTPs are significantly reduced for both users and non-users against the well-proven risks of
continued smoking, and therefore continue to support the APPH status of IQOS THS.
We look forward to working with the FDA to provide any additional information they may require in order to market this product with
reduced risk claims.
The FDA’s PMTA and MRTP orders do not mean that the agency “approved” our Platform 1 product. These authorizations are
subject to strict marketing, reporting and other requirements, and are not a guarantee that the product will remain authorized,
particularly if there is a significant uptake in youth or non-smoker initiation. The FDA will monitor the marketing of the product.
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On September 29, 2021, the International Trade Commission ("ITC") issued its Final Determination ("FD"), Limited Exclusion Order
("LEO") and Cease and Desist Order ("CDO"). The ITC upheld the finding of infringement in the FD and found a subsequent
violation. The ITC issued a LEO prohibiting the importation of infringing tobacco heating articles and components thereof and CDOs
against Philip Morris USA, Inc. and Altria Client Services, LLC, which went into effect at the end of the 60-day Presidential review
period on November 28, 2021. We have appealed the patent issues. Furthermore, lawsuits based on the same patent families have
been repeatedly and universally rejected in European courts and the European Patent Office. The decision has no bearing outside the
United States. For further details, see Item 8, Note 18. Contingencies to our consolidated financial statements.
Some states and municipalities in the U.S. have introduced severe restrictions for the sale of certain e-cigarettes and tobacco products,
including those authorized by the FDA. We believe that such restrictions on FDA-authorized products will not advance public health
and will unreasonably limit adult consumer access to products that are shown to be a better alternative to continued smoking.
In March 2020, the FDA issued a final rule to require new text and graphic health warnings on cigarette packs and advertisements.
Heated tobacco products are technically covered by this rule, however the FDA stated that it would make product-specific decisions
about health warnings when issuing or revising individual product or marketing orders. This approach would be consistent with the
original marketing order for Heatsticks where FDA required Philip Morris Products S.A. to remove the Surgeon General’s health
warning for carbon monoxide from packaging and advertising, and to use a nicotine addiction health warning instead. Philip Morris
Products S.A. is committed to providing adult consumers with complete, accurate, and non-misleading information about possible
health risks associated with its products. We have shared our views with the FDA on the application of the new warnings to our heated
tobacco products. The final rule is the subject of litigation in the U.S. and was vacated nationwide by a federal court in November
2022. Philip Morris Products S.A. is not a party to this litigation.
In the U.S., tobacco and nicotine-containing products that were not commercially marketed as of February 15, 2007, are subject to
review and authorization by the FDA. Manufacturers of all non-authorized products currently on the market were required to file a
PMTA with the FDA by September 9, 2020. The FDA announced on September 9, 2020 that it will prioritize enforcement against any
tobacco and nicotine-containing product sold without a PMTA. On October 5, 2021, FDA published its final PMTA rule in the Federal
Register, which is effective November 4, 2021. All future applications will have to comply with the requirements in the PMTA rule,
which is substantially similar to the version of the final PMTA rule which was posted on Advanced Federal Register on January 19,
2021.
FDA actions may influence the regulatory approach of other governments.
Currently, national standards in certain countries set minimum quality and safety requirements for heat-not-burn products with
technical heat-not-burn specifications and/or methods for demonstrating the absence of combustion. These standards are mandatory in
Colombia, Egypt, Jordan, Saudi Arabia, Tajikistan, Tunisia, the UAE, Uzbekistan and Bahrain, and voluntary in Armenia, Costa Rica,
Dominican Republic, Indonesia, Kazakhstan, Kyrgyzstan, Morocco, Philippines, Russia, Vietnam, the U.K. and Ukraine. In Japan, a
voluntary standard sets minimum safety requirements for tobacco heating devices.
For e-vapor products (e-cigarettes) national standards setting minimum quality and safety requirements have been adopted in several
markets. These standards are mandatory in Armenia, Bahrain, China, Egypt, Jordan, New Zealand, United Arab Emirates, and Saudi
Arabia, and voluntary in Costa Rica, France, Kazakhstan, Philippines, Russia, the U.K. and Ukraine.
Currently, industry standards setting minimum quality and safety requirements for tobacco-free oral nicotine products (nicotine
pouches) have been adopted in the U.K. and Sweden. Both standards are voluntary.
We expect other governments to consider similar product standards for all novel tobacco and nicotine-containing products and
encourage making them mandatory.
All EU member states have transposed the EU Tobacco Products Directive, including the provisions on novel tobacco products, such
as heated tobacco units, and e-cigarettes. Most of the EU member states require a notification submitted six months before the
intended placing on the market of such products, while some require pre-market authorizations for the introduction of such products.
To date, we have filed a comprehensive dossier summarizing our scientific assessment of our Platform 1 product in over 20 member
states.
On September 12, 2022, Norway rejected a submission for authorization of HEETS as a novel tobacco product. Norway partially
transposed the EU Tobacco Products Directive (the “TPD”) under the European Free Trade Association ("EFTA") agreement and
introduced an authorization system for novel tobacco products following article 19 of TPD. So far Norway has not granted
authorization of any novel tobacco product. E-cigarettes and tobacco free nicotine pouches have not been granted access either.
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In addition, in Italy, in April 2018, we submitted an application for HEETS, used with the IQOS device, requesting regulatory
recognition of the reduction of toxic substances and potential risk reduction resulting from switching to this product compared to
continued cigarette smoking. In January 2019, our application was not granted primarily on the grounds of insufficient data and
questions of methodology. Due to the constraints of the review process, we were unable to supplement the application with all the
data filed with the FDA and to address methodological questions during the review. We plan to submit a new application where we
will clarify the concerns raised by the decision and further strengthen our application by submitting additional evidence generated
since we submitted our first application, consistent with our FDA filings. We are confident that our evidence supports our application.
On October 31, 2019, our Australian subsidiary, Philip Morris Limited (“PML”), submitted an application to the Scheduling
Committee of the Therapeutic Goods Administration of Australia (“TGA”) seeking to exempt heated tobacco products from being
prohibited in Australia. In August 2020, the TGA issued its decision denying the application and stating that it did not present
compelling evidence to establish a public health benefit from greater access to nicotine in heated tobacco products.
To date, several governmental agencies have published their scientific findings that analyze the harm-reduction potential of certain
RRPs versus continuing smoking, including:
In December 2017, at the request of the U.K. Department of Health and Public Health England, the U.K. Committee on Toxicity
published its assessment of the risk of heat-not-burn products relative to cigarette smoking. This assessment included analysis of
scientific data for two heat-not-burn products, one of which was our Platform 1 product. The assessment concluded that, while still
harmful to health, compared with the known risks from cigarettes, heat-not-burn products are probably less harmful. Subsequently, in
February 2018, Public Health England published a report stating that the available evidence suggests that heat-not-burn products may
be considerably less harmful than cigarettes and more harmful than e-cigarettes.
In May 2018, the German Federal Institute for Risk Assessment (“BfR”) published a study on the Platform 1 aerosol relative to
cigarette smoke using the Health Canada Intense Smoking Regimen. BfR found reductions in selected HPHCs in a range of 80-99%.
This publication indicates that significant reductions in the levels of selected toxicants are likely to reduce toxicant exposure, which
BfR stated might be regarded as a discrete benefit compared to combustible cigarettes.
In May 2018, the Dutch National Institute for Public Health and Environment (“RIVM”) published a factsheet on novel tobacco
products that heat rather than burn tobacco, focusing on our Platform 1 product. RIVM analyzed the aerosol generated by our
Platform 1 product and concluded that the use of this product, while still harmful to health, is probably less harmful than continued
smoking.
In June 2018, the Korean Food and Drug Administration (“KFDA”) issued a statement on products that heat rather than burn tobacco.
The KFDA tested three heat-not-burn products, one of which was our Platform 1 product. The KFDA confirmed that the levels of the
nine HPHCs tested in the aerosol of these products were on average approximately 90% lower compared to those measured in the
cigarette smoke of the top five cigarette brands in South Korea. However, the KFDA stated that it could not establish that the tested
heat-not-burn products are less harmful than cigarettes. In October 2018, our Korean subsidiary filed a request with a local court
seeking information underlying KFDA’s analysis, conclusions and public statements. In May 2020, the court ordered KFDA to
produce certain records.
In August 2018, the Science & Technology Committee of the U.K. House of Commons published a report of its inquiry into e-
cigarettes and heat-not-burn products. The report concluded that e-cigarettes are significantly less harmful to health than smoking
tobacco. The report also observed that for those smokers who do not accept e-cigarettes, heat-not-burn products may offer a public
health benefit despite their relative risk. The report called for a risk-proportionate regulatory environment for both e-cigarettes and
heat-not-burn products and noted that e-cigarettes should remain the least taxed, cigarettes the most taxed, with heat-not-burn products
falling between the two. The U.K. Committee on Advertising Practice announced the removal of a prohibition of health claims in the
advertising of e-cigarettes in the U.K. effective November 2018.
In November 2018, the Eurasian Economic Commission (regulatory body of the Eurasian Union consisting of Armenia, Belarus,
Kazakhstan, Kyrgyzstan and Russia) published the results of its commissioned study on novel nicotine-containing products, including
our Platform 1 product. The study confirms significantly lower levels of HPHCs in the aerosol generated by this product compared to
cigarette smoke.
In January 2019, scientific media published the results of the study of the China National Tobacco Quality Supervision and Test
Centre (“CNTQST”) comparing the aerosol generated by our Platform 1 product with cigarette smoke. The CNTQST found that the
former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating
49
tobacco in our Platform 1 product contributed to the difference. The CNTQST stated that the reduction in emissions of harmful
constituents cannot be interpreted as a harm/risk reduction for smokers in the same proportion.
In 2020, the Superior Health Council of Belgium (“SHC”) published results of its inquiry into heat-not-burn products. The SHC
concluded that heat-not-burn products, while not safe, have a more favorable toxicity profile than cigarettes. However, in light of the
uncertainty of such products’ short and long-term impacts, the toxic effects of the dual use with cigarettes, and the existence of
approved smoking cessation tools, the SHC recommended that current regulations for cigarettes should apply to heat-not-burn
products.
In June 2022, the SHC published new advice on e-cigarettes in which they confirm that e-cigarettes are substantially less harmful than
smoking cigarettes and therefore a better alternative for smokers. The SHC underlines that the vast majority of the risks of tobacco
smoking are not caused by nicotine, but by the harmful substances that are released by the combustion of tobacco. Based on the cited
science they call for legislation that makes a clear distinction between cigarettes and e-cigarettes, by focusing on better-informing
smokers about the benefits of the lower-risk (but not risk-free) alternative, as well as on protecting non-smokers and young people.
The foregoing scientific findings of government agencies may not be indicative of the measures that the relevant government
authorities could take in regulating our products.
We make our scientific findings publicly available for scrutiny and peer review through several channels, including our websites.
From time to time, adult consumers, competitors, members of the scientific community, and others inquire into our scientific
methodologies, challenge our scientific conclusions or request further study of certain aspects of our RRPs and their health effects. We
are committed to a robust and open scientific debate and believe that such debate should be based on accurate and reliable scientific
information. We seek to provide accurate and reliable scientific information about our RRPs; nonetheless, we may not be able to
prevent third-party dissemination of false, misleading or unsubstantiated information about these products. The dissemination of
scientifically unsubstantiated information or studies with a strong confirmation bias by third parties may cause confusion among adult
smokers and affect their decision to switch to better alternatives to continued smoking, such as our RRPs.
To date, we have been largely successful in demonstrating to regulators that our heated tobacco units are not cigarettes due to the
absence of combustion, and as such they are generally taxed either as a separate category or as other tobacco products, which typically
yields more favorable tax rates than cigarettes. Although we believe that this is sensible from the public health perspective, we cannot
guarantee that regulators will continue this approach.
There can be no assurance that we will succeed in our efforts to replace cigarettes with RRPs or that regulation will allow us to
commercialize RRPs in all markets, to communicate about our RRPs, including making scientifically substantiated risk-reduction
claims, or to treat RRPs differently from cigarettes.
Legal Challenges to RRPs: We face various administrative and legal challenges related to certain RRP activities, including allegations
concerning product classification, advertising restrictions, corporate communications, product coach activities, scientific
substantiation, product liability, and unfair competition. While we design our programs to comply with relevant regulations, we
expect these or similar challenges to continue as we expand our efforts to commercialize RRPs and to communicate publicly. The
outcomes of these matters may affect our RRP commercialization and public communication activities and performance in one or
more markets.
Our RRP Business Development Initiatives: In December 2013, we established a strategic framework with Altria Group, Inc.
(“Altria”) setting out terms on how the parties would collaborate to develop and commercialize e-vapor products and commercialize
two of our RRPs in the U.S. In late 2018, Altria announced that it will participate in the e-vapor category only through another e-vapor
company in which Altria acquired a minority interest. In September 2019, Altria's subsidiary, Philip Morris USA Inc. (“PM USA”),
began commercialization of a version of our Platform 1 product in the U.S. Under the agreement, PM USA was required to achieve
certain milestones in order to maintain its exclusive distribution right and additional milestones to extend the agreement after the
initial 5-year term. On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc. to end the
companies' commercial relationship covering IQOS in the U.S. as of April 30, 2024. Thereafter, PMI will have the full rights to
commercialize IQOS in the U.S. (For more details, please refer to Note 3. Acquisitions, and Note 18. Contingencies).
In January 2020, we announced an agreement with KT&G, a leading tobacco and nicotine company in South Korea, for the
commercialization of KT&G’s smoke-free products outside of South Korea on an exclusive basis. On January 30, 2023, we
announced a renewal and extension of this arrangement. For more information, see Acquisitions and Other Business Arrangements
below.
50
Other Developments: In September 2017, we announced our support of the Foundation for a Smoke-Free World. In September 2020,
our pledge agreement with the Foundation was amended. We contributed $45 million in 2020, $40 million in 2021, $17.5 million in
2022, and expect to contribute up to $35 million annually from 2023 through 2029, as specified in the amended pledge agreement. To
date, we contributed a total of $267 million. The Foundation is an independent body and is governed by its independent Board of
Directors. The Foundation’s role, as set out in its corporate charter, includes funding research in the field of tobacco harm reduction,
encouraging measures that reduce the harm caused by smoking, and assessing the effect of reduced cigarette consumption on the
industry value chain.
Governmental Investigations
From time to time, we are subject to governmental investigations on a range of matters, including tax, customs, antitrust, advertising,
and labor practices. We describe certain matters pending in Russia, South Korea and Thailand in Item 8, Note 18. Contingencies.
In November 2010, a World Trade Organization ("WTO") panel issued its decision in a dispute between the Philippines and Thailand,
concerning a series of Thai customs and tax measures affecting cigarettes imported by PM Thailand into Thailand (see Item 8, Note
18. Contingencies for additional information). The decision 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 Thai government and created obligations for Thailand to revise its laws,
regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports. Thailand agreed to fully comply
with the decision, but the Philippines asserts that to date Thailand has not fully complied with the WTO panel decision and
commenced challenges at the WTO Appellate Body. The WTO Appellate Body is not operational, and the appeals by Thailand are
suspended indefinitely. In December 2020, the Philippines and Thailand agreed to pursue facilitator-assisted discussions aimed at
progressing and resolving outstanding issues and the countries have since agreed to seek the establishment of a bilateral consultative
mechanism, with the goal of reaching a comprehensive settlement of their dispute, consistent with their rights and obligations under
the WTO Agreement, as well as the recommendations and rulings of the WTO Dispute Settlement Body.
The Public Prosecutor’s office of Rome, Italy, notified our Italian subsidiary, Philip Morris Italia S.r.l. (“PM Italia”), as well as three
former or current employees and a former external consultant of PM Italia in July 2020 and March 2020, respectively, that it
concluded a preliminary investigation against them for alleged contravention of anti-corruption laws and related disruption of trade
freedom. The Public Prosecutor alleges that the individuals involved promised certain personal favors to government officials from
January to July of 2018 in exchange for favorable treatment for PM Italia, and that PM Italia lacked appropriate organizational
controls to prevent the alleged actions by the individuals. BAT has filed a civil claim against PM Italia claiming vicarious liability for
any wrongdoing of its former or current employees and seeking EUR 50 million in damages. The court admitted the claim as a matter
of course and issued summons for PM Italia to appear as civil party in the case. The next trial hearing is scheduled for February 13,
2023. PM Italia believes the charges brought against it by the Public Prosecutor are without merit and will defend them vigorously.
Asset Impairment and Exit Costs
We discuss asset impairment and exit costs related to restructuring activities in Item 8, Note 20. Asset Impairment and Exit Costs to
our consolidated financial statements.
U.S. GAAP Treatment of Turkey as a Highly Inflationary Economy
Following the categorization of Turkey by the International Practices Task Force of the Center for Audit Quality as a country with a
three-year cumulative inflation rate greater than 100%, the country is considered highly inflationary in accordance with U.S. GAAP.
Consequently, PMI has begun to account for the operations of its Turkish affiliates as highly inflationary, and treat the U.S. dollar as
the functional currency of the affiliates, effective April 1, 2022. The impact of this accounting change was not material to our
consolidated financial statements for the year ended December 31, 2022.
Climate Change Laws and Regulations
While, to date, the effect of climate-related laws and regulations on PMI has not been material to our business, results of operations or
financial conditions, consideration of environmental and climate-related laws and regulations is an integral aspect of PMI’s climate-
related risk assessment process. To this end, we actively monitor the existing and potential impact on PMI of significant pending or
existing climate change-related legislation, regulations, international accords, reporting frameworks, standards, principles, and other
forms of guidance. Examples include, but are not limited to, the EU Emissions Trading System, the 2015 Paris Climate Agreement,
recommendations of the Task Force on Climate-related Financial Disclosures, the SEC’s proposed rules regarding climate-related
51
disclosures, the Taskforce on Nature-related Financial Disclosures, the European Commission Corporate Sustainability Reporting
Directive, and the International Sustainability Standards Board proposed standards.
Acquisitions and Other Business Arrangements
We discuss our acquisitions in Item 8, Note 3. Acquisitions to our consolidated financial statements.
KT&G
On January 30, 2023, PMI announced a long-term collaboration with KT&G, South Korea’s leading tobacco and nicotine
manufacturer, to continue to commercialize KT&G’s innovative smoke-free devices and consumables on an exclusive, worldwide
basis (excluding South Korea).
The agreement covers fifteen years, to January 29, 2038, with performance-review cycles and associated commitments, based on
volume, to be confirmed for each three-year period, to allow flexibility for evolving market conditions.
The agreement gives PMI continued exclusive access to KT&G’s smoke-free brands and product-innovation pipeline, including
offerings for low- and middle-income markets, that will enhance PMI’s existing portfolio of smoke-free products.
Products sold under the agreement will be subject to assessment to ensure they meet the regulatory requirements in the markets where
they are launched, as well as PMI’s high standards of quality and scientific substantiation. PMI and KT&G will seek any necessary
regulatory approvals that may be required on a market-by-market basis.
Equity Investments
We discuss our equity investments in Item 8, Note 6. Related Parties - Equity Investments and Other to our consolidated financial
statements.
Trade Policy
PMI complies with all applicable trade restrictions and requirements, including sanctions, in the markets in which it operates. We have
taken appropriate actions in response to the latest sanctions to ensure full compliance with the relevant restrictions.
We are subject to various trade restrictions imposed by the U.S., EU, Switzerland, the U.K., and other jurisdictions in which we do
business (“Trade Sanctions”), including the trade and economic sanctions administered by the U.S. Department of the Treasury's
Office of Foreign Assets Control and the U.S. Department of State. It is our policy to comply fully with these Trade Sanctions.
Pursuant to specific exemptions or licenses, or where sanctions do not apply to our business, PMI may make sales in countries subject
to Trade Sanctions.
We do not do business or sell products in Iran, North Korea or Syria.
We sell cigarettes in Cuba under a distribution agreement. These sales are permitted by U.S. law under a License Exception for
Agricultural Commodities, issued by the United States Department of Commerce (Bureau of Industry and Security), and specifically
granted to our distributor.
Certain states within the U.S. have enacted legislation permitting or requiring state pension funds to divest or abstain from future
investment in stocks of companies that do business with certain countries that are sanctioned by the U.S. Because we do business in
certain of these countries, consistent with our policy to fully comply with Trade Sanctions and as described above, these state pension
funds may have divested of our stock or may not invest in our stock. We do not believe such legislation has had a material effect on
the price of our shares.
PMI is also subject to various Trade Sanctions imposed by the EU and other jurisdictions. We comply fully with these Trade
Sanctions.
On June 24, 2021, the EU introduced sanctions regarding Belarus aimed at specific sectors of the Belarus economy, including the
tobacco sector. Subsequently, seven non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Bosnia and Herzegovina,
52
Montenegro, and Albania) announced that they “aligned themselves” with the majority of the EU sanctions. Switzerland and the UK
have also imposed sanctions similar in scope to the EU sanctions.
On August 9, 2021, the U.S. imposed blocking sanctions on certain Belarusian individuals and entities pursuant to an Executive
Order, which expanded the bases for the imposition of sanctions, including, among others, by authorizing the imposition by OFAC of
blocking sanctions on persons operating in the tobacco sector of the Belarus economy. In 2021 and 2022, the U.S., the EU, the U.K.,
Switzerland and several other jurisdictions supplemented their respective sanctions lists by including additional Belarusian sanctions
targets.
Following the start of the conflict in Ukraine on February 24, 2022, the U.S., the EU, the UK, Switzerland, Canada, Australia, New
Zealand, Singapore, South Korea, Japan and other countries introduced extensive economic sanctions and export controls regarding
Russia. While the introduced sanctions slightly vary from jurisdiction to jurisdiction, they are largely aligned. The restrictions are
primarily targeted at the Russian financial, banking, oil, military, aviation and marine sectors. The U.S. has also introduced a
prohibition on new investment in the Russian Federation by a U.S. person, wherever located. Among sanctions targets are Russian
political figures and military personnel, certain oligarchs and journalists, and companies operating in the above-mentioned sectors.
Export to Russia of certain luxury goods, and goods and technology which might contribute to Russia’s technological enhancement
was banned. Seven non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Bosnia and Herzegovina, Montenegro, and
Albania) announced that they “aligned themselves” with the majority of the EU sanctions. The EU and Switzerland introduced
additional trade restrictions banning, among many other goods, the export of certain non-tobacco materials used to produce cigarettes
and heated tobacco consumables in Russia as well as related technical assistance and other related services. In addition, the EU, the
UK, Switzerland, Canada, Australia, New Zealand and Ukraine sanctioned Mr. Igor Kesaev, a non-majority shareholder of Megapolis
Distribution B.V.
The U.K. banned the export of electronic cigarettes and similar personal electric vaporizing devices to Russia as well as related
technical assistance, and financial and brokering services. Certain countries also banned the delivery of services to Russia, such as
information technology consultancy services, accounting and business and management consulting services, most with exceptions for
subsidiaries of U.S., E.U., or Swiss owned companies.
Russia introduced certain countermeasures aimed at reducing the effect of Western sanctions. Countermeasures include restrictions on
export of certain goods from Russia, including tobacco-related production equipment, restrictions on lending to foreign borrowers,
repatriation of dividends and transactions with securities and real estate involving companies from “hostile” countries (i.e., those
which introduced sanctions regarding Russia).
PMI continues to monitor the development of new sanctions and ensure full compliance.
2022 compared with 2021
The following discussion compares operating results within each of our segments for 2022 with 2021.
Unless otherwise stated, references to total industry, total market, our shipment volume and our market share performance reflect
cigarettes and heated tobacco units. Estimates for total industry volume and market share in certain geographies reflect limitations on
the availability and accuracy of industry data during pandemic-related restrictions.
European Union:
Financial Summary -
Years Ended December 31,
(in millions)
2022
2021
Change
Fav./(Unfav.)
Excl.
Curr. &
Acquis.
Total
Variance
Fav./(Unfav.)
Total
Cur-
rency
Acqui-
sitions Price
Vol/
Mix
Cost/
Other
Net Revenues
$ 12,119 $ 12,275
(1.3) % 10.6 % $ (156) $ (1,472) $
10 $ (127) $ 1,433 $ —
Operating Income
$ 5,788 $ 6,119
(5.4) % 10.5 % $ (331) $ (972) $
(2) $ (127) $ 977 $ (207)
Net revenues, excluding currency and acquisitions, increased by 10.6%, reflecting: favorable volume/mix, mainly driven by higher
HTU volume and device volume, partly offset by lower cigarette volume, unfavorable HTU mix, and unfavorable cigarette mix;
53
partially offset by an unfavorable pricing variance, mainly due to lower HTU (net) pricing and lower device pricing, partly offset by
higher combustible tobacco pricing.
The unfavorable pricing variance is impacted by the supplemental excise tax surcharge on heated tobacco units in Germany, which
went into effect in 2022. The legality of the surcharge is currently being assessed in court and the obligation to pay the surcharge is
temporarily suspended. PMI currently accounts for the surcharge as a reduction in net revenues and in accrued liabilities in its
consolidated financial statements. The accrued liability balance will continue to increase with the continuation of the HTU selling
activities and in the case of an unfavorable ruling would negatively impact PMI’s future cash provided by operating activities. The
favorable ruling would positively impact future PMI’s operating results.
Operating income, excluding currency and acquisitions, increased by 10.5%, primarily reflecting favorable volume/mix, mainly driven
by higher HTU volume, partly offset by lower cigarette volume, unfavorable HTU mix, unfavorable cigarette mix and the unfavorable
impact on profitability of higher device volume; partially offset by an unfavorable pricing variance; higher manufacturing costs; and
higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish
Match AB offer of $51 million and a favorable comparison versus the prior year period related to asset impairment and exit costs of
$68 million).
European Union - Total Market, PMI Shipment Volume and Market Share Commentaries
Total market and market share performance are shown in the table below:
European Union Key Data
Full-Year
Total Market (billion units)
PMI Market Share
Marlboro
L&M
Chesterfield
Philip Morris
Heated Tobacco Units
Others
Total European Union
Note: Sum may not foot due to roundings.
2022
484.3
15.9 %
5.3 %
5.5 %
2.1 %
7.7 %
3.0 %
39.5 %
2021
478.9
16.6 %
5.6 %
5.5 %
2.2 %
5.7 %
3.0 %
38.6 %
Change
% / pp
1.1 %
(0.7)
(0.3)
—
(0.1)
2.0
—
0.9
The estimated total market in the EU increased by 1.1% to 484.3 billion units, primarily driven by:
•
•
•
Italy, up by 3.4%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related
measures (particularly in the first half of the year);
Poland, up by 13.0%, primarily reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due
to the easing of pandemic-related measures); and
Romania, up by 8.2%, mainly reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to
the easing of pandemic-related measures);
partly offset by
•
•
Germany, down by 5.1%, primarily reflecting the impact of excise tax-driven price increases and higher cross-border (non-
domestic) purchases due to the easing of pandemic-related measures; and
the U.K., down by 13.4%, notably reflecting the impact of increased out-bound tourism compared to the pandemic-affected prior
year period.
Our Regional market share increased by 0.9 points to 39.5%, with gains in Germany, Italy and Poland, partly offset by declines in
France and Spain.
54
Our total shipment volume increased by 4.0% to 193.4 billion units, mainly driven by:
•
•
•
Italy, up by 5.8%, primarily reflecting a higher market share driven by HTUs, as well as a higher total market;
Poland, up by 17.6%, mainly reflecting the higher total market and a higher market share driven by HTUs; and
Romania, up by 36.1%. Excluding the net favorable impact of estimated distributor inventory movements, total in-market sales
volume increased by 27.3%, primarily reflecting a higher market share driven by HTUs, as well as the higher total market;
partly offset by
•
France, down by 8.1%, primarily reflecting a lower total market and a lower market share.
Eastern Europe:
Financial Summary -
Years Ended December 31,
(in millions)
Net Revenues
Change
Fav./(Unfav.)
Excl.
Curr. &
Acquis.
Total
2022
2021
Variance
Fav./(Unfav.)
Total
Cur-
rency
Acqui-
sitions Price
Vol/
Mix
Cost/
Other
$ 3,725 $ 3,544
5.1 %
3.7 % $ 181 $
51 $ — $ 334 $ (204) $ —
Operating Income
$ 1,166 $ 1,213
(3.9) % (13.9) % $ (47) $ 122 $ — $ 334 $ (212) $ (291)
Net revenues, excluding currency and acquisitions, increased by 3.7%, reflecting: a favorable pricing variance, primarily driven by
higher combustible tobacco pricing; partly offset by unfavorable volume/mix, mainly due to lower cigarette volume, lower HTU
volume and unfavorable cigarette mix.
In 2022, Russia and Ukraine accounted for around 70% of PMI's total net revenues in the Region.
Operating income, excluding currency and acquisitions, decreased by 13.9%, notably reflecting the impact of 2022 charges related to
the war in Ukraine ($151 million) shown in "Cost/Other", as well as unfavorable volume/mix, mainly due to the same factors as for
net revenues; higher manufacturing costs (notably related to Ukraine); and higher marketing, administration and research costs; partly
offset by a favorable pricing variance.
55
EU Shipment Volume (million units)193,405186,051153,890157,84339,51528,208CigarettesHeated Tobacco Units20222021 Eastern Europe - Total Market, PMI Shipment Volume and Market Share Commentaries
The estimated total market in Eastern Europe decreased by 4.4% to 358.0 billion units, primarily due to:
•
•
Russia, down by 3.6%, mainly due to the impact of price increases; and
Ukraine, down by 18.3%.
The estimated total market in Eastern Europe, excluding Russia and Ukraine, was essentially stable at 113.3 billion units.
Our Regional market share decreased by 0.8 points to 29.8%. Excluding Russia and Ukraine, our Regional market share increased by
0.4 points to 26.7%.
Our total shipment volume decreased by 7.1% to 106.3 billion units, primarily due to:
•
•
Russia, down by 6.0%, due to cigarettes and HTUs; and
Ukraine, down by 30.1%, due to cigarettes and HTUs.
In 2022, Russia and Ukraine accounted for around 71% of PMI's total shipment volume in the Region. Excluding Russia and Ukraine,
total shipment volume increased by 2.7%.
Middle East & Africa:
Financial Summary -
Years Ended December 31,
(in millions)
Net Revenues
Change
Fav./(Unfav.)
Excl.
Curr. &
Acquis.
Total
2022
2021
Variance
Fav./(Unfav.)
Total
Cur-
rency
Acqui-
sitions Price
Vol/
Mix
Cost/
Other
$ 3,901 $ 3,293
18.5 % 29.0 % $ 608 $ (348) $ — $ 200 $ 503 $ 253
Operating Income
$ 1,758 $ 1,146
53.4 % 67.6 % $ 612 $ (163) $ — $ 200 $ 364 $ 211
56
EE Shipment Volume (million units)106,266114,34881,46088,69824,80625,650CigarettesHeated Tobacco Units20222021 Net revenues, excluding currency and acquisitions, increased by 29.0%, notably reflecting a favorable comparison related to the Saudi
Arabia customs assessments of $246 million in 2021, shown in "Cost/Other", favorable volume/mix, primarily driven by higher
cigarette volume and higher HTU volume; and a favorable pricing variance, mainly driven by combustible tobacco pricing.
Operating income, excluding currency and acquisitions, increased by 67.6%, notably reflecting a favorable comparison related to the
Saudi Arabia customs assessments in 2021 (as noted above for net revenues), favorable volume/mix, primarily driven by the same
factors as for net revenues; a favorable pricing variance; and lower marketing, administration and research costs (including the
unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $13 million and a favorable comparison versus the
prior year period related to asset impairment and exit costs of $17 million); partly offset by higher manufacturing costs.
Middle East & Africa - Total Market, PMI Shipment Volume and Market Share Commentaries
The estimated total market in the Middle East & Africa decreased by 0.8% to 557.2 billion units, mainly due to:
•
•
Algeria, down by 16.1%, or by 6.8% excluding the net unfavorable impact of estimated trade inventory movements, primarily
reflecting industry supply chain disruptions, as well as the impact of excise tax-driven price increases in the first quarter of 2021;
and
Turkey, down by 6.3%, mainly reflecting a higher estimated prevalence of illicit trade, partly offset by the impact on adult smoker
average daily consumption of the easing of pandemic-related measures, coupled with increased in-bound tourism;
partly offset by
•
International Duty Free, up by 43.8%, primarily reflecting the impact of reduced government travel restrictions and increased
passenger traffic in certain geographies.
Our Regional market share increased by 1.6 points to 24.7%.
Our total shipment volume increased by 6.5% to 138.6 billion units, mainly driven by:
•
•
Egypt, up by 8.2%, primarily reflecting a higher market share driven by cigarettes and HTUs; and
PMI Duty Free, up by 61.3%, or by 47.3% excluding the net favorable impact of estimated distributor inventory movements
(primarily due to cigarettes), reflecting the higher total market and a higher market share.
57
ME&A Shipment Volume (million units)138,566130,051134,110127,9114,4562,140CigarettesHeated Tobacco Units20222021 South & Southeast Asia:
Financial Summary -
Years Ended December 31,
(in millions)
Net Revenues
Change
Fav./(Unfav.)
Excl.
Curr. &
Acquis.
Total
2022
2021
Variance
Fav./(Unfav.)
Total
Cur-
rency
Acqui-
sitions Price
Vol/
Mix
Cost/
Other
$ 4,395 $ 4,396
— %
6.2 % $
(1) $ (274) $ — $ 45 $ 228 $ —
Operating Income
$ 1,459 $ 1,506
(3.1) %
5.7 % $
(47) $ (133) $ — $ 45 $
(16) $
57
Net revenues, excluding currency and acquisitions, increased by 6.2%, reflecting: favorable volume/mix, primarily driven by higher
cigarette volume and favorable cigarette mix; and a favorable pricing variance, mainly due to combustible tobacco pricing.
Operating income, excluding currency and acquisitions, increased by 5.7%, primarily reflecting: lower marketing, administration and
research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $21 million
and the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $13 million); and a favorable pricing
variance; partly offset by unfavorable volume/mix, mainly due to lower cigarette mix.
South & Southeast Asia - Total Market, PMI Shipment Volume and Market Share Commentaries
The estimated total market in South & Southeast Asia increased by 2.9% to 743.3 billion units, mainly driven by:
•
•
India, up by 16.8%, primarily reflecting a favorable comparison versus the prior year, during which pandemic-related restrictions
impacted the movement of certain products, including tobacco; and
Indonesia, up by 4.5%, mainly reflecting the impact on adult smoker consumption of the easing of pandemic-related measures,
which drove growth in the tax-advantaged 'below tier one' segment;
partly offset by
•
•
Bangladesh, down by 4.0%, primarily reflecting the impact of pandemic-related restrictions on mobility during February 2022, as
well as the impact of second-quarter 2022 excise tax-driven price increases; and
the Philippines, down by 6.1%, mainly reflecting the impact of first-quarter 2022 excise tax-driven price increases.
Our Regional market share decreased by 0.3 points to 19.4%.
58
Our total shipment volume increased by 1.6% to 144.5 billion units, mainly driven by:
•
•
India, up by 73.9%, primarily reflecting a higher market share (driven by geographic expansion) and the higher total market; and
Indonesia, up by 4.8%, mainly reflecting the higher total market;
partly offset by
•
the Philippines, down by 6.3%, mainly reflecting the lower total market.
East Asia & Australia:
Financial Summary -
Years Ended December 31,
(in millions)
Net Revenues
Change
Fav./(Unfav.)
Excl.
Curr. &
Acquis.
Total
2022
2021
Variance
Fav./(Unfav.)
Total
Cur-
rency
Acqui-
sitions Price
Vol/
Mix
Cost/
Other
$ 5,132 $ 5,953
(13.8) % (3.9) % $ (821) $ (587) $ — $ (16) $ (218) $ —
Operating Income
$ 1,919 $ 2,556
(24.9) % (10.9) % $ (637) $ (358) $ — $ (16) $ (477) $ 214
Net revenues, excluding currency and acquisitions, decreased by 3.9%, primarily reflecting: unfavorable volume/mix, mainly due to
unfavorable device mix, lower cigarette volume and unfavorable cigarette mix, partly offset by higher HTU volume and higher device
volume; and an unfavorable pricing comparison.
Operating income, excluding currency and acquisitions, decreased by 10.9%, mainly reflecting: unfavorable volume/mix, primarily
due to unfavorable HTU mix, lower cigarette volume, unfavorable cigarette mix and unfavorable device mix; and higher
manufacturing costs; partly offset by lower marketing, administration and research costs (including a favorable comparison versus the
prior year period related to asset impairment and exit costs of $88 million and the unfavorable impact of 2022 costs associated with the
Swedish Match AB offer of $21 million).
59
S&SA Shipment Volume (million units)144,451142,163143,982141,923469240CigarettesHeated Tobacco Units20222021 East Asia & Australia - Total Market, PMI Shipment Volume and Market Share Commentaries
The estimated total market in East Asia & Australia, excluding China, decreased by 0.9% to 292.8 billion units, mainly due to:
•
Japan, down by 1.5%, primarily reflecting the impact of the October 2021 excise tax-driven price increases.
Our Regional market share, excluding China, increased by 0.8 points to 27.3%.
Our total shipment volume decreased by 0.2% to 81.9 billion units, mainly due to:
•
•
Australia, down by 5.1%, mainly reflecting a lower total market, partly offset by a higher market share; and
South Korea, down by 1.6%, primarily reflecting a lower market share;
partly offset by
•
Japan, up by 0.6%, or by 3.9% excluding the net unfavorable impact of estimated distributor inventory movements (primarily due
to HTUs), reflecting a higher market share, partly offset by the lower total market.
Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume increased by
1.9%.
Americas:
Financial Summary -
Years Ended December 31,
(in millions)
Net Revenues
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
2022
2021
Total
Excl.
Curr. &
Acquis.
Total
Cur-
rency
Acqui-
sitions Price
Vol/
Mix
Cost/
Other
$ 1,903 $ 1,843
3.3 %
4.1 % $
60 $
(15) $ — $ 102 $ (23) $
(4)
Operating Income
$ 436 $ 487
(10.5) % (8.2) % $
(51) $
(11) $ — $ 102 $
(6) $
(136)
60
EA&A Shipment Volume (million units)81,88482,07542,49343,91339,39138,162CigarettesHeated Tobacco Units20222021 Net revenues, excluding currency and acquisitions, increased by 4.1%, primarily reflecting: a favorable pricing variance, driven by
combustible tobacco pricing; partly offset by unfavorable volume/mix, mainly due to unfavorable cigarette mix.
Operating income, excluding currency and acquisitions, decreased by 8.2%, mainly reflecting: higher marketing, administration and
research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $5 million and a
favorable comparison versus the prior year period related to asset impairment and exit costs of $8 million); and higher manufacturing
costs; partly offset by a favorable pricing variance. Volume/mix was slightly unfavorable, mainly due to unfavorable cigarette mix,
largely offset by higher cigarette volume.
Americas - Total Market, PMI Shipment Volume and Market Share Commentaries
The estimated total market in the Americas, excluding the U.S., increased by 1.7% to 190.8 billion units, primarily driven by:
•
Brazil, up by 7.6%, primarily reflecting a lower estimated prevalence of illicit trade;
partly offset by
•
Canada, down by 12.8%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products.
Our Regional market share, excluding the U.S., increased by 0.3 points to 34.8%.
Our total shipment volume increased by 2.1% to 66.5 billion units, mainly driven by:
•
Brazil, up by 13.3%, primarily reflecting the higher total market and a higher market share; and
• Mexico, up by 2.5%, mainly reflecting a higher total market and a higher market share for cigarettes;
partly offset by
•
Argentina, down by 2.8%, primarily reflecting a lower market share due to adult smoker downtrading to ultra-low-price brands
produced by local manufacturers, partly offset by a higher total market.
61
Americas Shipment Volume (million units)66,50565,16365,97364,587532576CigarettesHeated Tobacco Units20222021 Swedish Match:
Our results for the Swedish Match operating segment for the full-year include Swedish Match's results beginning on November 11,
2022, when PMI became the owner of a majority position in Swedish Match, through December 31, 2022. The business operations of
our Swedish Match segment are managed and evaluated separately from the geographical segments.
Financial Summary -
Years Ended December 31,
(in millions)
Net Revenues
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
2022
2021
Total
Excl.
Curr. &
Acquis.
Total
Cur-
rency
Acqui-
sitions Price
Vol/
Mix
Cost/
Other
$ 316 $ —
— %
— % $ 316 $ — $ 316 $ — $ — $ —
Operating Income / (Loss)
$ (22) $ —
— %
— % $
(22) $ — $
(22) $ — $ — $ —
We recorded net revenues of $316 million in the Swedish Match segment, with an operating loss of $22 million, primarily reflecting
$125 million in an acquisition accounting-related item and $26 million related to the amortization of acquired intangibles.
Wellness and Healthcare:
In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc. and OtiTopic, Inc. On March 31, 2022, we launched
a new Wellness and Healthcare business, Vectura Fertin Pharma, consolidating these entities. The operating results of this business
are reported in the Wellness and Healthcare segment. The business operations of our Wellness and Healthcare segment are managed
and evaluated separately from the geographical segments.
Financial Summary -
Years Ended December 31,
(in millions)
Net Revenues
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
2022
2021
Total
Excl.
Curr. &
Acquis.
Total
Cur-
rency
Acqui-
sitions Price
Vol/
Mix
Cost/
Other
$ 271 $ 101
+100% (7.9) % $ 170 $
(11) $ 189 $ (10) $ — $
2
Operating Income / (Loss)
$ (258) $ (52)
-(100)% -(100)% $ (206) $
8 $
(72) $ (10) $ — $
(132)
Net revenues, excluding currency and acquisitions, decreased by 7.9%, primarily reflecting lower product supply revenues and lower
royalties.
The operating loss of $258 million in 2022 included $171 million of amortization and impairment of intangibles. The remaining
operating loss in 2022 of $87 million mainly reflected investments in research and development, as well as expenses related to
employee retention programs.
2021 compared with 2020
For a discussion comparing our consolidated operating results within each of our geographical segments for the year ended
December 31, 2021, with the year ended December 31, 2020, refer to Part II, Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operation - Operating Results by Business Segment in our Annual Report on Form 10-K for the
year ended December 31, 2021, which was filed with the U.S. Securities and Exchange Commission on February 11, 2022. This
section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2022.
62
Financial Review
(in millions)
Net cash provided by operating activities
$
Net cash used in investing activities
Net cash provided by (used in) financing activities
For the Years Ended December 31,
2022
2021
2020
10,803 $
(15,679)
3,806
11,967 $
(2,358)
(11,977)
9,812
(1,154)
(8,496)
2022 compared with 2021
•
Net Cash Provided by Operating Activities
Net cash provided by operating activities for the year ended December 31, 2022 decreased by $1.2 billion compared with 2021.
Excluding unfavorable currency movements of $1.5 billion, net cash provided by operating activities increased by $0.3 billion, due
primarily to higher currency-neutral net earnings of $1.1 billion and lower pension plan contributions, net of refunds, of $0.3 billion,
partially offset by higher working capital requirements of $1.0 billion and other movements.
The unfavorable currency movements primarily related to the currency impact on net earnings and represented the fluctuations of the
U.S. dollar, especially against Egyptian pound, Euro, Hungarian forint, Japanese yen and Polish zloty, partially offset by the Russian
ruble and Swiss franc.
The higher working capital requirements in 2022 as compared with 2021 were primarily due to more cash used for accounts receivable
in 2022 mainly reflecting the timing of sales and cash collections, and more cash used for inventory mainly reflecting stock
movements related to excise tax increases, partially offset by more cash provided by accrued liabilities and other current assets mainly
reflecting the timing of excise tax-paid inventory movements and excise tax payments.
•
Net Cash Used in Investing Activities
Net cash used in investing activities of $15.7 billion for the year ended December 31, 2022, increased by $13.3 billion from the
comparable 2021 period. This increase was due primarily to the $14.0 billion of cash used in 2022 for the Swedish Match acquisition,
net of acquired cash, the 2022 cash payment to Altria Group, Inc. of $1.0 billion for PMI to reacquire the IQOS commercialization
63
Net Cash Provided by Operating Activities ($ in millions)$10,803$11,967$9,812202220212020Capital Expenditures ($ in millions)$1,077$748$602202220212020Dividends Paid($ in millions)$7,812$7,580$7,364202220212020
rights in the U.S. and higher capital expenditures. These increases were partially offset by the $2.1 billion of cash used in 2021 for our
acquisitions, net of acquired cash. For further detail on our acquisitions and the Altria Group, Inc. Agreement, see Item 8, Note 3.
Acquisitions.
Our capital expenditures were $1.1 billion in 2022 and $0.7 billion in 2021. The 2022 expenditures were primarily related to our
ongoing investments in smoke-free product manufacturing capacity. We expect total capital expenditures in 2023 of approximately
$1.3 billion, partly reflecting increased investments behind smoke-free product manufacturing capacity, including for ILUMA and
Swedish Match's portfolio.
•
Net Cash Provided by (Used in) Financing Activities
Net cash provided by financing activities of $3.8 billion for the year ended December 31, 2022, increased by $15.8 billion from the
comparable 2021 period. The increase was primarily due to higher borrowings in 2022 reflecting net borrowings of $9.9 billion under
credit facilities related to the Swedish Match acquisition, proceeds from long-term debt issuances of $6.0 billion and net short-term
borrowings of $1.0 billion (primarily commercial paper), as well as lower share repurchases and lower repayments of long-term debt
in 2022. These increases were partially offset by higher cash usage primarily reflecting payments made after the acquisition date to
acquire additional Swedish Match shares from noncontrolling interests, higher dividend payments and the purchase of the remaining
stakes in our Turkish affiliates in the first quarter of 2022. For further details on the purchases of additional Swedish Match shares
and the remaining stakes in our Turkish affiliates, see Item 8, Note 3. Acquisitions.
Dividends paid in 2022 and 2021 were $7.8 billion and $7.6 billion, respectively.
2021 compared with 2020
For a discussion comparing our net cash activities (operating, investing and financing) for the year ended December 31, 2021, with the
year ended December 31, 2020, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of
Operation - Financial Review in our Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the
U.S. Securities and Exchange Commission on February 11, 2022. This section is incorporated by reference into this Annual Report on
Form 10-K for the year ended December 31, 2022.
•
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 with institutions that have investment-grade long-term credit rating. As part of our cash management strategy and in order to
manage counterparty exposure, we also enter into reverse repurchase agreements. Such agreements are collateralized with government
or corporate securities held by a custodial bank and, at maturity, cash is paid back to PMI, and the collateral is returned to the bank.
For 2022 and 2021, the activities for such reverse repurchase agreements were not material.
In August 2021, we published a business transformation-linked financing framework (“Framework”), which integrates PMI's smoke-
free transformation into its financing strategy. The Framework outlines the guidelines that we will follow in issuing business
transformation-linked financing instruments in the debt capital and loan markets, which may include public notes offerings, private
placements, loans, and other relevant financing instruments.
Credit 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 November 10, 2022, Fitch affirmed our long-term credit rating at “A” and short-term at “F1”, and
revised our outlook to “Stable” from “Rating Watch Negative”. On November 11, 2022, Moody’s affirmed our long-term credit rating
at “A2” and short-term at “P-1”, and revised our outlook to “Stable” from “Rating(s) Under Review”. On November 11, 2022,
Standard & Poor’s revised our long-term credit rating to “A-” from “A” and short-term to “A-2” from “A-1” with “Stable” outlook
(previously “CreditWatch Negative”).
At February 10, 2023, our credit ratings and outlook by major credit rating agencies were as follows:
Moody’s
Standard & Poor’s
Fitch
Short-term
Long-term
A2
A-
A
P-1
A-2
F1
64
Outlook
Stable
Stable
Stable
Revolving Credit Facilities – On January 25, 2023, we entered into an agreement to amend and extend the term of our $1.8 billion
364-day committed revolving credit facility from January 31, 2023, to January 30, 2024.
At February 10, 2023, our committed revolving credit facilities were as follows:
Type
(in billions)
364-day revolving credit, expiring January 30, 2024
Multi-year revolving credit, expiring February 10, 2026(1)
Multi-year revolving credit, expiring September 29, 2026(2) (3)
Total facilities
Committed
Revolving Credit
Facilities
$
$
1.8
2.0
2.5
6.3
(1) On January 28, 2022, we entered into an agreement, effective February 10, 2022, to amend and extend the term of our $2.0 billion multi-year
revolving credit facility, for an additional year covering the period February 11, 2026 to February 10, 2027, in the amount of $1.9 billion.
(2) Includes business transformation-linked pricing adjustments that may result in the reduction or increase in both the interest rate and commitment
fee under the credit agreement if PMI achieves, or fails to achieve, certain specified targets based on its business transformation goals.
(3) On September 20, 2022, we entered into an agreement, effective September 29, 2022, to amend and extend the term of our $2.5 billion multi-year
revolving credit facility, for an additional year covering the period September 30, 2026 to September 29, 2027, in the amount of $2.3 billion.
At February 10, 2023, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts
were available for borrowing. Subject to market conditions, PMI currently expects to request a further extension of the terms of its
$2.5 billion multi-year revolving credit facility for an additional one-year period, in accordance with and subject to the terms and
conditions of the relevant revolving credit facility agreement.
All banks participating in our committed revolving credit facilities have an investment-grade long-term credit rating from the credit
rating agencies. We continuously monitor the credit quality of our banking group, and at this time we are not aware of any potential
non-performing credit provider.
These committed revolving credit facilities do not include any credit rating triggers, material adverse change clauses or any provisions
that could require us to post collateral. We expect to continue to meet our covenants.
In addition to the committed revolving credit facilities discussed above, certain of our subsidiaries maintain short-term credit
arrangements to meet their respective working capital needs. These credit arrangements, which amounted to approximately $1.9
billion at December 31, 2022 and approximately $2.3 billion at December 31, 2021, are for the sole use of our subsidiaries.
Borrowings under these arrangements and other bank loans amounted to $295 million at December 31, 2022, and $225 million at
December 31, 2021.
Financing of the Swedish Match Acquisition – In connection with PMI’s all-cash recommended public offer to the shareholders of
Swedish Match AB ("Swedish Match"), a public limited liability company organized under the laws of Sweden, for all the outstanding
shares of Swedish Match, on May 11, 2022, PMI entered into a credit agreement relating to a 364-day senior unsecured bridge facility.
The facility provided for borrowings up to an aggregate principal amount of $17 billion, expiring 364 days after the occurrence of
certain events unless extended. On June 23, 2022, PMI entered into a new €5.5 billion (approximately $5.8 billion at the date of
signing) senior unsecured term loan credit agreement consisting of a €3.0 billion (approximately $3.2 billion at the date of signing)
tranche expiring three years after the occurrence of certain events and a €2.5 billion (approximately $2.6 billion at the date of signing)
tranche expiring on June 23, 2027. In connection with the term loan facility, the aggregate principal amount of commitments under the
364-day senior unsecured bridge facility was reduced from $17 billion to $11 billion. On November 11, 2022, PMI acquired a
controlling interest of 85.87% of the total issued shares in Swedish Match and has acquired 94.81% of its outstanding shares as of
December 31, 2022.
PMI borrowed $8.4 billion under the bridge facility by delivering notices of borrowing for advances of $7.9 billion and $0.5 billion on
November 7, 2022 and November 10, 2022, respectively. All amounts borrowed under the bridge facility will become due on
November 8, 2023 unless prepaid or such maturity date is extended pursuant to the terms of the bridge facility. On November 7, 2022,
PMI also delivered notices of borrowing for advances totaling €5.5 billion under the term loan facility, of which €3.0 billion will
become due on November 9, 2025 and €2.5 billion will become due on June 23, 2027 unless prepaid pursuant to the terms of the credit
65
agreement. On November 21, 2022, PMI repaid $4.0 billion under the bridge facility. As of December 31, 2022, outstanding
borrowings under the bridge facility amounted to $4.4 billion and $1.1 billion commitments remained available for drawing. As of
December 31, 2022, the €5.5 billion (approximately $5.9 billion) term loan facility was fully drawn and remained outstanding. The
proceeds under the bridge facility and the term loan facility were used, directly or indirectly, to finance the acquisition, including, the
payment of related fees and expenses. For further details, see Item 8, Note 3. Acquisitions to our consolidated financial statements.
Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in
the U.S. and in Europe having an aggregate issuance capacity of $8.0 billion. At December 31, 2022, we had $0.9 billion of
commercial paper outstanding. At December 31, 2021, we had no commercial paper outstanding. The average commercial paper
balance outstanding during 2022 and 2021 was $3.1 billion and $1.1 billion, respectively.
Sale of Accounts Receivable – To mitigate credit risk and enhance cash and liquidity management, we sell trade receivables to
unaffiliated financial institutions. These arrangements allow us to sell, on an ongoing basis, certain trade receivables without
recourse. The trade receivables sold are generally short-term in nature and are removed from the consolidated balance sheets. We sell
trade receivables under two types of arrangements, servicing and nonservicing.
Our operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the
consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions. The trade receivables sold that
remained outstanding under these arrangements as of December 31, 2022, 2021 and 2020, were $1.0 billion, $0.9 billion and $1.2
billion, respectively. The net proceeds received are included in cash provided by operating activities in the consolidated statements of
cash flows.
For further details, see Item 8, Note 19. Sale of Accounts Receivable to our consolidated financial statements.
Debt – Our total debt was $43.1 billion at December 31, 2022, and $27.8 billion at December 31, 2021. Our total debt is primarily
fixed rate in nature. The weighted-average all-in financing cost of our total debt was 2.5% in 2022 and 2.4% in 2021. For further
details, including the fair value of our debt, see Item 8, Note 8. Indebtedness. The amount of debt that we can issue is subject to
approval by our Board of Directors.
On February 11, 2020, we filed a shelf registration statement with the U.S. Securities and Exchange Commission, under which we
may from time to time sell debt securities and/or warrants to purchase debt securities over a three-year period. During February 2023,
we plan to file a new shelf registration statement with the Securities and Exchange Commission.
Our notes issuances in 2022 were as follows:
(in millions)
Type
U.S. dollar notes
U.S. dollar notes
U.S. dollar notes
U.S. dollar notes
U.S. dollar notes
(a)
(b)
(b)
(b)
(b)
Face Value
$1,000
$750
$1,500
$1,250
$1,500
Interest
Rate
5.125%
5.000%
5.125%
5.625%
5.750%
Issuance
Maturity
November 2022
November 2022
November 2022
November 2022
November 2022
November 2024
November 2025
November 2027
November 2029
November 2032
(a) Interest is payable semi-annually on each May 15 and November 15, commencing May 15, 2023.
(b) Interest is payable semi-annually on each May 17 and November 17, commencing May 17, 2023.
The weighted-average time to maturity of our long-term debt was approximately 8 years at the end of 2022 and 10 years at the end of
2021.
Cash Requirements – At December 31, 2022, our material short-term and long-term cash requirements for various contractual
obligations and commitments primarily consisted of the following:
•
•
principal payments related to long-term debt and the associated interest payments. For further details, see Item 8, Note 8.
Indebtedness to our consolidated financial statements;
accounts payable and accrued liabilities on our consolidated balance sheet (primarily short-term in nature);
66
•
•
•
•
purchase obligations for inventory and production costs to be utilized in the normal course of business such as raw materials,
electronic devices, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution, as
well as capital expenditures. These purchase obligations are expected to be approximately $3.3 billion in 2023 and
approximately $1.6 billion for years beyond;
As part of the agreement with Altria Group, Inc. for PMI to reacquire the IQOS commercialization rights in the U.S., PMI
agreed to pay the remaining cash consideration of $1.7 billion (plus interest, at a per annum rate equal to six percent (6%))
by July 2023 at the latest. For further details, see Item 8, Note 3. Acquisitions to our consolidated financial statements;
operating lease liabilities, on an undiscounted basis, which were included in our consolidated balance sheets. For further
details, see Item 8, Note 21. Leases to our consolidated financial statements; and
other long-term liabilities mainly related to transition tax. For further details, see Item 8, Note 12. Income Taxes to our
consolidated financial statements.
We utilize long-term and short-term debt financing, including a commercial paper program that is regularly used to finance ongoing
liquidity requirements, as part of our overall cash management strategy. Our ability to access the capital and credit markets as well as
overall dynamics of these markets may impact borrowing costs. We expect that the combination of our long-term and short-term debt
financing, the commercial paper program and the committed credit facilities, coupled with our operating cash flows, will enable us to
meet our liquidity requirements.
• Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including special purpose entities, other than guarantees, and cash requirements
discussed above.
Guarantees – At December 31, 2022, we have guarantees of our own performance, which are primarily related to excise taxes on the
shipment of our products. There is no liability in the consolidated financial statements associated with these guarantees. These
guarantees have not had, and are not expected to have, a significant impact on PMI’s liquidity. In October 2020, we guaranteed an
obligation for an equity method investee. For further details, see Item 8, Note 18. Contingencies to our consolidated financial
statements.
Equity and Dividends
We discuss our stock awards as of December 31, 2022, in Item 8, Note 10. Stock Plans to our consolidated financial statements.
On June 11, 2021, our Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending of $5
billion to $7 billion over a three-year period. On July 22, 2021, we began repurchasing shares under this new share repurchase
program. From July 22, 2021 through March 31, 2022, we repurchased 10.5 million shares of our common stock at a cost of
approximately $1.0 billion. During the first three months of 2022, we repurchased 2.0 million shares of our common stock at a cost of
$199 million.
On May 11, 2022, we announced the suspension of our three-year share repurchase program following the recommended public offer
to acquire the outstanding shares of Swedish Match from its shareholders. Prior to the suspension of the program, we made no share
repurchases during the second quarter of 2022. For further details on Swedish Match, see the Item 8, Note 3. Acquisitions.
Dividends paid in 2022 were $7.8 billion. During the third quarter of 2022, our Board of Directors approved a 1.6% increase in the
quarterly dividend to $1.27 per common share. As a result, the present annualized dividend rate is $5.08 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 with maturities of less than
30 days.
We continuously monitor and assess the credit worthiness of all our counterparties.
67
Derivative Financial Instruments - We operate in markets primarily outside of the United States of America, with manufacturing
and sales facilities in various locations around the world. Consequently, we use certain financial instruments to manage our foreign
currency and interest rate exposure. We use derivative financial instruments principally to reduce our exposure to market risks
resulting from fluctuations in foreign exchange and interest rates by creating offsetting exposures. We are not a party to leveraged
derivatives and, by policy, do not use derivative financial instruments for speculative purposes.
See Item 8, Note 16. Financial Instruments 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 and foreign currency price-sensitive derivative financial instruments. This computation includes our debt and foreign
currency forwards, swaps and options. Anticipated transactions, foreign currency trade payables and receivables, and net investments
in foreign subsidiaries, which the foregoing instruments are intended to hedge, were excluded from the computation.
The computation estimates were made assuming normal market conditions, using a 95% confidence interval and a one-day holding
period using a "parametric delta-gamma" approximation technique to determine the observed interrelationships between movements
in interest rates and various currencies and in calculating the risk of the underlying positions in the portfolio. These interrelationships
were determined by observing interest rate and forward currency rate movements primarily over the preceding quarter for determining
value at risk at December 31, 2022 and 2021, and primarily over each of the four preceding quarters for the calculation of average,
high and low value at risk amounts during each year.
(in millions)
Instruments sensitive to:
Foreign currency rates
Interest rates
(in millions)
Instruments sensitive to:
Foreign currency rates
Interest rates
Fair Value Impact
At December 31, 2022
Average
High
Low
$33
$233
$55
$253
$73
$317
$33
$195
Fair Value Impact
At December 31, 2021
Average
High
Low
$24
$217
$36
$200
$45
$217
$24
$179
The significant year-over-year increase in "average" and "high" impact on the value at risk computation above was primarily due to
trends in foreign currency and interest rate volatility.
The value at risk computation is a risk analysis tool designed to statistically estimate the maximum probable daily loss from adverse
movements in interest and foreign currency rates under normal market conditions. The computation does not purport to represent
actual losses in fair value or earnings to be incurred by us, nor does it consider the effect of favorable changes in market rates. We
cannot predict actual future movements in such market rates and do not present these results to be indicative of future movements in
market rates or to be representative of any actual impact that future changes in market rates may have on our future results of
operations or financial position.
Contingencies
See Item 3 and Item 8, Note 18. Contingencies to our consolidated financial statements for a discussion of contingencies.
68
Cautionary Factors That May Affect Future Results
Forward-Looking and Cautionary Statements
We may from time to time make written or oral forward-looking statements, including statements contained in filings with the SEC, in
reports to stockholders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words
such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "aspires," "estimates," "intends," "projects,"
"aims," "goals," "targets," "forecasts" and other words of similar meaning. You can also identify them by the fact that they do not
relate strictly to historical or current facts.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and
assumptions. Our RRPs constitute a new product category that is less predictable than our mature cigarette business. Achievement of
future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties
materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated
or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain
invested in our securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we
are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially
from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following
cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in Item 1A. Risk Factors
and Business Environment of this section. You should understand that it is not possible to predict or identify all risk factors.
Consequently, you should not consider 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.
69
Item 8.
Financial Statements and Supplementary Data.
Consolidated Statements of Earnings
(in millions of dollars, except per share data)
for the years ended December 31,
Revenues including excise taxes (includes $8,269 in 2022, $7,822 in 2021
and $7,572 in 2020 from related parties)
Excise taxes on products
Net revenues (includes $3,658 in 2022, $3,330 in 2021 and $3,233 in 2020
from related parties) (Note 18)
Cost of sales (Notes 4 & 5)
Gross profit
2022
2021
2020
$ 80,669 $ 82,223 $ 76,047
48,907
50,818
47,353
31,762
31,405
28,694
11,402
10,030
9,569
20,360
21,375
19,125
Marketing, administration and research costs (Notes 3, 4, 5, 13 & 20)
8,114
8,400
7,457
Operating income
Interest expense, net (Note 15)
Pension and other employee benefit costs (Note 14)
Earnings before income taxes
Provision for income taxes (Note 12)
12,246
12,975
11,668
588
24
628
115
618
97
11,634
12,232
10,953
2,244
2,671
2,377
Equity investments and securities (income)/loss, net
(137)
(149)
(16)
Net earnings
9,527
9,710
8,592
Net earnings attributable to noncontrolling interests
479
601
536
Net earnings attributable to PMI
$
9,048 $
9,109 $
8,056
Per share data (Note 11):
Basic earnings per share
Diluted earnings per share
$
$
5.82 $
5.83 $
5.16
5.81 $
5.83 $
5.16
See notes to consolidated financial statements.
70
Consolidated Statements of Comprehensive Earnings
(in millions of dollars)
for the years ended December 31,
2022
2021
2020
Net earnings
$
9,527 $
9,710 $
8,592
Other comprehensive earnings (losses), net of income taxes:
Change in currency translation adjustments:
Unrealized gains (losses), net of income taxes of $(169) in
2022, $(58) in 2021 and $94 in 2020
(1,268)
58
(1,265)
Change in net loss and prior service cost:
Net gains (losses) and prior service costs, net of income taxes of
$(132) in 2022, $(210) in 2021 and $139 in 2020
843
1,055
(726)
Amortization of net losses, prior service costs and net transition
costs, net of income taxes of $(49) in 2022, $(72) in 2021
and $(67) in 2020
217
323
299
Change in fair value of derivatives accounted for as hedges:
Gains (losses) recognized, net of income taxes of $(99) in 2022,
$(20) in 2021 and $13 in 2020
481
124
(68)
(Gains) losses transferred to earnings, net of income taxes of
$35 in 2022, $7 in 2021 and $0 in 2020
(219)
(35)
(20)
Total other comprehensive earnings (losses)
54
1,525
(1,780)
Total comprehensive earnings
9,581
11,235
6,812
Less comprehensive earnings attributable to:
Noncontrolling interests
515
522
574
Comprehensive earnings attributable to PMI
$
9,066 $ 10,713 $
6,238
See notes to consolidated financial statements.
71
Consolidated Balance Sheets
(in millions of dollars, except share data)
at December 31,
Assets
2022
2021
Cash and cash equivalents
$
3,207 $
4,496
Trade receivables (less allowances of $42 in 2022 and $70 in 2021) (1)
Other receivables (less allowances of $32 in 2022 and $36 in 2021)
Inventories:
Leaf tobacco
Other raw materials
Finished product
Other current assets (Note 3)
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 5)
Other intangible assets, net (Note 5)
Equity investments (Note 6)
Deferred income taxes
Other assets (less allowances of $20 in 2022 and $21 in 2021) (Note 3)
3,850
906
1,674
2,028
6,184
9,886
1,770
3,123
817
1,642
1,652
5,426
8,720
561
19,619
17,717
545
4,291
9,549
1,058
15,443
8,733
6,710
19,655
6,732
4,431
603
3,931
565
4,293
9,275
599
14,732
8,564
6,168
6,680
2,818
4,463
895
2,549
Total Assets
$
61,681 $
41,290
(1) Includes trade receivables from related parties of $688 million and $518 million as of December 31, 2022, and 2021, respectively
(less allowances of $7 million in 2022 and $1 million in 2021). For further details, see Note 6. Related Parties - Equity
Investments and Other.
See notes to consolidated financial statements.
72
at December 31,
Liabilities
Short-term borrowings (Note 8)
Current portion of long-term debt (Note 8)
Accounts payable
Accrued liabilities:
Marketing and selling
Taxes, except income taxes
Employment costs
Dividends payable
Other
Income taxes (Note 12)
Total current liabilities
Long-term debt (Note 8)
Deferred income taxes
Employment costs
Income taxes and other liabilities (Note 12)
Total liabilities
Contingencies (Note 18)
Stockholders’ (Deficit) Equity
Common stock, no par value (2,109,316,331 shares issued in 2022 and 2021) (Note 9)
Additional paid-in capital
Earnings reinvested in the business
Accumulated other comprehensive losses (Note 17)
Less: cost of repurchased stock (559,098,620 and 559,146,338 shares in 2022 and
2021, respectively)
Total PMI stockholders’ deficit
Noncontrolling interests
Total stockholders’ deficit
2022
2021
$ 5,637 $
225
2,611
4,076
695
7,440
1,168
1,990
2,679
1,040
2,798
3,331
811
6,324
1,146
1,958
1,637
1,025
27,336
19,255
34,875
24,783
1,956
1,984
1,841
726
2,968
1,766
67,992
49,498
—
—
2,230
2,225
34,289
33,082
(9,559)
(9,577)
26,960
25,730
35,917
35,836
(8,957)
(10,106)
2,646
1,898
(6,311)
(8,208)
Total Liabilities and Stockholders’ (Deficit) Equity
$ 61,681 $ 41,290
See notes to consolidated financial statements.
73
Consolidated Statements of Cash Flows
(in millions of dollars)
for the years ended December 31,
2022
2021
2020
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net earnings
$ 9,527
$ 9,710
$ 8,592
Adjustments to reconcile net earnings to operating cash flows:
Depreciation, amortization and impairment of intangibles
Deferred income tax (benefit) provision
Asset impairment and exit costs, net of cash paid (Note 20)
Cash effects of changes, net of the effects from acquired companies:
Receivables, net (1)
Inventories
Accounts payable
Accrued liabilities and other current assets
Income taxes
Pension plan contributions, net of refunds (Note 14)
Other
1,189
(234)
(93)
998
(17)
(22)
981
(143)
(14)
(871)
(198)
26
(1,287)
719
1,862
(261)
3
249
549
653
623
(260)
(269)
200
(165)
406
121
(260)
(102)
370
Net cash provided by operating activities
10,803
11,967
9,812
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures
(1,077)
(748)
(602)
Acquisition of Swedish Match AB, net of acquired cash (Note 3)
(13,976)
—
Other acquisitions, net of acquired cash (Note 3)
—
(2,111)
Altria Group, Inc. agreement (Note 3)
Equity investments
Net investment hedges and other derivatives (Note 16)
Other
(1,002)
(20)
284
112
—
(34)
466
69
—
—
—
(47)
(551)
46
Net cash used in investing activities
(15,679)
(2,358)
(1,154)
(1) Includes amounts from related parties of $(166) million, $(149) million and $88 million in 2022, 2021 and 2020, respectively
See notes to consolidated financial statements.
74
for the years ended December 31,
2022
2021
2020
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Short-term borrowing activity by original maturity:
Net issuances (repayments) - maturities of 90 days or less
$
876 $
— $
(70)
Issuances - maturities longer than 90 days
Repayments - maturities longer than 90 days
934
(795)
Borrowings under credit facilities related to Swedish Match AB acquisition
13,920
Repayments under credit facilities related to Swedish Match AB acquisition
(4,000)
—
—
—
—
—
45
(45)
—
—
3,713
5,965
(2,724)
(3,042)
(3,999)
(209)
(775)
—
(7,812)
(7,580)
(7,364)
Long-term debt proceeds
Long-term debt repaid
Repurchases of common stock
Dividends paid
Payments to acquire Swedish Match AB noncontrolling interests (Note 3)
(1,495)
—
—
Payments to noncontrolling interests and Other (Note 3)
(854)
(580)
(776)
Net cash provided by (used in) financing activities
3,806
(11,977)
(8,496)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(213)
(417)
258
Cash, cash equivalents and restricted cash(1):
Increase (Decrease)
Balance at beginning of year
Balance at end of year
Cash Paid:
Interest
Income taxes
(1,283)
(2,785)
4,500
7,285
420
6,865
$
3,217 $
4,500 $
7,285
$
$
717 $
716 $
728
2,751 $
2,936 $
2,785
(1) The amounts for cash, cash equivalents and restricted cash shown above include restricted cash of $10 million, $4 million and
$5 million as of December 31, 2022, 2021 and 2020, respectively, which were included in other current assets in the
consolidated balance sheets.
See notes to consolidated financial statements.
75
Consolidated Statements of Stockholders' (Deficit) Equity
(in millions of dollars, except per share data)
PMI Stockholders’ (Deficit) Equity
Common
Stock
Additional
Paid-in
Capital
Earnings
Reinvested
in the
Business
Accumulated
Other
Comprehensive
Losses
Cost of
Repurchased
Stock
Noncontrolling
Interests
Total
Balances, January 1, 2020
$
— $
2,019 $
30,987 $
(9,363) $
(35,220) $
1,978 $
(9,599)
69
17
2,105
119
8,056
(7,405)
31,638
9,109
(7,665)
33,082
9,048
—
1
2,225
37
(7,841)
Net earnings
Other comprehensive earnings (losses),
net of income taxes
Issuance of stock awards (Note 10)
Dividends declared ($4.74 per share)
Dividends paid to noncontrolling
interests
Other
Balances, December 31, 2020
—
Net earnings
Other comprehensive earnings (losses),
net of income taxes
Issuance of stock awards (Note 10)
Dividends declared ($4.90 per share)
Dividends paid to noncontrolling
interests
Common stock repurchased
Other
Balances, December 31, 2021
Net earnings
Other comprehensive earnings (losses),
net of income taxes
Issuance of stock awards (Note 10)
Dividends declared ($5.04 per share)
Dividends paid to noncontrolling
interests
Common stock repurchased
Acquisitions (Note 3)
Purchases of shares from noncontrolling
interests (Note 3)
Balances, December 31, 2022
(1,818)
91
(11,181)
(35,129)
1,604
78
(785)
(9,577)
(35,836)
189
118
(199)
536
8,592
38
(1,780)
160
(7,405)
(602)
3
(10,631)
9,710
1,525
197
(7,665)
(560)
(785)
1
(8,208)
9,527
54
155
(7,841)
(472)
(199)
2,379
(602)
(14)
1,936
601
(79)
(560)
—
1,898
479
(135)
(472)
2,379
(32)
(171)
(1,503)
(1,706)
$
— $
2,230 $
34,289 $
(9,559) $
(35,917) $
2,646 $
(6,311)
See notes to consolidated financial statements.
76
Notes to Consolidated Financial Statements
Note 1.
Background and Basis of Presentation:
Background
Philip Morris International Inc. is a holding company incorporated in Virginia, U.S.A. (also referred to herein as the U.S., the United
States or the United States of America), whose subsidiaries and affiliates and their licensees are primarily engaged in the manufacture
and sale of cigarettes and smoke-free products including heat-not-burn, vapor, and oral nicotine products. Throughout these financial
statements, the term "PMI" refers to Philip Morris International Inc. and its subsidiaries.
Smoke-free products ("SFPs") is the term PMI primarily uses to refer to all of its products that are not combustible tobacco products,
such as heat-not-burn, e-vapor, and oral nicotine. In addition, SFPs include wellness and healthcare products, as well as consumer
accessories such as lighters and matches.
Reduced-risk products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to
present less risk of harm to smokers who switch to these products versus continuing smoking. PMI has a range of RRPs in various
stages of development, scientific assessment and commercialization. PMI's RRPs are smoke-free products that contain and/or generate
far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.
"Platform 1" is the term PMI uses to refer to PMI’s reduced-risk product that uses a precisely controlled heating device into which a
specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.
Basis of presentation
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent liabilities at the dates of the financial statements and the reported amounts of net revenues and expenses
during the reporting periods. Significant estimates and assumptions include, among other things: pension and benefit plan
assumptions; useful lives and valuation assumptions of goodwill and other intangible assets; valuation assumptions for non-marketable
equity securities; marketing programs, and income taxes. Actual results could differ from those estimates.
The consolidated financial statements include PMI, as well as its wholly owned and majority-owned subsidiaries. Investments in
which PMI exercises significant influence (generally 20%-50% ownership interest) are accounted for under the equity method of
accounting. Investments not accounted for under the equity method of accounting are measured at fair value, if it is readily
determinable, with changes in fair value recognized in net income. Investments without readily determinable fair values, non-
marketable equity securities, are measured and recorded using a measurement alternative that values the security at cost minus any
impairment. All intercompany transactions and balances have been eliminated.
In the fourth quarter of 2022, PMI acquired a controlling interest of the total issued shares in Swedish Match AB (“Swedish Match”).
The operating results of Swedish Match are included in a separate segment. In the third quarter of 2021, PMI acquired Fertin Pharma
A/S, Vectura Group plc. and OtiTopic, Inc. On March 31, 2022, PMI launched a new Wellness and Healthcare business consolidating
these entities, Vectura Fertin Pharma. The operating results of this business are reported in the Wellness and Healthcare segment. For
further details on these acquisitions, see Note 3. Acquisitions and Note 13. Segment Reporting.
Certain prior years' amounts have been reclassified to conform with the current year's presentation. Following the Swedish Match
acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified certain of its own products
previously reported under its combustible tobacco product category to the newly created smoke-free product category to better reflect
the characteristics of these products. This reclassification did not impact PMI’s segment reporting, consolidated financial position,
results of operations or cash flows in any of the periods presented. For further details, see Note 13. Segment Reporting. During the
first quarter of 2022, one of Fertin Pharma's product lines was moved from the Wellness and Healthcare segment to the European
Union segment. For further details, see Note 5. Goodwill and Other Intangible Assets, net. The change did not have a material impact
on PMI's consolidated financial position, results of operations or cash flows in any of the periods presented.
77
Note 2.
Summary of Significant Accounting Policies:
Acquisitions
PMI uses the acquisition method of accounting for acquired businesses. Under the acquisition method, PMI’s consolidated financial
statements reflect the operations of an acquired business starting from the closing date of the acquisition. PMI allocates the purchase
price to the tangible and identifiable intangible assets acquired and liabilities assumed based on the estimated fair values as of the
acquisition date. Any residual purchase price is recorded as goodwill. The fair value of assets acquired and liabilities assumed in
certain cases may be subject to revision based on the final determination of fair value during a period of time not to exceed 12 months
from the acquisition date. Contingent consideration liabilities are recognized at the estimated fair value on the acquisition date.
Subsequent changes to the fair value of contingent consideration are recognized in marketing, administration and research costs in the
consolidated statement of earnings. Transaction costs are expensed as incurred.
If PMI determines that assets acquired do not meet the definition of a business, the transaction will be accounted for as an acquisition
of assets rather than a business combination and, therefore, no goodwill will be recorded. In an asset acquisition, acquired in-process
research and development ("IPR&D") with no alternative future use is charged to expense.
Cash and cash equivalents
Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or
less.
Depreciation
Property, plant and equipment are stated at historical cost and depreciated primarily using the straight-line method over the estimated
useful lives of the assets. Machinery and equipment are depreciated primarily over periods ranging from 3 to 15 years, and buildings
and building improvements primarily over periods up to 40 years.
Employee benefit plans
PMI provides a range of benefits to its employees and retired employees, including pensions, postretirement health care and
postemployment benefits (primarily severance). PMI records annual amounts relating to these plans based on calculations specified
under U.S. GAAP. PMI recognizes the funded status of its defined pension and postretirement plans on the consolidated balance
sheets. The funded status is measured as the difference between the fair value of the plans assets and the benefit obligation. PMI
measures the plan assets and liabilities at the end of the fiscal year. For defined benefit pension plans, the benefit obligation is the
projected benefit obligation. For the postretirement health care plans, the benefit obligation is the accumulated postretirement benefit
obligation. Any plan with an overfunded status is recognized as an asset, and any plan with an underfunded status is recognized as a
liability. Any gains or losses and prior service costs or credits that have not been recognized as a component of net periodic benefit
costs are recorded as a component of other comprehensive earnings (losses), net of deferred taxes. PMI elects to recognize actuarial
gains/(losses) using the corridor approach.
Fair value measurements
PMI follows ASC 820, Fair Value Measurements and Disclosures with respect to assets and liabilities that are measured at fair value.
The guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in
the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the
measurement date. The guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of input that may
be used to measure fair value. Level 1 inputs are quoted prices in active markets for identical assets or liabilities. Level 2 inputs
include quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or
can be corroborated by observable market data for substantially the full term of the assets or liabilities. Level 3 are unobservable
inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
Categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement.
78
Foreign currency translation
PMI translates the results of operations of its subsidiaries and affiliates using average exchange rates during each period, whereas
balance sheet accounts are translated using exchange rates at the end of each period. Currency translation adjustments are recorded as
a component of stockholders’ (deficit) equity. In addition, some of PMI’s subsidiaries have assets and liabilities denominated in
currencies other than their functional currencies, and to the extent those are not designated as net investment hedges, these assets and
liabilities generate transaction gains and losses when translated into their respective functional currencies.
Goodwill and non-amortizable intangible assets valuation
PMI tests goodwill and non-amortizable intangible assets for impairment annually or more frequently if events occur that would
warrant such review. PMI performs its annual impairment analysis in the second quarter of each year. The impairment analysis
involves comparing the fair value of each reporting unit or non-amortizable intangible asset to the carrying value. If the carrying value
exceeds the fair value, goodwill or a non-amortizable intangible asset is considered impaired.
Hedging instruments
Derivative financial instruments are recorded at fair value on the consolidated balance sheets as either assets or liabilities. Changes in
the fair value of derivatives are recorded each period either in accumulated other comprehensive losses on the consolidated balance
sheet or in earnings, depending on whether a derivative is designated and effective as part of a hedge transaction and, if it is, the type
of hedge transaction. Gains and losses on derivative instruments reported in accumulated other comprehensive losses are reclassified
to the consolidated statements of earnings, into the same line item as the impact of the underlying transaction, in the periods in which
operating results are affected by the hedged item. Cash flows from hedging instruments are classified in the same manner as the
affected hedged item in the consolidated statements of cash flows.
Impairment of long-lived assets
PMI reviews long-lived assets, including amortizable intangible assets, for impairment whenever events or changes in business
circumstances indicate that the carrying amount of the assets may not be fully recoverable. PMI performs undiscounted operating cash
flow analyses to determine if an impairment exists. For purposes of recognition and measurement of an impairment for assets held for
use, PMI groups assets and liabilities at the lowest level for which cash flows are separately identifiable. If an impairment is
determined to exist, any related impairment loss is calculated based on fair value. Impairment losses on assets to be disposed of, if
any, are based on the lower of carrying value or estimated proceeds to be received less costs of disposal.
Impairment of investment in non-marketable equity securities
Non-marketable equity securities are subject to periodic impairment reviews during which PMI considers both qualitative and
quantitative factors that may have a significant impact on the investees' fair value. Upon determining that an impairment may exist,
the security’s fair value is calculated and compared to its carrying value, and an impairment is recognized immediately if the carrying
value exceeds the fair value.
Impairment of equity method investments
Equity method investments are evaluated for impairment whenever events or changes in circumstances indicate that the carrying
amount of the investments may not be recoverable. An impairment loss would be recorded whenever a decline in value of an equity
investment below its carrying amount is determined to be other than temporary. PMI determines whether a loss is other than
temporary by considering the length of time and extent to which the fair value of the equity investment has been less than the carrying
amount, the financial condition of the equity investment, and the intent to retain the investment for a period of time is sufficient to
allow for any anticipated recovery in market value.
Income taxes
Income taxes are provided on all earnings for jurisdictions outside the United States. These provisions, as well as state and local
income tax provisions, are determined on a separate company basis, and the related assets and liabilities are recorded in PMI’s
consolidated balance sheets. Significant judgment is required in determining income tax provisions and in evaluating tax positions.
PMI recognizes accrued interest and penalties associated with uncertain tax positions as part of the provision for income taxes on the
consolidated statements of earnings. PMI recognizes income taxes associated with Global Intangible Low-Taxed Income ("GILTI")
taxes as current period expense rather than including these amounts in the measurement of deferred taxes.
79
Inventories
Inventories are stated at the lower of cost or market. The first-in, first-out and average cost methods are used to cost substantially all
inventories. It is a generally recognized industry practice to classify leaf tobacco inventory as a current asset, although part of such
inventory, because of the duration of the aging process, ordinarily would not be utilized within one year.
Leases
PMI determines that a contract contains a lease if the contract conveys a right to control the use of the identified asset for a period of
time in exchange for consideration. Operating lease expense is recognized on a straight-line basis over the lease term. Finance lease
expense is amortized based on production activity or the lease term. Lease expense is recorded in cost of sales or marketing,
administration and research costs depending on the nature of the leased item. At lease commencement, PMI recognizes lease
liabilities and the corresponding right-of-use assets (at the present value of future payments) for predominately all of its leases. The
recognition of the right-of-use asset and lease liability includes renewal options when it is reasonably certain that they will be
exercised. Certain of PMI’s leases include payments that are based on changes to an index or on actual usage. These lease payments
are adjusted periodically and are included within variable lease costs. PMI accounts for lease and nonlease components as a single-
lease component with the exception of its vehicle leases, of which PMI accounts for the lease components separately from the
nonlease components. Additionally, leases with an initial term of 12 months or less are not included in the right-of-use asset or lease
liability on the consolidated statement of financial position.
Marketing costs
PMI supports its products with advertising, adult consumer engagement and trade promotions. Such programs include, but are not
limited to, discounts, rebates, in-store display incentives, e-commerce, mobile and other digital platforms, adult consumer activation
and promotion activities, as well as costs associated with adult consumer experience outlets and other adult consumer touchpoints and
volume-based incentives. Advertising, as well as certain consumer engagement and trade activities costs, are expensed as incurred.
Trade promotions are recorded as a reduction of revenues based on amounts estimated as being due to customers at the end of a
period, based principally on historical utilization. For interim reporting purposes, advertising and certain consumer engagement
expenses are charged to earnings based on estimated sales and related expenses for the full year.
Revenue recognition
PMI recognizes revenue primarily through the manufacture and sale of cigarettes and smoke-free products, including heat-not-burn,
vapor and oral nicotine products. The majority of PMI revenues are generated by sales through direct and indirect distribution
networks with short-term payment conditions and where control is typically transferred to the customer either upon shipment or
delivery of goods. PMI evaluates the transfer of control through evidence of the customer’s receipt and acceptance, transfer of title,
PMI’s right to payment for those products and the customer’s ability to direct the use of those products upon receipt. Typically, PMI’s
performance obligations are satisfied and revenue is recognized either upon shipment or delivery of goods.
In certain instances, PMI facilitates shipping and handling activities after control has transferred to the customer. PMI has elected to
record all shipping and handling activities as costs to fulfill a contract. The shipping and handling costs that have not been incurred at
the time revenue is recognized are accrued. The transaction price is typically based on the amount billed to the customer and includes
estimated variable consideration, where applicable. Such variable consideration is typically not constrained and is estimated based on
the most likely amount that PMI expects to be entitled to under the terms of the contracts with customers, historical experience of
discount or rebate redemption, where relevant, and the terms of any underlying discount or rebate programs, which may change from
time to time as the business and product categories evolve. PMI has elected to exclude excise taxes collected from customers from the
measurement of the transaction price, thereby presenting revenues net of excise taxes. Estimated costs associated with warranty
programs are generally provided for in cost of sales in the period the related revenues are recognized.
Research and Development and Acquired In-Process Research and Development ("IPR&D")
Research and development costs are expensed as incurred.
In a business combination, the fair value of IPR&D acquired is initially capitalized and accounted for as indefinite-lived intangible
assets until completion or abandonment of the projects. Upon completion, a determination as to the useful life is performed and the
intangible asset is accounted for as a definite-lived intangible asset. Both the indefinite and definite-lived intangible assets are subject
to impairment testing annually or more frequently if indicators exist. In an asset acquisition, the initial cost to acquire the IPR&D is
expensed in the consolidated statements of earnings when the project has no alternative future use. PMI records these costs within
marketing, administration and research costs in its consolidated statements of earnings.
80
Stock-based compensation
PMI measures compensation cost for all stock-based awards at fair value on date of grant and recognizes the compensation costs over
the service periods for awards expected to vest. PMI’s accounting policy is to estimate the number of awards expected to be forfeited
and adjust the expense when it is no longer probable that the employee will fulfill the service condition. For further details, see Note
10. Stock Plans.
Note 3.
Acquisitions:
Transactions With Noncontrolling Interests
Turkey – In the first quarter of 2022, PMI acquired the remaining 25% stake of its holding in Philip Morris Tütün Mamulleri Sanayi ve
Ticaret A.Ş. ("PMTM") (formerly Philsa Philip Morris Sabancı Sigara ve Tütüncülük Sanayi ve Ticaret A.Ş.) and 24.75% stake in
Philip Morris Pazarlama ve Satış A.Ş. ("PMPS") (formerly Philip Morris SA, Philip Morris Sabancı Pazarlama ve Satış A.Ş.) from its
Turkish partners, Sabanci Holding for a total acquisition price including transaction costs and remaining dividend entitlements of
approximately $223 million. As a result of this acquisition, PMI owned 100% of these Turkish subsidiaries as of December 31, 2022.
The purchase of the remaining stakes in these holdings resulted in a decrease to PMI's additional paid-in capital of $30 million and an
increase to accumulated other comprehensive losses of $171 million primarily following the reclassification of accumulated currency
translation losses from noncontrolling interests to PMI’s accumulated other comprehensive losses during the first quarter of 2022.
In January 2023, PMI sold the acquired stakes of its holdings in PMTM and PMPS to Pioneers Tutun Yatirim Anonim Sirketi
(“Pioneers”) for a consideration of approximately $205 million plus remaining dividend entitlements. The transaction will be reflected
in PMI's financial statements in 2023.
Business Combinations
Swedish Match AB – On November 11, 2022 (the acquisition date), Philip Morris Holland Holdings B.V. (“PMHH”), a wholly owned
subsidiary of PMI, acquired a controlling interest of 85.87% of the total issued shares in Swedish Match AB (“Swedish Match”) and
has acquired 94.81% of its outstanding shares as of December 31, 2022. The shares were acquired through acceptances of the tender
offer and a series of open market and over-the-counter purchases. PMI funded the acquisition through cash on-hand and debt proceeds,
as described in Note 8. Indebtedness. The aggregate cash paid as of the acquisition date was $14,460 million (or $13,976 million net
of cash acquired), which was included in investing activities in the consolidated statements of cash flows. The cash paid in connection
with the additional purchases of the noncontrolling interests after the acquisition date amounted to $1,495 million and was included in
financing activities in the consolidated statements of cash flows.
Swedish Match is a market leader in oral nicotine delivery with a significant presence in the United States market. The acquisition
will accelerate PMI’s transformation to become a smoke-free company with a comprehensive global smoke-free portfolio with
leadership positions in heat-not-burn, and the fastest growing category of oral nicotine, with the potential for accelerated international
expansion.
81
Due to the timing of the acquisition, and limited access to detailed and disaggregated financial information of Swedish Match, the
purchase price allocation is preliminary and it is likely subject to change, including the valuation of property, plant and equipment,
intangible assets, income taxes and legal contingencies among other items. The following table summarizes the preliminary purchase
price allocation for the fair value of assets acquired and liabilities assumed as of the acquisition date:
(in millions)
Cash and cash equivalents
Trade receivables
Other receivables
Inventories
Other current assets
Property, plant and equipment
Other intangible assets
Other non-current assets
Current portion of long-term debt
Accounts payable
Other current liabilities
Income taxes
Long-term debt
Deferred income taxes
Other non-current liabilities
Identifiable net assets acquired
Noncontrolling interest
Goodwill
Total consideration transferred
$
$
484
135
53
444
524
627
4,512
214
224
120
531
14
1,126
1,253
187
3,538
2,379
13,301
14,460
The total fair value step-up adjustment for inventories was $146 million, of which $125 million was recognized in cost of sales in the
fourth quarter of 2022, with the remaining balance expected to be recognized in the first quarter of 2023.
The fair value of long-term debt was determined using readily available market prices as of the acquisition date and the total purchase
price adjustment of $(102) million is being amortized as an increase to interest expense, net over the lives of the related debt.
Goodwill is primarily attributable to future growth opportunities, anticipated synergies in the U.S. and intangible assets that did not
qualify for separate recognition. The goodwill is not deductible for income tax purposes.
Identifiable intangible assets of Swedish Match consist of:
Trademarks
Trademarks
Developed technology, including patents
Customer relationships
Total identifiable intangible assets
Type
Useful Life
Estimated Fair Value
(in millions)
Non-amortizable
Amortizable
20 years
10 years
10 years
$
$
2,077
904
367
1,164
4,512
The significant assumptions used in determining the preliminary fair values of the identifiable intangible assets included royalty rates,
revenue growth rates, profit margins, customer attrition rate and discount rates.
Trademarks primarily relate to $2,077 million for the ZYN trademark, which has been determined to have an indefinite life due to the
fast growth and the leading position of the brand in the market. All other trademarks have been preliminarily determined to have a 20
years useful life. The preliminary fair values of the trademarks have been determined using the relief from royalty method supported
by revenue growth rates assumptions and royalty rates benchmarking analysis at product category level (smoke-free brands, including
82
ZYN, cigar brands and lights). In 2023, during the measurement period, the useful life, revenue growth rate and the royalty rate of
each individual trademark will be reassessed to determine its final purchase price.
Developed technology, including patents, relates to the nicotine pouch technology of $367 million. The patent has been assigned a
useful life of 10 years, which is in line with the patent's protection. The preliminary fair value of the patent has been determined using
the relief from royalty method.
Customer relationships have been valued separately by geographic locations, namely for the US market, Scandinavia, and other
markets using the multiple periods excess earnings method, preliminarily reflecting a general market attrition rate for retail and
revenue allocation and profit margin assumptions by customer type, which will be further assessed during the measurement period.
PMI consolidated statements of earnings for the year ended December 31, 2022, include $316 million of net revenues and $(26)
million of net losses associated with the results of operations of Swedish Match from the acquisition date to December 31, 2022. The
operating results of Swedish Match are included in a separate segment.
Acquisition related transaction costs, which were comprised primarily of regulatory, financial advisory and legal fees, totaled $59
million for the year ended December 31, 2022, and were included in marketing, administration and research costs in the consolidated
statements of earnings. Bridge and term loan credit agreement related fees associated with the issuance of debt amounted to
$54 million, of which $37 million were capitalized at the acquisition date. The fair value of the noncontrolling interest was based on
the tender offer as of the acquisition date.
PMI’s approval of the acquisition by the European Commission, under the EU Merger Regulation, was subject to PMHH’s divestiture
of Swedish Match’s subsidiary, SMD Logistics AB, following the completion of the offer to tender all shares in Swedish Match to
PMHH. As a result, these assets have been accounted for as assets held for sale and included within other current assets and other
accrued liabilities in PMI’s consolidated balance sheets at December 31, 2022.
The unaudited pro forma combined financial information was prepared using the acquisition method of accounting and was based on
the historical financial information of PMI and Swedish Match. In order to reflect the occurrence of the acquisition on January 1,
2021, as required, the unaudited pro forma financial information includes adjustments to reflect the following:
•
•
•
•
•
incremental amortization expense to be incurred based on the current preliminary fair values of the identifiable intangible assets
acquired;
incremental cost of products sold related to the fair value adjustments associated with acquisition date inventory;
additional interest expense associated with the issuance of debt to finance the acquisition, including the effects of the related
derivative financial instruments designated to hedge interest rate risks as well as economic hedges;
reclassification of non-recurring acquisition-related costs incurred during the year ended December 31, 2022, to the year ended
December 31, 2021;
impact of a deferred tax cost of $430 million in 2022 and $321 million in 2021 related to the theoretical unrealized foreign
currency gains on intercompany loans related to the acquisition financing. These theoretical unrealized pre-tax foreign currency
movements were fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in
PMI's consolidated statements of stockholders' (deficit) equity, while the corresponding deferred tax impacts were reflected in
PMI's consolidated statements of earnings; and
•
other immaterial items (i.e., the alignment of accounting policies from IFRS to US GAAP.)
The unaudited pro forma financial information is not necessarily indicative of what the consolidated results of operations would have
been had the acquisition been completed on January 1, 2021. In addition, the unaudited pro forma financial information is not a
projection of future results of operations of the combined company, nor does it reflect the expected realization of any synergies or cost
savings associated with the acquisition.
The unaudited pro forma financial information is as follows:
(in millions)
Net revenues
Net earnings attributable to PMI
For the Years Ended December 31,
2022
2021
$
$
33,690 $
8,875 $
33,577
8,610
83
AG Snus - On May 6, 2021, PMI acquired 100% of AG Snus Aktieselskab ("AG Snus"), a company based in Denmark, and its
Swedish subsidiary Tobacco House of Sweden AB fully owned by AG Snus, which operates in the oral tobacco (i.e. snus) and modern
oral (i.e. nicotine pouches) product categories. The purchase price was $28 million in cash, net of cash acquired, with additional
contingent payments of up to $10 million, primarily relating to product development and performance targets over a less than two-year
period. In the fourth quarter of 2022, the additional contingent payment was settled for $9 million. The operating results of AG Snus
are included in the European Union segment, and were not material.
Fertin Pharma – On September 15, 2021, PMI acquired 100% of Fertin Pharma A/S (“Fertin Pharma”), a company based in Denmark.
Fertin Pharma is a developer and manufacturer of pharmaceutical and well-being products based on oral and intra-oral delivery
systems. The acquisition was funded with existing cash. The total consideration of $821 million (DKK 5.2 billion) included cash of
$580 million and the payment of $241 million related to the settlement of Fertin Pharma’s indebtedness. The purchase price of
$821 million was allocated to cash ($24 million), current assets including receivables and inventories ($69 million), non-current assets
including property, plant and equipment ($228 million), goodwill ($378 million), and other intangible assets ($245 million, which
primarily consisted of customer relationships, developed technology, and in-process research and development ("IPR&D")), partially
offset by current liabilities ($44 million, which primarily consisted of accrued liabilities and accounts payable) and non-current
liabilities ($79 million, primarily deferred income tax). Goodwill is primarily attributable to future growth opportunities provided by
acquired R&D capabilities and any intangibles that did not qualify for separate recognition. The goodwill is not deductible for income
tax purposes. The amortizable intangible assets are being amortized over their estimated useful lives of 8 to 19 years. During 2022,
PMI did not record any measurement period adjustments to the purchase price allocation. The final purchase price allocation was
reflected in the consolidated balance sheets as of December 31, 2022.
Vectura – During the third quarter and up to September 15, 2021, PMI acquired a controlling interest of 74.77% of the total issued
shares in Vectura Group plc (“Vectura”), an inhaled therapeutics company based in the United Kingdom. The shares were acquired
through a series of open market purchases and acceptances of the tender offer at a price of 165 pence per share. As a result of
additional acceptances of the offer and the exercise of the right to acquire compulsorily the Vectura shares, in accordance with the
applicable English law, PMI completed the acquisition of 100% of Vectura in the fourth quarter of 2021. The acquisition was funded
with existing cash from a designated account operated solely for the purpose of funding this acquisition.
The total purchase price of $1,384 million (GBP 1.0 billion) for 100% of the Vectura shares was allocated to cash ($136 million),
current assets including receivables and inventories ($89 million), non-current assets including property, plant and equipment ($67
million), goodwill ($780 million), and other intangible assets ($486 million, which primarily consisted of developed technology, and
IPR&D), partially offset by current liabilities ($100 million, primarily accrued liabilities), and non-current liabilities ($74 million,
primarily deferred income tax). Goodwill is primarily attributable to future growth opportunities provided by acquired R&D
capabilities and any intangibles that did not qualify for separate recognition. The goodwill is not deductible for income tax purposes.
The amortizable intangible assets are being amortized over their estimated useful lives of 3 to 13 years. During 2022, PMI made
certain measurement period adjustments to the purchase price allocation to reflect facts and circumstances in existence as of the
acquisition date, which resulted in an increase to goodwill of $190 million. The increase was primarily due to a decrease in other
intangible assets ($233 million), and a decrease in deferred income tax liabilities ($43 million). The final purchase price allocation
was reflected in the consolidated balance sheets as of December 31, 2022.
Pro forma results of operations for AG Snus, Fertin Pharma and Vectura have not been presented as the aggregate impact is not
material to PMI's consolidated statements of earnings.
Altria Group, Inc. Agreement
On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc. to end the companies' relationship
regarding the IQOS commercialization rights in the U.S. as of April 30, 2024. As a result of PMI reacquiring these rights, effective
May 1, 2024, PMI will have the full rights to commercialize IQOS in the U.S. As part of the agreement, PMI agreed to pay a total
cash consideration of $2.7 billion, with $1.0 billion paid at the inception of the agreement and the remaining $1.7 billion (plus interest,
at a per annum rate equal to six percent (6%)), to be paid by July 2023 at the latest. The cash consideration paid at the inception of the
agreement of $1.0 billion has been accounted for within other assets in PMI’s consolidated balance sheets as of December 31, 2022.
As of May 2024, when PMI can exercise its ability to commercialize IQOS in the U.S., PMI will finalize the accounting for this
transaction by assigning the consideration to the respective assets.
84
Asset Acquisition
On August 9, 2021, PMI acquired 100% of OtiTopic, Inc., a U.S. respiratory drug development company with a late-stage dry powder
inhalation aspirin treatment for acute myocardial infarction. The transaction price was $38 million in cash, plus transaction costs, with
additional contingent payment of $13 million, primarily related to certain key milestones that PMI deemed probable. Additionally,
PMI may owe up to $25 million in future additional contingent payments dependent upon the achievement of certain milestones. PMI
accounted for this transaction as an asset acquisition since the IPR&D of the dry powder inhalation aspirin treatment represented
substantially all of the fair value of the gross assets acquired. At the date of acquisition, PMI determined that the acquired IPR&D had
no alternative future use. As a result, PMI recorded a charge of $51 million to research and development costs within marketing,
administration and research costs in the consolidated statements of earnings for the year ended December 31, 2021.
As previously discussed in Note 1. Background and Basis of Presentation on March 31, 2022, PMI launched a new Wellness and
Healthcare business, Vectura Fertin Pharma, which consolidates Fertin Pharma, Vectura and OtiTopic, Inc. into one operating
segment.
Note 4.
War in Ukraine:
Since the onset of the war in Ukraine in February 2022, PMI's main priority has been the safety and security of its more than 1,300
employees and their families in the country.
Ukraine
PMI temporarily suspended its commercial and manufacturing operations in Ukraine, including the closing of its factory in Kharkiv at
the end of February 2022, in order to preserve the safety of its employees. PMI subsequently resumed some retail activities where
safety allowed, in order to provide product availability and service to adult consumers, and began to supply the market from
production centers outside Ukraine, as well as through a contract manufacturing arrangement. Production at the factory in Kharkiv
remains suspended. While the effects of the war are unpredictable and could trigger impairment reviews for long-lived assets, as of
December 31, 2022, PMI is unable to estimate the information required to perform impairment analyses (i.e., forecast of revenues,
manufacturing and commercial plans). PMI is not aware of any major damage to its production facilities, inventories or other assets in
Ukraine. As a result, PMI has not recorded an impairment of long-lived assets. As of December 31, 2022, PMI’s Ukrainian operations
had approximately $414 million in total assets, excluding intercompany balances. These total assets included $69 million, $279
million and $31 million in receivables, inventories and property, plant and equipment, respectively.
Russia
PMI has suspended its planned investments in the Russian Federation including all new product launches and commercial, innovation,
and manufacturing investments. PMI has also taken steps to scale down its manufacturing operations in Russia amid ongoing supply
chain disruptions and the evolving regulatory environment. PMI is continuously assessing the evolving situation in Russia, including:
recent regulatory constraints in the market that entail very complex terms and conditions that must be met for any divestment
transaction to be granted approval by the authorities; and restrictions resulting from international regulations. As a result of PMI
continuing operations within Russia as of December 31, 2022, it has not recorded an impairment of long-lived and other assets.
However, PMI recorded specific asset write downs as referred to in the table below. PMI’s Russian operations as of December 31,
2022 had approximately $2.5 billion in total assets, excluding intercompany balances. These total assets included $578 million, $541
million, $786 million, $334 million and $161 million in cash (primarily held in local currency), receivables, inventories, property,
plant and equipment and goodwill, respectively. In addition, there was approximately $806 million of cumulative foreign currency
translation losses reflected in accumulated other comprehensive losses in the consolidated statement of stockholders’ equity as of
December 31, 2022.
85
As of December 31, 2022, PMI recorded in its consolidated statements of earnings pre-tax charges related to circumstances driven by
the war as follows:
(in millions)
For the Year Ended December 31, 2022
Marketing,
administration and
research costs
Total
Cost of sales
Ukraine 1
78
Russia 2
73
Total
151
$
1 The charges were primarily due to an inventory write down, additional allowance for receivables and the cost of PMI’s humanitarian efforts, which
includes salary continuation for its employees.
2 The charges were primarily due to machinery and inventory write downs related to the commercial decisions noted above.
42 $
20
62 $
36 $
53
89 $
$
PMI will continue to monitor the situation as it evolves and will determine if further charges are needed.
Note 5.
Goodwill and Other Intangible Assets, net:
The movements in goodwill were as follows:
(in millions)
Balances at January 1,
2021
Changes due to:
Acquisitions
Currency
Balances, December 31,
2021
Changes due to:
Acquisitions
Currency
Other
Balances, December 31,
2022
European
Union
Eastern
Europe
Middle
East &
Africa
South &
Southeast
Asia
East Asia &
Australia Americas
Swedish
Match
Wellness
&
Healthcare Total
$
1,434 $
317 $
86 $
2,915 $
559 $
653 $ — $
— $ 5,964
54
(91)
—
(22)
—
(7)
—
(87)
—
(20)
—
(42)
—
—
944
(13)
998
(282)
1,397
295
79
2,828
539
611
—
931 6,680
—
(82)
—
—
(17)
—
—
(5)
—
—
(256)
—
—
(46)
—
— 13,301
(5)
4
—
—
— 13,301
(516)
190
(109)
190
$
1,315 $
278 $
74 $
2,572 $
493 $
615 $ 13,296 $
1,012 $ 19,655
The increase in goodwill in 2022 was due primarily to the final purchase price allocation associated with Vectura Group plc
acquisition in 2021 (reflected in "changes due to other" in Wellness and Healthcare segment) and the preliminary purchase price
allocation associated with the Swedish Match AB acquisition in the fourth quarter of 2022, partially offset by currency movements.
For further details on these business combinations, see Note 3. Acquisitions.
At December 31, 2022, goodwill primarily reflects PMI’s business combinations in Greece, Indonesia, Mexico, the Philippines and
Serbia, as well as the final purchase price allocation of Fertin Pharma A/S and Vectura Group plc., which were acquired in September
2021, and the preliminary purchase price allocation of Swedish Match AB, which was acquired in the fourth quarter of 2022.
As discussed in Note 1. Background and Basis of Presentation, during the first quarter of 2022, one of Fertin Pharma's product lines
was moved from the Wellness and Healthcare segment to the European Union segment. As a result, the December 31, 2021 goodwill
balance in the table above included a reclassification of $24 million from the Wellness and Healthcare segment to the European Union
segment (reflected in changes due to acquisitions in 2021).
86
Details of other intangible assets were as follows:
December 31, 2022
December 31, 2021
Weighted-
Average
Remaining
Useful Life
Gross
Carrying
Amount
Accumulated
Amortization
Net
Gross
Carrying
Amount
Accumulated
Amortization
Net
$
3,346
$ 3,346
$
1,312
$ 1,312
15 years
2,050 $
674
1,376
1,201 $
639
562
8 years
975
243
732
10 years
1,390
112
1,278
859
238
63
796
90
148
(in millions)
Non-amortizable intangible
assets
Amortizable intangible
assets:
Trademarks
Developed technology,
including patents
Customer relationships
and other
Total other intangible assets
$
7,761 $
1,029 $ 6,732
$
3,610 $
792 $ 2,818
Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia and Mexico, as well as the
preliminary purchase price allocation associated with the Swedish Match acquisition in 2022, and PMI's business combinations in
2021 (primarily in-process research and development). The increase since December 31, 2021 was due to the preliminary purchase
price allocation associated with the Swedish Match acquisition in 2022 of $2,077 million, partially offset by the final purchase price
allocation associated with Vectura Group plc acquisition in 2021 in the amount of $(3) million and currency movements of $(40)
million.
The increase in the gross carrying amount of amortizable intangible assets from December 31, 2021, was due to the preliminary
purchase price allocation associated with the Swedish Match acquisition in 2022 of $2,435 million, partially offset by final purchase
price allocation associated with PMI's business combinations in 2021 and other movements in the amount of $(225) million, and
currency movements of $(93) million. For further details on these business combinations, see Note 3. Acquisitions.
The change in the accumulated amortization from December 31, 2021, was mainly due to the 2022 amortization of $159 million and
impairment charge of $112 million, partially offset by currency movements of $34 million. The amortization of intangibles for the
year ended December 31, 2022 was recorded in cost of sales ($58 million) and in marketing, administration and research costs ($101
million) on PMI's consolidated statements of earnings.
Amortization expense for each of the next five years is estimated to be $310 million or less, assuming no additional transactions occur
that require the amortization of intangible assets. This estimate is subject to change based on the finalization of the preliminary
purchase price allocation of the Swedish Match acquisition.
During the second quarter of 2022, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential
impairment, and no impairment charges were required as a result of this review. However, there are still risks related to PMI’s
Russian reporting unit’s assets as the fair value of these assets is difficult to predict due to the volatility in foreign currency and
commodity markets, supply chain, and current economic, political and social conditions. For more information see Note 4. War in
Ukraine. Each of PMI’s reporting units had fair values substantially in excess of its carrying value with the exception of the Wellness
and Healthcare reporting unit, which had less than 20% excess of fair value over its carrying value in the period of the latest review of
goodwill for potential impairment. The Wellness and Healthcare reporting unit's fair value was determined using the discounted cash
flow model. PMI will continue to monitor this reporting unit as any changes in assumptions, estimates or market factors could result
in a future impairment.
PMI recorded a pre-tax impairment charge of $112 million in the third quarter of 2022, reflecting the impact of general economic and
market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare
segment. The impairment reduces the carrying values of developed technology definite-lived intangible assets in the Wellness and
Healthcare segment to $325 million. The fair value of these intangible assets was primarily determined using the multi-period excess
earnings method. This impairment charge was recorded within cost of sales in the consolidated statements of earnings for the year
ended December 31, 2022.
87
Note 6.
Related Parties - Equity Investments and Other:
Equity Method Investments:
At December 31, 2022 and 2021, PMI had total equity method investments of $1,000 million and $879 million, respectively. Equity
method investments are initially recorded at cost. Under the equity method of accounting, the investment is adjusted for PMI's
proportionate share of earnings or losses, dividends, capital contributions, changes in ownership interests and movements in currency
translation adjustments. The carrying value of our equity method investments at December 31, 2022 and 2021, exceeded our share of
the investees' book value by $750 million and $764 million, respectively. The difference between the investment carrying value and
the amount of underlying equity in net assets, excluding $715 million and $728 million attributable to goodwill as of December 31,
2022 and 2021, respectively, which consists primarily of definite-lived intangible assets is being amortized on a straight-line basis. At
December 31, 2022 and 2021, PMI received year-to-date dividends from equity method investees of $9 million and $176 million,
respectively.
PMI holds a 23% equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in
Russia (Eastern Europe segment), which as of December 31, 2022 had a carrying value of $458 million. While as of December 31,
2022, there have been no impairment indicators based on the business’ performance, there are still risks related to this investment as
the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and
current economic, political and social conditions. For more information, see Note 4. War in Ukraine. Additionally, there was
approximately $469 million of cumulative foreign currency translation losses associated with Megapolis Distribution BV reflected in
accumulated other comprehensive losses in the consolidated statement of stockholders’ equity as of December 31, 2022.
PMI holds a 49% equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”). PMI holds an approximate
25% economic interest in Société des Tabacs Algéro-Emiratie (“STAEM”), an Algerian joint venture that is 51% owned by EITA and
49% by the Algerian state-owned enterprise Management et Développement des Actifs et des Ressources Holding ("MADAR
Holding"), which manufactures and distributes under license some of PMI’s brands (Middle East & Africa segment).
The initial investments in Megapolis Distribution BV and EITA were recorded at cost and are included in equity investments on the
consolidated balance sheets.
Equity securities:
Following the deconsolidation of RBH on March 22, 2019, PMI recorded the continuing investment in RBH, PMI's wholly owned
subsidiary in Canada, at fair value of $3,280 million at the date of deconsolidation, within equity investments. Transactions between
PMI and RBH are considered to be related-party transactions from the date of deconsolidation and are included in the tables below.
The fair value of PMI’s other equity securities, which have been classified within Level 1, was $326 million and $283 million for the
years ended December 31, 2022 and 2021, respectively. Unrealized pre-tax gains (losses) of $43 million and $19 million ($33 million
and $15 million net of tax) on these equity securities were recorded in equity investments and securities (income)/loss, net on the
consolidated statements of earnings for the years ended December 31, 2022 and 2021, respectively. For a description of the fair value
hierarchy and the three levels of inputs used to measure fair values, see Note 2. Summary of Significant Accounting Policies.
Other related parties:
United Arab Emirates-based Trans-Emirates Trading and Investments (FZC) ("TTI") holds a 33% non-controlling interest in Philip
Morris Misr LLC ("PMM"), an entity incorporated in Egypt which is consolidated in PMI’s financial statements in the Middle East &
Africa segment. PMM sells, under license, PMI brands in Egypt through an exclusive distribution agreement with a local entity that is
also controlled by TTI. Additionally, as of December 31, 2022, TTI holds a 32.9% non-controlling interest in United Tobacco
Company (“UTC”), an entity incorporated in Egypt which manufactures products for PMM under license.
Godfrey Phillips India Ltd ("GPI") is one of the non-controlling interest holders in IPM India, which is a 56.3% owned PMI
consolidated subsidiary in the South & Southeast Asia segment. GPI also acts as contract manufacturer and distributor for IPM India.
88
Financial activity with the above related parties:
PMI’s net revenues and expenses with the above related parties were as follows:
(in millions)
Net revenues:
Megapolis Group
Other
Net revenues (a)
Expenses:
Other
Expenses
For the Years Ended December 31,
2022
2021
2020
$
$
$
$
2,485 $
1,173
3,658 $
2,207 $
1,123
3,330 $
119 $
119 $
69 $
69 $
(a) Net revenues exclude excise taxes and VAT billed to customers.
PMI’s balance sheet activity with the above related parties was as follows:
(in millions)
Receivables:
Megapolis Group
Other
Receivables
Payables:
Other
Payables
At December 31,
2022
2021
$
$
$
$
478 $
210
688 $
31 $
31 $
2,174
1,059
3,233
51
51
319
199
518
25
25
The activities with the above related parties are in the ordinary course of business, and are primarily for distribution, service fees,
contract manufacturing and license agreements. PMI eliminated its respective share of all significant intercompany transactions with
the equity method investees.
Note 7.
Product Warranty:
PMI's heat-not-burn devices and e-vapor products are subject to standard product warranties generally for a period of 12 months from
the date of purchase or such other periods as required by law. PMI generally provides in cost of sales for the estimated cost of
warranty in the period the related revenue is recognized. PMI assesses the adequacy of its accrued product warranties and adjusts the
amounts as necessary based on actual experience and changes in future estimates. Factors that affect product warranties may vary
across markets but typically include device version mix, product failure rates, logistics and service delivery costs, and warranty
policies. PMI accounts for its product warranties within other accrued liabilities. At December 31, 2022 and December 31, 2021,
these amounts were as follows:
(in millions)
Balance at beginning of period
Changes due to:
Warranties issued
Settlements
Currency/Other
Balance at end of period
At December 31,
2022
2021
$
113 $
137
107
(114)
(2)
104 $
154
(177)
(1)
113
$
89
Note 8.
Indebtedness:
Short-Term Borrowings
At December 31, 2022 and 2021, PMI’s short-term borrowings and related average interest rates consisted of the following:
(in millions)
Commercial paper
Bank loans
U.S. dollar credit facility borrowings related to Swedish
Match AB acquisition
December 31, 2022
December 31, 2021
Amount
Outstanding
Average Year-
End Rate
Amount
Outstanding
Average Year-
End Rate
$
$
912
295
4,430
5,637
4.4 % $
7.5
4.9
$
—
225
—
225
— %
12.0
—
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, 2022 and 2021, based upon current market interest rates,
approximate the amounts disclosed above.
Long-Term Debt
At December 31, 2022 and 2021, PMI’s long-term debt consisted of the following:
(in millions)
December 31,
2022
2021
U.S. dollar notes, 0.875% to 6.375% (average interest rate 3.896%), due through 2044
$
22,596 $
19,397
Foreign currency obligations:
Euro notes, 0.125% to 3.125% (average interest rate 1.877%), due through 2039
Swiss franc notes, 1.625% to 2.125% (average interest rate 1.768%), due through 2024
Euro credit facility borrowings related to Swedish Match AB acquisition, (average interest rate
2.234%), due through 2027
Swedish krona notes, 1.395% to 3.654% (average interest rate 2.110%), due through 2029
Other (average interest rate 3.346%), due through 2029 (a)
Carrying value of long-term debt
Less current portion of long-term debt
8,116
378
5,850
343
203
37,486
2,611
$
34,875 $
7,687
273
—
—
224
27,581
2,798
24,783
(a) Includes mortgage debt in Switzerland as well as $54 million and $71 million in finance leases at December 31, 2022 and 2021, respectively.
The fair value of PMI’s outstanding long-term debt, which is utilized solely for disclosure purposes, is determined using quotes and
market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities. At December 31,
2022 and 2021 the fair value of PMI's outstanding long-term debt, excluding the aforementioned finance leases, was as follows:
(in millions)
Level 1
Level 2
December 31,
2022
2021
$
28,919
$
29,597
6,142
165
90
For a description of the fair value hierarchy and the three levels of inputs used to measure fair values, see Note 2. Summary of
Significant Accounting Policies.
Financing of the Swedish Match Acquisition
In connection with PMI’s all-cash recommended public offer to the shareholders of Swedish Match AB ("Swedish Match"), a public
limited liability company organized under the laws of Sweden, for all the outstanding shares of Swedish Match, on May 11, 2022,
PMI entered into a credit agreement relating to a 364-day senior unsecured bridge facility. The facility provided for borrowings up to
an aggregate principal amount of $17 billion, expiring 364 days after the occurrence of certain events unless extended. On June 23,
2022, PMI entered into a new €5.5 billion (approximately $5.8 billion at the date of signing) senior unsecured term loan credit
agreement consisting of a €3.0 billion (approximately $3.2 billion at the date of signing) tranche expiring three years after the
occurrence of certain events and a €2.5 billion (approximately $2.6 billion at the date of signing) tranche expiring on June 23, 2027. In
connection with the term loan facility, the aggregate principal amount of commitments under the 364-day senior unsecured bridge
facility was reduced from $17 billion to $11 billion. On November 11, 2022, PMI acquired a controlling interest of 85.87% of the
total issued shares in Swedish Match and has acquired 94.81% of its outstanding shares as of December 31, 2022.
PMI borrowed $8.4 billion under the bridge facility by delivering notices of borrowing for advances of $7.9 billion and $0.5 billion on
November 7, 2022 and November 10, 2022, respectively. All amounts borrowed under the bridge facility will become due on
November 8, 2023 unless prepaid or such maturity date is extended pursuant to the terms of the bridge facility. On November 7, 2022,
PMI also delivered notices of borrowing for advances totaling €5.5 billion under the term loan facility, of which €3.0 billion will
become due on November 9, 2025 and €2.5 billion will become due on June 23, 2027 unless prepaid pursuant to the terms of the credit
agreement. On November 21, 2022, PMI repaid $4.0 billion under the bridge facility. As of December 31, 2022, outstanding
borrowings under the bridge facility amounted to $4.4 billion and $1.1 billion commitments remained available for drawing. As of
December 31, 2022, the €5.5 billion (approximately $5.9 billion) term loan facility was fully drawn and remained outstanding. The
proceeds under the bridge facility and the term loan facility were used, directly or indirectly, to finance the acquisition, including, the
payment of related fees and expenses. For further details on this acquisition, see Note 3. Acquisitions.
Notes Outstanding:
PMI’s notes outstanding at December 31, 2022, were as follows:
(in millions)
Type
Face Value
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
(a)
$600
$500
$750
$500
$900
$750
$1,000
$750
$750
$750
$750
$750
$500
$1,500
$500
$50
$750
$1,250
$750
$750
$1,500
$1,500
91
Interest
Rate
2.625%
2.125%
1.125%
Issuance
March 2013
May 2016
May 2020
Maturity
March 2023
May 2023
May 2023
3.600% November 2013
November 2023
2.875%
May 2019
May 2024
3.250% November 2014
November 2024
5.125% November 2022
November 2024
1.500%
3.375%
May 2020
May 2025
August 2015
August 2025
5.000% November 2022
November 2025
2.750% February 2016
February 2026
0.875% November 2020
May 2026
3.125%
August 2017
August 2027
5.125% November 2022
November 2027
3.125% November 2017
March 2028
4.000%
May 2013
May 2028
May 2019
3.375%
5.625% November 2022
2.100%
1.750% November 2020
5.750% November 2022
6.375%
May 2020
May 2008
August 2029
November 2029
May 2030
November 2030
November 2032
May 2038
(in millions)
Type
Face Value
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
EURO notes
EURO notes
EURO notes
EURO notes
EURO notes
EURO notes
EURO notes
Swiss franc notes
Swiss franc notes
Swedish krona notes
Swedish krona notes
Swedish krona notes
Swedish krona notes
Swedish krona notes
Swedish krona notes
Swedish krona notes
Swedish krona notes
Swedish krona notes
(b)
(c)
(a)
(c)
(c)
(a)
(a)
(a)
(c)
(c)
(a)
(c)
(c)
(c)
(c)
(c)
(c)
(a)
(c)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
(a)
$750
$700
$750
$850
$750
$750
$500
€600 (approximately $761)
Interest
Rate
Issuance
Maturity
4.375% November 2011
November 2041
4.500%
3.875%
4.125%
March 2012
August 2012
March 2013
March 2042
August 2042
March 2043
4.875% November 2013
November 2043
4.250% November 2014
November 2044
4.250%
2.875%
May 2016
May 2012
November 2044
May 2024
€300 (approximately $308)
0.875% September 2016
September 2024
€500 (approximately $582)
0.625% November 2017
November 2024
€750 (approximately $972)
2.750%
March 2013
March 2025
€200 (approximately $205)
1.200% November 2017
November 2025
€50 (approximately $51)
1.200% December 2020
November 2025
€50 (approximately $51)
€1,000 (approximately $1,372)
€500 (approximately $557)
1.200%
2.875%
0.125%
June 2021
November 2025
March 2014
August 2019
March 2026
August 2026
€300 (approximately $308)
0.875% February 2020
February 2027
€500 (approximately $697)
€750 (approximately $835)
€500 (approximately $648)
€500 (approximately $578)
2.875%
0.800%
3.125%
2.000%
May 2014
May 2029
August 2019
August 2031
June 2013
May 2016
June 2033
May 2036
€500 (approximately $582)
1.875% November 2017
November 2037
August 2019
August 2039
€750 (approximately $835)
CHF100 (approximately $104)
CHF250 (approximately $283)
SEK800 (approximately $76)
SEK200 (approximately $19)
SEK250 (approximately $24)
1.450%
2.125%
1.625%
June 2013
May 2014
1.600% February 2018
February 2018
floating
October 2017
floating
June 2023
May 2024
February 2023
February 2023
October 2023
SEK1,000 (approximately $95)
2.710%
January 2019
January 2026
SEK700 (approximately $67)
1.395% February 2021
February 2026
SEK100 (approximately $10)
SEK200 (approximately $19)
SEK200 (approximately $19)
SEK300 (approximately $29)
1.395%
1.395% September 2021
March 2021
February 2026
February 2026
1.395%
2.190%
January 2022
February 2026
April 2021
April 2029
(a) Notes issued by Swedish Match AB. USD equivalents for foreign currency notes were calculated based on exchange rates on the date of
acquisition.
(b) These notes are a further issuance of the 4.250% notes issued by PMI in November 2014.
(c) USD equivalents for foreign currency notes were calculated based on exchange rates on the date of issuance.
The net proceeds from the sale of the securities listed in the table above were primarily used for general corporate purposes, including
working capital requirements and repurchase of PMI's common stock.
92
Aggregate maturities:
Aggregate maturities of long-term debt are as follows:
(in millions)
2023
2024
2025
2026
2027
2028-2032
2033-2037
Thereafter
Debt discounts and fair value adjustments
Total long-term debt
Revolving Credit Facilities
At December 31, 2022, PMI’s total committed revolving credit facilities were as follows:
Type
(in billions)
364-day revolving credit, expiring January 31, 2023 (1)
Multi-year revolving credit, expiring February 10, 2026 (2)
Multi-year revolving credit, expiring September 29, 2026 (3) (4)
Total facilities
$
$
2,613
4,572
6,560
3,307
4,979
6,909
1,595
7,348
37,883
(397)
37,486
Committed
Revolving Credit
Facilities
$
$
1.8
2.0
2.5
6.3
(1) On January 25, 2023, PMI entered into an agreement to amend and extend the term of its $1.8 billion 364-day committed revolving credit facility
from January 31, 2023, to January 30, 2024.
(2) On January 28, 2022, PMI entered into an agreement, effective February 10, 2022, to amend and extend the term of its $2.0 billion multi-year
revolving credit facility, for an additional year covering the period February 11, 2026 to February 10, 2027, in the amount of $1.9 billion.
(3) Includes pricing adjustments that may result in the reduction or increase in both the interest rate and commitment fee under the credit agreement if
PMI achieves, or fails to achieve, certain specified targets.
(4) On September 20, 2022, PMI entered into an agreement, effective September 29, 2022, to amend and extend the term of its $2.5 billion multi-year
revolving credit facility, for an additional year covering the period September 30, 2026 to September 29, 2027, in the amount of $2.3 billion.
At December 31, 2022, there were no borrowings under these committed revolving credit facilities, and the entire committed amounts
were available for borrowing.
These committed revolving credit facilities do not include any credit rating triggers, material adverse change clauses or any provisions
that could require PMI to post collateral.
In addition to the committed revolving credit facilities discussed above, certain subsidiaries maintain short-term credit arrangements to
meet their respective working capital needs. These credit arrangements, which amounted to approximately $1.9 billion at
December 31, 2022, and approximately $2.3 billion at December 31, 2021, are for the sole use of the subsidiaries. Borrowings under
these arrangements and other bank loans amounted to $295 million at December 31, 2022, and $225 million at December 31, 2021.
93
Note 9.
Capital Stock:
Shares of authorized common stock are 6.0 billion; issued, repurchased and outstanding shares were as follows:
Balances, January 1, 2020
Issuance of stock awards
Shares Issued
Shares
Repurchased
Shares
Outstanding
2,109,316,331
(553,421,668) 1,555,894,663
1,479,068
1,479,068
Balances, December 31, 2020
2,109,316,331
(551,942,600) 1,557,373,731
Repurchase of shares
Issuance of stock awards
(8,514,629)
(8,514,629)
1,310,891
1,310,891
Balances, December 31, 2021
2,109,316,331
(559,146,338) 1,550,169,993
Repurchase of shares
Issuance of stock awards
(1,966,730)
(1,966,730)
2,014,448
2,014,448
Balances, December 31, 2022
2,109,316,331
(559,098,620) 1,550,217,711
On June 11, 2021, PMI's Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending of $5
billion to $7 billion over a three-year period. On July 22, 2021, PMI began repurchasing shares under this new share repurchase
program. From July 22, 2021 through March 31, 2022, PMI repurchased 10.5 million shares of its common stock at a cost of
approximately $1.0 billion. During the first three months of 2022, PMI repurchased 2.0 million shares of its common stock at a cost
of $199 million. On May 11, 2022, PMI announced the suspension of its three-year share repurchase program following the
recommended public offer to acquire the outstanding shares of Swedish Match from its shareholders. For further details, see Note 3.
Acquisitions. Prior to the suspension of the program, PMI made no share repurchases during the second quarter of 2022.
At December 31, 2022, 33,284,616 shares of common stock were reserved for stock awards under PMI’s stock plans, and 250 million
shares of preferred stock, without par value, were authorized but unissued. PMI currently has no plans to issue any shares of preferred
stock.
Note 10.
Stock Plans:
In May 2022, PMI’s shareholders approved the Philip Morris International Inc. 2022 Performance Incentive Plan (the “2022 Plan”).
The 2022 Plan replaced the 2017 Performance Incentive Plan, and there will be no additional grants under the replaced plan. Under
the 2022 Plan, PMI may grant to eligible employees restricted shares and restricted share units, performance-based cash incentive
awards and performance-based equity awards. Up to 25 million shares of PMI’s common stock may be issued under the 2022 Plan.
At December 31, 2022, shares available for grant under the 2022 Plan were 24,856,420.
In May 2017, PMI’s shareholders approved the Philip Morris International Inc. 2017 Stock Compensation Plan for Non-Employee
Directors (the “2017 Non-Employee Directors Plan”). A non-employee director is defined as a member of the PMI Board of Directors
who is not a full-time employee of PMI or of any corporation in which PMI owns, directly or indirectly, stock possessing at least 50%
of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to 1
million shares of PMI common stock may be awarded under the 2017 Non-Employee Directors Plan. At December 31, 2022, shares
available for grant under the plan were 894,346.
94
Restricted share unit (RSU) awards
PMI may grant RSU awards to eligible employees; recipients may not sell, assign, pledge or otherwise encumber such awards. Such
awards are subject to forfeiture if certain employment conditions are not met. RSU awards generally vest on the third anniversary of
the grant date. RSU awards do not carry voting rights, although they do earn dividend equivalents.
During 2022, the activity for RSU awards was as follows:
Balance at January 1, 2022
Granted
Vested
Forfeited
Balance at December 31, 2022
Number of
Shares
Weighted-
Average Grant
Date Fair Value
Per Share
4,640,764 $
1,657,460
(1,603,571)
(175,183)
4,519,470 $
81.96
104.75
78.49
89.37
91.26
During the years ended December 31, 2022, 2021 and 2020, the 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)
2022
2021
2020
Total Grant Date
Fair Value of RSU
Awards Granted
Weighted-
Average Grant
Date Fair Value
Per RSU Award
Granted
Compensation
Expense related
to RSU Awards
$
$
$
174 $
166 $
148 $
104.75 $
82.17 $
85.79 $
135
139
129
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, 2022, PMI had $158 million of total
unrecognized compensation costs related to non-vested RSU awards. These costs are expected to be recognized over a weighted-
average period of approximately seventeen months, or upon death, disability or reaching the age of 58.
During the years ended December 31, 2022, 2021 and 2020, share and fair value information for PMI RSU awards that vested were as
follows:
(dollars in millions)
2022
2021
2020
Shares of RSU
Awards that Vested
Grant Date Fair
Value of Vested
Shares of RSU
Awards
Total Fair Value
of RSU Awards
that Vested
1,603,571 $
1,256,441 $
1,206,871 $
126 $
121 $
117 $
174
111
102
95
Performance share unit (PSU) awards
PMI may grant PSU awards to certain executives; recipients may not sell, assign, pledge or otherwise encumber such awards. The
PSU awards require the achievement of certain performance metrics, which are predetermined at the time of grant, typically over a
three-year performance cycle. The performance metrics for such PSU's granted during 2022 consisted of PMI's Total Shareholder
Return ("TSR") relative to a predetermined peer group and on an absolute basis (40% weight), PMI’s currency-neutral compound
annual adjusted diluted earnings per share growth rate (30% weight), and a Sustainability Index, which consists of two drivers:
•
•
Product Sustainability (20% weight) measuring progress on PMI's efforts to maximize the benefits of smoke-free products,
purposefully phase out cigarettes, seek net positive impact in wellness and healthcare, and reduce post-consumer waste; and
Operational Sustainability (10% weight) measuring progress on PMI's efforts to tackle climate change, preserve nature,
improve the quality of life of people in its supply chain, and foster an empowered, and inclusive workplace.
The performance metrics for such PSU's granted during 2021 and 2020 consisted of PMI's TSR relative to a predetermined peer group
and on an absolute basis (40% weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate
(30% weight), and PMI’s performance against specific measures of PMI’s transformation, defined as net revenues from PMI's RRPs
and any other non-combustible products as a percentage of PMI's total net revenues in the last year of the performance cycle (30%
weight).
The aggregate of the weighted performance factors for the three metrics in each such PSU award determines the percentage of PSUs
that will vest at the end of the three-year performance cycle. The minimum percentage of such PSUs that can vest is zero, with a
target percentage of 100 and a maximum percentage of 200. Each such vested PSU entitles the participant to one share of common
stock. An aggregate weighted PSU performance factor of 100 will result in the targeted number of PSUs being vested. At the end of
the performance cycle, participants are entitled to an amount equivalent to the accumulated dividends paid on common stock during
the performance cycle for the number of shares earned. PSU awards do not carry voting rights.
During 2022, the activity for PSU awards was as follows:
Weighted-
Average Grant
Date
Fair Value
Subject to Other
Performance
Metrics
(Per Share)
Weighted-
Average Grant
Date
Fair Value
Subject to TSR
Performance
Metric
(Per Share)
Number of
Shares
Balance at January 1, 2022
Granted
Vested
Adjustments for performance achievement
Forfeited
1,537,020 $
472,840
(669,960)
223,320
(56,030)
82.14 $
104.92
77.26
77.26
87.23
Balance at December 31, 2022
1,507,190 $
90.31 $
96.25
143.89
83.59
83.59
107.46
115.45
During the years ended December 31, 2022, 2021 and 2020, the grant date fair value of the PSU awards granted to PMI employees
and the recorded compensation expense related to PSU awards were as follows:
(in millions, except per PSU award granted)
2022
2021
2020
Weighted-
Average PSU Grant Date
Fair Value Subject to Other
Performance Factors
Weighted-
Average PSU Grant Date
Fair Value Subject to TSR
Performance Factor
Total
Per PSU
Award
Total
Per PSU
Award
Compensation
Expense related
to PSU Awards
Total
$
$
$
30 $
28 $
28 $
104.92 $
81.86 $
86.04 $
27 $
25 $
28 $
143.89 $
106.93 $
80.36 $
48
71
38
96
The grant date fair value of the PSU awards subject to the other performance factors was determined by using the market price of
PMI’s stock on the date of the grant. The grant date fair value of the PSU market-based awards subject to the TSR performance factor
was determined by using the Monte Carlo simulation model. The following assumptions were used to determine the grant date fair
value of the PSU awards subject to the TSR performance factor for the years ended December 31, 2022, 2021 and 2020:
Average risk-free interest rate (a)
Average expected volatility (b)
(a) Based on the U.S. Treasury yield curve.
(b) Determined using the observed historical volatility.
For the Years Ended December 31,
2022
1.7 %
28.3 %
2021
0.2 %
31.7 %
2020
1.4 %
23.5 %
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, 2022, PMI had $42 million
of total unrecognized compensation cost related to non-vested PSU awards. This cost is recognized over a weighted-average
performance cycle period of approximately seventeen months, or upon death, disability or reaching the age of 58.
During the years ended December 31, 2022, 2021 and 2020, share and fair value information for PMI PSU awards that vested were as
follows:
Shares of PSU
Awards that Vested
Grant Date Fair
Value of Vested
Shares of PSU
Awards
Total Fair Value
of PSU Awards
that Vested
669,960 $
189,839 $
343,806 $
54 $
21 $
35 $
74
16
30
(dollars in millions)
2022
2021
2020
Note 11.
Earnings per Share:
Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating
securities and therefore are included in PMI’s earnings per share calculation pursuant to the two-class method.
Basic and diluted earnings per share (“EPS”) were calculated using the following:
(in millions)
Net earnings attributable to PMI
For the Years Ended December 31,
2022
2021
2020
$
9,048 $
9,109 $
8,056
Less distributed and undistributed earnings attributable to share-based payment awards
24
26
20
Net earnings for basic and diluted EPS
$
9,024 $
9,083 $
8,036
Weighted-average shares for basic EPS
Plus contingently issuable performance stock units (PSUs)
Weighted-average shares for diluted EPS
1,550
1,558
1,557
2
1,552
1
1,559
1
1,558
For the 2022, 2021 and 2020 computations, there were no antidilutive stock awards.
97
Note 12.
Income Taxes:
Earnings before income taxes and provision for income taxes consisted of the following for the years ended December 31, 2022, 2021
and 2020:
(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
$
$
2022
2021
2020
11,634 $
12,232 $
10,953
(75) $
(139)
(214)
2,553
(95)
2,458
73 $
27
100
2,616
(45)
2,571
$
2,244 $
2,671 $
(80)
53
(27)
2,600
(196)
2,404
2,377
On August 16, 2022, the Inflation Reduction Act ("the Act") was signed into law in the U.S. The Act includes a new corporate
alternative minimum tax and an excise tax on stock buybacks effective after December 31, 2022. As of December 31, 2022, PMI has
determined that the Act had no significant tax impacts on its consolidated financial statements.
On March 11, 2021, the American Rescue Plan Act of 2021 ("the ARP Act") was signed into law in the U.S. to provide certain relief
as a result of the COVID-19 pandemic. PMI has determined that the ARP Act had no significant impact on PMI's effective tax rate.
On July 20, 2020, the U.S. Department of the Treasury and the Internal Revenue Service released final and proposed regulations under
the Global Intangible Low-Taxed Income (“GILTI”) and other provisions of the Internal Revenue Code. PMI has analyzed these
elective regulations and recorded the impact in its consolidated financial statements, as described below.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act and, on December 27, 2020, the Consolidated
Appropriations Act, 2021 (“U.S. COVID-19 Acts”) were signed into law in the U.S. to provide certain relief as a result of the
COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in
response to the economic conditions in the wake of COVID-19. PMI has determined that neither the U.S. COVID-19 Acts nor
changes to income tax laws or regulations in other jurisdictions had a significant impact on PMI’s effective tax rate, with the exception
of the 2020 corporate income tax rate reduction in Indonesia.
At December 31, 2017, PMI recorded a one-time transition tax liability on its accumulated foreign earnings, which is payable over an
eight-year period beginning in 2018. At December 31, 2022 and December 31, 2021, $0.7 billion and $0.9 billion of PMI's remaining
long-term portion of transition tax liability, respectively, was recorded in "income taxes and other liabilities" on PMI's consolidated
balance sheets.
At December 31, 2022 and 2021, U.S. federal and foreign deferred income taxes have been provided on all accumulated earnings of
PMI's foreign subsidiaries.
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 2019 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 (2018 onward), Indonesia (2014 onward), Russia (2022 onward) and Switzerland (2017 onward).
In October 2021, a subsidiary of PMI in Indonesia, PT Hanjaya Mandala Sampoerna Tbk ("HMS"), received a tax assessment in the
amount of 3.8 trillion Indonesian rupiah (approximately $260 million in the period of payment) primarily relating to corporate income
taxes on domestic and other intercompany transactions for the years 2017 to 2019. HMS paid the assessment in the fourth quarter of
2021 in order to avoid potential penalties and filed an objection letter with the tax office in January 2022. The amount paid was
98
included in other assets in PMI’s consolidated balance sheets at December 31, 2022 and 2021, and negatively impacted net cash
provided by operating activities in the consolidated statements of cash flows in the period of payment.
It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in
unrecognized tax benefits along with related interest and penalties. An estimate of any possible change cannot be made at this time.
A reconciliation of the beginning and ending amount of unrecognized tax benefits was as follows:
(in millions)
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,
2022
2021
2020
$
89 $
72 $
12
2
(18)
(6)
(4)
(3)
$
72 $
12
15
(1)
(3)
—
(6)
89 $
63
11
1
(4)
(1)
—
2
72
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, 2022 December 31, 2021 December 31, 2020
$
$
72 $
13
(3)
82 $
89 $
18
(7)
100 $
72
17
(9)
80
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $69 million at December 31,
2022. The remainder, if recognized, would principally affect deferred taxes.
For the years ended December 31, 2022, 2021 and 2020, PMI recognized income (expense) in its consolidated statements of earnings
of $2 million, $(3) million and $(1) million, respectively, related to interest and penalties associated with uncertain tax positions.
The effective income tax rate on pre-tax earnings differed from the U.S. federal statutory rate for the following reasons for the years
ended December 31, 2022, 2021 and 2020:
U.S. federal statutory rate
Increase (decrease) resulting from:
Foreign rate differences
Dividend repatriation cost
Global intangible low-taxed income
U.S. state taxes
Foreign derived intangible income
Foreign exchange
Other
Effective tax rate
2022
2021
2020
21.0 %
21.0 %
21.0 %
(0.5)
0.7
1.0
0.1
(0.8)
(1.7)
(0.5)
(0.3)
0.6
0.8
0.2
(0.7)
—
0.2
0.6
0.4
0.1
0.2
(0.6)
—
—
19.3 %
21.8 %
21.7 %
The 2022 effective tax rate decreased 2.5 percentage point to 19.3%. The change in the effective tax rate for 2022, as compared to
2021, was favorably impacted by changes in income tax reserves, a deferred tax benefit for unrealized foreign currency losses on
intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings ($203
million), while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were
reflected as currency translation adjustments in its consolidated statements of stockholders' (deficit) equity, and by a reduction in
99
deferred tax liabilities related to pension plan assets ($40 million), partially offset by an increase in deferred tax liabilities related to
the fair value adjustment of equity securities held by PMI ($10 million). For further details, see Note 6. Related Parties - Equity
Investments and Other.
The 2021 effective tax rate increased 0.1 percentage point to 21.8%. The change in the effective tax rate for 2021, as compared to
2020, was unfavorably impacted by repatriation cost differences and foreign tax credit limitations related to GILTI, partially offset by
the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021) and changes in earnings mix by taxing
jurisdiction.
The 2020 effective tax rate was favorably impacted by the above-mentioned reduction of estimated U.S. income tax liabilities for
years 2018 and 2019 due to the GILTI regulations and the corporate income tax rate reduction in Indonesia.
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:
At December 31,
2022
2021
Accrued postretirement and postemployment benefits
$
217 $
Accrued pension costs
Inventory(1)
Accrued liabilities
Net operating loss carryforwards and tax credits
Other
Total deferred income tax assets
Less: valuation allowance
Deferred income tax assets, net of valuation allowance
Deferred income tax liabilities:
Intangible assets
Property, plant and equipment
Unremitted earnings
Foreign exchange
Other
Total deferred income tax liabilities
Net deferred income tax assets (liabilities)
(1) Includes deferred tax charges of $153 million in 2021 related to intercompany transactions.
277
22
158
384
—
1,058
(378)
680
(1,485)
(200)
(141)
(175)
(32)
234
392
177
168
408
112
1,491
(239)
1,252
(591)
(140)
(206)
(146)
—
(2,033)
(1,083)
$
(1,353) $
169
At December 31, 2022, PMI recorded deferred tax assets for net operating loss carryforwards and tax credits of $384 million, with
varying dates of expiration, primarily after 2027, including $173 million with an unlimited carryforward period. At December 31,
2022, PMI has recorded a valuation allowance of $378 million against deferred tax assets that do not meet the more-likely-than not
recognition threshold.
At December 31, 2021, PMI recorded deferred tax assets for net operating loss carryforwards of $408 million, with varying dates of
expiration, primarily after 2026, including $183 million with an unlimited carryforward period. At December 31, 2021, PMI has
recorded a valuation allowance of $239 million against deferred tax assets that do not meet the more-likely-than-not recognition
threshold.
Note 13.
Segment Reporting:
PMI’s subsidiaries and affiliates are primarily engaged in the manufacture and sale of cigarettes and smoke-free products, including
heat-not-burn, vapor, and oral nicotine products. Excluding the Wellness and Healthcare segment and the 2022 acquisition of Swedish
Match, PMI's segments are generally organized by geographic region and managed by segment managers who are responsible for the
100
operating and financial results of the regions inclusive of combustible tobacco and smoke-free product categories sold in the region.
PMI currently has six geographical segments: the European Union; Eastern Europe; Middle East & Africa; South & Southeast Asia;
East Asia & Australia; and Americas; as well as the Swedish Match segment and the Wellness and Healthcare segment. The Swedish
Match segment represents the fourth quarter 2022 acquisition of the company. The Wellness and Healthcare segment reflects the
operating results of PMI's new business, Vectura Fertin Pharma. For further details on these acquisitions, see Note 3. Acquisitions.
PMI records net revenues and operating income to its geographical segments based upon the geographic area in which the customer
resides.
PMI’s chief operating decision maker evaluates geographical segment performance and allocates resources based on regional
operating income, which includes results from substantially all product categories sold in each region. Business operations in the
Wellness and Healthcare segment and the Swedish Match segment are managed and evaluated separately. Interest expense, net, and
provision for income taxes are centrally managed and, accordingly, such items are not presented by segment since they are excluded
from the measure of segment profitability reviewed by management. Information about total assets by segment is not disclosed
because such information is not reported to or used by PMI’s chief operating decision maker. Segment goodwill and other intangible
assets, net, are disclosed in Note 5. Goodwill and Other Intangible Assets, net. The accounting policies of the segments are the same
as those described in Note 2. Summary of Significant Accounting Policies.
PMI disaggregates its net revenues from contracts with customers by product category for each of PMI's six geographical segments
and for the Swedish Match segment. For the Wellness and Healthcare business, Vectura Fertin Pharma discussed above, net revenues
from contracts with customers are included in the Wellness and Healthcare segment. PMI believes this best depicts how the nature,
amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.
Net revenues by segment were as follows:
(in millions)
Net revenues:
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
Wellness and Healthcare
Net revenues
For the Years Ended December 31,
2022
2021
2020
$
12,119 $
12,275
$
10,702
3,725
3,901
4,395
5,132
1,903
316
271
3,544
3,293
4,396
5,953
1,843
—
101
3,378
3,088
4,396
5,429
1,701
—
—
$
31,762 $
31,405
$
28,694
Total net revenues attributable to customers located in Japan, PMI's largest market in terms of net revenues, were $3.9 billion, $4.6
billion and $4.1 billion in 2022, 2021 and 2020, respectively. PMI had one customer in the East Asia & Australia segment that
accounted for 12%, 15% and 14% of PMI’s consolidated net revenues, and one customer in the European Union segment that
accounted for 13%, 13% and 11% of PMI’s consolidated net revenues in 2022, 2021 and 2020, respectively.
101
PMI's net revenues by product category were as follows:
(in millions)
Combustible tobacco products:
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
Total combustible tobacco products
Smoke-free products:
Smoke-free products excluding Wellness and Healthcare:
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
Total smoke-free products excluding Wellness and Healthcare
Wellness and Healthcare
Total smoke-free products
For the Years Ended December 31,
2022
2021
2020
$
7,212 $
8,211
$
2,410
3,567
4,372
2,138
1,804
70
2,240
3,110
4,385
2,414
1,706
—
8,052
2,250
3,005
4,395
2,468
1,577
—
21,572
22,067
21,747
4,907
1,315
334
23
2,994
99
246
9,919
271
10,190
4,064
1,304
183
11
3,539
137
—
9,237
101
9,338
2,650
1,128
83
1
2,961
124
—
6,947
—
6,947
Total PMI net revenues
$
31,762 $
31,405
$
28,694
Note: Sum of product categories or Regions might not foot to total PMI due to roundings.
Following the Swedish Match acquisition and a review of PMI and Swedish Match’s combined product portfolio, PMI reclassified
certain of its own products previously reported under its combustible tobacco product category to the newly created smoke-free
product category to better reflect the characteristics of these products. This reclassification did not impact PMI’s segment reporting,
consolidated financial position, results of operations or cash flows in any of the periods presented.
Net revenues related to combustible tobacco products refer to the operating revenues generated from the sale of these products,
including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net
revenue amounts consist of the sale of PMI's cigarettes and other tobacco products that are combusted. Other tobacco products
primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include smoke-free
products.
Net revenues related to smoke-free products refer to the operating revenues generated from the sale of these products, including
shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes, if applicable. These net
revenue amounts consist of the sale of all of PMI's products that are not combustible tobacco products, such as heat-not-burn, e-vapor,
and oral nicotine, also including wellness and healthcare products, as well as consumer accessories such as lighters and matches.
Net revenues related to wellness and healthcare products consist of operating revenues generated from the sale of products primarily
associated with inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of PMI's new
Wellness and Healthcare business, Vectura Fertin Pharma.
102
Operating income (loss) by segment were as follows:
(in millions)
Operating income (loss):
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
Wellness and Healthcare
Operating income
For the Years Ended December 31,
2022
2021
2020
$
5,788 $
6,119 $
1,166
1,758
1,459
1,919
436
(22)
(258)
1,213
1,146
1,506
2,556
487
—
(52)
5,098
871
1,026
1,709
2,400
564
—
—
$
12,246 $
12,975 $
11,668
Items affecting the comparability of results from operations were as follows:
•
•
•
•
•
•
Charges related to the war in Ukraine - See Note 4. War in Ukraine for details of the $151 million pre-tax charges in the
Eastern Europe segment for the year ended December 31, 2022.
Swedish Match AB acquisition accounting related item - See Note 3. Acquisitions for details of the $125 million pre-tax
purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value included in the Swedish Match
segment for the year ended December 31, 2022.
Impairment of intangibles - See Note 5. Goodwill and Other Intangible Assets, net for the details of the $112 million pre-tax
impairment charge included in the Wellness and Healthcare segment within the operating income table above for the year ended
December 31, 2022.
Asset impairment and exit costs - See Note 20. Asset Impairment and Exit Costs for details of the $216 million and $149 million
pre-tax charges for the year ended December 31, 2021 and 2020, respectively, as well as a breakdown of these costs by segment.
Saudi Arabia customs assessments - See Note 18. Contingencies for the details of the $246 million reduction in net revenues of
combustible tobacco products included in the Middle East & Africa segment for the year ended December 31, 2021.
Asset acquisition cost - See Note 3. Acquisitions for the details of the $51 million pre-tax charge associated with the asset
acquisition of OtiTopic, Inc. included in the Wellness and Healthcare segment within the operating income table above for the
year ended December 31, 2021.
• Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI
recorded a gain of $119 million for tax credits representing overpayments of indirect taxes for the period from March 2012
through December 2019; these tax credits were applied to tax liabilities in Brazil during 2021. This amount was included as a
reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December
31, 2020 and was included in the operating income of the Americas segment. An additional amount of overpaid indirect taxes of
approximately $90 million is dependent on the outcome of a challenge by the local tax authority.
103
Other segment data were as follows:
(in millions)
Depreciation, amortization and impairment of intangibles expense:
For the Years Ended December 31,
2022
2021
2020
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Swedish Match
Wellness and Healthcare
$
349 $
342 $
137
96
151
151
74
34
197
133
97
164
157
71
—
34
Total depreciation, amortization and impairment of intangibles expense
$
1,189 $
998 $
PMI’s total capital expenditures and total property, plant and equipment, net and other assets by geographic area were:
300
175
83
154
191
78
—
—
981
(in millions)
Capital expenditures:
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Total capital expenditures
(in millions)
Long-lived assets:
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Total long-lived assets
Altria Group, Inc. agreement
Financial instruments
For the Years Ended December 31,
2022
2021
2020
$
682 $
498 $
384
52
39
179
24
101
71
37
52
36
54
88
22
57
13
38
$
1,077 $
748 $
602
At December 31,
2022
2021
2020
$
5,077 $
4,787 $
541
244
1,365
674
1,282
9,183
1,002
456
635
289
1,390
740
666
8,507
—
210
4,500
668
375
1,348
807
784
8,482
—
650
Total property, plant and equipment, net and Other assets
$
10,641 $
8,717 $
9,132
Long-lived assets consist of non-current assets other than goodwill; other intangible assets, net; deferred tax assets, equity investments,
financial instruments and payment under the agreement with Altria Group, Inc, see Note 3, Acquisitions. PMI's largest markets in
terms of long-lived assets are Switzerland, Italy and Indonesia. Total long-lived assets located in Switzerland, which is reflected in the
European Union segment above, were $1.4 billion, $1.3 billion and $1.3 billion at December 31, 2022, 2021 and 2020, respectively.
Total long-lived assets located in Italy, which is reflected in the European Union segment above, were $0.9 billion, $0.9 billion and
$1.1 billion at December 31, 2022, 2021 and 2020, respectively. Total long-lived assets located in Indonesia, which is reflected in the
South & Southeast Asia segment above, were $0.9 billion, $0.9 billion and $0.7 billion at December 31, 2022, 2021 and 2020,
respectively.
104
Note 14.
Benefit Plans:
Pension coverage for employees of PMI’s subsidiaries is provided, to the extent deemed appropriate, through separate plans, many of
which are governed by local statutory requirements. In addition, PMI provides health care and other benefits to certain U.S. retired
employees and certain non-U.S. retired employees. In general, health care benefits for non-U.S. retired employees are covered
through local government plans.
Pension and other employee benefit costs per the consolidated statements of earnings consisted of the following for December 31,
2022, 2021 and 2020:
(in millions)
Net pension costs (income)
Net postemployment costs
Net postretirement costs
Total pension and other employee benefit costs
2022
2021
2020
$
$
(93) $
107
10
24 $
(1) $
108
8
115 $
(14)
103
8
97
105
Pension and Postretirement Benefit Plans
Obligations and Funded Status
The projected benefit obligations, plan assets and funded status of PMI’s pension plans, and the accumulated benefit obligation, plan
assets and net amount accrued for PMI's postretirement health care plans, at December 31, 2022 and 2021, were as follows:
(in millions)
Benefit obligation at January 1
Service cost
Interest cost
Benefits paid
Employee contributions
Settlement, curtailment and plan amendment
Actuarial losses (gains)
Currency
Acquisition of Swedish Match
Other
Benefit obligation at December 31,
Fair value of plan assets at January 1,
Actual return on plan assets
Employer contributions, net of refunds
Employee contributions
Benefits paid
Settlement
Currency
Acquisition of Swedish Match
Other
Pension(1)
Postretirement
2022
2021
2022
2021
$
10,998 $
12,243 $
198 $
198
233
78
(429)
141
(17)
(2,294)
(434)
316
14
8,606
9,337
(1,061)
(3)
141
(429)
(14)
(333)
303
(2)
291
50
(417)
145
(194)
(559)
(587)
26
10,998
8,746
1,054
269
145
(417)
(37)
(444)
—
21
2
6
(9)
—
—
(46)
(5)
85
(2)
229
—
—
9
—
(9)
—
—
3
—
3
2
5
(8)
—
5
(4)
—
—
198
—
—
—
—
—
—
—
—
—
—
Fair value of plan assets at December 31,
7,939
9,337
Net pension and postretirement liability recognized at December 31,
$
(667) $
(1,661) $
(226) $
(198)
(1) Primarily non-U.S. based defined benefit retirement plans.
At December 31, 2022 and 2021, actuarial losses (gains) consisted primarily of gains for assumption changes related to higher
discount rates year-over-year for Swiss, German and Dutch plans.
At December 31, 2022 and 2021, the Swiss pension plan represented 64% and 65% of the benefit obligation, respectively, and
approximately 60% and 60% of the fair value of plan assets at December 31, 2022 and 2021, respectively. At December 31, 2022 and
2021, the U.S. pension plans represented 7% and 4% of the benefit obligation, respectively, and approximately 6% and 3% of the fair
value of plan assets at December 31, 2022 and 2021, respectively.
At December 31, 2022 and 2021, the amounts recognized on PMI's consolidated balance sheets for the pension and postretirement
plans were as follows:
(in millions)
Other assets
Accrued liabilities — employment costs
Long-term employment costs
Pension
Postretirement
2022
2021
2022
2021
$
410 $
(32)
323
(24) $
(11) $
(9)
(1,045)
(1,960)
(215)
$
(667) $
(1,661) $
(226) $
(189)
(198)
106
The accumulated benefit obligation, which represents benefits earned to date, for the pension plans was $8.2 billion and $10.4 billion
at December 31, 2022 and 2021, respectively.
For pension plans with accumulated benefit obligations in excess of plan assets, the accumulated benefit obligation and fair value of
plan assets were $5.8 billion and $5.0 billion, respectively, as of December 31, 2022. The accumulated benefit obligation and fair
value of plan assets were $7.5 billion and $5.9 billion, respectively, as of December 31, 2021.
For pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation and fair value of plan
assets were $6.4 billion and $5.4 billion, respectively, as of December 31, 2022. The projected benefit obligation and fair value of
plan assets were $8.6 billion and $6.7 billion, respectively, as of December 31, 2021.
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
Interest crediting rate
Health care cost trend rate assumed for next year
Ultimate trend rate
Year that rate reaches the ultimate trend rate
Pension
Postretirement
2022
2021
2022
2021
3.03 %
0.86 %
5.89 %
3.08 %
1.98
2.97
1.77
3.15
6.14
4.78
6.27
4.80
2046
2029
The discount rate for the largest pension plans is based on a yield curve constructed from a portfolio of high quality corporate bonds
that produces a cash flow pattern equivalent to each plan’s expected benefit payments. The discount rate for the remaining plans is
developed from local bond indices that match local benefit obligations as closely as possible.
Components of Net Periodic Benefit Cost
Net periodic pension and postretirement health care costs consisted of the following for the years ended December 31, 2022, 2021 and
2020:
(in millions)
Service cost
Interest cost
Pension
Postretirement
2022
2021
2020
2022
2021
2020
$
233 $
291 $
268 $
2 $
2 $
78
50
68
6
—
2
—
—
2
5
—
3
—
—
—
2
6
—
2
—
—
—
10
Expected return on plan assets
(352)
(371)
(353)
Amortization:
Net losses
Prior service cost (credit)
Net transition obligation
Settlement and curtailment
181
(2)
—
2
314
1
—
5
265
1
1
4
Net periodic pension and postretirement costs
$
140 $
290 $
254 $
12 $
10 $
Settlement and curtailment charges were due primarily to employee severance and early retirement programs.
107
The following weighted-average assumptions were used to determine PMI’s net pension and postretirement health care costs:
2022
Pension
2021
2020
2022
Postretirement
2021
2020
Discount rate - service cost
1.03 %
0.72 %
1.25 %
3.08 %
2.84 %
3.28 %
Discount rate - interest cost
Expected rate of return on plan assets
Rate of compensation increase
Interest crediting rate
Health care cost trend rate
0.71
4.17
1.77
3.15
0.44
4.43
1.79
3.20
0.67
4.59
1.82
3.20
3.08
2.84
3.28
6.27
6.21
6.21
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 $82 million, $71 million and $66 million for the years ended December 31, 2022, 2021 and 2020, respectively.
Plan Assets
PMI’s investment strategy for pension plans is based on an expectation that equity securities will outperform debt securities over the
long term. Accordingly, the target allocation of PMI’s plan assets is broadly characterized as approximately 55% in equity securities
and approximately 45% in debt securities and other assets. The strategy primarily utilizes indexed U.S. equity securities, international
equity securities and investment-grade debt securities. PMI attempts to mitigate investment risk by rebalancing between equity and
debt asset classes once a year or as PMI’s contributions and benefit payments are made.
108
The fair value of PMI’s pension plan assets at December 31, 2022 and 2021, by asset category was as follows:
Asset Category
(in millions)
At December 31,
2022
Quoted Prices
In Active
Markets for
Identical
Assets/Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
79 $
Equity securities:
U.S. securities
International securities
Investment funds(a)
Government bonds
Corporate bonds
Other
140
521
6,419
178
302
35
79
140
521
4,870 $
117
302
—
1,549
61
3
Total assets in the fair value hierarchy
Investment funds measured at net asset
value(b)
Total assets
$
$
7,674 $
6,029 $
1,613 $
265
7,939
32 (c)
32
(a) Investment funds whose objective seeks to replicate the returns and characteristics of specified market indices (primarily MSCI — Europe,
Switzerland, North America, Asia Pacific, Japan; Russell 3000; S&P 500 for equities, and Citigroup EMU, Citigroup Non-EGBI EuroBIG, SBI
AAA-BBB and JP Morgan EMBI for bonds), primarily consist of mutual funds, common trust funds and commingled funds. Of these funds,
57% are invested in U.S. and international equities; 15% are invested in U.S. and international government bonds; 16% are invested in corporate
bonds and 12% are invested in real estate.
(b) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical
expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit
reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
(c) Amount relates to annuity policies of which the fair value is calculated using an actuarial model.
Asset Category
(in millions)
At December 31,
2021
Quoted Prices
In Active
Markets for
Identical
Assets/Liabilities
(Level 1)
Significant
Other
Observable
Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Cash and cash equivalents
$
355 $
Equity securities:
U.S. securities
International securities
Investment funds(a)
International government bonds
Corporate bonds
Other
193
658
7,317
210
278
4
355
193
658
5,592 $
139
278
3
1,725
71
1
Total assets in the fair value hierarchy
Investment funds measured at net asset
value(b)
Total assets
$
$
9,015 $
7,218 $
1,797 $
—
322
9,337
(a) Investment funds whose objective seeks to replicate the returns and characteristics of specified market indices (primarily MSCI — Europe,
Switzerland, North America, Asia Pacific, Japan; Russell 3000; S&P 500 for equities, and Citigroup EMU and JP Morgan EMBI for bonds),
primarily consist of mutual funds, common trust funds and commingled funds. Of these funds, 59% were invested in U.S. and international
equities; 15% were invested in U.S. and international government bonds; 14% were invested in corporate bonds, and 12% were invested in real
estate.
109
(b) In accordance with FASB ASC Subtopic 820-10, certain investments measured at fair value using the net asset value per share practical
expedient have not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit
reconciliation of the fair value hierarchy to the amounts presented in the statement of financial position.
For a description of the fair value hierarchy and the three levels of inputs used to measure fair values, see Note 2. Summary of
Significant Accounting Policies.
PMI makes, and plans to make, contributions, to the extent that they are tax deductible and meet specific funding requirements of its
funded pension plans. Currently, PMI anticipates making contributions of approximately $121 million in 2023 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, 2022, are as follows:
(in millions)
2023
2024
2025
2026
2027
2028 - 2032
$
439
378
372
384
396
2,209
PMI's expected future annual benefit payments for its postretirement health care plans are estimated to be not material through 2032.
Postemployment Benefit Plans
PMI and certain of its subsidiaries sponsor postemployment benefit plans covering certain designated salaried and hourly employees.
The cost of these plans is charged to expense over the working life of the covered employees. Net postemployment costs were $184
million, $228 million and $208 million for the years ended December 31, 2022, 2021 and 2020, respectively.
The amounts recognized in accrued postemployment costs net of plan assets on PMI's consolidated balance sheets at December 31,
2022 and 2021, were $807 million and $925 million, respectively.
The accrued postemployment costs were determined using a weighted-average discount rate of 5.6% and 3.1% in 2022 and 2021,
respectively; an assumed ultimate annual weighted-average turnover rate of 2.9% and 2.9% in 2022 and 2021, respectively; assumed
compensation cost increases of 2.8% in 2022 and 2.1% in 2021, and assumed benefits as defined in the respective plans. In
accordance with local regulations, certain postemployment plans are funded. As a result, the accrued postemployment costs disclosed
above are presented net of the related assets of $30 million and $46 million at December 31, 2022 and 2021, respectively.
Postemployment costs arising from actions that offer employees benefits in excess of those specified in the respective plans are
charged to expense when incurred.
Comprehensive Earnings (Losses)
The amounts recorded in accumulated other comprehensive losses at December 31, 2022, consisted of the following:
(in millions)
Net (losses) gains
Prior service (cost) credit
Net transition (obligation) asset
Deferred income taxes
Losses to be amortized
Pension
Post-
retirement
Post-
employment
Total
$
(1,437) $
(14) $
(753) $
(2,204)
70
(3)
138
(1,232) $
$
1
—
14
1 $
(21)
—
183
(591) $
50
(3)
335
(1,822)
110
The amounts recorded in accumulated other comprehensive losses at December 31, 2021, consisted of the following:
(in millions)
Net (losses) gains
Prior service (cost) credit
Net transition (obligation) asset
Deferred income taxes
Losses to be amortized
Pension
Post-
retirement
Post-
employment
Total
$
(2,495) $
(64) $
(884) $
(3,443)
71
(3)
278
1
—
24
(22)
—
214
50
(3)
516
$
(2,149) $
(39) $
(692) $
(2,880)
The amounts recorded in accumulated other comprehensive losses at December 31, 2020, consisted of the following:
(in millions)
Net (losses) gains
Prior service (cost) credit
Net transition (obligation) asset
Deferred income taxes
Losses to be amortized
Pension
Post-
retirement
Post-
employment
Total
$
(4,147) $
(64) $
(839) $
(5,050)
22
(3)
570
2
—
24
(22)
—
204
2
(3)
798
$
(3,558) $
(38) $
(657) $
(4,253)
The movements in other comprehensive earnings (losses) during the year ended December 31, 2022, were as follows:
(in millions)
Amounts transferred to earnings:
Amortization:
Net losses (gains)
Prior service cost (credit)
Other income/expense:
Net losses (gains)
Prior service cost (credit)
Deferred income taxes
Other movements during the year:
Net (losses) gains
Prior service (cost) credit
Deferred income taxes
Pension
Post-
retirement
Post-
employment
Total
$
178 $
3 $
85 $
(4)
2
—
(28)
148
878
3
(112)
769
—
1
—
(1)
3
46
—
(9)
37
—
—
1
(20)
66
46
—
(11)
35
266
(4)
3
1
(49)
217
970
3
(132)
841
Total movements in other comprehensive earnings (losses)
$
917 $
40 $
101 $
1,058
111
The movements in other comprehensive earnings (losses) during the year ended December 31, 2021, were as follows:
(in millions)
Amounts transferred to earnings:
Amortization:
Net losses (gains)
Prior service cost (credit)
Other income/expense:
Net losses (gains)
Prior service cost (credit)
Deferred income taxes
Other movements during the year:
Net (losses) gains
Prior service (cost) credit
Deferred income taxes
Pension
Post-
retirement
Post-
employment
Total
$
294 $
7
5
—
(51)
255
1,353
42
(241)
1,154
4 $
(1)
1
—
(1)
3
85 $
383
—
—
—
6
6
—
(20)
65
(72)
323
(5)
(130)
1,218
—
1
(4)
(1) $
—
30
42
(210)
(100)
1,050
(35) $ 1,373
Total movements in other comprehensive earnings (losses)
$
1,409 $
The movements in other comprehensive earnings (losses) during the year ended December 31, 2020, were as follows:
(in millions)
Amounts transferred to earnings:
Amortization:
Net losses (gains)
Prior service cost (credit)
Net transition obligation (asset)
Other income/expense:
Net losses (gains)
Prior service cost (credit)
Deferred income taxes
Other movements during the year:
Net (losses) gains
Prior service (cost) credit
Deferred income taxes
Pension
Post-
retirement
Post-
employment
Total
$
250 $
3 $
78 $
331
29
1
3
2
(49)
236
(682)
(12)
99
(595)
—
—
—
—
(1)
2
—
—
—
—
(17)
61
29
1
3
2
(67)
299
(4)
(142)
(828)
—
1
(22)
39
(34)
139
(3)
(125)
(723)
Total movements in other comprehensive earnings (losses)
$
(359) $
(1) $
(64) $
(424)
112
Note 15.
Additional Information:
(in millions)
Research and development expense
Advertising expense
Foreign currency net transaction (gains)/losses
Interest expense
Interest income
Interest expense, net
Note 16.
Financial Instruments:
Overview
For the Years Ended December 31,
2022
2021
2020
$
$
$
$
$
642
777
199
768
$
$
$
$
617
807
45
737
$
$
$
$
495
637
90
728
(180)
(109)
(110)
588
$
628
$
618
PMI operates in markets primarily outside of the United States of America, with manufacturing and sales facilities in various locations
around the world. PMI utilizes certain financial instruments to manage foreign currency and interest rate exposures. Derivative
financial instruments are used by PMI principally to reduce exposures to market risks resulting from fluctuations in foreign currency
exchange and interest rates by creating offsetting exposures. PMI is not a party to leveraged derivatives and, by policy, does not use
derivative financial instruments for speculative purposes. Substantially all of PMI's derivative financial instruments are subject to
master netting arrangements, whereby the right to offset occurs in the event of default by a participating party. While these contracts
contain the enforceable right to offset through close-out netting rights, PMI elects to present them on a gross basis in the consolidated
balance sheets. Collateral associated with these arrangements is in the form of cash and is unrestricted. Financial instruments
qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being
hedged, both at inception and throughout the hedged period. PMI formally documents the nature and relationships between the
hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge
transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant
characteristics and expected terms of the forecasted transaction must be specifically identified, and it must be probable that each
forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be
recognized in earnings.
PMI uses deliverable and non-deliverable forward foreign exchange contracts, foreign currency swaps and foreign currency options,
collectively referred to as foreign exchange contracts ("foreign exchange contracts"), and interest rate contracts to mitigate its
exposure to changes in exchange and interest rates related to net investments in foreign operations, third-party and intercompany
actual and forecasted transactions. Both foreign exchange contracts and interest rate contracts are collectively referred to as derivative
contracts ("derivative contracts"). The primary currencies to which PMI is exposed include the Euro, Egyptian pound, Indonesian
rupiah, Japanese yen, Mexican peso, Philippine peso, Russian ruble and Swiss franc.
113
The gross notional amounts for outstanding derivatives as of December 31, 2022 and 2021, were as follows:
(in millions)
Derivative contracts designated as hedging instruments:
Foreign exchange contracts
Interest rate contracts
Derivative contracts not designated as hedging instruments:
Foreign exchange contracts
Total
2022
2021
17,627 $
1,019
9,501
900
21,755
40,401 $
10,337
20,738
$
$
The fair value of PMI’s derivative contracts included in the consolidated balance sheets as of December 31, 2022 and 2021, were as
follows:
(in millions)
Derivative contracts designated as
hedging instruments:
Foreign exchange contracts
Interest rate contracts
Derivative contracts not designated
as hedging instruments:
Foreign exchange contracts
Total gross amount derivatives
contracts presented in the
consolidated balance sheets
Gross amounts not offset in the
consolidated balance sheets
Financial instruments
Cash collateral received/pledged
Derivative Assets
Derivative Liabilities
Balance Sheet
Classification
Fair Value
2022
2021
Balance Sheet
Classification
Fair Value
2022
2021
Other current
assets
Other assets
Other current
assets
Other assets
Other current
assets
Other assets
$
376 $
166
341
—
—
156
—
22
7
—
37
—
Other accrued
liabilities
Income taxes and
other liabilities
Other accrued
liabilities
Income taxes and
other liabilities
Other accrued
liabilities
Income taxes and
other liabilities
$
126 $
31
147
187
27
56
165
16
3
3
75
—
$
873 $
232
$
537 $
299
(346)
(126)
(341)
(93)
(346)
(126)
(48)
(151)
Net amount
$
186 $
13
$
143 $
22
PMI assesses the fair value of its foreign exchange contracts and interest rate contracts using standard valuation models that use, as
their basis, readily observable market inputs. The fair value of PMI’s foreign exchange forward contracts, foreign currency swaps and
interest rate contracts is determined by using the prevailing foreign exchange spot rates and interest rate differentials, and the
respective maturity dates of the instruments. The fair value of PMI’s currency options is determined by using a Black-Scholes
methodology based on foreign exchange spot rates and interest rate differentials, currency volatilities and maturity dates. PMI’s
derivative contracts have been classified within Level 2 at December 31, 2022 and 2021.
114
For the years ended December 31, 2022, 2021 and 2020, PMI's derivative contracts impacted the consolidated statements of earnings
and comprehensive earnings as follows:
(pre-tax, in millions)
For the Years Ended December 31,
Amount of Gain/
(Loss) Recognized in
Other Comprehensive
Earnings/(Losses) on
Derivatives
2021
2022
2020
Statement of
Earnings
Classification of
Gain/(Loss)
on Derivatives
Amount of Gain/(Loss)
Reclassified from
Other Comprehensive
Earnings/(Losses) into
Earnings
2021
2020
2022
Amount of Gain/(Loss)
Recognized in
Earnings
2021
2020
2022
Derivative contracts
designated as hedging
instruments:
Cash flow hedges:
Foreign exchange
contracts
$ 288 $ 138 $
(61)
Net revenues
$ 233 $
59 $
(3)
Cost of sales
Marketing,
administration and
research costs
Interest expense, net
(20) Interest expense, net
— —
7
30
(7)
(2)
(10)
(6)
(1)
27
(6)
(5)
Interest rate contracts
292
6
Fair value hedges:
Interest rate contracts
Net investment hedges (b):
Foreign exchange
contracts
Derivative contracts not
designated as hedging
instruments:
Foreign exchange
contracts
Interest expense, net (a)
$
(83) $
1 $ —
300 484
(514) Interest expense, net (c)
181
150
194
Interest expense, net
Marketing,
administration and
research costs (d)
112
55
71
(169)
215
(368)
Total
$ 254 $
(a) The gains (losses) from these contracts are offset by the changes in the fair value of the hedged item
(b) Amount of gains (losses) on hedges of net investments principally related to changes in exchange and interest rates between the Euro and U.S.
$ 880 $ 628 $ (595)
41 $ 421 $ (103)
20 $
42 $
dollar
(c) Represent the gains for amounts excluded from the effectiveness testing
(d) The gains (losses) from these contracts attributable to changes in foreign currency exchange rates are partially offset by the (losses) and gains
generated by the underlying intercompany and third-party loans being hedged
Cash Flow Hedges
PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to certain forecasted
transactions. Gains and losses associated with qualifying cash flow hedge contracts are deferred as components of accumulated other
comprehensive losses until the underlying hedged transactions are reported in PMI’s consolidated statements of earnings. As of
December 31, 2022, PMI has hedged forecasted transactions with derivative contracts expiring at various dates through May 2028.
The impact of these hedges is primarily included in operating cash flows on PMI’s consolidated statements of cash flows.
Fair Value Hedges
PMI has entered into fixed-to-floating interest rate contracts, designated as fair value hedges to minimize exposure to changes in the
fair value of fixed rate U.S. dollar-denominated debt that results from fluctuations in benchmark interest rates. For derivative
contracts that are designated and qualify as fair value hedges the gain or loss on the derivative, as well as the offsetting gain or loss on
the hedged items attributable to the hedged risk, is recognized in current earnings. The carrying amount of the debt hedged, which
includes the cumulative adjustment for fair value gains/losses, as of December 31, 2022 was $913 million, and is recorded in long-
115
term debt in the consolidated balance sheets. The cumulative amount of fair value gains/(losses) included in the carrying amount of
the debt hedged was $83 million as of December 31, 2022.
Hedges of Net Investments in Foreign Operations
PMI designates derivative contracts and certain foreign currency denominated debt instruments as net investment hedges, primarily of
its Euro net assets. The amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of
accumulated other comprehensive losses within currency translation adjustments, was $521 million, $278 million and $(465) million,
for the years ended December 31, 2022, 2021 and 2020, respectively. The premiums paid for, and settlements of, net investment
hedges are included in investing cash flows on PMI’s consolidated statements of cash flows.
Other Derivatives
PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to intercompany loans
between certain subsidiaries, third-party loans and acquisition related transactions. While effective as economic hedges, no hedge
accounting is applied for these contracts; therefore, the gains (losses) relating to these contracts are reported in PMI’s consolidated
statements of earnings. Acquisition related transactions are included in investing cash flows on PMI’s consolidated statements of cash
flows.
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/(loss) as of January 1,
Derivative (gains)/losses transferred to earnings
Change in fair value
Gain/(loss) as of December 31,
For the Years Ended December 31,
2022
2021
2020
4
$
(85) $
(219)
481
266
(35)
124
$
4
$
3
(20)
(68)
(85)
$
$
At December 31, 2022, PMI expects $81 million of derivative gains that are included in accumulated other comprehensive losses to be
reclassified to the consolidated statement of earnings within the next 12 months. These gains are expected to be substantially offset by
the statement of earnings impact of the respective hedged transactions.
Contingent Features
PMI’s derivative instruments do not contain contingent features.
Credit Exposure and Credit Risk
PMI is exposed to credit loss in the event of non-performance by counterparties. While PMI does not anticipate non-performance, its
risk is limited to the fair value of the financial instruments less any cash collateral received or pledged. PMI actively monitors its
exposure to credit risk through the use of credit approvals and credit limits and by selecting and continuously monitoring a diverse
group of major international banks and financial institutions as counterparties.
116
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,
2022
2021
2020
$
(8,003) $
(6,701) $
(6,843)
(1,822)
(2,880)
(4,253)
266
4
(85)
Total accumulated other comprehensive losses
$
(9,559) $
(9,577) $ (11,181)
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, 2022, 2021, and 2020. For additional information, see Note 3. Acquisitions (Transactions
With Noncontrolling Interests) for disclosures related to currency translation adjustments, Note 14. Benefit Plans for disclosures
related to PMI's pension and other benefits and Note 16. Financial Instruments for disclosures related to derivative financial
instruments.
Note 18.
Contingencies:
Tobacco-Related Litigation
Legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our
indemnitees in various jurisdictions. Our indemnitees include distributors, licensees, and others that have been named as parties in
certain cases and that we have agreed to defend, as well as to pay costs and some or all of judgments, if any, that may be entered
against them. Pursuant to the terms of the Distribution Agreement between Altria Group, Inc. ("Altria") and PMI, PMI will indemnify
Altria and Philip Morris USA Inc. ("PM USA"), a U.S. tobacco subsidiary of Altria, for tobacco product claims based in substantial
part on products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for tobacco
product claims based in substantial part on products manufactured by PM USA, excluding tobacco products contract manufactured for
PMI.
It is possible that there could be adverse developments in pending cases against us and our subsidiaries. An unfavorable outcome or
settlement of pending tobacco-related litigation could encourage the commencement of additional litigation.
Damages claimed in some of the tobacco-related litigation are significant and, in certain cases in Brazil, Canada and Nigeria, range
into the billions of U.S. dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of
management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the
ultimate outcome. Much of the tobacco-related litigation is in its early stages, and litigation is subject to uncertainty. However, as
discussed below, we have to date been largely successful in defending tobacco-related litigation.
We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an
unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, except as stated
otherwise in this Note 18. Contingencies, while it is reasonably possible that an unfavorable outcome in a case may occur, after
assessing the information available to it (i) management has not concluded that it is probable that a loss has been incurred in any of the
pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending tobacco-
related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable
outcomes in these cases, if any. Legal defense costs are expensed as incurred.
117
It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular
fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Nevertheless, although litigation is
subject to uncertainty, we and each of our subsidiaries named as a defendant believe, and each has been so advised by counsel
handling the respective cases, that we have valid defenses to the litigation pending against us, as well as valid bases for appeal of
adverse verdicts. All such cases are, and will continue to be, vigorously defended. However, we and our subsidiaries may enter into
settlement discussions in particular cases if we believe it is in our best interests to do so.
CCAA Proceedings and Stay of Tobacco-Related Cases Pending in Canada
As a result of the Court of Appeal of Quebec’s decision in both the Létourneau and Blais cases described below, our subsidiary,
Rothmans, Benson & Hedges Inc. (“RBH”), and the other defendants, JTI Macdonald Corp., and Imperial Tobacco Canada Limited,
sought protection in the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (“CCAA”) on March 22,
March 8, and March 12, 2019 respectively. CCAA is a Canadian federal law that permits a Canadian business to restructure its affairs
while carrying on its business in the ordinary course. The initial CCAA order made by the Ontario Superior Court on March 22, 2019
authorizes RBH to pay all expenses incurred in carrying on its business in the ordinary course after the CCAA filing, including
obligations to employees, vendors, and suppliers. RBH's financial results have been deconsolidated from our consolidated financial
statements since March 22, 2019. As part of the CCAA proceedings, there is currently a comprehensive stay up to and including
March 31, 2023 of all tobacco-related litigation pending in Canada against RBH and the other defendants, including PMI and our
indemnitees (PM USA and Altria), namely, the smoking and health class actions filed in various Canadian provinces and health care
cost recovery actions. These proceedings are presented below under the caption “Stayed Litigation — Canada.” Ernst & Young Inc.
has been appointed as monitor of RBH in the CCAA proceedings. In accordance with the CCAA process, as the parties work towards
a plan of arrangement or compromise in a confidential mediation, it is anticipated that the court will set additional hearings and further
extend the stay of proceedings. On April 17, 2019, the Ontario Superior Court ruled that RBH and the other defendants will not be
allowed to file an application to the Supreme Court of Canada for leave to appeal the Court of Appeal’s decision in the Létourneau
and the Blais cases so long as the comprehensive stay of all tobacco-related litigation in Canada remains in effect and that the time
period to file the application would be extended by the stay period. While RBH believes that the findings of liability and damages in
both Létourneau and the Blais cases were incorrect, the CCAA proceedings will provide a forum for RBH to seek resolution through a
plan of arrangement or compromise of all tobacco-related litigation pending in Canada. It is not possible to predict the resolution of
the underlying legal proceedings or the length of the CCAA process.
Stayed Litigation — Canada
Smoking and Health Litigation — Canada
In the first class action pending in Canada, Conseil Québécois Sur Le Tabac Et La Santé and Jean-Yves Blais v. Imperial Tobacco
Ltd., Rothmans, Benson & Hedges Inc. and JTI-Macdonald Corp., Quebec Superior Court, Canada, filed in November 1998, RBH
and other Canadian cigarette manufacturers (Imperial Tobacco Canada Ltd. and JTI-Macdonald Corp.) are defendants. The plaintiffs,
an anti-smoking organization and an individual smoker, sought compensatory and punitive damages for each member of the class who
suffers allegedly from certain smoking-related diseases. The class was certified in 2005. The trial court issued its judgment on May 27,
2015. The trial court found RBH and two other Canadian manufacturers liable and found that the class members’ compensatory
damages totaled approximately CAD 15.5 billion, including pre-judgment interest (approximately $11.5 billion). The trial court
awarded compensatory damages on a joint and several liability basis, allocating 20% to our subsidiary (approximately CAD 3.1
billion, including pre-judgment interest (approximately $2.3 billion)). In addition, the trial court awarded CAD 90,000 (approximately
$67,000) in punitive damages, allocating CAD 30,000 (approximately $22,000) to RBH. The trial court estimated the disease class at
99,957 members. RBH appealed to the Court of Appeal of Quebec. In October 2015, the Court of Appeal ordered RBH to furnish
security totaling CAD 226 million (approximately $168 million) to cover both the Létourneau and Blais cases, which RBH has paid in
installments through March 2017. The Court of Appeal ordered Imperial Tobacco Canada Ltd. to furnish security totaling CAD 758
million (approximately $564 million) in installments through June 2017. JTI Macdonald Corp. was not required to furnish security in
accordance with plaintiffs’ motion. The Court of Appeal ordered that the security is payable upon a final judgment of the Court of
Appeal affirming the trial court’s judgment or upon further order of the Court of Appeal.
On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court’s findings of liability and the compensatory
and punitive damages award while reducing the total amount of compensatory damages to approximately CAD 13.5 billion including
interest (approximately $10.1 billion) due to the trial court’s error in the calculation of interest. The compensatory damages award is
on a joint and several basis with an allocation of 20% to RBH (approximately CAD 2.7 billion, including pre-judgment interest
(approximately $2.0 billion)). The Court of Appeal upheld the trial court’s findings that defendants violated the Civil Code of Quebec,
the Quebec Charter of Human Rights and Freedoms, and the Quebec Consumer Protection Act by failing to warn adequately of the
dangers of smoking and by conspiring to prevent consumers from learning of the dangers of smoking. The Court of Appeal further
held that the plaintiffs either need not prove, or had adequately proven, that these faults were a cause of the class members’ injuries.
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In accordance with the judgment, defendants were required to deposit their respective portions of the damages awarded in both the
Létourneau case described below and the Blais case, approximately CAD 1.1 billion (approximately $819 million), into trust accounts
within 60 days. RBH’s share of the deposit was approximately CAD 257 million (approximately $194 million). PMI recorded a pre-
tax charge of $194 million in its consolidated results, representing $142 million net of tax, as tobacco litigation-related expense, in the
first quarter of 2019. The charge reflects PMI’s assessment of the portion of the judgment that represents probable and estimable loss
prior to the deconsolidation of RBH and corresponds to the trust account deposit required by the judgment.
In the second class action pending in Canada, Cecilia Létourneau v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and
JTI-Macdonald Corp., Quebec Superior Court, Canada, filed in September 1998, RBH and other Canadian cigarette manufacturers
(Imperial Tobacco Canada Ltd. and JTI-Macdonald Corp.) are defendants. The plaintiff, an individual smoker, sought compensatory
and punitive damages for each member of the class who is deemed addicted to smoking. The class was certified in 2005. The trial
court issued its judgment on May 27, 2015. The trial court found RBH and two other Canadian manufacturers liable and awarded a
total of CAD 131 million (approximately $98 million) in punitive damages, allocating CAD 46 million (approximately $34.3 million)
to RBH. The trial court estimated the size of the addiction class at 918,000 members but declined to award compensatory damages to
the addiction class because the evidence did not establish the claims with sufficient accuracy. The trial court found that a claims
process to allocate the awarded punitive damages to individual class members would be too expensive and difficult to administer. On
March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court’s findings of liability and the total amount of
punitive damages awarded allocating CAD 57 million including interest (approximately $42 million) to RBH. See the Blais
description above for further detail concerning the security order pertaining to both Létourneau and Blais cases and the impact of the
decision on PMI’s financial statements.
RBH and PMI believe the findings of liability and damages in both Létourneau and the Blais cases were incorrect and in contravention
of applicable law on several grounds including the following: (i) defendants had no obligation to warn class members who knew, or
should have known, of the risks of smoking; (ii) defendants cannot be liable to class members who would have smoked regardless of
what warnings were given; and (iii) defendants cannot be liable to all class members given the individual differences between class
members.
In the third class action pending in Canada, Kunta v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Winnipeg,
Canada, filed June 12, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants.
The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic obstructive pulmonary disease
(“COPD”), severe asthma, and mild reversible lung disease resulting from the use of tobacco products. She is seeking compensatory
and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as
restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.
In the fourth class action pending in Canada, Adams v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench,
Saskatchewan, Canada, filed July 10, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry
are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of
tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who
have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, emphysema, heart disease, or
cancer, as well as restitution of profits.
In the fifth class action pending in Canada, Semple v. Canadian Tobacco Manufacturers' Council, et al., The Supreme Court (trial
court), Nova Scotia, Canada, filed June 18, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the
industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and COPD resulting from
the use of tobacco products. He is seeking compensatory and punitive damages on behalf of a proposed class comprised of all
smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care
costs allegedly caused by tobacco products.
In the sixth class action pending in Canada, Dorion v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Alberta,
Canada, filed June 15, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants.
The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic bronchitis and severe sinus infections
resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class
comprised of all smokers, their estates, dependents and family members, restitution of profits, and reimbursement of government
health care costs allegedly caused by tobacco products. To date, we, our subsidiaries, and our indemnitees have not been properly
served with the complaint.
In the seventh class action pending in Canada, McDermid v. Imperial Tobacco Canada Limited, et al., Supreme Court, British
Columbia, Canada, filed June 25, 2010, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are
defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and heart disease resulting from the use
of tobacco products. He is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who
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were alive on June 12, 2007, and who suffered from heart disease allegedly caused by smoking, their estates, dependents and family
members, plus disgorgement of revenues earned by the defendants from January 1, 1954, to the date the claim was filed.
In the eighth class action pending in Canada, Bourassa v. Imperial Tobacco Canada Limited, et al., Supreme Court, British Columbia,
Canada, filed June 25, 2010, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants.
The plaintiff, the heir to a deceased smoker, alleges that the decedent was addicted to tobacco products and suffered from emphysema
resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class
comprised of all smokers who were alive on June 12, 2007, and who suffered from chronic respiratory diseases allegedly caused by
smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1,
1954, to the date the claim was filed. In December 2014, plaintiff filed an amended statement of claim.
In the ninth class action pending in Canada, Suzanne Jacklin v. Canadian Tobacco Manufacturers' Council, et al., Ontario Superior
Court of Justice, filed June 20, 2012, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are
defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of
tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who
have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, heart disease, or cancer, as well as
restitution of profits.
Health Care Cost Recovery Litigation — Canada
In the first health care cost recovery case pending in Canada, Her Majesty the Queen in Right of British Columbia v. Imperial Tobacco
Limited, et al., Supreme Court, British Columbia, Vancouver Registry, Canada, filed January 24, 2001, we, RBH, our indemnitee (PM
USA), and other members of the industry are defendants. The plaintiff, the government of the province of British Columbia, brought a
claim based upon legislation enacted by the province authorizing the government to file a direct action against cigarette manufacturers
to recover the health care costs it has incurred, and will incur, resulting from a “tobacco related wrong.”
In the second health care cost recovery case filed in Canada, Her Majesty the Queen in Right of New Brunswick v. Rothmans Inc., et
al., Court of Queen's Bench of New Brunswick, Trial Court, New Brunswick, Fredericton, Canada, filed March 13, 2008, we, RBH,
our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of
the province of New Brunswick based on legislation enacted in the province. This legislation is similar to the law introduced in British
Columbia that authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has
incurred, and will incur, as a result of a “tobacco related wrong.”
In the third health care cost recovery case filed in Canada, Her Majesty the Queen in Right of Ontario v. Rothmans Inc., et al., Ontario
Superior Court of Justice, Toronto, Canada, filed September 29, 2009, we, RBH, our indemnitees (PM USA and Altria), and other
members of the industry are defendants. The claim was filed by the government of the province of Ontario based on legislation
enacted in the province. This legislation is similar to the laws introduced in British Columbia and New Brunswick that authorize the
government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a
result of a “tobacco related wrong.”
In the fourth health care cost recovery case filed in Canada, Attorney General of Newfoundland and Labrador v. Rothmans Inc., et al.,
Supreme Court of Newfoundland and Labrador, St. Johns, Canada, filed February 8, 2011, we, RBH, our indemnitees (PM USA and
Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Newfoundland
and Labrador based on legislation enacted in the province that is similar to the laws introduced in British Columbia, New Brunswick
and Ontario. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care
costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the fifth health care cost recovery case filed in Canada, Attorney General of Quebec v. Imperial Tobacco Limited, et al., Superior
Court of Quebec, Canada, filed June 8, 2012, we, RBH, our indemnitee (PM USA), and other members of the industry are defendants.
The claim was filed by the government of the province of Quebec based on legislation enacted in the province that is similar to the
laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette
manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the sixth health care cost recovery case filed in Canada, Her Majesty in Right of Alberta v. Altria Group, Inc., et al., Supreme Court
of Queen's Bench Alberta, Canada, filed June 8, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the
industry are defendants. The claim was filed by the government of the province of Alberta based on legislation enacted in the province
that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action
against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
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In the seventh health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Manitoba v.
Rothmans, Benson & Hedges, Inc., et al., The Queen's Bench, Winnipeg Judicial Centre, Canada, filed May 31, 2012, we, RBH, our
indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the
province of Manitoba based on legislation enacted in the province that is similar to the laws enacted in several other Canadian
provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care
costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the eighth health care cost recovery case filed in Canada, The Government of Saskatchewan v. Rothmans, Benson & Hedges Inc., et
al., Queen's Bench, Judicial Centre of Saskatchewan, Canada, filed June 8, 2012, we, RBH, our indemnitees (PM USA and Altria),
and other members of the industry are defendants. The claim was filed by the government of the province of Saskatchewan based on
legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes
the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as
a result of a “tobacco related wrong.”
In the ninth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Prince Edward Island v.
Rothmans, Benson & Hedges Inc., et al., Supreme Court of Prince Edward Island (General Section), Canada, filed September 10,
2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the
government of the province of Prince Edward Island based on legislation enacted in the province that is similar to the laws enacted in
several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to
recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the tenth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Nova Scotia v.
Rothmans, Benson & Hedges Inc., et al., Supreme Court of Nova Scotia, Canada, filed January 2, 2015, we, RBH, our indemnitees
(PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of
Nova Scotia based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The
legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has
incurred, and will incur, as a result of a “tobacco related wrong.”
__________
The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our
subsidiaries or indemnitees as of December 31, 2022, December 31, 2021 and December 31, 2020:¹
Type of Case
Individual Smoking and Health Cases
Smoking and Health Class Actions
Health Care Cost Recovery Actions
Label-Related Class Actions
Individual Label-Related Cases
Public Civil Actions
Number of Cases
Pending as of
December 31, 2022
40
9
17
—
6
1
Number of Cases
Pending as of
December 31, 2021
40
9
17
—
3
1
Number of Cases
Pending as of
December 31, 2020
43
9
17
—
5
2
Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 528 Smoking and Health, Label-Related, Health
Care Cost Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have
been terminated in our favor. Fourteen cases have had decisions in favor of plaintiffs. Ten of these cases have subsequently reached
final resolution in our favor and four remain on appeal.
______
¹ Includes cases pending in Canada.
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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
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, RBH commenced the
appellate process with the Court of
Appeal of Quebec. On March 1,
2019, the Court of Appeal issued a
decision largely affirming the trial
court's decision. (See “Stayed
Litigation — Canada” for further
detail.)
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 $11.5 billion),
including pre-judgment
interest. The trial court
awarded compensatory
damages on a joint and several
liability basis, allocating 20%
to our subsidiary
(approximately CAD 3.1
billion including pre-judgment
interest (approximately $2.3
billion)). The trial court
awarded CAD 90,000
(approximately $67,000) in
punitive damages, allocating
CAD 30,000 (approximately
$22,000) to our subsidiary.
The trial court ordered
defendants to pay CAD 1
billion (approximately $745
million) of the compensatory
damage award, CAD 200
million (approximately $149
million) of which is our
subsidiary’s portion, into a
trust within 60 days.
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Date
May 27, 2015
Location of
Court/Name of
Plaintiff
Canada/Cecilia
Létourneau
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, RBH commenced the
appellate process with the Court of
Appeal of Quebec. On March 1,
2019, the Court of Appeal issued a
decision largely affirming the trial
court's decision. (See “Stayed
Litigation — Canada” for further
detail.)
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
$98 million) in punitive
damages, allocating CAD 46
million (approximately $34.3
million) to RBH. The trial
court ordered defendants to
pay the full punitive damage
award into a trust within 60
days. The court did not order
the payment of compensatory
damages.
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 $584), plus
interest, in compensatory and
moral damages. The trial court
found that our subsidiary failed
to warn plaintiff of the risk of
becoming addicted to
cigarettes.
Post-Trial
Developments
On August 23, 2016, our subsidiary
filed its notice of appeal. On
October 31, 2017, the Civil and
Commercial Court of Appeals of
Mar del Plata ruled that plaintiff's
claim was barred by the statute of
limitations and it reversed the trial
court's decision. On May 17, 2021
plaintiff filed a federal extraordinary
appeal. On November 1, 2021, the
Supreme Court of the Province of
Buenos Aires dismissed plaintiff's
federal extraordinary appeal. On
November 10, 2021, plaintiff filed a
direct appeal before the Federal
Supreme Court.
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Date
June 17, 2021
Location of
Court/Name of
Plaintiff
Argentina/Claudia Milano
Type of
Case
Individual
Action
Verdict
On June 17, 2021, the Civil
Court No. 9 - Mar del Plata,
issued a verdict in favor of
plaintiff, an individual smoker,
and awarded her smoking
cessation treatments, ARS
150,000 (approximately $796),
in compensatory and moral
damages, and ARS 4,000,000
(approximately $21,218) in
punitive damages, plus interest
and costs. The trial court found
that our subsidiary failed to
warn plaintiff of the risk of
becoming addicted to
cigarettes.
Post-Trial
Developments
On July 2, 2021, our subsidiary filed
its notice of appeal. In addition,
plaintiff filed an appeal challenging
the dismissal of the claim for
psychological damages. As
required by local law, our subsidiary
deposited the damages awarded,
plus interest and costs, in total ARS
6,114,428 (approximately $32,435),
into a court escrow account. Our
subsidiary challenged the amount
determined by the court. The Civil
and Commercial Court of Appeals
of Mar del Plata granted our
subsidiary's challenge to the escrow
amount determined by the trial
court. As a result, on December 16,
2021, ARS 893,428 (approximately
$4,739) was returned to our
subsidiary. If our subsidiary
ultimately prevails, the remaining
deposited amounts will be returned
to our subsidiary. On May 31,
2022, the Civil and Commercial
Court of Appeals of Mar del Plata
ruled that the statute of limitations
barred plaintiff's claim and reversed
the trial court's decision. On June
15, 2022, plaintiff filed an
extraordinary appeal.
Pending claims related to tobacco products generally fall within the following categories:
Smoking and Health Litigation: These cases primarily allege personal injury and are brought by individual plaintiffs or on behalf of a
class or purported class of individual plaintiffs. Plaintiffs' allegations of liability in these cases are based on various theories of
recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of
express and implied warranties, violations of deceptive trade practice laws and consumer protection statutes. Plaintiffs in these cases
seek various forms of relief, including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these
cases include licit activity, failure to state a claim, lack of defect, lack of proximate cause, assumption of the risk, contributory
negligence, and statute of limitations.
As of December 31, 2022, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as
follows:
•
•
40 cases brought by individual plaintiffs in Argentina (30), Canada (2), Chile (4), the Philippines (1), Turkey (1) and
Scotland (1), as well as 1 case brought by an individual plaintiff in the United States District Court for the District of Oregon
in May 2021. (See information regarding the provisions of the 2008 Share Distribution Agreement between PMI and Altria
that provide for indemnities to PMI for certain liabilities concerning tobacco products under the caption "Tobacco-Related
Litigation" described above), compared with 40 such cases on December 31, 2021, and 43 cases on December 31, 2020; and
9 cases brought on behalf of classes of individual plaintiffs, compared with 9 such cases on December 31, 2021 and 9 such
cases on December 31, 2020.
The class actions pending in Canada are described above under the caption “Smoking and Health Litigation — Canada.”
Health Care Cost Recovery Litigation: These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of
health care cost expenditures allegedly caused by tobacco products. Plaintiffs' allegations of liability in these cases are based on
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various theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied
warranties, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance,
defective product, failure to warn, sale of cigarettes to minors, and claims under statutes governing competition and deceptive trade
practices. Plaintiffs in these cases seek various forms of relief including compensatory and other damages, and injunctive and
equitable relief. Defenses raised in these cases include lack of proximate cause, remoteness of injury, failure to state a claim, adequate
remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from,
the sale of cigarettes), and statute of limitations.
As of December 31, 2022, there were 17 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Brazil
(1), Canada (10), Korea (1) and Nigeria (5), compared with 17 such cases on December 31, 2021 and 17 such cases on December 31,
2020.
The health care cost recovery actions pending in Canada are described above under the caption “Health Care Cost Recovery Litigation
— Canada.”
In the health care cost recovery case in Brazil, The Attorney General of Brazil v. Souza Cruz Ltda., et al., Federal Trial Court, Porto
Alegre, Rio Grande do Sul, Brazil, filed May 21, 2019, we, our subsidiaries, and other members of the industry are defendants.
Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases in certain prior years, payment of anticipated
costs of treating future alleged smoking-related diseases, and moral damages. Defendants filed answers to the complaint in May 2020.
In the first health care cost recovery case in Nigeria, The Attorney General of Lagos State v. British American Tobacco (Nigeria)
Limited, et al., High Court of Lagos State, Lagos, Nigeria, filed March 13, 2008, we and other members of the industry are defendants.
Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated
costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. We
are in the process of making challenges to service and the court's jurisdiction. Currently, the case is stayed in the trial court pending
the appeals of certain co-defendants relating to service objections.
In the second health care cost recovery case in Nigeria, The Attorney General of Kano State v. British American Tobacco (Nigeria)
Limited, et al., High Court of Kano State, Kano, Nigeria, filed May 9, 2007, we and other members of the industry are defendants.
Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated
costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. We
are in the process of challenging 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 objections to the court's jurisdiction. We have appealed. Currently, the case is
stayed in the trial court pending the appeals of certain co-defendants relating to service objections.
In the health care cost recovery case in Korea, the National Health Insurance Service v. KT&G, et. al., filed April 14, 2014, our
subsidiary and other Korean manufacturers are defendants. Plaintiff alleges that defendants concealed the health hazards of smoking,
marketed to youth, added ingredients to make their products more harmful and addictive, and misled consumers into believing that
Lights cigarettes are safer than regular cigarettes. The National Health Insurance Service seeks to recover damages allegedly incurred
in treating 3,484 patients with small cell lung cancer, squamous cell lung cancer, and squamous cell laryngeal cancer from 2003 to
2012. The trial court dismissed the case in its entirety on November 20, 2020. The Appellate court granted the Plaintiff a de novo
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appeal in 2021 and determined that the appellate proceedings will take place in stages: wrongful conduct/product defect allegations
first, then causation and finally issues such as standing/direct action.
Label-Related Cases: These cases, now brought only by individual plaintiffs, allege that the use of the descriptor “Lights” or other
alleged misrepresentations or omissions of labeling information constitute fraudulent and misleading conduct. Plaintiffs' allegations of
liability in these cases are based on various theories of recovery including misrepresentation, deception, and breach of consumer
protection laws. Plaintiffs seek various forms of relief including restitution, injunctive relief, and compensatory and other damages.
Defenses raised include lack of causation, lack of reliance, assumption of the risk, and statute of limitations.
As of December 31, 2022, there were 6 label-related cases brought by individual plaintiffs in Italy (1) and Chile (5) pending against
our subsidiaries, compared with 3 such cases on December 31, 2021, and 5 such cases on December 31, 2020.
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, 2022, there was 1 public civil action pending against our subsidiary in Venezuela (1), compared with 1 such case
on December 31, 2021, and 2 such cases on December 31, 2020.
In a public civil action in Venezuela, Federation of Consumers and Users Associations (“FEVACU”), et al. v. National Assembly of
Venezuela and the Venezuelan Ministry of Health, Constitutional Chamber of the Venezuelan Supreme Court, filed April 29, 2008, we
were not named as a defendant, but the plaintiffs published a notice pursuant to court order, notifying all interested parties to appear in
the case. In January 2009, our subsidiary appeared in the case in response to this notice. The plaintiffs purport to represent the right to
health of the citizens of Venezuela and claim that the government failed to protect adequately its citizens' right to health. The claim
asks the court to order the government to enact stricter regulations on the manufacture and sale of tobacco products. In addition, the
plaintiffs ask the court to order companies involved in the tobacco industry to allocate a percentage of their “sales or benefits” to
establish a fund to pay for the health care costs of treating smoking-related diseases. In October 2008, the court ruled that plaintiffs
have standing to file the claim and that the claim meets the threshold admissibility requirements. In December 2012, the court
admitted our subsidiary and BAT's subsidiary as interested third parties. In February 2013, our subsidiary answered the complaint.
Reduced-Risk Products
In Colombia, an individual filed a purported class action, Ana Ferrero Rebolledo v. Philip Morris Colombia S.A., et al., in April 2019
against our subsidiaries with the Civil Court of Bogota related to the marketing of our Platform 1 product. Plaintiff alleged that our
subsidiaries advertise the product in contravention of law and in a manner that misleads consumers by portraying the product in a
positive light, and further asserts that the Platform 1 vapor contains many toxic compounds, creates a high level of dependence, and
has damaging second-hand effects. Plaintiff sought injunctive relief and damages on her behalf and on behalf of two classes (class 1 -
all Platform 1 consumers in Colombia who seek damages for the purchase price of the product and personal injuries related to the
alleged addiction, and class 2 - all residents of the neighborhood where the advertising allegedly took place who seek damages for
exposure to the alleged illegal advertising). Our subsidiaries answered the complaint in January 2020, and in February 2020, plaintiff
filed an amended complaint. The amended complaint modifies the relief sought on behalf of the named plaintiff and on behalf of a
single class (all consumers of Platform 1 products in Colombia who seek damages for the product purchase price and personal injuries
related to the use of an allegedly harmful product). In June 2021, our subsidiaries answered the amended complaint. The court has
scheduled evidentiary hearings to take place in February 2023.
Other Litigation
The Department of Special Investigations of the government of Thailand ("DSI") conducted an investigation into alleged
underpayment by our subsidiary, Philip Morris (Thailand) Limited ("PM Thailand"), of customs duties and excise taxes relating to
imports from the Philippines covering the period 2003-2007. On January 18, 2016, the Public Prosecutor filed charges against our
subsidiary and seven former and current employees in the Bangkok Criminal Court alleging that PM Thailand and the individual
defendants jointly and with the intention to defraud the Thai government, under-declared import prices of cigarettes to avoid full
payment of taxes and duties in connection with import entries of cigarettes from the Philippines during the period of July 2003 to June
2006. The government sought a fine of approximately THB 80.8 billion (approximately $2.4 billion). In May 2017, Thailand enacted
a new customs act. The new act, which took effect in November 2017, substantially limits the amount of fines that Thailand could
seek in these proceedings. PM Thailand believes that its declared import prices are in compliance with the Customs Valuation
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Agreement of the World Trade Organization and Thai law and that the allegations of the Public Prosecutor are inconsistent with
several decisions already taken by Thai Customs and other Thai governmental agencies. Trial in the case began in November 2017
and concluded in September 2019. In November 2019, the trial court found our subsidiary guilty of under-declaration of the prices
and imposed a fine of approximately THB 1.2 billion (approximately $36 million). The trial court dismissed all charges against the
individual defendants. In December 2019, as required by the Thai law, our subsidiary paid the fine. This payment is included in other
assets on the consolidated balance sheets and negatively impacted net cash provided by operating activities in the consolidated
statements of cash flows in the period of payment. Both our subsidiary and the Public Prosecutor filed an appeal of the trial court's
decision. The appellate court issued its decision on the appeals on June 1, 2022. The appellate court affirmed the findings of under-
declaration of import prices of cigarettes but reduced the fine to approximately THB 122 million (approximately $3.6 million) finding
the trial court erred in its calculation of the under-declaration and fine. The appellate court affirmed the acquittals of the individual
defendants. Our subsidiary has appealed the decision to the Supreme Court of Thailand. The Public Prosecutor has also filed an appeal
challenging the dismissal of charges against the individual defendants and the amount of the fine imposed. Thailand is required to
refund any payment made by our subsidiary in excess of any fine asserted by the courts.
The DSI also conducted an investigation into alleged underpayment by PM Thailand of customs duties and excise taxes relating to
imports from Indonesia covering the period 2000-2003. On January 26, 2017, the Public Prosecutor filed charges against PM Thailand
and its former Thai employee in the Bangkok Criminal Court alleging that PM Thailand and its former employee jointly and with the
intention to defraud the Thai government under-declared import prices of cigarettes to avoid full payment of taxes and duties in
connection with import entries during the period from January 2002 to July 2003. The government is seeking a fine of approximately
THB 19.8 billion (approximately $588 million). In May 2017, Thailand enacted a new customs act. The new act, which took effect in
November 2017, substantially limits the amount of fines that Thailand could seek in these proceedings. PM Thailand believes that its
declared import prices are in compliance with the Customs Valuation Agreement of the World Trade Organization and Thai law, and
that the allegations of the Public Prosecutor are inconsistent with several decisions already taken by Thai Customs and a Thai court.
Trial in the case began in November 2018 and concluded in December 2019. In March 2020, the trial court found our subsidiary
guilty of under-declaration of the prices and imposed a fine of approximately THB 130 million (approximately $3.9 million). The trial
court dismissed all charges against the individual defendant. In April 2020, as required by Thai law, our subsidiary paid the fine. This
payment is included in other assets on the consolidated balance sheets and negatively impacted net cash provided by operating
activities in the consolidated statements of cash flows in the period of payment. Our subsidiary filed an appeal of the trial court's
decision. In addition, the Public Prosecutor filed an appeal of the trial court's decision challenging the dismissal of charges against the
individual defendant and the amount of the fine imposed. The appellate court issued its decision on the appeals on January 31, 2023.
The appellate court affirmed the findings of under-declaration of import prices of cigarettes but reduced the fine imposed by the trial
court. The appellate court directed the Public Prosecutor to coordinate with customs officials to calculate such reduced fine in
accordance with the appellate court’s decision, which will occur at a later date. The appellate court affirmed the acquittal of the
individual defendant. Both the Public Prosecutor and our subsidiary may appeal the decision to the Supreme Court of Thailand.
Thailand is required to refund any payment made by our subsidiary in excess of any fine assessed by the courts.
The South Korean Board of Audit and Inspection (“BAI”) conducted an audit of certain Korean government agencies and the tobacco
industry into whether inventory movements ahead of the January 1, 2015 increase of cigarette-related taxes by tobacco companies,
including Philip Morris Korea Inc. ("PM Korea"), our South Korean subsidiary, were in compliance with South Korean tax laws. In
November 2016, the tax authorities completed their audit and assessed allegedly underpaid taxes and penalties. In order to avoid
nonpayment financial costs, PM Korea paid approximately KRW 272 billion (approximately $217 million), of which KRW 100
billion (approximately $80 million) was paid in 2016 and KRW 172 billion (approximately $137 million) was paid in the first quarter
of 2017. These paid amounts are included in other assets in the consolidated balance sheets and negatively impacted net cash provided
by operating activities in the consolidated statements of cash flows in the period of payment. PM Korea appealed the assessments. In
January 2020, a trial court ruled that PM Korea did not underpay taxes in the amount of approximately KRW 218 billion
(approximately $173 million). The tax authorities appealed this decision to the appellate court. In September 2020, the appellate court
upheld the trial court's decision. The tax authorities have appealed to the Supreme Court of South Korea. In June 2020, another trial
court ruled that PM Korea did not underpay approximately KRW 54 billion (approximately $43 million) of alleged underpayments.
The government agencies appealed this decision. In January 2021, the appellate court upheld the trial court's decision. The government
agencies appealed to the Supreme Court of South Korea. If the tax authorities and government agencies ultimately lose, then they
would be required to return the paid amounts to PM Korea.
The Saudi Arabia Customs General Authority issued its assessments requiring our distributors to pay additional customs duties in the
amount of approximately 1.5 billion Saudi Riyal, or approximately $396 million, in relation to the fees paid by these distributors under
their agreements with our subsidiary for exclusive rights to distribute our products in Saudi Arabia. In order to challenge these
assessments, the distributors posted bank guarantees. To enable the distributors' challenge, our subsidiary agreed with the banks to
bear a portion of the amount the authority may draw on the bank guarantees. In September and October 2020, respectively, the
distributors lost their challenges of the assessments. Both distributors appealed, and in June 2021, the Customs Appeal Committee in
Riyadh notified the distributors of its decisions to largely reject their appeals. On the basis of the above-mentioned decisions, in June
2021, PMI recorded a pre-tax charge of $246 million in relation to the period of 2014 through 2020 in line with existing and
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contemplated arrangements with the distributors. The estimated amounts for 2021 and 2022 are immaterial. In accordance with U.S.
GAAP, the charge was recorded as a reduction in net revenues on the consolidated statements of earnings for the three months and six
months ended June 30, 2021. Despite the unfavorable decisions, our subsidiary believes that customs duties paid in Saudi Arabia were
in compliance with the applicable law and the WTO Customs Valuation Agreement.
A putative shareholder class action lawsuit, In re Philip Morris International Inc. Securities Litigation, is pending in the United States
District Court for the Southern District of New York, purportedly on behalf of purchasers of Philip Morris International Inc. stock
between July 26, 2016 and April 18, 2018. The lawsuit names Philip Morris International Inc. and certain officers and employees as
defendants and includes allegations that the defendants made false and/or misleading statements and/or failed to disclose information
about PMI’s business, operations, financial condition, and prospects, related to product sales of, and alleged irregularities in clinical
studies of, PMI’s Platform 1 product. The lawsuit seeks various forms of relief, including damages. In November 2018, the court
consolidated three putative shareholder class action lawsuits with similar allegations previously filed in the Southern District of New
York (namely, City of Westland Police and Fire Retirement System v. Philip Morris International Inc., et al., Greater Pennsylvania
Carpenters’ Pension Fund v. Philip Morris International Inc., et al., and Gilchrist v. Philip Morris International Inc., et al.) into these
proceedings. A putative shareholder class action lawsuit, Rubenstahl v. Philip Morris International Inc., et al., that had been
previously filed in December 2017 in the United States District Court for the District of New Jersey, was voluntarily dismissed by the
plaintiff due to similar allegations in these proceedings. On February 4, 2020, the court granted defendants’ motion in its entirety,
dismissing all but one of the plaintiffs’ claims with prejudice. The court noted that one of plaintiffs’ claims (allegations relating to
four non-clinical studies of PMI’s Platform 1 product) did not state a viable claim but allowed plaintiffs to replead that claim by March
3, 2020. On February 18, 2020, the plaintiffs filed a motion for reconsideration of the court's February 4th decision; this motion was
denied on September 21, 2020. On September 28, 2020, plaintiffs filed an amended complaint seeking to replead allegations relating
to four non-clinical studies of PMI's Platform 1 product. On September 10, 2021, the court granted defendant's motion to dismiss
plaintiffs' amended complaint in its entirety. Plaintiffs have filed an appeal with the U.S. Court of Appeal for the Second Circuit. We
believe that this lawsuit is without merit and will continue to defend it vigorously.
In April 2020, affiliates of British American Tobacco plc (“BAT”) commenced patent infringement proceedings, RAI Strategic
Holdings, Inc., et al. v. Altria Client Services LLC, et al., in the federal court in the Eastern District of Virginia, where PMI's
subsidiary, Philip Morris Products S.A., as well as Altria Group, Inc.'s subsidiaries, are defendants. Plaintiffs seek damages and
injunctive relief against the commercialization of the Platform 1 blade products in the United States. In April 2020, BAT affiliates
filed a complaint against PMI, Philip Morris Products S.A., Altria Group, Inc., and its subsidiaries before the International Trade
Commission ("ITC"). Plaintiffs seek an order to prevent the importation of Platform 1 products into the United States. The ITC
evidentiary hearing closed on February 1, 2021. On May 14, 2021, the administrative law judge issued an Initial and Recommended
Determination ("ID/RD") finding that the Platform 1 blade products infringe two of the three patents asserted by Plaintiffs,
recommending that the ITC issue a Limited Exclusion order against infringing products, and recommending against a cease-and-
desist, as well as recommending against a bond pending Presidential review of the ITC's Final Determination ("FD"). Defendants and
Plaintiffs filed separate Petitions for Review with the ITC of the ID on May 28, 2021; on July 27, 2021, the ITC granted each of the
petitions in part, deciding to review certain issues in the ID. Plaintiffs and Defendants also submitted brief statements of the public
interest factors in issue to the ITC on June 15, 2021. On September 29, 2021, the ITC issued its FD finding a violation of section 337
of the U.S. Tariff Act and issued (a) a limited exclusion order against Philip Morris Products S.A., prohibiting, inter alia, the
importation of Platform 1 product and infringing components; and (b) a cease-and-desist order against Altria Client Services, LLC and
its affiliate prohibiting, inter alia, sales of imported Platform 1 products. The ITC predicated the orders on its finding that Platform 1
blade products infringe two patents owned by a BAT affiliate. The ITC also found that Platform 1 blade products do not infringe a
third patent owned by a BAT affiliate. The ITC further held that there were insufficient concerns over public interest to prevent the
issuance of remedial orders. Following the Presidential Review period, the orders became effective and Defendants filed a petition for
review of the FD with the U.S. Court of Appeals for the Federal Circuit. Defendants also filed motions in the ITC and Federal Circuit
for a stay of the orders pending disposition of the appeal; the ITC denied the motion on January 20, 2022 and the Federal Circuit
denied the motion on January 25, 2022. The Federal Circuit heard oral argument on defendants' appeal of the FD on October 3, 2022
and a decision is awaited. We estimate that an adverse ruling is probable due to our inability to import the products and components
impacted by the ITC's FD with immaterial financial impact. In the Eastern District of Virginia case, the defendants also
counterclaimed that BAT infringed their patents relating to certain e-vapor products, seeking damages for, and injunctive relief
against, the commercialization of these products by BAT. The trial of Defendant PMPSA’s counterclaims took place from June 8-14,
2022 and, on June 15, 2022, the jury returned a verdict for PMPSA awarding approximately $10.8 million in damages for
infringement up to December 31, 2021 of two PMPSA patents by BAT’s affiliate and two of BAT’s e-vapor products; the jury also
found BAT’s affiliate did not infringe one of the two PMPSA patents and that the BAT affiliates had failed to prove one of the two
PMPSA patents was invalid. PMPSA filed a motion for an injunction or, in the alternative, an ongoing royalty on August 12, 2022
which remains pending. Upon petition of Philip Morris Products S.A., the Patent Trial and Appeal Board ("PTAB") of the United
States Patent and Trademark Office has instituted review of certain claims pertaining to four of the six patents asserted by BAT
affiliates in both proceedings. On January 11, 2022, PTAB issued its final decision on one of the two patents underlying the ITC's FD,
invalidating all challenged claims of BAT's patent. On March 30, 2022, PTAB issued its final decision on the second of the two
patents underlying the ITC's FD, finding the challenged claims patentable. The parties have filed appeals of these PTAB results to the
U.S. Court of Appeals for the Federal Circuit. On July 21, 2022, PMPSA filed a Request for Rehearing of PTAB's November 2020
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decision not to institute review of certain claims in the second of the two patents underlying the ITC's FD; PTAB denied the Request
on October 13, 2022.
In April 2020, BAT’s affiliate commenced patent infringement proceedings, Nicoventures Trading Limited v. PM GmbH, et al.,
against PMI’s German subsidiary, Philip Morris GmbH, and Philip Morris Products S.A., in the Regional Court in Munich, Germany.
Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 blade products in Germany. In June
2021, the court stayed the proceeding in respect of one of the two patents asserted by BAT’s Affiliate. Following the December 2022
confirmation of the revocation of the other BAT patent by the European Patent Office Board of Appeal, BAT withdrew its initial claim
based on that patent; the stayed action based on the second patent remains pending.
In September 2020, BAT’s affiliates commenced patent infringement and unfair competition proceedings, RAI Strategic Holdings,
Inc., et al. v. Philip Morris Products S.A., et al., against Philip Morris Products S.A. and PMI’s Italian subsidiaries, Philip Morris
Manufacturing & Technology Bologna S.p.A. and Philip Morris Italia S.r.l., in the Court of Milan, Italy. Plaintiffs seek damages, as
well as injunctive relief against the manufacture in Italy of the Platform 1 blade heated tobacco units allegedly infringing the asserted
patents and the commercialization of the Platform 1 blade products in Italy. As part of this proceeding, in October 2020, BAT’s
affiliates filed a request based on one of the two asserted patents seeking preliminary injunctive relief against the manufacture and
commercialization of the Platform 1 blade products in Italy. In July 2022, the court dismissed plaintiffs’ request for preliminary
injunction in its entirety and plaintiffs did not appeal this ruling.
In October 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris
Japan, Limited, et al., against PMI’s Japanese subsidiary, Philip Morris Japan Limited, and a third-party distributor in the Tokyo
District Court. Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 blade products in Japan.
On December 23, 2022, the Court dismissed BAT’s claims with respect to one of the two patents that it asserted, finding no
infringement; BAT filed an appeal of this dismissal.
In November 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris
Romania SRL, et al., against PMI’s Romanian subsidiaries, Philip Morris Romania S.R.L. and Philip Morris Trading S.R.L., and a
third-party distributor in the Court of Law of Bucharest, Civil Registry. Plaintiffs seek damages and preliminary and permanent
injunctive relief against the manufacture and commercialization of the Platform 1 blade products in Romania. In February 2021, the
court dismissed plaintiffs’ request for a preliminary injunction. In April 2021, the appellate court denied plaintiffs' appeal, confirming
the dismissal of plaintiffs' request for preliminary injunction. Plaintiffs' proceeding requesting damages and a permanent injunction
remains pending before the Court of Law of Bucharest, Civil Registry. In an October 14, 2021 hearing, the court stayed the
proceeding.
In March 2021, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris
Korea, Co., Ltd., against PM Korea in the Seoul Central District Court. Plaintiffs seek damages and injunctive relief against the
commercialization of the Platform 1 blade heated tobacco units in South Korea. On May 30, 2022, the Korean Patent Office issued a
decision that all of the challenged claims in the patent asserted by Plaintiffs are invalid; Plaintiffs filed an appeal of this decision.
In July, 2021, Philip Morris Products, S.A. filed a claim at the High Court of Justice of England and Wales against BAT affiliates
Nicoventures Trading Limited and British American Tobacco (Investments) Limited seeking revocation of the UK parts of two BAT
European patents. In March, the BAT affiliates stated that they would consent to revocation of one of the patents and filed a
counterclaim against Philip Morris Products S.A. and Philip Morris Limited seeking from the court a declaration that the remaining
BAT affiliate patent is infringed by Platform 1 induction products, as well as damages and injunctive relief against the
commercialization of the Platform 1 induction products in the U.K. The trial took place from September 21-28, 2022, and a decision is
awaited.
Other patent challenges by both parties are pending in various jurisdictions.
We believe that the foregoing proceedings by the affiliates of BAT are without merit and will defend them vigorously.
We are also involved in additional litigation arising in the ordinary course of our business. While the outcomes of these proceedings
are uncertain, management does not expect that the ultimate outcomes of other litigation, including any reasonably possible losses in
excess of current accruals, will have a material adverse effect on our consolidated results of operations, cash flows or financial
position.
Third-Party Guarantees
Until November 1, 2022, Medicago Inc. ("Medicago") was an equity method investee of Philip Morris Investments B.V. (“PMIBV”),
a PMI subsidiary. On October 17, 2020, Medicago had entered into a contribution agreement with the Canadian government (the
“Contribution Agreement”) whereby the Canadian government agreed to contribute up to CAD 173 million (approximately $131
million on the date of signing) to Medicago, to support its on-going COVID-19 vaccine development and clinical trials ("First Stage"),
and for the construction of its Quebec City manufacturing facility ("Second Stage", and together with the First Stage, the “Project”).
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On March 31, 2022, the Contribution Agreement was amended (the “Contribution Agreement Amendment”) to reflect an additional
contribution from the Canadian government up to CAD 27 million (approximately $22 million on the date of signing) to Medicago for
the Second Stage. In August 2022, Medicago received the final tranche of the contribution from the Canadian government in relation
to the First Stage, confirming thereby the completion of such first stage and consequently reducing by approximately CAD
123 million (approximately $93 million on the date of signing) the Repayment Obligations (as defined below).
PMIBV and Mitsubishi Tanabe Pharma Corporation (“MTPC”) are also parties to the Contribution Agreement and the Contribution
Agreement Amendment as guarantors of Medicago’s obligations thereunder on a joint and several basis (“Co-Guarantors”). The Co-
Guarantors agreed to repay amounts contributed by the Canadian government plus interest, if Medicago fails to do so (the "Repayment
Obligations"), and could be responsible for the costs of Medicago’s other obligations (such as the achievement of specific milestones
of the Project). The guarantees are in effect through March 31, 2026. It is reasonably possible that PMI will be responsible for a
portion of these costs and obligations. The maximum amount of these obligations is currently non-estimable.
On November 1, 2022, PMIBV transferred all of the shares it owned in Medicago to MTPC Holdings Canada Inc., the majority
shareholder of Medicago. MTPC assumed and agreed to perform all of PMIBV's obligations under the guarantees and to indemnify
and save PMIBV harmless in respect of any and all claims related to the guaranteed obligations. On February 3, 2023, PMI learned
through a public announcement that a decision has been taken to cease all operations at Medicago and to proceed with an orderly wind
up of Medicago’s business and operations.
PMI has determined that these guarantees did not have a material impact on its consolidated financial statements for the year ended
December 31, 2022.
Note 19.
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, 2022 and 2021. Under the non-servicing arrangements, PMI does not provide any administrative support
or servicing after the trade receivables have been sold to the unaffiliated financial institutions.
Cumulative trade receivables sold, including excise taxes, for the years ended December 31, 2022 and 2021, were $11.9 billion and
$11.8 billion, respectively. PMI’s operating cash flows were positively impacted by the amount of the trade receivables sold and
derecognized from the consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions. The trade
receivables sold that remained outstanding under these arrangements as of December 31, 2022, 2021 and 2020, were $1.0 billion, $0.9
billion and $1.2 billion, respectively. The net proceeds received are included in cash provided by operating activities in the
consolidated statements of cash flows. 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, 2022, 2021 and 2020 the loss on sale of trade receivables was $26 million,
$9 million and $9 million, respectively.
Note 20.
Asset Impairment and Exit Costs:
For the year ended December 31, 2022, PMI did not record any charges for asset impairment and exit costs related to restructuring
activities. As previously discussed, PMI recorded a pre-tax impairment charge on intangibles of $112 million for the year ended
December 31, 2022 within the Wellness and Healthcare segment. For further details, see Note 5. Goodwill and Other Intangible
Assets, net. For the years ended December 31, 2021 and 2020, PMI recorded total pre-tax asset impairment and exit costs related to
130
restructuring activities of $216 million and $149 million, respectively. These pre-tax asset impairment and exit costs were included in
marketing, administration and research costs on the consolidated statements of earnings.
South Korea
In 2021, PM Korea implemented a new business operating model, which required the restructuring of its current distribution
agreements. As a result, PMI recorded exit costs of $57 million in the year ended December 31, 2021, related to contract terminations
and restructuring with certain distributors.
Organizational Design Optimization
As part of PMI’s transformation to a smoke-free future, PMI sought to optimize its organizational design, which included the
elimination, relocation and outsourcing of certain operations center and centralized activities. In January 2020, PMI commenced a
multi-phase restructuring project in Switzerland. PMI initiated the employee consultation procedures, as required under Swiss law, for
the impacted employees. The consultation procedures for the first two phases were completed in 2020 with the final phases initiated
and completed in 2021. Additionally, since the commencement of this multi-phase restructuring project in 2020, PMI launched a
voluntary separation program in Switzerland for certain eligible employees and announced the outsourcing of certain activities in
Argentina, Indonesia, Poland and the United States. This multi-phase restructuring project was completed in the fourth quarter of
2021.
For the years ended December 31, 2021 and 2020, PMI recorded pre-tax charges of $159 million and $149 million, respectively,
related to the organizational design optimization. Since inception of this multi-phase restructuring project in January 2020 through
December 31, 2021, approximately 1,020 positions in total were impacted, resulting in cumulative pre-tax charges of $308 million
related to the organizational design optimization program. Of this cumulative pre-tax amount, $300 million related to separation
program charges and $8 million related to asset impairment charges.
Asset Impairment and Exit Costs by Segment
During 2021 and 2020, PMI recorded the following pre-tax asset impairment and exit costs by segment related to restructuring
activities:
(in millions)
Separation programs: (1)
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Total separation programs
Contract termination charges:
East Asia & Australia
Total contract termination charges
Asset impairment charges (1)
European Union
Eastern Europe
Middle East & Africa
South & Southeast Asia
East Asia & Australia
Americas
Total asset impairment charges
Asset impairment and exit costs
$
2021
2020
$
68
14
17
21
31
8
159
57
57
—
—
—
—
—
—
—
216
53
14
18
22
25
9
141
—
—
4
1
1
1
1
—
8
149
(1) Organizational design optimization pre-tax charges in 2021 and 2020 were allocated across all geographical segments.
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Movement in Exit Cost Liabilities
The movement in exit cost liabilities for the year ended December 31, 2022 was as follows:
(in millions)
Liability balance, January 1, 2022
Charges, net
Cash spent
Currency/other
Liability balance, December 31, 2022
$
$
142
—
(93)
(9)
40
Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2023.
Note 21.
Leases:
PMI has operating and finance leases that are principally for real estate (office space, warehouses and retail store space), machinery
and equipment, and vehicles. Lease terms range from 1 year to 71 years, some of which include options to renew, which are
reasonably certain to be renewed. Lease terms may also include options to terminate the lease. The exercise of a lease renewal or
termination option is at PMI’s discretion.
PMI’s operating and finance leases at December 31, 2022 and 2021, were as follows:
(in millions)
Assets:
Machinery and equipment
Other assets
Total lease assets
Liabilities:
Current
Current portion of long-term debt
Accrued liabilities - Other
Noncurrent
Long-term debt
Income taxes and other liabilities
Total lease liabilities
At December 31,
2022
2021
Operating Leases Finance Leases Operating Leases Finance Leases
$
$
$
$
— $
594
594 $
— $
178
—
436
614 $
123 $
—
123 $
34 $
—
20
—
54 $
— $
526
526 $
— $
192
—
344
536 $
108
—
108
48
—
23
—
71
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The components of PMI’s lease cost were as follows for the years ended December 31, 2022, 2021 and 2020:
(in millions)
Operating lease cost
Finance lease cost:
Amortization of right-of-use assets
Interest on lease liabilities
Short-term lease cost
Variable lease cost
Total lease cost
For the Years Ended December 31,
2022
2021
2020
$
248 $
259 $
83
1
59
23
54
1
55
25
$
414 $
394 $
237
31
1
49
31
349
Maturity of PMI’s lease liabilities, on an undiscounted basis, as of December 31, 2022, were as follows:
(in millions)
2023
2024
2025
2026
2027
Thereafter
Total lease payments
Less: Interest
Present value of lease liabilities
Operating Leases
Finance Leases
$
$
202 $
138
97
60
39
176
712
98
614 $
34
14
4
1
1
1
55
1
54
Other information related to PMI’s leases was as follows for the year ended December 31, 2022, 2021 and 2020:
(in millions)
Cash paid for amounts included in the measurement of
lease liabilities in operating cash flows (1)
Cash paid for amounts included in the measurement of
lease liabilities in financing cash flows
Leased assets obtained in exchange for new lease
liabilities
Weighted-average remaining lease term (years)
Weighted-average discount rate(2) (3)
2022
December 31,
2021
2020
Operating
Leases
Finance
Leases
Operating
Leases
Finance
Leases
Operating
Leases
Finance
Leases
$
243
$ —
$
259
$ —
$
238
$ —
$ —
$
255
$
$
76
$ —
100
$
64
$
$
26
$ —
89
$
149
$
$
10.3
3.4 %
2.1
4.4 %
8.3
3.6 %
1.7
5.3 %
10.1
4.3 %
19
32
1.6
6.7 %
(1) Cash paid included in the operating cash flows of finance leases is not material.
(2) PMI’s weighted-average discount rate for operating leases is based on its estimated pre-tax cost of debt adjusted for country-specific
risk.
(3) PMI’s weighted-average discount rate for finance leases, excluding embedded leases, is based on its estimated pre-tax cost of debt
adjusted for country-specific risk and where applicable the interest rate explicit to lease contracts.
133
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of
Philip Morris International Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Philip Morris International Inc. and its subsidiaries (the
“Company”) as of December 31, 2022 and 2021, and the related consolidated statements of earnings, comprehensive earnings,
stockholders’ (deficit) equity and cash flows for each of the three years in the period ended December 31, 2022, including the related
notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over
financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued
by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the
period ended December 31, 2022 in conformity with accounting principles generally accepted in the United States of America. Also in
our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31,
2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over
financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying Report of Management on Internal Control Over Financial Reporting. Our responsibility is to express opinions on the
Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We
are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to
error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the
consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such
procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial
statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well
as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting
included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and
testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable
basis for our opinions.
As described in the Report of Management on Internal Control Over Financial Reporting, management has excluded Swedish Match
AB from its assessment of internal control over financial reporting as of December 31, 2022 because it was acquired by the Company
in a purchase business combination during 2022. We have also excluded Swedish Match AB from our audit of internal control over
financial reporting. Swedish Match AB is a majority-owned subsidiary whose total assets and total third-party net revenues excluded
from management’s assessment and our audit of internal control over financial reporting represent 4% and 1%, respectively, of the
related consolidated financial statement amounts as of and for the year ended December 31, 2022.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the
134
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial
statements that were communicated or required to be communicated to the audit committee and that (i) relate to accounts or
disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or
complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial
statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the
critical audit matters or on the accounts or disclosures to which they relate.
Tobacco-Related Litigation for Smoking and Health Class Actions and Health Care Cost Recovery Actions
As described in Note 18 to the consolidated financial statements, the Company has 9 smoking and health class actions and 17 health
care cost recovery actions pending. The Company records provisions in the consolidated financial statements for pending litigation
when management determines that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated.
Except as stated otherwise in Note 18, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing
the information available, (i) management has not concluded that it is probable that a loss has been incurred in any of the pending
smoking and health class actions and health care cost recovery cases; (ii) management is unable to estimate the possible loss or range
of loss for any of the pending smoking and health class actions and health care cost recovery cases; and (iii) accordingly, no estimated
loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any.
The principal considerations for our determination that performing procedures relating to tobacco-related litigation for smoking and
health class actions and health care cost recovery actions is a critical audit matter are that there was significant judgment by
management when determining the probability of a loss being incurred and an estimate of the amount or range of the potential loss for
each case, which in turn led to a high degree of auditor subjectivity, judgment and effort in evaluating management’s assessment
related to the loss contingencies associated with smoking and health class actions and health care cost recovery actions related claims.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s
evaluation of smoking and health class actions and health care cost recovery actions, including controls over determining the
probability and range of loss as well as controls over financial statement disclosures. These procedures also included, among others,
obtaining and evaluating the letters of audit inquiry with external and internal legal counsel, evaluating the reasonableness of
management’s assessment regarding whether an unfavorable outcome is reasonably possible or probable and reasonably estimable,
and evaluating the sufficiency of the Company’s smoking and health class actions and health care cost recovery actions contingencies
disclosures.
Preliminary Valuation of Trademarks and Customer Relationships - Acquisition of Swedish Match AB
As described in Note 3 to the consolidated financial statements, the Company acquired a controlling interest in Swedish Match AB for
consideration of $14.5 billion in 2022, which resulted in $4.5 billion of intangible assets preliminarily being recorded, of which $4.1
billion relate to trademarks and customer relationships. Management applied significant judgment in estimating the preliminary fair
value of intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the timing and
amounts of revenue growth rates, royalty rates, and discount rates for trademarks, and profit margins, customer attrition rates, and
discount rates for customer relationships.
The principal considerations for our determination that performing procedures relating to the preliminary valuation of trademarks and
customer relationships acquired in the acquisition of Swedish Match AB is a critical audit matter are the significant judgment by
management when developing the preliminary fair value estimate of the trademarks and customer relationships acquired, which in turn
led to a high degree of auditor judgment, and subjectivity in performing procedures and evaluating management’s significant
assumptions of revenue growth rates, royalty rates, and discount rates for trademarks, and profit margins, customer attrition rates, and
135
discount rates for customer relationships. In addition, the audit effort involved the use of professionals with specialized skill and
knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion
on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the acquisition
accounting, including controls over management’s preliminary valuation of the trademarks and customer relationships acquired and
controls over the development of significant assumptions related to revenue growth rates, profit margins, customer attrition rates,
royalty rates, and discount rates. These procedures also included, among others, testing management’s process for estimating the
preliminary fair value of trademarks and customer relationships. Testing management’s process included evaluating the
appropriateness of the valuation methods, testing the completeness and accuracy of data provided by management, and evaluating the
reasonableness of significant assumptions related to revenue growth rates, profit margins, customer attrition rates, royalty rates, and
discount rates. Evaluating the reasonableness of the revenue growth rates and profit margins involved considering the past
performance of the acquired business, as well as economic and industry forecasts. Professionals with specialized skill and knowledge
were used to assist in the evaluation of the Company’s valuation methods, the appropriateness of the discounted cash flow model, and
the reasonableness of the customer attrition rate, royalty rate, and discount rate assumptions.
/S/ PRICEWATERHOUSECOOPERS SA
PricewaterhouseCoopers SA
Lausanne, Switzerland
February 10, 2023
We have served as the Company’s auditor since 2008.
136
Report of Management on Internal Control Over Financial Reporting
Management of Philip Morris International Inc. (“PMI” or "we") is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended.
PMI’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally
accepted in the United States of America. Internal control over financial reporting includes those written policies and procedures that:
•
•
•
•
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions
of the assets of PMI;
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with accounting principles generally accepted in the United States of America;
provide reasonable assurance that receipts and expenditures of PMI are being made only in accordance with the authorization
of management and directors of PMI; and
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of
assets that could have a material effect on the consolidated financial statements.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices and actions taken
to correct deficiencies as identified.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In November 2022 we acquired Swedish Match. We have excluded the Swedish Match acquisition from our assessment of the
effectiveness of internal control over financial reporting. Total assets excluding goodwill and intangible assets (which are included in
our assessment) represent 4% of consolidated assets as of December 31, 2022. Total third-party net revenues represent 1% of
consolidated net revenues for the year ended December 31, 2022.
Management assessed the effectiveness of PMI’s internal control over financial reporting as of December 31, 2022. Management
based this assessment on criteria for effective internal control over financial reporting described in Internal Control — Integrated
Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management’s assessment
included an evaluation of the design of PMI’s internal control over financial reporting and testing of the operational effectiveness of its
internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of our Board of
Directors.
Based on this assessment, management determined that, as of December 31, 2022, PMI maintained effective internal control over
financial reporting.
PricewaterhouseCoopers SA, an independent registered public accounting firm, who audited and reported on the consolidated
financial statements of PMI included in this report, has audited the effectiveness of PMI’s internal control over financial reporting as
of December 31, 2022, as stated in their report herein.
February 10, 2023
137
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.
In connection with the acquisition of Swedish Match, management is in the process of analyzing, evaluating and where necessary,
implementing changes in controls and procedures. This may result in additions or changes to PMI’s internal control over financial
reporting. The Swedish Match acquisition has been excluded from the Report of Management on Internal Control over Financial
Reporting as of December 31, 2022.
The Report of Management on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting
Firm are included in Item 8.
Item 9B. Other Information.
Not applicable.
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections.
Not applicable.
PART III
Except for the information relating to the executive officers set forth in Item 10 and the information relating to equity compensation
plans set forth in Item 12, the information called for by Items 10-14 is hereby incorporated by reference to PMI’s definitive proxy
statement for use in connection with its annual meeting of stockholders to be held on May 3, 2023, that will be filed with the SEC on
or about March 23, 2023 (the “proxy statement”), and, except as indicated therein, made a part hereof.
Item 10. Directors, Executive Officers and Corporate Governance.
Information About Our Executive Officers as of February 10, 2023:
Name
Jacek Olczak
Massimo Andolina
Emmanuel Babeau
Werner Barth
Lars Dahlgren
Frederic de Wilde
Office
Age
Chief Executive Officer
President, Europe Region
Chief Financial Officer
President, Combustibles Category & Global Combustibles Marketing
President, Smoke-Free Oral Products & Chief Executive Officer Swedish Match
President, South and Southeast Asia, Commonwealth of Independent States,
Middle East and Africa Region
Reginaldo Dobrowolski
Vice President and Controller
Suzanne Rich Folsom
Stacey Kennedy
Paul Riley
Stefano Volpetti
Senior Vice President and General Counsel
President, Americas Region & CEO of PMI's U.S. Business
President, East Asia, Australia, and PMI Duty Free Region
President, Smoke-Free Products Category & Chief Consumer Officer
58
54
55
58
52
55
48
61
50
57
51
138
Jacek Olczak – Age 58
Mr. Olczak was appointed as our Chief Executive Officer in May 2021. From January 2018 until May 2021, Mr. Olczak has served as
our Chief Operating Officer, and from August 2012 until December 31, 2017, he served as our Chief Financial Officer. He joined
PMI’s Polish affiliate in 1993 and progressed through various roles in finance and general management positions across Europe,
including as Managing Director of PMI’s markets in Poland and Germany and as President of the European Union Region, before
being appointed Chief Financial Officer. Prior to joining PMI, Mr. Olczak worked for BDO, an international network of public
accounting, tax, consulting and business advisory firms.
Massimo Andolina – Age 54
Mr. Andolina was appointed as our President, Europe Region in January 2023, prior to which he served as our Senior Vice President,
Operations since January 2018. He joined PMI in 2008 as Director, Operations Planning, and has held several various roles at PMI,
including Vice President, Operations of Latin America & Canada Region from December 2010 to July 2013; Vice President, EU
Operations, from August 2013 to June 2016; and Vice President, PMI Transformation from July 2016 to December 2017. Prior to
joining PMI, Mr. Andolina held a variety of international positions in strategic marketing and general management for Tetra Pak
International and in operations for R.J. Reynolds International.
Emmanuel Babeau – Age 55
Mr. Babeau was appointed as our Chief Financial Officer in May 2020. Prior to joining PMI in May 2020, Mr. Babeau served as the
Deputy Chief Executive Officer of Schneider Electric, an energy and automation digital solutions company. In this position, he was in
charge of Finance and Legal Affairs. Mr. Babeau joined Schneider Electric in 2009 as Executive Vice President Finance and a
member of the Management Board. Mr. Babeau also served on the board of Sanofi S.A., a French multinational healthcare company,
from 2018 to 2020. Mr. Babeau started his career in 1990 at Arthur Andersen, and from 1993 to 2009, he progressed through various
positions at Pernod Ricard, a beverage company, the latest being Chief Financial Officer and Group Deputy Managing Director. Mr.
Babeau also served as a non-executive director at Sodexo, a French food services and facilities management company, from January
2016 until December 2021. He currently sits on the board of Davide Campari-Milano N.V.
Werner Barth – Age 58
Mr. Barth was appointed as our President Combustibles Category & Global Combustibles Marketing in November 2021. Mr. Barth
joined PMI in 1990 as Marketing Trainee at Philip Morris Germany and throughout his career he progressed through various roles at
PMI in marketing, product management, brand supervision and general management. Prior to his current position, from 2015, Mr.
Barth held the role of Senior Vice President, Marketing & Sales, and from 2018, he held the role of Senior Vice President,
Commercial.
Lars Dahlgren – Age 52
Mr. Dahlgren was appointed as our President Smoke Free Oral Products and CEO Swedish Match in January 2023. Prior to PMI’s
acquisition of Swedish Match, he served as President and Chief Executive Officer of Swedish Match since June 2008, and as its Chief
Financial Officer and Senior Vice President from July 2004 until June 2008. Prior to that, from April 2004 to July 2004, he was
Acting Chief Financial Officer and Vice President of Finance at Swedish Match. Mr. Dahlgren joined Swedish Match in 1996 and has
been a member of its Group Management Team since 2004.
Frederic de Wilde – Age 55
Mr. de Wilde was appointed as our President, South and Southeast Asia, Commonwealth of Independent States, Middle East and
Africa Regions in January 2023, prior to which he served as President, European Union Region from July 2015. From July 2011 until
July 2015, Mr. de Wilde held the role of Senior Vice President, Marketing & Sales. Mr. de Wilde joined PMI in 1992 as Brand
Manager L&M at Philip Morris Belgium, and throughout his career, he progressed through various roles at PMI in marketing, sales
and general management.
Reginaldo Dobrowolski – Age 48
Mr. Dobrowolski was appointed as our Vice President and Controller in August 2021. From May 2019 until August 2021, Mr.
Dobrowolski was our Vice President, Corporate Financial Planning, Data & Reporting. Prior to that, Mr. Dobrowolski held various
roles in our Finance department, including Director Corporate Financial Planning & Reporting from October 2014 until May 2019.
139
Suzanne Rich Folsom - Age 61
Ms. Folsom was appointed as our Senior Vice President and General Counsel in July 2020. She is responsible for all legal, compliance
and governance matters at PMI. From March 2019 until July 2020, Ms. Folsom was a Partner and Co-Chair of the Investigations,
Compliance and Strategic Response Group at Manatt, Phelps & Phillips, LLP, a U.S. law firm. From 2014 to 2018, Ms. Folsom served
as the General Counsel, Chief Compliance Officer and Senior Vice President, Government Affairs and Global Public Policy at United
States Steel Corporation, an American integrated steel producer. Ms. Folsom is an accomplished C-suite executive and attorney with
deep experience advising management and boards of directors.
Stacey Kennedy – Age 50
Ms. Kennedy was appointed as our President, Americas Region & CEO of PMI's U.S. Business in January 2023. Previously, she
served as our President, South and Southeast Asia Region from January 2018. From 2015 until 2018, Ms. Kennedy served as
Managing Director for Germany, Austria, Croatia, and Slovenia. Ms. Kennedy began her career with Philip Morris USA in 1995 as a
Territory Sales Manager. Throughout her career, she held a number of positions of increasing responsibility in commercial and general
management.
Paul Riley – Age 57
Mr. Riley was appointed as our President, East Asia, Australia, and PMI Duty Free Region in January 2023. Previously, he served as
our President, East Asia and Australia Region from January 2018. From 2015 until 2018, Mr. Riley served as President of Philip
Morris Japan. Mr. Riley joined Philip Morris Australia in 1988. Over the following two decades, he held a number of positions in
Australia, Hong Kong, and Japan, before being named Managing Director, Serbia & Montenegro in 2010. Mr. Riley returned to the
Asia Region in 2013, when he became President of Philip Morris Fortune Tobacco Corporation in the Philippines.
Stefano Volpetti – Age 51
Mr. Volpetti was appointed as our President Smoke-Free Products Category & Chief Consumer Officer in November 2021. Mr.
Volpetti joined PMI in June 2019 as Chief Consumer Officer. From February 2016 until May 2019, Mr. Volpetti served as the Vice
President & Brand Franchise Leader of a multi-functional, global business unit at Procter & Gamble, a multinational consumer goods
company. Mr. Volpetti spent 22 years at Procter & Gamble, progressing through various roles with increasing responsibility locally in
Italy and Mexico, and on a regional level for the European market. Mr. Volpetti also served as Chief Marketing Officer at Luxottica
Group S.p.A, an Italian eyewear conglomerate, in 2015.
Codes of Ethics and Corporate Governance
We have adopted a code of ethics, which we call the Guidebook for Success. The Guidebook for Success complies with requirements
set forth in Item 406 of Regulation S-K, applies to all of our employees, including our principal executive officer, principal financial
officer, principal accounting officer or controller, and persons performing similar functions. We have also adopted a code of business
conduct and ethics that applies to the members of our Board of Directors. These documents are available free of charge on our website
at www.pmi.com.
In addition, we have adopted corporate governance guidelines and charters for our Audit, Finance, Compensation and Leadership
Development, Product Innovation and Regulatory Affairs, Consumer Relationships and Regulation, and Nominating and Corporate
Governance committees of the Board of Directors. All of these documents are available free of charge on our website at
www.pmi.com. Any waiver granted by Philip Morris International Inc. to its principal executive officer, principal financial officer or
controller, or any person performing similar functions under our code of ethics, or certain amendments to the code of ethics, will be
disclosed on our website at www.pmi.com.
The information on our website is not, and shall not be deemed to be, a part of this Report or incorporated into any other filings made
with the SEC.
Also refer to Board Operations and Governance—Committees of the Board, Election of Directors—Process for Nominating Directors
and Election of Directors—Director Nominees and Stock Ownership Information sections of the proxy statement.
Item 11.
Executive Compensation.
Refer to Compensation Discussion and Analysis, Compensation of Directors, and Pay Ratio sections of the proxy statement.
140
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
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, 2022, were as follows:
Number of Securities
to be Issued upon
Exercise of Outstanding
Options and Vesting of
RSUs and PSUs
(a)
Weighted Average
Exercise Price of
Outstanding Options
(b)
Number of Securities
Remaining Available for
Future Issuance Under
Equity Compensation Plans
(excluding Securities
reflected in column (a))
(c)
7,533,850 1 $
—
25,750,766
Equity compensation plans
approved by stockholders
1 Represents 4,519,470 shares of common stock that may be issued upon vesting of the restricted share units and 3,014,380 shares that
may be issued upon vesting of the performance share units if maximum performance targets are achieved for each performance cycle.
PMI has not granted options since the spin-off from Altria on March 28, 2008.
Also refer to Stock Ownership Information—Ownership of Equity Securities section of the proxy statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Refer to Related Person Transactions and Code of Conduct and Election of Directors—Independence of Nominees sections of the
proxy statement.
Item 14.
Principal Accounting Fees and Services.
Refer to Audit Committee Matters section of the proxy statement.
141
PART IV
Item 15.
Exhibits and Financial Statement Schedules.
(a) Index to Consolidated Financial Statements and Schedules
Consolidated Statements of Earnings for the years ended December 31, 2022, 2021 and 2020
Consolidated Statements of Comprehensive Earnings for the years ended December 31, 2022,
2021 and 2020
Consolidated Balance Sheets at December 31, 2022 and 2021
Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021
and 2020
Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended
December 31, 2022, 2021 and 2020
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID 1358)
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
70
71
72 - 73
74 - 75
76
77 - 133
134 -136
137
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).
2.2
— Share Sale and Purchase Agreement by and among Claudio Topco B.V., Bagger-Sorenson & Co.
A/S and PMI Global Services, Inc., dated June 30, 2021 (portions of this Exhibit 2.1 have been
omitted) (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed July 7,
2021).
3.1
3.2
4.1
4.2
4.3
4.4
10.1
— 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., effective as of September 13,
2022 (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed Sepember
19, 2022).
— 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).
— Description of Common Stock.x
— Description of Debt Securities.x
— 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, 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).
142
10.4
__
10.5
__
10.6
__
10.7
__
Extension Agreement, effective February 7, 2017, to the Credit Agreement, dated as of February
12, 2013, among Philip Morris International Inc., the lenders party thereto, 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 30, 2017).
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).
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).
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).
10.8
— 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).
10.9
10.10
— 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 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).
10.11
— Extension Agreement, effective as of October 1, 2017, to the Credit Agreement, dated as of
October 1, 2015, among Philip Morris International Inc., the lenders party thereto and 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 29, 2017).
10.12
— Extension Agreement, effective as of February 6, 2018, to the Credit Agreement, dated as of
February 12, 2013, among Philip Morris International Inc., the lenders named therein, 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 29,
2018).
10.13
— Extension Agreement, effective as of February 5, 2019, to the Credit Agreement dated as of
February 12, 2013, among Philip Morris International Inc., the lenders named therein, 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 29,
2019).
10.14
— Amendment and Extension Agreement, effective February 4, 2020, to the Credit Agreement, dated
as of February 12, 2013, among Philip Morris International Inc., each lender 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 February
3, 2020).
10.15
— Credit Agreement, dated as of February 10, 2020, among Philip Morris International Inc., the
lenders named therein, Citibank Europe PLC, UK Branch, 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 February 11, 2020).
10.16
— Amendment and Extension Agreement, effective February 2, 2021, to the Credit Agreement, dated
as of February 12, 2013, among PMI, the lenders named therein and Citibank Europe PLC, UK
Branch (legal successor to Citibank International Limited), as administrative agent (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 2, 2021).
143
10.17
— Amendment and Extension Agreement, effective February 10, 2021, to the Credit Agreement,
dated as of February 10, 2020, among PMI, the lenders named therein, Citibank Europe PLC, UK
Branch, as facility agent, and Citibank, N.A., as swingline agent (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed February 2, 2021).
10.18
— Credit Agreement, dated as of September 29, 2021, among PMI, the lenders named therein,
Citibank Europe PLC, UK Branch, as facility agent, and Citibank, N.A., as swingline agent
(incorporated by reference to Exhibit 10.1to the Current Report on Form 8-K filed September 30,
2021).
10.19
— Amendment and Extension Agreement, effective February 1, 2022, to the Credit Agreement, dated
as of February 12, 2013, among PMI, the lenders named therein and Citibank Europe PLC, UK
Branch (legal successor to Citibank International Limited), as administrative agent (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed February 1, 2022).
10.20
— Amendment and Extension Agreement, effective February 10, 2022, to the Credit Agreement,
dated as of February 10, 2020, among PMI, the lenders named therein, Citibank Europe PLC, UK
Branch, as facility agent, and Citibank, N.A., as swingline agent (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed February 1, 2022).
10.21
— Credit Agreement, dated May 11, 2022, among PMI, the lenders named therein and Citibank
Europe PLC, UK Branch, as facility agent (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed May 11, 2022).
10.22
— Credit Agreement relating to the Term Loan Facility, among PMI, the lenders named therein and
Citibank Europe PLC, UK Branch, as facility agent, dated June 23, 2022 (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed June 28, 2022).
10.23
— Amendment to the Bridge Credit Agreement, dated September 2, 2022 (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed September 2, 2022).
10.24
— Amendment to the Term Loan Credit Agreement, dated September 2, 2022 (incorporated by
reference to Exhibit 10.2 to the Current Report on Form 8-K filed September 2, 2022).
10.25
— Amendment and Extension Agreement, dated as of September 20, 2022, to the Credit Agreement,
dated as of September 29, 2021, among PMI, the lenders named therein, Citibank Europe PLC, UK
Branch, 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 September 23, 2022).
10.26
— Purchase Agreement with Altria Client Services LLC, effective October 19, 2022 (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed October 20, 2022). **
10.27
— Philip Morris International Inc. 2017 Performance Incentive Plan, effective May 3, 2017
(incorporated by reference to Exhibit B to the Definitive Proxy Statement filed on March 23,
2017).*
10.28
10.29
10.30
— Pension Fund of Philip Morris in Switzerland (IC), effective January 1, 2022.x*
— Summary of Supplemental Pension Plan of Philip Morris in Switzerland, effective December 15,
2022.x*
— Philip Morris International Inc. Amended and Restated Automobile Policy, dated as of October 1,
2019 (incorporated by reference to Exhibit 10.16 to the Annual Report on Form 10-K for the year
ended December 31, 2020).*
10.31
— Philip Morris International Benefit Equalization Plan, amended and restated (incorporated by
reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended March 31,
2019).*
10.32
— 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).*
10.33
— 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).*
10.34
— Philip Morris International Inc. 2017 Stock Compensation Plan for Non-Employee Directors (as
amended and restated as of January 1, 2018) (incorporated by reference to Exhibit 10.26 to the
Annual Report on Form 10-K for the year ended December 31, 2017).*
10.35
— Philip Morris International Inc. 2008 Deferred Fee Plan for Non-Employee Directors (incorporated
by reference to Exhibit 10.24 the Annual Report on Form 10-K for the year ended December 31,
2020).*
144
10.36
— 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, 2020). 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 10.36.*
10.37
— Supplemental Letter to the Offer Letter with Drago Azinovic, dated December 4, 2008
(incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the Quarter
ended March 31, 2022)*
10.38
10.39
— Employment Agreement with Drago Azinovic, effective August 1, 2012. (incorporated by reference
to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the Quarter ended March 31, 2022)*
— Supplemental Letter to the Employment Agreement with Drago Azinovic, effective April 1, 2017
(incorporated by reference to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the Quarter
ended March 31, 2022)*
10.40
— Supplemental Letter to the Employment Agreement with Drago Azinovic, effective January 1, 2018
(incorporated by reference to Exhibit 10.6 to the Quarterly Report on Form 10-Q for the Quarter
ended March 31, 2022)*
10.41
10.42
10.43
— Employment Agreement with Jorge Insuasty, effective January 1, 2021 (incorporated by reference
to Exhibit 10.7 to the Quarterly Report on Form 10-Q for the Quarter ended March 31, 2022)*
— Supplemental letter to the Employment Agreement with Jorge Insuasty, effective April 1, 2022
(incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the Quarter
ended June 30, 2022)*
— Supplemental Letter to Employment Agreement with Marc S. Firestone (incorporated by reference
to Exhibit 10.5 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2017). 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 10.43.*
10.44
— Employment Agreement with Martin G. King, effective June 1, 2020 (incorporated by reference to
10.45
Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2020).*
— Restricted Stock Unit Agreement (2021 Grant) (Martin G. King) (incorporated by reference to
Exhibit 10.4 to the Current Report on Form 8-K filed February 9, 2021).*
10.46
— Performance Stock Unit Agreement (2021 Grant) (Martin G. King) (incorporated by reference to
Exhibit 10.6 to the Current Report on Form 8-K filed February 9, 2021).*
10.47
— Separation Agreement and Release with Martin G. King, dated August 16, 2021 (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed August 20, 2021).*
10.48
— Early Retirement Agreement and Release with Marc S. Firestone, effective November 3, 2020
(incorporated by reference to Exhibit 10.28 to the Annual Report on Form 10-K for the year ended
December 31, 2020).*
10.49
— Supplemental Letter to the Employment Agreement (as amended) with Jacek Olczak (incorporated
by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the quarter ended June 30,
2019. 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
10.49.*
10.50
— Supplemental Letter to the Employment Agreement (as amended) with Miroslaw Zielinski
(incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2019). 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 10.50.*
10.51
— Early Retirement and Release Agreement with Miroslaw Zielinski, effective April 30, 2020
(incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed May 1, 2020).*
10.52
— Employment Agreement with Emmanuel Babeau, effective as of May 1, 2020 (incorporated by
reference to Exhibit 10.1 to the Current Report on Form 8-K filed March 2, 2020).*
10.53
— Restricted Stock Unit Agreement (2021 Grant) (Emmanuel Babeau) (incorporated by reference to
Exhibit 10.3 to the Current Report on Form 8-K filed February 9, 2021).*
10.54
— Performance Stock Unit Agreement (2021 Grant) (Emmanuel Babeau) (incorporated by reference
to Exhibit 10.5 to the Current Report on Form 8-K filed February 9, 2021).*
10.55
10.56
— Restricted Stock Unit Agreement (2022 Grant) (Emmanuel Babeau) (incorporated by reference to
Exhibit 10.11 to the Quarterly Report on Form 10-Q for the Quarter ended March 31, 2022)*
— Performance Stock Unit Agreement (2022 Grant) (Emmanuel Babeau) (incorporated by reference
to Exhibit 10.12 to the Quarterly Report on Form 10-Q for the Quarter ended March 31, 2022)*
145
10.57
— Employment Agreement with Frederic de Wilde, effective July 1, 2011 (incorporated by reference
to Exhibit 10.12 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2021).*
10.58
— Supplemental Letter to the Employment Agreement with Frederic de Wilde, effective July 1, 2015
(incorporated by reference to Exhibit 10.13 to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 2021).*
10.59
— Off-Cycle Restricted Stock Unit Agreement (2021 Grant) (Frederic de Wilde) (incorporated by
reference to Exhibit 10.14 to the Quarterly Report on Form 10-Q for the quarter ended March 31,
2021).*
10.60
10.61
10.62
— Employment Agreement with Stefano Volpetti, effective June 1, 2019 (incorporated by reference to
Exhibit 10.10 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2021).*
— Supplemental Letter to the Employment Agreement with Stefano Volpetti, effective June 1, 2019
(incorporated by reference to Exhibit 10.11 to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 2021).*
— Supplemental Letter to the Employment Agreement with Stefano Volpetti, effective November 1,
2021 (incorporated by reference to Exhibit 10.46 to the Annual Report on Form 10-K for the year
ended December 31, 2021).*
10.63
— Restricted Stock Unit Agreement (Vesting in Installments), between Philip Morris International Inc.
and Emmanuel Babeau, effective as of May 1, 2020 (incorporated by reference to Exhibit 10.33 to
the Annual Report on Form 10-K for the year ended December 31, 2020.*
10.64
— Supplemental Letter to the Employment Agreement with André Calantzopoulos, effective May 5,
2021 (incorporated by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q for the
quarter ended June 30, 2021). *
10.65
— Supplemental Letter to the Employment Agreement with Jacek Olczak, effective May 5, 2021
(incorporated by reference to Exhibit 10.2 to the Quarterly Report on Form 10-Q for the quarter
ended June 30, 2021).*
10.66
— Supplemental Letter to the Employment Agreement with Jacek Olczak, effective March 1, 2022
(incorporated by reference to Exhibit 10.8 to the Quarterly Report on Form 10-Q for the quarter
ended March 31, 2022).*
10.67
— Restricted Stock Unit Agreement, between Philip Morris International Inc. and Emmanuel Babeau,
effective as of May 1, 2020 (incorporated by reference to Exhibit 10.34 to the Annual Report on
Form 10-K for the year ended December 31, 2020).*
10.68
— Performance Stock Unit Agreement, between Philip Morris International Inc. and Emmanuel
Babeau, effective as of May 1, 2020 (incorporated by reference to Exhibit 10.35 to the Annual
Report on Form 10-K for the year ended December 31, 2020).*
10.69
— Agreement with Louis C. Camilleri (incorporated by reference to Exhibit 10.25 to the Registration
Statement on Form 10 filed February 7, 2008).*
10.70
— 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).*
10.71
— 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).*
10.72
10.73
10.74
— 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).*
— 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).*
— Form of Restricted Stock Unit Agreement (2020 Grants) (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K filed February 11, 2020).*
10.75
— Form of Performance Share Unit Agreement (2020 Grants) (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed February 11, 2020).*
10.76
10.77
10.78
— Form of Restricted Stock Unit Agreement (2021 Grants) (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K filed February 9, 2021).*
— Form of Performance Share Unit Agreement (2021 Grants) (incorporated by reference to Exhibit
10.2 to the Current Report on Form 8-K filed February 9, 2021).*
— Form of Restricted Stock Unit Agreement (2023 Grant) (Emmanuel Babeau).x*
146
10.79
10.80
10.81
10.82
— Form of Performance Share Unit Agreement (2023 Grant) (Emmanuel Babeau).x*
— Extension of Non-Competition Obligations for the Early Retirement Agreement with Miroslaw
Zielinski, dated November 27, 2022. x*
— Supplemental Letter to the Employment Agreement with Frederic de Wilde, effective January 31,
2023.x*
— Philip Morris International Inc. 2022 Performance Incentive Plan, effective May 4, 2022
(incorporated by reference to Exhibit 10.1 to the Current Report filed on May 6, 2022).*
10.83
— Form of Restricted Stock Unit Agreement (2022 Grants) (incorporated by reference to Exhibit 10.9
to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022).*
10.84
— Form of Performance Share Unit Agreement (2022 Grants) (incorporated by reference to Exhibit
10.10 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2022).*
10.85
10.86
10.87
21
23
31.1
— Form of Restricted Stock Unit Agreement (2023 Grants).x*
— Form of Performance Share Unit Agreement (2023 Grants).x*
— Form of Restricted Stock Unit Agreement (by tranches) (2023 Grants).x*
— Subsidiaries of Philip Morris International Inc.x
— Consent of independent registered public accounting firm.x
— 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.x
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.x
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.x
— 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.x
101.INS — XBRL Instance Document - the instance document does not appear in the Interactive Data File because
its XBRL tags are embedded within the Inline XBRL document.
101.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.
104
— Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)
________
* Denotes management contract or compensatory plan or arrangement in which directors or executive officers are eligible to
participate.
** Schedules and certain portions of this exhibit have been omitted pursuant to Item 601(a)(5) and Item 601(b)(10)(iv) of Regulation
S-K.
x Denotes exhibits filed herewith.
The exhibits filed herewith do not include certain instruments with respect to long-term debt of PMI, inasmuch as the total amount of
debt authorized under any such instrument does not exceed 10 percent of the total assets of PMI on a consolidated basis. PMI agrees,
pursuant to Item 601(b)(4)(iii) of Regulation S-K, that it will furnish a copy of any such instrument to the SEC upon request.
147
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/ JACEK OLCZAK
(Jacek Olczak
Chief Executive Officer)
Date: February 10, 2023
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jacek
Olczak, Emmanuel Babeau, and Darlene Quashie Henry and each of them, acting individually, as his or her true and lawful attorney-
in-fact, each with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all amendments to this Annual Report on Form 10-K for the year ended December 31, 2022, and other
documents in connection herewith and therewith, and to file the same, with all exhibits thereto, with the Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection herewith and therewith and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and
agents, or any of them, or their or his substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the date indicated:
Signature
Title
Date
/s/ JACEK OLCZAK
(Jacek Olczak)
/s/ EMMANUEL BABEAU
(Emmanuel Babeau)
/s/ REGINALDO DOBROWOLSKI
(Reginaldo Dobrowolski)
/s/ ANDRÉ CALANTZOPOULOS
(André Calantzopoulos)
/s/ BONIN BOUGH
(Bonin Bough)
/s/ MICHEL COMBES
(Michel Combes)
/s/ DR. JUAN JOSÉ DABOUB
(Juan José Daboub)
Chief Executive Officer and Director
February 10, 2023
Chief Financial Officer
February 10, 2023
Vice President and Controller
February 10, 2023
Executive Chairman
February 10, 2023
February 10, 2023
February 10, 2023
February 10, 2023
Director
Director
Director
148
/s/ WERNER GEISSLER
(Werner Geissler)
/s/ LISA A. HOOK
(Lisa A. Hook)
/s/ JUN MAKIHARA
(Jun Makihara)
/s/ KALPANA MORPARIA
(Kalpana Morparia)
/s/ LUCIO A. NOTO
(Lucio A. Noto)
/s/ FREDERIK PAULSEN
(Frederik Paulsen)
/s/ ROBERT B. POLET
(Robert B. Polet)
/s/ DESSISLAVA TEMPERLEY
(Dessislava Temperley)
/s/ SHLOMO YANAI
(Shlomo Yanai)
February 10, 2023
February 10, 2023
February 10, 2023
February 10, 2023
February 10, 2023
February 10, 2023
February 10, 2023
February 10, 2023
February 10, 2023
Director
Director
Director
Director
Director
Director
Director
Director
Director
149
Reconciliation of Non-GAAP Measures
Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency
For the Years Ended December 31, (in millions) (Unaudited)
Net cash provided by operating activities(1)
Less: Currency
Net cash provided by operating activities, excluding currency
(1) Operating cash flow
Adjustments to Reported Diluted EPS
For the Years Ended December 31, (Unaudited)
Reported Diluted EPS
Adjustments:
Asset impairment and exit costs
Amortization and impairment of intangibles
Saudi Arabia customs assessments
Equity investee ownership dilution
Asset acquisition cost
Costs associated with Swedish Match AB offer
Swedish Match AB acquisition accounting related item
Tax benefit associated with Swedish Match AB financing
Charges related to the war in Ukraine
Fair value adjustment for equity security investments
Tax items
Adjusted Diluted EPS
Less: Net Earnings attributable to Russia and Ukraine
Adjusted Diluted EPS, excluding Russia and Ukraine
Less: Currency
2022
2021
%
Change
$
$
10,803
(1,524)
12,327
$
$
11,967
(9.7) %
11,967
3.0 %
2022
2021
% Change
$
5.81
$
5.83
(0.3) %
—
0.15
—
—
—
0.06
0.06
(0.13)
0.08
(0.02)
(0.03)
$
5.98
$
0.64
5.34
(0.85)
0.12
0.05
0.14
(0.04)
0.03
—
—
—
—
—
—
6.13
0.60
5.53
(2.4) %
(3.4) %
Adjusted Diluted EPS, excluding Russia, Ukraine and Currency
$
6.19
$
5.53
11.9 %
Net Revenues by Product Category & Adjustments of Net Revenues for the Impact of Currency and Acquisitions
For the Years Ended December 31, (in millions) (Unaudited)
2022
2021
% Change in Net Revenues
Net
Revenues
Less
Currency
Net
Revenues
excluding
Currency
Less
Acquisitions
Net
Revenues
excluding
Currency &
Acquisitions
Net
Revenues
Total
Excluding
Currency
Excluding
Currency &
Acquisitions
$ 21,572 $
(1,643) $ 23,214 $
70 $
23,144
Combustible Tobacco
$ 22,067
(2.2) %
5.2 %
4.9 %
10,190
(1,013)
11,204
445
10,759
Smoke-Free
9,338
9.1 %
20.0 %
15.2 %
$ 31,762 $
(2,656) $ 34,418 $
515 $
33,903
Total PMI
$ 31,405
1.1 %
9.6 %
8.0 %
Note: Sum of product categories might not foot to Total PMI due to roundings.
R-1
Adjustments to Net Revenues, Combustible Tobacco Net Revenues, Operating Income & Operating Income Margin
For the Years Ended December 31, (in millions) (Unaudited)
Net Revenues
Less: Saudi Arabia customs assessments
Adjusted Net Revenues
Less: Net Revenues attributable to Russia and Ukraine
Adjusted Net Revenues excl. Russia and Ukraine
Less: Currency
Less: Acquisitions
2022
2021
%
Change
$ 31,762
$ 31,405
1.1 %
—
(246)
31,762
31,651
0.4 %
2,591
2,471
29,171
29,180
— %
(2,779)
515
Adjusted Net Revenues, excl. Russia, Ukraine, Currency & Acquisitions
$ 31,435
$ 29,180
7.7 %
Combustible Tobacco Net Revenues
Less: Saudi Arabia customs assessments
Adjusted Combustible Tobacco Net Revenues
Less: Net Revenues attributable to Russia and Ukraine
$ 21,572
$ 22,067
(2.2) %
—
(246)
$ 21,572
$ 22,313
(3.3) %
1,542
1,399
Adjusted Combustible Tobacco Net Revenues, excl. Russia and Ukraine
20,029
20,914
(4.2) %
Less: Currency
(1,722)
Less: Acquisitions
Adjusted Combustible Tobacco Net Revenues, excl. Russia, Ukraine, Currency & Acquisitions
70
$ 21,682
$ 20,914
3.7 %
Operating Income
Less:
Asset impairment and exit costs
Amortization and impairment of intangibles
Charges related to the war in Ukraine
Saudi Arabia customs assessments
Asset acquisition costs
Swedish Match AB acquisition accounting related item
Costs associated with Swedish Match AB offer
Adjusted Operating Income
Less: Operating Income attributable to Russia and Ukraine
Adjusted Operating Income, excl. Russia and Ukraine
Less: Currency
Less: Acquisitions
$ 12,246
$ 12,975
(5.6) %
—
(271)
(151)
—
—
(125)
(115)
(216)
(96)
—
(246)
(51)
—
—
$ 12,908
$ 13,584
(5.0) %
1,170
1,068
11,738
12,516
(6.2) %
(1,652)
99
Adjusted Operating Income, excl. Russia, Ukraine, Currency & Acquisitions
$ 13,291
$ 12,516
6.2 %
Operating Income Margin
Adjusted Operating Income Margin
Less: Operating income margin attributable to Russia and Ukraine
Adjusted Operating Income Margin, excl. Russia and Ukraine
Less: Currency
Less: Acquisitions
Adjusted Operating Income Margin, excl. Russia, Ukraine, Currency & Acquisitions
38.6 % (1)
40.6 % (3)
41.3 % (2)
42.9 % (4)
(2.7)
(2.3)
0.4
40.2 %
(1.7)
(0.4)
42.3 %
42.9 % (0.6)
(1) 2022 Operating Income Margin was 38.6%, calculated as Operating Income of $12,246 divided by Net Revenues of $31,762
(2) 2021 Operating Income Margin was 41.3%, calculated as Operating Income of $12,975 divided by Net Revenues of $31,405
(3) 2022 Adjusted Operating Income Margin was 40.6%, calculated as Adjusted Operating Income of $12,908 divided by Adjusted Net Revenues of $31,762
(4) 2021 Adjusted Operating Income Margin was 42.9%, calculated as Adjusted Operating Income of $13,584 divided by Adjusted Net Revenues of $31,651
R-2
Key Terms, Definitions and Explanatory Notes
Financial
• All references to adjusted results reflect the exclusion of asset impairment, exit costs and other special items.
•
"Adjusted net revenues" exclude the impact related to Saudi Arabia customs assessments.
•
"Adjusted operating income margin" is calculated as adjusted operating income, divided by adjusted net revenues.
• Growth rates presented on an organic basis reflect adjusted results, excluding currency, acquisitions and disposals.
• Management reviews net revenues, operating income, operating income margin, operating cash flow and earnings per share, or
"EPS," on an adjusted basis, which may exclude the impact of currency and other items such as acquisitions, asset impairment and
exit costs, tax items and other special items. Additionally, starting in 2022 and on a comparative basis, for these measures other
than net revenues and operating cash flow, PMI will include adjustments to add back amortization expense on acquisition-related
intangible assets that are recorded as part of purchase accounting and contribute to PMI’s revenue generation, as well as
impairment of intangible assets, if any. Currency-neutral and organic growth rates reflect the way management views underlying
performance for these measures. PMI believes that such measures provide useful insight into underlying business trends and
results. Management reviews these measures because they exclude changes in currency exchange rates and other factors that
may distort underlying business trends, thereby improving the comparability of PMI’s business performance between reporting
periods. Furthermore, PMI uses several of these measures in its management compensation program to promote internal fairness
and a disciplined assessment of performance against company targets. PMI discloses these measures to enable investors to view
the business through the eyes of management.
• Non-GAAP measures used in this report should neither be considered in isolation nor as a substitute for the financial measures
prepared in accordance with U.S. GAAP. For a reconciliation of non-GAAP measures to the most directly comparable U.S. GAAP
measures, see the relevant schedules provided with this report on pages R-1 and R-2.
• Given the impact of the war in Ukraine on the company’s operations in Russia and Ukraine in 2022, PMI is also providing figures
and comparisons excluding the company’s operations in these two markets.
Smoke-Free Products
•
•
"Smoke-free products" (SFPs) is the term PMI primarily uses to refer to all of its products that are not combustible tobacco products,
such as heat-not-burn, e-vapor, and oral nicotine. In addition, SFPs include wellness and healthcare products, as well as consumer
accessories such as lighters and matches.
"Reduced-risk products" (RRPs) is the term PMI uses to refer to products that present, are likely to present, or have the potential
to present less risk of harm to smokers who switch to these products versus continuing smoking. PMI has a range of RRPs in
various stages of development, scientific assessment and commercialization. PMI's RRPs are smoke-free products that contain
and/or generate far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.
• Wellness and healthcare products primarily refer to products associated with inhaled therapeutics and oral and intra-oral delivery
•
systems that are included in the operating results of PMI's new wellness and healthcare business, Vectura Fertin Pharma.
"Heated tobacco units" (HTUs) is the term PMI uses to refer to heated tobacco consumables, which include the company's BLENDS,
HEETS, HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO (defined collectively as HEETS),
Marlboro Dimensions, Marlboro HeatSticks, Parliament HeatSticks, SENTIA and TEREA, as well as the KT&G-licensed brands, Fiit and
Miix (outside of South Korea).
• Unless otherwise stated, all references to IQOS are to PMI's Platform 1 IQOS devices and heated tobacco consumables.
•
•
•
"PMI heat-not-burn products" include licensed KT&G heat-not-burn products.
"PMI HTUs" include licensed KT&G HTUs.
“Total IQOS users” is defined as the estimated number of legal age (minimum 18 years) users of PMI heat-not-burn products, for
which PMI HTUs represented at least a portion of their daily tobacco consumption over the past seven days.
The estimated number of adults who have "switched to IQOS and stopped smoking" reflects:
•
•
In markets where there are no heat-not-burn products other than PMI heat-not-burn products, daily individual
consumption of PMI HTUs represents the totality of their daily tobacco consumption in the past seven days;
In markets where PMI heat-not-burn products are among other heat-not-burn products, daily individual consumption of
HTUs represents the totality of their daily tobacco consumption in the past seven days, of which at least 70% is PMI
HTUs.
Note: The above IQOS user metrics reflect PMI estimates, which are based on consumer claims and sample-based statistical
assessments with an average margin of error of +/-5% at a 95% Confidence Interval in key volume markets. The accuracy and
reliability of IQOS user metrics may vary based on individual market maturity and availability of information.
As of December 2020, PMI heat-not-burn products and HTUs include licensed KT&G heat-not-burn products and HTUs,
respectively.
Sustainability
“ESG” stands for environmental, social and governance.
•
• The term “materiality,” when used in the context of ESG topics, is defined in the referenced sustainability standards, and is not
meant to correspond to the concept of materiality under the U.S. securities laws and/or disclosures required by the U.S. Securities
and Exchange Commission.
G-1
G-1
2022 Philip Morris Annual Report_Feb 10, 2023
In 2022, PMI completed the largest transaction in its history with the approximately $16 billion
acquisition of Swedish Match – the global leader in oral nicotine.
Swedish Match is a majority smoke-free
company, with leadership positions in the snus
and nicotine pouch categories through brands
such as General, Goteborgs Rapé, ZYN and Volt.
In the U.S. – the company’s largest market – its
General snus product has received a Modified
Risk Tobacco Product (MRTP) authorization
from the U.S. Food & Drug Administration
(FDA), allowing reduced-risk claims. Together,
General and PMI’s IQOS are the only smoke-free
products to have received MRTP authorizations
to date from the FDA.
“We are pleased to welcome Swedish Match
and its employees into the PMI family. We
look forward to supporting the team in
continuing their remarkable success, including
with the fast-growing ZYN brand in the U.S.”
“We are excited to join forces with PMI to
accelerate the achievement of our shared
smoke-free ambition – to switch adults who
would otherwise continue to smoke to better
alternatives.”
– Jacek Olczak, Chief Executive Officer, PMI
– Lars Dahlgren, Chief Executive Officer, Swedish Match1
The acquisition of Swedish Match
positions PMI to:
• Create a comprehensive smoke-free product portfolio
globally, underpinned by a leading R&D engine for science,
innovation and growth
• Directly enter and compete in the important U.S. smoke-free
market by further supporting and developing Swedish
Match's oral nicotine portfolio and leveraging its substantial
operational platform for other smoke-free products, including
IQOS, over time
• Drive accelerated global expansion opportunities for Swedish
Match's oral nicotine products through PMI's international
commercial infrastructure and financial resources
(1) Following the acquisition, Mr. Dahlgren was appointed President, Smoke-Free Oral Products & CEO Swedish Match, effective January 1, 2023.
Design: RWI www.rwidesign.com Photography: Tom Hull, Jagoda Wiśniewska Printer: Phoenix Lithographing, USA © Copyright 2023 Philip Morris International Inc.
2022 Philip Morris Annual Report_Feb 10, 2023
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USA
www.pmi.com
2022 Philip Morris Annual Report_Feb 10, 2023