|
|
|
|
|
|
|
|
(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. On September 20, 2023, PMI entered into an agreement, effective September 29, 2023, to amend and further extend the term to September 29, 2028.
At February 8, 2024, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing.
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, PMI maintains certain short-term credit arrangements, including uncommitted credit lines, to primarily meet working capital needs. These credit arrangements amounted to approximately $2.7 billion at December 31, 2023 and approximately $1.9 billion at December 31, 2022. Borrowings under these arrangements and other bank loans amounted to $283 million at December 31, 2023, and $295 million at December 31, 2022.
Credit Facilities related to the Financing of the Swedish Match Acquisition – In connection with PMI’s all-cash recommended public offer to the shareholders 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 €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 acquired 94.81% of its outstanding shares as of December 31, 2022. In accordance with the Swedish Companies Act, PMI subsequently exercised its right to compulsorily redeem the remaining shares for which acceptances were not received and obtained legal title to 100% of the shares in Swedish Match on February 17, 2023.
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. On November 21, 2022 and February 17, 2023, PMI repaid $4.0 billion and $4.4 billion, respectively, under the bridge facility. Effective February 20, 2023, the remaining outstanding commitments under the bridge facility were fully canceled and the bridge facility agreement was terminated in accordance with its terms.
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. As of December 31, 2023 and 2022, the €5.5 billion (approximately $6 billion) term loan facility was fully drawn and remained outstanding.
The proceeds under the bridge facility and the term loan facility were used, directly or indirectly, to finance the acquisition, including, the payment of related fees and expenses. 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, 2023, we had $1.7 billion of commercial paper outstanding. At December 31, 2022, we had $0.9 billion of commercial paper outstanding. The average commercial paper balance outstanding during 2023 and 2022 was $3.6 billion and $3.1 billion, respectively.
Sale of Accounts Receivable – To mitigate credit risk and enhance cash and liquidity management, we sell trade receivables to unaffiliated financial institutions. For further details, see Item 8, Note 19. Sale of Accounts Receivable to our consolidated financial statements.
Supply Chain Financing – We engage with unaffiliated global financial institutions that offer a voluntary supply chain financing program to some of our suppliers. For further details, see Item 8, Note 22. Supply Chain Financing to our consolidated financial statements.
Debt – Our total debt was $47.9 billion at December 31, 2023, and $43.1 billion at December 31, 2022. Our total debt is primarily fixed rate in nature. The weighted-average all-in financing cost of our total debt was 3.3% in 2023 and 2.5% in 2022. 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 10, 2023, 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.
Our debt issuances in 2023 were as follows:
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | | | | | | | |
| Type | | Face Value | | Interest Rate | | Issuance | | Maturity |
| U.S. dollar notes | (a) | $1,250 | | 4.875% | | February 2023 | | February 2026 |
| U.S. dollar notes | (a) | $1,000 | | 4.875% | | February 2023 | | February 2028 |
| U.S. dollar notes | (a) | $1,500 | | 5.125% | | February 2023 | | February 2030 |
| U.S. dollar notes | (a) | $1,500 | | 5.375% | | February 2023 | | February 2033 |
| U.S. dollar notes | (a) (b) | $450 | | 4.875% | | May 2023 | | February 2026 |
| U.S. dollar notes | (a) (c) | $550 | | 4.875% | | May 2023 | | February 2028 |
| U.S. dollar notes | (a) (d) | $700 | | 5.125% | | May 2023 | | February 2030 |
| U.S. dollar notes | (a) (e) | $750 | | 5.375% | | May 2023 | | February 2033 |
| U.S. dollar notes | (f) | $650 | | 5.250% | | September 2023 | | September 2028 |
| U.S. dollar notes | (f) | $700 | | 5.500% | | September 2023 | | September 2030 |
| U.S. dollar notes | (f) | $1,000 | | 5.625% | | September 2023 | | September 2033 |
(a) Interest is payable semi-annually, commencing in August 2023
(b) These notes are a further issuance of the 4.875% notes issued in February 2023
(c) These notes are a further issuance of the 4.875% notes issued in February 2023
(d) These notes are a further issuance of the 5.125% notes issued in February 2023
(e) These notes are a further issuance of the 5.375% notes issued in February 2023
(f) Interest is payable semi-annually, commencing in March 2024
On February 17, 2023, PMI applied a portion of the net proceeds of the debt issuances to prepay $4.4 billion under its bridge facility, which represented all borrowings outstanding under the bridge facility. PMI used a portion of the May 2023 net proceeds to pay the remaining cash consideration due in accordance with the terms of its agreement with Altria. For further details on PMI's agreement with Altria, see Item 8, Note 3. Acquisitions and the "Business Environment" section of this Item 7. The remaining net proceeds of the February and May 2023 offerings, as well as the September 2023 offering have been used for general corporate purposes.
The weighted-average time to maturity of our long-term debt was approximately 7 years at the end of 2023 and 8 years at the end of 2022.
Cash Requirements – At December 31, 2023, 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);
•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 $3.7 billion in 2024 and approximately $1.0 billion for years beyond;
•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.
•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, 2023, 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 a then equity method investee that was subsequently divested in 2022. For further details, see Item 8, Note 18. Contingencies to our consolidated financial statements.
Swedish Match Notes Consent Solicitation and PMI Guarantee – On June 15, 2023, our wholly owned subsidiary, Swedish Match AB ("Swedish Match"), initiated a public consent solicitation of eligible holders of certain outstanding series of its notes to amend certain terms and conditions of these respective notes. The eligible noteholders provided the requisite irrevocable consent instructions voting in favor of the amendments, which were subsequently passed by way of extraordinary resolution at the noteholders’ meeting held on July 28, 2023. As a result of the passage of the extraordinary resolution, Philip Morris International Inc. entered into a guarantee, which guarantees unconditionally and irrevocably to the noteholders the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the principal, premium, if any, and interest on the notes.
Equity and Dividends
We discuss our stock awards as of December 31, 2023, 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. We did not make any share repurchases in 2023 and we do not currently anticipate restarting our share repurchase program during 2024.
Dividends paid in 2023 were $8.0 billion. During the third quarter of 2023, our Board of Directors approved a 2.4% increase in the quarterly dividend to $1.30 per common share. As a result, the present annualized dividend rate is $5.20 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.
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, representing the majority of our derivative financial instruments exposure. 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, 2023 and 2022, and primarily over each of the four preceding quarters for the calculation of average, high and low value at risk amounts during each year.
| | | | | | | | | | | | | | | | | | | | | | | |
| Fair Value Impact |
(in millions) | At December 31, 2023 | | Average | | High | | Low |
Instruments sensitive to: | | | | | | | |
Foreign currency rates | $77 | | $74 | | $82 | | $66 |
| | | | | | | |
Interest rates | $297 | | $332 | | $505 | | $219 |
| | | | | | | |
| Fair Value Impact |
(in millions) | At December 31, 2022 | | Average | | High | | Low |
Instruments sensitive to: | | | | | | | |
Foreign currency rates | $33 | | $55 | | $73 | | $33 |
| | | | | | | |
Interest rates | $233 | | $253 | | $317 | | $195 |
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 exposures.
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.
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 relatively 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.
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, | 2023 | | 2022 | | 2021 |
|
|
Net revenues 1 & 2 (Notes 6 & 13) | $ | | | | $ | | | | $ | | |
Cost of sales 3 (Notes 4 & 5) | | | | | | | | |
Gross profit | | | | | | | | |
Marketing, administration and research costs 4 (Notes 3, 4, 5, 13, 18 & 20) | | | | | | | | |
Impairment of goodwill (Note 5) | | | | | | | | |
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) | | | | | | | | |
Equity investments and securities (income)/loss, net | () | | | () | | | () | |
Net earnings | | | | | | | | |
Net earnings attributable to noncontrolling interests | | | | | | | | |
Net earnings attributable to PMI | $ | | | | $ | | | | $ | | |
Per share data (Note 11): | | | | | |
Basic earnings per share | $ | | | | $ | | | | $ | | |
Diluted earnings per share | $ | | | | $ | | | | $ | | |
million, $ million and $ million for the years ended December 31, 2023, 2022 and 2021, respectively million, $ million and $ million for the years ended December 31, 2023, 2022 and 2021, respectively million for the year ended December 31, 2022. For further details, see Note 5. Goodwill and Other Intangible Assets, net million and a charge of $ million for the South Korea indirect tax charge for the year ended December 31, 2023. For further details, see Note 5. Goodwill and Other Intangible Assets, net and Note 18. Contingencies
See notes to consolidated financial statements.
Consolidated Statements of Comprehensive Earnings
(in millions of dollars)
| | | | | | | | | | | | | | | | | |
| for the years ended December 31, | 2023 | | 2022 | | 2021 |
| Net earnings | $ | | | | $ | | | | $ | | |
| Other comprehensive earnings (losses), net of income taxes: | | | | | |
Change in currency translation adjustments: | | | | | |
Unrealized gains (losses), net of income taxes of $ in 2023, $() in 2022 and $() in 2021 | () | | | () | | | | |
(Gains)/losses transferred to earnings, net of income taxes of $ in 2023, 2022 and 2021 | | | | | | | | |
|
Change in net loss and prior service cost: | | | | | |
Net gains (losses) and prior service costs, net of income taxes of $ in 2023, $() in 2022 and $() in 2021 | () | | | | | | | |
Amortization of net losses, prior service costs and net transition costs, net of income taxes of $() in 2023, $() in 2022 and $() in 2021 | | | | | | | | |
|
Change in fair value of derivatives accounted for as hedges: | | | | | |
Gains (losses) recognized, net of income taxes of $() in 2023, $() in 2022 and $() in 2021 | | | | | | | | |
(Gains) losses transferred to earnings, net of income taxes of $ in 2023, $ in 2022 and $ in 2021 | () | | | () | | | () | |
|
| Total other comprehensive earnings (losses) | () | | | | | | | |
Total comprehensive earnings | | | | | | | | |
| Less comprehensive earnings attributable to: | | | | | |
Noncontrolling interests | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
| |
|
|
|
(1) ) million, $() million and $() million in 2023, 2022 and 2021, respectively
See notes to consolidated financial statements.
| | | | | | | | | | | | | | | | | |
| for the years ended December 31, | 2023 | | 2022 | | 2021 |
| CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES | | | | | |
| Short-term borrowing activity by original maturity: | | | | | |
| Net issuances (repayments) - maturities of 90 days or less | $ | | | | $ | | | | $ | | |
| Issuances - maturities longer than 90 days | | | | | | | | |
| Repayments - maturities longer than 90 days | () | | | () | | | | |
| Borrowings under credit facilities related to Swedish Match AB acquisition | | | | | | | | |
| Repayments under credit facilities related to Swedish Match AB acquisition | () | | | () | | | | |
| Long-term debt proceeds | | | | | | | | |
| Long-term debt repaid | () | | | () | | | () | |
| Repurchases of common stock | | | | () | | | () | |
|
| Dividends paid | () | | | () | | | () | |
|
|
|
|
| () | |
|
|
|
) |
) |
| | | | | | | | | | |
| | | | | | | | | | |
) |
| | | | | | | | | | |
|
) |
|
|
|
) |
) |
) |
| | | | | | | | | | |
|
) |
) |
| | | | | | | | | | |
|
) |
|
) |
) |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
| | | | | | | | | | |
) |
| () | |
See notes to consolidated financial statements.
Notes to Consolidated Financial Statements
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 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.
To further support the growth of PMI's smoke-free business, reinforce consumer centricity, and increase the speed of innovation and deployment, in January 2023, PMI began managing its business in geographical segments, down from previously, in addition to its continuing Swedish Match and Wellness and Healthcare segments. The geographical segments are as follows: Europe Region; South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region ("SSEA, CIS & MEA"); East Asia, Australia, and PMI Duty Free Region ("EA, AU & PMI DF"); and Americas Region.
geographical segments were reallocated to the geographical segments under the new structure. For further details, see Note 5. Goodwill and Other Intangible Assets, net.
to years, and buildings and building improvements primarily over periods up to years.
% stake of its holding in Philip Morris Tütün Mamulleri Sanayi ve Ticaret A.Ş. ("PMTM") (formerly Philsa Philip Morris Sabanci Sigara ve Tütüncülük Sanayi ve Ticaret A.Ş.) and % stake in Philip Morris Pazarlama ve Satiş A.Ş. ("PMPS") (formerly Philip Morris SA, Philip Morris Sabanci Pazarlama ve Satiş A.Ş.) from its Turkish partners, Sabanci Holding for a total acquisition price including transaction costs and remaining dividend entitlements of approximately $ million. As a result of this acquisition, PMI owned % 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 $ million and an increase to accumulated other comprehensive losses of $ 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 $ million, including transaction costs and dividend entitlements. The sale resulted in an increase to PMI's additional paid-in capital of $ million and a decrease to accumulated other comprehensive losses of $ million, following the reclassification of accumulated other comprehensive losses from PMI’s accumulated other comprehensive losses to noncontrolling interests.
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 % of the total issued shares in Swedish Match AB (“Swedish Match”) and acquired % 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 $ million (or $ million net of cash acquired), which was included in investing activities in the consolidated statements of cash flows for the year ended December 31, 2022. The cash paid in connection with the additional purchases of the noncontrolling interests after the acquisition date and through December 31, 2022 amounted to $ million and was included in financing activities in the consolidated statements of cash flows for the year ended December 31, 2022.
% of the shares in Swedish Match on February 17, 2023. Cash paid in connection with such legal title, together with an immaterial amount attributable to open market purchases that were executed in December 2022 but settled in January 2023, amounted to $ million and was included in financing activities in the consolidated statements of cash flows for the year ended December 31, 2023. While PMI paid the referenced amounts and acquired legal title to the shares, under the Swedish Companies Act the redemption process was not complete until the final redemption price was determined by an arbitral tribunal. On September 12, 2023, the arbitral tribunal determined the final redemption price to be Swedish krona (SEK) , unchanged from the SEK that PMI paid per share in connection with obtaining legal title to the shares. This process was completed in the fourth quarter of 2023 when the opportunity to appeal the arbitral tribunal determination ended.
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.
In November 2023, PMI finalized all measurement period adjustments related to the Swedish Match acquisition.
| $ | | | $ | | |
| 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 | $ | | | $ | | | $ | | |
The total fair value step-up adjustment for inventories was $ million, of which $ million was recognized in cost of sales in the fourth quarter of 2022 and the remaining balance in the first quarter of 2023.
The fair value of long-term debt was primarily determined using readily available market prices as of the acquisition date and the total purchase price adjustment of $() 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.
| | Trademarks | Amortizable | - years | | |
| Developed technology, including patents | | years | | |
| Customer relationships | | - years | | |
| | |
| Total identifiable intangible assets | | | $ | | |
The significant assumptions used in determining the fair values of the identifiable intangible assets included royalty rates, revenue growth rates, profit margins, customer attrition rates and discount rates.
Trademarks primarily relate to $ million for the ZYN trademark, which has been determined to have an indefinite life due to the fast growth and the leading position of the brand in the U.S. market. All other trademarks have been determined to have a useful life ranging between - years. The trademarks have been valued using the relief from royalty method supported by revenue growth rate assumptions and royalty rates disaggregated at the individual trademark level.
Developed technology, including patents, relates to the nicotine pouch technology of $ million. These patents have been assigned a useful life of years, which is in line with their protection period and have been valued using the comparable transactions and income methods.
Customer relationships have been valued by categories of customers and geographic locations, namely the U.S. market, Scandinavia, and other markets using the multiple periods excess earnings method. The significant assumptions included customer attrition rates disaggregated at the customer category level, the revenue growth rates, as well as profit margins.
PMI consolidated statements of earnings for the year ended December 31, 2022, include $ million of net revenues and $() 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 $ 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 $ million, of which $ 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.
Under the EU Merger Regulation, approval by the European Commission of PMI's acquisition of Swedish Match was conditional on PMHH's divestiture of Swedish Match's subsidiary, SMD Logistics AB ("SMDL"), following the completion of the offer to tender all shares in Swedish Match to PMHH. As a result, these assets were accounted for as assets held for sale and included within other current assets and other accrued liabilities in PMI’s consolidated balance sheets at March 31, 2023 and December 31, 2022. PMI subsequently sold SMDL on June 30, 2023 and the transaction did not have a material impact on the consolidated statements of earnings for the year ended December 31, 2023.
The unaudited pro forma combined financial information was prepared using the acquisition method of accounting and was based on the historical financial information of PMI and Swedish Match. 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 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 $ million in 2022 and $ 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
| $ | | | | Net earnings attributable to PMI | $ | | | $ | | |
AG Snus - On May 6, 2021, PMI acquired % 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 $ million in cash, net of cash acquired, with additional contingent payments of up to $ million, primarily relating to product development and performance targets over a less than period. In the fourth quarter of 2022, the additional contingent payment was settled for $ million. The operating results of AG Snus are included in the Europe segment, and were not material.
Fertin Pharma – On September 15, 2021, PMI acquired % 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 $ million (DKK billion) included cash of $ million and the payment of $ million related to the settlement of Fertin Pharma’s indebtedness. The purchase price of $ million was allocated to cash ($ million), current assets including receivables and inventories ($ million), non-current assets including property, plant and equipment ($ million), goodwill ($ million), and other intangible assets ($ million, which primarily consisted of customer relationships, developed technology, and in-process research and development ("IPR&D")), partially offset by current liabilities ($ million, which primarily consisted of accrued liabilities and accounts payable) and non-current liabilities ($ 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 to 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 % 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 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 % 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 $ million (GBP billion) for % of the Vectura shares was allocated to cash ($ million), current assets including receivables and inventories ($ million), non-current assets including property, plant and equipment ($ million), goodwill ($ million), and other intangible assets ($ million, which primarily consisted of developed technology, and IPR&D), partially offset by current liabilities ($ million, primarily accrued liabilities), and non-current liabilities ($ 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 to 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 $ million. The increase was primarily due to a decrease in other intangible assets ($ million), and a decrease in deferred income tax liabilities ($ 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.
billion, with $ billion paid at the inception of the agreement and the remaining $ billion (plus interest, at a per annum rate equal to six percent (%)), to be paid by July 2023 at the latest. The cash consideration paid at the inception of the agreement of $ billion has been accounted for within other assets in PMI’s consolidated balance sheets as of December 31, 2023 and 2022. The remaining consideration of $ billion plus interest was paid to Altria on July 14, 2023 and has been accounted for within other assets in PMI's consolidated balance sheets as of December 31, 2023. PMI will finalize the accounting for this transaction by assigning the consideration to the respective assets in May 2024, when PMI can exercise its ability to commercialize IQOS in the U.S. For further details on PMI's agreement with Altria, see Note 18. Contingencies.
Asset Acquisition
On August 9, 2021, PMI acquired % 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 $ million in cash, plus transaction costs, with additional contingent payment of $ million, primarily related to certain key milestones that PMI deemed probable. Additionally, PMI may owe up to $ 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 $ 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 Wellness and Healthcare business, Vectura Fertin Pharma, which consolidated Fertin Pharma, Vectura and OtiTopic, Inc. into operating segment.
million in a new production facility in the Lviv region, in Western Ukraine. In the fourth quarter of 2023, as a result of the completion of certain preparatory work for this new production facility, PMI recorded impairment of certain long-lived assets. As of December 31, 2023, PMI’s Ukrainian operations had approximately $ million in total assets, excluding intercompany balances. These total assets included $ million and $ million in receivables and inventories, 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, 2023, it has not recorded an impairment of long-lived and other assets. However, PMI recorded specific asset write downs in 2022 as referred to in the table below. PMI’s Russian operations as of December 31, 2023 had approximately $ billion in total assets, excluding intercompany balances. These total assets included $
million, $ million, $ million and $ million in cash (primarily held in local currency), receivables, inventories, property, plant and equipment and goodwill, respectively. In addition, there was approximately $ million of cumulative foreign currency translation losses reflected in accumulated other comprehensive losses in the consolidated statement of stockholders’ equity as of December 31, 2023.
For the years ended
| $ | | | $ | | | | $ | | | $ | | | $ | | | | | | Russia 2 | | | | | | | | | | | | | | | | |
| Total | $ | | | $ | | | $ | | | | $ | | | $ | | | $ | | | | | | 1 The 2023 pre-tax charges were primarily due to the cost of PMI’s humanitarian efforts, which includes salary continuation for its employees, severance payments, as well as an impairment of certain long-lived assets in the fourth quarter of 2023. The 2022 pre-tax charges were primarily due to an inventory write-down, additional allowance for receivables and the cost of PMI’s humanitarian efforts, which includes salary continuation for its employees.
2 The 2022 pre-tax charges were primarily due to machinery and inventory write downs related to the commercial decisions noted above.
PMI will continue to monitor the situation as it evolves and will determine if further charges are needed.
million in the consolidated statements of earnings for the year ended December 31, 2023, reflecting the impact of reduced estimated future cash flows, which were primarily attributable to clinical trial results that became available in June 2023 for an inhalable aspirin product being developed by the Wellness and Healthcare business. While it was observed that the experimental product had a rapid onset of effect, which is the key medical advantage sought, there was significant variability in inhaled dose among subjects. The study was therefore deemed unsuccessful and, as a result, product design improvements are required. PMI had planned to file a new drug application for this product with the U.S. Food and Drug Administration later this year. However, additional time is now required to evaluate design improvements and the corresponding less certain outcome. The cash flow estimates were also adversely impacted by slower-than-anticipated development of the contract development and manufacturing organization ("CDMO") business, including challenges associated with increased cost related to certain key products. The goodwill impairment charge is not deductible for income tax purposes. Additionally, as a result of the impairment test of non-amortizable intangible assets, PMI recorded a pre-tax impairment charge of $ million for an in-process research and development project related to one of PMI's 2021 acquisitions. This pre-tax impairment charge of $ million was recorded within marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2023.
The Wellness and Healthcare reporting unit's fair value was determined using the discounted cash flow model. PMI will continue to monitor this reporting unit as any changes in assumptions and estimates, unfavorable clinical trial results, failure to obtain regulatory approvals or other market factors could result in additional future goodwill and other intangible asset impairments. Certain Wellness and Healthcare products include components or gases which may be subject to enhanced regulations that could impact the related product development and market strategies. This may also lead to supply disruptions that could result in additional future impairments.
While PMI’s remaining reporting units have fair values substantially in excess of their carrying values, there are still risks related to PMI’s Russian reporting unit’s assets as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions. For more information see Note 4. War in Ukraine. PMI performed a quantitative impairment assessment for all of its reporting units and non-amortizable intangible assets with the exception of the Swedish Match segment. As the purchase price allocation for the acquisition of Swedish Match was preliminary at
| $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
| Changes due to: | | | | | | | |
| Acquisitions | | | | | | | | | | | | | | |
| Currency | () | | () | | () | | | | () | | () | | () | |
| Other | | | | | | | | | | | | | | |
| Balances, December 31, 2022 | | | | | | | | | | | | | | |
| Changes due to: | | | | | | | |
| | |
| Impairment | | | | | | | | | | | () | | () | |
| Currency | | | | | () | | | | | | | | | |
| Measurement period adjustments | | | | | | | | | () | | | | () | |
| | |
| Balances, December 31, 2023 | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | | $ | | |
As discussed in Note 1. Background and Basis of Presentation, in January 2023, PMI began managing its business in geographical segments, Swedish Match segment and Wellness and Healthcare segment. As a result, the January 1, 2022 and December 31, 2022 goodwill balances in the table above included the reclassifications from the former geographical segments to the geographical segments under the new structure.
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.
The decrease in goodwill in 2023 was primarily due to the measurement period adjustments to the Swedish Match final purchase price allocation (see Note 3, Acquisitions), coupled with the impairment discussed above and partially offset by currency movements.
At December 31, 2023, goodwill primarily reflects PMI’s acquisitions of Swedish Match AB, Fertin Pharma A/S and Vectura Group plc., as well as acquisitions in Greece, Indonesia, Mexico, the Philippines and Serbia.
| | $ | | | | $ | | | | $ | | | | Amortizable intangible assets: | | | | | | | | |
| Trademarks | years | | | $ | | | | | | | | $ | | | | |
| | | |
| Developed technology, including patents | years | | | | | | | | | | | | | |
| Customer relationships and other | years | | | | | | | | | | | | | |
| Total other intangible assets | | $ | | | $ | | | $ | | | | $ | | | $ | | | $ | | |
Non-amortizable intangible assets substantially consist of the ZYN trademark and other trademarks related to acquisitions in Indonesia and Mexico. The increase since December 31, 2022 was due to the measurement period adjustments to the Swedish Match final purchase price allocation in the amount of $ million (see Note 3, Acquisitions), coupled with currency movements of $ million, partially offset by an impairment for an in-process research and development project related to one of PMI's 2021 acquisitions discussed above.
The increase in the gross carrying amount of amortizable intangible assets from December 31, 2022, was mainly due to the measurement period adjustments to the Swedish Match final purchase price allocation in the amount of $ million (see Note 3, Acquisitions), coupled with currency movements of $ million.
The change in the accumulated amortization from December 31, 2022, was mainly due to the 2023 amortization of $ million, coupled with currency movements of $ million. The amortization of intangibles for the years ended December 31, 2023 was recorded in cost of sales of $ million and in marketing, administration and research costs of $ million on PMI's consolidated statements of earnings.
Amortization expense on a pre-tax basis for each of the next five years is estimated to be approximately $ million or less, assuming no additional transactions occur that require the amortization of intangible assets. Additionally, the estimated future amortization expense could significantly increase following the reacquisition of IQOS commercialization rights in the U.S. from Altria Group, Inc. (see Note 3, Acquisitions), the accounting for which will depend on the facts and circumstances effective May 1, 2024, when PMI will hold the full rights.
2022 Impairment of Other Intangibles
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. The impairment reduced the carrying values of developed technology definite-lived intangible assets in the Wellness and Healthcare segment to $ 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.
million and $ 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, 2023 and 2022, exceeded our share of the investees' book value by $ million and $ million, respectively. The difference between the investment carrying value and the amount of underlying equity in net assets is mainly attributable to equity method goodwill, convertible debt instruments, and definite-lived intangible assets and other assets. The difference related to the definite-lived intangibles and other assets at December 31, 2023 and 2022 of $ million and $ million, respectively, is amortized on a straight-line basis and is included in Equity investments and securities (income)/loss, net on the consolidated statements of earnings. At December 31, 2023 and 2022, PMI received year-to-date dividends from equity method investees of $ million and $ million, respectively.
PMI holds a % equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of December 31, 2023 had a carrying value of $ million. While as of December 31, 2023, there have been no impairment indicators based on the business’ performance, there are still risks related to this investment as the fair value of these assets is difficult to predict due to the volatility in foreign currency and commodity markets, supply chain, and current economic, political and social conditions. For more information, see Note 4. War in Ukraine. Additionally, there was approximately $ 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, 2023.
PMI holds a % equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”). PMI holds an approximate % economic interest in Société des Tabacs Algéro-Emiratie (“STAEM”), an Algerian joint venture that is % owned by EITA and % 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 (SSEA, CIS & MEA segment).
In April 2023, PMI increased its equity ownership and acquired % of Egyptian Investment Holding (“EIH”), a United Arab Emirates based company and as a result, acquired an approximate economic interest of % in United Tobacco Company ("UTC"). UTC is an entity incorporated in Egypt, which is % owned by EIH and manufactures products under license for Philip Morris Misr LCC (“PMM”), an entity incorporated in Egypt which is consolidated in PMI’s financial statements in the SSEA, CIS & MEA segment.
The initial investments in Megapolis Distribution BV, EITA and UTC have been recorded at cost and are included in equity investments on the consolidated balance sheets. Transactions between these equity method investees and PMI subsidiaries are considered to be related-party transactions and are included in the tables below.
Equity securities:
On March 22, 2019, PMI’s wholly owned subsidiary in Canada, Rothmans, Benson & Hedges Inc. (“RBH”) obtained an initial order from the Ontario Superior Court of Justice granting it protection under the Companies’ Creditors Arrangement Act ("CCAA"), which is a Canadian federal law that permits a Canadian business to restructure its affairs while carrying on its business in the ordinary course with minimal disruption to its customers, suppliers and employees. The administration of the CCAA process, principally relating to the powers provided to the court under the CCAA and the oversight provided by the court appointed monitor, removes certain elements of control of the business from both PMI and RBH. As a result, PMI determined that it no longer had a controlling financial interest over RBH as defined in ASC 810 (Consolidation), and deconsolidated RBH as of the date of the CCAA filing. For further details, see Note 18, Contingencies.
Since the deconsolidation of RBH on March 22, 2019, PMI has accounted for its continuing investment in RBH in accordance with ASC 321 (Investments-Equity Securities) as an equity security, without readily determinable fair value, and recorded its continuing investment in RBH at fair value of $ million at the date of deconsolidation, within equity investments. Developments in the CCAA process, including resolution through a plan of arrangement or compromise of some or all tobacco-related litigation pending in Canada may have a material adverse impact on the fair value of PMI’s continuing investment in RBH and may result in impairment charges. Transactions between PMI and RBH are considered to be related-party transactions from the date of deconsolidation and are included in the tables below.
million and $ million for the years ended December 31, 2023 and 2022, respectively. Unrealized pre-tax gains (losses) of $ million and $ million ($ million and $ 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, 2023 and 2022, 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 % non-controlling interest in Philip Morris Misr LLC ("PMM"), an entity incorporated in Egypt which is consolidated in PMI’s financial statements in the SSEA, CIS & MEA segment. PMM sells, under license, PMI brands in Egypt through an exclusive distribution agreement with a local entity that is also controlled by TTI.
Godfrey Phillips India Ltd ("GPI") is one of the non-controlling interest holders in IPM India, which is a % owned PMI consolidated subsidiary in the SSEA, CIS & MEA segment. GPI also acts as contract manufacturer and distributor for IPM India.
Financial activity with the above related parties:
| $ | | | $ | | | | Other | | | | | | | |
Net revenues (a) | | $ | | | $ | | | $ | | |
| | | | |
| Expenses: | | | | |
| Other | | $ | | | $ | | | $ | | |
| Expenses | | $ | | | $ | | | $ | | |
(a) Net revenues exclude excise taxes and VAT billed to customers.
PMI’s balance sheet activity with the above related parties was as follows:
| | | | | | | | | | | |
| | At December 31, |
| (in millions) | | 2023 | 2022 |
| Receivables: | | | |
| Megapolis Group | | $ | | | $ | | |
| Other | | | | | |
| Receivables | | $ | | | $ | | |
| | | |
| Payables: | | | |
| Other | | $ | | | $ | | |
| Payables | | $ | | | $ | | |
| | |
| | |
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. | $ | | | | Changes due to: | | |
| Warranties issued | | | | |
| Settlements | () | | () | |
| Currency/Other | () | | () | |
| Balance at end of period | $ | | | $ | | |
| | | % | | $ | | | | | % | Bank loans | | | | | | | | | | | |
| U.S. dollar credit facility borrowings related to Swedish Match AB acquisition | | | | | | | | | | | |
| $ | | | | | | $ | | | | |
Given the mix of PMI's legal entities and their respective local economic environments, the average interest rate for bank loans above can vary significantly from day to day and country to country.
The fair values of PMI’s short-term borrowings at December 31, 2023 and 2022, based on current market interest rates, approximate carrying value.
Long-Term Debt
% to % (average interest rate %), due through 2044$ | | | | $ | | | | Foreign currency obligations: | | | |
Euro notes, % to % (average interest rate %), due through 2039 | | | | | |
Swiss franc note, %, due 2024 | | | | | |
Euro credit facility borrowings related to Swedish Match AB acquisition, (average interest rate %), due through 2027 | | | | | |
Swedish krona notes, % to % (average interest rate %), due through 2029 | | | | | |
Other (average interest rate %), due through 2031 (a) | | | | | |
| Carrying value of long-term debt | | | | | |
Less current portion of long-term debt | | | | | |
| $ | | | | $ | | |
million and $ million in finance leases at December 31, 2023 and 2022, respectively.
The fair value of PMI’s outstanding long-term debt, which is utilized solely for disclosure purposes, is determined using quotes and market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities.
| | $ | | | | Level 2 | | | | | |
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.
Credit Facilities related to the Financing of the Swedish Match Acquisition
In connection with PMI's all-cash recommended public offer to the shareholders of Swedish Match, on May 11, 2022, PMI entered into a credit agreement relating to a -day senior unsecured bridge facility. The facility provided for borrowings up to an aggregate principal amount of $ billion, expiring days after the occurrence of certain events unless extended. On June 23, 2022, PMI entered into a € billion (approximately $ billion at the date of signing) senior unsecured term loan credit agreement consisting of a € billion (approximately $ billion at the date of signing) tranche expiring after the occurrence of certain events and a € billion (approximately $ 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 -day senior unsecured bridge facility was reduced from $ billion to $ billion. On November 11, 2022, PMI acquired a controlling interest of % of the total issued shares in Swedish Match and acquired % of its outstanding shares as of December 31, 2022. In accordance with the Swedish Companies Act, PMI subsequently exercised its right to compulsorily redeem the remaining shares for which acceptances were not received and obtained legal title to % of the shares in Swedish Match on February 17, 2023.
PMI borrowed $ billion under the bridge facility by delivering notices of borrowing for advances of $ billion and $ billion on November 7, 2022 and November 10, 2022, respectively. On November 21, 2022 and February 17, 2023, PMI repaid $ billion and $ billion, respectively, under the bridge facility. Effective February 20, 2023, the remaining outstanding commitments under the bridge facility were fully canceled and the bridge facility agreement was terminated in accordance with its terms.
On November 7, 2022, PMI also delivered notices of borrowing for advances totaling € billion under the term loan facility, of which € billion will become due on November 9, 2025 and € billion will become due on June 23, 2027 unless prepaid pursuant to the terms of the credit agreement. As of December 31, 2023 and 2022, the € billion (approximately $ 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.
| % | | May 2019 | | May 2024 | U.S. dollar notes | | $ | | % | | November 2014 | | November 2024 |
U.S. dollar notes | | $ | | % | | November 2022 | | November 2024 |
U.S. dollar notes | | $ | | % | | May 2020 | | May 2025 |
U.S. dollar notes | | $ | | % | | August 2015 | | August 2025 |
U.S. dollar notes | | $ | | % | | November 2022 | | November 2025 |
U.S. dollar notes | | $ | | % | | February 2016 | | February 2026 |
U.S. dollar notes | | $ | | % | | February 2023 | | February 2026 |
U.S. dollar notes | (a) | $ | | % | | May 2023 | | February 2026 |
U.S. dollar notes | | $ | | % | | November 2020 | | May 2026 |
U.S. dollar notes | | $ | | % | | August 2017 | | August 2027 |
U.S. dollar notes | | $ | | % | | November 2022 | | November 2027 |
U.S. dollar notes | | $ | | % | | February 2023 | | February 2028 |
U.S. dollar notes | (b) | $ | | % | | May 2023 | | February 2028 |
U.S. dollar notes | | $ | | % | | November 2017 | | March 2028 |
U.S. dollar notes | (c) | $ | | % | | May 2013 | | May 2028 |
U.S. dollar notes | | $ | | % | | September 2023 | | September 2028 |
U.S. dollar notes | | $ | | % | | May 2019 | | August 2029 |
U.S. dollar notes | | $ | | % | | November 2022 | | November 2029 |
U.S. dollar notes | | $ | | % | | February 2023 | | February 2030 |
U.S. dollar notes | (d) | $ | | % | | May 2023 | | February 2030 |
U.S. dollar notes | | $ | | % | | May 2020 | | May 2030 |
U.S. dollar notes | | $ | | % | | September 2023 | | September 2030 |
U.S. dollar notes | | $ | | % | | November 2020 | | November 2030 |
U.S. dollar notes | | $ | | % | | November 2022 | | November 2032 |
U.S. dollar notes | | $ | | % | | February 2023 | | February 2033 |
U.S. dollar notes | (e) | $ | | % | | May 2023 | | February 2033 |
U.S. dollar notes | | $ | | % | | September 2023 | | September 2033 |
U.S. dollar notes | | $ | | % | | May 2008 | | May 2038 |
U.S. dollar notes | | $ | | % | | November 2011 | | November 2041 |
U.S. dollar notes | | $ | | % | | March 2012 | | March 2042 |
U.S. dollar notes | | $ | | % | | August 2012 | | August 2042 |
U.S. dollar notes | | $ | | % | | March 2013 | | March 2043 |
U.S. dollar notes | | $ | | % | | November 2013 | | November 2043 |
U.S. dollar notes | | $ | | % | | November 2014 | | November 2044 |
U.S. dollar notes | (f) | $ | | % | | May 2016 | | November 2044 |
EURO notes | (g) | € (approximately $) | | % | | May 2012 | | May 2024 |
EURO notes | (c) | € (approximately $) | | % | | September 2016 | | September 2024 |
EURO notes | (g) | € (approximately $) | | % | | November 2017 | | November 2024 |
EURO notes | (g) | € (approximately $) | | % | | March 2013 | | March 2025 |
EURO notes | (c) | € (approximately $) | | % | | November 2017 | | November 2025 |
EURO notes | (c) | € (approximately $) | | % | | December 2020 | | November 2025 |
EURO notes | (c) | € (approximately $) | | % | | June 2021 | | November 2025 |
(approximately $) | % | | March 2014 | | March 2026 | EURO notes | (g) | € (approximately $) | | % | | August 2019 | | August 2026 |
EURO notes | (c) | € (approximately $) | | % | | February 2020 | | February 2027 |
EURO notes | (g) | € (approximately $) | | % | | May 2014 | | May 2029 |
EURO notes | (g) | € (approximately $) | | % | | August 2019 | | August 2031 |
EURO notes | (g) | € (approximately $) | | % | | June 2013 | | June 2033 |
EURO notes | (g) | € (approximately $) | | % | | May 2016 | | May 2036 |
EURO notes | (g) | € (approximately $) | | % | | November 2017 | | November 2037 |
EURO notes | (g) | € (approximately $) | | % | | August 2019 | | August 2039 |
Swiss franc notes | (g) | CHF (approximately $) | | % | | May 2014 | | May 2024 |
| Swedish krona notes | (c) | SEK (approximately $) | | % | | January 2019 | | January 2026 |
| Swedish krona notes | (c) | SEK (approximately $) | | % | | February 2021 | | February 2026 |
| Swedish krona notes | (c) | SEK (approximately $) | | % | | March 2021 | | February 2026 |
| Swedish krona notes | (c) | SEK (approximately $) | | % | | September 2021 | | February 2026 |
| Swedish krona notes | (c) | SEK (approximately $) | | % | | January 2022 | | February 2026 |
| Swedish krona notes | (c) | SEK (approximately $) | | % | | April 2021 | | April 2029 |
(a) These notes are a further issuance of the % notes issued in February 2023.
(b) These notes are a further issuance of the % notes issued in February 2023.
(c) Notes issued by Swedish Match AB. USD equivalents for foreign currency notes were calculated based on exchange rates on the date of acquisition.
(d) These notes are a further issuance of the % notes issued in February 2023.
(e) These notes are a further issuance of the % notes issued in February 2023.
(f) These notes are a further issuance of the % notes issued by PMI in November 2014.
(g) 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. On February 17, 2023, PMI applied a portion of the net proceeds of the February 2023 debt issuances to prepay $ billion under its bridge facility, which represented all borrowings outstanding under the bridge facility. PMI used a portion of the May 2023 net proceeds to pay the remaining cash consideration due in accordance with the terms of its agreement with Altria. For further details on PMI's agreement with Altria, see Note 3. Acquisitions. The remaining net proceeds of the February and May 2023 offerings, as well as the September 2023 offering have been used for general corporate purposes.
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029-2033 | | |
| 2034-2038 | | |
| Thereafter | | |
| | |
| Debt discounts and fair value adjustments | () | |
| Total long-term debt | $ | | |
Revolving Credit Facilities
| | Multi-year revolving credit, expiring February 10, 2026 (2) | | | |
Multi-year revolving credit, expiring September 29, 2026 (3) (4) | | | |
Total facilities | $ | | | |
| | | (1) On January 24, 2024, PMI entered into an agreement to extend the term of its -day committed revolving credit facility in the amount of $ billion from January 30, 2024, to January 28, 2025.
(2) On January 28, 2022, PMI entered into an agreement, effective February 10, 2022, to amend and extend the term of its $ billion multi-year revolving credit facility, for an additional year covering the period February 11, 2026 to February 10, 2027, in the amount of $ 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.
billion multi-year revolving credit facility, for an additional year covering the period September 30, 2026 to September 29, 2027, in the amount of $ billion. On September 20, 2023, PMI entered into an agreement, effective September 29, 2023, to amend and further extend the term to September 29, 2028.
At December 31, 2023, there were borrowings under these committed revolving credit facilities, and the entire committed amounts were available for borrowing.
In addition to the committed revolving credit facilities discussed above, PMI maintains certain short-term credit arrangements, including uncommitted credit lines, to primarily meet working capital needs. These credit arrangements amounted to approximately $ billion at December 31, 2023, and approximately $ billion at December 31, 2022. Borrowings under these arrangements and other bank loans amounted to $ million at December 31, 2023, and $ million at December 31, 2022.
billion; issued, repurchased and outstanding shares were as follows: | | | | | | | | | | | | | | | | | |
| Shares Issued | | Shares
Repurchased | | Shares
Outstanding |
| Balances, January 1, 2021 | | | | () | | | | |
| Repurchase of shares | | | () | | | () | |
| Issuance of stock awards | | | | | | | |
| Balances, December 31, 2021 | | | | () | | | | |
| Repurchase of shares | | | () | | | () | |
| Issuance of stock awards | | | | | | | |
| Balances, December 31, 2022 | | | | () | | | | |
| Repurchase of shares | | | | | | | |
| Issuance of stock awards | | | | | | | |
| Balances, December 31, 2023 | | | | () | | | | |
On June 11, 2021, PMI's Board of Directors authorized a new share repurchase program of up to $ billion, with target spending of $ billion to $ billion over a 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 million shares of its common stock at a cost of approximately $ billion. During the first three months of 2022, PMI repurchased million shares of its common stock at a cost of $ million. On May 11, 2022, PMI announced the suspension of its 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, 2023, shares of common stock were reserved for stock awards under PMI’s stock plans, and million shares of preferred stock, without par value, were authorized but unissued. PMI currently has no plans to issue any shares of preferred stock.
million shares of PMI’s common stock may be issued under the 2022 Plan. At December 31, 2023, shares available for grant under the 2022 Plan were .
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 % of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to million shares of PMI common stock may be awarded under the 2017 Non-Employee Directors Plan. At December 31, 2023, shares available for grant under the plan were .
| $ | | |
| Granted | | | | |
| Vested | () | | | |
| Forfeited | () | | | |
| Balance at December 31, 2023 | | | $ | | |
| | $ | | | $ | | | | 2022 | $ | | | | $ | | | $ | | |
| 2021 | $ | | | | $ | | | $ | | |
The fair value of the RSU awards at the date of grant is amortized to expense over the restriction period, typically after the date of the award, or upon death, disability or reaching the age of . As of December 31, 2023, PMI had $ 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 , or upon death, disability or reaching the age of .
| | $ | | | $ | | | | 2022 | | | | $ | | | $ | | |
| 2021 | | | | $ | | | $ | | |
performance cycle. The performance metrics for such PSU's granted during 2023 and 2022 consisted of PMI's Total Shareholder Return ("TSR") relative to a predetermined peer group and on an absolute basis (% weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate (% weight), and a Sustainability Index, which consists of two drivers: •Product Sustainability (% weight) measuring progress primarily on PMI's efforts to maximize the benefits of smoke-free products, purposefully phase out cigarettes, and reduce post-consumer waste; and
•Operational Sustainability (% 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 in 2021 consisted of PMI's TSR relative to a predetermined peer group and on an absolute basis (% weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate (% 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 (% weight).
The aggregate of the weighted performance factors for the metrics in each such PSU award determines the percentage of PSUs that will vest at the end of the performance cycle. The minimum percentage of such PSUs that can vest is , with a target percentage of and a maximum percentage of . Each such vested PSU entitles the participant to share of common stock. An aggregate weighted PSU performance factor of 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.
| | $ | | | $ | | | | Granted | | | | | | | |
| Vested | () | | | | | | |
| Adjustments for performance achievement | | | | | | | |
| Forfeited | () | | | | | | |
| Balance at December 31, 2023 | | | | $ | | | $ | | |
| $ | | | | $ | | | $ | | | | $ | | | | 2022 | $ | | | $ | | | | $ | | | $ | | | | $ | | |
| 2021 | $ | | | $ | | | | $ | | | $ | | | | $ | | |
% | | | % | | | % | Average expected volatility (b) | | % | | | % | | | % |
(a) Based on the U.S. Treasury yield curve.
(b) Determined using the observed historical volatility.
The fair value of the PSU award at the date of grant is amortized to expense over the performance period, which is typically after the date of the award, or upon death, disability or reaching the age of . As of December 31, 2023, PMI had $ 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 , or upon death, disability or reaching the age of .
| | $ | | | $ | | | | 2022 | | | | $ | | | $ | | |
| 2021 | | | | $ | | | $ | | |
| | $ | | | | $ | | | | Less distributed and undistributed earnings attributable to share-based payment awards | | | | | | | | |
| Net earnings for basic and diluted EPS | $ | | | | $ | | | | $ | | |
| Weighted-average shares for basic EPS | | | | | | | | |
Plus contingently issuable performance stock units (PSUs) (1) | | | | | | | | |
| Weighted-average shares for diluted EPS | | | | | | | | |
(1) Including rounding adjustment
antidilutive stock awards.
| | $ | | | | $ | | | 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 | $ | | | | $ | | | | $ | | |
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, 2023, PMI has determined that the Act had no 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.
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, 2023 and December 31, 2022, $ billion and $ 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, 2023, applicable U.S. federal income taxes have not been provided on approximately $ billion of accumulated earnings of Swedish Match subsidiaries that are expected to be permanently reinvested. PMI does not foresee a need to repatriate these earnings since its U.S. cash requirements are supported by distributions of earnings from PMI foreign entities that have not been designated as permanently reinvested and existing credit facilities. At December 31, 2023, PMI has determined the amount of deferred tax liabilities related to these unremitted Swedish Match earnings is approximately $ million.
At December 31, 2023 and 2022, 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 on assessment remains open for the years 2019 and onward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from to years after the filing of a return. Years still open to examination by foreign tax authorities in major jurisdictions include Germany (2018 onward), Indonesia (2019 onward), Italy (2017 onward), Russia (2020 onward) and Switzerland (2019 onward).
At December 31, 2023, subsidiaries of PMI in Indonesia, principally PT Hanjaya Mandala Sampoerna Tbk ("HMS"), have recorded income tax receivables in the amount of trillion Indonesian rupiah (approximately $ million) relating to corporate income tax assessments paid to avoid potential penalties, primarily for domestic and other intercompany transactions for the years 2014 to 2020. Objection letters have been filed with the Tax Office and these assessments are being challenged at various levels in court. These income tax receivables are included in other assets in PMI’s consolidated balance sheets at December 31, 2023.
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.
| | $ | | | | $ | | | 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, | $ | | | | $ | | | | $ | | |
| | $ | | | | $ | | | Accrued interest and penalties | | | | | | | | |
Tax credits and other indirect benefits | () | | | () | | | () | |
Liability for tax contingencies | $ | | | | $ | | | | $ | | |
The amount of unrecognized tax benefits that, if recognized, would impact the effective tax rate was $ million at December 31, 2023. The remainder, if recognized, would principally affect deferred taxes.
For the years ended December 31, 2023, 2022 and 2021, PMI recognized income (expense) in its consolidated statements of earnings of $ million, $ million and $() million, respectively, related to interest and penalties associated with uncertain tax positions.
% | | | % | | | % | | Increase (decrease) resulting from: | | | | | |
| Foreign rate differences | () | | | () | | | () | |
| Dividend repatriation cost | | | | | | | | |
|
| Global intangible low-taxed income | | | | | | | | |
| U.S. state taxes | () | | | | | | | |
| Foreign derived intangible income | () | | | () | | | () | |
| Foreign exchange | () | | | () | | | | |
| Non-deductible goodwill impairment | | | | | | | | |
| Unremitted earnings of Russian subsidiaries | | | | | | | | |
| Other | () | | | () | | | | |
| Effective tax rate | | % | | | % | | | % |
The 2023 effective tax rate increased percentage points to %. The change in the effective tax rate for 2023, as compared to 2022, was unfavorably impacted by: (i) an increase in deferred tax liabilities related to the unremitted earnings of PMI's Russian subsidiaries due to the unilateral suspension of certain Russian double tax treaties by the Russian authorities on August 8, 2023, with respect to certain payments including dividends; (ii) the non-deductible Wellness and Healthcare goodwill impairment charge and (iii) an increase in foreign tax credit limitation related to GILTI, partially offset by changes in earnings mix by taxing jurisdiction.
percentage points to %. The change in the effective tax rate for 2022, as compared to 2021, was favorably impacted by changes in income tax reserves, a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings ($ 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 deferred tax liabilities related to pension plan assets ($ million), partially offset by an increase in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($ million). For further details, see Note 6. Related Parties - Equity Investments and Other.
| | $ | | | | Accrued pension costs | | | | | |
| Inventory | | | | | |
| Accrued liabilities | | | | | |
| Net operating loss, tax credit, and other carryforwards | | | | | |
| Foreign exchange | | | | | |
| 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) | $ | () | | | $ | () | |
At December 31, 2023, PMI recorded deferred tax assets for net operating loss, tax credit, and other carryforwards of $ million, with varying dates of expiration, primarily after 2028, including $ million with an unlimited carryforward period. At December 31, 2023, PMI has recorded a valuation allowance of $ million against deferred tax assets that do not meet the more-likely-than not recognition threshold.
million, with varying dates of expiration, primarily after 2027, including $ million with an unlimited carryforward period. At December 31, 2022, PMI has recorded a valuation allowance of $ million against deferred tax assets that do not meet the more-likely-than-not recognition threshold.
geographical segments, down from previously, in addition to its continuing Swedish Match and Wellness and Healthcare segments. The geographical segments are as
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.
| | $ | | | | $ | | | SSEA, CIS & MEA | | | | | | | | |
EA, AU & PMI DF | | | | | | | | |
| Americas | | | | | | | | |
| Swedish Match | | | | | | | | |
| Wellness and Healthcare | | | | | | | | |
| Net revenues | $ | | | | $ | | | | $ | | |
Total net revenues attributable to customers located in Japan, PMI's largest market in terms of net revenues, were $ billion, $ billion and $ billion in 2023, 2022 and 2021, respectively. PMI had one customer in the EA, AU & PMI DF segment that accounted for %, % and % of PMI’s consolidated net revenues, and one customer in the Europe segment that accounted for %, % and % of PMI’s consolidated net revenues in 2023, 2022 and 2021, respectively.
| | $ | | | | $ | | | SSEA, CIS & MEA | | | | | | | | |
EA, AU & PMI DF | | | | | | | | |
| Americas | | | | | | | | |
| Swedish Match | | | | | | | | |
| Total combustible tobacco products | | | | | | | | |
| Smoke-free products: | | | | | |
| Smoke-free products excluding Wellness and Healthcare: | | | | | |
| Europe | | | | | | | | |
SSEA, CIS & MEA | | | | | | | | |
EA, AU & PMI DF | | | | | | | | |
| Americas | | | | | | | | |
| Swedish Match | | | | | | | | |
| Total smoke-free products excluding Wellness and Healthcare | | | | | | | | |
| Wellness and Healthcare | | | | | | | | |
| Total smoke-free products | | | | | | | | |
| | | | | |
| Total PMI net revenues | $ | | | | $ | | | | $ | | |
Note: Sum of product categories or Regions might not foot to total PMI due to roundings.
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 Wellness and Healthcare business, Vectura Fertin Pharma.
| | $ | | | | $ | | | SSEA, CIS & MEA | | | | | | | | |
EA, AU & PMI DF | | | | | | | | |
| Americas | | | | | | | | |
| Swedish Match | | | | () | | | | |
| Wellness and Healthcare | () | | | () | | | () | |
Operating income | $ | | | | $ | | | | $ | | |
Items affecting the comparability of results from operations were as follows:
•Impairment of goodwill and other intangibles – For the year ended December 31, 2023, PMI recorded $ million of goodwill and non-amortizable intangible assets impairment charges that was included in the Wellness and Healthcare segment. For the year ended December 31, 2022, PMI recorded an impairment charge related to definite-lived intangible assets of $ million. This charge was included in the Wellness and Healthcare segment. For further details, see Note 5. Goodwill and Other Intangible Assets, net.
•South Korea indirect tax charge – See Note 18. Contingencies for details of the $ million pre-tax charge included in the EA, AU & PMI DF segment results for the year ended December 31, 2023.
•Termination of distribution arrangement in the Middle East – In the first quarter of 2023, PMI recorded a pre-tax charge of $ million following the termination of a distribution arrangement in the Middle East. This pre-tax charge was recorded as a reduction of net revenues in the consolidated statements of earnings, and was included in the SSEA, CIS & MEA segment results for the year ended December 31, 2023.
•Charges related to the war in Ukraine - See Note 4. War in Ukraine for details of the $ million and $ million pre-tax charges in the Europe segment for the years ended December 31, 2023 and 2022, respectively.
•Swedish Match AB acquisition accounting related item - See Note 3. Acquisitions for details of the $ million and $ 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 years ended December 31, 2023 and 2022, respectively.
•Asset impairment and exit costs - See Note 20. Asset Impairment and Exit Costs for details of the $ million and $ million pre-tax charges for the year ended December 31, 2023 and 2021, respectively, as well as a breakdown of these costs by segment.
•Termination of agreement with Foundation for a Smoke-Free World – On September 29, 2023, PMI and the Foundation for a Smoke-Free World (the "Foundation") entered into the Final Grant Agreement and Termination of the Second Amended and Restated Pledge Agreement ("Agreement"). Under the terms of the agreement, PMI paid $ million in the third quarter of 2023 in return for the termination of the pledge agreement between the parties. As a result, in the third quarter of 2023, PMI recorded a pre-tax charge of $ million commensurate with the early termination of the pledge agreement. The pre-tax charge was recorded in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2023 and was included in the operating results of the following segments: Europe ($ million); SSEA, CIS & MEA ($ million); EA, AU & PMI DF ($ million); and Americas ($ million).
•Saudi Arabia customs assessments - In June 2021, PMI recorded a pre-tax charge of $ million in relation to additional customs duties in Saudi Arabia assessed for the periods of 2014 through 2020 in line with existing and contemplated arrangements with our distributors. In accordance with U.S. GAAP, the charge was recorded as a reduction in net revenues of combustible tobacco products included in the SSEA, CIS & MEA segment for the year ended December 31, 2021.
•Asset acquisition cost - See Note 3. Acquisitions for the details of the $ 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.
| | $ | | | | $ | | | | SSEA, CIS & MEA | | | | | | | | |
| EA, AU & PMI DF | | | | | | | | |
| Americas | | | | | | | | |
| Swedish Match | | | | | | | | |
| Wellness and Healthcare | | | | | | | | |
Total depreciation and amortization expense | $ | | | | $ | | | | $ | | |
| | | | | | | | | | | | | | | | | |
| For the Years Ended December 31, |
(in millions) | 2023 | | 2022 | | 2021 |
Capital expenditures: | | | | | |
| Europe | $ | | | | $ | | | | $ | | |
| SSEA, CIS & MEA | | | | | | | | |
| EA, AU & PMI DF | | | | | | | | |
| Americas | | | | | | | | |
| Swedish Match | | | | | | | | |
| Wellness and Healthcare | | | | | | | | |
Total capital expenditures | $ | | | | $ | | | | $ | | |
PMI’s total property, plant and equipment, net and other assets by geographic area were:
| | | | | | | | | | | | | | | | | |
| At December 31, |
(in millions) | 2023 | | 2022 | | 2021 |
Long-lived assets: | | | | | |
| Europe | $ | | | | $ | | | | $ | | |
| SSEA, CIS & MEA | | | | | | | | |
| East Asia and Australia | | | | | | | | |
| Americas | | | | | | | | |
| Total long-lived assets | | | | | | | | |
| Altria Group, Inc. agreement | | | | | | | | |
| Financial instruments | | | | | | | | |
Total property, plant and equipment, net and Other assets | $ | | | | $ | | | | $ | | |
billion, $ billion and $ billion at December 31, 2023, 2022 and 2021, respectively. Total long-lived assets located in Indonesia, which is reflected in the SSEA, CIS & MEA segment above, were $ billion, $ billion and $ billion at December 31, 2023, 2022 and 2021, respectively. Total long-lived assets located in Italy, which is reflected in the Europe segment above, were $ billion, $ billion and $ billion at December 31, 2023, 2022 and 2021, respectively.
) | | $ | () | | | $ | () | | | Net postemployment costs | | | | | | | | |
| Net postretirement costs | | | | | | | | |
| Total pension and other employee benefit costs | $ | | | | $ | | | | $ | | |
Pension and Postretirement Benefit Plans
Obligations and Funded Status
| | $ | | | | $ | | | | $ | | | 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 | | | | () | | | | | | | |
Fair value of plan assets at December 31, | | | | | | | | | | | |
Net pension and postretirement liability recognized at December 31, | $ | () | | | $ | () | | | $ | () | | | $ | () | |
(1) Primarily non-U.S. based defined benefit retirement plans.
% and % of the benefit obligation, respectively, and approximately % and % of the fair value of plan assets at December 31, 2023 and 2022, respectively. At December 31, 2023 and 2022, the U.S. pension plans represented % and % of the benefit obligation, respectively, and approximately % and % of the fair value of plan assets at December 31, 2023 and 2022, respectively.
| | $ | | | | | | | Accrued liabilities — employment costs | () | | | () | | | $ | () | | | $ | () | |
Long-term employment costs | () | | | () | | | () | | | () | |
| $ | () | | | $ | () | | | $ | () | | | $ | () | |
The accumulated benefit obligation, which represents benefits earned to date, for the pension plans was $ billion and $ billion at December 31, 2023 and 2022, respectively.
For pension plans with accumulated benefit obligations in excess of plan assets, the accumulated benefit obligation and fair value of plan assets were $ billion and $ billion, respectively, as of December 31, 2023. The accumulated benefit obligation and fair value of plan assets were $ billion and $ billion, respectively, as of December 31, 2022.
For pension plans with projected benefit obligations in excess of plan assets, the projected benefit obligation and fair value of plan assets were $ billion and $ billion, respectively, as of December 31, 2023. The projected benefit obligation and fair value of plan assets were $ billion and $ billion, respectively, as of December 31, 2022.
% | | | % | | | % | | | % | 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 | | | | | 2047 | | 2046 |
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.
| | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | Interest cost | | | | | | | | | | | | | | | | | |
Expected return on plan assets | () | | | () | | | () | | | | | | | | | | |
Amortization: | | | | | | | | | | | |
Net losses | | | | | | | | | | () | | | | | | | |
Prior service cost (credit) | () | | | () | | | | | | | | | | | | | |
Net transition obligation | | | | | | | | | | | | | | | | | |
Settlement and curtailment | | | | | | | | | | | | | | | | | |
| Net periodic pension and postretirement costs | $ | | | | $ | | | | $ | | | | $ | | | | $ | | | | $ | | |
Settlement and curtailment charges were due primarily to employee severance and early retirement programs.
% | | | % | | | % | | | % | | | % | | | % | Discount rate - interest cost | | | | | | | | | | | | | | | | | |
Expected rate of return on plan assets | | | | | | | | | | | | | | |
Rate of compensation increase | | | | | | | | | | | | | | |
Interest crediting rate | | | | | | | | | | | | | | |
Health care cost trend rate | | | | | | | | | | | | | | |
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 $ million, $ million and $ million for the years ended December 31, 2023, 2022 and 2021, 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 % in equity securities and approximately % 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.
| | $ | | | | | | | | Equity securities: | | | | | | | | |
U.S. securities | | | | | | | | | | |
International securities | | | | | | | | | | |
Investment funds(a) | | | | | | | $ | | | | | |
Government bonds | | | | | | | | | | | |
Corporate bonds | | | | | | | | | | |
Other | | | | | | | | | | | | (c) |
Total assets in the fair value hierarchy | $ | | | | $ | | | | $ | | | | $ | | | |
Investment funds measured at net asset value(b) | | | | | | | | | |
Total assets | $ | | | | | | | | | |
(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, Emerging Markets for equities, and FTSE EMU, FTSE 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, % are invested in U.S. and international equities; % are invested in U.S. and international government bonds; % are invested in corporate bonds and % 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, 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 | $ | | | | $ | | | | | | | |
Equity securities: | | | | | | | | |
U.S. securities | | | | | | | | | | |
International securities | | | | | | | | | | |
Investment funds(a) | | | | | | | $ | | | | | |
Government bonds | | | | | | | | | | | |
Corporate bonds | | | | | | | | | | |
Other | | | | | | | | | | | | (c) |
Total assets in the fair value hierarchy | $ | | | | $ | | | | $ | | | | $ | | | |
Investment funds measured at net asset value(b) | | | | | | | | | |
Total assets | $ | | | | | | | | | |
(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, % were invested in U.S. and international equities; % were invested in U.S. and international government bonds; % were invested in corporate bonds, and % were invested in real estate.
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 $ million in 2024 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.
| | 2025 | | |
| 2026 | | |
| 2027 | | |
| 2028 | | |
| 2029 - 2033 | | |
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 $ million, $ million and $ million for the years ended December 31, 2023, 2022 and 2021, respectively.
The amounts recognized in accrued postemployment costs net of plan assets on PMI's consolidated balance sheets at December 31, 2023 and 2022, were $ million and $ million, respectively.
The accrued postemployment costs were determined using a weighted-average discount rate of % and % in 2023 and 2022, respectively; an assumed ultimate annual weighted-average turnover rate of % and % in 2023 and 2022, respectively; assumed compensation cost increases of % in 2023 and % in 2022, 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 $ million and $ million at December 31, 2023 and 2022, 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)
) | | $ | () | | | $ | () | | | $ | () | | Prior service (cost) credit | | | | | | | () | | | | |
Net transition (obligation) asset | () | | | | | | | | | () | |
Deferred income taxes | | | | | | | | | | | |
Losses to be amortized | $ | () | | | $ | () | | | $ | () | | | $ | () | |
) | | $ | () | | | $ | () | | | $ | () | | Prior service (cost) credit | | | | | | | () | | | | |
Net transition (obligation) asset | () | | | | | | | | | () | |
Deferred income taxes | | | | | | | | | | | |
Losses to be amortized | $ | () | | | $ | | | | $ | () | | | $ | () | |
The amounts recorded in accumulated other comprehensive losses at December 31, 2021, consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Pension | | Post-
retirement | | Post-
employment | | Total |
Net (losses) gains | $ | () | | | $ | () | | | $ | () | | | $ | () | |
Prior service (cost) credit | | | | | | | () | | | | |
Net transition (obligation) asset | () | | | | | | | | | () | |
Deferred income taxes | | | | | | | | | | | |
Losses to be amortized | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| | $ | | | | $ | | | | $ | | | 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 | | | | | | | | | | | |
| () | | | () | | | () | | | () | |
Total movements in other comprehensive earnings (losses) | $ | () | | | $ | () | | | $ | () | | | $ | () | |
| | $ | | | | $ | | | | $ | | | 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 | () | | | () | | | () | | | () | |
| | | | | | | | | | | |
Total movements in other comprehensive earnings (losses) | $ | | | | $ | | | | $ | | | | $ | | |
The movements in other comprehensive earnings (losses) during the year ended December 31, 2021, were as follows:
| | | | | | | | | | | | | | | | | | | | | | | |
(in millions) | Pension | | Post-
retirement | | Post-
employment | | Total |
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 | () | | | | | | | | | () | |
| | | | () | | | () | | | | |
Total movements in other comprehensive earnings (losses) | $ | | | | $ | () | | | $ | () | | | $ | | |
| | $ | | | | $ | | | Research and development expense | $ | | | | $ | | | | $ | | |
Advertising expense | $ | | | | $ | | | | $ | | |
Foreign currency net transaction (gains)/losses | $ | | | | $ | | | | $ | | |
Interest expense | $ | | | | $ | | | | $ | | |
Interest income | () | | | () | | | () | |
Interest expense, net | $ | | | | $ | | | | $ | | |
| $ | | | | Interest rate contracts | | | | |
| Commodity contracts | | | | |
| | |
| Derivative contracts not designated as hedging instruments: | | |
| Foreign exchange contracts | | | | |
| Total | $ | | | $ | | |
| | $ | | | | Other accrued liabilities | | $ | | | | $ | | | | Other assets | | | | | | | | Income taxes and other liabilities | | | | | | |
| Interest rate contracts | Other current assets | | | | | | | | Other accrued liabilities | | | | | | |
| Other assets | | | | | | | | Income taxes and other liabilities | | | | | | |
| Commodity contracts | Other current assets | | | | | | | | Other accrued liabilities | | | | | | |
| Other assets | | | | | | | | Income taxes and other liabilities | | | | | | |
| Derivative contracts not designated as hedging instruments: | | | | | | | | | | | |
| Foreign exchange contracts | Other current assets | | | | | | | | Other accrued liabilities | | | | | | |
| Other assets | | | | | | | | Income taxes and other liabilities | | | | | | |
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 | | | () | | | () | | | | | () | | | () | |
| Net amount | | | $ | | | | $ | | | | | | $ | | | | $ | | |
PMI assesses the fair value of its derivative contracts using standard valuation models that use, as their basis, readily observable market inputs. The fair value of PMI’s foreign exchange forward contracts, foreign currency swaps and interest rate contracts is determined by using the prevailing foreign exchange spot rates and interest rate differentials, and the respective maturity dates of the
| $ | | | $ | | | | | | | | | | | | | | | | | | Net revenues | | $ | | | $ | | | $ | | | | | | |
| | | | | Cost of sales | | | | | | | | | | | |
| | | | | Marketing, administration and research costs | | | | | | () | | | | | |
| | | | | Interest expense, net | | () | | () | | () | | | | | |
| Interest rate contracts | | | | | | | | Interest expense, net | | | | () | | () | | | | | |
| Commodity contracts | () | | | | | | | Cost of sales | | | | | | | | | | | |
| Fair value hedges: | | | | | | | | | | | | | |
| Interest rate contracts | | | | | Interest expense, net (a) | | | | | | $ | () | | $ | () | | $ | | |
Net investment hedges (b): | | | | | | | | | | | | | |
| Foreign exchange contracts | () | | | | | | | Interest expense, net (c) | | | | | | | | | | | |
| Derivative contracts not designated as hedging instruments: | | | | | | | | | | | | | |
| Foreign exchange contracts | | | | | Interest expense, net | | | | | | | | | | | |
| | | | | Marketing, administration and research costs (d) | | | | | | () | | () | | | |
| Total | $ | () | | $ | | | $ | | | | | | $ | | | $ | | | $ | | | | $ | () | | $ | | | $ | | | (a) The gains (losses) from these contracts are offset by the changes in the fair value of the hedged item
(b) Amount of gains (losses) on hedges of net investments principally related to changes in exchange and interest rates between the Euro and U.S. dollar
(c) Represent the gains for amounts excluded from the effectiveness testing
(d) The gains (losses) from these contracts attributable to changes in foreign currency exchange rates are partially offset by the (losses) and gains generated by the underlying intercompany and third-party loans being hedged
Cash Flow Hedges
PMI has entered into derivative contracts to hedge the foreign currency exchange, interest rate and commodity price risks related to certain forecasted transactions. Gains and losses associated with qualifying cash flow hedge contracts are deferred as components of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s consolidated statements of earnings. As of December 31, 2023, PMI has hedged forecasted transactions with derivative contracts expiring at various dates through May 2028. The impact of these hedges is primarily included in operating cash flows on PMI’s consolidated statements of cash flows.
million, and is recorded in long-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 $ million as of December 31, 2023.
Hedges of Net Investments in Foreign Operations
PMI designates derivative contracts and certain foreign currency denominated debt and other financial instruments as net investment hedges, primarily of its Euro net assets. The amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $ million, $ million and $ million, for the years ended December 31, 2023, 2022 and 2021, 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.
| | $ | | | | $ | () | |
Derivative (gains)/losses transferred to earnings | () | | | () | | | () | |
Change in fair value | | | | | | | | |
Gain/(loss) as of December 31, | $ | | | | $ | | | | $ | | |
At December 31, 2023, PMI expects $ 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
) | | $ | () | | | $ | () | | Pension and other benefits | () | | | () | | | () | |
Derivatives accounted for as hedges | | | | | | | | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Organizational design optimization pre-tax charges in 2021 and e-vapor products manufacturing optimization charges in 2023 were allocated across all geographical segments.
Movement in Exit Cost Liabilities
| | Charges, net | | |
| Cash spent | () | |
| Currency/other | () | |
| Liability balance, December 31, 2023 | $ | | |
Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2024.
year to 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.
| $ | — | | $ | | | | 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 | $ | | | $ | | | $ | | | $ | | |
| $ | | | $ | | | | Finance lease cost: | | | |
| Amortization of right-of-use assets | | | | | | |
| Interest on lease liabilities | | | | | | |
| Short-term lease cost | | | | | | |
| Variable lease cost | | | | | | |
| Total lease cost | $ | | | $ | | | $ | | |
| $ | | |
| 2025 | | | | |
| 2026 | | | | |
| 2027 | | | | |
| 2028 | | | | |
| Thereafter | | | | |
| Total lease payments | | | | |
| Less: Interest | | | | |
| Present value of lease liabilities | $ | | | $ | | |
| $ | — | | $ | | | $ | — | | $ | | | $ | — | | | 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) | | % | | % | | % | | % | | % | | % |
(1) Cash paid included in the operating cash flows for 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 in lease contracts.
days. All outstanding payable amounts related to suppliers that are participating in the SCF program are recorded in accounts payable in PMI's consolidated balance sheets. The associated payments are included in cash flows from operating activities within PMI's consolidated statement of cash flows. As of December 31, 2023 and 2022, the total amount due to suppliers participating in the SCF program was approximately $ billion and $ billion, respectively.
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, 2023 and 2022, 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, 2023, 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, 2023, 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, 2023 and 2022, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2023 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, 2023, 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.
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 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.
Acquisition of Swedish Match AB - Valuation of Trademarks and Customer Relationships
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 $7.9 billion of intangible assets being recorded, of which $7.8 billion relate to trademarks and customer relationships. Management applied significant judgment in estimating the fair value of intangible assets acquired, which involved the use of significant estimates and assumptions with respect to the revenue growth rates, royalty rates, and discount rates for trademarks, and revenue growth rates, profit margins, customer attrition rates, and discount rates for customer relationships.
The principal considerations for our determination that performing procedures relating to the 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 fair value estimate of the trademarks and customer relationships acquired, which in turn led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions of revenue growth rates, royalty rates, and discount rates for trademarks, and revenue growth rates, profit margins, customer attrition rates, and 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 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 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 management’s valuation methods, and the reasonableness of the customer attrition rate, royalty rate, and discount rate assumptions.
| | | | | | | | |
/S/ PRICEWATERHOUSECOOPERS SA | | |
| | |
| | |
| |
| |
| |
| |
| | |
| February 8, 2024 | | |
We have served as the Company’s auditor since 2008.
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.
Management assessed the effectiveness of PMI’s internal control over financial reporting as of December 31, 2023. 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, 2023, 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, 2023, as stated in their report herein.
February 8, 2024
Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.Controls and Procedures.
PMI carried out an evaluation, with the participation of PMI’s management, including PMI’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of PMI’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, PMI’s Chief Executive Officer and Chief Financial Officer concluded that PMI’s disclosure controls and procedures are effective. There have been no changes in PMI’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, PMI’s internal control over financial reporting.
The Report of Management on Internal Control over Financial Reporting and the Report of Independent Registered Public Accounting Firm are included in Item 8.
Item 9B.Other Information.
On February 6, 2024, Jun Makihara informed PMI's board of directors (the “Board”) that he will not stand for re-election to the Board at our 2024 annual meeting of shareholders. Mr. Makihara’s decision not to stand for re-election to the Board was not a result of any disagreement with the Company.
During the three months ended December 31, 2023, no director or officer of PMI or a “Rule 10b5-1 trading arrangement” or “non-Rule 10b5-1 trading arrangement,” as such terms are defined in Item 408(a) of Regulation S-K.
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 8, 2024, that will be filed with the SEC on or about March 28, 2024 (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 8, 2024:
| | | | | | | | | | | | | | | | | |
| Name | | Office | | Age | |
| Jacek Olczak | | Chief Executive Officer | | 59 | | |
| Massimo Andolina | | President, Europe Region | | 55 | | |
| Emmanuel Babeau | | Chief Financial Officer | | 56 | | |
| Werner Barth | | President, Combustibles Category & Global Combustibles Marketing | | 59 | | |
| Lars Dahlgren | | President, Smoke-Free Oral Products & Chief Executive Officer Swedish Match | | 53 | | |
| Frederic de Wilde | | President, South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region | | 56 | | |
| Reginaldo Dobrowolski | | Vice President and Controller | | 49 | | |
| Yann Guérin | | Senior Vice President and General Counsel | | 47 | | |
| Stacey Kennedy | | President, Americas Region & CEO of PMI's U.S. Business | | 51 | | |
| Paul Riley | | President, East Asia, Australia, and PMI Duty Free Region | | 58 | | |
| Stefano Volpetti | | President, Smoke-Free Inhalable Products & Chief Consumer Officer | | 52 | | |
Jacek Olczak – Age 59
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 55
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 56
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 59
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 53
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 56
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 49
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.
Yann Guérin - Age 47
Mr. Guérin was appointed as Senior Vice President and General Counsel in July 2023, having served as Senior Vice President and Global Head of Law and Compliance for June 2023. Previously, he served as Vice President and Associate General Counsel, Corporate from July 2021 to May 2023; as Vice President and Associate General Counsel, South & Southern Asia from November 2019 to June 2021; and as Vice President and Associate General Counsel, Middle-East, Africa & Global Duty Free from January 2018 to October 2019. Prior to that, since joining PMI in 2006, Mr. Guérin held a variety of legal roles across the company’s businesses, regions and functions. Before joining PMI, he was an attorney at Skadden Arps.
Stacey Kennedy – Age 51
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 58
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 52
Mr. Volpetti was appointed as our President Smoke-Free Inhalable Products & Chief Consumer Officer in January 2023, having served as President Smoke-Free Products Category & Chief Consumer Officer from 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 Code of Conduct. The Code of Conduct 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 and Risk, Compensation and Leadership Development, Science and Technology 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, Election of Directors—Director Nominees and Stock Ownership Information and Availability of Reports, Other Matters and 2024 Annual Meetings—2024 Annual Meeting sections of the proxy statement.
Item 11.Executive Compensation.
Refer to Compensation Discussion and Analysis, Compensation Tables, Compensation of Directors, and Pay Ratio sections of the proxy statement.
Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The number of shares to be issued upon exercise or vesting and the number of shares remaining available for future issuance under PMI’s equity compensation plans at December 31, 2023, were as follows:
| | | | | | | | | | | | | | | | | | | | |
| Number of Securities to be Issued upon Exercise of Outstanding Options and Vesting of RSUs and PSUs (a) | | Weighted Average Exercise Price of Outstanding Options (b) | | Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (excluding Securities reflected in column (a)) (c) | |
Equity compensation plans
approved by stockholders | 7,457,881 | | 1 | $ | — | | | 23,047,756 | | |
1 Represents 4,603,321 shares of common stock that may be issued upon vesting of the restricted share units and 2,854,560 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 and Risk Committee Matters section of the proxy statement.
PART IV
Item 15.Exhibits and Financial Statement Schedules.
(a) Index to Consolidated Financial Statements and Schedules
| | | | | |
| Page |
Consolidated Statements of Earnings for the years ended December 31, 2023, 2022 and 2021 | |
Consolidated Statements of Comprehensive Earnings for the years ended December 31, 2023, 2022 and 2021 | |
Consolidated Balance Sheets at December 31, 2023 and 2022 | |
Consolidated Statements of Cash Flows for the years ended December 31, 2023, 2022 and 2021 | |
Consolidated Statements of Stockholders’ (Deficit) Equity for the years ended December 31, 2023, 2022 and 2021 | |
| Notes to Consolidated Financial Statements | |
Report of Independent Registered Public Accounting Firm (PCAOB ID ) | |
| 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:
| | | | | | | | | | | | | | |
| 2.1 | | — | | |
| 2.2 | | — | | |
| 3.1 | | — | | |
| 3.2 | | — | | |
| 4.1 | | — | | |
| 4.2 | | — | | |
| 4.3 | | — | | |
| 4.4 | | — | | |
| | | | | | | | | | | | | | |
| 10.4 | | __ | | 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). |
| 10.5 | | __ | | Extension Agreement, effective January 31, 2014, to Credit Agreement, dated as of February 12, 2013, among Philip Morris International Inc., the lenders party thereto and Citibank Europe PLC, UK Branch (formerly, The Royal Bank of Scotland plc), as Administrative Agent (incorporated by reference to Exhibit 10.3 to the Quarterly Report on Form 10-Q for the quarter ended March 31, 2014). |
| 10.6 | | __ | | Extension Agreement, effective as of February 10, 2015, to Credit Agreement dated as of February 12, 2013, among Philip Morris International Inc., the lenders named therein and Citibank Europe PLC, UK Branch (formerly, The Royal Bank of Scotland plc), as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed January 29, 2015). |
| 10.7 | | __ | | 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 | | —
| | 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). |
| | | | | | | | | | | | | | |
| 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 | | — | | |
| 10.22 | | — | | |
| 10.23 | | — | | |
| 10.24 | | — | | |
| 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 | | — | | |
| 10.27 | | — | | Amendment and Extension Agreement, dated as of September 20, 2023 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 20, 2023). |
| 10.28 | | — | | |
| 10.29 | | — | | |
| | | | | | | | | | | | | | |
| 10.30 | | — | | |
| 10.31 | | — | | |
| 10.32 | | — | | |
| 10.33 | | — | | |
| 10.34 | | — | | |
| 10.35 | | — | | |
| | | | | | | | | | | | | | |
| 10.36 | | — | | |
| 10.37 | | — | | |
| 10.38 | | — | | |
| 10.39 | | — | | |
| 10.40 | | — | | |
| 10.41 | | — | | |
| 10.42 | | — | | |
| 10.43 | | — | | |
| 10.44 | | — | | |
| 10.45 | | — | | |
| 10.46 | | — | | |
| 10.47 | | — | | |
| 10.48 | | — | | |
| 10.49 | | — | | |
| 10.50 | | — | | |
| 10.51 | | — | | |
| 10.52 | | — | | |
| 10.53 | | — | | |
| 10.54 | | — | | |
| 10.55 | | — | | |
| | | | | | | | | | | | | | |
| 10.56 | | — | | |
| 10.57 | | — | | |
| 10.58 | | — | | |
| 10.59 | | — | | |
| 10.60 | | — | | |
| 10.61 | | — | | |
| 10.62 | | — | | |
| 10.63 | | — | | |
| 10.64 | | — | | |
| 10.65 | | — | | |
| 10.66 | | — | | |
| 10.67 | | — | | |
| 10.68 | | — | | |
| 10.69 | | — | | |
| 10.70 | | — | | |
| 10.71 | | — | | |
| 10.72 | | — | | |
| 10.73 | | — | | |
| 10.74 | | — | | |
| 10.75 | | — | | |
| 10.76 | | — | | |
| 10.77 | | — | | |
| | | | | | | | | | | | | | |
| 10.78 | | — | | |
| 10.79 | | — | | |
| 10.80 | | — | | |
| 10.81 | | — | | |
| 10.82 | | — | | |
| 10.83 | | — | | |
| 10.84 | | — | | |
| 10.85 | | — | | |
| 10.86 | | — | | |
| 10.87 | | — | | |
| 10.88 | | — | | |
| 10.89 | | — | | |
| 10.90 | | — | | |
| 10.91 | | — | | |
| 10.92 | | — | | |
| 10.93 | | — | | |
| 10.94 | | — | | |
| 10.95 | | — | | |
| 10.96 | | — | | |
| 10.97 | | — | | |
| | | | | | | | | | | | | | |
| 21 | | — | | |
| 23 | | — | | |
| 31.1 | | — | | |
| 31.2 | | — | | |
| 32.1 | | — | | |
| 32.2 | | — | | |
| 97 | | — | | |
| 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.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | | | | |
| PHILIP MORRIS INTERNATIONAL INC. |
| |
| By: | /s/ JACEK OLCZAK |
| (Jacek Olczak
Chief Executive Officer) |
Date: February 8, 2024
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, 2023, 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 | Chief Executive Officer and Director | February 8, 2024 |
| (Jacek Olczak) |
| /s/ EMMANUEL BABEAU | Chief Financial Officer | February 8, 2024 |
| (Emmanuel Babeau) |
| /s/ REGINALDO DOBROWOLSKI | Vice President and Controller | February 8, 2024 |
| (Reginaldo Dobrowolski) |
| /s/ ANDRÉ CALANTZOPOULOS | Executive Chairman | February 8, 2024 |
| (André Calantzopoulos) |
| /s/ BONIN BOUGH | Director | February 8, 2024 |
| (Bonin Bough) |
| /s/ MICHEL COMBES | Director | February 8, 2024 |
| (Michel Combes) |
| /s/ DR. JUAN JOSÉ DABOUB | Director | February 8, 2024 |
(Juan José Daboub) |
| | | | | | | | |
/s/ WERNER GEISSLER | Director | February 8, 2024 |
(Werner Geissler) |
/s/ VICTORIA HARKER | Director | February 8, 2024 |
| (Victoria Harker) |
/s/ LISA A. HOOK | Director | February 8, 2024 |
| (Lisa A. Hook) |
/s/ JUN MAKIHARA | Director | February 8, 2024 |
(Jun Makihara) |
/s/ KALPANA MORPARIA | Director | February 8, 2024 |
(Kalpana Morparia) |
/s/ ROBERT B. POLET | Director | February 8, 2024 |
(Robert B. Polet) |
/s/ DESSISLAVA TEMPERLEY | Director | February 8, 2024 |
(Dessislava Temperley) |
/s/ SHLOMO YANAI | Director | February 8, 2024 |
(Shlomo Yanai) |
Similar companies
See also British American Tobacco p.l.c.
See also ALTRIA GROUP, INC. -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
See also SWEDISH MATCH CORP
See also RLX Technology Inc.
See also VECTOR GROUP LTD -
Annual report 2022 (10-K 2022-12-31)
Annual report 2023 (10-Q 2023-09-30)
Open main menu