10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2012

OR

( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     

Commission File Number 001-33708

Philip Morris International Inc.

(Exact name of registrant as specified in its charter)

Virginia	13-3435103
(State or other jurisdiction of     incorporation or organization)	(I.R.S. Employer     Identification No.)

120 Park Avenue New York, New York	10017
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code (917) 663-2000

Former name, former address and former fiscal year, if changed since last report

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ        No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  þ        No  ¨

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

Large accelerated filer  þ    Accelerated filer  ¨    Non-accelerated filer  ¨     Smaller reporting company  ¨

(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  þ

At October 31, 2012, there were 1,670,552,937 shares outstanding of the registrant’s common stock, no par value per share.

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PHILIP MORRIS INTERNATIONAL INC.

TABLE OF CONTENTS

		Page No.
PART I -	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets at
	September 30, 2012 and December 31, 2011	3 –  4
	Condensed Consolidated Statements of Earnings for the
	Nine Months Ended September 30, 2012 and 2011	5
	Three Months Ended September 30, 2012 and 2011	6
	Condensed Consolidated Statements of Comprehensive Earnings for the
	Nine Months Ended September 30, 2012 and 2011	7
	Three Months Ended September 30, 2012 and 2011	8
	Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the
	Nine Months Ended September 30, 2012 and 2011	9
	Condensed Consolidated Statements of Cash Flows for the
	Nine Months Ended September 30, 2012 and 2011	10 –  11
	Notes to Condensed Consolidated Financial Statements	12 – 36
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	37 – 70
Item 4.	Controls and Procedures	71
PART II -	OTHER INFORMATION
Item 1.	Legal Proceedings	72
Item 1A.	Risk Factors	72
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	73
Item 6.	Exhibits	74
Signature		75

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

- 2-

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions of dollars)

(Unaudited)

	September 30, 2012		December 31, 2011
ASSETS
Cash and cash equivalents	$	4,817	$	2,550
Receivables (less allowances of $54 in 2012 and $45 in 2011)	3,562		3,201
Inventories:
Leaf tobacco	3,633		3,463
Other raw materials	1,490		1,185
Finished product	3,120		3,472
	8,243		8,120
Deferred income taxes	394		397
Other current assets	584		591
Total current assets	17,600		14,859
Property, plant and equipment, at cost	13,482		12,913
Less: accumulated depreciation	7,118		6,663
	6,364		6,250
Goodwill	9,903		9,928
Other intangible assets, net	3,651		3,697
Other assets	791		754
TOTAL ASSETS	$	38,309	$	35,488

See notes to condensed consolidated financial statements.

Continued

- 3-

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

(in millions of dollars, except share data)

(Unaudited)

	September 30, 2012			December 31, 2011
LIABILITIES
Short-term borrowings	$	2,141		$	1,511
Current portion of long-term debt	2,775			2,206
Accounts payable	1,127			1,031
Accrued liabilities:
Marketing and selling	511			519
Taxes, except income taxes	5,701			5,346
Employment costs	876			894
Dividends payable	1,436			1,341
Other	904			873
Income taxes	1,125			897
Deferred income taxes	130			176
Total current liabilities	16,726			14,794
Long-term debt	17,520			14,828
Deferred income taxes	1,902			1,976
Employment costs	1,601			1,665
Other liabilities	444			462
Total liabilities	38,193			33,725
Contingencies (Note 10)
Redeemable noncontrolling interest (Note 7)	1,276			1,212
STOCKHOLDERS’ (DEFICIT) EQUITY
Common stock, no par value (2,109,316,331 shares issued in 2012 and 2011)	—			—
Additional paid-in capital	1,285			1,235
Earnings reinvested in the business	24,394			21,757
Accumulated other comprehensive losses	(2,835		)	(2,863		)
	22,844			20,129
Less: cost of repurchased stock    (433,382,409 and 383,407,665 shares in 2012 and 2011, respectively)	24,325			19,900
Total PMI stockholders’ (deficit) equity	(1,481		)	229
Noncontrolling interests	321			322
Total stockholders’ (deficit) equity	(1,160		)	551
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	38,309		$	35,488

See notes to condensed consolidated financial statements.

- 4-

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

(Unaudited)

	For the Nine Months Ended September 30,
	2012		2011
Net revenues	$	57,651	$	57,470
Cost of sales	7,692		7,986
Excise taxes on products	34,163		34,044
Gross profit	15,796		15,440
Marketing, administration and research costs	5,043		4,911
Asset impairment and exit costs	50		60
Amortization of intangibles	73		73
Operating income	10,630		10,396
Interest expense, net	633		613
Earnings before income taxes	9,997		9,783
Provision for income taxes	3,034		2,850
Net earnings	6,963		6,933
Net earnings attributable to noncontrolling interests	258		228
Net earnings attributable to PMI	$	6,705	$	6,705
Per share data (Note 8):
Basic earnings per share	$	3.92	$	3.76
Diluted earnings per share	$	3.92	$	3.76
Dividends declared	$	2.39	$	2.05

See notes to condensed consolidated financial statements.

- 5-

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Earnings

(in millions of dollars, except per share data)

(Unaudited)

	For the Three Months Ended September 30,
	2012		2011
Net revenues	$	19,592	$	20,706
Cost of sales	2,584		2,847
Excise taxes on products	11,672		12,344
Gross profit	5,336		5,515
Marketing, administration and research costs	1,655		1,770
Asset impairment and exit costs	34		43
Amortization of intangibles	24		25
Operating income	3,623		3,677
Interest expense, net	211		192
Earnings before income taxes	3,412		3,485
Provision for income taxes	1,088		1,024
Net earnings	2,324		2,461
Net earnings attributable to noncontrolling interests	97		84
Net earnings attributable to PMI	$	2,227	$	2,377
Per share data (Note 8):
Basic earnings per share	$	1.32	$	1.35
Diluted earnings per share	$	1.32	$	1.35
Dividends declared	$	0.85	$	0.77

See notes to condensed consolidated financial statements.

- 6-

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)

	For the Nine Months Ended September 30,
	2012			2011
Net earnings	$	6,963		$	6,933
Other comprehensive earnings (losses), net of income taxes:
Currency translation adjustments, net of income taxes of $31 in 2012 and $22 in 2011	(20		)	(394		)
Change in net loss and prior service cost:
Net losses and prior service costs, net of income taxes of ($1) in 2012 and ($2) in 2011	(2		)	8
Less amortization of net losses, prior service costs and net transition costs, net of income taxes of ($29) in 2012 and ($21) in 2011	121			66
Change in fair value of derivatives accounted for as hedges:
(Gains)/losses transferred to earnings, net of income taxes of $1 in 2012 and ($3) in 2011	(8		)	27
Losses recognized, net of income taxes of $3 in 2012 and $2 in 2011	(17		)	(20		)
Total other comprehensive earnings (losses)	74			(313		)
Total comprehensive earnings	7,037			6,620
Less comprehensive earnings attributable to:
Noncontrolling interests	161			118
Redeemable noncontrolling interest	143			82
Comprehensive earnings attributable to PMI	$	6,733		$	6,420

See notes to condensed consolidated financial statements.

- 7-

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)

	For the Three Months Ended September 30,
	2012			2011
Net earnings	$	2,324		$	2,461
Other comprehensive earnings (losses), net of income taxes:
Currency translation adjustments, net of income taxes of $64 in 2012 and ($71) in 2011	546			(1,222		)
Change in net loss and prior service cost:
Net losses and prior service costs, net of income taxes of ($1) in 2012 and $- in 2011	(1		)	—
Less amortization of net losses, prior service costs and net transition costs, net of income taxes of ($8) in 2012 and ($9) in 2011	43			22
Change in fair value of derivatives accounted for as hedges:
Losses transferred to earnings, net of income taxes of $- in 2012 and ($1) in 2011	4			13
Losses recognized, net of income taxes of $4 in 2012 and $2 in 2011	(29		)	(25		)
Change in fair value of equity securities	—			1
Total other comprehensive earnings (losses)	563			(1,211		)
Total comprehensive earnings	2,887			1,250
Less comprehensive earnings attributable to:
Noncontrolling interests	75			6
Redeemable noncontrolling interest	44			30
Comprehensive earnings attributable to PMI	$	2,768		$	1,214

See notes to condensed consolidated financial statements

- 8-

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

for the Nine Months Ended September 30, 2012 and 2011

(in millions of dollars, except per share amounts)

(Unaudited)

	PMI Stockholders’ (Deficit) Equity
	Common Stock		Additional Paid-in Capital			Earnings Reinvested in the Business			Accumulated Other Comprehensive Losses			Cost of Repurchased Stock			Noncontrolling Interests				Total
Balances, January 1, 2011	$	—	$	1,225		$	18,133		$	(1,140	)	$	(14,712	)	$	427			$	3,933
Net earnings						6,705									148			(a)	6,853			(a)
Other comprehensive losses, net of income taxes									(285		)				(30		)	(a)	(315		)	(a)
Exercise of stock options and issuance of other stock awards			(24		)							211							187
Dividends declared ($2.05 per share)						(3,630		)											(3,630		)
Payments to noncontrolling interests															(236		)		(236		)
Purchase of subsidiary shares from noncontrolling interests			(1		)										(1		)		(2		)
Common stock repurchased												(4,352		)					(4,352		)
Balances, September 30, 2011	$	—	$	1,200		$	21,208		$	(1,425	)	$	(18,853	)	$	308			$	2,438
Balances, January 1, 2012	$	—	$	1,235		$	21,757		$	(2,863	)	$	(19,900	)	$	322			$	551
Net earnings						6,705									132			(a)	6,837			(a)
Other comprehensive earnings, net of income taxes									28						29			(a)	57			(a)
Exercise of stock options and issuance of other stock awards			50									115							165
Dividends declared ($2.39 per share)						(4,068		)											(4,068		)
Payments to noncontrolling interests															(162		)		(162		)
Common stock repurchased												(4,540		)					(4,540		)
Balances, September 30, 2012	$	—	$	1,285		$	24,394		$	(2,835	)	$	(24,325	)	$	321			$	(1,160	)

(a) For the nine months ended September 30,2011, net earnings attributable to noncontrolling interests exclude $80 million of earnings related to the redeemable noncontrolling interest, which is reported outside of the equity section in the condensed consolidated balance sheet. Other comprehensive losses, net of income taxes, also exclude $2 million of net currency translation adjustment gains related to the redeemable noncontrolling interest at September 30, 2011. For the nine months ended September 30,2012, net earnings attributable to noncontrolling interests exclude $126 million of earnings related to the redeemable noncontrolling interest, which is reported outside of the equity section in the condensed consolidated balance sheet. Other comprehensive earnings, net of income taxes, also exclude $17 million of net currency translation adjustment gains related to the redeemable noncontrolling interest at September 30, 2012.

See notes to condensed consolidated financial statements.

- 9-

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions of dollars)

(Unaudited)

	For the Nine Months Ended September 30,
	2012			2011
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net earnings	$	6,963		$	6,933
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	665			743
Deferred income tax benefit	(109		)	(59		)
Asset impairment and exit costs, net of cash paid	19			(14		)
Cash effects of changes, net of the effects from acquired and divested companies:
Receivables, net	(392		)	(191		)
Inventories	(137		)	970
Accounts payable	—			179
Income taxes	326			455
Accrued liabilities and other current assets	177			419
Pension plan contributions	(84		)	(81		)
Other	343			214
Net cash provided by operating activities	7,771			9,568
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures	(719		)	(568		)
Purchases of businesses, net of acquired cash	—			(80		)
Other	28			(34		)
Net cash used in investing activities	(691		)	(682		)

See notes to condensed consolidated financial statements.

Continued

- 10-

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(in millions of dollars)

(Unaudited)

	For the Nine Months Ended September 30,
	2012			2011
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Short-term borrowing activity by original maturity:
Net issuances - maturities of 90 days or less	$	1,367		$	488
Issuances - maturities longer than 90 days	478			322
Repayments - maturities longer than 90 days	(1,220		)	—
Long-term debt proceeds	5,516			1,606
Long-term debt repaid	(2,237		)	(1,464		)
Repurchases of common stock	(4,557		)	(4,367		)
Issuance of common stock	—			75
Dividends paid	(3,973		)	(3,441		)
Other	(262		)	(273		)
Net cash used in financing activities	(4,888		)	(7,054		)
Effect of exchange rate changes on cash and cash equivalents	75			(144		)
Cash and cash equivalents:
Increase	2,267			1,688
Balance at beginning of period	2,550			1,703
Balance at end of period	$	4,817		$	3,391

See notes to condensed consolidated financial statements.

- 11-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 1. Background and Basis of Presentation:

Background

Philip Morris International Inc. is a holding company incorporated in Virginia, U.S.A., whose subsidiaries and affiliates and their licensees are engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States of America. Throughout these financial statements, the term “PMI” refers to Philip Morris International Inc. and its subsidiaries.

Basis of Presentation

The interim condensed consolidated financial statements of PMI are unaudited. These interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and such principles are applied on a consistent basis. It is the opinion of PMI’s management that all adjustments necessary for a fair statement of the interim results presented have been reflected therein. All such adjustments were of a normal recurring nature. Net revenues and net earnings attributable to PMI for any interim period are not necessarily indicative of results that may be expected for the entire year.

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income, which became effective for PMI in the first quarter of 2012. Under the new guidance, PMI evaluated the presentation options and elected to present comprehensive earnings in a separate statement. As a result of this new standard, certain amounts reported in the prior year statements have been reclassified to conform to the current year presentation.

These statements should be read in conjunction with the audited consolidated financial statements and related notes, which appear in PMI’s Annual Report to Shareholders and which are incorporated by reference into PMI’s Annual Report on Form 10-K for the year ended December 31, 2011.

Note 2. Asset Impairment and Exit Costs:

Pre-tax asset impairment and exit costs consisted of the following:

(in millions)	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2012		2011		2012		2011
Separation programs:
European Union	$	—	$	23	$	—	$	11
Eastern Europe, Middle East & Africa	—		6		—		4
Asia	13		7		13		5
Latin America & Canada	24		9		8		8
Total separation programs	37		45		21		28
Contract termination charges:
Eastern Europe, Middle East & Africa	—		12		—		12
Asia	5		—		5		—
Total contract termination charges	5		12		5		12
Asset impairment charges:
Asia	6		—		6		—
Latin America & Canada	2		3		2		3
Total asset impairment charges	8		3		8		3
Asset impairment and exit costs	$	50	$	60	$	34	$	43

- 12-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Exit Costs

Separation Programs

The 2012 pre-tax separation program charges primarily related to severance costs associated with factory restructurings in Asia and in Latin America & Canada. The 2011 pre-tax separation program charges primarily related to severance costs for factory and R&D restructurings, primarily in the European Union and in Latin America & Canada.

Contract Termination Charges

During the third quarter of 2012, PMI recorded exit costs of $5 million related to the termination of a distribution agreement in Asia. During the third quarter of 2011, PMI recorded exit costs of $12 million related to the termination of a distribution agreement in Eastern Europe, Middle East & Africa.

Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the nine months ended September 30,2012 was as follows:

(in millions)
Liability balance, January 1, 2012	$	28
Charges	42
Cash spent	(31		)
Currency/other	(3		)
Liability balance, September 30, 2012	$	36

Cash payments related to exit costs at PMI were $31 million and $11 million for the nine months and three months ended September 30,2012, respectively, and $74 million and $49 million for the nine months and three months ended September 30,2011, respectively. Future cash payments for exit costs incurred to date are expected to be approximately $36 million, and will be substantially paid by 2013.

Asset Impairment Charges

During the third quarter of 2012, PMI recorded pre-tax asset impairment charges of $8 million related to factory restructurings in Asia and in Latin America & Canada.

Note 3. Stock Plans:

In May 2012, PMI’s stockholders approved the Philip Morris International Inc. 2012 Performance Incentive Plan (the “2012 Plan”). The 2012 Plan replaced the 2008 Performance Incentive Plan (the “2008 Plan”) and, as a result, there will be no additional grants under the 2008 Plan. Under the 2012 Plan, PMI may grant to eligible employees restricted stock, restricted stock units and deferred stock units, performance-based cash incentive awards and performance-based equity awards. While the 2008 Plan authorized incentive stock options, non-qualified stock options and stock appreciation rights, the 2012 Plan does not authorize any stock options or stock appreciation rights. Up to 30 million shares of PMI’s common stock may be issued under the 2012 Plan. At September 30, 2012, shares available for grant under the 2012 Plan were 29,998,060.

In 2008, PMI adopted the Philip Morris International Inc. 2008 Stock Compensation Plan for Non-Employee Directors (the “Non-Employee Directors Plan”). A non-employee director is defined as a member of the PMI Board of Directors who is not a full-time employee of PMI or of any corporation in which PMI owns, directly or indirectly, stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to 1 million shares of PMI common stock may be awarded under the Non-Employee Directors Plan. As of September 30, 2012, shares available for grant under the plan were 798,801.

During the nine months ended September 30,2012, PMI granted 3.2 million shares of deferred stock awards to eligible employees at a weighted-average grant date fair value of $79.58 per share. During the nine months ended September 30,2011, PMI granted 3.8 million shares of restricted and deferred stock awards to eligible employees at a weighted average grant date fair value of $59.41 per share. PMI recorded compensation expense for stock awards of $191 million and $122 million during the nine months

- 13-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

ended September 30,2012 and 2011, respectively, and $55 million and $41 million during the three months ended September 30,2012 and 2011, respectively. During the first quarter of 2012, compensation expense included approximately $27 million of accelerated expense primarily associated with employees approaching or reaching certain age milestones that accelerate the vesting. As of September 30, 2012, PMI had $277 million of total unrecognized compensation cost related to non-vested restricted and deferred stock awards. The cost is recognized over the original restriction period of the awards, which is typically three or more years after the date of the award, subject to earlier vesting on death or disability or normal retirement, or separation from employment by mutual agreement after reaching age 58.

During the nine months ended September 30,2012, 3.7 million shares of PMI restricted stock and deferred stock awards vested. The grant date fair value of all the vested shares was approximately $146 million. The total fair value of restricted stock and deferred stock awards that vested during the nine months ended September 30,2012 was approximately $294 million.

Note 4. Benefit Plans:

Pension coverage for employees of PMI’s subsidiaries is provided, to the extent deemed appropriate, through separate plans, many of which are governed by local statutory requirements. In addition, PMI provides health care and other benefits to substantially all U.S. retired employees and certain non-U.S. retired employees. In general, health care benefits for non-U.S. retired employees are covered through local government plans.

Pension Plans

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:

	U.S. Plans						Non-U.S. Plans
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
(in millions)	2012			2011			2012			2011
Service cost	$	5		$	5		$	143		$	132
Interest cost	12			13			142			155
Expected return on plan assets	(11		)	(12		)	(243		)	(240		)
Amortization:
Net loss	7			6			92			42
Prior service cost	1			1			8			6
Net transition obligation	—			—			1			—
Other	—			1			—			—
Net periodic pension cost	$	14		$	14		$	143		$	95

	U.S. Plans						Non-U.S. Plans
	For the Three Months Ended September 30,						For the Three Months Ended September 30,
(in millions)	2012			2011			2012			2011
Service cost	$	1		$	2		$	47		$	47
Interest cost	4			4			46			54
Expected return on plan assets	(3		)	(4		)	(81		)	(84		)
Amortization:
Net loss	2			2			30			14
Prior service cost	—			1			4			2
Net transition obligation	—			—			1			—
Net periodic pension cost	$	4		$	5		$	47		$	33

- 14-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Employer Contributions

PMI makes, and plans to make, contributions, to the extent that they are tax deductible and to meet specific funding requirements of its funded U.S. and non-U.S. plans. Employer contributions of $84 million were made to the pension plans during the nine months ended September 30,2012. Currently, PMI anticipates making additional contributions during the remainder of 2012 of approximately $79 million to its pension plans, based on current tax and benefit laws. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest rates.

Note 5. Goodwill and Other Intangible Assets, net:

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

	Goodwill				Other Intangible Assets, net
(in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
European Union	$	1,415	$	1,392	$	647	$	663
Eastern Europe, Middle East & Africa	631		666		244		250
Asia	4,804		4,966		1,552		1,633
Latin America & Canada	3,053		2,904		1,208		1,151
Total	$	9,903	$	9,928	$	3,651	$	3,697

Goodwill is due primarily to PMI’s acquisitions in Canada, Indonesia, Mexico, Greece, Serbia, Colombia and Pakistan, as well as the business combination in the Philippines in February 2010. The movements in goodwill from December 31, 2011, were as follows:

(in millions)	European Union		Eastern Europe, Middle East & Africa			Asia			Latin America & Canada		Total
Balance at December 31, 2011	$	1,392	$	666		$	4,966		$	2,904	$	9,928
Changes due to:
Acquisitions	—		—			—			—		—
Currency	23		(35		)	(162		)	149		(25		)
Balance at September 30, 2012	$	1,415	$	631		$	4,804		$	3,053	$	9,903

Additional details of other intangible assets were as follows:

	September 30, 2012				December 31, 2011
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Non-amortizable intangible assets	$	2,061			$	2,067
Amortizable intangible assets	2,038		$	448	2,001		$	371
Total other intangible assets	$	4,099	$	448	$	4,068	$	371

- 15-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia in 2005 and Mexico in 2007. Amortizable intangible assets primarily consist of certain trademarks, distribution networks and non-compete agreements associated with business combinations. The range of useful lives as well as the weighted-average remaining useful life of amortizable intangible assets at September 30, 2012 is as follows:

Description	Initial Estimated Useful Lives	Weighted-Average Remaining Useful Life
Trademarks	2 - 40 years	26	years
Distribution networks	20 - 30 years	15	years
Non-compete agreements	3 - 10 years	3	years
Other (including farmer   contracts and intellectual property rights)	12.5 - 17 years	13	years

Pre-tax amortization expense for intangible assets was $73 million for each of the nine months ended September 30,2012 and 2011, and $24 million and $25 million for the three months ended September 30,2012 and 2011, respectively. Amortization expense for each of the next five years is estimated to be $98 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

The increase in the gross carrying amount of other intangible assets from December 31, 2011, was due to currency movements.

During the first quarter of 2012, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment, and no impairment charges were required as a result of this review.

Note 6. Financial Instruments:

Overview

PMI operates in markets outside of the United States of America, with manufacturing and sales facilities in various locations around the world. PMI utilizes certain financial instruments to manage foreign currency exposure. Derivative financial instruments are used by PMI principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange rates by creating offsetting exposures. PMI is not a party to leveraged derivatives and, by policy, does not use derivative financial instruments for speculative purposes. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. PMI formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of the forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in earnings. PMI reports its net transaction gains or losses in marketing, administration and research costs on the condensed consolidated statements of earnings.

PMI uses deliverable and non-deliverable forward foreign exchange contracts, foreign currency swaps, foreign currency collars and foreign currency options, collectively referred to as foreign exchange contracts, to mitigate its exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. The primary currencies to which PMI is exposed include the Euro, Indonesian rupiah, Japanese yen, Mexican peso, Russian ruble, Swiss franc and Turkish lira. At September 30, 2012, PMI had contracts with aggregate notional amounts of $13.4 billion. Of the $13.4 billion aggregate notional amount at September 30, 2012, $3.9 billion related to cash flow hedges, $0.9 billion related to hedges of net investments in foreign operations and $8.6 billion related to other derivatives that primarily offset currency exposures on intercompany financing.

- 16-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

The fair value of PMI’s foreign exchange contracts included in the condensed consolidated balance sheet as of September 30, 2012 and December 31, 2011, were as follows:

	Asset Derivatives					Liability Derivatives
		Fair Value					Fair Value
(in millions)	Balance Sheet Classification	At September 30, 2012		At December 31, 2011		Balance Sheet Classification	At September 30, 2012		At December 31, 2011
Foreign exchange contracts designated as hedging instruments	Other current assets	$	38	$	57	Other accrued liabilities	$	4	$	4
	Other assets	15		—		Other liabilities	3		—
Foreign exchange contracts not designated as hedging instruments	Other current assets	19		88		Other accrued liabilities	55		62
						Other liabilities	1		—
Total derivatives		$	72	$	145		$	63	$	66

Hedging activities, which represent movement in derivatives as well as the respective underlying transactions, had the following effect on PMI’s condensed consolidated statements of earnings and other comprehensive earnings for the nine months and three months ended September 30,2012 and 2011:

(in millions)	For the Nine Months Ended September 30, 2012
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges			Other Derivatives		Income Taxes		Total
Statement of Earnings:
Net revenues	$	33					$	—			$	33
Cost of sales	19						—				19
Marketing, administration and research costs	—						—				—
Operating income	52						—				52
Interest expense, net	(43		)				11				(32		)
Earnings before income taxes	9						11				20
Provision for income taxes	(1		)				1				—
Net earnings attributable to PMI	$	8					$	12			$	20
Other Comprehensive Earnings:
Gains transferred to earnings	$	(9	)						$	1	$	(8	)
Recognized losses	(20		)						3		(17		)
Net impact on equity	$	(29	)						$	4	$	(25	)
Cumulative translation adjustment				$	(11	)			$	4	$	(7	)

- 17-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in millions)	For the Nine Months Ended September 30, 2011
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges		Other Derivatives			Income Taxes			Total
Statement of Earnings:
Net revenues	$	(9	)			$	—					$	(9	)
Cost of sales	5					—						5
Marketing, administration and research costs	—					—						—
Operating income	(4		)			—						(4		)
Interest expense, net	(26		)			37						11
Earnings before income taxes	(30		)			37						7
Provision for income taxes	3					(9		)				(6		)
Net earnings attributable to PMI	$	(27	)			$	28					$	1
Other Comprehensive Earnings:
Losses transferred to earnings	$	30							$	(3	)	$	27
Recognized losses	(22		)						2			(20		)
Net impact on equity	$	8							$	(1	)	$	7
Cumulative translation adjustment				$	2							$	2

(in millions)	For the Three Months Ended September 30, 2012
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges			Other Derivatives		Income Taxes		Total
Statement of Earnings:
Net revenues	$	9					$	—			$	9
Cost of sales	—						—				—
Marketing, administration and research costs	—						—				—
Operating income	9						—				9
Interest expense, net	(13		)				5				(8		)
Earnings before income taxes	(4		)				5				1
Provision for income taxes	—						1				1
Net earnings attributable to PMI	$	(4	)				$	6			$	2
Other Comprehensive Earnings:
Losses transferred to earnings	$	4							$	—	$	4
Recognized losses	(33		)						4		(29		)
Net impact on equity	$	(29	)						$	4	$	(25	)
Cumulative translation adjustment				$	(11	)			$	4	$	(7	)

- 18-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(in millions)	For the Three Months Ended September 30, 2011
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges		Other Derivatives			Income Taxes			Total
Statement of Earnings:
Net revenues	$	(9	)			$	—					$	(9	)
Cost of sales	5					—						5
Marketing, administration and research costs	—					—						—
Operating income	(4		)			—						(4		)
Interest expense, net	(10		)			23						13
Earnings before income taxes	(14		)			23						9
Provision for income taxes	1					(5		)				(4		)
Net earnings attributable to PMI	$	(13	)			$	18					$	5
Other Comprehensive Earnings:
Losses transferred to earnings	$	14							$	(1	)	$	13
Recognized losses	(27		)						2			(25		)
Net impact on equity	$	(13	)						$	1		$	(12	)
Cumulative translation adjustment				$	—							$	—

Each type of hedging activity is described in greater detail below.

Cash Flow Hedges

PMI has entered into foreign exchange contracts to hedge foreign currency exchange risk related to certain forecasted transactions. The effective portion of gains and losses associated with qualifying cash flow hedge contracts is deferred as a component of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s condensed consolidated statements of earnings. During the nine months and three months ended September 30,2012 and 2011, ineffectiveness related to cash flow hedges was not material. As of September 30, 2012, PMI has hedged forecasted transactions for periods not exceeding the next fifteen months. The impact of these hedges is included in operating cash flows on PMI’s condensed consolidated statements of cash flows.

For the nine months and three months ended September 30,2012 and 2011, foreign exchange contracts that were designated as cash flow hedging instruments impacted the condensed consolidated statements of earnings and other comprehensive earnings as follows:

(pre-tax, in millions)	For the Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive  Earnings into Earnings						Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012			2011			2012			2011
Foreign exchange contracts								$	(20	)	$	(22	)
	Net revenues	$	33		$	(9	)
	Cost of sales	19			5
	Marketing, administration and research costs	—			—
	Interest expense, net	(43		)	(26		)
Total		$	9		$	(30	)	$	(20	)	$	(22	)

- 19-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

(pre-tax, in millions)	For the Three Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive  Earnings into Earnings						Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012			2011			2012			2011
Foreign exchange contracts								$	(33	)	$	(27	)
	Net revenues	$	9		$	(9	)
	Cost of sales	—			5
	Marketing, administration and research costs	—			—
	Interest expense, net	(13		)	(10		)
Total		$	(4	)	$	(14	)	$	(33	)	$	(27	)

Hedges of Net Investments in Foreign Operations

PMI designates certain foreign currency denominated debt and foreign exchange contracts as net investment hedges of its foreign operations. For the nine months ended September 30,2012 and 2011, these hedges of net investments resulted in gains (losses), net of income taxes, of $(30) million and $(137) million, respectively. For the three months ended September 30,2012 and 2011, these hedges of net investments resulted in gains (losses), net of income taxes, of $(70) million and $139 million, respectively. These gains (losses) were reported as a component of accumulated other comprehensive losses within currency translation adjustments. For the nine months and three months ended September 30,2012 and 2011, ineffectiveness related to net investment hedges was not material. Other investing cash flows on PMI’s condensed consolidated statements of cash flows includes the premiums paid for and settlements of net investment hedges.

For the nine months and three months ended September 30,2012 and 2011, foreign exchange contracts that were designated as net investment hedging instruments impacted the condensed consolidated statements of earnings and other comprehensive earnings as follows:

(pre-tax, in millions)	For the Nine Months Ended September 30,
Derivatives in Net Investment Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings				Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012		2011		2012			2011
Foreign exchange contracts						$	(11	)	$	2
	Interest expense, net	$	—	$	—

(pre-tax, in millions)	For the Three Months Ended September 30,
Derivatives in Net Investment Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings				Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012		2011		2012			2011
Foreign exchange contracts						$	(11	)	$	—
	Interest expense, net	$	—	$	—

- 20-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other Derivatives

PMI has entered into foreign exchange contracts to hedge the foreign currency exchange risks related to intercompany loans between certain subsidiaries, and third-party loans. While effective as economic hedges, no hedge accounting is applied for these contracts; therefore, the unrealized gains (losses) relating to these contracts are reported in PMI’s condensed consolidated statements of earnings. For the nine months ended September 30,2012 and 2011, the gains (losses) from contracts for which PMI did not apply hedge accounting were $66 million and $144 million, respectively. For the three months ended September 30,2012 and 2011, the gains (losses) from contracts for which PMI did not apply hedge accounting were $190 million and $6 million, respectively. The gains (losses) from these contracts substantially offset the losses and gains generated by the underlying intercompany and third-party loans being hedged.

As a result, for the nine months and three months ended September 30,2012 and 2011, these items impacted the condensed consolidated statements of earnings as follows:

(pre-tax, in millions)
Derivatives not Designated    as Hedging Instruments	Statement of Earnings Classification of Gain/(Loss)	Amount of Gain/(Loss) Recognized in Earnings
		For the Nine Months Ended September 30,				For the Three Months Ended September 30,
		2012		2011		2012		2011
Foreign exchange contracts
	Marketing, administration and research costs	$	—	$	—	$	—	$	—
	Interest expense, net	11		37		5		23
		$	11	$	37	$	5	$	23

Qualifying Hedging Activities Reported in Accumulated Other Comprehensive Losses

Derivative gains or losses reported in accumulated other comprehensive losses are a result of qualifying hedging activity. Transfers of these gains or losses to earnings are offset by the corresponding gains or losses on the underlying hedged item. Hedging activity impacted accumulated other comprehensive losses, net of income taxes, as follows:

(in millions)	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2012			2011			2012			2011
Gain at beginning of period	$	15		$	2		$	15		$	21
Derivative (gains)/losses transferred to earnings	(8		)	27			4			13
Change in fair value	(17		)	(20		)	(29		)	(25		)
(Loss)/gain as of September 30	$	(10	)	$	9		$	(10	)	$	9

At September 30, 2012, PMI expects $11 million of derivative losses that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next twelve months. These losses are expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.

Credit Exposure and Credit Risk

PMI is exposed to credit loss in the event of non-performance by counterparties. While PMI does not anticipate non-performance, its risk is limited to the fair value of the financial instruments. PMI actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting and continuously monitoring a diverse group of major international banks and financial institutions as counterparties.

- 21-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Contingent Features

PMI’s derivative instruments do not contain contingent features.

Fair Value

See Note 13. Fair Value Measurements for disclosures related to the fair value of PMI’s derivative financial instruments.

Note 7. Redeemable Noncontrolling Interest:

Philippines Business Combination:

On February 25, 2010, PMI's affiliate, Philip Morris Philippines Manufacturing Inc. (“PMPMI”), and Fortune Tobacco Corporation (“FTC”) combined their respective business activities by transferring selected assets and liabilities of PMPMI and FTC to a new company called PMFTC Inc. (“PMFTC”). PMPMI and FTC hold equal economic interests in PMFTC, while PMI manages the day-to-day operations of PMFTC and has a majority of its Board of Directors. Consequently, PMI accounted for the contributed assets and liabilities of FTC as a business combination.

The fair value of the assets and liabilities contributed by FTC in this non-cash transaction was determined to be $1.17 billion. FTC holds the right to sell its interest in PMFTC to PMI, except in certain circumstances, during the period from February 25, 2015 through February 24, 2018, at an agreed-upon value of $1.17 billion, which was recorded on PMI’s condensed consolidated balance sheet as a redeemable noncontrolling interest at the date of the business combination.

With the consolidation of PMFTC, FTC’s share of PMFTC’s comprehensive income or loss is attributable to the redeemable noncontrolling interest, impacting the carrying value. To the extent that the attribution of these amounts would cause the carrying value to fall below the redemption amount of $1.17 billion, the carrying amount would be adjusted back up to the redemption value through stockholders’ (deficit) equity. The movement in redeemable noncontrolling interest for the nine months ended September 30,2012 was as follows:

(in millions)
Redeemable noncontrolling interest at December 31, 2011	$	1,212
Share of net earnings	126
Dividend payments	(79		)
Currency translation	17
Redeemable noncontrolling interest at September 30, 2012	$	1,276

The redeemable noncontrolling interest balance at September 30, 2011 was $1,216 million. The increase in redeemable noncontrolling interest from December 31, 2010 through September 30, 2011 of $28 million was due to $80 million of net earnings and currency translation gains of $2 million, partially offset by dividend payments of $54 million.

In future periods, if the fair value of 50% of PMFTC were to drop below the redemption value of $1.17 billion, the difference would be treated as a special dividend to FTC and would reduce PMI’s earnings per share. Reductions in earnings per share may be partially or fully reversed in subsequent periods if the fair value of the redeemable noncontrolling interest increases relative to the redemption value. Such increases in earnings per share would be limited to cumulative prior reductions. At September 30, 2012, PMI determined that 50% of the fair value of PMFTC exceeded the redemption value of $1.17 billion.

- 22-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Note 8. Earnings Per Share:

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

(in millions)	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2012		2011		2012		2011
Net earnings attributable to PMI	$	6,705	$	6,705	$	2,227	$	2,377
Less distributed and undistributed earnings attributable to share-based payment awards	36		38		12		14
Net earnings for basic and diluted EPS	$	6,669	$	6,667	$	2,215	$	2,363
Weighted-average shares for basic EPS	1,701		1,771		1,683		1,749
Plus incremental shares from assumed conversions:
Stock options	—		—		—		—
Weighted-average shares for diluted EPS	1,701		1,771		1,683		1,749

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and therefore are included in PMI’s earnings per share calculation pursuant to the two-class method.

For the 2012 and 2011 computations, there were no antidilutive stock options.

Note 9. Segment Reporting:

PMI’s subsidiaries and affiliates are engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States of America. Reportable segments for PMI are organized and managed by geographic region. PMI’s reportable segments are European Union; Eastern Europe, Middle East & Africa; Asia; and Latin America & Canada.

PMI’s management evaluates segment performance and allocates resources based on operating companies income, which PMI defines as operating income before general corporate expenses and amortization of intangibles. Interest expense, net, and provision for income taxes are centrally managed and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by management.

- 23-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Segment data were as follows:

(in millions)	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2012			2011			2012			2011
Net revenues:
European Union	$	20,654		$	22,650		$	6,904		$	8,155
Eastern Europe, Middle East & Africa	14,256			13,195			5,125			4,921
Asia	15,668			14,577			5,174			5,143
Latin America & Canada	7,073			7,048			2,389			2,487
Net revenues	$	57,651		$	57,470		$	19,592		$	20,706
Earnings before income taxes:
Operating companies income:
European Union	$	3,232		$	3,548		$	1,085		$	1,262
Eastern Europe, Middle East & Africa	2,805			2,482			1,047			925
Asia	4,068			3,800			1,297			1,309
Latin America & Canada	753			774			267			255
Amortization of intangibles	(73		)	(73		)	(24		)	(25		)
General corporate expenses	(155		)	(135		)	(49		)	(49		)
Operating income	10,630			10,396			3,623			3,677
Interest expense, net	(633		)	(613		)	(211		)	(192		)
Earnings before income taxes	$	9,997		$	9,783		$	3,412		$	3,485

Items affecting the comparability of results from operations are asset impairment and exit costs. See Note 2. Asset Impairment and Exit Costs for a breakdown of these costs by segment.

Note 10. Contingencies:

Litigation - General

Legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. Our indemnitees include distributors, licensees, and others that have been named as parties in certain cases and that we have agreed to defend, as well as to pay costs and some or all of judgments, if any, that may be entered against them. Pursuant to the terms of the Distribution Agreement between Altria Group, Inc. ("Altria") and PMI, PMI will indemnify Altria and PM USA for tobacco product claims based in substantial part on products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for tobacco product claims based in substantial part on products manufactured by PM USA, excluding tobacco products contract manufactured for PMI. Various types of claims are raised in these proceedings, including, among others, product liability, consumer protection, antitrust, employment and tax.

It is possible that there could be adverse developments in pending cases against us and our subsidiaries. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation.

Damages claimed in some of the tobacco-related litigation are significant and, in certain cases in Brazil, Canada, Israel and Nigeria, range into the billions of U.S. dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. Much of the tobacco-related litigation is in its early stages and litigation is subject to uncertainty. However, as discussed below, we have to date been largely successful in defending tobacco-related litigation.

We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is

- 24-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any. Legal defense costs are expensed as incurred.

It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Nevertheless, although litigation is subject to uncertainty, we and each of our subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that we have valid defenses to the litigation pending against us, as well as valid bases for appeal of adverse verdicts, if any. All such cases are, and will continue to be, vigorously defended. However, we and our subsidiaries may enter into settlement discussions in particular cases if we believe it is in our best interests to do so.

Tobacco-Related Litigation

To date, we have paid total judgments, including costs, of approximately six thousand Euros in tobacco-related cases. These payments were made in order to appeal three Italian small claims cases, all of which were subsequently reversed on appeal. To date, no tobacco-related case has been finally resolved in favor of a plaintiff against us, our subsidiaries or indemnitees.

The table below lists the number of tobacco-related cases pending against us and/or our subsidiaries or indemnitees as of November 1, 2012, 2011 and 2010:

Type of Case	Number of Cases Pending as of November 1, 2012	Number of Cases Pending  as of November 1, 2011	Number of Cases Pending  as of November 1, 2010
Individual Smoking and Health Cases	75	84	111
Smoking and Health Class Actions	10	10	11
Health Care Cost Recovery Actions	15	11	10
Lights Class Actions	2	2	2
Individual Lights Cases (small claims court)	7	9	10
Public Civil Actions	4	3	8

Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 387 Smoking and Health, Lights, Health Care Cost Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated in our favor. Ten cases have had decisions in favor of plaintiffs. Seven of these cases have subsequently reached final resolution in our favor and three remain on appeal.

The table below lists the verdicts and post-trial developments in the three pending cases in which verdicts were returned in favor of plaintiffs:

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
May 2011	Brazil/Laszlo	Individual Smoking and Health	The Civil Court of São Vicente found for plaintiff and ordered Philip Morris Brasil to pay damages of R$31,333 (approximately $15,435), plus future costs for cessation and medical treatment of smoking related diseases.	In June 2011, Philip Morris Brasil filed an appeal. In December 2011, the Appellate Court reversed the trial court decision. In February 2012, plaintiff appealed the decision. This appeal is still pending.

- 25-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
September 2009	Brazil/Bernhardt	Individual Smoking and Health	The Civil Court of Rio de Janeiro found for plaintiff and ordered Philip Morris Brasil to pay R$13,000 (approximately $6,400) in “moral damages.”	Philip Morris Brasil filed its appeal against the decision on the merits with the Court of Appeals in November 2009. In February 2010, without addressing the merits, the Court of Appeals annulled the trial court's decision and remanded the case to the trial court to issue a new ruling, which was required to address certain compensatory damage claims made by the plaintiff that the trial court did not address in its original ruling. In July 2010, the trial court reinstated its original decision, while specifically rejecting the compensatory damages claim. Philip Morris Brasil appealed this decision. In March 2011, the Court of Appeals affirmed the trial court's decision and denied Philip Morris Brasil's appeal. The Court of Appeals increased the amount of damages awarded to the plaintiff to R$100,000 (approximately $49,300). Philip Morris Brasil filed an appeal in June 2011. This appeal is still pending.

- 26-

Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
February 2004	Brazil/The Smoker Health Defense Association (“ADESF”)	Class Action	The Civil Court of São Paulo found defendants liable without hearing evidence. The court did not assess moral or actual damages, which were to be assessed in a second phase of the case. The size of the class was not defined in the ruling.	In April 2004, the court clarified its ruling, awarding “moral damages” of R$1,000 (approximately $490) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not award actual damages, which were to be assessed in the second phase of the case. The size of the class was not estimated. Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In May 2011, the trial court dismissed the claim. Plaintiff has appealed. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that the plaintiff did not have standing to bring the lawsuit. This appeal is still pending.

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

Smoking and Health Litigation: These cases primarily allege personal injury and are brought by individual plaintiffs or on behalf of a class or purported class of individual plaintiffs. Plaintiffs' allegations of liability in these cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of express and implied warranties, violations of deceptive trade practice laws and consumer protection statutes. Plaintiffs in these cases seek various forms of relief, including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include licit activity, failure to state a claim, lack of defect, lack of proximate cause, assumption of the risk, contributory negligence, and statute of limitations.

As of November 1, 2012, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 75 cases brought by individual plaintiffs in Argentina (30), Brazil (29), Canada (2), Chile (4), Costa Rica (1), Greece (1), Italy (5), the Philippines (1), Scotland (1) and Turkey (1), compared with 84 such cases on November 1, 2011, and 111 cases on November 1, 2010; and

• 10 cases brought on behalf of classes of individual plaintiffs in Brazil (2) and Canada (8), compared with 10 such cases on November 1, 2011, and 11 such cases on November 1, 2010.

In the first class action pending in Brazil, The Smoker Health Defense Association (ADESF) v. Souza Cruz, S.A. and Philip Morris Marketing, S.A., Nineteenth Lower Civil Court of the Central Courts of the Judiciary District of São Paulo, Brazil, filed July 25, 1995, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer organization, is seeking damages for smokers and former smokers and injunctive relief. The verdict and post-trial developments in this case are described in the above table.

In the second class action pending in Brazil, Public Prosecutor of São Paulo v. Philip Morris Brasil Industria e Comercio Ltda., Civil Court of the City of São Paulo, Brazil, filed August 6, 2007, our subsidiary is a defendant. The plaintiff, the Public Prosecutor

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of the State of São Paulo, is seeking (i) unspecified damages on behalf of all smokers nationwide, former smokers, and their relatives; (ii) unspecified damages on behalf of people exposed to environmental tobacco smoke (“ETS”) nationwide, and their relatives; and (iii) reimbursement of the health care costs allegedly incurred for the treatment of tobacco-related diseases by all Brazilian States and Municipalities, and the Federal District. In an interim ruling issued in December 2007, the trial court limited the scope of this claim to the State of São Paulo only. In December 2008, the Seventh Civil Court of São Paulo issued a decision declaring that it lacked jurisdiction because the case involved issues similar to the ADESF case discussed above and should be transferred to the Nineteenth Lower Civil Court in São Paulo where the ADESF case is pending. The court further stated that these cases should be consolidated for the purposes of judgment. Our subsidiary appealed this decision to the State of São Paulo Court of Appeals, which subsequently declared the case stayed pending the outcome of the appeal. In April 2010, the São Paulo Court of Appeals reversed the Seventh Civil Court's decision that consolidated the cases, finding that they are based on different legal claims and are progressing at different stages of proceedings. This case was returned to the Seventh Civil Court of São Paulo, and our subsidiary filed its closing arguments in December 2010. In March 2012, the trial court dismissed the case on the merits. This decision has been appealed.

In the first class action pending in Canada, Cecilia Letourneau v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and JTI Macdonald Corp., Quebec Superior Court, Canada, filed in September 1998, our subsidiary and other Canadian manufacturers are defendants. The plaintiff, an individual smoker, is seeking compensatory and unspecified punitive damages for each member of the class who is deemed addicted to smoking. The class was certified in 2005. On February 14, 2012, the court ruled that the federal government will remain as a third-party in the case. Trial began on March 12, 2012. At the present pace, trial is expected to last well into 2013 and possibly 2014, with a judgment to follow at an indeterminate point after the conclusion of the trial proceedings.

In the second class action pending in Canada, Conseil Québécois Sur Le Tabac Et La Santé and Jean-Yves Blais v. Imperial Tobacco Ltd.,Rothmans, Benson & Hedges Inc. and JTI Macdonald Corp., Quebec Superior Court, Canada, filed in November 1998, our subsidiary and other Canadian manufacturers are defendants. The plaintiffs, an anti-smoking organization and an individual smoker, are seeking compensatory and unspecified punitive damages for each member of the class who allegedly suffers from certain smoking-related diseases. The class was certified in 2005. On February 14, 2012, the court ruled that the federal government will remain as a third-party in the case. Trial began on March 12, 2012. At the present pace, trial is expected to last well into 2013 and possibly 2014, with a judgment to follow at an indeterminate point after the conclusion of the trial proceedings.

In the third class action pending in Canada, Kunta v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Winnipeg, Canada, filed June 12, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic obstructive pulmonary disease (“COPD”), severe asthma, and mild reversible lung disease resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. In September 2009, plaintiff's counsel informed defendants that he did not anticipate taking any action in this case while he pursues the class action filed in Saskatchewan (see description of Adams, below).

In the fourth class action pending in Canada, Adams v. Canadian Tobacco Manufacturers' Council, et al.,The Queen's Bench, Saskatchewan, Canada, filed July 10, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, emphysema, heart disease, or cancer, as well as restitution of profits. Preliminary motions are pending.

In the fifth class action pending in Canada, Semple v. Canadian Tobacco Manufacturers' Council, et al.,The Supreme Court (trial court), Nova Scotia, Canada, filed June 18, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and COPD resulting from the use of tobacco products. He is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. No activity in this case is anticipated while plaintiff's counsel pursues the class action filed in Saskatchewan (see description of Adams, above).

In the sixth class action pending in Canada, Dorion v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Alberta, Canada, filed June 15, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic bronchitis and severe sinus infections resulting from the use of tobacco products. She is seeking compensatory and

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unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. To date, we, our subsidiaries, and our indemnitees have not been properly served with the complaint. No activity in this case is anticipated while plaintiff's counsel pursues the class action filed in Saskatchewan (see description of Adams, above).

In the seventh class action pending in Canada, McDermid v. Imperial Tobacco Canada Limited, et al.,Supreme Court, British Columbia, Canada, filed June 25, 2010, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and heart disease resulting from the use of tobacco products. He is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from heart disease allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954 to the date the claim was filed. Defendants have filed jurisdictional challenges on the grounds that this action should not proceed during the pendency of the Saskatchewan class action (see description of Adams, above).

In the eighth class action pending in Canada, Bourassa v. Imperial Tobacco Canada Limited, et al.,Supreme Court, British Columbia, Canada, filed June 25, 2010, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, the heir to a deceased smoker, alleges that the decedent was addicted to tobacco products and suffered from emphysema resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from chronic respiratory diseases allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954 to the date the claim was filed. Defendants have filed jurisdictional challenges on the grounds that this action should not proceed during the pendency of the Saskatchewan class action (see description of Adams, above).

Health Care Cost Recovery Litigation: These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of health care cost expenditures allegedly caused by tobacco products. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied warranties, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, defective product, failure to warn, sale of cigarettes to minors, and claims under statutes governing competition and deceptive trade practices. Plaintiffs in these cases seek various forms of relief including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, remoteness of injury, failure to state a claim, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), and statute of limitations.

As of November 1, 2012, there were 15 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Canada (9), Nigeria (5) and Spain (1), compared with 11 such cases on November 1, 2011 and 10 such cases on November 1, 2010.

In the first health care cost recovery case pending in Canada, Her Majesty the Queen in Right of British Columbia v. Imperial Tobacco Limited, et al., Supreme Court, British Columbia, Vancouver Registry, Canada, filed January 24, 2001, we, our subsidiaries, our indemnitee (PM USA), and other members of the industry are defendants. The plaintiff, the government of the province of British Columbia, brought a claim based upon legislation enacted by the province authorizing the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, resulting from a “tobacco related wrong.” The Supreme Court of Canada has held that the statute is constitutional. We and certain other non-Canadian defendants challenged the jurisdiction of the court. The court rejected the jurisdictional challenge. Pre-trial discovery is ongoing.

In the second health care cost recovery case filed in Canada, Her Majesty the Queen in Right of New Brunswick v. Rothmans Inc., et al., Court of Queen's Bench of New Brunswick, Trial Court, New Brunswick, Fredericton, Canada, filed March 13, 2008, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of New Brunswick based on legislation enacted in the province. This legislation is similar to the law introduced in British Columbia that authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Pre-trial discovery is ongoing.

In the third health care cost recovery case filed in Canada, Her Majesty the Queen in Right of Ontario v. Rothmans Inc., et al., Ontario Superior Court of Justice, Toronto, Canada, filed September 29, 2009, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Ontario based on legislation enacted in the province. This legislation is similar to the laws introduced in British Columbia and

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New Brunswick that authorize the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the fourth health care cost recovery case filed in Canada, Attorney General of Newfoundland and Labrador v. Rothmans Inc., et al., Supreme Court of Newfoundland and Labrador, St. Johns, Canada, filed February 8, 2011, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Newfoundland and Labrador based on legislation enacted in the province that is similar to the laws introduced in British Columbia, New Brunswick and Ontario. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the fifth health care cost recovery case filed in Canada, Attorney General of Quebec v. Imperial Tobacco Limited, et al., Superior Court of Quebec, Canada, filed June 8, 2012, we, our subsidiary, our indemnitee (PM USA), and other members of the industry are defendants. The claim was filed by the government of the province of Quebec based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the sixth health care cost recovery case filed in Canada, Her Majesty in Right of Alberta v. Altria Group, Inc., et al., Supreme Court of Queen's Bench Alberta, Canada, filed June 8, 2012, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Alberta based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” We, our subsidiaries and our indemnitees have all been served with the statement of claim.

In the seventh health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Manitoba v. Rothmans, Benson & Hedges, Inc., et al., The Queen's Bench, Winnipeg Judicial Centre, Canada, filed May 31, 2012, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Manitoba based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the eighth health care cost recovery case filed in Canada, The Government of Saskatchewan v. Rothmans, Benson & Hedges Inc., et al., Queen's Bench, Judicial Centre of Saskatchewan, Canada, filed June 8, 2012, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Saskatchewan based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the ninth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Prince Edward Island v. Rothmans, Benson & Hedges Inc., et al., Supreme Court of Prince Edward Island (General Section), Canada, filed September 10, 2012, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Prince Edward Island based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Our subsidiary has been served with the statement of claim.

In the first health care cost recovery case in Nigeria, The Attorney General of Lagos State v. British American Tobacco (Nigeria) Limited, et al., High Court of Lagos State, Lagos, Nigeria, filed April 30, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In February 2008, our subsidiary was served with a Notice of Discontinuance. The claim was formally dismissed in March 2008. However, the plaintiff has since refiled its claim. Our subsidiary is in the process of making challenges to service and the court's jurisdiction. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections. We currently have no employees, operations or assets in Nigeria.

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In the second health care cost recovery case in Nigeria, The Attorney General of Kano State v. British American Tobacco (Nigeria) Limited, et al., High Court of Kano State, Kano, Nigeria, filed May 9, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. Our subsidiary is in the process of making challenges to service and the court's jurisdiction.

In the third health care cost recovery case in Nigeria, The Attorney General of Gombe State v. British American Tobacco (Nigeria) Limited, et al., High Court of Gombe State, Gombe, Nigeria, filed May 18, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In July 2008, the court dismissed the case against all defendants based on the plaintiff's failure to comply with various procedural requirements when filing and serving the complaint. The plaintiff did not appeal the dismissal. However, in October 2008, the plaintiff refiled its claim. In June 2010, the court ordered the plaintiff to amend the claim to properly name Philip Morris International Inc. as a defendant. Philip Morris International Inc. objected to plaintiff's attempted service of amended process. In February 2011, the court granted, in part, our service objections, ruling that the plaintiff had not complied with the procedural steps necessary to serve us. As a result of this ruling, Philip Morris International Inc. is not currently a defendant in the case. Plaintiff may appeal the ruling or follow the procedural steps required to serve Philip Morris International Inc.

In the fourth health care cost recovery case in Nigeria, The Attorney General of Oyo State, et al., v. British American Tobacco (Nigeria) Limited, et al., High Court of Oyo State, Ibadan, Nigeria, filed May 25, 2007, our subsidiary and other members of the industry are defendants. Plaintiffs seek reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. Our subsidiary challenged service as improper. In June 2010, the court ruled that plaintiffs did not have leave to serve the writ of summons on the defendants and that they must re-serve the writ. Our subsidiary has not yet been re-served.

In the fifth health care cost recovery case in Nigeria, The Attorney General of Ogun State v. British American Tobacco (Nigeria) Limited, et al., High Court of Ogun State, Abeokuta, Nigeria, filed February 26, 2008, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In May 2010, the trial court rejected our subsidiary's service objections. Our subsidiary has appealed.

In a series of proceedings in Spain, Junta de Andalucia, et al. v. Philip Morris Spain, et al., Court of First Instance, Madrid, Spain, the first of which was filed February 21, 2002, our subsidiary and other members of the industry were defendants. The plaintiffs sought reimbursement for the cost of treating certain of their citizens for various alleged smoking-related illnesses. In May 2004, the first instance court dismissed the initial case, finding that the State was a necessary party to the claim, and thus, the claim must be filed in the Administrative Court. In September 2007, the plaintiffs filed their complaint in the Administrative Court, which dismissed the claim based on a procedural issue in November 2007. In November 2009, the Supreme Court rejected plaintiffs' appeal, resulting in the final dismissal of the claim. However, plaintiffs have filed a second claim in the Administrative Court against the Ministry of Economy. This second claim seeks the same relief as the original claim, but relies on a different procedural posture. The Administrative Court has recognized our subsidiary as a party in this proceeding. Our subsidiary and other defendants filed preliminary objections that resulted in a stay of the term to file the answer. In May 2011, the court rejected the defendants' preliminary objections, but it has not yet set a deadline for defendants to file their answers.

Lights Cases: These cases, brought by individual plaintiffs, or on behalf of a class of individual plaintiffs, allege that the use of the term “lights” constitutes fraudulent and misleading conduct. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including misrepresentation, deception, and breach of consumer protection laws. Plaintiffs seek various forms of relief including restitution, injunctive relief, and compensatory and other damages. Defenses raised include lack of causation, lack of reliance, assumption of the risk, and statute of limitations.

As of November 1, 2012, there were a number of lights cases pending against our subsidiaries or indemnitees, as follows:

• 2 cases brought on behalf of overlapping classes of individual plaintiffs in Israel, compared with 2 such cases on November 1, 2011 and November 1, 2010; and

• 7 cases brought by individuals in the equivalent of small claims courts in Italy, where the maximum damages are approximately one thousand Euros per case, compared with 9 such cases on November 1, 2011, and 10 such cases on November 1, 2010.

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In the first class action pending in Israel, El-Roy, et al. v. Philip Morris Incorporated, et al., District Court of Tel-Aviv/Jaffa, Israel, filed January 18, 2004, our subsidiary and our indemnitees (PM USA and our former importer) are defendants. The plaintiffs filed a purported class action claiming that the class members were misled by the descriptor “lights” into believing that lights cigarettes are safer than full flavor cigarettes. The claim seeks recovery of the purchase price of lights cigarettes and compensation for distress for each class member. Hearings took place in November and December 2008 regarding whether the case meets the legal requirements necessary to allow it to proceed as a class action. The parties' briefing on class certification was completed in March 2011. A hearing for final oral argument on class certification took place in November 2011. We are awaiting the court's decision.

The claims in the second class action pending in Israel, Navon, et al. v. Philip Morris Products USA, et al., District Court of Tel-Aviv/Jaffa, Israel, filed December 5, 2004, against our indemnitee (our distributor) and other members of the industry are similar to those in El-Roy, and the case is currently stayed pending a ruling on class certification in El-Roy.

Public Civil Actions: Claims have been filed either by an individual, or a public or private entity, seeking to protect collective or individual rights, such as the right to health, the right to information or the right to safety. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including product defect, concealment, and misrepresentation. Plaintiffs in these cases seek various forms of relief including injunctive relief such as banning cigarettes, descriptors, smoking in certain places and advertising, as well as implementing communication campaigns and reimbursement of medical expenses incurred by public or private institutions.

As of November 1, 2012, there were 4 public civil actions pending against our subsidiaries in Argentina (2), Brazil (1), and Venezuela (1), compared with 3 such cases on November 1, 2011, and 8 such cases on November 1, 2010.

In the first public civil action in Argentina, Asociación Argentina de Derecho de Danos v. Massalin Particulares S.A., et al., Civil Court of Buenos Aires, Argentina, filed February 26, 2007, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer association, seeks the establishment of a relief fund for reimbursement of medical costs associated with diseases allegedly caused by smoking. Our subsidiary filed its answer in September 2007. In March 2010, the case file was transferred to the Federal Court on Administrative Matters after the Civil Court granted the plaintiff's request to add the national government as a co-plaintiff in the case.

In the second public civil action in Argentina, Conciencia Ciudadana Mejorar Asociación Civil, et al.v. Massalin Particulares S.A., 4th Civil & Commercial Court of Zarate, Argentina, filed September 20, 2012, our subsidiary is a defendant. Plaintiffs, a civil association and an individual, seek an order requiring our subsidiary to place information regarding tar, nicotine, and carbon monoxide yields on the packages of cigarettes in the Marlboro brand family. Plaintiffs also seek moral and punitive damages. Our subsidiary has been served with the complaint.

In the public civil action in Brazil, The Brazilian Association for the Defense of Consumer Health (“SAUDECON”) v. Philip Morris Brasil Industria e Comercio Ltda. and Souza Cruz S.A., Civil Court of City of Porto Alegre, Brazil, filed November 3, 2008, our subsidiary is a defendant. The plaintiff, a consumer organization, is asking the court to establish a fund that will be used to provide treatment to smokers who claim to be addicted and who do not otherwise have access to smoking cessation treatment. Plaintiff requests that each defendant's liability be determined according to its market share. In May 2009, the trial court dismissed the case on the merits. Plaintiff has appealed.

In the public civil action in Venezuela, Federation of Consumers and Users Associations (“FEVACU”), et al. v. National Assembly of Venezuela and the Venezuelan Ministry of Health, Constitutional Chamber of the Venezuelan Supreme Court, filed April 29, 2008, we were not named as a defendant, but the plaintiffs published a notice pursuant to court order, notifying all interested parties to appear in the case. In January 2009, our subsidiary appeared in the case in response to this notice. The plaintiffs purport to represent the right to health of the citizens of Venezuela and claim that the government failed to protect adequately its citizens' right to health. The claim asks the court to order the government to enact stricter regulations on the manufacture and sale of tobacco products. In addition, the plaintiffs ask the court to order companies involved in the tobacco industry to allocate a percentage of their “sales or benefits” to establish a fund to pay for the health care costs of treating smoking-related diseases. In October 2008, the court ruled that plaintiffs have standing to file the claim and that the claim meets the threshold admissibility requirements.

Other Litigation

Other litigation includes an antitrust suit, a breach of contract action, various tax and individual employment cases and tort claims.

Antitrust: In the antitrust class action in Kansas, Smith v. Philip Morris Companies Inc., et al., District Court of Seward County, Kansas, filed February 7, 2000, we and other members of the industry are defendants. The plaintiff asserts that the defendant

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cigarette companies engaged in an international conspiracy to fix wholesale prices of cigarettes and sought certification of a class comprised of all persons in Kansas who were indirect purchasers of cigarettes from the defendants. The plaintiff claims unspecified economic damages resulting from the alleged price-fixing, trebling of those damages under the Kansas price-fixing statute and counsel fees. The trial court granted plaintiff's motion for class certification in 2001. In March 2012, the trial court granted defendants' motions for summary judgment in their entirety and, accordingly, entered judgment for the defendants on all claims. In July 2012, plaintiff appealed this ruling.

Breach of Contract: In the breach of contract action in Ontario, Canada, The Ontario Flue-Cured Tobacco Growers' Marketing Board, et al. v. Rothmans, Benson & Hedges Inc., Superior Court of Justice, London, Ontario, Canada, filed November 5, 2009, our subsidiary is a defendant. Plaintiffs in this putative class action allege that our subsidiary breached contracts with the proposed class members (Ontario tobacco growers and their related associations) concerning the sale and purchase of flue-cured tobacco from January 1, 1986 to December 31, 1996. Plaintiffs allege that our subsidiary was required by the contracts to disclose to plaintiffs the quantity of tobacco included in cigarettes to be sold for duty free and export purposes (which it purchased at a lower price per pound than tobacco that was included in cigarettes to be sold in Canada), but failed to disclose that some of the cigarettes it designated as being for export and duty free purposes were ultimately sold in Canada. Similar lawsuits were filed against other Canadian cigarette manufacturers. In September 2011, plaintiffs served a notice of motion seeking class certification. The court has agreed to hear preliminary motions prior to its consideration of plaintiffs' certification motion. A hearing on the question of whether the plaintiffs' claims are released by settlements entered into previously between our subsidiary and other Canadian cigarette manufacturers, on the one hand, and the federal government, on the other hand, was heard in September 2012. The court took the motion under reserve and has not yet issued a decision. The court has also agreed to hear argument on defendants' motion to dismiss plaintiffs' claims based on statute of limitations grounds prior to considering plaintiffs' class certification motion.

Tax: In Brazil, there are 112 tax cases involving Philip Morris Brasil S.A. and Philip Morris Brasil Ltda. relating to the payment of state tax on the sale and transfer of goods and services, federal social contributions, excise, social security and income tax, and other matters. Fifty-six of these cases are under administrative review by the relevant fiscal authorities and 56 are under judicial review by the courts.

Employment: Our subsidiaries, Philip Morris Brasil S.A. and Philip Morris Brasil Ltda., are defendants in various individual employment cases resulting, among other things, from the termination of employment in connection with the shut-down of one of our factories in Brazil.

Tort: In the first action in Delaware, Antonio Emilio Hupan et al. v. Alliance One International, Inc. et al. Superior Court for the State of Delaware in and for New Castle County, filed February 14, 2012, we, our subsidiaries, other members of the industry, certain companies allegedly involved in the purchase of tobacco leaf in Argentina, and certain companies allegedly involved in the manufacture of herbicides are defendants. Plaintiffs in this action are eight children born between the years of 1996 and 2008 and their families, all residing in Argentina. Plaintiffs claim that the children developed birth defects as a result of the exposure of their parents to herbicides while working on farms in Argentina. Plaintiffs allege that we, our subsidiaries, other members of the industry, and certain companies allegedly involved in the purchase of tobacco leaf in Argentina required the use of certain herbicides in tobacco growing while failing to warn tobacco growers of the risks. Plaintiffs claim unspecified compensatory and punitive damages. The court has set a schedule for filing preliminary motions.

In the second action in Delaware, Pabla Chalañuk, et al. v. Alliance One International, Inc., et al. Superior Court for the State of Delaware in and for New Castle County, filed April 5, 2012, we, our subsidiaries, other members of the industry, certain companies allegedly involved in the purchase of tobacco leaf in Argentina, and certain companies allegedly involved in the manufacture of herbicides are defendants. Plaintiffs in this action are 41 children born between the years of 1986 and 2009 and their families, all residing in Argentina. Plaintiffs claim that the children developed birth defects as a result of the exposure of their parents to herbicides while working on farms in Argentina. Plaintiffs allege that we, our subsidiaries, other members of the industry, and certain companies allegedly involved in the purchase of tobacco leaf in Argentina required the use of certain herbicides in tobacco growing while failing to warn tobacco growers of the risks. Plaintiffs claim unspecified compensatory and punitive damages. The court has stayed this case pending resolution of the preliminary motions in the Hupan case (see description of Hupan, above).

In the third action in Delaware, Clarisa Rodriguez Da Silva et al. v. Alliance One International, Inc. et al. Superior Court for the State of Delaware in and for New Castle County, filed October 25, 2012, we, our subsidiaries, other members of the industry, certain companies allegedly involved in the purchase of tobacco leaf in Argentina, and certain companies allegedly involved in the manufacture of herbicides are defendants. Plaintiffs in this action are 38 children born between the years of 1979 and 2010 and their families, all residing in Argentina. Plaintiffs claim that the children developed birth defects as a result of the exposure of their parents to herbicides while working on farms in Argentina. Plaintiffs allege that we, our subsidiaries, other members of

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Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

the industry, and certain companies allegedly involved in the purchase of tobacco leaf in Argentina required the use of certain herbicides in tobacco growing while failing to warn tobacco growers of the risks. Plaintiffs claim unspecified compensatory and punitive damages. We and our subsidiaries have not been served with the complaint.

Note 11. Income Taxes:

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

PMI’s effective tax rates for the nine months and three months ended September 30,2012 were 30.3% and 31.9%, respectively. PMI’s effective tax rates for the nine months and three months ended September 30,2011, were 29.1% and 29.4%, respectively. The effective tax rates for the nine months and three months ended September 30,2012, were unfavorably impacted by an additional income tax provision of $79 million following the conclusion of the IRS examination of Altria's consolidated tax returns for the years 2004-2006. Prior to March 28, 2008, PMI was a wholly owned subsidiary of Altria. The effective tax rate for the nine months ended September 30,2011, was favorably impacted by an enacted decrease in corporate income tax rates in Greece ($11 million) and the reversal of a valuation allowance in Brazil ($15 million).

The effective tax rates are based on PMI’s full-year geographic earnings mix projections and cash repatriation plans. Changes in earnings mix or in cash repatriation plans could have an impact on the effective tax rates, which PMI monitors each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions.

PMI is regularly examined by tax authorities around the world and is currently under examination in a number of jurisdictions. The U.S. federal statute of limitations remains open for the years 2007 onward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. Years still open to examination by foreign tax authorities in major jurisdictions include Germany (2007 onward), Indonesia (2007 onward), Russia (2010 onward) and Switzerland (2011 onward).

It is reasonably possible that, within the next twelve 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.

Note 12. Indebtedness:

Short-term Borrowings:

At September 30, 2012 and December 31, 2011, PMI’s short-term borrowings, consisting of commercial paper and bank loans to certain PMI subsidiaries, had a carrying value of $2,141 million and $1,511 million, respectively. The fair value of PMI’s short-term borrowings, based on current market interest rates, approximates carrying value.

Long-term Debt:

At September 30, 2012 and December 31, 2011, PMI’s long-term debt consisted of the following:

(in millions)	September 30, 2012		December 31, 2011
U.S. dollar notes, 1.125% to 6.875% (average interest rate 4.462%), due through 2042	$	14,698	$	11,269
Foreign currency obligations:
Euro notes, 2.125% to 5.875% (average interest rate 4.227%), due through 2024	3,637		3,533
Swiss franc notes, 1.0% to 3.250% (average interest rate 1.984%), due through 2021	1,540		1,719
Other (average interest rate 3.004%), due through 2024	420		513
	20,295		17,034
Less current portion of long-term debt	2,775		2,206
	$	17,520	$	14,828

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Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

Other foreign currency debt above includes capital lease obligations primarily associated with PMI's vending machine distribution network in Japan. Other foreign currency debt also includes debt from our business combination in the Philippines and mortgage debt in Switzerland.

PMI's debt offerings in the first three quarters of 2012 were as follows:

(in millions)
Type		Face Value	Interest Rate	Issuance	Maturity
U.S. dollar notes	(a)	$700	4.500%	March 2012	March 2042
U.S. dollar notes	(a)	$550	1.625%	March 2012	March 2017
EURO notes	(b)	€750 (approximately $951)	2.125%	May 2012	May 2019
EURO notes	(b)	€600 (approximately $761)	2.875%	May 2012	May 2024
U.S. dollar notes	(c)	$750	1.125%	August 2012	August 2017
U.S. dollar notes	(c)	$750	2.500%	August 2012	August 2022
U.S. dollar notes	(c)	$750	3.875%	August 2012	August 2042
Swiss franc notes	(d)	CHF 325 (approximately $334)	1.000%	September 2012	September 2020

(a) Interest on these notes is payable semiannually beginning in September 2012

(b) Interest on these notes is payable annually beginning in May 2013

(c) Interest on these notes is payable semiannually beginning in February 2013

(d) Interest on these notes is payable annually beginning in September 2013

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

Credit Facilities:

At September 30, 2012, PMI’s total committed credit facilities were $6.0 billion. There were no borrowings outstanding under these committed credit facilities.

Note 13. Fair Value Measurements:

The authoritative guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of input that may be used to measure fair value, which are as follows:

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

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Derivative Financial Instruments – Foreign Exchange Contracts

PMI assesses the fair value of its derivative financial instruments, which consist of deliverable and non-deliverable foreign exchange forward contracts, foreign currency swaps, foreign currency collars and foreign currency options, using internally developed models that use, as their basis, readily observable market inputs. The fair value of PMI’s foreign exchange forward contracts is determined by using the prevailing foreign exchange spot rates and interest rate differentials, and the respective maturity dates of the instruments. The fair value of PMI’s currency options is determined by using a Black-Scholes methodology based on foreign exchange spot rates and interest rate differentials, currency volatilities and maturity dates. PMI’s derivative financial instruments

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Philip Morris International Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Unaudited)

have been classified within Level 2 in the table shown below. See Note 6. Financial Instruments for an additional discussion of derivative financial instruments.

Debt

The fair value of PMI’s outstanding debt, which is utilized solely for disclosure purposes, is determined using quotes and market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities. The aggregate carrying value of PMI’s debt, excluding short-term borrowings and $50 million of capital lease obligations, was $20,245 million at September 30, 2012. The fair value of PMI’s outstanding debt, excluding the aforementioned short-term borrowings and capital lease obligations, has been classified within Level 1 and Level 2 in the table shown below.

The aggregate fair value of PMI’s derivative financial instruments and debt as of September 30, 2012, was as follows:

(in millions)	Fair Value at September 30, 2012		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	72	$	—	$	72	$	—
Total assets	$	72	$	—	$	72	$	—
Liabilities:
Debt	$	22,645	$	22,249	$	396	$	—
Foreign exchange contracts	63		—		63		—
Total liabilities	$	22,708	$	22,249	$	459	$	—

Note 14. Accumulated Other Comprehensive Losses:

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

(in millions)	At September 30, 2012			At December 31, 2011			At September 30, 2011
Currency translation adjustments	$	(358	)	$	(293	)	$	141
Pension and other benefits	(2,467		)	(2,585		)	(1,576		)
Derivatives accounted for as hedges	(10		)	15			9
Equity securities	—			—			1
Total accumulated other comprehensive losses	$	(2,835	)	$	(2,863	)	$	(1,425	)

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Item 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Description of Our Company

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

• European Union;

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

• Asia; and

• Latin America & Canada.

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

We use the term net revenues to refer to our operating revenues from the sale of our products, net of sales and promotion incentives. Our net revenues and operating income are affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange rates and the mix of products we sell. Mix is a term used to refer to the proportionate value of premium-price brands to mid-price or low-price brands in any given market (product mix). Mix can also refer to the proportion of shipment volume in more profitable markets versus shipment volume in less profitable markets (geographic mix). We often collect excise taxes from our customers and then remit them to governments, and, in those circumstances, we include the excise taxes in our net revenues and in excise taxes on products. Our cost of sales consists principally of tobacco leaf, non-tobacco raw materials, labor and manufacturing costs.

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

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

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Executive Summary

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

Consolidated Operating Results for the Nine Months Ended September 30,2012 – The changes in our reported diluted earnings per share (“diluted EPS”) for the nine months ended September 30,2012, from the comparable 2011 amounts, were as follows:

	Diluted EPS			% Growth
For the nine months ended September 30, 2011	$	3.76
2012 Asset impairment and exit costs	(0.02		)
2012 Tax items	(0.05		)
Subtotal of 2012 items	(0.07		)
2011 Asset impairment and exit costs	0.03
2011 Tax items	(0.02		)
Subtotal of 2011 items	0.01
Currency	(0.19		)
Interest	(0.01		)
Change in tax rate	—
Impact of lower shares outstanding and share-based payments	0.17
Operations	0.25
For the nine months ended September 30, 2012	$	3.92		4.3	%

Asset Impairment and Exit Costs – During the nine months ended September 30,2012, we recorded pre-tax asset impairment and exit costs of $50 million ($29 million after tax and noncontrolling interests or $0.02 per share) primarily related to factory restructurings in Asia and in Latin America & Canada, as well as a contract termination charge in Asia. During the nine months ended September 30,2011, we recorded pre-tax asset impairment and exit costs of $60 million ($42 million after tax or $0.03 per share) primarily related to severance costs for factory and R&D restructurings, primarily in the European Union and in Latin America & Canada, as well as a contract termination charge in EEMA.

Income Taxes – Our effective income tax rate for the nine months ended September 30,2012 increased by 1.2 percentage points to 30.3%. The effective tax rate for the nine months ended September 30,2012, was unfavorably impacted by an additional income tax provision of $79 million following the conclusion of the IRS examination of Altria Group, Inc.'s ("Altria") consolidated tax returns for the years 2004-2006. Prior to March 28, 2008, we were a wholly owned subsidiary of Altria. The effective tax rate for the nine months ended September 30,2011 was favorably impacted by an enacted decrease in corporate income tax rates in Greece ($11 million) and the reversal of a valuation allowance in Brazil ($15 million). These special tax items discussed in this paragraph decreased our diluted EPS by $0.05 per share in 2012, and increased our diluted EPS by $0.02 per share in 2011.

Currency – The unfavorable currency impact during the reporting period was due primarily to the Euro, Indonesian rupiah, Mexican peso, Polish zloty, Russian ruble and Turkish lira, partially offset by the Japanese yen and the Swiss franc.

Interest – The unfavorable impact of interest was due primarily to higher average debt levels, partially offset by lower average interest rates on debt.

Lower Shares Outstanding and Share-Based Payments – The favorable diluted EPS impact was due to the repurchase of our common stock pursuant to our share repurchase programs.

Operations – The increase in our operations reflected in the table above was due primarily to the following segments:

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

• Asia: Higher pricing and lower manufacturing costs, partially offset by higher marketing, administration and research costs and unfavorable volume/mix attributable to Japan.

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Consolidated Operating Results for the Three Months Ended September 30,2012 – The changes in our diluted EPS for the three months ended September 30,2012, from the comparable 2011 amounts, were as follows:

	Diluted EPS			% Growth
For the three months ended September 30, 2011	$	1.35
2012 Asset impairment and exit costs	(0.01		)
2012 Tax items	(0.05		)
Subtotal of 2012 items	(0.06		)
2011 Asset impairment and exit costs	0.02
2011 Tax items	—
Subtotal of 2011 items	0.02
Currency	(0.07		)
Interest	(0.01		)
Change in tax rate	—
Impact of lower shares outstanding and share-based payments	0.05
Operations	0.04
For the three months ended September 30, 2012	$	1.32		(2.2	)%

Asset Impairment and Exit Costs – During the three months ended September 30,2012, we recorded pre-tax asset impairment and exit costs of $34 million ($21 million after tax and noncontrolling interests or $0.01 per share) primarily related to factory restructurings in Asia and in Latin America & Canada, as well as a contract termination charge in Asia. During the three months ended September 30,2011, we recorded pre-tax asset impairment and exit costs of $43 million ($31 million after tax or $0.02 per share) primarily related to severance costs for factory and R&D restructurings, primarily in the European Union and in Latin America & Canada, as well as a contract termination charge in EEMA.

Income Taxes – Our effective income tax rate for the three months ended September 30,2012 increased by 2.5 percentage points to 31.9%. The effective tax rate for the three months ended September 30,2012, was unfavorably impacted by an additional income tax provision of $79 million following the aforementioned conclusion of the IRS examination of Altria's consolidated tax returns for the years 2004-2006. This special tax item discussed in this paragraph decreased our diluted EPS by $0.05 per share in 2012.

Currency – The unfavorable currency impact during the reporting period was due primarily to the Euro, Indonesian rupiah, Mexican peso, Polish zloty, Russian ruble and Turkish lira, partially offset by the Swiss franc.

Interest – The unfavorable impact of interest was due primarily to higher average debt levels, partially offset by lower average interest rates on debt.

Lower Shares Outstanding and Share-Based Payments – The favorable diluted EPS impact was due to the repurchase of our common stock pursuant to our share repurchase programs.

Operations – The increase in our operations reflected in the table above was due primarily to the following segments:

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

• European Union: Unfavorable volume/mix and higher marketing, administration and research costs, partially offset by higher pricing.

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

2012 Forecasted Results - On October 18, 2012, we narrowed, at prevailing exchange rates, our 2012 full-year reported diluted EPS forecast to be in a range of $5.12 to $5.18, versus $4.85 in 2011. Excluding incremental adjustments since the previously announced forecast of July 19, 2012, of $0.05 per share for a net tax expense of $79 million related to the completion of the U.S. Federal Income Tax audit for the years 2004 through 2006, and $0.01 per share for asset impairment and exit costs, the range is forecast to be $5.18 to $5.24.

Excluding a forecasted total unfavorable currency impact of approximately $0.23 for the full-year 2012, which compares favorably by $0.04 per share to the unfavorable full-year currency forecast of $0.27 per share previously announced on July 19, 2012, the reported diluted earnings forecast range of $5.12 to $5.18 per share represents a projected increase of approximately 10.5% to 11.5% versus $4.85 in 2011.

Excluding the unfavorable impact of currency, the aforementioned net tax expense of $0.05 per share and year-to-date asset impairment and exit costs of $0.02 per share, the full-year reported diluted earnings forecast range of $5.12 to $5.18 per share represents a growth rate of approximately 11% to 12% versus adjusted diluted earnings per share of $4.88 in 2011.

We calculated 2011 adjusted diluted EPS as reported diluted EPS of $4.85, less the $0.02 per share benefit of discrete tax items, plus the $0.05 per share charge related to asset impairment and exit costs.

This 2012 guidance excludes the impact of any potential future acquisitions, unanticipated asset impairment and exit cost charges, and any unusual events. The factors described in the “Cautionary Factors That May Affect Future Results” section of the following “Discussion and Analysis” represent continuing risks to this forecast.

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

On October 18, 2012, we also announced that we expect to achieve our mid-to-long term organic volume annual growth target of 1% for the full-year 2012. Organic volume represents our cigarette volume, excluding acquisitions.

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Discussion and Analysis

Consolidated Operating Results

See pages 66-70 for a discussion of our "Cautionary Factors That May Affect Future Results." Our cigarette volume, net revenues, excise taxes on products and operating companies income by segment were as follows:

	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
(in millions)	2012			2011			2012			2011
Cigarette volume:
European Union	151,222			161,913			51,629			56,198
Eastern Europe, Middle East & Africa	226,472			218,032			81,388			79,053
Asia	244,009			235,187			79,507			79,053
Latin America & Canada	72,214			73,512			24,007			25,243
Total cigarette volume	693,917			688,644			236,531			239,547
Net revenues:
European Union	$	20,654		$	22,650		$	6,904		$	8,155
Eastern Europe, Middle East & Africa	14,256			13,195			5,125			4,921
Asia	15,668			14,577			5,174			5,143
Latin America & Canada	7,073			7,048			2,389			2,487
Net revenues	$	57,651		$	57,470		$	19,592		$	20,706
Excise taxes on products:
European Union	$	14,191		$	15,646		$	4,779		$	5,649
Eastern Europe, Middle East & Africa	8,063			7,286			2,918			2,711
Asia	7,275			6,519			2,413			2,344
Latin America & Canada	4,634			4,593			1,562			1,640
Excise taxes on products	$	34,163		$	34,044		$	11,672		$	12,344
Operating income:
Operating companies income:
European Union	$	3,232		$	3,548		$	1,085		$	1,262
Eastern Europe, Middle East & Africa	2,805			2,482			1,047			925
Asia	4,068			3,800			1,297			1,309
Latin America & Canada	753			774			267			255
Amortization of intangibles	(73		)	(73		)	(24		)	(25		)
General corporate expenses	(155		)	(135		)	(49		)	(49		)
Operating income	$	10,630		$	10,396		$	3,623		$	3,677

As discussed in Note 9. Segment Reporting to our condensed consolidated financial statements, we evaluate segment performance and allocate resources based on operating companies income, which we define as operating income before general corporate expenses and amortization of intangibles. We believe it is appropriate to disclose this measure to help investors analyze the business performance and trends of our various business segments.

References to total international cigarette market, total cigarette market, total market and market shares throughout this "Discussion and Analysis" are our estimates based on a number of internal and external sources.

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Consolidated Operating Results for the Nine Months Ended September 30,2012

The following discussion compares our consolidated operating results for the nine months ended September 30,2012, with the nine months ended September 30,2011.

Our cigarette shipment volume of 693.9 billion units increased by 5.3 billion (0.8%), due primarily to gains in:

• Asia, primarily driven by a higher total market and share in Indonesia, Thailand and Vietnam, partly offset by lower share in Japan and Korea; and

• EEMA, primarily due to a higher total market and share in Turkey, a higher total market in Saudi Arabia, and higher share in Russia, partly offset by a lower total market and share in Romania.

These gains were partially offset by declines in:

• the European Union, primarily due to a lower total market, notably in southern Europe, Germany, Hungary, Poland and the Slovak Republic and a lower total market and share in the Czech Republic, France, the Netherlands and Portugal; and

• Latin America & Canada, due mainly to a lower total market in Brazil and Colombia.

Excluding acquisitions, our cigarette shipment volume was up by 0.7%. Excluding acquisitions and the Japan hurdle of 6.3 billion units related to additional volume shipped in the second quarter of 2011 as a result of the disruption of our principal competitor's supply chain following the natural disaster in March 2011, our cigarette shipment volume grew by 1.7%.

Our market share performance was stable or registered growth in a number of markets, including Algeria, Argentina, Austria, Belgium, Brazil, Egypt, Germany, Indonesia, Kazakhstan, Mexico, Poland, Russia, Thailand, Turkey and Ukraine.

Total cigarette shipments of Marlboro of 226.2 billion units were up by 0.3%. Excluding the Japan hurdle, total cigarette shipments of Marlboro grew by 1.1%, driven primarily by growth in: EEMA, in particular in North Africa, Saudi Arabia, Serbia and Turkey; Asia, notably in Indonesia and Vietnam, partly offset by Korea and the Philippines; and in Latin America & Canada, notably in Brazil, Colombia and Mexico. The growth was partly offset by a decline in the European Union, mainly due to France, Germany, Italy, the Netherlands, Portugal and Spain, partly offset by Hungary.

Total cigarette shipments of L&M of 69.6 billion units were up by 2.2%, reflecting growth in: EEMA, notably Bulgaria, Egypt, Romania, Russia, Serbia and Turkey, partly offset by Algeria; Asia, mainly Thailand; and Latin America & Canada; partially offset by a decline in the European Union, mainly Greece, Poland and Spain, partly offset by France and Germany.

Total cigarette shipments of Bond Street of 35.5 billion units increased by 4.8%, led mainly by growth in Kazakhstan, Russia, Serbia and Ukraine, partly offset by declines in Hungary and Turkey.

Total cigarette shipments of Parliament of 32.1 billion units were up by 9.4%, fueled by growth in EEMA, notably Kazakhstan, Russia, Turkey and Ukraine. Excluding the Japan hurdle, cigarette shipments of Parliament grew by 10.6%.

Total cigarette shipments of Philip Morris of 28.6 billion units decreased by 3.6%. Excluding the Japan hurdle, cigarette shipment volume of Philip Morris decreased by 1.3%, mainly due to declines in Germany, the Philippines and Spain, partly offset by growth in Argentina.

Total cigarette shipments of Chesterfield of 27.2 billion units were down by 2.3%, due to a decline in EEMA, mainly Ukraine, partly offset by growth in the European Union, primarily in Poland and Portugal, partly offset by a decline in Italy and Spain.

Total cigarette shipments of Lark of 24.2 billion units decreased by 8.1%. Excluding the Japan hurdle, cigarette shipments of Lark increased 2.1%, driven predominantly by growth in EEMA, mainly Kazakhstan and Turkey.

Our other tobacco products ("OTP") consist mainly of tobacco for roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos. Total shipment volume of OTP, in cigarette equivalent units, excluding acquisitions, grew by 11.0% to 21.3 billion units, notably in Belgium, Italy and Spain.

Total shipment volume for cigarettes and OTP combined was up by 1.0%, excluding acquisitions. Total shipment volume for cigarettes and OTP combined was up by 1.9%, excluding acquisitions and the Japan hurdle.

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

	For the Nine Months Ended September 30,
(in millions)	2012		2011		Variance		%
Net revenues	$	57,651	$	57,470	$	181	0.3	%
Excise taxes on products	34,163		34,044		119		0.3	%
Net revenues, excluding excise taxes on products	$	23,488	$	23,426	$	62	0.3	%

Currency movements decreased net revenues by $4.2 billion and net revenues, excluding excise taxes on products by $1.2 billion. The $1.2 billion decrease was due primarily to the Argentine peso, Brazilian real, Euro, Indonesian rupiah, Mexican peso, Polish zloty, Russian ruble and Turkish lira, partially offset by the Japanese yen.

Net revenues shown in the table above include $1,273 million in 2012 and $1,155 million in 2011 related to sales of OTP. These net revenue amounts include excise taxes billed to customers. Excluding excises taxes, net revenues for OTP were $503 million in 2012 and $447 million in 2011.

Net revenues, which include excise taxes billed to customers, increased by $181 million (0.3%). Excluding excise taxes, net revenues increased by $62 million (0.3%) to $23.5 billion. This increase was due to:

• price increases ($1.3 billion) and

• the impact of acquisitions ($28 million), partly offset by

• unfavorable currency ($1.2 billion) and

• unfavorable volume/mix ($78 million).

Excise taxes on products increased by $119 million (0.3%), due to:

• higher excise taxes resulting from changes in retail prices and tax rates ($3.0 billion) and

• volume/mix ($114 million), partly offset by

• favorable currency ($3.0 billion).

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

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

	For the Nine Months Ended September 30,
(in millions)	2012		2011		Variance			%
Cost of sales	$	7,692	$	7,986	$	(294	)	(3.7	)%
Marketing, administration and research costs	5,043		4,911		132			2.7	%
Operating income	10,630		10,396		234			2.3	%

Cost of sales decreased $294 million (3.7%), due primarily to:

• favorable currency ($474 million), partly offset by

• volume/mix ($143 million),

• higher manufacturing costs ($22 million) and

• the impact of acquisitions ($15 million).

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Marketing, administration and research costs increased by $132 million (2.7%), due to:

• higher expenses ($376 million, principally related to increased marketing expenditures, notably in Brazil, Germany, Indonesia and Russia, increased headcount and business infrastructure in Russia and expenditures incurred to combat illicit trade in cigarettes) and

• the impact of acquisitions ($9 million), partly offset by

• favorable currency ($253 million).

Operating income increased by $234 million (2.3%). This increase was due primarily to:

• price increases ($1.3 billion), partly offset by

• unfavorable currency ($496 million),

• higher marketing, administration and research costs ($376 million) and

• unfavorable volume/mix ($221 million).

Interest expense, net, of $633 million increased $20 million, due primarily to higher average debt levels, partially offset by lower average interest rates on debt.

Our effective tax rate increased by 1.2 percentage points to 30.3%. The effective tax rate for the nine months ended September 30,2012, was unfavorably impacted by an additional income tax provision of $79 million following the conclusion of the IRS examination of Altria's consolidated tax returns for the years 2004-2006. The effective tax rate for the nine months ended September 30,2011, was favorably impacted by an enacted decrease in corporate income tax rates in Greece ($11 million) and the reversal of a valuation allowance in Brazil ($15 million). The effective tax rate is based on our full-year geographic earnings mix and cash repatriation plans. Changes in our cash repatriation plans could have an impact on the effective tax rate, which we monitor each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions.

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

Net earnings attributable to PMI were $6.7 billion for each of the nine months ended September 30,2012 and 2011. Diluted and basic EPS of $3.92 increased by 4.3%. Excluding an unfavorable currency impact of $0.19, diluted EPS increased by 9.3%. Excluding the unfavorable currency impact and the 2011 earnings per share hurdle of $0.10 related to Japan, diluted EPS increased by 12.3%.

Consolidated Operating Results for the Three Months Ended September 30,2012

The following discussion compares our consolidated operating results for the three months ended September 30,2012, with the three months ended September 30,2011.

Our cigarette shipment volume of 236.5 billion units decreased by 3.0 billion (1.3%), due primarily to declines in:

• the European Union, primarily due to a lower total market, particularly in southern Europe; and

• Latin America & Canada, mainly due to a lower total market in Argentina, Brazil, Colombia and Mexico.

These declines were partially offset by gains in:

• EEMA, driven mainly by improved market conditions in Egypt and favorable distributor inventory movements and higher market share in Russia; and

• Asia, driven mainly by Indonesia, Thailand and Vietnam largely offset by Japan due to an unfavorable comparison with the prior year period in which depleted PMI distributor inventories were rebuilt, and Korea.

Our market share performance was stable or registered growth in a number of markets, including Argentina, Belgium, Brazil, Egypt, Germany, Hungary, Indonesia, Italy, Kazakhstan, Mexico, Poland, Russia, the Slovak Republic, Thailand, Turkey and Ukraine.

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Total cigarette shipment volume of Marlboro of 77.1 billion units was down by 2.3%, reflecting a decline in the European Union of 5.8%, notably in France, Italy and Spain, partly offset by Germany and Poland, a decline in EEMA of 0.5% and a decline in Latin America & Canada of 2.6%. Cigarette shipment volume of Marlboro grew slightly in Asia by 0.6%, driven by gains in Indonesia and the Philippines, partly offset by declines in Japan and Korea.

Total cigarette shipment volume of L&M of 24.6 billion units was up by 3.4%, reflecting growth of 12.6% in EEMA, notably in Egypt and Russia, 9.0% in Asia, mainly Thailand, and 1.7% in Latin America & Canada. Cigarette shipment volume of L&M declined by 8.4% in the European Union, notably in Greece, Poland and Spain.

Total cigarette shipment volume of Bond Street of 12.8 billion units increased by 3.4%, led mainly by growth in Kazakhstan, Russia and Ukraine, partly offset by a decline in Hungary.

Total cigarette shipment volume of Parliament of 11.7 billion units was up by 10.7%, fueled by strong growth of 13.8% in EEMA, driven notably by Kazakhstan, Russia and Turkey, and growth of 3.5% in Asia, led by Japan.

Total cigarette shipment volume of Philip Morris of 9.4 billion units decreased by 4.0%, mainly reflecting a decline in Japan and the Philippines, partly offset by growth in Italy.

Total cigarette shipment volume of Chesterfield of 9.4 billion units was down by 6.0%, due mainly to a decline in Spain and Ukraine.

Total cigarette shipment volume of Lark of 8.1 billion units decreased by 16.0%, due to a decline in Japan.

Total OTP shipment volume of 7.3 billion cigarette equivalent units grew by 6.8%, notably in Belgium, Italy and Spain.

Total shipment volume for cigarettes and OTP combined was down by 1.0%.

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

	For the Three Months Ended September 30,
(in millions)	2012		2011		Variance			%
Net revenues	$	19,592	$	20,706	$	(1,114	)	(5.4	)%
Excise taxes on products	11,672		12,344		(672		)	(5.4	)%
Net revenues, excluding excise taxes on products	$	7,920	$	8,362	$	(442	)	(5.3	)%

Currency movements decreased net revenues by $2.2 billion and net revenues, excluding excise taxes on products by $731 million. The $731 million decrease was due primarily to the Argentine peso, Brazilian real, Euro, Indonesian rupiah, Mexican peso, Polish zloty, Russian ruble, Swiss franc and Turkish lira, partially offset by the Japanese yen.

Net revenues shown in the table above include $419 million in 2012 and $424 million in 2011 related to sales of OTP. These net revenue amounts include excise taxes billed to customers. Excluding excises taxes, net revenues for OTP were $168 million in 2012 and $163 million in 2011.

Net revenues, which include excise taxes billed to customers, decreased by $1.1 billion (5.4%). Excluding excise taxes, net revenues decreased by $442 million (5.3%) to $7.9 billion. This decrease was due primarily to:

• unfavorable currency ($731 million) and

• unfavorable volume/mix ($223 million), partly offset by

• price increases ($505 million).

Excise taxes on products decreased by $672 million (5.4%), due to:

• favorable currency ($1.5 billion) and

• volume/mix ($213 million), partly offset by

• higher excise taxes resulting from changes in retail prices and tax rates ($1.0 billion).

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

	For the Three Months Ended September 30,
(in millions)	2012		2011		Variance			%
Cost of sales	$	2,584	$	2,847	$	(263	)	(9.2	)%
Marketing, administration and research costs	1,655		1,770		(115		)	(6.5	)%
Operating income	3,623		3,677		(54		)	(1.5	)%

Cost of sales decreased by $263 million (9.2%), due primarily to:

• favorable currency ($259 million) and

• volume/mix ($23 million), partly offset by

• higher manufacturing costs ($16 million).

Marketing, administration and research costs decreased by $115 million (6.5%), due primarily to:

• favorable currency ($239 million), partly offset by

• higher expenses ($122 million, principally related to increased investments in marketing, notably in Indonesia, and marketing and business infrastructure in Russia).

Operating income decreased by $54 million (1.5%). This decrease was due primarily to:

• unfavorable currency ($232 million),

• unfavorable volume/mix ($200 million),

• higher marketing, administration and research costs ($122 million) and

• higher manufacturing costs ($16 million), partly offset by

• price increases ($505 million).

Interest expense, net, of $211 million increased $19 million, due primarily to higher average debt levels, partially offset by lower average interest rates on debt.

Our effective tax rate increased by 2.5 percentage points to 31.9%. The effective tax rate for the three months ended September 30,2012, was unfavorably impacted by an additional income tax provision of $79 million following the conclusion of the IRS examination of Altria's consolidated tax returns for the years 2004-2006. The effective tax rate is based on our full-year geographic earnings mix and cash repatriation plans. Changes in our cash repatriation plans could have an impact on the effective tax rate, which we monitor each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions.

Net earnings attributable to PMI of $2.2 billion decreased by $150 million (6.3%). This decrease was due primarily to an unfavorable currency impact on operating income and a higher effective tax rate. Diluted and basic EPS of $1.32 decreased by 2.2%. Excluding an unfavorable currency impact of $0.07, diluted EPS increased by 3.0%.

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Operating Results by Business Segment

Business Environment

Taxes, Legislation, Regulation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco Products

The tobacco industry faces a number of challenges that may adversely affect our business, volume, results of operations, cash flows and financial position. These challenges, which are discussed below and in “Cautionary Factors That May Affect Future Results,” include:

• actual and proposed tobacco legislation and regulation;

• actual and proposed excise tax increases, as well as changes in excise tax structures and retail selling price regulations;

• price gaps and changes in price gaps between premium and mid-price and low-price brands and between cigarettes and other tobacco products;

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

• significant governmental actions aimed at imposing regulatory requirements impacting our ability to communicate with adult consumers and differentiate our products from competitors' products;

• increased efforts by tobacco control advocates to “denormalize” smoking and seek the implementation of extreme regulatory measures;

• proposed legislation to mandate plain (generic) packaging resulting in the expropriation of our trademarks;

• pending and threatened litigation as discussed in Note 10. Contingencies;

• actual and proposed requirements for the disclosure of cigarette ingredients and other proprietary information without adequate trade secret protection;

• disproportionate testing requirements and performance standards;

• actual and proposed restrictions on the use of tobacco product ingredients, including a complete ban of tobacco product ingredients;

• actual and proposed restrictions on imports in certain jurisdictions;

• actual and proposed restrictions affecting tobacco manufacturing, packaging, marketing, advertising, product display and sales;

• governmental and private bans and restrictions on smoking;

• the outcome of proceedings and investigations, and the potential assertion of claims, and proposed regulation relating to contraband shipments of cigarettes; and

• governmental investigations.

In the ordinary course of business, many factors can affect the timing of sales to customers, including the timing of holidays and other annual or special events, the timing of promotions, customer incentive programs and customer inventory programs, as well as the actual or speculated timing of pricing actions and tax-driven price increases.

Framework Convention on Tobacco Control: The World Health Organization's (“WHO”) Framework Convention on Tobacco Control (“FCTC”) entered into force in February 2005. As of November 2012, 175 countries, as well as the European Community, have become Parties to the FCTC. The FCTC is the first international public health treaty, and its objective is to establish a global

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agenda for tobacco regulation with the purpose of reducing initiation of tobacco use and encouraging cessation. The treaty recommends (and, in certain instances, requires) Parties to have in place or enact legislation that would:

• establish specific actions to prevent youth smoking;

• restrict and/or eliminate all tobacco product advertising, marketing, promotions and sponsorships;

• initiate public education campaigns to inform the public about the health consequences of smoking and the benefits of quitting;

• implement regulations imposing product testing, disclosure and performance standards;

• impose health warning requirements on packaging;

• adopt measures aimed at eliminating illicit trade in tobacco products;

• restrict smoking in public places;

• implement public health-based fiscal policies (tax and price measures);

• adopt and implement measures that ensure that packaging and labeling, including descriptive terms, do not create the false impression that one brand of cigarettes is safer than another;

• phase out or restrict duty free tobacco sales; and

• encourage litigation against tobacco product manufacturers.

In many respects, the areas of regulation we support mirror provisions of the FCTC, such as regulation of advertising and marketing, product content and emissions, sales to minors, public smoking and the use of tax and price policy to achieve public health objectives. However, we disagree with the provisions of the FCTC that call for a total ban on marketing, a total ban on public smoking, a ban on the sale of duty free cigarettes, and the use of litigation against the tobacco industry. We also believe that excessive taxation can have significant adverse consequences. The speed at which tobacco regulation has been adopted in our markets has increased as a result of the treaty.

Following the entry into force of the FCTC, the Conference of the Parties (“CoP”), the governing body of the FCTC, has adopted several guidelines that provide non-binding recommendations to the Parties supplementing specific Articles of the Treaty. The recommendations include measures that we strongly oppose, such as point-of-sale display bans, plain packaging, a ban on all forms of communications to adult smokers, measures to prohibit or restrict ingredients that may increase the palatability or attractiveness of tobacco products, and limits on tobacco industry involvement in the development of tobacco policy and regulations. These recommendations reflect an extreme application of the Treaty, are not based on sound evidence of a public health benefit and are likely to lead to adverse consequences. In fact, as we discuss below, they are likely to undermine public health by leading to a further increase in illicit trade and low-price cigarettes and, in the case of measures such as plain packaging, will additionally result in the expropriation of our trademarks, harm competition and violate international treaties.

It is not possible to predict whether or to what extent the various guidelines will be adopted by governments. If governments choose to implement regulation based on these extreme recommendations, such regulation may adversely affect our business, volume, results of operations, cash flows and financial position. In some instances, including those described below, where such regulation has been adopted, we have commenced legal proceedings challenging the regulation. It is not possible to predict the outcome of these legal proceedings.

Excise Taxes: Cigarettes are subject to substantial excise taxes and to other product taxation worldwide. Significant increases in cigarette-related taxes or fees have been proposed or enacted and are likely to continue to be proposed or enacted. For example, legislation is currently pending in the Philippines that includes substantial excise tax increases that we believe are unreasonable. We cannot predict whether these increases will ultimately be enacted. In addition, in certain jurisdictions, our products are subject to tax structures that discriminate against premium price products and manufactured cigarettes.

At the fourth session of the CoP, it was decided to establish a working group to develop guidelines on price and tax measures to reduce the demand for tobacco (Article 6 of the FCTC). Draft guidelines will be presented to the fifth CoP scheduled for November 12-17, 2012. We strongly oppose excessive and disruptive excise tax increases, which encourage illicit trade and drive consumers

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to low-price and alternative tobacco products. Such tax increases undermine public health and ultimately undercut government revenue objectives.

Tax increases and discriminatory tax structures are expected to continue to have an adverse impact on our sales of cigarettes, due to lower consumption levels and to a shift in consumer purchases from the premium to non-premium or discount segments or other low-price or low-taxed tobacco products such as fine-cut tobacco products and/or counterfeit and contraband products.

EU Tobacco Products Directive: In 2010, the European Commission conducted a public consultation on the revision of the EU Tobacco Products Directive (2001/37/EC), seeking a “wide range of views ... on factors such as labeling and health warnings on tobacco packets and additives used as tobacco ingredients.” Policy options include measures we oppose, such as plain packaging, a point-of-sale display ban, an ingredients ban (including menthol), a ban of slim cigarettes, and oversized health warnings, covering 75% of the front and 100% of the back of cigarette packs.

On October 16, 2012, the EU health commissioner resigned. The Commission has stated that the amendment review process will be resumed once a new commissioner is appointed and that while there would be a short delay, it hopes to issue its proposal by the end of 2012. After adoption by the Commission, the proposal may be amended and must be approved by the European Parliament and the Council of Ministers, a process that is expected to take several years. It is not possible to predict the ultimate outcome of this legislative process.

Plain Packaging: While to date no country other than Australia has adopted this measure, plain packaging proposals have received support from tobacco control advocates as well as some individual legislators and public health officials in various other countries. Also, as noted above, in 2008 the FCTC's CoP adopted guidelines recommending that countries consider adopting plain packaging. We strongly oppose plain packaging, which would not only constitute an expropriation of our valuable trademarks, but would be a pure and simple confiscation of the core of our business. Transforming the industry into a low price commodity business will not reduce consumption, smoking incidence or initiation. Indeed, plain packaging is a misguided measure that will undermine the public health objectives of its proponents. Furthermore, it will impair free competition, jeopardize freedom of trade, stifle product innovation and spur illicit trade and counterfeit activity to the detriment of the legitimate industry, its entire supply chain and government revenues. Moreover, the imposition of plain packaging would violate the terms of international treaties governing the protection of industrial property and the trade-related aspects of intellectual property rights, and several countries have specifically raised these issues with respect to Australia's plain packaging legislation. We will take all steps necessary to ensure that all constituencies understand the adverse consequences of plain packaging and to obtain all protection and relief to which we are entitled under the law.

In Australia, the Tobacco Plain Packaging Bill 2011 and the Trade Marks Amendment (Tobacco Plain Packaging) Bill 2011, which came in effect in December 2011 bans, as of December 1, 2012, the use of company branding, logos and colors on packaging of all tobacco products other than the brand name and variant which may be printed only in specified locations and in uniform font.  It also includes a provision that renders the plain packaging requirements inapplicable to any property (e.g., trademarks, logos, etc.) that a court determines has been "acquired" by the government. Also, in December 2011, the government amended the health warning requirements to mandate, among other things, increased warning labels on the front of the pack from 30% to 75% (with the back of pack health warning remaining at the existing 90%) effective from January 2012, with transition provisions applicable until December 1, 2012, to coincide with the full compliance deadline for plain packaging.

In June 2011, our subsidiary, Philip Morris Asia Limited, served a notice of claim on the government stating its intention to take Australia to international arbitration pursuant to the Hong Kong-Australia Bilateral Investment Treaty regarding plain packaging for tobacco products. The parties were not able to reach an amicable settlement, so formal arbitration proceedings under the Investment Treaty were initiated against the government on November 21, 2011. In the arbitration, Philip Morris Asia Limited is seeking substantial compensation from the government.

Further, on December 20, 2011, our Australian subsidiary, Philip Morris Limited (“PML”), filed a lawsuit against the government in the High Court of Australia. PML challenged the plain packaging legislation on the basis that the legislation violates the Australian Constitution by acquiring PML's property without paying for it. Other tobacco companies filed similar lawsuits against the government. At a hearing in February 2012, the High Court directed that, for procedural reasons, it would initially focus on the separate cases brought by certain British American Tobacco companies (“BAT”) and by JT International. However, the Court allowed PML and certain Imperial Tobacco companies to intervene and participate in the hearing of the BAT case, which took place in April 2012. JT International's case was also heard before the High Court. The High Court issued its ruling in BAT and JT International's cases on August 15, 2012 finding in favor of the government. In the Court's written reasons, published on October 5, 2012, a majority of the Justices recognized that the plain packaging legislation deprived plaintiffs of property. However, because there was no “benefit” that inured to the government or a third party, the Court held that plain packaging did not violate the Constitution. We expect that the Court's ruling will also apply to PML's case. Given the particular nature of the Australian Constitution on this issue, we do not expect the decision to be a significant adverse precedent in other jurisdictions.

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Three WTO members, Ukraine, Honduras and the Dominican Republic, have filed Requests for Consultations with Australia over its plain packaging legislation.  Requesting Consultations formally initiates a WTO dispute settlement case against Australia. The Requests claim, among other things, that plain packaging creates unnecessary barriers to trade in violation of the WTO Agreement on Technical Barriers to Trade; unjustifiably encumbers the use of trademarks in violation of WTO trade-related aspects of intellectual property rights ("TRIPS"); and will create confusion among consumers in violation of the Paris Convention. On September 28, 2012, Ukraine requested a panel to be formed, and the Dispute Settlement Body of the WTO will now begin the process of constituting a panel to hear Ukraine's dispute against Australia. Thirty-three countries and the European Union have intervened as third parties in the Ukrainian case, including Indonesia, China, Japan, Korea and the United States. WTO dispute settlement cases can take several years to complete. It is not possible to predict the outcome of these cases.

In March 2011, the UK government stated, in its Tobacco Control Plan, that it “wants to understand whether there is evidence to demonstrate that plain packaging would have an additional public health benefit” and it will also “explore the competition, trade and legal implications, and the likely impact on the illicit tobacco market.” In April 2012, the UK government started a public consultation “to seek the views of interested people, businesses and organisations on a policy initiative that would require the packaging of tobacco products to be standardised, the aim being to improve public health by reducing the use of tobacco. Within the context of tobacco packaging, standardised packaging is sometimes referred to as “plain packaging.” The consultation closed in August 2012. It is not possible to predict which legislative action, if any, may result from it. In July 2012, the New Zealand government opened a consultation on its proposal to require plain packaging of tobacco products. The consultation closed in early October 2012.  It is not possible to predict whether it will result in any legislative action.

Brand Descriptors: Many countries, and the EU, prohibit or are in the process of prohibiting descriptors such as “lights,” “mild” and “low tar.” The FCTC requires the Parties to adopt and implement such descriptor bans to ensure that tobacco product packaging and labeling, including descriptive terms, do not create “the false impression that a particular tobacco product is less harmful than other tobacco products.”

Some public health advocates, governments, and the guidelines issued by the FCTC's CoP have called for a ban or restriction on the use of colors, which they claim are also used to signify that some brands provide lower yields of tar, nicotine and other smoke constituents. Other governments have banned or restricted the use of descriptive terms they regard as misleading, including terms such as “premium,” “full flavor,” “international,” “gold,” “silver,” and “menthol,” and one country permits only one pack variation per brand, arguing that such terms or pack variations are inherently misleading. We believe such regulations are unreasonably broad, go beyond the intent of descriptor bans as required under the FCTC, unduly restrict our intellectual property and other rights, and violate international trade commitments. We oppose these types of regulations, and in some instances we have commenced litigation to challenge them.

Ceilings on Tar, Nicotine, Carbon Monoxide and Other Smoke Constituents: Despite the fact that public health authorities have questioned the significance of ISO-measured tar, nicotine and carbon monoxide yields, a number of countries, including all EU Member States, have established maximum yields of tar, nicotine and/or carbon monoxide, as measured by the ISO standard test method. No country to date has adopted ceilings based on an alternative test method or for other smoke constituents. In 2009, the WHO's Study Group on Tobacco Regulation (“TobReg”) recommended that governments establish ceilings for nine specific smoke constituents, including tobacco-specific nitrosamines. The TobReg proposal would set ceilings based on the median yield for each constituent in the market determined by testing all brands sold in the market. Although this concept of “selective constituent reduction” is supported by some public health officials, several public health advocates and scientists have criticized the proposal on the grounds that selectively reducing some constituents in conventional cigarettes will not lead to a meaningful reduction in disease and thus will not benefit public health and/or will mislead consumers into believing that conventional cigarettes with regulated (i.e., reduced) levels of these constituents are safer.

Testing and Reporting of Other Smoke Constituents: Several countries, including Brazil, Canada, and Taiwan, require manufacturers to test and report to regulators certain by-brand yields of other smoke constituents from the 45 to 80 that have been identified as potential causes of tobacco-related diseases. We measure many of these constituents for our product research and development purposes and support efforts to develop reasonable regulation in this area. However, there is no international consensus on which smoke constituents cause the full range of diseases associated with tobacco use, and there are very limited internationally validated analytical methods to measure the constituents' yields in the smoke. Moreover, there is extremely limited capacity to conduct by-brand testing on a global basis. It is not certain when actual testing requirements will be recommended by the FCTC's CoP and whether individual countries will adopt them, although bills to require testing of a wide range of smoke constituent yields are pending in some countries. The cost of by-brand testing could be significant, and public health groups, including the relevant CoP Working Group, have recommended that tobacco companies should be required to bear that cost.

Ingredient Disclosure Laws: Many countries have enacted or proposed legislation or regulations that require cigarette manufacturers to disclose to governments and to the public the ingredients used in the manufacture of cigarettes and, in certain cases, to provide toxicological information about those ingredients. While we believe the public health objectives of these requests can be met

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without providing exact by-brand formulae, we have made and will continue to make full disclosures to governments where adequate assurances of trade secret protection are provided. For example, under the EU Tobacco Products Directive, tobacco companies are required to disclose ingredients and toxicological information to each Member State. We have made ingredient disclosures in compliance with the laws of EU Member States, making full by-brand disclosures in a manner that protects trade secrets. In jurisdictions where appropriate assurances of trade secret protection are not possible to obtain, we will seek to resolve the matter with governments through alternative options.

Restrictions and Bans on the Use of Ingredients: Several countries have laws and/or regulations governing the use of ingredients in tobacco products that have been in place for many years. Our products comply with those laws. Until recently, efforts to regulate ingredients have focused on whether ingredients added to cigarettes increase the toxicity and/or addictiveness of cigarette smoke. Increasingly, however, tobacco control advocates and some regulators, including the WHO, the European Commission, and individual governments, are considering regulating or have regulated cigarette ingredients with the stated objective of reducing the “palatability” and “attractiveness” of cigarette smoke, smoking and tobacco products. The Canadian federal government adopted a bill, which became effective in July 2010, that banned virtually all flavor ingredients (except menthol) in cigarettes and little cigars. The bill has had the effect of banning traditional American Blend cigarettes in Canada, which represented a share of below 1% of the Canadian market.

In November 2010, the fourth session of the CoP adopted “partial” and “provisional” guidelines on Articles 9 and 10 of the FCTC (regulation of contents and disclosure of tobacco products). Among other things, these guidelines recommend that Parties implement measures to prohibit or restrict ingredients and colorings that may increase the palatability or attractiveness of tobacco products. The CoP determined that these guidelines will have to be periodically re-assessed “in light of the scientific evidence and country experience.” The Working Group on Articles 9 and 10 is expected to present a set of recommendations focused on toxicity and addictiveness at future sessions of the CoP.

In March 2012, Brazil's National Sanitation Agency ("ANVISA") published a resolution that prohibits the use of all synthetic and natural substances with flavoring or aromatic properties, except sugar. Manufacturers have until September 2013 to comply with the resolution. The ban, if it stays in place, will make it impossible to continue producing the traditional American Blend tobacco products preferred by Brazilian smokers and will require manufacturers to modify most, if not all, products in the market. We oppose regulations that would ban ingredients for the purpose of reducing the palatability or attractiveness of tobacco products because, in light of the millions of smokers in countries like Canada, the UK and China who prefer cigarettes without ingredients, there is no reasonable basis to conclude that an ingredient ban would reduce smoking prevalence or youth smoking initiation. Bans or sweeping restrictions on ingredients such as those recently adopted in Brazil are arbitrary and without any scientific evidence demonstrating a public health benefit. On September 25, 2012, Sinditabaco (a tobacco industry union of which Philip Morris Brasil Ltda. is a member) filed a lawsuit in Brazilian federal court against ANVISA challenging the ingredients ban. The lawsuit claims that ANVISA lacks authority to institute the ban, failed to produce evidence justifying or supporting the ban, failed to comply with due process and proportionality requirements and ignored the unintended consequences of the measure, such as encouraging illicit trade. We support regulations that would restrict the use of ingredients that are determined, based on sound scientific test methods and data, to significantly increase the inherent toxicity and/or addictiveness of smoke. The outcome of the fourth session of the CoP makes clear that there is a need for further work to develop a science-based framework for ingredients regulation.

Bans and Restrictions on Advertising, Marketing, Promotions and Sponsorships: For many years, countries have imposed partial or total bans on tobacco advertising, marketing and promotion. The FCTC calls for a “comprehensive ban on advertising, promotion and sponsorship” and requires governments that have no constitutional constraints to ban all forms of advertising. Where constitutional constraints exist, the FCTC requires governments to restrict or ban radio, television, print media, other media, including the Internet, and sponsorships of international events within five years of the effective date of a country's ratification of the FCTC. The FCTC also requires disclosure of expenditures on advertising, promotion and sponsorship where such activities are not prohibited. The CoP-adopted guidelines recommend that governments adopt extreme and sweeping prohibitions, including all forms of communications to adult smokers. We oppose complete bans on advertising and communications. We also believe that the available evidence does not support the contention that limitations on marketing are effective in reducing smoking prevalence, but we would generally not oppose such limitations as long as manufacturers retain the ability to communicate directly and effectively to adult smokers.

Bans on Display of Tobacco Products at Retail: Some countries have adopted, or are considering adopting, bans of product displays at point of sale. We oppose product display bans on the grounds that the data show that where display bans have been implemented they have not reduced smoking prevalence or had any material beneficial impact on public health, and that display bans unnecessarily restrict competition and encourage illicit trade - all of which undermine public health objectives. In some markets, our subsidiaries and, in some cases, individual retailers, have commenced legal proceedings to overturn display bans.

Health Warning Requirements: Many countries require substantial health warnings on cigarette packs. In the EU, for example,

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health warnings currently must cover between 30% and 35% of the front and between 40% and 50% of the back of cigarette packs. The FCTC requires health warnings that cover, at a minimum, 30% of the front and back of the pack, and recommends warnings covering 50% or more of the front and back of the pack. Following the FCTC, many countries have increased the size of their health warnings. To date, however, only a few countries have implemented warnings that are more than 50% of the front and/or back of the pack. They include, for instance, Australia (30% front, going to 75% as of December 1, 2012, and 90% back), Mexico (30% front and 100% back), Uruguay (80% front and back), and Canada (75% front and back). We support health warning requirements and defer to the governments on the content of the warnings, whether graphic or textual, except for content that vilifies tobacco companies or is not justified by the actual repercussions of smoking. In countries where health warnings are not required, we place them on packaging voluntarily in the official language or languages of the country. For example, we are voluntarily placing health warnings on packaging in many African countries in official local languages occupying 30% of the front and back of the pack. We oppose warning size requirements that infringe on our intellectual property rights, leaving insufficient space for our distinctive trademarks and pack designs. In some markets we have commenced legal proceedings challenging extreme warning size requirements.

We believe governments should continue to educate the public on the serious health effects of smoking. We have established a Web site that includes, among other things, the views of public health authorities on smoking, disease causation in smokers, addiction and exposure to environmental tobacco smoke (“ETS”). The site reflects our agreement with the medical and scientific consensus that cigarette smoking is addictive and causes lung cancer, heart disease, emphysema and other serious diseases in smokers. The Web site advises the public to rely on the messages of public health authorities in making all smoking-related decisions. The Web site's address is www.pmi.com. The information on our Web site is not, and shall not be deemed to be, a part of this document or incorporated into any filings we make with the SEC.

Restrictions on Public Smoking: The pace and scope of public smoking restrictions have increased significantly in most of our markets. In the EU, all countries have regulations in place that restrict or ban smoking in public and/or work places, restaurants, bars and nightclubs. Some EU member States allow narrow exemptions from smoking bans, for instance for separate smoking rooms in the hospitality sector, but others have banned virtually all indoor public smoking. In other regions, many countries have adopted or are likely to adopt regulations introducing substantial public smoking restrictions similar to those in the EU, including Australia, Canada, Hong Kong, Thailand and Turkey. Some public health groups have called for, and some regional governments and municipalities have adopted or proposed, bans on smoking in outdoor places, as well as bans on smoking in cars with minors in them. The FCTC requires Parties to the treaty to adopt restrictions on public smoking, and the CoP adopted guidelines on public smoking based on the premise that any exposure to ETS is harmful; the guidelines call for total bans in all indoor public places, defining “indoor” broadly, and reject any exemptions based on type of venue (e.g., nightclubs). On private place smoking, such as in cars and homes, the guidelines recommend increased education on the risk of exposure to ETS.

We support a single, consistent public health message on the health effects of exposure to ETS. Our Web site states that “the conclusions of public health authorities on secondhand smoke warrant public health measures that regulate smoking in public places” and that “outright bans are appropriate in many places.” For example, we support banning smoking in schools, playgrounds and other facilities for youth and in indoor public places where general public services are provided, such as public transportation vehicles, supermarkets, public spaces in indoor shopping centers, cinemas, banks and post offices. We believe, however, that governments can and should seek a balance between the desire to protect non-smokers from exposure to secondhand smoke and allowing the millions of people who smoke to do so in some public places. In the hospitality sector, such as restaurants, bars, cafés and other entertainment establishments, the law should grant private business owners the flexibility to permit, restrict or prohibit smoking. Business owners can take into account their desire to cater to their customers' preferences. In the workplace, designated smoking rooms can provide places for adults to smoke. Finally, we oppose legislation that would prohibit smoking outdoors (beyond outdoor places and facilities for children) and in private places such as homes, apartments and cars.

Reduced Cigarette Ignition Propensity Legislation: Reduced ignition propensity standards have been adopted in several of our markets, for instance in Australia, Canada and the EU, and are being considered in several other markets. The European Standards Organization's cigarette fire-safety standard became effective in November 2011 for all cigarettes sold in the EU. Reduced ignition propensity standards should be the same as those in New York and other jurisdictions to ensure that they are uniform and technically feasible and apply equally to all manufacturers. However, we believe that the experience from countries that have mandated reduced ignition propensity requirements for several years - namely the U.S. and Canada - should be thoroughly examined to evaluate the effectiveness of such requirements in terms of reducing the risk of cigarette-ignited fires before additional countries consider introducing such standards.

Illicit Trade: On a global basis, illicit trade may account for as much as 10% of global cigarette consumption; this includes counterfeit, contraband and the growing problem of "illicit whites," which are unique cigarette brands manufactured predominantly for smuggling. We estimate that in the EU alone illicit trade accounted for over 65 billion cigarettes, or more than 10% of consumption, in 2011. Regulatory measures and related governmental actions to prevent the illicit manufacture and trade of tobacco products are being considered by a number of jurisdictions. Article 15 of the FCTC requires Parties to the treaty to take steps to

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eliminate all forms of illicit trade, and states that national, regional and global agreements on this issue are “essential components of tobacco control.” The CoP established an Intergovernmental Negotiating Body (“INB”) to negotiate a protocol on the illicit trade in tobacco products pursuant to Article 15 of the FCTC. The draft protocol, as agreed to by the INB during its fifth session, includes supply chain control measures such as licensing of manufacturers and distributors, enforcement in free trade zones, controls on duty free and internet sales and the implementation of tracking and tracing technologies. It will be presented for adoption by the CoP in mid-November 2012.

It is not possible to predict to what extent the measures outlined in the draft protocol will be effective in curbing the growth of, or even eliminating, illicit trade. Among other things, the effectiveness of any legislative measure required under the future protocol will depend on whether and how they are adopted and implemented in national legislation across the world, and, critically, the level of actual enforcement of such national legislation.

We support strict regulations and enforcement measures to prevent all forms of illicit trade in tobacco products. Governments agree that illicit trade is an extremely serious issue. It creates a cheap and unregulated source of tobacco, thus undermining efforts to reduce smoking, especially among youth, damages legitimate businesses, stimulates organized crime, and results in massive amounts of lost tax revenue. We therefore believe that in addition to taking direct measures against illicit trade, as negotiated by the INB, governments, when assessing proposed regulation, such as display bans, plain packaging, and ingredients bans, or tax increases, should always carefully consider the potential implications of such regulation on illicit trade.

Cooperation Agreements to Combat Illicit Trade of Cigarettes: In 2004, we entered into an agreement with the European Commission (acting on behalf of the European Community) that provides for broad cooperation with European law enforcement agencies on anti-contraband and anti-counterfeit efforts. All 27 Member States of the EU have signed the agreement. Under the terms of the agreement, we agreed to make financial contributions in the form of 13 payments over 12 years. Commencing in July 2007, we began making payments of approximately $75 million a year over the final 10 years of the agreement, each of which is to be adjusted based on certain variables, including our market share in the EU in the year preceding payment. We record these payments as an expense in cost of sales when product is shipped. We are also required to pay the excise taxes, VAT and customs duties on qualifying product seizures of up to 90 million cigarettes and are subject to payments of five times the applicable taxes and duties if product seizures exceed 90 million cigarettes in a given year. To date, our annual payments related to product seizures have been immaterial.

In 2009, our subsidiaries Philip Morris Colombia and Coltabaco entered into an Investment and Cooperation Agreement with the Republic of Colombia, together with the Departments of Colombia and the Capital District of Bogotá, to promote investment and cooperation with respect to the Colombian tobacco market and to fight counterfeit and contraband tobacco products. The agreement provides $200 million in funding to the Colombian governments over a 20-year period to address issues of mutual interest, such as combating the illegal cigarette trade, including the threat of counterfeit tobacco products, and increasing the quality and quantity of locally grown tobacco.

In June 2012, we announced that we will contribute €15 million to INTERPOL over a three year period to support the agency's global initiative to combat trans-border crime involving illicit goods, including tobacco products. The contribution to INTERPOL's Fund for A Safer World will be used for coordination of information gathering, training programs for law enforcement officials, development of product authentication standards and public information campaigns.

Labor Conditions for Tobacco Workers: In July 2010, Human Rights Watch published a report raising issues related to labor conditions for tobacco workers in Kazakhstan, particularly migrant workers. We have undertaken both an internal and third party review of our labor practices and policies in Kazakhstan and subsequently globally. In reviewing our policies and practices, we have sought the advice of local and international non-profit organizations with expertise in the area of fair labor practices. During 2011, we started implementing our comprehensive Agricultural Labor Practices ("ALP") Code, which strengthens and expands our existing practices and policies. This includes setting additional principles and standards for working conditions on tobacco farms, tailored training programs, and regular external assessments to monitor the progress we, our suppliers and farmers make. To date, over 2,900 field technicians in 30 countries received in-depth training on the ALP Code, including child labor and forced labor prevention and safe work environment requirements. These field technicians are now in the process of communicating our expectations to over 500,000 farmers with whom our affiliates or suppliers have contracts. A progress report on our ALP program is available on our website at www.pmi.com. The information on our Web site is not, and shall not be deemed to be, a part of this document or incorporated into any filings we make with the SEC.

Other Legislation, Regulation or Governmental Action: In Argentina, the National Commission for the Defense of Competition issued a resolution in May 2010, in which it found that our affiliate's establishment, in 1997, of a system of exclusive zonified distributors (“EZD”s) in Buenos Aires city and region was anticompetitive, despite having issued two prior decisions (in 1997 and 2000) in which it had found the establishment of the EZD system was not anticompetitive. The resolution is not a final decision, and our Argentinean affiliate opposed the resolution and submitted additional evidence.

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In June 2011 in Brazil, the Secretariat of Economic Defense recommended to the Administrative Council for Economic Defense (“CADE”) that it find that the merchandising arrangements of our affiliate and those of a competitor violated the Brazilian Competition Act and that it impose fines in unspecified amounts against each company. In July 2012, our competitor entered into a consent decree with CADE that prohibits certain of its merchandising arrangements. The proceedings remain pending before CADE with respect to our affiliate's merchandising arrangements, which differ in scope from those of our competitor.

It is not possible to predict what, if any, additional legislation, regulation or other governmental action will be enacted or implemented relating to the manufacturing, advertising, sale or use of cigarettes, or the tobacco industry generally. It is possible, however, that legislation, regulation or other governmental action could be enacted or implemented that might materially affect our business, volume, results of operations and cash flows.

Governmental Investigations: From time to time, we are subject to governmental investigations on a range of matters. As part of an investigation by the Department of Special Investigations (“DSI”) of the government of Thailand into alleged under-declaration of import prices by Thai cigarette importers, the DSI proposed to bring charges against our subsidiary, Philip Morris (Thailand) Limited, Thailand Branch (“PM Thailand”) for alleged underpayment of customs duties and excise taxes of approximately $2 billion covering the period from July 28, 2003, to February 20, 2007. In September 2009, the DSI submitted the case file to the Public Prosecutor for review. The DSI also commenced an informal inquiry alleging underpayment by PM Thailand of customs duties and excise taxes of approximately $1.8 billion, covering the period 2000-2003. We have been cooperating with the Thai authorities and believe that PM Thailand's declared import prices are in compliance with the Customs Valuation Agreement of the World Trade Organization (“WTO”) and Thai law. PM Thailand also contends that it reached an agreement with the Thai Customs Department in 2003 regarding valuation methodologies. The Public Prosecutor's office has issued a non-prosecution order in the 2003-2007 investigation. In August 2011, the Director-General of DSI publicly announced that he disagreed with the non-prosecution order. The matter has now been referred to the Attorney General for determination. If the Attorney General agrees with the Public Prosecutor's non-prosecution order, the 2003-2007 investigation will end. If the Attorney General agrees with the Director General of DSI, the matter will be submitted to the Criminal Court.

Additionally, in November 2010, a WTO panel issued its decision in a dispute that began in August 2006 between the Philippines and Thailand concerning a series of Thai customs and tax measures affecting cigarettes imported by PM Thailand into Thailand from the Philippines. The WTO panel decided that Thailand had no basis to find that PM Thailand's declared customs values were too low. The panel found that Thailand was unable to show that the customs values and taxes paid on the cigarette imports should have been higher, as alleged in 2009 by the DSI. While the WTO ruling does not resolve the above referenced investigation, it should assist the Thai authorities' review of the matter. Further, the WTO ruling creates obligations for Thailand to revise its laws, regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports. Following Thailand's limited appeal relating to certain aspects but not the customs valuation part of the WTO ruling in June 2011, the WTO Appellate Body upheld the panel's original finding, effectively dismissing Thailand's appeal. The WTO panel and Appellate Body reports have been adopted by the WTO Dispute Settlement Body (“DSB”). In September 2011, Thailand and the Philippines signed an agreement in which Thailand agreed to implement VAT-related measures to comply with the DSB's recommendations and rulings by October 15, 2012, and to implement measures to comply with the rest of the DSB's recommendations and rulings by May 15, 2012. The Philippines and Thailand subsequently signed a sequencing agreement that would permit the Philippines to request authorization to take retaliatory actions against Thailand if and when a dispute settlement panel determines that Thailand has failed to comply with the DSB's recommendations and rulings.

Next Generation Products: One of our strategic priorities is to develop, assess and commercialize a portfolio of innovative products with the potential to reduce the risk of harm in comparison to conventional cigarettes. We refer to these as next generation products, or NGPs. In the U.S. regulatory context they are referred to as modified risk tobacco products, or MRTPs. Our efforts are guided by the following key objectives:

• to develop a series of products that provides adult smokers the taste, sensory experience and smoking ritual characteristics that are as close as possible to those currently provided by conventional cigarettes;

• to substantiate a significant reduction of harm both for the individual adult smoker as well as the population as a whole, based on robust scientific evidence derived from well-established assessment processes; and

• to advocate for the development of regulatory frameworks for the assessment, approval and commercialization of NGPs, including the communication of substantiated reductions in harm to consumers.

We believe the elimination of combustion via tobacco heating and other innovative systems for aerosol generation is the most promising path to reduce risk and, accordingly, the NGPs we are developing are based on platforms that do not involve combustion.

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These platforms are in various stages of development. One platform is ready for clinical trials and industrial scale-up, another is in its final development phase and the third requires at least one year for further product development.

Our approach to individual risk assessment is to use cessation as the benchmark because the short-term and long-term effects of smoking cessation are well known and the closer the clinical data derived from adult smokers who switch to an NGP resemble the data from those who quit, the more confident one can be that the product reduces the risk of harm.

Today, only the U.S. has established a regulatory framework for assessing MRTPs under the jurisdiction of the Food and Drug Administration, or FDA. Future FDA actions are likely to influence the regulatory approach of other interested governments. In March 2012, the FDA released draft guidance establishing the types and levels of evidence necessary to qualify a product as an MRTP. The draft guidance recommends studies that are generally in line with PMI's assessment approach, which we have submitted to the FDA. In parallel, we are beginning engagement with regulators in the EU, as well as in a number of Asian markets.

We are also proceeding with all other aspects that lead to commercialization. We are planning to build one or two new factories to produce NGPs in Europe. We anticipate capital expenditures in the range of €500 million to €600 million ($651 million to $781 million) over a three-year period to achieve the capacity to produce 30 billion NGP units per year. This expenditure will be close to double the level of a conventional cigarette factory of equivalent output.

We currently expect the first NGP factory to be ready by 2016, final data from clinical studies during the beginning of 2016 and a launch in the first markets between 2016 and 2017. However, there can be no assurance that we will succeed in these efforts or that regulators will permit the marketing of our NGPs with claims of reduced harm to consumers.

Acquisitions and Other Business Arrangements

In June 2011, we completed the acquisition of a cigarette business in Jordan, consisting primarily of cigarette manufacturing assets and inventories, for $42 million. In January 2011, we acquired a cigar business, consisting primarily of trademarks in the Australian and New Zealand markets, for $20 million. The effects of these and other smaller acquisitions were not material to our consolidated financial position, results of operations or cash flows.

Effective January 1, 2011, we established a new business structure with Vietnam National Tobacco Corporation (“Vinataba”) in Vietnam. Under the terms of the agreement, we have further developed our existing joint venture with Vinataba through the licensing of Marlboro and the establishment of a PMI-controlled branch for the business building of our brands.

Trade Policy

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

Tobacco products are agricultural products under U.S. law and are not technological or strategic in nature. From time to time we make sales in countries subject to Trade Sanctions, pursuant to either exemptions or licenses granted under the applicable Trade Sanctions.

In April 2012, OFAC granted us licenses to sell cigarettes to customers for import into Iran. To date, we have not made any sales under these licenses.

A subsidiary sells products to distributors that in turn sell those products to duty free customers that supply U.N. peacekeeping forces around the world, including those in the Republic of the Sudan. We do not believe that these exempt sales of our products for ultimate resale in the Republic of the Sudan, which are de minimis in volume and value, present a material risk to our stockholders, our reputation or the value of our shares. We have no employees, operations or assets in the Republic of Sudan.

We do not sell products in Cuba and Syria.

To our knowledge, none of our commercial arrangements result in the governments of any country identified by the U.S. government as a state sponsor of terrorism, nor entities controlled by those governments, receiving cash or acting as intermediaries in violation of U.S. laws.

Certain states have enacted legislation permitting state pension funds to divest or abstain from future investment in stocks of companies that do business with certain countries that are sanctioned by the U.S. We do not believe such legislation has had a material effect on the price of our shares.

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Operating Results – Nine Months Ended September 30,2012

The following discussion compares operating results within each of our reportable segments for the nine months ended September 30,2012, with the nine months ended September 30,2011.

European Union. Net revenues, which include excise taxes billed to customers, decreased by $2.0 billion (8.8%). Excluding excise taxes, net revenues decreased by $541 million (7.7%) to $6.5 billion. This decrease was due to:

• unfavorable currency ($583 million) and

• unfavorable volume/mix ($340 million), partly offset by

• price increases ($382 million).

The net revenues of the European Union segment include $1,022 million in 2012 and $894 million in 2011 related to sales of OTP. Excluding excise taxes, OTP net revenues for the European Union segment were $355 million in 2012 and $291 million in 2011.

Operating companies income of $3.2 billion decreased by $316 million (8.9%). This decrease was due to:

• unfavorable currency ($306 million),

• unfavorable volume/mix ($295 million),

• higher manufacturing costs ($68 million, partly related to the conversion to reduced cigarette ignition propensity paper that began in the fourth quarter of 2011) and

• higher marketing, administration and research costs ($52 million, principally reflecting increased marketing investments in Italy, Germany and Switzerland), partly offset by

• price increases ($382 million) and

• the 2011 pre-tax charges for asset impairment and exit costs ($23 million).

The total cigarette market in the European Union declined by 6.5%, due primarily to: tax-driven price increases; the unfavorable economic environment, particularly in southern Europe, and the impact of related austerity measures; the growth of the OTP segment, notably in Belgium, Greece, Italy, Portugal and Spain, partly offset by Germany and Poland; and the increasing prevalence of illicit trade. Our cigarette shipment volume in the European Union declined by 6.6%, due principally to a lower total market across the region. Our market share in the European Union was down by 0.3 share points to 38.0% as gains, notably in Austria, Belgium, Germany, Greece, Hungary, Poland and the Slovak Republic were more than offset by declines, primarily in the Czech Republic, France, Italy, the Netherlands, Portugal, Spain, Sweden and Switzerland.

Shipment volume of Marlboro decreased by 5.0%, mainly due to a lower total market. Marlboro's market share increased 0.2 share points to 18.2%, reflecting a higher share mainly in Belgium, the Czech Republic, Greece, Hungary, Italy and Poland, partly offset by lower share mainly in Austria, France, Germany, the Netherlands, Portugal and Spain.

Shipment volume of L&M was down by 4.3%, driven by a lower total market. L&M's market share was flat at 6.6%, driven by gains in Finland, Germany, Poland and the Slovak Republic, essentially offset by France, Portugal and Spain.

Shipment volume of Chesterfield was up by 4.6%, driven by a higher share. Chesterfield's market share was up by 0.3 share points to 3.4%, driven primarily by gains across Northern Europe, Portugal and Spain.

Shipment volume of Philip Morris was down by 1.7%. Despite this decline, market share was essentially flat at 2.1%, with gains, notably in the Czech Republic and Italy, offset by declines mainly in Portugal and Spain.

Our OTP shipment volume of 13.5 billion cigarette equivalent units grew by 18.8%, mainly reflecting a higher total market and share in Belgium, France, Greece, Italy, Portugal and Spain. This growth was partially offset by a lower total market and share in Poland and lower share in Hungary. Our OTP total market share was 12.4%, up by 1.2 share points, driven by fine cut gains in Belgium, up by 3.3 share points to 16.4%, France, up by 1.1 share points to 25.5%, Germany, up by 0.7 share points to 15.5%, Greece, up by 5.2 share points to 12.7%, Italy, up by 21.3 share points to 28.9%, Portugal, up by 4.2 share points to 21.1% and Spain, up by 0.4 share points to 11.4%. These gains were partially offset by share declines primarily in Hungary, down 0.4 share points to 6.8% and Sweden, down by 6.6 share points to 37.9%.

In the Czech Republic, the total cigarette market was down by 3.6% to 15.2 billion units.  Our shipments were down by 8.0%.  Market share was down by 2.1 share points to 42.9%, principally reflecting continued share declines for lower-margin local brands, such as Petra and Sparta, down by a combined 1.3 share points to 3.9% and 2.4%, respectively, and Red & White, down by 1.2

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share points to 12.0%.  This decline was partly offset by a higher share for Marlboro, up by 0.4 share points to 7.5% and a higher share for Philip Morris, up by 0.6 share points to 2.9%. L&M was flat at 7.2%.

In France, the total cigarette market was down by 4.2% to 39.9 billion units, mainly reflecting the impact of price increases in the fourth quarter of 2011.  Our shipments were down by 6.5%. Our market share was down by 1.1 share points to 39.5%, mainly due to Marlboro, down by 1.0 share point to 24.8%, reflecting its crossing of the €6.00 per pack price threshold ahead of competitive brands. Market share of premium Philip Morris was flat at 8.2% and share of Chesterfield was up by 0.2 share points to 3.3%. Our market share of the fine cut category was up by 1.1 share points to 25.5%.

In Germany, the total cigarette market was down by 1.5% to 63.0 billion units, mainly reflecting the unfavorable impact of price increases in June 2011 and March 2012. Our shipments were down by 1.1% and market share grew by 0.1 share point to 35.8%.  While share of Marlboro was down by 0.2 share points to 21.2%, reflecting the timing of tax-driven price increases, share of L&M was up by 0.4 share points to 10.6%, and share of Chesterfield was up by 0.1 share point to 0.8%. Our market share of the fine cut category was up by 0.7 share points to 15.5%.

In Italy, the total cigarette market was down by 9.0% to 59.8 billion units, reflecting the impact of price increases in July and September 2011, and March 2012, an unfavorable economic environment, strong growth in the fine cut market and an increase in illicit trade.  Our shipments were down by 8.1%. Our market share declined by 0.3 share points to 53.0% driven largely by low-price Diana, down by 0.7 share points to 12.5%. The decline in total market share, particularly in the low-price segment due to the growth of international low-price brands, was partially offset by the first quarter 2012 launch of Philip Morris Selection in the low-price segment, as a result of which the Philip Morris brand family market share grew by 0.4 share points to 3.7%. Market share of Marlboro increased 0.3 share points to 22.9%. Our market share of the fine cut category was up by 21.3 share points to 28.9%.

In Poland, the total cigarette market was down by 5.0% to 40.7 billion units, mainly reflecting the impact of price increases in the first quarter of 2012. While our shipments were down by 2.7%, our market share was up 0.9 share points to 35.7%. Shares of L&M and Chesterfield were up by 0.4 and 0.6 share points to 15.9% and 1.9%, respectively. Share of Marlboro was up by 0.7 share points to 10.8% and share of Red & White was flat at 5.2%. Our market share of the fine cut category was up by 0.3 share points to 18.9%.

In Spain, the total cigarette market was down by 11.0% to 41.4 billion units, mainly reflecting the impact of price increases in the second half of 2011 and second quarter of 2012, the unfavorable economic environment and the growth of the OTP category and of illicit trade.  Our shipments declined by 13.0% and market share was down by 0.6 share points to 30.4%, with higher share of Chesterfield, up by 0.5 share points to 8.9%, offset by Marlboro, down by 0.5 share points to 14.2%, L&M, down by 0.2 share points to 6.3% and Philip Morris, down by 0.3 share points to 0.8%. Our market share of the fine cut category was up by 0.4 share points to 11.4%.

Eastern Europe, Middle East & Africa. Net revenues, which include excise taxes billed to customers, increased by $1.1 billion (8.0%). Excluding excise taxes, net revenues increased by $284 million (4.8%) to $6.2 billion. This increase was due to:

• price increases ($365 million),

• favorable volume/mix ($303 million) and

• the impact of acquisitions ($27 million), partially offset by

• unfavorable currency ($411 million).

Operating companies income of $2.8 billion increased by $323 million (13.0%). This increase was due primarily to:

• price increases ($365 million),

• favorable volume/mix ($233 million) and

• the 2011 pre-tax charges for asset impairment and exit costs ($18 million), partially offset by

• unfavorable currency ($183 million) and

• higher marketing, administration and research costs ($121 million, principally related to expenditures in marketing and business infrastructure, mainly in Russia).

Our cigarette shipment volume in EEMA increased by 3.9%, predominantly due to a higher total market and share in Turkey, a higher total market in Algeria and Saudi Arabia, and higher share in Egypt and Russia. Cigarette shipment volume of Marlboro was up by 3.7%, mainly reflecting growth in North Africa, the Middle East and Serbia, partly offset by a decline in Romania,

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Russia and Ukraine. Cigarette shipment volume of Parliament was up by 14.5%, reflecting growth in Kazakhstan, Russia, Turkey and Ukraine.

In Russia, our shipment volume increased by 4.8%. Shipment volume of our premium portfolio was up by 7.0%, driven primarily by Parliament, up by 14.5%, partially offset by a decline in Marlboro of 5.6%. In the mid-price segment, shipment volume was up by 7.0%, mainly due to Chesterfield, up by 1.2%, and L&M, up by 23.2%. In the low-price segment, shipment volume was up by 3.2%, driven by Apollo Soyuz,Bond Street and Next,up by 6.5%, 1.2% and 13.5%, respectively, partly offset by Optima,down by 1.6%. Our market share of 26.3%, as measured by Nielsen, was up by 0.7 share points. Market share of Parliament was up by 0.2 share points to 3.1%; Marlboro was down by 0.2 share points to 1.9%; L&M and Chesterfield were essentially flat at 2.5% and 3.4%, respectively; Bond Street was up by 0.3 share points to 6.4%; and Next was up by 0.3 share points to 2.9%. Market share of Apollo Soyuz and Optima were flat at 1.4% and 3.2%, respectively.

In Turkey, the total cigarette market increased by an estimated 3.4% to 72.2 billion units, reflecting recovery after the October 2011 excise tax-driven price increase and a decline in the incidence of illicit trade. Our shipment volume increased by 6.4% across all price segments, notably premium shipment volume, up by 8.2%. Our market share, as measured by Nielsen, grew by 0.5 share points to 45.4%, driven by premium Parliament, mid-price Muratti and low-price Lark,up by 0.8, 0.4 and 0.2 share points to 8.8%, 6.5% and 12.1%, respectively, partly offset by a decline in low-price L&M, down by 0.3 share points to 8.5%. Market share of Marlboro was down by 0.2 share points to 9.1%.

In Ukraine, the total cigarette market was down by 3.5% to 64.8 billion units. Our shipment volume decreased by 2.0%, driven by Chesterfield, down by 24.5% and Marlboro, down by 9.2%, partly offset by Bond Street, up by 17.8%, and Parliament, up by 12.9%. Our market share, as measured by Nielsen, was up slightly by 0.1 share point to 32.3%. Share for premium Parliament was up by 0.5 share points to 3.2%. Share of Marlboro was up slightly by 0.1 share point to 5.8%. Chesterfield market share was down by 0.2 share points to 7.2% and Bond Street was up by 1.3 share points to 8.4%.

Asia. Net revenues, which include excise taxes billed to customers, increased by $1.1 billion (7.5%). Excluding excise taxes, net revenues increased by $335 million (4.2%) to $8.4 billion. This increase was due primarily to:

• price increases ($393 million), partially offset by

• unfavorable currency ($59 million).

Operating companies income of $4.1 billion increased by $268 million (7.1%). This increase was due to:

• price increases ($393 million),

• lower manufacturing costs ($97 million, primarily shipping) and

• favorable currency ($47 million), partly offset by

• higher marketing, administration and research costs ($145 million, including higher marketing investments in Indonesia),

• unfavorable volume/mix ($107 million, due primarily to the aforementioned Japan hurdle) and

• higher pre-tax charges for asset impairment and exit costs ($17 million).

Our cigarette shipment volume increased by 3.8%. Excluding the Japan hurdle of 6.3 billion units, cigarette shipment volume increased by 6.6%, primarily due to growth in Indonesia, Japan, Thailand and Vietnam. Shipment volume of Marlboro was up by 3.0%, or up by 6.2% excluding the Japan hurdle, driven by growth in Indonesia, Japan and Vietnam, partly offset by Korea and the Philippines.

In Indonesia, the total cigarette market was up by 6.7% to 232.5 billion units, driven by growth in the premium and mid-price segments. Our shipment volume was up by 18.3%. Our market share was up by 3.3 share points to 34.0%, driven notably by Sampoerna A in the premium segment, up by 1.4 share points to 13.3%, mid-price U Mild, up by 1.1 share points to 3.0%, and low-price Trend Mild up by 0.4 share points to 0.7%, following its launch in March 2011. Marlboro's market share was up by 0.3 share points to 4.6% and its share of the “white” cigarette segment increased by 4.8 share points to 70.0%. Market share of Dji Sam Soe was unchanged at 7.5%.

In Japan, the total cigarette market increased by 1.6% to 146.6 billion units. Our shipment volume was down by 10.5%, primarily reflecting the Japan hurdle in 2011. Excluding the hurdle impact of 6.3 billion units, our cigarette shipment volume increased 3.0%. Our market share of 27.8% was down by 3.8 share points. Market share of Marlboro was down by 0.9 share points to 12.4%, and essentially flat when compared to its 2011 exit share of 12.4%.Market shares of Philip Morris, Lark and Virginia S. were down by 0.6, 1.6 and 0.5 share points to 2.3%, 8.4% and 2.0%, respectively, but down only slightly, 0.2, 0.2 and 0.1 share points, respectively, compared to their respective 2011 exit shares.

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In Korea, the total cigarette market increased by 0.4% to 67.5 billion units. Our shipment volume decreased by 1.5%. Our market share of 19.3% decreased by 0.4 share points. Market share of Marlboro was down 0.5 share points to 8.0%, partly offset by Virginia Slims, up by 0.5 share points to 4.0%. Market share of Parliament was flat at 6.6%.

In the Philippines, the total cigarette market increased by 2.6% to 74.8 billion units. Our shipment volume was essentially flat. Our market share declined by 2.3 share points to 92.0%, mainly due to the impact of the January 2012 price increase and intense price competition in the low-price category. Marlboro's market share was down by 0.8 share points to 20.9% and Fortune's share was up by 4.1 share points to 50.2%.

Latin America & Canada. Net revenues, which include excise taxes billed to customers, increased by $25 million (0.4%). Excluding excise taxes, net revenues decreased by $16 million (0.7%) to $2.4 billion. This decrease was due to:

• unfavorable currency ($172 million) and

• unfavorable volume/mix ($41 million), partially offset by

• price increases ($197 million).

Operating companies income of $753 million decreased by $21 million (2.7%). This decrease was due to:

• unfavorable currency ($59 million),

• higher manufacturing costs ($58 million),

• unfavorable volume/mix ($52 million),

• higher marketing, administration and research costs ($35 million) and

• higher pre-tax charges for asset impairment and exit costs ($14 million), partially offset by

• price increases ($197 million).

Our cigarette shipment volume in Latin America & Canada decreased by 1.8%, as increased shipments driven by a higher share in Mexico, were more than offset by declines due to a lower total market in Brazil and Colombia and lower share in Canada. Shipment volume of Marlboro increased by 1.3%, principally driven by Brazil, Colombia and Mexico.

In Argentina, the total cigarette market declined by 0.8% to 32.1 billion units. Our cigarette shipment volume decreased by 0.1%. Our market share was up by 0.9 share points to 74.9%, reflecting growth of Marlboro,up by 0.3 share points to 24.3%, and of mid-price Philip Morris, up by 1.3 share point to 39.2%. Share of low-price Next was down by 0.5 share points to 3.2%.

In Canada, the total tax-paid cigarette market increased slightly by 0.5% to 24.1 billion units. Our cigarette shipment volume declined by 1.9%. Our market share was down 0.6 share points to 33.5%, with mid-price Number 7 and Canadian Classics, and low-price Accord and Quebec Classique, down by 0.2, 0.3, 0.4 and 0.3 share points, to 3.9%, 8.5%, 3.2% and 2.4%, respectively, partly offset by gains in premium brand Belmont, up by 0.2 share points to 2.0% and low-price brand Next, up by 0.7 share points to 7.4%. Market share of premium brand Benson & Hedges was flat at 2.0%.

In Mexico, the total cigarette market was down by 1.3% to 24.6 billion units. Our cigarette shipment volume increased by 0.9%, driven by prior-year trade inventory movements following the significant January 1, 2011, excise tax increase. Our market share grew by 1.6 share points to 73.6%, led by Marlboro, up by 1.9 share points to 53.7%, and Benson & Hedges, up by 0.2 share points to 6.3%. Market share of low-price Delicados decreased by 0.6 share points to 10.5%.

Operating Results – Three Months Ended September 30,2012

The following discussion compares operating results within each of our reportable segments for the three months ended September 30,2012, with the three months ended September 30,2011.

European Union. Net revenues, which include excise taxes billed to customers, decreased by $1.3 billion (15.3%). Excluding excise taxes, net revenues decreased by $381 million (15.2%) to $2.1 billion. This decrease was due to:

• unfavorable currency ($334 million) and

• unfavorable volume/mix ($154 million), partially offset by

• price increases ($107 million).

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The net revenues of the European Union segment include $332 million in 2012 and $329 million in 2011 related to sales of OTP. Excluding excise taxes, OTP net revenues for the European Union segment were $115 million in 2012 and $106 million in 2011.

Operating companies income of $1.1 billion decreased by $177 million (14.0%). This decrease was due to:

• unfavorable currency ($151 million),

• unfavorable volume/mix ($124 million),

• higher marketing, administration and research costs ($14 million, primarily reflecting marketing investments behind new brand launches in Germany, Italy, Spain and Switzerland), and

• higher manufacturing costs ($6 million, mainly related to the mandated implementation of reduced cigarette ignition propensity standards, which began in the fourth quarter of 2011), partially offset by

• price increases ($107 million) and

• the 2011 pre-tax charges for asset impairment and exit costs ($11 million).

The total cigarette market in the European Union declined by 7.5% to 137.8 billion units, due primarily to: tax-driven price increases, the unfavorable economic environment, particularly in southern Europe, and the impact of related austerity measures, the growth of the OTP segment, and the increasing prevalence of illicit trade. Our cigarette shipment volume in the European Union declined by 8.1%, due principally to a lower total market across the region. Our market share in the European Union was essentially flat at 38.1% as gains, notably in Belgium, Hungary, Italy, the Netherlands and Poland were more than offset by declines, primarily in the Czech Republic, France and Portugal.

Shipment volume of Marlboro decreased by 5.8%, mainly due to a lower total market, partially offset by higher share. Marlboro's share was up by 0.4 share points to 18.4%, reflecting a higher share mainly in Belgium, Germany, Greece, Hungary, Italy and Poland, which more than offset lower share mainly in France, Portugal and Spain. 

Shipment volume of L&M was down by 8.4%, mainly reflecting lower share. L&M's market share was down by 0.2 share points to 6.5%, due to declines primarily in France, Greece, Poland and Portugal, partly offset by gains in the Czech Republic, the Netherlands and the Slovak Republic.

Shipment volume of Chesterfield was essentially flat. Chesterfield's market share was up by 0.3 share points to 3.5%, driven notably by gains in the Czech Republic, Hungary, Poland, Portugal and Spain.

Shipment volume of Philip Morris was up by 1.4%. Philip Morris' market share was up slightly by 0.1 share point to 2.1%, with gains, notably in the Czech Republic, Italy and Portugal, partly offset by a decline in Spain.  

Our OTP shipments of 4.4 billion cigarette equivalent units grew by 10.9%, reflecting a higher total market and share mainly in France, Germany, Italy and Spain. Our OTP total market share was 12.1%, up by 0.5 share points, driven by fine cut gains notably in Belgium, up by 1.8 share points to 16.3%, Greece, up by 6.0 share points to 13.2%, Italy, up by 13.7 share points to 27.2% and Spain, up by 2.1 points to 11.9%.

In the Czech Republic, the total cigarette market was down by 3.5% to 5.3 billion units, mainly reflecting the impact of excise tax-driven price increases in the first and second quarters of 2012 and growth of the fine cut category. Our shipments were down by 7.9%. Our market share was down by 2.0 share points to 42.5%, principally reflecting continued share declines for lower-margin local brands, such as Petra and Sparta, down by a combined 1.1 share points to 6.0%, and Red & White, down by 1.9 share points to 11.5%. This decline was partly offset by a higher share for Marlboro, L&M, Chesterfield and Philip Morris,up by 0.1, 0.4, 1.1 and 0.6 share points to 7.3%, 7.4%, 1.4% and 2.9%, respectively.

In France, the total cigarette market was down by 4.6% to 13.6 billion units, mainly reflecting the impact of price increases in the fourth quarter of 2011 and lower tourism. Our shipments were down by 9.2%. Our market share was down by 1.5 share points to 38.9%, mainly due to Marlboro, down by 1.4 share points to 24.5%, reflecting its crossing of the €6.00 per pack price threshold ahead of competitive brands, and to L&M, down by 0.4 share points to 2.5%. Market share of premium Philip Morris was flat at 8.2% and share of Chesterfield was up by 0.3 share points to 3.3%. Our market share of the fine cut category was up by 0.1 share point to 25.3%.

In Germany, the total cigarette market was down by 2.0% to 21.8 billion units, mainly reflecting the unfavorable impact of price increases in June 2011 and March 2012. Our shipments were down by 2.0%. Our market share was flat at 35.2%, with Marlboro up by 0.2 share points to 21.0%, L&M down slightly by 0.1 share point to 10.2% and Chesterfield flat at 0.8%. Our market share of the fine cut category was flat at 14.7%.

In Italy, the total cigarette market was down by 10.1% to 21.0 billion units, reflecting the impact of price increases in July and

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September 2011 and March 2012, an unfavorable economic environment, strong growth in the fine cut category, and an increase in illicit trade. Our shipments were down by 6.9%. Our market share increased 0.2 share points to 53.2%, driven largely by Marlboro, up by 0.8 share points to 23.5%, fueled by the March 2012 and June 2012 launches of Marlboro Silver and Marlboro Pocket Pack. Market share of low-price Diana, down by 0.9 share points to 12.2%, was partially offset by the Philip Morris brand, up by 0.4 share points to 3.7%, benefiting from the first-quarter 2012 launch of Philip Morris Selection in the low-price segment. Our market share of the fine cut category was up by 13.7 share points to 27.2%.

In Poland, the total cigarette market was down by 7.5% to 13.8 billion units, mainly reflecting the impact of price increases in the first quarter of 2012 and the timing of trade inventory movements in the quarter. While our shipments were down by 2.3%, market share was up by 2.0 share points to 37.1%, benefiting from the launch of two new super slims variants in the second quarter, Marlboro Gold Prime Edge and Marlboro Mint Stream. Market shares of Marlboro, Chesterfield and Red & White were up by 1.9, 0.7 and 0.3 share points to 11.6%, 1.9% and 5.4%, respectively. Market share of L&M was down by 0.3 share points to 16.6%. Our market share of the fine cut category was down by 2.3 share points to 18.7%.

In Spain, the total cigarette market was down by 12.8% to 14.8 billion units, mainly reflecting the impact of price increases in the second half of 2011 and second quarter of 2012, the unfavorable economic environment, the growth of the OTP category and illicit trade. Our shipments were down by 18.7%. Market share was down by 0.1 share point to 31.2%, with higher share of Chesterfield, revamped in the first quarter of 2012, up by 0.5 share points to 9.0%, offset by Marlboro, down by 0.3 share points to 14.9% and Philip Morris, down by 0.2 share points to 0.9%. Market share of L&M was flat at 6.3%. Our market share of the fine cut category was up by 2.1 share points to 11.9%.

Eastern Europe, Middle East & Africa. Net revenues, which include excise taxes billed to customers, increased by $204 million (4.1%). Excluding excise taxes, net revenues decreased by $3 million (0.1%) to $2.2 billion. This decrease was due primarily to:

• unfavorable currency ($211 million), partially offset by

• price increases ($149 million) and

• favorable volume/mix ($52 million).

Operating companies income of $1.0 billion increased by $122 million (13.2%). This increase was due primarily to:

• price increases ($149 million) and

• favorable volume/mix ($55 million), partially offset by

• unfavorable currency ($59 million) and

• higher marketing, administration and research costs ($51 million, principally related to investments in marketing and business infrastructure, mainly in Russia).

Our cigarette shipment volume in EEMA increased by 3.0%, predominantly due to improved market conditions in Egypt and the favorable timing of distributor inventory movements and higher market share in Russia. Our cigarette shipment volume of premium brands grew by 3.7%, driven by Parliament, up by 13.8%, mainly reflecting growth in Kazakhstan, Russia and Turkey.

In Russia, our shipment volume increased by 4.5%, mainly reflecting favorable distributor inventory movements and a higher market share. Shipment volume of our premium portfolio was up by 7.3%, driven primarily by Parliament, up by 16.7%. In the mid-price segment, shipment volume was up by 6.9%, mainly due to L&M, up by 23.5%. In the low-price segment, shipment volume was up by 2.6%, driven by Apollo Soyuz, Bond Street and Next, up by 5.3%, 2.2% and 6.7%, respectively. Our market share of 26.5%, as measured by Nielsen, was up by 0.6 share points. Market share of Parliament was up slightly by 0.1 share point to 3.1%; Marlboro was down by 0.2 share points to 1.8%; L&M was up by 0.2 share points to 2.6% and Chesterfield was essentially flat at 3.4%; Bond Street was up by 0.3 share points to 6.6%; Next was up by 0.2 share points to 2.9%; and Apollo Soyuz and Optima were essentially flat at 1.5% and 3.2%, respectively.

In Turkey, the total cigarette market increased by an estimated 1.2% to 25.9 billion units, reflecting recovery after the October 2011 excise tax-driven price increase and a decline in illicit trade. Our shipment volume increased by 1.8%, notably premium and mid-price volume, up by 6.1% and 2.6%, respectively. Our market share, as measured by Nielsen, grew by 0.4 share points to 46.1%, driven by premium Parliament, mid-price Muratti and low-price Lark,up by 0.7, 0.2 and 0.3 share points to 9.2%, 6.6% and 12.2%, respectively, partly offset by a decline in low-price L&M, down by 0.3 share points to 8.5%. Market share of Marlboro was down by 0.2 share points to 9.3%.

In Ukraine, the total cigarette market declined by 10.0% to 23.3 billion units, mainly due to the timing of trade inventory movements of competitive product in the third quarter of 2011. Our shipment volume decreased by 4.8%. Our market share, as measured by

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Nielsen, was up by 0.3 share points to 32.5%. Share for premium Parliament was up by 0.3 share points to 3.2%. Share of Marlboro was flat at 5.7%, Chesterfield was down by 0.8 share points to 6.8% and Bond Street was up by 1.3 share points to 8.9%.

Asia. Net revenues, which include excise taxes billed to customers, increased by $31 million (0.6%). Excluding excise taxes, net revenues decreased by $38 million (1.4%) to $2.8 billion. This decrease was due to:

• unfavorable currency ($104 million) and

• unfavorable volume/mix ($83 million), partially offset by

• price increases ($149 million).

Operating companies income of $1.3 billion decreased by $12 million (0.9%). This decrease was due primarily to:

• unfavorable volume/mix ($96 million),

• higher marketing, administration and research costs ($41 million, including higher marketing investments, notably in Indonesia) and

• higher pre-tax charges for asset impairment and exit costs ($19 million), partially offset by

• price increases ($149 million).

Our cigarette shipment volume increased by 0.6%, driven by growth in Indonesia, Thailand and Vietnam, largely offset by a decline in Japan. Shipment volume of Marlboro was up by 0.6%, driven by Indonesia, the Philippines and Vietnam, largely offset by Japan and Korea.

In Indonesia, the total cigarette market was up by 2.4% to 76.5 billion units, driven by growth in the premium and mid-price segments. Our shipment volume grew by 13.0%. Our market share was up by 3.3 share points to 34.9%, driven by all main brand families, notably by Sampoerna A in the premium segment, up by 1.5 share points to 13.7%, and mid-price U Mild, up by 1.2 share points to 3.3%. Marlboro's market share was up by 0.4 share points to 4.7% and its share of the “white” cigarettes segment increased by 6.1 share points to 71.9%. Market share of Dji Sam Soe was flat at 7.8%.

In Japan, the total cigarette market decreased by 7.7% to 50.6 billion units. Our shipment volume was down by 13.4%, reflecting an unfavorable comparison with the third quarter of 2011 in which depleted distributor inventories were rebuilt. Our market share was down by 0.4 share points to 27.5%. Share of Marlboro was up by 0.5 share points to 12.5%, and up slightly by 0.1 share point compared to its 2011 exit share of 12.4%, supported by the introduction of Marlboro Black Menthol Edge 1 and Marlboro Black Menthol Edge 8 in May and Marlboro Ice Blast 1 and Marlboro Ice Blast 5 in July. Share of Lark was down by 0.5 share points to 8.2%, down by 0.4 share points compared to its 2011 exit share of 8.6%. Share of Philip Morris was down by 0.2 share points to 2.3%, and by 0.2 share points compared to its 2011 exit share of 2.5%.

In Korea, the total cigarette market was up by 0.5% to 24.3 billion units. Our shipment volume decreased by 8.9%, reflecting the impact of our price increases in February 2012. Our market share of 19.0% was down by 2.1 share points. Market shares of Marlboro and Parliament were down by 1.9 and 0.7 share points to 7.5% and 6.4%, respectively, partly offset by Virginia Slims, up by 0.9 share points to 4.4%, reflecting the positive impact of its price repositioning in April 2012.

In the Philippines, the total cigarette market increased by 2.3% to 24.7 billion units. Our shipment volume decreased by 0.2%, mainly reflecting the impact of our price increases in January 2012. Our market share was down by 2.2 share points to 90.8%, due primarily to share declines of Champion and Hope. Marlboro's market share was up by 0.2 share points to 21.2%. Market share of Fortune was up by 3.1 share points to 50.1%.

Latin America & Canada. Net revenues, which include excise taxes billed to customers, decreased by $98 million (3.9%). Excluding excise taxes, net revenues decreased by $20 million (2.4%) to $827 million. This decrease was due to:

• unfavorable currency ($82 million) and

• unfavorable volume/mix ($38 million), partially offset by

• price increases ($100 million).

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Operating companies income of $267 million increased by $12 million (4.7%). This increase was due primarily to:

• price increases ($100 million), partially offset by

• unfavorable volume/mix ($35 million),

• higher manufacturing costs ($24 million, including increased investments in distribution infrastructure, notably in Brazil and Colombia),

• unfavorable currency ($17 million) and

• higher marketing, administration and research costs ($13 million).

Our cigarette shipment volume in Latin America & Canada decreased by 4.9%, mainly due to a lower total market in Argentina, Brazil, Colombia and Mexico. Shipment volume of Marlboro decreased by 2.6%, principally due to declines in Argentina and Mexico.

In Argentina, the total cigarette market declined by 4.8% to 10.2 billion units, mainly reflecting the timing of trade inventory movements and a deterioration in the economy. Our cigarette shipment volume decreased by 3.8%. Our market share was up by 1.1 share points to 75.0%, reflecting growth of mid-price Philip Morris, up by 2.0 share points to 39.8%, partly offset by low-price Next, down by 0.4 share points to 3.1%. Market share of Marlboro was down by 0.2 share points to 24.0%.

In Canada, the total tax-paid cigarette market increased by 1.4% to 8.7 billion units, reflecting favorable seasonality and improved economic conditions in the mid-west region. Our cigarette shipment volume declined by 1.2%. Our market share was down by 1.0 share point to 33.3%, primarily reflecting intense price competition. Market share of premium brands Benson & Hedges and Belmont combined were essentially flat, and low-price brand Next was up by 0.7 share points to 7.7%, offset by mid-price Number 7 and Canadian Classics, and low-price Accord and Quebec Classique, down by 0.3, 0.4, 0.4 and 0.2 share points, to 3.8%, 8.4%, 3.1% and 2.4%, respectively.

In Mexico, the total cigarette market was down by 4.1% to 8.4 billion units. Our cigarette shipment volume decreased by 3.5%. Our market share grew by 0.4 share points to 73.6%, led by Marlboro, up by 0.8 share points to 53.6%. Market share of premium Benson & Hedges was flat at 6.1% while share of low-price Delicados decreased by 0.6 share points to 10.5%.

Financial Review

Net Cash Provided by Operating Activities

Net cash provided by operating activities of $7.8 billion during the first nine months of 2012 decreased by $1.8 billion from the comparable 2011 period. The decrease was due primarily to unfavorable currency and an increase in our working capital requirements, partially offset by higher net earnings.

The unfavorable movements in working capital were due primarily to the following:

• more cash used for inventories ($1.1 billion), primarily due to the planned replenishment of tobacco leaf and clove inventories and higher finished goods inventories (primarily related to forestalling attributable to tax-driven price increases); and

• less cash provided by accrued liabilities and other current assets ($242 million), largely due to the timing of payments for excise taxes (primarily related to forestalling).

Net Cash Used in Investing Activities

Net cash used in investing activities of $691 million during the first nine months of 2012 increased by $9 million from the comparable 2011 period due primarily to higher capital expenditures ($151 million), partially offset by cash spent in 2011 to purchase businesses ($80 million).

Our capital expenditures were $719 million and $568 million during the nine months ended September 30,2012 and 2011, respectively. The 2012 expenditures were primarily related to investments in productivity-enhancing programs, equipment for new products, the consolidation of our operations in the Philippines and the expansion of our capacity in Indonesia.

In January 2011, we acquired a cigar business, consisting primarily of trademarks in the Australian and New Zealand markets for $20 million.

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In June 2011, we completed the acquisition of a cigarette business in Jordan, consisting primarily of cigarette manufacturing assets and inventories, for $42 million.

Net Cash Used in Financing Activities

During the first nine months of 2012, net cash used in financing activities was $4.9 billion, compared with net cash used in financing activities of $7.1 billion during the first nine months of 2011. During the first nine months of 2012, we used a total of $12.0 billion to repurchase our common stock, pay dividends, and repay debt. These uses were partially offset by proceeds from our debt offerings and short-term borrowings in 2012 of $7.4 billion. During the first nine months of 2011, we used a total of $9.3 billion to repurchase our common stock, pay dividends, and repay debt. These uses were partially offset by proceeds from our debt offerings and short-term borrowings in 2011 of $2.4 billion.

Dividends paid in the first nine months of 2012 and 2011 were $4.0 billion and $3.4 billion, respectively. The increase reflects a higher dividend rate in 2012, partially offset by lower shares outstanding as a result of our share repurchase programs.

Debt and Liquidity

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

Credit Ratings - The cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings. At September 30, 2012, our credit ratings and outlook by major credit rating agencies were as follows:

	Short-term	Long-term	Outlook
Moody’s	P-1	A2	Stable
Standard & Poor’s	A-1	A	Stable
Fitch	F1	A	Stable

Credit Facilities – At September 30, 2012, our committed credit facilities and commercial paper outstanding were as follows:

(in billions of dollars)
Type	Committed Credit Facilities		Commercial Paper
Multi-year revolving credit, expiring March 31, 2015	$	2.5
Multi-year revolving credit, expiring October 25, 2016	3.5
Total facilities	$	6.0
Commercial paper outstanding			$	1.6

At September 30, 2012, there were no borrowings under the committed credit facilities, and the entire committed amounts were available for borrowing.

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

Each of these facilities requires us to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“consolidated EBITDA”) to consolidated interest expense of not less than 3.5 to 1.0 on a rolling four-quarter basis. At September 30, 2012, our ratio calculated in accordance with the agreements was 16.1 to 1.0. These facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral. We expect to continue to meet our covenants. The terms “consolidated EBITDA” and “consolidated interest expense,” both of which include certain adjustments, are defined in the facility agreements previously filed with the U.S. Securities and Exchange Commission.

In addition to the committed credit facilities discussed above, certain of our subsidiaries maintain short-term credit arrangements

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to meet their respective working capital needs. These credit arrangements, which amounted to approximately $1.9 billion at September 30, 2012 and December 31, 2011, are for the sole use of our subsidiaries. Borrowings under these arrangements amounted to $505 million at September 30, 2012, and $247 million at December 31, 2011.

Commercial Paper Program - We have commercial paper programs in place in the U.S. and in Europe. At September 30, 2012 and December 31, 2011, we had $1.6 billion and $1.3 billion, respectively, of commercial paper outstanding.

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

Debt - Our total debt was $22.4 billion at September 30, 2012 and $18.5 billion at December 31, 2011.

On February 28, 2011, we filed a new 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 offerings in the first three quarters of 2012 were as follows:

(in millions)
Type		Face Value	Interest Rate	Issuance	Maturity
U.S. dollar notes	(a)	$700	4.500%	March 2012	March 2042
U.S. dollar notes	(a)	$550	1.625%	March 2012	March 2017
EURO notes	(b)	€750 (approximately $951)	2.125%	May 2012	May 2019
EURO notes	(b)	€600 (approximately $761)	2.875%	May 2012	May 2024
U.S. dollar notes	(c)	$750	1.125%	August 2012	August 2017
U.S. dollar notes	(c)	$750	2.500%	August 2012	August 2022
U.S. dollar notes	(c)	$750	3.875%	August 2012	August 2042
Swiss franc notes	(d)	CHF 325 (approximately $334)	1.000%	September 2012	September 2020

(a) Interest on these notes is payable semiannually beginning in September 2012

(b) Interest on these notes is payable annually beginning in May 2013

(c) Interest on these notes is payable semiannually beginning in February 2013

(d) Interest on these notes is payable annually beginning in September 2013

The net proceeds from the sale of the securities listed in the table above were used to meet our working capital requirements, to repurchase our common stock, to refinance debt and for general corporate purposes.

Guarantees - At September 30, 2012, we were contingently liable for $0.7 billion of guarantees of our own performance, which were primarily related to excise taxes on the shipment of our products. There is no liability in the condensed consolidated financial statements associated with these guarantees. At September 30, 2012, our third-party guarantees were insignificant.

Equity and Dividends

As discussed in Note 3. Stock Plans to our condensed consolidated financial statements, during the nine months ended September 30,2012, we granted 3.2 million shares of deferred stock awards at a weighted-average grant date fair value of $79.58. Equity awards generally vest three or more years after the date of the award, subject to earlier vesting on death or disability or normal retirement, or separation from employment by mutual agreement after reaching age 58.

In May 2012, our stockholders approved the Philip Morris International Inc. 2012 Performance Incentive Plan (the “2012 Plan”). The 2012 Plan replaced the 2008 Performance Incentive Plan (the “2008 Plan”) and, as a result, there will be no additional grants under the 2008 Plan. Under the 2012 Plan, we may grant to eligible employees restricted stock, restricted stock units and deferred stock units, performance-based cash incentive awards and performance-based equity awards. While the 2008 Plan authorized incentive stock options, non-qualified stock options and stock appreciation rights, the 2012 Plan does not authorize any stock options or stock appreciation rights. Up to 30 million shares of our common stock may be issued under the 2012 Plan.

On May 1, 2010, we began repurchasing shares under a three-year $12 billion share repurchase program that was authorized by our Board of Directors in February 2010. On July 31, 2012, we completed this share repurchase program ahead of schedule. In total, we purchased 179.1 million shares for $12.0 billion under this program.

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On August 1, 2012, we began repurchasing shares under a new three-year $18 billion share repurchase program that was authorized by our Board of Directors in June 2012. From August 1, 2012, through September 30, 2012, we repurchased 9.8 million shares of our common stock at a cost of $893 million under this new repurchase program. During the first nine months of 2012, we repurchased 52.5 million shares at a cost of $4.5 billion. During the third quarter of 2012, we repurchased 16.7 million shares at a cost of $1.5 billion.

As previously announced on February 9, 2012, we have a share repurchase target for 2012 of $6 billion.

Dividends paid in the first nine months of 2012 were $4.0 billion. During the third quarter of 2012, our Board of Directors approved a 10.4% increase in the quarterly dividend to $0.85 per common share. As a result, the present annualized dividend rate is $3.40 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 are currently invested in bank deposits maturing within less than 30 days.

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

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

See Note 6. Financial Instruments and Note 13. Fair Value Measurements to our condensed consolidated financial statements for further details on our derivative financial instruments.

Contingencies

See Note 10. Contingencies to our condensed consolidated financial statements for a discussion of contingencies.

Cautionary Factors That May Affect Future Results

Forward-Looking and Cautionary Statements

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

We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in our securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in the “Business Environment” 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.

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Risks Related to Our Business and Industry

Cigarettes are subject to substantial taxes. Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions. These tax increases may disproportionately affect our profitability and make us less competitive versus certain of our competitors.

Tax regimes, including excise taxes, sales taxes and import duties, can disproportionately affect the retail price of manufactured cigarettes versus other tobacco products, or disproportionately affect the relative retail price of our manufactured cigarette brands versus cigarette brands manufactured by certain of our competitors. Because our portfolio is weighted toward the premium-price manufactured cigarette category, tax regimes based on sales price can place us at a competitive disadvantage in certain markets. As a result, our volume and profitability may be adversely affected in these markets.

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

Our business faces significant governmental action aimed at increasing regulatory requirements with the goal of preventing the use of tobacco products.

Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volume in many of our markets, and we expect that such factors will continue to reduce consumption levels and will increase downtrading and the risk of counterfeiting, contraband and cross-border purchases. Significant regulatory developments will take place over the next few years in most of our markets, driven principally by the World Health Organization's Framework Convention on Tobacco Control (“FCTC”). The FCTC is the first international public health treaty on tobacco, and its objective is to establish a global agenda for tobacco regulation. The FCTC has led to increased efforts by tobacco control advocates and public health organizations to reduce the palatability and attractiveness of tobacco products to adult smokers. Regulatory initiatives that have been proposed, introduced or enacted include:

• the levying of substantial and increasing tax and duty charges;

• restrictions or bans on advertising, marketing and sponsorship;

• the display of larger health warnings, graphic health warnings and other labeling requirements;

• restrictions on packaging design, including the use of colors, and plain packaging;

• restrictions or bans on the display of tobacco product packaging at the point of sale and restrictions or bans on cigarette vending machines;

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

• disclosure, restrictions, or bans of tobacco product ingredients;

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

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

• encouraging litigation against tobacco companies.

Our operating income could be significantly affected by regulatory initiatives resulting in a significant decrease in demand for our brands, in particular requirements that lead to a commoditization of tobacco products, as well as any significant increase in the cost of complying with new regulatory requirements.

Litigation related to tobacco use and exposure to environmental tobacco smoke (“ETS”) could substantially reduce our profitability and could severely impair our liquidity.

There is litigation related to tobacco products pending in certain jurisdictions. Damages claimed in some tobacco-related litigation are significant and, in certain cases in Brazil, Canada, Israel and Nigeria, range into the billions of U.S. dollars. We anticipate that new cases will continue to be filed. The FCTC encourages litigation against tobacco product manufacturers. It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Please see Note 10. Contingencies to our condensed consolidated financial statements for a discussion of tobacco-related litigation.

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We face intense competition, and our failure to compete effectively could have a material adverse effect on our profitability and results of operations.

We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, innovation, packaging, service, marketing, advertising and price. We are subject to highly competitive conditions in all aspects of our business. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price products or innovative products, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products. Competitors include three large international tobacco companies and several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, China, Egypt, Taiwan, Thailand and Vietnam. Industry consolidation and privatizations of state-owned enterprises have led to an overall increase in competitive pressures. Some competitors have different profit and volume objectives and some international competitors are less susceptible to changes in currency exchange rates.

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

Some of the countries in which we operate face the threat of civil unrest and can be subject to regime changes. In others, nationalization, terrorism, conflict and the threat of war may have a significant impact on the business environment. Economic, political, regulatory or other developments could disrupt our supply chain or our distribution capabilities. In addition, such developments could lead to loss of property or equipment that are critical to our business in certain markets and difficulty in staffing and managing our operations, which could reduce our volumes, revenues and net earnings. In certain markets, we are dependent on governmental approvals of various actions such as price changes.

In addition, despite our high ethical standards and rigorous control and compliance procedures aimed at preventing and detecting unlawful conduct, given the breadth and scope of our international operations, we may not be able to detect all potential improper or unlawful conduct by our employees and international partners.

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

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

• promote brand equity successfully;

• anticipate and respond to new consumer trends;

• develop new products and markets and broaden brand portfolios;

• improve productivity; and

• be able to protect or enhance margins through price increases.

In periods of economic uncertainty, consumers may tend to purchase lower-price brands, and the volume of our premium-price and mid-price brands and our profitability could suffer accordingly.

We lose revenues as a result of counterfeiting, contraband and cross-border purchases.

Large quantities of counterfeit cigarettes are sold in the international market. We believe that Marlboro is the most heavily counterfeited international cigarette brand, although we cannot quantify the revenues we lose as a result of this activity. In addition, our revenues are reduced by contraband and legal cross-border purchases.

From time to time, we are subject to governmental investigations on a range of matters.

Investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of customs duties and/or excise taxes, allegations of false and misleading usage of descriptors such as “lights” and “ultra lights” and allegations of unlawful advertising. We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially affected by an unfavorable outcome of pending or future investigations. See “Management's Discussion and Analysis of Financial Condition and Results of Operations-Operating Results by Business Segment-Business Environment-Governmental Investigations” for a description of governmental investigations to which we are subject.

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We may be unsuccessful in our attempts to produce products with the potential to reduce the risk of smoking-related diseases.

We continue to seek ways to develop commercially viable new product technologies that may reduce the risk of smoking. Our goal is to develop products whose potential for risk reduction can be substantiated and meet adult smokers' taste expectations. We may not succeed in these efforts. If we do not succeed, but others do, we may be at a competitive disadvantage. Furthermore, we cannot predict whether regulators will permit the marketing of tobacco products with claims of reduced risk to consumers, which could significantly undermine the commercial viability of these products.

Our reported results could be adversely affected by unfavorable currency exchange rates, and currency devaluations could impair our competitiveness.

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

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

Because we are a U.S. holding company, our most significant source of funds is distributions from our non-U.S. subsidiaries. Under current U.S. tax law, in general we do not pay U.S. taxes on our foreign earnings until they are repatriated to the U.S. as distributions from our non-U.S. subsidiaries. These distributions may result in a residual U.S. tax cost. It may be advantageous to us in certain circumstances to significantly increase the amount of such distributions, which could result in a material increase in our overall effective tax rate. Additionally, the Obama Administration has indicated that it favors changes in U.S. tax law that would fundamentally change how our earnings are taxed in the U.S. If enacted and depending upon its precise terms, such legislation could increase our overall effective tax rate. It is possible that certain countries in which we operate could adopt currency exchange controls that limit or prohibit our local subsidiaries' ability to make payments outside the country.

Our ability to grow may be limited by our inability to introduce new products, enter new markets or to improve our margins through higher pricing and improvements in our brand and geographic mix.

Our profitability may suffer if we are unable to introduce new products or enter new markets successfully, to raise prices or maintain an acceptable proportion of our sales of higher margin products and sales in higher margin geographies.

We may be unable to expand our brand portfolio through successful acquisitions and the development of strategic business relationships.

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

Government mandated prices, production control programs, shifts in crops driven by economic conditions and the impacts of climate change may increase the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.

As with other agricultural commodities, the price of tobacco leaf and cloves can be influenced by imbalances in supply and demand, and crop quality can be influenced by variations in weather patterns, including those caused by climate change. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs. Changes in the patterns of demand for agricultural products could cause farmers to plant less tobacco. Any significant change in tobacco leaf and clove prices, quality and quantity could affect our profitability and our business.

Our ability to implement our strategy of attracting and retaining the best global talent may be impaired by the decreasing social acceptance of cigarette smoking.

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

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

We use information systems to help manage business processes, collect and interpret business data and communicate internally and externally with employees, suppliers, customers and others. Some of these information systems are managed by third-party service providers. We have backup systems and business continuity plans in place, and we take care to protect our systems and data from unauthorized access. Nevertheless, failure of our systems to function as intended, or penetration of our systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could result in loss of revenue, assets or personal or other sensitive data, cause damage to our reputation and that of our brands and result in significant remediation and other costs to us.

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Item 4. 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.

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Part II - OTHER INFORMATION

Item 1. Legal Proceedings.

See Note 10. Contingencies of the Notes to the Condensed Consolidated Financial Statements included in Part I – Item 1 of this report for a discussion of legal proceedings pending against Philip Morris International Inc. and its subsidiaries.

Item 1A. Risk Factors.

Information regarding Risk Factors appears in “MD&A – Cautionary Factors That May Affect Future Results,” in Part I – Item 2 of this Form 10-Q and in Part I – Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K.

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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Our share repurchase activity for each of the three months in the quarter ended September 30, 2012 was as follows:

Period	Total Number of Shares Repurchased	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (2)	Approximate Dollar Value of Shares that May Yet be Purchased Under the Plans or Programs
July 1, 2012 – July 31, 2012 (1)	6,861,481	$	89.20	179,139,305	$18,000,000,000
August 1, 2012 – August 31, 2012 (1)	5,581,096	$	91.38	5,581,096	$17,489,992,546
September 1, 2012 – September 30, 2012 (1)	4,244,426	$	90.22	9,825,522	$17,107,045,757
Pursuant to Publicly   Announced Plans   or Programs	16,687,003	$	90.19
July 1, 2012 – July 31, 2012 (3)	2,441	$	87.74
August 1, 2012 – August 31, 2012 (3)	2,685	$	91.29
September 1, 2012 – September 30, 2012 (3)	—	$	—
For the Quarter Ended September 30, 2012	16,692,129	$	90.19

(1) On February 11, 2010, our Board of Directors authorized a share repurchase program of $12 billion over three years. This program commenced in May 2010, after the completion of our previous two-year $13 billion program. These share repurchases have been made pursuant to the $12 billion program. On July 31, 2012, we completed the $12 billion share repurchase program ahead of schedule by purchasing, in total, 179.1 million shares for $12.0 billion.

On June 13, 2012, our Board of Directors authorized a new share repurchase program of $18 billion over three years. The new program commenced on August 1, 2012 after the completion of the three-year $12 billion program in July 2012.

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

(3) Shares repurchased represent shares tendered to us by employees who vested in restricted and deferred stock awards, or exercised stock options, and used shares to pay all, or a portion of, the related taxes and/or option exercise price.

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Item 6. Exhibits.

3.1	Amended and Restated By-Laws of Philip Morris International Inc. (incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K filed December 6, 2011).
10.1	Employment Agreement with Jacek Olczak (incorporated by reference to Exhibit 10.4 to the Quarterly Report on Form 10-Q for the quarter ended June 30, 2012).
10.2	Philip Morris International Inc. Benefit Equalization Plan (as amended and in effect on August 6, 2012).
10.3	Supplemental Equalization Plan (amended and restated as of August 6, 2012).
10.4	Amendment No. 1 to the Time Sharing Agreement between PM Global Services Inc. and Louis C. Camilleri, dated August 22, 2012.
10.5	Amendment No. 1, dated as of August 31, 2012, to the Amended and Restated Credit Agreement, dated as of May 11, 2011, among Philip Morris International Inc., the lenders named therein and J.P. Morgan Europe Limited, as facility agent.
10.6	Amendment No. 1, dated as of August 31, 2012, to the Credit Agreement, dated as of October 25, 2011, among Philip Morris International Inc., the lenders named therein and Citibank International plc, as facility agent.
12	Statement regarding computation of ratios of earnings to fixed charges.
31.1	Certification of the Registrant's Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of the Registrant's Chief Financial Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934, as amended, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of the Registrant's Chief Executive Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of the Registrant's Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document.
101.SCH	XBRL Taxonomy Extension Schema.
101.CAL	XBRL Taxonomy Extension Calculation Linkbase.
101.DEF	XBRL Taxonomy Extension Definition Linkbase.
101.LAB	XBRL Taxonomy Extension Label Linkbase.
101.PRE	XBRL Taxonomy Extension Presentation Linkbase.

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Signature

Pursuant to the requirements 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.

/s/ JACEK OLCZAK

Jacek Olczak

Chief Financial Officer

November 2, 2012

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EX-10.2

Exhibit 10.2

PHILIP MORRIS INTERNATIONAL BENEFIT EQUALIZATION PLAN

Effective as of January 1, 2008

(As amended and in effect on August 6, 2012)

Exhibit 10.2

TABLE OF CONTENTS

Page NoARTICLE I    DEFINITIONS     3

ARTICLE II    BENEFIT EQUALIZATION RETIREMENT ALLOWANCES AND

BENEFIT EQUALIZATION PROFIT-SHARING ALLOWANCES     15

ARTICLE IIIFUNDS FROM WHICH ALLOWANCES ARE PAYABLE     23

ARTICLE IVTHE ADMINISTRATOR     24

ARTICLE VAMENDMENT AND DISCONTINUANCE OF THE PLAN     25

ARTICLE VIFORMS; COMMUNICATIONS     26

ARTICLE VIIINTERPRETATION OF PROVISIONS     27

ARTICLE VIIICHANGE IN CONTROL PROVISIONS     28

i

Exhibit 10.2

PHILIP MORRIS INTERNATIONAL BENEFIT EQUALIZATION PLAN

The Philip Morris International Benefit Equalization Plan governs the rights of an Employee whose benefit under the Retirement Plan or the Profit-Sharing Plan, or both Qualified Plans, is subject to one or more of the Statutory Limitations, or to the nondiscrimination requirements of Section 401(a)(4) of the Code and the coverage requirements of Section 410(b) of the Code. The liabilities allocable to Employees, former employees and retired employees of the international tobacco operations conducted by the Company and the other Participating Companies have been transferred from the Benefit Equalization Plan maintained by Altria Corporate Services, Inc. to the Plan.

Employees who received target payments pursuant to a Supplemental Enrollment Agreement generally are not eligible to participate in the Plan with respect to services provided after December 31, 2004, but, instead, are eligible to accrue future benefits under a separate plan. It is intended that Grandfathered Benefit Equalization Retirement Allowances and Grandfathered Benefit Equalization Profit-Sharing Allowances with respect to Grandfathered Employees and Grandfathered Retired Employees (as well as their spouses and beneficiaries) not be subject to the requirements of Section 409A of the Code and that the Plan be interpreted and administered in accordance with this intention.

The Plan as hereinafter set forth shall be effective with respect to Employees who incur a Separation from Service on or after January 1, 2008, except as otherwise provided herein. The Plan will also be the source of benefits to former employees of Philip Morris International Inc. and its subsidiaries who terminated employment prior to January 1, 2008. The provisions of the Plan shall not be construed to change the time and form of payment of that portion of the Benefit Equalization Retirement Allowance (referred to as a Grandfathered Benefit Equalization Retirement Allowance) and that portion of the Benefit Equalization Profit-Sharing Allowance (referred to as a Grandfathered Benefit Equalization Profit-Sharing Allowance) considered deferred before January 1, 2005 (within the meaning of Final Regulation §1.409A-6(a)(2) and other provisions of the Final Regulations) of a Grandfathered Retired Employee.

The rights of a person whose Separation from Service or date of becoming an Inactive Participant is before January 1, 2008 shall be governed by the provisions of the plan in which he was a participant as in effect on his Separation from Service or date of becoming an Inactive Participant, as the case may be, except to the extent that the administrator of the plan has determined in his sole discretion to administer the plan in good faith compliance with Section 409A of the Code and any then published guidance and to not subject any Grandfathered Benefit Equalization Retirement Allowance and Grandfathered Benefit Equalization Profit-Sharing Allowance to Section 409A of the Code.

The Plan is comprised of three separate plans, programs or arrangements. Each plan shall be treated as a separate plan, program or arrangement from the other plans. One of the plans provides benefits to a Retired Employee (or his Spouse or other Beneficiary) solely in excess of the Section 415 Limitations; the second plan provides benefits to a Retired Employee (or his Spouse or other Beneficiary) attributable solely to the Compensation Limitation; and the third plan provides benefits to a Retired Employee (or his Spouse or other Beneficiary) because payment of the benefit from one or both of the Qualified Plans could result in a failure to meet

1

Exhibit 10.2

the nondiscrimination requirements of Section 401(a)(4) of the Code or the coverage requirements of Section 410(b) of the Code.

2

Exhibit 10.2

ARTICLE I

DEFINITIONS

The following terms as used herein and in the Preamble shall have the meanings set forth below. Any capitalized term used herein or in the Preamble and not defined below shall have the meaning set forth in the Retirement Plan or the Profit-Sharing Plan, as the context may require.

(a)“Actuarial Equivalent” shall mean a benefit which is at least equivalent in value to the benefit otherwise payable pursuant to the terms of the Plan, based on the actuarial principles and assumptions set forth in Exhibit I to the Retirement Plan.

(b)“Allowance” or “Allowances” shall mean a Benefit Equalization Retirement Allowance, determined under ARTICLE IIA(1) of the Plan and a Benefit Equalization Profit-Sharing Allowance, determined under ARTICLE IIB of the Plan.

(c)“Beneficiary” shall mean:

(i)In the case of a Retired Employee who is to receive all or a portion of his Benefit Equalization Retirement Allowance after his Separation from Service in a Single Sum Payment pursuant to ARTICLE IIC(1)(a), ARTICLE IIC(1)(b) or ARTICLE IIC(1)(c)(z) of the Plan, but who dies after his Separation from Service and before such Single Sum Payment is made:

(1)if the Retired Employee is married on the date of his death, the Beneficiary of such Single Sum Payment shall be the Spouse to whom he was married on the date of death; and

(2)if the Retired Employee is not married on the date of his death, the Beneficiary of such Single Sum Payment shall be the Retired Employee’s estate.

An Employee or Retired Employee may designate any other person or persons as the Beneficiary who is to receive a Single Sum Payment of his Benefit Equalization Retirement Allowance in the event that he dies after his Separation from Service and before such Single Sum Payment is paid to him by timely filing a beneficiary designation form with the Administrator (or his delegate), provided, however, that if the Employee or Retired Employee is married on the date of the filing of such beneficiary designation form, his Spouse must consent, in writing before a notary public or a duly authorized representative of his Participating Company, to such designation.

(ii)In the case of a Grandfathered Employee who is a Secular Trust Participant who has elected pursuant to ARTICLE IIC(2) of the Plan to receive after his Separation from Service that portion of his Benefit Equalization Retirement Allowance equal to the Grandfathered Benefit Equalization Retirement Allowance in the form of an Optional Payment described in

3

Exhibit 10.2

ARTICLE I(x)(i)(1) or (2) of the Plan, the person or persons designated by the Grandfathered Employee to receive (or who, pursuant to the terms of such Optional Payment, will receive) after his death a benefit according to the option elected by the Grandfathered Employee.

(iii)In the case of an Employee or Retired Employee who has been credited with a Benefit Equalization Profit-Sharing Allowance and who dies prior to the payment of such Benefit Equalization Profit-Sharing Allowance (or prior to the payment of the then remaining balance of such Benefit Equalization Profit-Sharing Allowance in the case of a Grandfathered Employee who has elected pursuant to ARTICLE IID(3) of the Plan to receive that portion of his Benefit Equalization Profit-Sharing Allowance equal to the Grandfathered Benefit Equalization Profit-Sharing Allowance in the form of an Optional Payment described in ARTICLE I(x)(ii) of the Plan):

(1)if the Employee or Retired Employee is married on the date of his death, the Beneficiary of such Benefit Equalization Profit-Sharing Allowance shall be the Spouse to whom he was married on the date of death; and

(2)if the Employee or Retired Employee is not married on the date of his death, the Beneficiary of such Benefit Equalization Profit-Sharing Allowance shall be the Employee’s or Retired Employee’s estate.

An Employee or Retired Employee may designate any other person or persons (including a trust created by the Employee or Retired Employee during his lifetime or by will) as Beneficiary of his Benefit Equalization Profit-Sharing Allowance in the event of his death by timely filing a beneficiary designation form with the Administrator (or his delegate), provided, however, that if the Employee or Retired Employee is married on the date of the filing of such beneficiary designation form, his Spouse must consent, in writing before a notary public or a duly authorized representative of his Participating Company, to such designation.

(d)“Benefit Equalization Joint and Survivor Allowance” shall mean the total amount that would be payable during a twelve (12) month period as a reduced Benefit Equalization Retirement Allowance to a Retired Employee for life and after his death the amount payable to his Spouse for life equal to one-half of the reduced Benefit Equalization Retirement Allowance payable to the Retired Employee (regardless of whether such form of benefit was available to such Retired Employee and his Spouse), which together shall be the Actuarial Equivalent of the Benefit Equalization Retirement Allowance of the Retired Employee.

(e)“Benefit Equalization Profit-Sharing Allowance” or “Profit-Sharing Allowance” shall mean the benefit determined under ARTICLE IIB of the Plan and payable at the times and in the forms set forth in ARTICLE IID of the Plan. The Benefit Equalization Profit-Sharing Allowance shall be comprised of the Grandfathered Benefit Equalization Profit-Sharing Allowance, if any, and the remaining portion of such Allowance.

4

Exhibit 10.2

(f)“Benefit Equalization Retirement Allowance” shall mean the benefit determined under ARTICLE IIA of the Plan and payable at the times and in the forms set forth in ARTICLE IIC of the Plan. The Benefit Equalization Retirement Allowance shall be comprised of the Grandfathered Benefit Equalization Retirement Allowance, if any, and the remaining portion of such Allowance.

(g)“Benefit Equalization Survivor Allowance” shall mean the benefit payable to:

(i)the Spouse of a Deceased Employee; and

(ii)the Spouse of a deceased Retired Employee;

in an amount equal one-half of the reduced Benefit Equalization Retirement Allowance which would have been payable in the form of a Benefit Equalization Joint and Survivor Allowance to the Deceased Employee or deceased Retired Employee (regardless of whether such form of benefit was available to such Deceased Employee or deceased Retired Employee).

(h)“Benefits Committee” shall mean the Philip Morris International Benefits Committee.

(i)“BEP Benefit Commencement Date” shall mean the date on which the benefit to which the recipient is entitled to is paid or commences to be paid pursuant to the application filed in accordance with ARTICLE IIE of the Plan, or if no such application is filed, in accordance with the terms of the Plan as determined in the sole discretion of the Administrator. All such Allowances not paid in a Single Sum Payment are paid in arrears so that the actual date of payment shall be the first day of the calendar month next succeeding the BEP Benefit Commencement Date.

(1)    (i)    Except as provided in clauses (ii), (iii) and (iv) of this ARTICLE I(i)(1) of the Plan, the BEP Benefit Commencement Date of the Benefit Equalization Retirement Allowance shall be the Payment Date, but not later than the Latest Payment Date; provided, however, that the Grandfathered Benefit Equalization Retirement Allowance payable with respect to a Grandfathered Employee shall be payable at the time such Allowance was payable under the terms of the Plan as in effect on October 3, 2004, taking into account any Optional Payment Election that may be made, and no provision of this ARTICLE I(i)(1) changes the time at which such Allowance is payable.

(ii)    (A)    Except as provided in clauses (B) and (C) of this ARTICLE I(i)(1)(ii), the BEP Benefit Commencement Date of that portion of a Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance payable in the form of an Optional Payment pursuant to an election under ARTICLE IIC(2) of the Plan to a Grandfathered Retired Employee who is a Secular Trust Participant shall be the Benefit Commencement Date of the Grandfathered Retired Employee’s Full, Deferred or Early Retirement Allowance under the Retirement Plan.

5

Exhibit 10.2

(B)    The BEP Benefit Commencement Date of that portion of a Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance payable in the form of an Optional Payment with respect to a Grandfathered Retired Employee who voluntarily retires within the one (1) year period following the date of the filing of his application for an Optional Payment with the Administrator pursuant to ARTICLE IIC(2) of the Plan, or whose employment is terminated for misconduct (as determined by the Benefits Committee) within such one (1) year period, shall be the first day of the month following the expiration of the one (1) year period following the date of the filing of his application for an Optional Payment.

(C)    The BEP Benefit Commencement Date of the benefit payable pursuant to ARTICLE IIC(2)(e) of the Plan to the Beneficiary of a Grandfathered Retired Employee who died after his Date of Retirement and prior to his BEP Benefit Commencement Date shall be the first day of the month following the death of the deceased Grandfathered Retired Employee.

(iii)The BEP Benefit Commencement Date of that portion of a Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance payable to a Grandfathered Retired Employee who is only eligible for a Vested Retirement Allowance at his Separation from Service shall be the Benefit Commencement Date of the Retired Employee’s Vested Retirement Allowance under the Retirement Plan.

(iv)The BEP Benefit Commencement Date of any Benefit Equalization Retirement Allowance described in ARTICLE IIA(1)(f) shall be the benefit commencement date of such Allowance as set forth in the General Release Agreement; provided, however, that if no time of payment is specified, the BEP Benefit Commencement Date shall be the Payment Date, but no later than the 15^th day of the third month following the end of the Employee’s Participating Company first taxable year in which the right is no longer subject to a substantial risk of forfeiture; provided, however, that no such Benefit Equalization Retirement Allowance shall change either the time or form of payment of the Benefit Equalization Retirement Allowance (including a Grandfathered Benefit Equalization Retirement Allowance) otherwise payable pursuant to the terms of the Plan.

(2)    (A)    Except as provided in clause (B) of this ARTICLE I(i)(2), the BEP Benefit Commencement Date of the Benefit Equalization Profit-Sharing Allowance shall be the Payment Date, but not later than the Latest Payment Date; provided, however, that the Grandfathered Benefit Equalization Profit-Sharing Allowance payable with respect to a Grandfathered Employee shall be payable at the time such Allowance was payable under the terms of the Plan as in effect on October 3, 2004, taking into account any Optional Payment Election that may be made, and no provision of this ARTICLE I(i)(2) shall change the time at which such Allowance is payable.

(B)    The BEP Benefit Commencement Date of that portion of a Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance that is payable in the form of an Optional Payment pursuant to

6

Exhibit 10.2

an election under ARTICLE IID(3) of the Plan to a Grandfathered Retired Employee who is a Secular Trust Participant shall be the date specified in the application.

(3)    (A)    Except as provided in clause (B) of this ARTICLE I(i)(3), the BEP Benefit Commencement Date of the Benefit Equalization Survivor Allowance payable to the Spouse of a Deceased Employee or deceased Retired Employee shall be the Survivor Allowance Payment Date, but not later than the Survivor Allowance Latest Payment Date; provided, however, that the portion of the Benefit Equalization Survivor Allowance that is derived from the Grandfathered Benefit Equalization Retirement Allowance payable with respect to a Grandfathered Employee shall be payable at the time such Allowance was payable under the terms of the Plan as in effect on October 3, 2004, and no provision of this ARTICLE I(i)(3) changes the time at which such Allowance is payable.

(B)    The BEP Benefit Commencement Date of that portion of the Benefit Equalization Survivor Allowance that is derived from the Grandfathered Benefit Equalization Retirement Allowance that is payable to:

(1)    the Spouse of a Grandfathered Deceased Employee; or

(2)    the Spouse of a deceased Grandfathered Retired Employee,

shall, in each case, be the Benefit Commencement Date of the Survivor Allowance payable to such Spouse under the Retirement Plan, provided that the Spouse may elect in accordance with the provisions of ARTICLE II, A5(c) or (f) of the Retirement Plan, as applicable to the Spouse, that the BEP Benefit Commencement Date be the first day of any month thereafter, but not later than the later of (i) the first day of the second calendar month following the month in which the Grandfathered Deceased Employee or deceased Grandfathered Retired Employee died (or if his date of birth was on the first day of a calendar month, the first day of the calendar month next following the calendar month in which the Grandfathered Deceased Employee or deceased Grandfathered Retired Employee died), or (ii) the date that would have been the Grandfathered Deceased Employee’s or deceased Grandfathered Retired Employee’s Unreduced Early Retirement Benefit Commencement Date.

(j) “Change in Circumstance” shall mean, with respect to a Grandfathered Employee or Grandfathered Retired Employee who is a Secular Trust Participant:

(1)the marriage of the Grandfathered Employee or Grandfathered Retired Employee;

(2)the divorce of the Grandfathered Employee or Grandfathered Retired Employee from his spouse (determined in accordance with applicable state law), provided:

(A)such spouse was the Beneficiary who is to receive an Optional Payment, or

(B)the Grandfathered Employee or Grandfathered Retired Employee elected pursuant to ARTICLE IIC(2) of the Plan to receive an Optional Payment pursuant to ARTICLE (x)(i)(1) of the Plan;

7

Exhibit 10.2

(3)the death of the Beneficiary designated by the Grandfathered Employee or Grandfathered Retired Employee to receive an Optional Payment after the death of the Grandfathered Retired Employee; or

(4)a medical condition of the Beneficiary, based on medical evidence satisfactory to the Administrator, which is expected to result in the death of the Beneficiary within five (5) years of the filing of an application for change in Optional Payment method pursuant to ARTICLE IIC(2) or ARTICLE IID(3) hereof.

(k)“Company” shall mean PMI Global Services Inc. PMI Global Services Inc. is the sponsor of the Plan.

(l) “Compensation” shall have the same meaning as in the Retirement Plan

(m)“Compensation Limitation” shall mean the limitation of Section 401(a)(17) of the Code on the annual compensation of an Employee which may be taken into account under the Qualified Plans.

(n)“Earned and Vested” shall mean, when referring to an Allowance or any portion of an Allowance, an amount that, as of January 1, 2005, is not subject to a substantial risk of forfeiture (as defined in Treasury Regulation §1.83-3(c)) or a requirement to perform future services.

(o) “Employee” shall mean any person employed by a Participating Company who has accrued a benefit under the Retirement Plan or the Profit-Sharing Plan, but whose entire accrued benefit, if computed without regard to the Statutory Limitations, cannot be paid under the Retirement Plan or Profit-Sharing Plan, or both Qualified Plans, as a result of the Statutory Limitations, provided that an Employee shall not include:

(i)an EPF Employee; or

(ii)effective on and after January 1, 2005, a TP Employee; provided, however, that nothing shall deprive such employee of any Grandfathered Benefit Equalization Retirement Allowance and Grandfathered Benefit Equalization Profit-Sharing Allowance earned prior to January 1, 2005.

(p) “Grandfathered Benefit Equalization Joint and Survivor Allowance” shall mean the total amount that would be payable during a twelve (12) month period as a reduced Grandfathered BenefitEqualization Retirement Allowance to a Grandfathered Retired Employee for life and after his death the amount payable to his Spouse for life equal to one-half of the reduced Grandfathered Benefit Equalization Retirement Allowance payable to the Grandfathered Retired Employee, which together shall be the Actuarial Equivalent of the Grandfathered Benefit Equalization Retirement Allowance of the Grandfathered Retired Employee.

(q) “Grandfathered Benefit Equalization Optional Payment Allowance” shall mean, with respect to a Grandfathered Retired Employee who is a Secular Trust Participant, that portion of his Benefit Equalization Retirement Allowance that is the Grandfathered Benefit

8

Exhibit 10.2

Equalization Retirement Allowance and equal to the total amount payable during a twelve (12) month period in accordance with one of the payment methods described in ARTICLE II, A4(d) of the Retirement Plan and designated by the Grandfathered Retired Employee in his application for an Optional Payment under ARTICLE IIC(2) of the Plan, pursuant to which the Grandfathered Retired Employee receives for life after his Date of Retirement a reduced Grandfathered Benefit Equalization Retirement Allowance in equal monthly payments for life and after his death after his Date of Retirement his Beneficiary receives for life a benefit in equal monthly payments according to the option elected by the Grandfathered Retired Employee, which together shall be the Actuarial Equivalent of the Grandfathered Benefit Equalization Retirement Allowance payable in equal monthly payments for the life of the Grandfathered Retired Employee after his Date of Retirement.

(r) “Grandfathered Benefit Equalization Profit-Sharing Allowance” shall mean that portion of a Grandfathered Retired Employee’s Benefit Equalization Profit-Sharing Allowance as of December 31, 2004, the right to which is Earned and Vested as of December 31, 2004, plus any future contributions to the account, the right to which was Earned and Vested as of December 31, 2004, but only to the extent such contributions are actually made, plus earnings (whether actual or notional) attributable to such Grandfathered Benefit Equalization Profit-Sharing Allowance as of December 31, 2004, or to such income.

(s)“Grandfathered Benefit Equalization Retirement Allowance” shall mean the present value of that portion (or all) of the Benefit Equalization Retirement Allowance earned to December 31, 2004 to which the Grandfathered Employee or Retired Grandfathered Employee would have been entitled under the Plan if he had voluntarily terminated services without cause on or before December 31, 2004 and received payment of such benefit on the earliest permissible date following termination of employment in the form with the greatest value, expressed for purposes of this calculation as a single life annuity commencing at age 65; provided, however, that for any subsequent year such Grandfathered Benefit Equalization Retirement Allowance may increase to equal the present value of such portion of his benefit the Grandfathered Employee or Grandfathered Retired Employee actually becomes entitled to, in the form and at the time actually paid, determined in accordance with the terms of the Plan (including applicable Statutory Limitations) as in effect on October 3, 2004, without regard to any further services rendered by the Grandfathered Employee or Grandfathered Retired Employee after December 31, 2004, or any other events affecting the amount of or the entitlement to benefits (other than an election with respect to the time and form of an available benefit). In computing the Grandfathered Benefit Equalization Retirement Allowance of a Grandfathered Employee who is eligible for an Early Retirement Allowance, whether reduced or unreduced (but is not eligible for a Full or Deferred Retirement Allowance) under the Retirement Plan as of the Grandfathered Employee’s Separation from Service or, in the discretion of the Administrator, the end of the Grandfathered Employee’s policy severance, such Grandfathered Benefit Equalization Retirement Allowance shall be the Actuarial Equivalent of the Grandfathered Employee’s Grandfathered Benefit Equalization Retirement Allowance, computed as though such benefit were payable under the terms of the Retirement Plan in the form of a Retirement Allowance commencing on the first day of the month coincident with or next following the Grandfathered Employee’s Separation from Service or, in the discretion of the Administrator, the end of the Grandfathered Employee’s policy severance; provided, however, that solely for purposes of

9

Exhibit 10.2

determining the early retirement factor to be applied in determining the Actuarial Equivalent of such benefit, the earliest date on which the Grandfathered Employee shall be treated as being entitled to an unreduced benefit under the Retirement Plan for purposes of Exhibit I to the Retirement Plan shall be the earliest date on which the Grandfathered Employee would have been entitled to an unreduced benefit if the Grandfathered Employee had voluntarily terminated employment on December 31, 2004.

(t)“Grandfathered Deceased Employee” shall mean a Grandfathered Employee who died while he was an Employee at a time when he had a nonforfeitable right to any portion of his Benefit Equalization Retirement Allowance.

(u)“Grandfathered Employee” shall mean:

(i)A Grandfathered Employee who is eligible for a Grandfathered Benefit Equalization Retirement Allowance that was Earned and Vested; or

(ii)A Grandfathered Employee who is eligible for a Grandfathered Benefit Equalization Profit-Sharing Allowance,

and who, in either instance, is a participant in the executive trust or is a Secular Trust Participant.

(v) “Grandfathered Retired Employee” shall mean:

(i)a Retired Employee who is eligible for a Grandfathered Benefit Equalization Retirement Allowance that was Earned and Vested; and

(ii)a Retired Employee who is eligible for a Grandfathered Benefit Equalization Profit-Sharing Allowance.

(w) “Latest Payment Date” shall mean the later of:

(i)December 31^st of the year in which the Payment Date occurs, and

(ii)the fifteenth day of the third month following the Payment Date.

(x)“Optional Payment” shall mean:

(i)the following optional forms in which that portion of a Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance of a Grandfathered Retired Employee who is a Secular Trust Participant may be paid:

(1)    in equal monthly payments for the life of the Grandfathered Retired Employee,

10

Exhibit 10.2

(2) a Grandfathered Benefit Equalization Joint and Survivor Allowance, or

(3) a Grandfathered Benefit Equalization Optional Payment Allowance, and

(ii)in the case of that portion of a Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance of a Grandfathered Employee or Grandfathered Retired Employee, any of the methods of distribution permitted under ARTICLE VII of the Profit-Sharing Plan (other than a Single Sum Payment payable at the Benefit Commencement Date described in ARTICLE I(i)(2)(A) of the Plan) and in the event the Grandfathered Employee or Grandfathered Retired Employee dies before distribution of that portion of his Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance is made, commences to be made or is fully distributed, to his Beneficiary in accordance with the method of distribution designated by such Grandfathered Employee or Grandfathered Retired Employee; provided, however, that payment to a Beneficiary who is not the Spouse of the Grandfathered Employee or Grandfathered Retired Employee shall be made no later than one (1) year following the death of the Grandfathered Employee or Grandfathered Retired Employee.

Any election to receive an Optional Payment with respect to any Allowance or Allowances under the Plan shall be independent of any election with respect to benefits payable under the Retirement Plan, the Profit-Sharing Plan, or any other plan of a member of the Controlled Group.

(y)“Payment Date” shall mean the first day of the third calendar month following the month in which the Employee Separates from Service; provided, however, that in all cases of a Separation from Service other than on account of death, the Payment Date in the case of a Specified Employee shall be the first day of the calendar month following the date that is six (6) months following the date that such Specified Employee Separates from Service.

(z)“Plan” shall mean the Philip Morris International Benefit Equalization Plan described herein and in any amendments hereto.

(aa)“Profit-Sharing Plan” shall mean the Philip Morris International Deferred Profit-Sharing Plan, effective January 1, 2008, and as amended from time to time.

(bb)“Qualified Plans” shall mean the Retirement Plan and the Profit-Sharing Plan.

(cc)“Retired Employee” shall mean a former Employee who is eligible for or in receipt of, an Allowance. A Retired Employee shall cease to be such when he has received all of the Allowances payable to him under the Plan.

11

Exhibit 10.2

(dd) “Retirement Plan” shall mean the Philip Morris International Retirement Plan, effective as of January 1, 2008, and as amended from time to time.

(ee)“Section 415 Limitations” shall mean:

(i)in the case of the Retirement Plan, the limitations on benefits applicable to defined benefit plans set forth in Section 415 of the Code and the Treasury Regulations promulgated thereunder, and

(ii)in the case of the Profit-Sharing Plan, the limitations on contributions applicable to defined contribution plans set forth in Section 415 of the Code and the Treasury Regulations promulgated thereunder.

(ff)“Secular Trust Participant” shall mean a Grandfathered Employee who is a participant in the secular trust arrangement.

(gg)“Separation from Service”, “Separates from Service” or “Separated from Service” shall each have the same meaning as the term “separation from service” in Treasury Regulation §1.409A-1(h)(1); provided, however, that with respect to the payment of any Grandfathered Allowance that is not subject to Section 409A of the Code, such terms shall mean the date that the Employee terminated his services as an Employee with his Participating Company and each other member of the Controlled Group.

(hh)“Single Sum Payment” shall mean payment of a benefit or portion of a benefit in a single payment to a Retired Employee, or to the Spouse or other Beneficiary of an Employee, Deceased Employee or deceased Retired Employee. A Single Sum Payment shall be (i) the Actuarial Equivalent of the (or portion of the) Benefit Equalization Retirement Allowance payable in equal monthly payments during a twelve (12) month period for the life of the Retired Employee, and (ii) the Actuarial Equivalent of the (or portion of the) Benefit Equalization Survivor Allowance payable in equal monthly payments during a twelve (12) month period for the life of the Spouse of the Deceased Employee or deceased Retired Employee, in each case using the actuarial principles and assumptions set forth in Exhibit A to the Plan; provided, however, that a Single Sum Payment with respect to a Grandfathered Employee who is a Secular Trust Participant shall equal the greater of (i) the amount determined pursuant to the foregoing provisions of this ARTICLE I(hh) and (ii) the amount required to purchase a single life annuity (or, for purposes of Appendix 2, a Benefit Equalization Joint and Survivor Allowance) equal to the benefit otherwise identified under the Plan from a licensed commercial insurance company, as determined in the sole discretion of the Administrator.

(i)A Single Sum Payment shall be the exclusive form of distribution of the Benefit Equalization Retirement Allowance, except with respect to:

(1)that portion of the Benefit Equalization Retirement Allowance derived solely from the Grandfathered Benefit Equalization Retirement Allowance and that is payable to a Grandfathered Retired Employee who

12

Exhibit 10.2

is only eligible for a Vested Retirement Allowance at his Separation from Service; and

(2)that portion of the Benefit Equalization Retirement Allowance derived solely from the Grandfathered Benefit Equalization Retirement Allowance and that is payable to a Grandfathered Retired Employee who is a Secular Trust Participant who has timely elected to receive after his Date of Retirement that portion of his Benefit Equalization Retirement Allowance equal to the Grandfathered Benefit Equalization Retirement Allowance in the form of an Optional Payment pursuant to ARTICLE IIC(2) of the Plan and which election does not cease to be of any force and effect pursuant to ARTICLE IIC(2) hereof.

(ii)A Single Sum Payment shall be the exclusive form of distribution of the Benefit Equalization Survivor Allowance, except with respect to that portion of the Benefit Equalization Survivor Allowance derived solely from the Grandfathered Benefit Equalization Retirement Allowance payable to the Spouse of a Grandfathered Deceased Employee or the Spouse of a deceased Grandfathered Retired Employee.

(iii)A Single Sum Payment shall be the exclusive form of distribution of the Benefit Equalization Profit-Sharing Allowance, except with respect to that portion of the Benefit Equalization Profit-Sharing Allowance derived solely from the Grandfathered Benefit Equalization Profit-Sharing Allowance payable to a Grandfathered Retired Employee who has timely elected to receive after his Date of Retirement that portion of his Benefit Equalization Profit-Sharing Allowance equal to the Grandfathered Benefit Equalization Profit-Sharing Allowance in the form of an Optional Payment pursuant to ARTICLE IID(3) of the Plan.

(ii)“Specified Employee” shall have the meaning given in Treasury Regulation §1.409A-1(i).

(jj)“Statutory Limitations” shall mean:

(i)    the Section 415 Limitations, and

(ii)    the Compensation Limitation.

(kk) “Survivor Allowance Latest Payment Date” shall mean the later of:

(i)    December 31^st of the year in which the Survivor Allowance Payment Date occurs, and

(ii)    the fifteenth day of the third month following the Survivor Allowance Payment Date.

13

Exhibit 10.2

(ll)“Survivor Allowance Payment Date” shall mean the first day of the third calendar month following the month in which the Deceased Employee or deceased Retired Employee died.

(mm)“TP Employee” shall mean a Grandfathered Employee who has elected to participate in the target payment arrangement.

The masculine pronoun shall include the feminine pronoun unless the context clearly requires otherwise.

14

Exhibit 10.2

ARTICLE II

BENEFIT EQUALIZATION RETIREMENT ALLOWANCES AND BENEFIT EQUALIZATION PROFIT-SHARING ALLOWANCES

A. Benefit Equalization Retirement Allowances and other benefits payable under this Plan shall be as follows:

(1)    (a)    Subject to the provisions of subparagraphs (c), (d) and (e) of this ARTICLE IIA(1), the Benefit Equalization Retirement Allowance with respect to a Retired Employee (other than a Grandfathered Employee who is a TP Employee) shall equal the sum of (i) and (ii) below:

(i)the amount by which the Retirement Allowance under the Retirement Plan accrued to the Date of Retirement, if computed without regard to the Statutory Limitations, exceeds the amount of the Retirement Allowance actually payable under the Retirement Plan, plus

(ii)in the case of a Retired Employee who is eligible to receive an enhanced benefit under the Qualified Plan (such as a benefit payable pursuant to a voluntary early retirement program or a shutdown benefit), but whose additional accrued benefit resulting solely from participation in such program or benefit may not be paid from the Qualified Plan because of the nondiscrimination requirements of Section 401(a)(4) of the Code, or the coverage requirements of Section 410(b) of the Code, the amount of such additional accrued benefit payable to such Retired Employee solely as a result of his participation in such program or benefit.

(b)Subject to the provisions of subparagraphs (c), (d) and (e) of this ARTICLE IIA(1), the Benefit Equalization Retirement Allowance with respect to a Grandfathered Retired Employee who is a TP Employee shall equal the Grandfathered Benefit Equalization Retirement Allowance.

(c)In no event shall any increase in a Grandfathered Employee’s Benefit Equalization Retirement Allowance resulting from an amendment to the Retirement Plan to add or remove a subsidized benefit change the time and form of payment of the Benefit Equalization Retirement Allowance earned prior to the date of such amendment.

(d)In the event that all or any portion of the Benefit Equalization Retirement Allowance with respect to the Retired Employee described in ARTICLE IIA(1)(a) or (b) is paid in a Single Sum Payment in accordance with the provisions of ARTICLE IIC prior to the Retired Employee’s Benefit Commencement Date under the Retirement Plan, the amount of such Benefit Equalization Retirement Allowance shall equal the amount by which the Retirement Allowance under the Retirement Plan accrued to the Date of Retirement, if computed without regard to the Statutory Limitations, is reasonably

15

Exhibit 10.2

estimated by the Administrator to exceed the amount of the Retirement Allowance which is projected by the Administrator to be actually payable under the Retirement Plan.

(e)In the event that all or any portion of the Benefit Equalization Retirement Allowance with respect to a Retired Employee described in ARTICLE IIA(1)(a) or (b) of the Plan is paid in a Single Sum Payment in accordance with the provisions of ARTICLE IIC prior to the date the Retired Employee shall have specified on his application for retirement as the Benefit Commencement Date of his Retirement Allowance under the Retirement Plan, the Single Sum Payment shall be calculated based on the assumption that the Retired Employee elected to receive a Retirement Allowance at his Unreduced Early Retirement Benefit Commencement Date or Unreduced Vested Retirement Benefit Commencement Date, as applicable to the Retired Employee.

(f)If, as a result of the execution of a General Release Agreement (and not revoking it), (A) an Employee first obtains a legally binding right to payment of an increase in his Benefit Equalization Retirement Allowance, (B) as of the first date the Employee obtains a legally binding right to such increase it is subject to a substantial risk of forfeiture (within the meaning of Treasury Regulation §1.409A-1(d)), then the amount of such increase in the Benefit Equalization Retirement Allowance with respect to such Employee shall be the amount as set forth in the General Release Agreement and shall be payable at the BEP Benefit Commencement Date specified in ARTICLE I(i)(1)(iv), provided, however, that no such increase in an Employee’s Benefit Equalization Allowance shall change either the time or form of payment of the Grandfathered Benefit Equalization Retirement Allowance of a Grandfathered Employee otherwise payable pursuant to the terms of the Plan. The provisions of this paragraph are in lieu of and not in addition to the benefits provided pursuant to the provisions of ARTICLE IIA(1)(a)(ii) of the Plan.

(2)    The Spouse of:

(i)    a Deceased Employee; or

(ii)    a deceased Retired Employee (other than a Grandfathered Retired Employee who is a Secular Trust Participant who made an election for a Grandfathered Benefit Equalization Optional Payment Allowance and designated a Beneficiary other than his Spouse and or is described in clause (iii) hereof) who has died after his Date of Retirement and before his BEP Benefit Commencement Date; or

(iii)     a Grandfathered Retired Employee who is a Secular Trust Participant whose request for an Optional Payment pursuant to ARTICLE I(x)(i)(1) or (2) of the Plan with respect to that portion of his Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Allowance has been granted by the Administrator, but who has died after his Date of Retirement and before his BEP Benefit Commencement Date,

16

Exhibit 10.2

shall, in each case, be eligible to receive a Benefit Equalization Survivor Allowance; provided, however, that no such Allowance shall be paid to the Spouse of a Retired Employee if a Single Sum Payment is payable to a Beneficiary of the Retired Employee pursuant to ARTICLE IIC(1)(a), and no such Allowance shall be paid to the Spouse of a Grandfathered Retired Employee if a Single Sum Payment is payable to a Beneficiary of the Grandfathered Retired Employee pursuant to ARTICLE IIC(1)(b) or ARTICLE IIC(2)(f).

(3)    Notwithstanding any other terms of the Plan to the contrary other than ARTICLE V, the Administrator shall have the authority to enter into an agreement to provide a supplemental Benefit Equalization Retirement Allowance to the former General Manager NL, Philip Morris Holland BV who retired in 2010, which shall be in addition to any Benefit Equalization Retirement Allowance otherwise determined under the terms of this ARTICLE IIA. The agreement to provide such supplemental Benefit Equalization Retirement Allowance, if any, (a) shall specify the amount, the commencement date and the form of the supplemental Benefit Equalization Retirement Allowance, all of which shall be irrevocable as of the effective date of such agreement, and (b) shall be incorporated herein by reference as of the date it becomes effective. The form of payment of any supplemental Benefit Equalization Retirement Allowance may include a monthly benefit payable for life. The amount and timing of the payment of any supplemental Benefit Equalization Retirement Allowance shall not affect the amount or timing of the payment of any other Benefit Equalization Retirement Allowance otherwise determined under the terms of this ARTICLE IIA.

B. Benefit Equalization Profit-Sharing Allowances payable under this Plan shall be as follows:

(1)    (a)    The Benefit Equalization Profit-Sharing Allowance of a Retired Employee(other than a Grandfathered Employee who is a TP Employee) shall equal the amounts which would have been credited, but were not credited to his Company Account as a result of the Statutory Limitations.    

(b)    The Benefit Equalization Profit-Sharing Allowance of a Grandfathered Employee who is a TP Employee shall equal the Grandfathered Benefit Equalization Profit-Sharing Allowance.

(2)    All such amounts shall be deemed to have been invested in Part A of the Fund (as defined in the Profit-Sharing Plan) and valued in accordance with the provisions of the Profit-
Sharing Plan.

C. BEP Benefit Commencement Date and termination of Benefit Equalization Retirement Allowances payable in the form of an Optional Payment:

(1)    (a)    The Benefit Equalization Retirement Allowance payable pursuant to ARTICLE IIA(1)(a) of the Plan shall be distributed to a Retired Employee who is not a Grandfathered Retired Employee in a Single Sum Payment on the BEP Benefit Commencement Date specified in ARTICLE I(i)(1)(i) of the Plan. If a Retired Employee described in ARTICLE IIA(1)(a) dies after his Date of Retirement and before payment of his Benefit Equalization Retirement Allowance is paid in a Single Sum Payment, his

17

Exhibit 10.2

Beneficiary shall receive a Single Sum Payment on the Benefit Commencement Date specified in ARTICLE I(i)(1)(i) of the Plan.

(b)    The Benefit Equalization Retirement Allowance payable pursuant to ARTICLE IIA(1)(a) or (b) of the Plan shall be distributed to a Grandfathered Retired Employee who is eligible for an Early, Full or Deferred Retirement Allowance at his Separation from Service in a Single Sum Payment on the BEP Benefit Commencement Date specified in ARTICLE I(i)(1)(i) of the Plan, unless, in the case of a Grandfathered Retired Employee who is a Secular Trust Participant, the Administrator has approved the election of the Grandfathered Retired Employee to have distribution of that portion of his Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance made in the form of an Optional Payment, in which case the BEP Benefit Commencement Date of his Grandfathered Benefit Equalization Retirement Allowance made in the form of an Optional Payment shall be as specified in ARTICLE I(i)(1)(ii)(A) or ARTICLE I(i)(1)(ii)(B) of the Plan, as applicable to the Grandfathered Retired Employee. If a Grandfathered Retired Employee described in ARTICLE IIA(1)(a) or (b) of the Plan who is eligible for an Early, Full or Deferred Retirement Allowance at his Separation from Service dies after his Date of Retirement and before payment of his Benefit Equalization Retirement Allowance in a Single Sum Payment, his Beneficiary shall receive a Single Sum Payment on the BEP Benefit Commencement Date specified in ARTICLE I(i)(1)(i) of the Plan, provided, however, that the Administrator has not granted the Grandfathered Retired Employee’s application to receive an Optional Payment.

(c)    The Benefit Equalization Retirement Allowance payable pursuant to ARTICLE IIA(1)(a) or (b) of the Plan shall be distributed to a Grandfathered Retired Employee who is only eligible for a Vested Retirement Allowance at his Separation from Service, as follows:

(y)    that portion of the Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Allowance shall be distributed in accordance with the Grandfathered Retired Employee’s BEP Benefit Commencement Date described in ARTICLE I(i)(1)(iii) of the Plan and shall be paid in the same form of Optional Payment which the Grandfathered Retired Employee’s Vested Retirement Allowance is paid from the Retirement Plan; and

(z)    that portion of the Benefit Equalization Retirement Allowance that is not the Grandfathered Benefit Equalization Allowance shall be distributed to the Retired Employee in a Single Sum Payment on Benefit Commencement Date specified in ARTICLE I(i)(1)(i) of the Plan. The amount of the Benefit Equalization Retirement Allowance to be distributed in a Single Sum Payment pursuant to this ARTICLE IIC(1)(c)(z) of the Plan shall equal the present value of such Allowance that would be payable to the Grandfathered Retired Employee as of the date he will attain the age of sixty-five (65). The present value of such Benefit Equalization Retirement Allowance shall be determined as of the first day of the month following the month in which the Grandfathered Retired Employee Separated from Service (or died, in the case of a payment to the Spouse of the deceased Grandfathered Retired Employee).

18

Exhibit 10.2

(2)    (a)    (i)    A Grandfathered Retired Employee who is a Secular Trust Participant who is eligible to retire on a Full, Deferred or Early Retirement Allowance at his Separation from Service may make application to the Administrator to receive an Optional Payment with respect to his Grandfathered Benefit Equalization Retirement Allowance in lieu of the Single Sum Payment otherwise payable after his Date of Retirement. The application for an Optional Payment shall specify:

(ii)    the form in which such Optional Payment is to be paid; and

(iii)    the Beneficiary, if any, who will receive benefits after the death of the Grandfathered Retired Employee; and

(iv)    the BEP Benefit Commencement Date.

(b)In the case of a Grandfathered Retired Employee who eighteen (18) months prior to attaining the age of sixty-five (65) years could be compulsorily retired by his Participating Company upon attaining the age of sixty-five (65) years pursuant to Section 12(c) of the Age Discrimination in Employment Act, any application for an Optional Payment must be filed with the Administrator more than one (1) year preceding the date the Grandfathered Retired Employee attains the age of sixty-five (65) years.

(c)The Administrator may grant or deny any such application in its sole and absolute discretion. Except as provided in Subparagraphs (d)(i) and (g) of this ARTICLE IIC, a Grandfathered Retired Employee shall not receive that portion of his Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance in the form of a Single Sum Payment after the Administrator has granted the Grandfathered Retired Employee application for an Optional Payment. In the event the Grandfathered Retired Employee incurs a Change in Circumstance on or after the date of the filing of the application for an Optional Payment and prior to his BEP Benefit Commencement Date, the Grandfathered Retired Employee may file an application with the Administrator within ninety (90) days of the Change in Circumstance, but in no event later than his BEP Benefit Commencement Date, to change the form of Optional Payment, or to change the Beneficiary who is to receive a benefit after the death of the Grandfathered Retired Employee in accordance with the Optional Payment method originally filed with the Administrator.

(d)An application for an Optional Payment shall be of no force and effect if:

(i)    the Grandfathered Retired Employee does not retire on a Full, Deferred or Early Retirement Allowance;

(ii)    the Grandfathered Retired Employee incurs a disability at any time before the date his Optional Payment commences to be made which causes him to be eligible for benefits under the Philip Morris International Long-Term Disability Plan; or

(iii)    the Grandfathered Retired Employee is retired for ill health, or disability under ARTICLE II, A 3(a) of the Retirement Plan.

19

Exhibit 10.2

(e)    In the event the application for an Optional Payment is of no force and effect as a result of an event described in clauses (ii) or (iii) of ARTICLE IIC(2)(d) of the Plan, payment of that portion of the Grandfathered Retired Employee’s Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance shall be made in a Single Sum Payment pursuant to ARTICLE IIC(1)(a) of the Plan on the Payment Date, but not later than the Latest Payment Date, but otherwise such application for an Optional Payment shall be effective on the Grandfathered Retired Employee’s Date of Retirement on a Full, Deferred or Early Retirement Allowance and the Grandfathered Retired Employee’s benefits shall commence on the BEP Benefit Commencement Date specified in ARTICLE I(i)(1)(ii)(A) of the Plan; provided, however, that if within the one (1) year period following the date of the filing of the application with the Administrator the Grandfathered Retired Employee voluntarily retires or his employment is terminated for misconduct (as determined by the Administrator) by any member of the Controlled Group, the Optional Payment shall be reduced by one percent (1%) for each month (or portion of a month) by which the month in which the Grandfathered Retired Employee’s termination of employment precedes the first anniversary of the filing of the application with the Administrator and his benefits shall commence in the BEP Benefit Commencement Date specified in ARTICLE I(i)(1)(ii)(B) of the Plan.

(f)If a Grandfathered Retired Employee whose request for an Optional Payment in the form of a Grandfathered Benefit Equalization Optional Payment Allowance has been granted by the Administrator dies after his Date of Retirement and prior to his BEP Benefit Commencement Date, his Beneficiary shall be eligible to receive that portion of the Grandfathered Benefit Equalization Optional Payment Allowance elected by the Grandfathered Retired Employee which is payable after the death of the Grandfathered Retired Employee.

(g)Notwithstanding the preceding provisions of this Paragraph C,

(i)    the Administrator may cause the distribution of that portion of the Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance to any group of similarly situated Grandfathered Retired Employees (or their Spouses or other Beneficiaries) in a Single Sum Payment or as an Optional Payment; and

(ii)    the Administrator shall distribute that portion of an Employee’s Benefit Equalization Retirement Allowance that is the Grandfathered Benefit Equalization Retirement Allowance in a Single Sum Payment if such portion of the Benefit Equalization Retirement Allowance payable in equal monthly payments is not more than $250 per month.

(3)The Benefit Equalization Survivor Allowance payable pursuant to ARTICLE IIA(2) shall be paid in a Single Sum Payment on the BEP Benefit Commencement Date described in ARTICLE I(i)(3)(A) of the Plan, provided, however, that the portion of the Benefit Equalization Survivor Allowance that is derived from the Grandfathered Benefit Equalization Retirement Allowance shall be paid on the BEP Benefit Commencement Date described in ARTICLE I(i)(3)(B) of the Plan.

20

Exhibit 10.2

D.    Commencement and termination of Benefit Equalization Profit-Sharing Allowances:

(1)    The Benefit Equalization Profit-Sharing Allowance payable pursuant to ARTICLE IIB(1) of the Plan shall be distributed to the Retired Employee in a Single Sum Payment on the Payment Date, but not later than the Latest Payment Date, unless, solely in the case of a Grandfathered Retired Employee, the Administrator has approved his election to have distribution of that portion of his Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance made in accordance with ARTICLE IID(3) of the Plan; provided, however, that the Grandfathered Benefit Equalization Profit-Sharing Allowance payable with respect to a Grandfathered Employee shall be payable at the time such Allowance was payable under the terms of the Plan as in effect on October 3, 2004, and no provision of this ARTICLE IID(1) shall change the time at which such Allowance is payable.

(2)If an Employee or Retired Employee dies before his Single Sum Payment has been paid and without having the approval by the Administrator for payment of that portion of his Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance in the form of an Optional Payment, the Single Sum Payment otherwise payable to the Employee or Retired Employee shall be paid to his Beneficiary on the Payment Date, but not later than the Latest Payment Date; provided, however, that the Grandfathered Benefit Profit-Sharing Allowance payable with respect to a Grandfathered Employee shall be payable at the time such Allowance was payable under the terms of the Plan as in effect on October 3, 2004, and no provision of this ARTICLE IID(2) shall change the time at which such Allowance is payable.

(3)    (a)    A Grandfathered Employee who is a Secular Trust Participant may make application to the Administrator to receive an Optional Payment with respect to that portion of his Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance in lieu of the Single Sum Payment otherwise payable to him on the Benefit Commencement Date specified in ARTICLE I(i)(2)(A) after he becomes a Grandfathered Retired Employee. The application for an Optional Payment shall specify:

(i)    the form in which such Optional Payment is to be paid;

(ii)    the Beneficiary who will receive the balance of that portion of his Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance after the death of the Grandfathered Employee or Grandfathered Retired Employee.

(b)In the case of a Grandfathered Employee who eighteen (18) months prior to attaining the age of sixty-five (65) years could be compulsorily retired by his Participating Company upon attaining the age of sixty-five (65) years pursuant to Section 12(c) of the Age Discrimination in Employment Act, any application for an Optional Payment must be filed with the Administrator more than one (1) year preceding the date the Grandfathered Employee attains the age of sixty-five (65) years.

(c)The Administrator may grant or deny any such application in its sole and absolute discretion. A Grandfathered Employee shall not receive that portion of his

21

Exhibit 10.2

Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance in the form of a Single Sum Payment after the Administrator has granted the Grandfathered Employee’s application for an Optional Payment. In the event the Grandfathered Employee or Grandfathered Retired Employee has elected to receive his Optional Payment over the joint life expectancies of he and his Beneficiary and incurs a Change in Circumstance described in ARTICLE I(j)(2), (3) or (4) hereof on or after the date of the filing of the application and prior to the date his Optional Payment commences to be paid, the Grandfathered Employee or Grandfathered Retired Employee may file an application with the Administrator within ninety (90) days of the Change in Circumstance, but in no event later than the date his Optional Payment is scheduled to commence to be paid to designate a new Beneficiary or elect to receive his Optional Payment over the life expectancy of the Grandfathered Employee or Grandfathered Retired Employee.

(d)    If within the one (1) year period following the date of the filing of the application for an Optional Payment with the Administrator, the Grandfathered Employee voluntarily retires (other than for ill health, disability or hardship under ARTICLE II, A(3)(a) of the Retirement Plan), voluntarily terminates his employment with his Participating Company (other than for a disability which causes him to be eligible for benefits under the Long-Term Disability Plan for Salaried Employees), or his employment is terminated for misconduct (as determined by the Administrator) by any member of the Controlled Group, the Optional Payment shall be reduced in the same manner as specified in ARTICLE IIC(2)(e) hereof.

(e)    If a Grandfathered Retired Employee dies after he Separates from Service and prior to the date his Grandfathered Benefit Equalization Profit-Sharing Allowance is paid or commences to be paid, payment shall be made to his Beneficiary commencing in the form and on the date specified in the application.

(4)    Notwithstanding the preceding provisions of this Paragraph D,

(a)the Administrator may cause the distribution of that portion of the Benefit Equalization Profit-Sharing Allowance that is the Grandfathered Benefit Equalization Profit-Sharing Allowance to any group of similarly situated Beneficiaries in a Single Sum Payment or as an Optional Payment and

(b)the Administrator shall distribute a Grandfathered Employee’s or Grandfathered Retired Employee’s Benefit Equalization Profit-Sharing Allowance in a Single Sum Payment if the value of such Benefit Equalization Profit-Sharing Allowance is not more than $10,000.

E.    Application or Notification for Payment of Allowances:

An application for retirement pursuant to ARTICLE II, B of the Retirement Plan shall be deemed notification to the Administrator of the BEP Benefit Commencement Date of a Benefit Equalization Retirement Allowance (or other benefit) in accordance with the terms of this Plan. In the event a Grandfathered Employee shall not have elected an Optional Payment method with respect to his Grandfathered Benefit Equalization Retirement Allowance, any such notification shall specify the Beneficiary to whom payment of the Single Sum Payment shall be made in the

22

Exhibit 10.2

event the Employee dies after his Date of Retirement and prior to his BEP Benefit Commencement Date.

An Employee or Retired Employee (or Beneficiary) shall make application to the Administrator (or his delegate) for distribution of Benefit Equalization Profit-Sharing Allowance under this Plan.

23

Exhibit 10.2

ARTICLE III

FUNDS FROM WHICH ALLOWANCES ARE PAYABLE

Individual accounts shall be established for the benefit of each Employee and Retired Employee (or Beneficiary) under the Plan. Any benefits payable from an individual account shall be payable solely to the Employee, Retired Employee (or Beneficiary) for whom such account was established. The Plan shall be unfunded. All benefits intended to be provided under the Plan shall be paid from time to time from the general assets of the Employee’s or Retired Employee’s Participating Company and paid in accordance with the provisions of the Plan; provided, however, that the Participating Companies reserve the right to meet the obligations created under the Plan through one or more trusts or other agreements. In no event shall any such trust or trusts be outside of the United States. The contributions by each Participating Company on behalf of its Employees and Retired Employees to the individual accounts established pursuant to the provisions of the Plan, whether in trust or otherwise, shall be in an amount which such Participating Company, with the advice of an actuary, determines to be sufficient to provide for the payment of the benefits under the Plan.

24

Exhibit 10.2

ARTICLE IV

THE ADMINISTRATOR

The general administration of the Plan shall be vested in the Administrator.

All powers, rights, duties and responsibilities assigned to the Administrator under the Retirement Plan applicable to this Plan shall be the powers, rights, duties and responsibilities of the Administrator under the terms of this Plan, except that the Administrator shall not be a fiduciary (within the meaning of Section 3(21) of ERISA) with respect to any portion or all of the Plan which is intended to be exempt from the requirements of ERISA pursuant to Section 4(b)(5) of ERISA or which is described in Section 401(a)(1) of ERISA and exempt from the requirements of Part 4 of Title I of ERISA.

25

Exhibit 10.2

ARTICLE V

AMENDMENT AND

DISCONTINUANCE OF THE PLAN

The Board may, from time to time, and at any time, amend the Plan; provided, however, that authority to amend the Plan is delegated to the following committees or individuals where approval of the Plan amendment or amendments by the shareholders of Philip Morris International Inc. is not required: (1) to the Benefits Committee, if the amendment (or amendments) will not increase the annual cost of the Plan by $10,000,000 and (2) to the Administrator, if the amendment (or amendments) will not increase the annual cost of the Plan by $500,000.

Any amendment to the Plan may effect a substantial change in the Plan and may include (but shall not be limited to) any change deemed by the Company to be necessary or desirable to obtain tax benefits under any existing or future laws or rules or regulations thereunder; provided, however, that no such amendment shall deprive any Employee, Retired Employee (or Beneficiary) of any Allowances accrued at the time of such amendment.

The Plan may be discontinued at any time by the Board; provided, however, that such discontinuance shall not deprive any Employee, Retired Employee (or Beneficiary) of any Allowances accrued at the time of such discontinuance.

26

Exhibit 10.2

ARTICLE VI

FORMS; COMMUNICATIONS

The Administrator shall provide such appropriate forms as it may deem expedient in the administration of the Plan and no action to be taken under the Plan for which a form is so provided shall be valid unless upon such form. Any Plan communication may be made by electronic medium to the extent allowed by applicable law. The Administrator may adopt reasonable procedures to enable an Employee or Retired Employee to make an election using electronic medium (including an interactive telephone system and a website on the Intranet).

All communications concerning the Plan shall be in writing addressed to the Administrator at such address as may from time to time be designated. No communication shall be effective for any purpose unless received by the Administrator.

27

Exhibit 10.2

ARTICLE VII

INTERPRETATION OF PROVISIONS

The Administrator shall have the full power and authority to grant or deny requests for payment of a Benefit Equalization Retirement Allowance in accordance with a form of distribution authorized under the Retirement Plan and to grant or deny requests for payment of a Benefit Equalization Profit-Sharing Allowance in accordance with a form of distribution authorized under the Profit-Sharing Plan to the extent permitted under Code §409A. The Management Committee shall have the full power and authority to grant or deny requests for payment of a Benefit Equalization Retirement Allowance or Benefit Equalization Profit-Sharing Allowance by the Administrator.

The Administrator shall have full power and authority with respect to all other matters arising in the administration, interpretation and application of the Plan, including discretionary authority to construe plan terms and provisions, to determine all questions that arise under the Plan such as the eligibility of any employee of a Participating Company to participate under the Plan; to determine the amount of any benefit to which any person is entitled to under the Plan; to make factual determinations and to remedy any ambiguities, inconsistencies or omissions of any kind.

The Plan is intended to comply with the applicable requirements of Section 409A of the Code. Accordingly, where applicable, this Plan shall at all times be construed and administered in a manner consistent with the requirements of Section 409A of the Code and applicable regulations without any diminution in the value of benefits. Notwithstanding the preceding sentence, no Participating Company shall be liable to any person if the Internal Revenue Service or any court or other authority having jurisdiction over such matter determines for any reason that any payment under this Plan is subject to taxes, penalties or interest as a result of failing to comply with Section 409A of the Code.

28

Exhibit 10.2

ARTICLE VIII

CHANGE IN CONTROL PROVISIONS

A.    In the event of a Change in Control, each Employee shall be fully vested in his Allowances and any other benefits accrued through the date of the Change in Control (“Accrued Benefits”). Each Employee (or his Beneficiary) shall, upon the Change in Control, be entitled to a lump sum in cash, payable within 30 days of the Change in Control, equal to the Actuarial Equivalent of his Accrued Benefits, determined using actuarial assumptions no less favorable than those used under the Supplemental Management Employees’ Retirement Plan immediately prior to the Change in Control.

B.    Definition of Change in Control.

“Change in Control” shall mean the happening of any of the following events with respect to a Grandfathered Benefit Equalization Retirement Allowance and Grandfathered Benefit Equalization Profit-Sharing Allowance:

(1)The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, and amended (the “Exchange Act”)) (a “Person”) of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 20% or more of either (i) the then outstanding shares of common stock of Philip Morris International Inc. (the “Outstanding Company Common Stock”) or (ii) the combined voting power of the then outstanding voting securities of Philip Morris International Inc. entitled to vote generally in the election of directors (the “Outstanding Company Voting Securities”); provided, however, that the following acquisitions shall not constitute a Change in Control: (i) any acquisition directly from Philip Morris International Inc., (ii) any acquisition by Philip Morris International Inc., (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by Philip Morris International Inc. or any corporation controlled by Philip Morris International Inc. or (iv) any acquisition by any corporation pursuant to a transaction described in clauses (i), (ii) and (iii) of paragraph (3) of this Section B; or

(2)Individuals who, as of the date hereof, constitute the Board (the “Incumbent Board”) cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by Philip Morris International Inc.’s shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or

(3)Approval by the shareholders of Philip Morris International Inc. of a reorganization, merger, share exchange or consolidation (a “Business Combination”), in each case, unless, following such Business Combination, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business

29

Exhibit 10.2

Combination beneficially own, directly or indirectly, more than 80% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns Philip Morris International Inc. through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person (excluding any employee benefit plan (or related trust) of Philip Morris International Inc. or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 20% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or

(4)     Approval by the shareholders of Philip Morris International Inc. of (i) a complete liquidation or dissolution of Philip Morris International Inc. or (ii) the sale or other disposition of all or substantially all of the assets of Philip Morris International Inc., other than to a corporation, with respect to which following such sale or other disposition, (A) more than 80% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such sale or other disposition in substantially the same proportion as their ownership, immediately prior to such sale or other disposition, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) less than 20% of, respectively, the then outstanding shares of common stock of such corporation and the combined voting power of the then outstanding voting securities of such corporation entitled to vote generally in the election of directors is then beneficially owned, directly or indirectly, by any Person (excluding any employee benefit plan (or related trust) of Philip Morris International Inc. or such corporation), except to the extent that such Person owned 20% or more of the Outstanding Company Common Stock or Outstanding Company Voting Securities prior to the sale or disposition and (C) at least a majority of the members of the board of directors of such corporation were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such sale or other disposition of assets of Philip Morris International Inc. or were elected, appointed or nominated by the Board.

“Change in Control” shall mean the happening of any of the events specified in Treasury Regulation §1.409A- 3(i)(5)(v), (vi) (vii) with respect to that portion of a Benefit Equalization Allowance that is not a Grandfathered Benefit Equalization Retirement Allowance and that portion of a Benefit Equalization Profit-Sharing Allowance that is not a Grandfathered Benefit Equalization Profit-Sharing Allowance. For purposes of determining if a Change in Control has occurred, the Change in Control event must relate to a corporation identified in Treasury

30

Exhibit 10.2

Regulation §1.409A-3(i)(5)(ii), provided, however, that (i) the spin-off of the shares of Philip Morris International Inc. to the shareholders of Altria Group, Inc. shall not be considered to be a Change in Control, and (ii) any change in the Incumbent Board coincident with such spin-off shall not be considered to be a Change in Control.

31

Exhibit 10.2

EXHIBIT A

BENEFIT EQUALIZATION PLAN ACTUARIAL ASSUMPTIONS USED TO CALCULATE A SINGLE SUM PAYMENT

INTEREST RATE: The average of the monthly rate of interest specified in Section 417(e)(3)(A)(ii)(II) of the Code, but published for 24 months preceding the Employee’s Date of Retirement, less 1/2 of 1%.

MORTALITY ASSUMPTION: The mortality table specified in Section 417(e)(3)(A)(ii)(I) of the Code and Section 1.417(e)-1(c)(2) of the Treasury Regulations (currently the table prescribed in Revenue Ruling 2001-62).

32

EX-10.3

EXHIBIT 10.3

AMENDED AND RESTATED PLAN DOCUMENT

AS OF AUGUST 6, 2012

SUPPLEMENTAL EQUALIZATION PLAN

AS AMENDED AND RESTATED EFFECTIVE AS OF

JANUARY 1, 2008

EXHIBIT 10.3

ARTICLE I

INTRODUCTION

1.1Restatement of Plan. PMI Global Services Inc. (“PMIGS”) hereby adopts this amended and restated Supplemental Equalization Plan (the “Plan”), effective as of January 1, 2008, to provide certain benefits to the beneficiaries of eligible participants as set forth herein.

1.2History and Purpose of Plan. Altria Client Services Inc. (“Altria”) and certain of its affiliates established and maintain the Retirement Plan for Salaried Employees and the Deferred Profit-Sharing Plan for Salaried Employees for the benefit of certain employees, including certain employees of Philip Morris International Inc. (“PMI”) and its subsidiaries before the spin off of PMI by Altria Group, Inc. Both plans are qualified retirement plans under sections 501(a) and 401(a) of the Internal Revenue Code of 1986, as amended (the “Code”) and, as such, are subject to certain statutory limitations on amounts that can be contributed to and paid from such plans and other nondiscrimination requirements.

Altria and certain of its affiliates also established and maintain the Benefit Equalization Plan (the “Altria BEP”) and the Supplemental Management Employees’ Retirement Plan (the “Altria SERP”) for the benefit of certain employees, including certain employees of PMI and its subsidiaries before the spin off. These supplemental plans are nonqualified retirement plans that provide deferred compensation for eligible employees. Specifically, the Altria BEP is intended, in part, to provide benefits that cannot be paid due to certain statutory limitations on the amount of contributions to and payments from Altria’s qualified plans. The Altria SERP is intended to provide certain additional benefits that cannot be provided under Altria’s qualified plans or the Altria BEP.

Effective as of January 1, 2005, certain participants in the Altria BEP and Altria SERP, including certain employees of PMI and its subsidiaries, ceased active participation in those plans. In lieu of accruing additional deferred compensation under those plans, these employees entered into Supplemental Enrollment Agreements and received annual “target payments” as current compensation for the services that they provided to Altria and its affiliates during the year. Altria and its affiliates retained the right to terminate the Supplemental Enrollment Agreements and discontinue making target payments at any time.

Effective as of January 1, 2008, PMIGS established the Philip Morris International Retirement Plan and the Philip Morris International Deferred Profit-Sharing Plan, both of which are qualified retirement plans. Effective as of the same date, PMIGS also established the Philip Morris International Benefit Equalization Plan (the “PMI BEP”) and the Philip Morris International Supplemental Management Employees’ Retirement Plan (the “PMI SERP”). The PMI BEP and the PMI SERP are nonqualified retirement plans that provide deferred compensation for eligible employees of PMI and its subsidiaries. In connection with the spin off of PMI, the assets and liabilities associated with the employees of PMI and its subsidiaries under Altria’s qualified plans were transferred to the qualified plans of PMIGS, and the liabilities associated with the employees of PMI and its subsidiaries under the Altria BEP and Altria SERP were transferred to PMI and its affiliates under the PMI BEP and the PMI SERP, respectively. Also effective as of January 1, 2008, both Altria and PMI discontinued making

2

EXHIBIT 10.3

target payments with respect to services of their employees performed after December 31, 2007, and PMIGS and its participating affiliates established this Plan.

Under the terms of the PMI BEP and the PMI SERP, employees of PMI and its subsidiaries who received target payments pursuant to a Supplemental Enrollment Agreement are not eligible to participate in those supplemental plans with respect to services provided after December 31, 2004, but, instead, are eligible to accrue future benefits under this Plan, except that an employee who is first designated to participate in the PMI SERP effective after December 31, 2007, may participate in the PMI SERP. It is intended that the benefits provided under the Plan will not duplicate benefits provided under the PMI BEP or the PMI SERP or amounts previously paid as current compensation under the terms of the Supplemental Enrollment Agreements.

The Plan is comprised of three separate plans, programs or arrangements, and each portion of the Plan shall be treated as a separate plan, program or arrangement from the other portions. One portion of the Plan provides benefits to Eligible Employees (or their Spouses or other Beneficiaries) solely in excess of limitations on benefits and contributions under Section 415 of the Code. The second portion of the Plan provides benefits to Eligible Employees attributable solely to the limitation under Section 401(a)(17) of the Code on annual compensation that may be taken into account under qualified plans. All other benefits are provided under the third portion of the Plan.

ARTICLE II

DEFINITIONS

2.1Actuarial Equivalent. The term “Actuarial Equivalent” shall mean a benefit that is equivalent in value to the benefit otherwise identified under the Plan based on the actuarial principles and assumptions set forth in Exhibit 1 to the PMI Retirement Plan, including, to the extent applicable, the Early Retirement Factors for Altria Transferee’s Assumed Kraft Pension Liability.

2.2After-Tax SEP Benefit. The term “After-Tax SEP Benefit” shall have the meaning set forth in Section 3.1(d).

2.3Altria. The term “Altria” shall mean Altria Client Services Inc.

2.4Altria BEP. The term “Altria BEP” shall mean the Benefit Equalization Plan, maintained by Altria and certain of its affiliates.

2.5Altria Profit-Sharing Plan. The term “Altria Profit-Sharing Plan” shall mean the Deferred Profit-Sharing Plan for Salaried Employees, maintained by Altria and certain of its affiliates.

2.6Altria Retirement Plan. The term “Altria Retirement Plan” shall mean the Retirement Plan for Salaried Employees, maintained by Altria and certain of its affiliates.

2.7Altria SERP. The term “Altria SERP” shall mean the Supplemental Management Employees’ Retirement Plan, maintained by Altria and certain of its affiliates.

3

EXHIBIT 10.3

2.8Assumed Trust Account TP. The term “Assumed Trust Account TP” shall mean the assumed trust account established pursuant to an Eligible Employee’s Supplemental Enrollment Agreement.

2.9Base SEP Pension Benefit. The Term “Base SEP Pension Benefit” shall have the meaning set forth in Section (e) of Appendix 2.

2.10Beneficiary. The term “Beneficiary” shall mean the person or persons (including a trust created by the Eligible Employee during his lifetime or by will) designated by the Eligible Employee to receive his DPS Beneficiary Benefit or SEP Pension Beneficiary Benefit, as applicable, in the event of his death as set forth in Article III, which designations shall be made on beneficiary designation forms filed with the Administrator. If the Eligible Employee is married on the date of the filing of any such beneficiary designation form, his Spouse must consent in writing before a notary public or a duly authorized representative of the Plan to the designation of any Beneficiary other than the Spouse. If an Eligible Employee fails to designate a Beneficiary for a DPS Beneficiary Benefit or SEP Pension Beneficiary Benefit pursuant to the foregoing, the Eligible Employee’s Beneficiary for such benefit shall be:

(a)if the Eligible Employee is married on the date of his death, the Eligible Employee’s Spouse; and

(b)if the Eligible Employee is not married on the date of his death, the Eligible Employee’s estate.

2.11Benefit Equalization Retirement Allowance. The term “Benefit Equalization Retirement Allowance” shall have the meaning set forth in the PMI BEP or, if so specified herein, the Altria BEP.

2.12Change of Control. The term “Change of Control” shall have the meaning set forth in the PMI BEP with respect to an Eligible Employee’s Benefit Equalization Retirement Allowance that is not a Grandfathered Benefit Equalization Retirement Allowance (as defined in the PMI BEP).

2.13Code. The term “Code” shall mean the Internal Revenue Code of 1986, as amended.

2.14Company Account. The term “Company Account” shall mean the Company Account under the PMI Profit-Sharing Plan or the Altria Profit-Sharing Plan, as applicable.

2.15Designation of Participation. The term “Designation of Participation” shall mean the document or documents that designated an Eligible Employee as a participant in the Altria SERP effective prior to January 1, 2005 and set forth the terms of the Eligible Employee’s benefits under the Altria SERP (and that now apply under the PMI SERP and this Plan).

4

EXHIBIT 10.3

2.16DPS Beneficiary Benefit. The term “DPS Beneficiary Benefit” shall have the meaning set forth in Section 3.2.

2.17Early Retirement Grandfathered Pension Benefit. The term “Early Retirement Grandfathered Pension Benefit” shall have the meaning set forth in Section 3.1(a)(iv) of the Plan or Section (d) of Appendix 2, as applicable.

2.18Early Retirement Pension Benefit. The term “Early Retirement Pension Benefit” shall have the meaning set forth in Section 3.1(a)(ii) of the Plan or Section (b) of Appendix 2, as applicable.

2.19Eligible Employee. The term “Eligible Employee” shall mean any of the individuals listed in Appendix 1, as amended from time to time by the Administrator.

2.20Fund. The term “Fund” shall mean the Fund under the PMI Profit-Sharing Plan or the Altria Profit-Sharing Plan, as applicable.

2.21Gross After-Tax SEP Benefit. The term “Gross After-Tax SEP Benefit” shall have the meaning set forth in Section 3.1(c).

2.22Kraft Retirement Plan. The term “Kraft Retirement Plan” shall mean the Kraft Foods Global, Inc. Retirement Plan, maintained by Kraft Foods Global, Inc., or any predecessor, successor or replacement to such plan, as applicable.

2.23Kraft Supplemental Plan Benefit. The term “Kraft Supplemental Plan Benefit” shall mean the defined benefit portion of the supplemental benefit payable to an Eligible Employee under the Kraft Foods Global, Inc. Supplemental Plan I, maintained by Kraft Foods Global, Inc., or any predecessor, successor or replacement to such plan, as applicable.

2.24Lump-Sum Equivalent. The term “Lump-Sum Equivalent” shall mean a single-sum amount that is equivalent in value to the benefit otherwise identified under the Plan based on the actuarial principles and assumptions set forth in Exhibit A to the PMI BEP; provided, however, that if an Eligible Employee is a Secular Trust Participant, the term “Lump-Sum Equivalent” shall mean the greater of (i) the amount determined pursuant to the foregoing provisions of this Section and (ii) the amount required to purchase a joint and 50% survivor annuity equal to the benefit otherwise identified under the Plan from a licensed commercial insurance company, as determined in the sole discretion of the Administrator.

2.25Normal Grandfathered Pension Benefit. The term “Normal Grandfathered Pension Benefit” shall have the meaning set forth in Section 3.1(a)(iii) of the Plan or Section (c) of Appendix 2, as applicable.

2.26Normal Pension Benefit. The term “Normal Pension Benefit” shall have the meaning set forth in Section 3.1(a)(i) of the Plan or Section (a) of Appendix 2, as applicable.

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EXHIBIT 10.3

2.27Participating Company(ies). The term “Participating Company(ies)” shall have the meaning set forth in the PMI Retirement Plan, and a Participating Company under the PMI Retirement Plan that employs an Eligible Employee shall be a Participating Company under the Plan.

2.28PMI. The term “PMI” shall mean Philip Morris International Inc.

2.29PMI BEP. The term “PMI BEP” shall mean the Philip Morris International Benefit Equalization Plan, maintained by PMIGS and certain of its affiliates, in effect as of January 1, 2008 and as thereafter amended from time to time. Provisions in other plans or arrangements that refer to the PMI BEP shall be deemed to apply to this Plan in the manner and to the extent reasonably determined by the Administrator in its sole discretion.

2.30PMI Profit-Sharing Plan. The term “PMI Profit-Sharing Plan” shall mean the Philip Morris International Deferred Profit-Sharing Plan, maintained by PMIGS and certain of its affiliates, as amended from time to time.

2.31PMI Retirement Plan. The term “PMI Retirement Plan” shall mean the Philip Morris International Retirement Plan, maintained by PMIGS and certain of its affiliates, as amended from time to time.

2.32PMI SERP. The term “PMI SERP” shall mean the Philip Morris International Supplemental Management Employees’ Retirement Plan, maintained by PMIGS and certain of its affiliates, in effect as of January 1, 2008 and as thereafter amended from time to time. Provisions in other plans or arrangements that refer to the PMI SERP shall be deemed to apply to this Plan in the manner and to the extent reasonably determined by the Administrator in its sole discretion.

2.33PMIGS. The term “PMIGS” shall mean PMI Global Services Inc.

2.34Secular Trust Participant. The term “Secular Trust Participant” shall mean an Eligible Employee who is identified as a Secular Trust Participant in Appendix 1.

2.35SEP Benefit. The term “SEP Benefit” shall mean the benefit payable to an Eligible Employee under the terms of the Plan, as set forth in Section 3.1(e).

2.36SEP DPS Benefit. The term “SEP DPS Benefit” shall have the meaning set forth in Section 3.1(b).

2.37SEP Pension Benefit. The term “SEP Pension Benefit” shall have the meaning set forth in Section 3.1(a) or Appendix 2, as applicable.

2.38SEP Pension Beneficiary Benefit. The term “SEP Pension Beneficiary Benefit” shall have the meaning set forth in Section 3.4.

2.39SEP Spousal Survivor Benefit. The term “SEP Spousal Survivor Benefit” shall have the meaning set forth in Section 3.3.

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EXHIBIT 10.3

2.40SERP Compensation. The term “SERP Compensation” shall have the meaning set forth in Section (a) of Appendix 2.

2.41SERP Service. The term “SERP Service” shall have the meaning set forth in Section (a) of Appendix 2.

2.42Supplemental Enrollment Agreement. The term “Supplemental Enrollment Agreement” shall mean the most recent of any Supplemental Employee Grantor Trust Enrollment Agreements and Supplemental Cash Enrollment Agreements between the Eligible Employee and Altria or PMIGS or any of its or their affiliates or predecessors.

2.43Trust Account TP. The term “Trust Account TP” shall mean the trust subaccount established pursuant to an Eligible Employee’s Supplemental Enrollment Agreement and to which target payments have been credited.

2.44Trust Account TP Value. The term “Trust Account TP Value” shall mean,

(A)with respect to an Eligible Employee for whom a Trust Account TP has been established, the sum of the amounts credited to the Eligible Employee’s Assumed Trust Account TP and Trust Account TP as of the earliest of the date

(i)on which the Eligible Employee’s Trust Account TP is terminated and distributed in accordance with the procedures established by the Administrator,

(ii)that is 60 days after the Eligible Employee’s Separation from Service, or

(iii)on which a Change of Control occurs, and

(B)with respect to an Eligible Employee for whom a Trust Account TP has not been established, the amounts credited to the Eligible Employee’s Assumed Trust Account TP as of the earlier of the date

(i)    of the Eligible Employee’s Separation from Service, or

(ii)    on which a Change of Control occurs,

in each case, reduced by the estimated amount of any taxes that would be attributable to income or assumed income from these accounts assuming liquidation of the accounts as of the applicable determination date set out above, but which have not been paid or deducted from these accounts, calculated using the income tax rate assumptions set forth in Appendix 3, and disregarding any withholding for the Eligible Employee’s share of employment taxes.

The following terms, as used herein, shall have the meanings attributed to them in the PMI Retirement Plan: “Accredited Service,” “Assumed Kraft Pension Plan Liability,” “Deferred Retirement Allowance,” “Early Retirement Allowance,” “Full Retirement

7

EXHIBIT 10.3

Allowance,” “Kraft Pension Plans,” “Retained Kraft Pension Plan Liability,” “Retirement Allowance,” “Spouse” and “Vested Retirement Allowance.”

The following terms, as used herein, shall have the meanings attributed to them in the PMI BEP: “Administrator,” “Benefits Committee,” “Latest Payment Date,” “Payment Date,” “Separation from Service,” “Statutory Limitations,” “Survivor Benefit Latest Payment Date” and “Survivor Benefit Payment Date.”

The masculine pronoun shall include the feminine pronoun unless the context clearly requires otherwise.

ARTICLE III

BENEFITS

3.1SEP Benefit. An Eligible Employee shall be entitled to a SEP Benefit, which shall be determined by adding the Eligible Employee’s SEP Pension Benefit to the Eligible Employee’s SEP DPS Benefit, converting the sum of such amounts to an after-tax amount, reducing such after-tax amount by the Eligible Employee’s Trust Account TP Value, and then converting the result back to a pre-tax amount, all in the manner set forth in this Section 3.1. If an Eligible Employee dies before his SEP Benefit is paid, the SEP Benefit shall cease to be payable, and neither the Eligible Employee’s Spouse nor the Eligible Employee’s Beneficiary(ies) shall have any right to the SEP Benefit.

(a)SEP Pension Benefit. Unless an Eligible Employee’s SEP Pension Benefit is determined under Appendix 2 pursuant to the terms thereof, the SEP Pension Benefit for an Eligible Employee shall be determined as set forth in Section 3.1(a)(v). For purposes of determining the SEP Pension Benefit of an Eligible Employee who is a Secular Trust Participant (and whose SEP Pension Benefit is determined under this Section 3.1(a), rather than Appendix 2), the term “joint and 50% survivor annuity” shall be substituted for the term “single life annuity” in each place that such term appears in this Section 3.1(a).

(i)Normal Pension Benefit. An Eligible Employee’s Normal Pension Benefit shall be the amount by which

(A)the Retirement Allowance determined for the Eligible Employee under the PMI Retirement Plan based on all of the Eligible Employee’s Accredited Service, but without regard to the Statutory Limitations and without regard to any Actuarial Equivalent reduction for early commencement, expressed in the form of a single life annuity, exceeds

(B)the Retirement Allowance determined for the Eligible Employee under the PMI Retirement Plan based on all of the Eligible Employee’s Accredited Service and taking into account any applicable Statutory Limitations, but without regard to any Actuarial

8

EXHIBIT 10.3

Equivalent reduction for early commencement, expressed in the form of a single life annuity.

For the avoidance of doubt, in determining the Normal Pension Benefit, the amount by which the Assumed Kraft Pension Plan Liability exceeds the Retained Kraft Pension Plan Liability shall be taken into account in the manner set forth in the PMI Retirement Plan in calculating the Retirement Allowances described in Sections 3.1(a)(i)(A) and (B) above.

(ii)Early Retirement Pension Benefit. The Early Retirement Pension Benefit of an Eligible Employee who is eligible for an Early Retirement Allowance, whether reduced or unreduced, (but is not eligible to receive a Full or Deferred Retirement Allowance) under the PMI Retirement Plan as of the Eligible Employee’s Separation from Service or, in the discretion of the Administrator, the end of the Eligible Employee’s policy severance shall be the Actuarial Equivalent of the Eligible Employee’s Normal Pension Benefit, computed as though such benefit were payable under the terms of the PMI Retirement Plan as a single life annuity commencing on the first day of the month coincident with or next following the Eligible Employee’s Separation from Service or, in the discretion of the Administrator, the end of the Eligible Employee’s policy severance.

(iii)Normal Grandfathered Pension Benefit. An Eligible Employee’s Normal Grandfathered Pension Benefit shall equal the Benefit Equalization Retirement Allowance to which the Eligible Employee would have been entitled under the Altria BEP (and which is now payable under the PMI BEP) if the Eligible Employee had voluntarily terminated employment without cause on December 31, 2004 and received payment of such benefit on the earliest permissible date following termination of employment in the form with the greatest value, expressed for purposes of this calculation as a single life annuity commencing at age 65.

(iv)Early Retirement Grandfathered Pension Benefit. The Early Retirement Grandfathered Pension Benefit of an Eligible Employee who is eligible for an Early Retirement Allowance, whether reduced or unreduced, (but is not eligible for a Full or Deferred Retirement Allowance) under the PMI Retirement Plan as of the Eligible Employee’s Separation from Service or, in the discretion of the Administrator, the end of the Eligible Employee’s policy severance shall be the Actuarial Equivalent of the Eligible Employee’s Normal Grandfathered Pension Benefit, computed as though such benefit were payable under the terms of the PMI Retirement Plan in the form of a single life annuity commencing on the first day of the month coincident with or next following the Eligible Employee’s Separation from Service or, in the discretion of the Administrator, the end of the Eligible Employee’s policy severance; provided, however, that solely for purposes of the determining the early retirement factor to be applied in determining the Actuarial Equivalent of such benefit, the earliest date on which the Eligible Employee shall be treated as being entitled to an unreduced benefit under the PMI Retirement Plan for purposes of Exhibit 1 to the PMI Retirement Plan shall be the earliest date on which the Eligible Employee would have been entitled to an unreduced

9

EXHIBIT 10.3

benefit if the Eligible Employee had voluntarily terminated employment on December 31, 2004.

(v)Determination of SEP Pension Benefit. Unless an Eligible Employee’s SEP Pension Benefit is determined under Appendix 2 pursuant to the terms thereof, the Eligible Employee’s “SEP Pension Benefit” shall be,

(A)for an Eligible Employee who is eligible to receive a Full, Deferred or Vested Retirement Allowance as of the date of his Separation from Service or, in the discretion of the Administrator, the end of the Eligible Employee’s policy severance, the Lump-Sum Equivalent of the amount by which the Eligible Employee’s Normal Pension Benefit exceeds his Normal Grandfathered Pension Benefit; and

(B)for an Eligible Employee who is eligible for an Early Retirement Allowance, whether reduced or unreduced, (but is not eligible for a Full or Deferred Retirement Allowance) on the date of his Separation from Service or, in the discretion of the Administrator, at the end of the Eligible Employee’s policy severance, the Lump-Sum Equivalent of the amount by which the Eligible Employee’s Early Retirement Pension Benefit exceeds his Early Retirement Grandfathered Pension Benefit.

(b)SEP DPS Benefit. An Eligible Employee’s SEP DPS Benefit shall equal the amounts that would have been credited to the Eligible Employee’s Company Account after December 31, 2004, but were not credited to his Company Account as a result of the Statutory Limitations. Such amounts shall be deemed to have been invested in Part A of the Fund and valued in accordance with the provisions of the PMI Profit-Sharing Plan or Altria Profit-Sharing Plan, as applicable.

(c)Gross After-Tax SEP Benefit. An Eligible Employee’s Gross After-Tax SEP Benefit shall equal the amount that would remain if income taxes (determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 3), but disregarding any withholding for the Eligible Employee’s share of employment taxes, were withheld on the sum of the Eligible Employee’s (i) SEP Pension Benefit and (ii) SEP DPS Benefit.

(d)After-Tax SEP Benefit. The Eligible Employee’s After-Tax SEP Benefit shall equal the amount by which (i) the Gross After-Tax SEP Benefit exceeds (ii) the Eligible Employee’s Trust Account TP Value.

(e)SEP Benefit. The Eligible Employee’s SEP Benefit shall equal the After-Tax SEP Benefit converted to a pre-tax amount. Such pre-tax amount shall be an amount that is sufficient to cause the amount remaining after withholding of income taxes to equal the After-Tax SEP Benefit, with the amount for withholding determined as if withholding for federal, state and local income taxes were effected at the rates specified

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EXHIBIT 10.3

in Appendix 3, and disregarding any withholding for the Eligible Employee’s share of employment taxes.

3.2DPS Beneficiary Benefit. If an Eligible Employee dies before his SEP Benefit is paid, the Eligible Employee’s Beneficiary shall be eligible to receive a DPS Beneficiary Benefit in an amount calculated as follows:

(a)Determine the amount that would remain if income taxes (determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 3), but disregarding any withholding for the Eligible Employee’s share of employment taxes, were withheld on the Eligible Employee’s SEP DPS Benefit.

(b)Determine the amount, if any, by which (i) the amount determined under Section 3.2(a) exceeds (ii) the Eligible Employee’s Trust Account TP Value.

(c)The DPS Beneficiary Benefit payable under this Section shall be an amount that is sufficient to cause the amount remaining after withholding of income taxes to equal the amount, if any, determined under Section 3.2(b), with the amount for withholding determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 3, and disregarding any withholding for the Eligible Employee’s share of employment taxes.

3.3SEP Spousal Survivor Benefit. If an Eligible Employee dies before his SEP Benefit is paid and the Eligible Employee’s Beneficiary is not entitled to a SEP Pension Beneficiary Benefit pursuant to Section 3.4, the Eligible Employee’s Spouse, if any, on his date of death shall be eligible to receive a SEP Spousal Survivor Benefit. The SEP Spousal Survivor Benefit shall be the amount calculated as follows:

(a)Determine the amount, if any, by which (i) the Eligible Employee’s Trust Account TP Value exceeds (ii) the amount calculated under Section 3.2(a) above.

(b)If the Eligible Employee dies before terminating employment with PMI and its affiliates, determine one half of the amount that would be the Eligible Employee’s SEP Pension Benefit if (i) the Eligible Employee had survived and had a Separation from Service on his date of death and (ii) the term “Actuarial Equivalent joint and 50% survivor annuity” were substituted for the term “single life annuity” in each place that such term appears in Section 3.1(a).

(c)Determine the amount that would remain if income taxes (determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 3), but disregarding any withholding for the Eligible Employee’s share of employment taxes, were withheld on the amount determined under Section 3.3(b).

(d)If the Eligible Employee dies after terminating employment with PMI and its affiliates but before his SEP Benefit is paid, determine the amount that would

11

EXHIBIT 10.3

remain if income taxes (determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 3), but disregarding any withholding for the Eligible Employee’s share of employment taxes, were withheld on the Eligible Employee’s SEP Pension Benefit.

(e)The SEP Spousal Survivor Benefit shall equal an amount sufficient to cause the amount remaining after withholding of income taxes (determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 3), but disregarding any withholding for the Eligible Employee’s share of employment taxes, to equal

(i)If the Eligible Employee dies before terminating employment with PMI and its affiliates, the amount by which (A) the amount determined under Section 3.3(c) exceeds (ii) the remaining Trust Account TP Value, if any, determined under Section 3.3(a); or

(ii)If the Eligible Employee dies after terminating employment with PMI and its affiliates but before his SEP Benefit is paid, the amount by which (A) the amount determined under Section 3.3(d) exceeds (ii) the remaining Trust Account TP Value, if any, determined under Section 3.3(a).

3.4SEP Pension Beneficiary Benefit. If an Eligible Employee dies before his SEP Benefit has been paid and a beneficiary of the Eligible Employee is entitled to a payment pursuant to Article IIC(1)(a), Article IIC(1)(b) or Article IIC(2)(f) of the PMI BEP, the Eligible Employee’s Beneficiary shall be eligible to receive a SEP Pension Beneficiary Benefit. The SEP Pension Beneficiary Benefit shall be the amount calculated as follows:

(a)Determine the amount, if any, by which (i) the Eligible Employee’s Trust Account TP Value exceeds (ii) the amount calculated under Section 3.2(a) above.

(b)Determine the amount that would remain if income taxes (determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 3), but disregarding any withholding for the Eligible Employee’s share of employment taxes, were withheld on the Eligible Employee’s SEP Pension Benefit.

(c)The SEP Pension Beneficiary Benefit shall equal an amount sufficient to cause the amount remaining after withholding of income taxes (determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 3), but disregarding any withholding for the Eligible Employee’s share of employment taxes, to equal the amount by which (A) the amount determined under Section 3.4(b) exceeds (ii) the remaining Trust Account TP Value, if any, determined under Section 3.4(a).

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EXHIBIT 10.3

ARTICLE IV

TIME AND FORM OF PAYMENT

4.1Form of Payment. All benefits under the Plan will be paid in one or more lump-sum payments, as determined by the Administrator, subject to any applicable tax withholding.

4.2Time of Payment.

(a)SEP Benefit. An Eligible Employee’s SEP Benefit shall be paid on the Payment Date, but not later than the Latest Payment Date.

(b)DPS Beneficiary Benefit. An Eligible Employee’s DPS Beneficiary Benefit shall be paid on the Payment Date, but not later than the Latest Payment Date.

(c)SEP Spousal Survivor Benefit. An Eligible Employee’s SEP Spousal Survivor Benefit shall be paid on the Survivor Allowance Benefit Payment Date, but not later than the Survivor Allowance Benefit Latest Payment Date.

(d)SEP Pension Beneficiary Benefit. An Eligible Employee’s SEP Pension Beneficiary Benefit shall be paid on the Survivor Allowance Benefit Payment Date, but not later than the Survivor Allowance Benefit Latest Payment Date.

4.3Allocation of Payments. The Administrator may use any reasonable method, as determined in its sole discretion, to designate amounts paid under the Plan as supplemental defined contribution payments or supplemental defined benefit payments and to allocate benefits among the three plans, programs or arrangements that constitute the Plan as described in Article I.

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EXHIBIT 10.3

ARTICLE V

FUNDS FROM WHICH SEP BENEFITS ARE PAYABLE

Individual accounts shall be established for the benefit of each Eligible Employee (or Spouse or Beneficiary) under the Plan. Any benefits payable from an individual account shall be payable solely to the Eligible Employee (or Spouse or Beneficiary) for whom such account was established. The Plan shall be unfunded. All benefits intended to be provided under the Plan shall be paid from time to time from the general assets of the Eligible Employee’s Participating Company and paid in accordance with the provisions of the Plan; provided, however, that the Participating Companies reserve the right to meet the obligations created under the Plan through one or more trusts or other agreements. In no event shall any such trust or trusts be outside of the United States. The contributions or allocations by each Participating Company on behalf of its Eligible Employees to the individual accounts established pursuant to the provisions of the Plan, whether in trust or otherwise, shall be in an amount which such Participating Company, with the advice of an actuary, determines to be sufficient to provide for the payment of the benefits under the Plan.

ARTICLE VI

THE ADMINISTRATOR; CLAIMS PROCEDURES; INTERPRETATION OF PROVISIONS

The general administration of the Plan shall be vested in the Administrator. The powers, rights, duties and responsibilities of the Administrator shall be the same as the powers, rights, duties and responsibilities of the Administrator under the PMI BEP.

The procedures applicable to claims for benefits made under the Plan shall be the same as the procedures applicable to claims made under the PMI Retirement Plan.

The Plan is intended to comply with the requirements of Section 409A of the Code. Accordingly, where applicable, this Plan shall at all times be construed and administered in a manner consistent with the requirements of Section 409A of the Code and applicable regulations, without any diminution in the value of benefits. If the Internal Revenue Service or a court of competent jurisdiction makes a determination that has become final that the Plan fails to comply with Section 409A of the Code with respect to one or more Eligible Employees and imposes any additional taxes, penalties or interest as a result of such violation that would not otherwise be payable, the Participating Companies shall pay to the Eligible Employee, Spouse or Beneficiary on whom such additional taxes, penalties or interest are imposed an amount sufficient to cause the amount remaining after withholding of income taxes (determined as if withholding for federal, state and local income taxes were effected at the rates specified in Appendix 2), and any withholding for the Eligible Employee’s share of employment taxes, to equal the amount of any such additional taxes, penalties or interest; provided, however, that an Eligible Employee shall be entitled to such payment only if he informs PMIGS of any notice of an intent to impose such additional taxes, penalties or interest within 30 days of his receipt thereof and cooperates fully with the Participating Companies in opposing the imposition of such additional taxes, penalties or interest.

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EXHIBIT 10.3

ARTICLE VII

AMENDMENT AND DISCONTINUANCE OF THE PLAN

The Plan can be amended or discontinued in the same manner as the PMI BEP can be amended or discontinued; provided, however, that the Benefits Committee can amend the Plan at any time to prevent the payment of benefits that duplicate benefits provided under any other plan or program, as reasonably determined in the sole discretion of the Benefits Committee.

ARTICLE VIII

FORMS; COMMUNICATIONS

The Administrator shall provide such appropriate forms as it may deem expedient in the administration of the Plan, and no action to be taken under the Plan for which a form is so provided shall be valid unless upon such form. Any Plan communication may be made by electronic medium to the extent allowed by applicable law.

All communications concerning the Plan shall be in writing addressed to the Administrator at such address as may from time to time be designated. No such communication shall be effective for any purposes unless received by the Administrator.

ARTICLE IX

CHANGE OF CONTROL PROVISIONS

In the event of a Change of Control, each Eligible Employee shall be fully vested in his SEP Benefit and any other benefit accrued under the Plan through the date of the Change of Control. Each Eligible Employee shall be entitled to a lump-sum payment in cash within 30 days of a Change of Control equal to his SEP Benefit, determined as if the date of the Change of Control was the date of the Eligible Employee’s Separation from Service.

ARTICLE X

MISCELLANEOUS

The Plan shall be construed and administered in accordance with the laws of the State of New York to the extent not preempted by federal law.

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EXHIBIT 10.3

APPENDIX 1

ELIGIBLE EMPLOYEES

Philip Morris International

Secular Trust
Active Participants
Last Name	First Name	Funding Payment Account(s)	Target Payment Account(s)
Camilleri	Louis C.	FP Trust Account / FP Assumed Account	TP Trust Account / TP Assumed Account
Total ST Participants: 1

Executive Trust Arrangement
Last Name	First Name	Funding Payment Account(s)	Target Payment Account(s)
Rolli	Nicholas M.	FP Trust Account / FP Assumed Account	TP Trust Account / TP Assumed Account
Lindon	Timothy	FP Trust Account / FP Assumed Account	TP Trust Account / TP Assumed Account
Total ETA Participants: 2

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EXHIBIT 10.3

APPENDIX 2

SEP PENSION BENEFIT

FOR MR. LOUIS C. CAMILLERI

SEP Pension Benefit. The SEP Pension Benefit for Louis C. Camilleri (“Mr. Camilleri”) shall be determined as set forth in Section (f) of this Appendix 2, rather than Section 3.1(a), in the manner described below:

(a)Normal Pension Benefit. Mr. Camilleri’s Normal Pension Benefit shall be the amount by which

(i)the Retirement Allowance that would be determined for Mr. Camilleri under the PMI Retirement Plan based on Mr. Camilleri’s SERP Service (as defined below) and SERP Compensation (as defined below), but without regard to the Statutory Limitations and without regard to any Actuarial Equivalent reduction for early commencement, expressed in the form of a joint and 50% survivor annuity that is the Actuarial Equivalent of a single life annuity, exceeds

(ii)the sum of Mr. Camilleri’s:

(A)Retirement Allowance determined under the PMI Retirement Plan based on Mr. Camilleri’s Accredited Service and taking into account any applicable Statutory Limitations, but without regard to any Actuarial Equivalent reduction for early commencement, expressed in the form of a joint and 50% survivor annuity that is the Actuarial Equivalent of a single life annuity;

(B)retirement benefit under the Kraft Retirement Plan payable with respect to service that is also treated as SERP Service and taking into account all applicable statutory and plan limitations on such benefit, but without regard to any actuarial reduction for early commencement, expressed in the form of a joint and 50% survivor annuity, as adjusted for such form of payment based on the applicable actuarial factors under the Kraft Retirement Plan; and

(C)Kraft Supplemental Plan Benefit payable with respect to service that is also treated as SERP Service, but without regard to any actuarial equivalent reduction for early commencement, expressed in the form of a joint and 50% survivor annuity, as adjusted for such form of payment based on the applicable actuarial factors under the Kraft Foods Global, Inc. Supplemental Benefits Plan I.

For purposes of this Appendix 2, the term “SERP Service” shall mean Mr. Camilleri’s Accredited Service plus, without duplication, any additional service set forth in his Designation of Participation, without regard to Mr. Camilleri’s eligibility to participate in the PMI SERP or the Altria SERP for any year; provided, however, that such SERP Service shall not exceed thirty-five years.

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EXHIBIT 10.3

For purposes of this Appendix 2, the term “SERP Compensation” shall mean (i) for calendar years before 2007, “Compensation” as such term is defined in the PMI Retirement Plan, (ii) for the 2007 calendar year, the lesser of Mr. Camilleri’s (A) base salary plus actual annual incentive compensation and (B) base salary plus annual incentive compensation at a business rating of 100 and individual performance rating of “Exceeds,” and (iii) for calendar years 2008 and thereafter, the lesser of Mr. Camilleri's (A) base salary plus actual annual incentive compensation, and (B) base salary plus $2,887,500.

For the avoidance of doubt, in determining the Normal Pension Benefit, the amount by which the Assumed Kraft Pension Plan Liability exceeds the Retained Kraft Pension Plan Liability shall be taken into account in the manner set forth in the PMI Retirement Plan in calculating the Retirement Allowances described in Sections (a)(i) and (a)(ii)(A) of this Appendix 2 above.

(b)Early Retirement Pension Benefit. If Mr. Camilleri is eligible for an Early Retirement Allowance, whether reduced or unreduced, (but is not eligible to receive a Full or Deferred Retirement Allowance) under the PMI Retirement Plan as of his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, his Early Retirement Pension Benefit shall be the amount by which

(i)the Actuarial Equivalent, reflecting any reduction for early commencement, of the Retirement Allowance determined under Section (a)(i) of this Appendix 2 commencing on the first day of the month coincident with or next following his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, exceeds

(ii)the sum of:

(A)the Actuarial Equivalent, reflecting any reduction for early commencement, of the Retirement Allowance determined under Section (a)(ii)(A) of this Appendix 2 commencing on the first day of the month coincident with or next following his Separation from Service or, in the discretion of the Administrator, the end of his policy severance;

(B)the Kraft Retirement Plan benefit determined under Section (a)(ii)(B) of this Appendix 2 commencing on the first day of the month coincident with or next following his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, as reduced for such early commencement based on the applicable actuarial factors under the Kraft Retirement Plan; and

(C)the Kraft Supplemental Plan Benefit determined under Section (a)(ii)(C) of this Appendix 2 commencing on the first day of the month coincident with or next following his Separation from Service or, in the discretion of the Administrator, the end of his policy severance,

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EXHIBIT 10.3

as reduced for such early commencement based on the applicable actuarial factors under the Kraft Foods Global, Inc. Supplemental Benefits Plan I.

(c)Normal Grandfathered Pension Benefit. Mr. Camilleri’s Normal Grandfathered Pension Benefit shall be the amount by which

(i)the retirement benefit to which Mr. Camilleri would have been entitled under the Altria Retirement Plan based on his SERP Service and SERP Compensation, but without regard to any applicable statutory or plan limits on such benefit, and without regard to any actuarial reduction for early commencement, if he had voluntarily terminated employment on December 31, 2004, expressed for purposes of this calculation in the form of a joint and 50% survivor annuity, as adjusted for such form of payment based on the then applicable actuarial factors under the Altria Retirement Plan, exceeds

(ii)the sum of:

(A)the retirement benefit to which Mr. Camilleri would have been entitled under the Altria Retirement Plan (which is now payable under the PMI Retirement Plan), taking into account all applicable statutory and plan limits on such benefit, but without regard to any actuarial reduction for early commencement, if he had voluntarily terminated employment on December 31, 2004, expressed for purposes of this calculation in the form of a joint and 50% survivor annuity, as adjusted for such form of payment based on the then applicable actuarial factors under the Altria Retirement Plan;

(B)the retirement benefit to which Mr. Camilleri would have been entitled under the Kraft Retirement Plan, taking into account all applicable statutory and plan limitations on such benefit, but without regard to any actuarial reduction for early commencement, if he had voluntarily terminated employment on December 31, 2004, expressed for purposes of this calculation in the form of a joint and 50% survivor annuity, as adjusted for such form of payment based on the then applicable actuarial factors under the Kraft Retirement Plan; and

(C)the Kraft Supplemental Plan Benefit to which Mr. Camilleri would have been entitled under the Kraft Foods Global, Inc. Supplemental Plan I, but without regard to any actuarial reduction for early commencement, if he had voluntarily terminated employment on December 31, 2004, expressed for purposes of this calculation in the form of a joint and 50% survivor annuity, as adjusted for such form of payment based on the then applicable actuarial factors under such plan.

For the avoidance of doubt, the amount determined under Section (c)(i) of this Appendix 2 shall be determined based only on SERP Service and SERP

19

EXHIBIT 10.3

Compensation to which Mr. Camilleri would have been entitled under the terms of the Altria SERP if he had voluntarily terminated employment on December 31, 2004.

(d)Early Retirement Grandfathered Pension Benefit. If Mr. Camilleri is eligible for an Early Retirement Allowance, whether reduced or unreduced, (but is not eligible to receive a Full or Deferred Retirement Allowance) under the PMI Retirement Plan as of his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, his Early Retirement Grandfathered Pension Benefit shall be the amount by which

(i)the retirement benefit determined under Section (c)(i) of this Appendix 2, commencing on the first day of the month coincident with or next following Mr. Camilleri’s Separation from Service or, in the discretion of the Administrator, the end of his policy severance, as reduced for such early commencement, if applicable, based on the early retirement factors under the Altria Retirement Plan, exceeds

(ii)the sum of

(A)the retirement benefit payable under the Altria Retirement Plan (and now payable under the PMI Retirement Plan) determined under Section (c)(ii)(A) of this Appendix 2 commencing on the first day of the month coincident with or next following his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, as reduced for such early commencement, if applicable, based on the early retirement factors under the Altria Retirement Plan;

(B)the Kraft Retirement Plan benefit determined under Section (c)(ii)(B) of this Appendix 2 commencing on the first day of the month coincident with or next following his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, as reduced for such early commencement, if applicable, based on the applicable actuarial factors under the Kraft Retirement Plan; and

(C)the Kraft Supplemental Plan Benefit determined under Section (c)(ii)(C) of this Appendix 2 commencing on the first day of the month coincident with or next following his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, as reduced for such commencement, if applicable, based on the applicable actuarial factors under the Kraft Foods Global, Inc. Supplemental Benefits Plan I,

provided, however, that solely for purposes of determining the early retirement reductions required under this Section (d) of Appendix 2 for the early commencement of benefits, the early retirement or other factors to be used for each benefit shall be the actuarial factors that would have applied under the applicable plan treating the earliest date on which Mr. Camilleri would become entitled to an unreduced benefit as the date

20

EXHIBIT 10.3

that would have applied if he had voluntarily terminated employment on December 31, 2004.

(e)Base SEP Pension Benefit. Mr. Camilleri’s Base SEP Pension Benefit shall be calculated as follows:

(i)If Mr. Camilleri is eligible for an Early Retirement Allowance, whether reduced or unreduced, (but is not eligible for a Full or Deferred Retirement Allowance) on the date of his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, his Base SEP Pension Benefit shall be the Lump-Sum Equivalent of the amount by which his Early Retirement Pension Benefit exceeds his Early Retirement Grandfathered Pension Benefit; and

(ii)If Mr. Camilleri is eligible to receive a Full, Deferred or Vested Retirement Allowance as of the date of his Separation from Service or, in the discretion of the Administrator, the end of his policy severance, his Base SEP Pension Benefit shall be the Lump-Sum Equivalent of the amount by which his Normal Pension Benefit exceeds his Normal Grandfathered Pension Benefit.

(f)SEP Pension Benefit. Mr. Camilleri’s SEP Pension Benefit under this Appendix 2 shall be his Base SEP Pension Benefit plus, if Mr. Camilleri retires as of January 2012, the excess, if any, of

(i)$36,500,000 over

(ii)the present value of the amount determined under Section (a)(i) of this Appendix 2, less the amounts determined under Sections (a)(ii)(B) and (a)(ii)(C) of this Appendix 2 and any amounts determined under Section (a)(ii)(D) of this Appendix 2 that would not be payable by PMI or its affiliates.

21

EXHIBIT 10.3

APPENDIX 3

TAX ASSUMPTIONS

Federal income tax rate: The highest marginal Federal income tax rate as adjusted for the Federal deduction of state and local taxes and the phase out of Federal deductions under current law (or as adjusted under any subsequently enacted similar provisions of the Internal Revenue Code).

State income tax rate: Except with respect to additional benefits attributable to the provisions of an Eligible Employee’s Designation of Participation, the highest adjusted marginal state income tax rate based on the Eligible Employee’s state of residence on the date of the Eligible Employee’s Separation from Service. With respect to those additional benefits that are attributable to the provisions of an Eligible Employee’s Designation of Participation, the highest marginal state income tax rate based on the state in which the Eligible Employee is or was employed by a Participating Company on the date of his Separation from Service.

Local income tax rate: Except with respect to additional benefits attributable to the provisions of an Eligible Employee’s Designation of Participation, the highest adjusted marginal local income tax rate (taking into account the Eligible Employee’s resident or nonresident status) based on the Eligible Employee’s locality of residence on the date of the Eligible Employee’s Separation from Service. With respect to those additional benefits that are attributable to the provisions of an Eligible Employee’s Designation of Participation, the highest marginal state income tax rate (taking into account the Eligible Employee’s resident or nonresident status) based on the locality in which the Eligible Employee is or was employed by a Participating Company on the date of his Separation from Service.

Exception: In the case of an Eligible Employee who is an expatriate, income taxes shall generally be computed as follows: Expatriate taxes will be calculated assuming the highest marginal Federal income tax rate as adjusted for the Federal deduction of state and local taxes and the phase out of Federal deductions under current law (or as adjusted under any subsequently enacted similar provisions of the Code). The applicable state and local tax rates will be adjusted to reflect an Eligible Employee’s expatriate status to the extent appropriate.

Capital Gains: The ordinary income or capital gains character of items of trust investment income or deemed investment income shall be taken into account as relevant.

The above principles shall generally be applied in determining tax-rate assumptions for the relevant purpose, but the Administrator shall have the authority in its discretion to alter the assumptions made as deemed appropriate to take into account particular facts and circumstances.

22

EX-10.4

Exhibit 10.4

AMENDMENT NO. 1 TO TIME SHARING AGREEMENT

THIS AMENDMENT NO.1 TO TIME SHARING AGREEMENT (the “Amendment”) is made and entered into this 22 day of August 2012, by and between PMI Global Services Inc., with an address of 180 Airport Rd, Hgr D2, White Plains, NY 10604 (“Operator”) and Louis C. Camilleri, with an address of 120 Park Avenue, New York, New York 10017 (“User”).

WITNESSETH, that

WHEREAS, Operator and User are parties to that certain Time Sharing Agreement dated August 18, 2010 (“Agreement”);

WHEREAS, the parties desire to amend the Agreement; and

WHEREAS, Wells Fargo acknowledges and consents to this Amendment.

NOW THEREFORE, Operator and User declaring their intention to enter into and be bound by this Amendment, and for the good and valuable consideration set forth below, hereby covenant and agree as follows:

1.    Capitalized Terms. All capitalized terms used herein and not otherwise defined shall have the meaning set forth in the Agreement.

2.    Amendment.

2.1    The fourth WHEREAS clause in the Agreement are hereby deleted in its entirety and replaced with the following:

WHEREAS, On July 22, 2010, Operator received Special Authorization from the Department of Transportation (“DOT”) under DOT Regulation 375.70 to operate the Aircraft pursuant to this Agreement, which was extended by that Special Authorization issued on December 22, 2010 and that Special Authorization issued on December 2, 2011 and amended by that Amended Special Authorization issued July 18, 2012, a copy of which is attached as Exhibit B (the “Special Authorization”); and

2.2    Exhibit A to the Agreement is hereby deleted in its entirety and replaced with the Exhibit A attached hereto.

2.3    Exhibit B to the Agreement is hereby deleted in its entirety and replaced with the Exhibit B attached hereto.

3.    This Amendment shall be governed by and construed in accordance with the laws of the State of New York, without regard to its choice of law provisions.

1

Exhibit 10.4

IN WITNESS WHEREOF, the parties hereto have caused the signatures of their authorized representatives to be affixed below on the day and year first above written. The persons signing below warrant their authority to sign.

Operator:                         User:    

PMI GLOBAL SERVICES INC.                

By: /s/ JAMES R. WEST     /s/ LOUIS C. CAMILLERI    

Name:    James R. West                    Name:     Louis C. Camilleri        

Title:    Vice President            

2

Exhibit 10.4

ACKNOWLEDGED AND AGREED:

Wells Fargo Bank Northwest, National Association, not in its individual capacity, but solely as Owner Trustee under that certain Amended and Restated Trust Agreement dated as of June 1, 2012, as amended and supplemented from time to time.

By:     /s/ MICHAEL ARSENAULT        

Name: Michael Arsenault        

Title:     Vice President        

3

Exhibit 10.4

EXHIBIT A    

Registration Number	Serial Number	Aircraft Description
N607PM	5146	Gulfstream Aerospace GV-SP (G550)
N551PM	5374	Gulfstream Aerospace G-550

Exhibit 10.4

EXHIBIT B

U.S. Department of	1200 New Jersey Avenue, S.E.
Transportation	Washington, D.C. 20590
Office of the Secretary of Transportation
	Issue date: July 22, 2010
Ms. Joanne Barbera	Authority Expires: December July 22, 2011
Counsel for PMI Global Services Inc.
Barbera & Watkins, LLC
6701 W. 64th Street, Suite 315	/s/ GEORGE WELLINGTON
Overland Park, Kansas 66202	Director, Office of International Aviation

SPECIAL AUTHORIZATION

Effective July 22, 2010, and terminating July 22, 2011, permission is granted under 14 CFR §375.70 of the Department’s regulations to PMI Global Services Inc., to the extent necessary to permit it to engage in the time-sharing activities described below, using the following U.S.-registered foreign civil aircraft:

Gulfstream GV-SP, registration N607PM
Gulfstream GV-SP, registration N609PM

In the conduct of the authorized time-sharing operations, PMI Global, as the operator, may carry up to three individual officers of PMI Global Service’s parent corporation, Philip Morris International Inc., for personal travel on flights into, out of, and within the United States during the term of this authority. These operations are deemed to be business aviation activities within the meaning of §375.37 to the extent that these three Philip Morris officers are eligible for this personal travel for reasons of security and personal safety under a formal resolution approved by the Board of Philip Morris, and/or as a part of these officers’ compensation package from the company. PMI Global Services may collect charges from the individuals only as provided in §375.37(d).

In the conduct of the operations authorized above, PMI Global Services must (1) comply with all applicable requirements of 14 CFR Part 375; (2) comply with all applicable requirements of the Federal Aviation Administration contained in the Federal Aviation Regulations (including 14 CFR Part 91), and applicable Orders of the Federal Aviation Administration; (3) comply with all applicable U.S. Government requirements concerning security; and (4) carry on board the aircraft a copy of this permit. For information concerning requirements of the Federal Aviation Administration, PMI Global Services should contact the FAA’s Flight Standards Service in Washington, D.C. at (202) 385-4510.

This action is taken under assigned authority (14 CFR §385.13(m)). Persons entitled to petition the Department for review of this action under the Department’s regulations, 14 CFR §385.30, should file their petitions within seven days of the date of this action. This action is effective immediately, and the filing of a petition for review will not alter its effectiveness.

***************

Exhibit 10.4

U.S. Department of	1200 New Jersey Avenue, S.E.
Transportation	Washington, D.C. 20590
Office of the Secretary of Transportation
	Issue date: December 22, 2010
Ms. Joanne Barbera	Authority Expires: December 31, 2011
Counsel for PMI Global Services Inc.
Barbera & Watkins, LLC
6701 W. 64th Street, Suite 315	/s/ GEORGE WELLINGTON
Overland Park, Kansas 66202	Director, Office of International Aviation

SPECIAL AUTHORIZATION

Effective December 22, 2010, and terminating December 31, 2011, permission is granted under 14 CFR §375.70 of the Department’s regulations to PMI Global Services Inc., to the extent necessary to permit it to engage in the time-sharing activities described below, using the following U.S.-registered foreign civil aircraft:

Gulfstream GV-SP, registration N607PM    Gulfstream GV-SP, registration N609PM

This action extends the termination date of the Special Authorization we previously granted to PMI Global on July 22, 2010.

In the conduct of the authorized time-sharing operations, PMI Global, as the operator, may carry up to three individual officers of PMI Global Service’s parent corporation, Philip Morris International Inc., for personal travel on flights into, out of, and within the United States during the term of this authority. These operations are deemed to be business aviation activities within the meaning of §375.37 to the extent that these three Philip Morris officers are eligible for this personal travel for reasons of security and personal safety under a formal resolution approved by the Board of Philip Morris, and/or as a part of these officers’ compensation package from the company. PMI Global Services may collect charges from the individuals only as provided in §375.37(d).

In the conduct of the operations authorized above, PMI Global Services must (1) comply with all applicable requirements of 14 CFR Part 375; (2) comply with all applicable requirements of the Federal Aviation Administration contained in the Federal Aviation Regulations (including 14 CFR Part 91), and applicable Orders of the Federal Aviation Administration; (3) comply with all applicable U.S. Government requirements concerning security; and (4) carry on board the aircraft a copy of this permit. For information concerning requirements of the Federal Aviation Administration, PMI Global Services should contact the FAA’s Flight Standards Service in Washington, D.C. at (202) 385-4510.

This action is taken under assigned authority (14 CFR §385.13 (m)). Persons entitled to petition the Department for review of this action under the Department’s regulations, 14 CFR §385.30, should file their petitions within seven days of the date of this action. This action is effective immediately, and the filing of a petition for review will not alter its effectiveness.
***************

Exhibit 10.4

U.S. Department of	1200 New Jersey Avenue, S.E.
Transportation	Washington, D.C. 20590
Office of the Secretary of Transportation
	Issue date: December 2, 2011
Ms. Joanne Barbera	Authority Expires: December 31, 2012
Counsel for PMI Global Services Inc.
Barbera & Watkins, LLC
6701 W. 64th Street, Suite 315	/s/ ROBERT FINAMORE
Overland Park, Kansas 66202	Director, Office of International Aviation

SPECIAL AUTHORIZATION

Effective December 2, 2011, and terminating December 31, 2012, permission is granted under 14 CFR §375.70 of the Department’s regulations to PMI Global Services Inc., to the extent necessary to permit it to engage in the time-sharing activities described below, using the following U.S.-registered foreign civil aircraft:

Gulfstream GV-SP, registration N607PM    Gulfstream GV-SP, registration N609PM

This action extends the termination date of the Special Authorizations we previously granted to PMI Global on July 22, 2010 and December 22, 2010.

In the conduct of the authorized time-sharing operations, PMI Global, as the operator, may carry up to three individual officers of PMI Global Service’s parent corporation, Philip Morris International Inc., for personal travel on flights into, out of, and within the United States during the term of this authority. These operations are deemed to be business aviation activities within the meaning of §375.37 to the extent that these three Philip Morris officers are eligible for this personal travel for reasons of security and personal safety under a formal resolution approved by the Board of Philip Morris, and/or as a part of these officers’ compensation package from the company. PMI Global Services may collect charges from the individuals only as provided in §375.37(d).

In the conduct of the operations authorized above, PMI Global Services must (1) comply with all applicable requirements of 14 CFR Part 375; (2) comply with all applicable requirements of the Federal Aviation Administration contained in the Federal Aviation Regulations (including 14 CFR Part 91), and applicable Orders of the Federal Aviation Administration; (3) comply with all applicable U.S. Government requirements concerning security; and (4) carry on board the aircraft a copy of this permit. For information concerning requirements of the Federal Aviation Administration, PMI Global Services should contact the FAA’s Flight Standards Service in Washington, D.C. at (202) 385-4510.

This action is taken under assigned authority (14 CFR §385.13 (m)). Persons entitled to petition the Department for review of this action under the Department’s regulations, 14 CFR §385.30, should file their petitions within seven days of the date of this action. This action is effective immediately, and the filing of a petition for review will not alter its effectiveness.
***************

Exhibit 10.4

U.S. Department of	1200 New Jersey Avenue, S.E.
Transportation	Washington, D.C. 20590
Office of the Secretary of Transportation
	Issue date: July 18, 2012
Ms. Joanne Barbera	Authority Expires: December 31, 2012
Counsel for PMI Global Services Inc.
Barbera & Watkins, LLC
6701 W. 64th Street, Suite 315	/s/ CATHERINE C. BROWN
Overland Park, Kansas 66202	Director, Office of International Aviation

AMENDED SPECIAL AUTHORIZATION¹ 

Effective July 18, 2012, and terminating December 31, 2012, permission is granted under 14 CFR §375.70 of the Department’s regulations to PMI Global Services Inc. (PMIGS), to the extent necessary to permit it to engage in the time-sharing activities described below, using the following U.S.-registered foreign civil aircraft:² 

Gulfstream GV-SP, registration N607PM    Gulfstream G-550, registration N551PM

In the conduct of the authorized time-sharing operations, PMIGS, as the operator, may carry up to three individual officers of PMIGS’ parent corporation, Philip Morris International Inc., for personal travel on flights into, out of, and within the United States during the term of this authority. These operations are deemed to be business aviation activities within the meaning of §375.37 to the extent that these three Philip Morris officers are eligible for this personal travel for reasons of security and personal safety under a formal resolution approved by the Board of Philip Morris, and/or as a part of these officers’ compensation package from the company. PMIGS may collect charges from the individuals only as provided in §375.37(d).

In the conduct of the operations authorized above, PMIGS must (1) comply with all applicable requirements of 14 CFR Part 375; (2) comply with all applicable requirements of the Federal Aviation Administration contained in the Federal Aviation Regulations (including 14 CFR Part 91), and applicable Orders of the Federal Aviation Administration; (3) comply with all applicable U.S. Government requirements concerning security; and (4) carry on board the aircraft a copy of this permit. For information concerning requirements of the Federal Aviation Administration, PMIGS should contact FAA’s Flight Standards Service in Washington, D.C. at (202) 385-4510.

This action is taken under assigned authority (14 CFR §385.13 (m)). Persons entitled to petition the Department for review of this action under the Department’s regulations, 14 CFR §385.30, should file their petitions within seven days of the date of this action. This action is effective immediately, and the filing of a petition for review will not alter its effectiveness. ***************

¹ This action amends the special authorization previously granted to PMIGS on December 2, 2011, to reflect a change in authorized aircraft as outlined in note 2.² PMIGS states that it is replacing aircraft registration N609PM on or about July 20, 2012, and requests the addition of aircraft registration N551PM as well as permission to use other substitute or additional U.S.-registered aircraft that it operates.

Exhibit 10.4

EXHIBIT C

INSTRUCTIONS FOR COMPLIANCE WITH
TRUTH IN LEASING REQUIREMENTS

1. Mail a copy of the Agreement to the following address via certified mail, return receipt requested, immediately upon execution of the agreement (14 C.F.R. 91.23 requires that the copy be sent within twenty-four (24) hours after it is signed):

Federal Aviation Administration
Aircraft Registration Branch
ATTN: Technical Section
P.O. Box 25724
Oklahoma City, Oklahoma 73125

2. Telephone or fax the nearest Flight Standards District Office at least forty-eight (48) hours prior to the first flight of each Aircraft made under this Agreement.

3. Carry a copy of the Agreement in the Aircraft at all times when the Aircraft is being operated under the Agreement.

EX-10.5

Exhibit 10.5

EXECUTION VERSION

AMENDMENT NO. 1 TO THE CREDIT AGREEMENT

Amendment No. 1 to the Credit Agreement (this “Amendment”), dated as of 31 August 2012, among PHILIP MORRIS INTERNATIONAL INC., a Virginia corporation (“PMI”), the financial institutions and other institutional lenders from time to time parties to the Credit Agreement referred to below (the “Lenders”) and J.P. MORGAN EUROPE LIMITED (“JPMEL”), as facility agent (the “Facility Agent”).

WHEREAS, PMI, the Lenders, the Facility Agent, JPMorgan Chase Bank, N.A., as swingline agent and J.P. Morgan Limited, Deutsche Bank Securities Inc., Citigroup Global Markets Limited, Credit Suisse AG, Cayman Islands Branch, Goldman Sachs Credit Partners L.P., and RBS Securities Inc., as mandated lead arrangers and bookrunners for the Lenders have entered into an Amended and Restated Credit Agreement relating to a US$2,500,000,000 Revolving Credit Facility (including a US$700,000,000 swingline option), dated as of 11 May 2011 (the “Credit Agreement”);

WHEREAS, the parties hereto desire to amend the Credit Agreement on the terms and subject to the conditions set forth herein;

WHEREAS, PMI has requested, and the Lenders have agreed, to amend the Credit Agreement as set forth herein; and

WHEREAS, pursuant to Section 9.1 of the Credit Agreement, the amendments requested by PMI must be contained in a written agreement signed by PMI and the Required Lenders.

NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Definitions. Capitalized terms used and not defined in this Amendment shall have the respective meanings given them in the Credit Agreement.

2.Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows:

(a) The definition of Eligible Assignee now appearing in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows:

‘“Eligible Assignee” means (a) a Lender or any affiliate of a Lender that is a Qualifying Bank or (b) any bank or other financial institution, or any other Person, which has been approved in writing by PMI as an Eligible Assignee for purposes of this Agreement; provided that PMI’s approval shall not be unreasonably withheld or delayed or withheld solely because the assignment may result in an increase to the Mandatory Cost; and provided, further that PMI may withhold its approval if PMI reasonably believes that an assignment to such Eligible Assignee pursuant to Section 9.7 would result in the incurrence of increased costs payable by any Borrower pursuant to Section 2.15 or 2.18.”

Exhibit 10.5

(b)Section 9.7(a)(iii) of the Credit Agreement is hereby amended by deleting the words “, provided, however that an assignment to a bank or other financial institution that is not a Qualifying Bank shall not be effective without the written approval of PMI, which approval shall be notified to the Facility Agent” of such Section.

(c)The Form of Assignment and Acceptance now appearing in Exhibit C of the Credit Agreement is hereby amended in its entirety to read as set forth in Exhibit B hereto.

3.Limited Effect. Except as expressly provided hereby, all of the terms and provisions of the Credit Agreement and other related documents are and shall remain in full force and effect and are hereby ratified and confirmed by PMI. The amendments contained herein shall not be construed as a waiver or amendment of any other provision of the Credit Agreement or other related documents or for any purpose except as expressly set forth.

4.Condition Precedent. This Amendment shall become effective upon the date on which the Facility Agent shall have received this Amendment, duly executed and delivered by PMI and JPMEL, as Facility Agent, and the Facility Agent shall have received Lender Consent Letters, substantially in the form of Exhibit A, duly executed and delivered by the Required Lenders.

5.Representations and Warranties. PMI hereby represents and warrants to the Facility Agent and each Lender (before and after giving effect to this Amendment) that this Amendment has been duly executed and delivered on behalf of PMI. This Amendment and the Credit Agreement as amended hereby constitute the legal, valid and binding obligations of PMI and are enforceable against PMI, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

6.Binding Effect. This Amendment shall be binding upon and inure to the benefit of PMI, the Facility Agent, the Swingline Agent, and each Lender and their respective successors and assigns.

7.Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

8.Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment electronically or by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment.

[SIGNATURE PAGE FOLLOWS]

2

Exhibit 10.5

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

PHILIP MORRIS INTERNATIONAL INC.

By /s/ MARCO KUEPFER    

Name: Marco Kuepfer

Title: Vice President Finance and Treasurer

J.P. MORGAN EUROPE LIMITED,

as Facility Agent and on behalf of the Required Lenders

By /s/ LESLIE PLUCK    

Name: Leslie Pluck

Title: Associate

Signature Page - Amendment No. 1 to the Credit Agreement

3

Exhibit 10.5

EXHIBIT A

FORM OF LENDER CONSENT LETTER

Philip Morris International Inc. Amended and Restated Credit Agreement, dated as of 11 May 2011

To: J.P. MORGAN EUROPE LIMITED

EMEA Loan Agency Department

125 London Wall

London EC2Y 5AJ United Kingdom

Attention: Loans Agency

Fax number: +44(0) 207 77 2360

Ladies and Gentlemen:

Reference is made to the Amended and Restated Credit Agreement, dated as of 11 May 2011 (the “Credit Agreement”), among PHILIP MORRIS INTERNATIONAL INC. (“PMI”) the financial institutions and other institutional lenders from time to time parties to the Credit Agreement referred to above (the “Lenders”), J.P. MORGAN EUROPE LIMITED, as facility agent (the “Facility Agent”), JPMORGAN CHASE BANK, N.A., as swingline agent and J.P. MORGAN LIMITED, DEUTSCHE BANK SECURITIES INC., CITIGROUP GLOBAL MARKETS LIMITED, CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, GOLDMAN SACHS CREDIT PARTNERS L.P. and RBS SECURITIES INC., as mandated lead arrangers and bookrunners for the Lenders. Capitalized terms used and not defined herein shall have the respective meanings given them in the Credit Agreement.

PMI has requested that the Required Lenders consent to amend the provisions of the Credit Agreement solely on the terms described in Amendment No. 1 to the Credit Agreement, dated as of 31 August 2012, substantially in the form delivered to the undersigned Lender on or prior to the date hereof (the “Amendment”).

Pursuant to Section 9.1 of the Credit Agreement, the undersigned Lender hereby consents to the terms of the Amendment and the execution by the Facility Agent of the Amendment.

Very truly yours,

[LENDER’S NAME]

By_____________________

Name:

Title:

Exhibit 10.5

EXHIBIT B

FORM OF ASSIGNMENT AND ACCEPTANCE

Reference is made to the Amended and Restated Credit Agreement, dated as of 11 May 2011 (as amended or modified from time to time, the “Credit Agreement,” the terms defined therein being used herein as therein defined), among Philip Morris International Inc., a Virginia corporation, the Lenders party thereto and J.P. Morgan Europe Limited, JPMorgan Chase Bank, N.A., as Swingline Agent, and J.P. Morgan Limited, Deutsche Bank Securities Inc., Citigroup Global Markets Limited, Credit Suisse AG, Cayman Islands Branch, Goldman Sachs Credit Partners L.P. and RBS Securities Inc., as Mandated Lead Arrangers and Bookrunners for such Lenders.

The “Assignor” and the “Assignee” referred to on Schedule 1 hereto agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor’s rights and obligations under the Credit Agreement as of the date hereof equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Credit Agreement. After giving effect to such sale and assignment, the Assignee’s Commitment and the amount of the Advances owing to the Assignee will be as set forth on Schedule 1 hereto. Each of the Assignor and the Assignee represents and warrants that it is authorized to execute and deliver this Assignment and Acceptance.

2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or PMI or the performance or observance by any Borrower or PMI of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto.

3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.1(e) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon J.P. Morgan Europe Limited, as Facility Agent, any other Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) represents that (A) the source of any funds it is using to acquire the Assignor’s interest or to make any Advance is not and will not be plan assets as defined under the regulations of the Department of Labor of any Plan subject to Title I of ERISA or Section 4975 of the Code or (B) the assignment or Advance is not and will be not be a non-exempt prohibited transaction as defined in Section 406 of ERISA; (v) appoints and authorizes J.P. Morgan Europe Limited, as Facility Agent, to take such action as agent on its behalf and to exercise such powers and

2

Exhibit 10.5

discretion under the Credit Agreement as are delegated to J.P. Morgan Europe Limited, as Facility Agent, by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (vi) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vii) confirms that it has signed a confidentiality agreement substantially in the form attached as Exhibit H to the Credit Agreement.

4. This Assignment and Acceptance will be delivered to J.P. Morgan Europe Limited, as Facility Agent, for acceptance and recording by J.P. Morgan Europe Limited, as Facility Agent following its execution. The effective date for this Assignment and Acceptance (the “Effective Date”) shall be the date of acceptance hereof by J.P. Morgan Europe Limited, as Facility Agent, unless otherwise specified on Schedule 1 hereto.

5. Upon such acceptance and recording by J.P. Morgan Europe Limited, as Facility Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.

6. Upon such acceptance and recording by J.P. Morgan Europe Limited, as Facility Agent, from and after the Effective Date, J.P. Morgan Europe Limited, as Facility Agent, shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignee. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves.

7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York.

8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance.

IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon.

3

Exhibit 10.5

Schedule 1

to

Assignment and Acceptance

Percentage interest assigned:    _____%

Assignee’s Revolving Credit Commitment:    $__________

(including, if applicable, Assignee’s Swingline Commitment $__________)

Aggregate outstanding principal amount of
Revolving Credit Advances assigned:    EUR/$__________

Effective Date¹:    _______________, 201_

[NAME OF ASSIGNOR], as Assignor

By    

Title:

Dated: _______________, 201_

[NAME OF ASSIGNEE], as Assignee

By    

Title:

Dated: _______________, 201_

Applicable Lending Office: [Address]

Accepted this

__________ day of _______________, 201_

J.P. MORGAN EUROPE LIMITED, as Facility Agent

By    

Title:

[Approved this __________ day

of _______________, 201_

[NAME OF BORROWER] ² 

By    

Title:

¹ This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to J.P. Morgan Europe Limited, as Facility Agent.

² Required if the Assignee is an Eligible Assignee solely by reason of clause (b) of the definition of “Eligible Assignee.”

EX-10.6

Exhibit 10.6

EXECUTION VERSION

AMENDMENT NO. 1 TO THE CREDIT AGREEMENT

Amendment No. 1 to the Credit Agreement (this “Amendment”), dated as of 31 August 2012, among PHILIP MORRIS INTERNATIONAL INC., a Virginia corporation (“PMI”), the financial institutions and other institutional lenders from time to time parties to the Credit Agreement referred to below (the “Lenders”) and CITIBANK INTERNATIONAL PLC (“CIP”), as facility agent (the “Facility Agent”).

WHEREAS, PMI, the Lenders, the Facility Agent, Citibank, N.A., as swingline agent and Citigroup Global Markets Limited, Barclays Capital (the investment banking division of Barclays Bank PLC), BNP Paribas, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc., Goldman Sachs International, HSBC Bank PLC, J.P. Morgan Limited, RBS Securities Inc. and Société Générale, as mandated lead arrangers and bookrunners for the Lenders have entered into a Credit Agreement relating to a US$3,500,000,000 Revolving Credit Facility (including a US$800,000,000 swingline option), dated as of 25 October 2011 (the “Credit Agreement”);

WHEREAS, the parties hereto desire to amend the Credit Agreement on the terms and subject to the conditions set forth herein;

WHEREAS, PMI has requested, and the Lenders have agreed, to amend the Credit Agreement as set forth herein; and

WHEREAS, pursuant to Section 9.1 of the Credit Agreement, the amendments requested by PMI must be contained in a written agreement signed by PMI and the Required Lenders.

NOW, THEREFORE, in consideration of the premises set forth above and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree as follows:

1.Definitions. Capitalized terms used and not defined in this Amendment shall have the respective meanings given them in the Credit Agreement.

2.Amendments to the Credit Agreement. The Credit Agreement is hereby amended as follows:

(a) The definition of Eligible Assignee now appearing in Section 1.1 of the Credit Agreement is hereby amended in its entirety to read as follows:

‘“Eligible Assignee” means (a) a Lender or any affiliate of a Lender that is a Qualifying Bank or (b) any bank or other financial institution, or any other Person, which has been approved in writing by PMI as an Eligible Assignee for purposes of this Agreement; provided that PMI’s approval shall not be unreasonably withheld or delayed or withheld solely because the assignment may result in an increase to the Mandatory Cost; and provided, further that PMI may withhold its approval if PMI reasonably believes that an assignment to such Eligible Assignee pursuant to Section 9.7 would result in the incurrence of increased costs payable by any Borrower pursuant to Section 2.15 or 2.18.”

Exhibit 10.6

(b)Section 9.7(a)(iii) of the Credit Agreement is hereby amended by deleting the words “, provided, however that an assignment to a bank or other financial institution that is not a Qualifying Bank shall not be effective without the written approval of PMI, which approval shall be notified to the Facility Agent” of such Section.

(c)The Form of Assignment and Acceptance now appearing in Exhibit C of the Credit Agreement is hereby amended in its entirety to read as set forth in Exhibit B hereto.

3.Limited Effect. Except as expressly provided hereby, all of the terms and provisions of the Credit Agreement and other related documents are and shall remain in full force and effect and are hereby ratified and confirmed by PMI. The amendments contained herein shall not be construed as a waiver or amendment of any other provision of the Credit Agreement or other related documents or for any purpose except as expressly set forth.

4.Condition Precedent. This Amendment shall become effective upon the date on which the Facility Agent shall have received this Amendment, duly executed and delivered by PMI and CIP, as Facility Agent, and the Facility Agent shall have received Lender Consent Letters, substantially in the form of Exhibit A, duly executed and delivered by the Required Lenders.

5.Representations and Warranties. PMI hereby represents and warrants to the Facility Agent and each Lender (before and after giving effect to this Amendment) that this Amendment has been duly executed and delivered on behalf of PMI. This Amendment and the Credit Agreement as amended hereby constitute the legal, valid and binding obligations of PMI and are enforceable against PMI, subject to the effect of any applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and other laws affecting creditors’ rights generally and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law) and an implied covenant of good faith and fair dealing.

6.Binding Effect. This Amendment shall be binding upon and inure to the benefit of PMI, the Facility Agent, the Swingline Agent, and each Lender and their respective successors and assigns.

7.Governing Law. This Amendment shall be governed by, and construed in accordance with, the laws of the State of New York.

8.Execution in Counterparts. This Amendment may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Amendment electronically or by facsimile shall be effective as delivery of a manually executed counterpart of this Amendment.

[SIGNATURE PAGE FOLLOWS]

2

Exhibit 10.6

IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first above written.

PHILIP MORRIS INTERNATIONAL INC.

By /s/ MARCO KUEPFER    

Name: Marco Kuepfer

Title: Vice President Finance and Treasurer

CITIBANK INTERNATIONAL PLC,

as Facility Agent and on behalf of the Required Lenders

By /s/ EMMA BATCHELOR    

Name: Emma Batchelor

Title: Loans Agency Officer

Signature Page - Amendment No. 1 to the Credit Agreement

Exhibit 10.6

EXHIBIT A

FORM OF LENDER CONSENT LETTER

Philip Morris International Inc. Credit Agreement, dated as of 25 October 2011

To: CITIBANK INTERNATIONAL PLC LONDON

Loans Agency

5th Floor Citigroup Centre CGC2

Mail drop CGC2 05-65

25 Canada Square

London

E14 5LB

Fax number: 020 8636 3824 /3825

Ladies and Gentlemen:

Reference is made to the Credit Agreement, dated as of 25 October 2011 (the “Credit Agreement”), among PHILIP MORRIS INTERNATIONAL INC. (“PMI”) the financial institutions and other institutional lenders from time to time parties to the Credit Agreement referred to above (the “Lenders”), CITIBANK INTERNATIONAL PLC, as facility agent (the “Facility Agent”), CITIBANK, N.A., as swingline agent and CITIGROUP GLOBAL MARKETS LIMITED, BARCLAYS CAPITAL(THE INVESTMENT BANKING DIVISION OF BARCLAYS BANK PLC), BNP PARIBAS, CREDIT SUISSE AG, CAYMAN ISLANDS BRANCH, DEUTSCHE BANK SECURITIES INC., GOLDMAN SACHS INTERNATIONAL, HSBC BANK PLC, J.P. MORGAN LIMITED, RBS SECURITIES INC. and SOCIÉTÉ GÉNÉRALE, as mandated lead arrangers and bookrunners for the Lenders. Capitalized terms used and not defined herein shall have the respective meanings given them in the Credit Agreement.

PMI has requested that the Required Lenders consent to amend the provisions of the Credit Agreement solely on the terms described in Amendment No. 1 to the Credit Agreement, dated as of 31 August 2012, substantially in the form delivered to the undersigned Lender on or prior to the date hereof (the “Amendment”).

Pursuant to Section 9.1 of the Credit Agreement, the undersigned Lender hereby consents to the terms of the Amendment and the execution by the Facility Agent of the Amendment.

Very truly yours,

[LENDER’S NAME]

By_____________________

Name:

Title:

Exhibit 10.6

EXHIBIT B

FORM OF ASSIGNMENT AND ACCEPTANCE

Reference is made to the Credit Agreement, dated as of 25 October 2011 (as amended or modified from time to time, the “Credit Agreement,” the terms defined therein being used herein as therein defined), among Philip Morris International Inc., a Virginia corporation, the Lenders party thereto and Citibank International plc, as Facility Agent, Citibank, N.A., as Swingline Agent, and Citigroup Global Markets Limited, Barclays Capital, BNP Paribas, Credit Suisse AG, Cayman Islands Branch, Deutsche Bank Securities Inc., Goldman Sachs International, HSBC Bank plc, J.P. Morgan Limited, RBS Securities Inc. and Société Générale, as Mandated Lead Arrangers and Bookrunners for such Lenders.

The “Assignor” and the “Assignee” referred to on Schedule 1 hereto agree as follows:

1. The Assignor hereby sells and assigns to the Assignee, and the Assignee hereby purchases and assumes from the Assignor, an interest in and to the Assignor’s rights and obligations under the Credit Agreement as of the date hereof equal to the percentage interest specified on Schedule 1 hereto of all outstanding rights and obligations under the Credit Agreement. After giving effect to such sale and assignment, the Assignee’s Commitment and the amount of the Advances owing to the Assignee will be as set forth on Schedule 1 hereto. Each of the Assignor and the Assignee represents and warrants that it is authorized to execute and deliver this Assignment and Acceptance.

2. The Assignor (i) represents and warrants that it is the legal and beneficial owner of the interest being assigned by it hereunder and that such interest is free and clear of any adverse claim; (ii) makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with the Credit Agreement or the execution, legality, validity, enforceability, genuineness, sufficiency or value of the Credit Agreement or any other instrument or document furnished pursuant thereto; and (iii) makes no representation or warranty and assumes no responsibility with respect to the financial condition of any Borrower or PMI or the performance or observance by any Borrower or PMI of any of its obligations under the Credit Agreement or any other instrument or document furnished pursuant thereto.

3. The Assignee (i) confirms that it has received a copy of the Credit Agreement, together with copies of the financial statements referred to in Section 4.1(e) thereof and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into this Assignment and Acceptance; (ii) agrees that it will, independently and without reliance upon Citibank International plc, as Facility Agent, any other Agent, the Assignor or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under the Credit Agreement; (iii) confirms that it is an Eligible Assignee; (iv) represents that (A) the source of any funds it is using to acquire the Assignor’s interest or to make any Advance is not and will not be plan assets as defined under the regulations of the Department of Labor of any Plan subject to Title I of ERISA or Section 4975 of the Code or (B) the assignment or Advance is not and will be not be a non-exempt prohibited transaction as defined in Section 406 of ERISA; (v) appoints and authorizes Citibank International plc, as

2

Exhibit 10.6

Facility Agent, to take such action as agent on its behalf and to exercise such powers and discretion under the Credit Agreement as are delegated to Citibank International plc, as Facility Agent, by the terms thereof, together with such powers and discretion as are reasonably incidental thereto; (vi) agrees that it will perform in accordance with their terms all of the obligations that by the terms of the Credit Agreement are required to be performed by it as a Lender; and (vii) confirms that it has signed a confidentiality agreement substantially in the form attached as Exhibit H to the Credit Agreement.

4. This Assignment and Acceptance will be delivered to Citibank International plc, as Facility Agent, for acceptance and recording by Citibank International plc, as Facility Agent following its execution. The effective date for this Assignment and Acceptance (the “Effective Date”) shall be the date of acceptance hereof by Citibank International plc, as Facility Agent, unless otherwise specified on Schedule 1 hereto.

5. Upon such acceptance and recording by Citibank International plc, as Facility Agent, as of the Effective Date, (i) the Assignee shall be a party to the Credit Agreement and, to the extent provided in this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent provided in this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement.

6. Upon such acceptance and recording by Citibank International plc, as Facility Agent, from and after the Effective Date, Citibank International plc, as Facility Agent, shall make all payments under the Credit Agreement in respect of the interest assigned hereby (including, without limitation, all payments of principal, interest and facility fees with respect thereto) to the Assignor for amounts which have accrued to but excluding the Effective Date and to the Assignee for amounts which have accrued from and after the Effective Date. The Assignor and Assignee shall make all appropriate adjustments in payments under the Credit Agreement for periods prior to the Effective Date directly between themselves.

7. This Assignment and Acceptance shall be governed by, and construed in accordance with, the laws of the State of New York.

8. This Assignment and Acceptance may be executed in any number of counterparts and by different parties hereto in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of Schedule 1 to this Assignment and Acceptance by telecopier shall be effective as delivery of a manually executed counterpart of this Assignment and Acceptance.

IN WITNESS WHEREOF, the Assignor and the Assignee have caused Schedule 1 to this Assignment and Acceptance to be executed by their officers thereunto duly authorized as of the date specified thereon.

3

Schedule 1

to

Assignment and Acceptance

Percentage interest assigned:    _____%

Assignee’s Revolving Credit Commitment:    $__________

(including, if applicable, Assignee’s Swingline Commitment $__________)

Aggregate outstanding principal amount of
Revolving Credit Advances assigned:    EUR/$__________

Effective Date¹:    _______________, 201_

[NAME OF ASSIGNOR], as Assignor

By    

Title:

Dated: _______________, 201_

[NAME OF ASSIGNEE], as Assignee

By    

Title:

Dated: _______________, 201_

Applicable Lending Office: [Address]

Accepted this

__________ day of _______________, 201_

CITIBANK INTERNATIONAL PLC, as Facility Agent

By    

Title:

[Approved this __________ day

of _______________, 201_

[NAME OF BORROWER]² 

By    

Title:

¹ This date should be no earlier than five Business Days after the delivery of this Assignment and Acceptance to Citibank International plc, as Facility Agent.

² Required if the Assignee is an Eligible Assignee solely by reason of clause (b) of the definition of “Eligible Assignee.”

EX-12

Exhibit 12

PHILIP MORRIS INTERNATIONAL INC. AND SUBSIDIARIES

Computation of Ratios of Earnings to Fixed Charges

(in millions of dollars)

	Nine Months Ended September 30, 2012		Three Months Ended September 30, 2012
Earnings before income taxes	$	9,997	$	3,412
Add (deduct):
Equity in net loss of less than 50% owned affiliates	11		2
Dividends from less than 50% owned affiliates	—		—
Fixed charges	822		276
Interest capitalized, net of amortization	6		3
Earnings available for fixed charges	$	10,836	$	3,693
Fixed charges:
Interest incurred	$	745	$	250
Portion of rent expense deemed to represent interest factor	77		26
Fixed charges	$	822	$	276
Ratio of earnings to fixed charges	13.2		13.4

- 1 -

Exhibit 12

PHILIP MORRIS INTERNATIONAL INC. AND SUBSIDIARIES

Computation of Ratios of Earnings to Fixed Charges

(in millions of dollars)

	For the Years Ended December 31,
	2011			2010		2009		2008			2007
Earnings before income taxes	$	12,532		$	10,324	$	9,243	$	9,937		$	8,884
Add (deduct):
Equity in net loss (earnings) of less than 50% owned affiliates	10			8		6		64			(100		)
Dividends from less than 50% owned affiliates	—			—		—		12			100
Fixed charges	1,042			1,069		1,006		618			359
Interest capitalized, net of amortization	(2		)	1		2		(11		)	(8		)
Earnings available for fixed charges	$	13,582		$	11,402	$	10,257	$	10,620		$	9,235
Fixed charges:
Interest incurred	$	940		$	976	$	920	$	543		$	280
Portion of rent expense deemed to represent interest factor	102			93		86		75			79
Fixed charges	$	1,042		$	1,069	$	1,006	$	618		$	359
Ratio of earnings to fixed charges	13.0			10.7		10.2		17.2			25.7

- 2 -

EX-31.1

Exhibit 31.1

Certifications

I, Louis C. Camilleri, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Philip Morris International Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2012

/s/ LOUIS C. CAMILLERI

Louis C. Camilleri

Chairman and Chief Executive Officer

-1-

EX-31.2

Exhibit 31.2

Certifications

I, Jacek Olczak, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Philip Morris International Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a. Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b. Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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;

c. Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d. Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a. All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b. Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 2, 2012

/s/ JACEK OLCZAK

Jacek Olczak

Chief Financial Officer

- 1 -

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Philip Morris International Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Louis C. Camilleri, Chairman and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)        the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)        the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ LOUIS C. CAMILLERI

Louis C. Camilleri

Chairman and Chief Executive Officer

November 2, 2012

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Philip Morris International Inc. and will be retained by Philip Morris International Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

-1-

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Philip Morris International Inc. (the “Company”) on Form 10-Q for the period ended September 30, 2012 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Jacek Olczak, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)        the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)        the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ JACEK OLCZAK

Jacek Olczak

Chief Financial Officer

November 2, 2012

A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been provided to Philip Morris International Inc. and will be retained by Philip Morris International Inc. and furnished to the Securities and Exchange Commission or its staff upon request.

-1-

XML

Benefit Plans Narrative (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Compensation and Retirement Disclosure [Abstract]
Employer contributions	$ 84
Anticipated additional employer contributions during the remainder of the current fiscal year	$ 79

XML

Earnings Per Share Calculation Of Basic And Diluted EPS (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Earnings Per Share [Abstract]
Net earnings attributable to PMI	$ 2,227	$ 2,377	$ 6,705	$ 6,705
Less distributed and undistributed earnings attributable to share-based payment awards	12	14	36	38
Net earnings for basic and diluted EPS	$ 2,215	$ 2,363	$ 6,669	$ 6,667
Weighted-average shares for basic EPS	1,683	1,749	1,701	1,771
Plus incremental shares from assumed conversions: [Abstract]
Stock options	0	0	0	0
Weighted-average shares for diluted EPS	1,683	1,749	1,701	1,771
Antidilutive stock options	0	0	0	0

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Financial Instruments Pre-Tax Effect Of Foreign Exchange Contracts Designated As Cash Flow Hedging Instruments (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net	$ (29)	$ (25)	$ (17)	$ (20)
Foreign Exchange Contract [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative, Higher Remaining Maturity Range			15 months
Foreign Exchange Contract [Member] | Other Comprehensive Income (Loss) [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net	(29)	(25)	(17)	(20)
Foreign Exchange Contract [Member] | Other Comprehensive Income (Loss) [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net	(33)	(27)	(20)	(22)
Foreign Exchange Contract [Member] | Net Revenues [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	9	(9)	33	(9)
Foreign Exchange Contract [Member] | Net Revenues [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	9	(9)	33	(9)
Foreign Exchange Contract [Member] | Cost of Sales [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	5	19	5
Foreign Exchange Contract [Member] | Cost of Sales [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	5	19	5
Foreign Exchange Contract [Member] | Marketing, Administration And Research Costs [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Foreign Exchange Contract [Member] | Marketing, Administration And Research Costs [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Foreign Exchange Contract [Member] | Interest Expense, Net [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	(8)	13	(32)	11
Foreign Exchange Contract [Member] | Interest Expense, Net [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	(13)	(10)	(43)	(26)
Foreign Exchange Contract [Member] | Earnings Loss Before Income Taxes [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	1	9	20	7
Foreign Exchange Contract [Member] | Earnings Loss Before Income Taxes [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	$ (4)	$ (14)	$ 9	$ (30)

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Accumulated Other Comprehensive Losses Components Of Accumulated Other Comprehensive Earnings (Losses), Net Of Taxes (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011	Sep. 30, 2011
Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]
Currency translation adjustments	$ (358)	$ (293)	$ 141
Pension and other benefits	(2,467)	(2,585)	(1,576)
Derivatives accounted for as hedges	(10)	15	9
Equity securities	0	0	1
Total accumulated other comprehensive losses	$ (2,835)	$ (2,863)	$ (1,425)

XML

Segment Reporting Segment Data (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Segment Reporting Information [Line Items]
Net revenues	$ 19,592	$ 20,706	$ 57,651	$ 57,470
Amortization of intangibles	(24)	(25)	(73)	(73)
General corporate expenses	(49)	(49)	(155)	(135)
Operating income	3,623	3,677	10,630	10,396
Interest expense, net	(211)	(192)	(633)	(613)
Earnings before income taxes	3,412	3,485	9,997	9,783
European Union [Member]
Segment Reporting Information [Line Items]
Net revenues	6,904	8,155	20,654	22,650
Operating companies income	1,085	1,262	3,232	3,548
Eastern Europe, Middle East & Africa [Member]
Segment Reporting Information [Line Items]
Net revenues	5,125	4,921	14,256	13,195
Operating companies income	1,047	925	2,805	2,482
Asia [Member]
Segment Reporting Information [Line Items]
Net revenues	5,174	5,143	15,668	14,577
Operating companies income	1,297	1,309	4,068	3,800
Latin America & Canada [Member]
Segment Reporting Information [Line Items]
Net revenues	2,389	2,487	7,073	7,048
Operating companies income	$ 267	$ 255	$ 753	$ 774

XML

Financial Instruments Fair Value Of Foreign Exchange Contracts (Details) (Foreign Exchange Contract [Member], USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Derivatives, Fair Value [Line Items]
Derivatives, Asset Derivatives, Fair Value	$ 72	$ 145
Derivatives, Liability Derivatives, Fair Value	63	66
Designated as Hedging Instrument [Member] | Other Current Assets [Member]
Derivatives, Fair Value [Line Items]
Derivatives, Asset Derivatives, Fair Value	38	57
Designated as Hedging Instrument [Member] | Other Accrued Liabilities [Member]
Derivatives, Fair Value [Line Items]
Derivatives, Liability Derivatives, Fair Value	4	4
Designated as Hedging Instrument [Member] | Other Assets [Member]
Derivatives, Fair Value [Line Items]
Derivatives, Asset Derivatives, Fair Value	15	0
Designated as Hedging Instrument [Member] | Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Derivatives, Liability Derivatives, Fair Value	3	0
Not Designated as Hedging Instrument [Member] | Other Current Assets [Member]
Derivatives, Fair Value [Line Items]
Foreign exchange contracts not designated as hedging instruments, Asset Derivatives, Fair Value	19	88
Not Designated as Hedging Instrument [Member] | Other Accrued Liabilities [Member]
Derivatives, Fair Value [Line Items]
Foreign exchange contracts not designated as hedging instruments, Liability Derivatives, Fair Value	55	62
Not Designated as Hedging Instrument [Member] | Other Liabilities [Member]
Derivatives, Fair Value [Line Items]
Foreign exchange contracts not designated as hedging instruments, Liability Derivatives, Fair Value	$ 1	$ 0

XML

Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The aggregate fair value of PMI’s derivative financial instruments and debt as of September 30, 2012, was as follows:

(in millions)	Fair Value at September 30, 2012		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	72	$	—	$	72	$	—
Total assets	$	72	$	—	$	72	$	—
Liabilities:
Debt	$	22,645	$	22,249	$	396	$	—
Foreign exchange contracts	63		—		63		—
Total liabilities	$	22,708	$	22,249	$	459	$	—

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Contingencies Number of Tobacco Related Cases Pending Against Us and/or Our Subsidiaries Or Indemnitees (Details)	Nov. 01, 2012 Litigation_Cases	Nov. 01, 2011 Litigation_Cases	Nov. 01, 2010 Litigation_Cases
Individual Smoking And Health Cases [Member]
Loss Contingencies [Line Items]
Cases brought against PM	75	84	111
Smoking And Health Class Actions [Member]
Loss Contingencies [Line Items]
Cases brought against PM	10	10	11
Health Care Cost Recovery Actions [Member]
Loss Contingencies [Line Items]
Cases brought against PM	15	11	10
Public Civil Actions [Member]
Loss Contingencies [Line Items]
Cases brought against PM	4	3	8
ISRAEL [Member] | Lights Class Actions [Member]
Loss Contingencies [Line Items]
Cases brought against PM	2	2	2
ITALY [Member] | Individual Smoking And Health Cases [Member]
Loss Contingencies [Line Items]
Cases brought against PM	5
ITALY [Member] | Individual Lights Cases Small Claims Court [Member]
Loss Contingencies [Line Items]
Cases brought against PM	7	9	10

XML

Benefit Plans (Tables)

9 Months Ended

Sep. 30, 2012

Compensation and Retirement Disclosure [Abstract]

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:

	U.S. Plans						Non-U.S. Plans
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
(in millions)	2012			2011			2012			2011
Service cost	$	5		$	5		$	143		$	132
Interest cost	12			13			142			155
Expected return on plan assets	(11		)	(12		)	(243		)	(240		)
Amortization:
Net loss	7			6			92			42
Prior service cost	1			1			8			6
Net transition obligation	—			—			1			—
Other	—			1			—			—
Net periodic pension cost	$	14		$	14		$	143		$	95

	U.S. Plans						Non-U.S. Plans
	For the Three Months Ended September 30,						For the Three Months Ended September 30,
(in millions)	2012			2011			2012			2011
Service cost	$	1		$	2		$	47		$	47
Interest cost	4			4			46			54
Expected return on plan assets	(3		)	(4		)	(81		)	(84		)
Amortization:
Net loss	2			2			30			14
Prior service cost	—			1			4			2
Net transition obligation	—			—			1			—
Net periodic pension cost	$	4		$	5		$	47		$	33

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Financial Instruments Pre-Tax Effect Of Foreign Exchange Contracts Designated As Other Derivatives (Details) (Foreign Exchange Contract [Member], USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Gain (Loss) on Foreign Currency Derivative Instruments Not Designated as Hedging Instruments	$ 190	$ 6	$ 66	$ 144
Amount of gain (loss) recognized in earnings	5	23	11	37
Marketing, Administration And Research Costs [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Marketing, Administration And Research Costs [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Interest Expense, Net [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	(8)	13	(32)	11
Interest Expense, Net [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	$ 5	$ 23	$ 11	$ 37

XML

Goodwill and Other Intangible Assets, Net Other Intangible Assets (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Goodwill and Intangible Assets Disclosure [Abstract]
Non-amortizable intangible assets	$ 2,061	$ 2,067
Amortizable intangible assets, gross carrying amount	2,038	2,001
Intangible Assets, Accumulated Amortization	448	371
Total Other Intangible Assets, Gross Carrying Amount	$ 4,099	$ 4,068

XML

Stock Plans Narrative (Details) (USD $) In Millions, except Share data, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2012	Mar. 31, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Restricted Stock and Deferred Stock Awards [Member]
Employee Service Share Based Compensation Allocation of Recognized Period Costs [Line Items]
Number of shares of stock awards granted during period				3,200,000	3,800,000
Weighted-average grant date fair value of stock awards, per share				$ 79.58	$ 59.41
Compensation expense for stock awards	$ 55		$ 41	$ 191	$ 122
Share-based Compensation Arrangement by Share-based Payment Award Accelerated Compensation Cost		27
Unrecognized compensation cost related to non-vested stock awards	277			277
Stock awards vested during period				3,700,000
Restricted Stock and Deferred Stock Awards [Member] | Minimum [Member]
Employee Service Share Based Compensation Allocation of Recognized Period Costs [Line Items]
Expected period for recognition of unamortized compensation expense, in years				3 years
Restricted Stock and Deferred Stock Awards Vested [Member] | Grant Date Fair Value [Member]
Employee Service Share Based Compensation Allocation of Recognized Period Costs [Line Items]
Fair value of vested stock awards				146
Restricted Stock and Deferred Stock Awards Vested [Member] | Total Fair Value [Member]
Employee Service Share Based Compensation Allocation of Recognized Period Costs [Line Items]
Fair value of vested stock awards				$ 294
2012 Performance Incentive Plan [Member]
Employee Service Share Based Compensation Allocation of Recognized Period Costs [Line Items]
Estimated common stock to be awarded under a stock benefit plan, maximum limit	30,000,000			30,000,000
Shares available for grant under the plan	29,998,060			29,998,060
Non Employee Directors Plan [Member]
Employee Service Share Based Compensation Allocation of Recognized Period Costs [Line Items]
Estimated common stock to be awarded under a stock benefit plan, maximum limit	1,000,000			1,000,000
Shares available for grant under the plan	798,801			798,801
Percentage of voting shares that PMI may own, used in determining non-employee director status				50.00%

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Redeemable Noncontrolling Interest Narrative (Details) (USD $)	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Dec. 31, 2011	Feb. 25, 2010 Fortune Tobacco Corporation [Member]	Feb. 25, 2010 Fortune Tobacco Corporation [Member] Agreed Upon Value to Sell Between February 2015 And February 2018 [Member]	Sep. 30, 2012 Fortune Tobacco Corporation [Member] Redeemable Noncontrolling Interest [Member]
Business Acquisitions [Line Items]
Business Acquisition, Cost of Acquired Entity, Other Noncash Consideration				$ 1,170,000,000
Movement in redeemable noncontrolling interest		28,000,000
Net earnings (losses) attributable to redeemable noncontrolling interest	126,000,000	80,000,000
Currency translation	17,000,000	2,000,000
Dividend payments	(79,000,000)	(54,000,000)
Percentage Of Equity Earnings To Operating Profit						50.00%
Redeemable noncontrolling interest	1,276,000,000	1,216,000,000	1,212,000,000
Redeemable noncontrolling interest, Redemption Value					$ 1,170,000,000

XML

Indebtedness Debt Offerings During Current Period (Details) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2012 US Dollar Notes [Member] 4.500% US Dollar Note Due On March 2042 [Member] USD ($)		Mar. 31, 2012 US Dollar Notes [Member] 1.625% US Dollar Note Due March 2017 [Member] USD ($)		Sep. 30, 2012 US Dollar Notes [Member] 1.125% US Dollar Note Due August 2017 [Member] USD ($)		Sep. 30, 2012 US Dollar Notes [Member] 2.500% US Dollar Note Due August 2022 [Member] USD ($)		Sep. 30, 2012 US Dollar Notes [Member] 3.875% US Dollar Note Due August 2042 [Member] USD ($)		Jun. 30, 2012 Foreign Currency Obligations [Member] 2.125% Euro Note Due May 2019 [Member] USD ($)		Jun. 30, 2012 Foreign Currency Obligations [Member] 2.125% Euro Note Due May 2019 [Member] EUR (€)		Jun. 30, 2012 Foreign Currency Obligations [Member] 2.875% Euro Note Due May 2024 [Member] USD ($)		Jun. 30, 2012 Foreign Currency Obligations [Member] 2.875% Euro Note Due May 2024 [Member] EUR (€)		Sep. 30, 2012 Foreign Currency Obligations [Member] 1% Swiss Franc Note Due September 2020 [Member] USD ($)		Sep. 30, 2012 Foreign Currency Obligations [Member] 1% Swiss Franc Note Due September 2020 [Member] CHF
Debt Instrument [Line Items]
Face Value	$ 700	[1]	$ 550	[1]	$ 750	[2]	$ 750	[2]	$ 750	[2]	$ 951	[3]	€ 750	[3]	$ 761	[3]	€ 600	[3]	$ 334	[4]	325	[4]
Interest Rate	4.50%	[1]	1.625%	[1]	1.125%	[2]	2.50%	[2]	3.875%	[2]	2.125%	[3]	2.125%	[3]	2.875%	[3]	2.875%	[3]	1.00%	[4]	1.00%	[4]
Issuance	Mar. 20, 2012	[1]	Mar. 20, 2012	[1]	Aug. 21, 2012	[2]	Aug. 21, 2012	[2]	Aug. 21, 2012	[2]	May 30, 2012	[3]	May 30, 2012	[3]	May 30, 2012	[3]	May 30, 2012	[3]	Sep. 18, 2012	[4]	Sep. 18, 2012	[4]
Maturity	Mar. 20, 2042	[1]	Mar. 20, 2017	[1]	Aug. 21, 2017	[2]	Aug. 22, 2022	[2]	Aug. 21, 2042	[2]	May 30, 2019	[3]	May 30, 2019	[3]	May 01, 2024	[3]	May 01, 2024	[3]	Sep. 18, 2020	[4]	Sep. 18, 2020	[4]

[1] Interest on these notes is payable semiannually beginning in September 2012

[2] Interest on these notes is payable semiannually beginning in February 2013

[3] Interest on these notes is payable annually beginning in May 2013

[4] Interest on these notes is payable annually beginning in September 2013

XML

Contingencies Lights Cases (Details) (EUR €)	Nov. 01, 2012 Litigation_Cases	Nov. 01, 2011 Litigation_Cases	Nov. 01, 2010 Litigation_Cases
ISRAEL [Member] | Lights Class Actions [Member]
Loss Contingencies [Line Items]
Cases brought against PM	2	2	2
ITALY [Member] | Individual Lights Cases Small Claims Court [Member]
Loss Contingencies [Line Items]
Cases brought against PM	7	9	10
Maximum damage award per case	1,000

XML

Financial Instruments Hedging Activities Effect On Condensed Consolidated Statements Of Earnings And Other Comprehensive Earnings (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Derivative Instruments, Gain (Loss) [Line Items]
Losses (gains) transferred to earnings	$ 4	$ 13	$ (8)	$ 27
Recognized losses	(29)	(25)	(17)	(20)
Foreign Exchange Contract [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	5	23	11	37
Foreign Exchange Contract [Member] | Other Comprehensive Income (Loss) [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Losses (gains) transferred to earnings	4	13	(8)	27
Recognized losses	(29)	(25)	(17)	(20)
Net impact on equity	(25)	(12)	(25)	7
Cumulative translation adjustment	(7)	0	(7)	2
Foreign Exchange Contract [Member] | Other Comprehensive Income (Loss) [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Losses (gains) transferred to earnings	4	14	(9)	30
Recognized losses	(33)	(27)	(20)	(22)
Net impact on equity	(29)	(13)	(29)	8
Foreign Exchange Contract [Member] | Other Comprehensive Income (Loss) [Member] | Net Investment Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Cumulative translation adjustment	(11)	0	(11)	2
Foreign Exchange Contract [Member] | Net Revenues [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	9	(9)	33	(9)
Foreign Exchange Contract [Member] | Net Revenues [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Foreign Exchange Contract [Member] | Net Revenues [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	9	(9)	33	(9)
Foreign Exchange Contract [Member] | Cost of Sales [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	5	19	5
Foreign Exchange Contract [Member] | Cost of Sales [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Foreign Exchange Contract [Member] | Cost of Sales [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	5	19	5
Foreign Exchange Contract [Member] | Marketing, Administration And Research Costs [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Foreign Exchange Contract [Member] | Marketing, Administration And Research Costs [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Foreign Exchange Contract [Member] | Marketing, Administration And Research Costs [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Foreign Exchange Contract [Member] | Operating Income [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	9	(4)	52	(4)
Foreign Exchange Contract [Member] | Operating Income [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	0	0	0
Foreign Exchange Contract [Member] | Operating Income [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	9	(4)	52	(4)
Foreign Exchange Contract [Member] | Interest Expense, Net [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	(8)	13	(32)	11
Foreign Exchange Contract [Member] | Interest Expense, Net [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	5	23	11	37
Foreign Exchange Contract [Member] | Interest Expense, Net [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	(13)	(10)	(43)	(26)
Foreign Exchange Contract [Member] | Interest Expense, Net [Member] | Net Investment Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Losses (gains) transferred to earnings	0	0	0	0
Foreign Exchange Contract [Member] | Earnings Before Income Taxes [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	1	9	20	7
Foreign Exchange Contract [Member] | Earnings Before Income Taxes [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	5	23	11	37
Foreign Exchange Contract [Member] | Earnings Before Income Taxes [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	(4)	(14)	9	(30)
Foreign Exchange Contract [Member] | Provision for Income Taxes [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	1	(4)	0	(6)
Foreign Exchange Contract [Member] | Provision for Income Taxes [Member] | Not Designated as Hedging Instrument [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	1	(5)	1	(9)
Foreign Exchange Contract [Member] | Provision for Income Taxes [Member] | Cash Flow Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	0	1	(1)	3
Foreign Exchange Contract [Member] | Net Earnings Attributable To PMI [Member] | Parent Company [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	2	5	20	1
Foreign Exchange Contract [Member] | Net Earnings Attributable To PMI [Member] | Not Designated as Hedging Instrument [Member] | Parent Company [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	6	18	12	28
Foreign Exchange Contract [Member] | Net Earnings Attributable To PMI [Member] | Cash Flow Hedges [Member] | Parent Company [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Amount of gain (loss) recognized in earnings	(4)	(13)	8	(27)
Foreign Exchange Contract [Member] | Income Tax Expense Benefit [Member] | Other Comprehensive Income (Loss) [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Losses (gains) transferred to earnings	0	(1)	1	(3)
Recognized losses	4	2	3	2
Net impact on equity	4	1	4	(1)
Cumulative translation adjustment	$ 4		$ 4

XML

Condensed Consolidated Statements Of Cash Flows (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net earnings	$ 6,963	$ 6,933
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	665	743
Deferred income tax benefit	(109)	(59)
Asset impairment and exit costs, net of cash paid	19	(14)
Cash effects of changes, net of the effects from acquired and divested companies:
Receivables, net	(392)	(191)
Inventories	(137)	970
Accounts payable	0	179
Income taxes	326	455
Accrued liabilities and other current assets	177	419
Pension plan contributions	(84)	(81)
Other	343	214
Net cash provided by operating activities	7,771	9,568
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures	(719)	(568)
Purchases of businesses, net of acquired cash	0	(80)
Other	28	(34)
Net cash used in investing activities	(691)	(682)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Net issuances (repayments) - maturities of 90 days or less	1,367	488
Issuances - maturities longer than 90 days	478	322
Repayments - maturities longer than 90 days	(1,220)	0
Long-term debt proceeds	5,516	1,606
Long-term debt repaid	(2,237)	(1,464)
Repurchases of common stock	(4,557)	(4,367)
Issuance of common stock	0	75
Dividends paid	(3,973)	(3,441)
Other	(262)	(273)
Net cash used in financing activities	(4,888)	(7,054)
Effect of exchange rate changes on cash and cash equivalents	75	(144)
Cash and cash equivalents:
Increase	2,267	1,688
Balance at beginning of period	2,550	1,703
Balance at end of period	$ 4,817	$ 3,391

XML

Contingencies Public Civil Actions (Details) (Public Civil Actions [Member])	Nov. 01, 2012 Litigation_Cases	Nov. 01, 2011 Litigation_Cases	Nov. 01, 2010 Litigation_Cases
Loss Contingencies [Line Items]
Cases brought against PM	4	3	8
ARGENTINA [Member]
Loss Contingencies [Line Items]
Cases brought against PM	2
BRAZIL [Member]
Loss Contingencies [Line Items]
Cases brought against PM	1
VENEZUELA [Member]
Loss Contingencies [Line Items]
Cases brought against PM	1

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Goodwill and Other Intangible Assets, Net Range Of Useful Lives And Weighted-Average Remaining Useful Lives Of Amortizable Intangible Assets (Details)	9 Months Ended
	Sep. 30, 2012
Trademarks [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	26 years
Trademarks [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Initial Estimated Useful Lives (years)	2 years
Trademarks [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Initial Estimated Useful Lives (years)	40 years
Distribution Networks [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	15 years
Distribution Networks [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Initial Estimated Useful Lives (years)	20 years
Distribution Networks [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Initial Estimated Useful Lives (years)	30 years
Non-Compete Agreements [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	3 years
Non-Compete Agreements [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Initial Estimated Useful Lives (years)	3 years
Non-Compete Agreements [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Initial Estimated Useful Lives (years)	10 years
Other (Including Farmer Contracts and Intellectual Property Rights) [Member]
Finite-Lived Intangible Assets [Line Items]
Acquired Finite-lived Intangible Assets, Weighted Average Useful Life	13 years
Other (Including Farmer Contracts and Intellectual Property Rights) [Member] | Minimum [Member]
Finite-Lived Intangible Assets [Line Items]
Initial Estimated Useful Lives (years)	12 years 6 months
Other (Including Farmer Contracts and Intellectual Property Rights) [Member] | Maximum [Member]
Finite-Lived Intangible Assets [Line Items]
Initial Estimated Useful Lives (years)	17 years

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Calculation of Basic and Diluted EPS

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

(in millions)	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2012		2011		2012		2011
Net earnings attributable to PMI	$	6,705	$	6,705	$	2,227	$	2,377
Less distributed and undistributed earnings attributable to share-based payment awards	36		38		12		14
Net earnings for basic and diluted EPS	$	6,669	$	6,667	$	2,215	$	2,363
Weighted-average shares for basic EPS	1,701		1,771		1,683		1,749
Plus incremental shares from assumed conversions:
Stock options	—		—		—		—
Weighted-average shares for diluted EPS	1,701		1,771		1,683		1,749

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Redeemable Noncontrolling Interest (Tables)

9 Months Ended

Sep. 30, 2012

Temporary Equity Disclosure [Abstract]

Movement in Redeemable Noncontrolling Interest

The movement in redeemable noncontrolling interest for the nine months ended September 30,2012 was as follows:

(in millions)
Redeemable noncontrolling interest at December 31, 2011	$	1,212
Share of net earnings	126
Dividend payments	(79		)
Currency translation	17
Redeemable noncontrolling interest at September 30, 2012	$	1,276

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Contingencies Tobacco-Related Litigation (Details) (EUR €)	Nov. 01, 2012 Litigation_Cases	Nov. 01, 2011 Litigation_Cases	Nov. 01, 2010 Litigation_Cases
Final Resolution In Favor Of Company [Member]
Loss Contingencies [Line Items]
Number of cases decided	387
Case Decided In Favor Of Plaintiff [Member]
Loss Contingencies [Line Items]
Number of cases decided	10
Case Decided In Favor Of Plaintiff [Member] | Final Resolution In Favor Of Company [Member]
Loss Contingencies [Line Items]
Number of cases decided	7
Cases With Verdicts And Post Trial Developments [Member]
Loss Contingencies [Line Items]
Cases brought against PM	3
Individual Lights Cases Small Claims Court [Member] | ITALY [Member]
Loss Contingencies [Line Items]
Cases brought against PM	7	9	10
Individual Lights Cases Small Claims Court [Member] | Cases With Costs [Member] | ITALY [Member]
Loss Contingencies [Line Items]
Payments for total judgments including legal costs	6,000
Smoking And Health Class Actions [Member]
Loss Contingencies [Line Items]
Cases brought against PM	10	10	11
Smoking And Health Class Actions [Member] | BRAZIL [Member]
Loss Contingencies [Line Items]
Cases brought against PM	2
Cases Remaining On Appeal [Member] | Case Decided In Favor Of Plaintiff [Member]
Loss Contingencies [Line Items]
Cases brought against PM	3
Cases Reversed On Appeal [Member] | Individual Lights Cases Small Claims Court [Member] | ITALY [Member]
Loss Contingencies [Line Items]
Cases brought against PM			3

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Goodwill and Other Intangible Assets, Net Narrative (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended			9 Months Ended
	Sep. 30, 2012	Mar. 31, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Goodwill and Intangible Assets Disclosure [Abstract]
Intangible assets, pre-tax amortization expense	$ 24		$ 25	$ 73	$ 73
Future Amortization Expense, Year One	98			98
Future Amortization Expense, Year Two	98			98
Future Amortization Expense, Year Three	98			98
Future Amortization Expense, Year Four	98			98
Future Amortization Expense, Year Five	98			98
Goodwill, Impairment Loss		$ 0

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Segment Reporting (Tables)

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Segment Data

Segment data were as follows:

(in millions)	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2012			2011			2012			2011
Net revenues:
European Union	$	20,654		$	22,650		$	6,904		$	8,155
Eastern Europe, Middle East & Africa	14,256			13,195			5,125			4,921
Asia	15,668			14,577			5,174			5,143
Latin America & Canada	7,073			7,048			2,389			2,487
Net revenues	$	57,651		$	57,470		$	19,592		$	20,706
Earnings before income taxes:
Operating companies income:
European Union	$	3,232		$	3,548		$	1,085		$	1,262
Eastern Europe, Middle East & Africa	2,805			2,482			1,047			925
Asia	4,068			3,800			1,297			1,309
Latin America & Canada	753			774			267			255
Amortization of intangibles	(73		)	(73		)	(24		)	(25		)
General corporate expenses	(155		)	(135		)	(49		)	(49		)
Operating income	10,630			10,396			3,623			3,677
Interest expense, net	(633		)	(613		)	(211		)	(192		)
Earnings before income taxes	$	9,997		$	9,783		$	3,412		$	3,485

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Contingencies (Tables)

10 Months Ended

Nov. 01, 2012

Commitments and Contingencies Disclosure [Abstract]

Number of Tobacco-Related Cases Pending Against Us and/or Our Subsidiaries or Indemnitees

The table below lists the number of tobacco-related cases pending against us and/or our subsidiaries or indemnitees as of November 1, 2012, 2011 and 2010:

Type of Case	Number of Cases Pending as of November 1, 2012	Number of Cases Pending  as of November 1, 2011	Number of Cases Pending  as of November 1, 2010
Individual Smoking and Health Cases	75	84	111
Smoking and Health Class Actions	10	10	11
Health Care Cost Recovery Actions	15	11	10
Lights Class Actions	2	2	2
Individual Lights Cases (small claims court)	7	9	10
Public Civil Actions	4	3	8

Verdicts and Post-Trial Developments

The table below lists the verdicts and post-trial developments in the three pending cases in which verdicts were returned in favor of plaintiffs:

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
May 2011	Brazil/Laszlo	Individual Smoking and Health	The Civil Court of São Vicente found for plaintiff and ordered Philip Morris Brasil to pay damages of R$31,333 (approximately $15,435), plus future costs for cessation and medical treatment of smoking related diseases.	In June 2011, Philip Morris Brasil filed an appeal. In December 2011, the Appellate Court reversed the trial court decision. In February 2012, plaintiff appealed the decision. This appeal is still pending.

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
September 2009	Brazil/Bernhardt	Individual Smoking and Health	The Civil Court of Rio de Janeiro found for plaintiff and ordered Philip Morris Brasil to pay R$13,000 (approximately $6,400) in “moral damages.”	Philip Morris Brasil filed its appeal against the decision on the merits with the Court of Appeals in November 2009. In February 2010, without addressing the merits, the Court of Appeals annulled the trial court's decision and remanded the case to the trial court to issue a new ruling, which was required to address certain compensatory damage claims made by the plaintiff that the trial court did not address in its original ruling. In July 2010, the trial court reinstated its original decision, while specifically rejecting the compensatory damages claim. Philip Morris Brasil appealed this decision. In March 2011, the Court of Appeals affirmed the trial court's decision and denied Philip Morris Brasil's appeal. The Court of Appeals increased the amount of damages awarded to the plaintiff to R$100,000 (approximately $49,300). Philip Morris Brasil filed an appeal in June 2011. This appeal is still pending.

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
February 2004	Brazil/The Smoker Health Defense Association (“ADESF”)	Class Action	The Civil Court of São Paulo found defendants liable without hearing evidence. The court did not assess moral or actual damages, which were to be assessed in a second phase of the case. The size of the class was not defined in the ruling.	In April 2004, the court clarified its ruling, awarding “moral damages” of R$1,000 (approximately $490) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not award actual damages, which were to be assessed in the second phase of the case. The size of the class was not estimated. Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In May 2011, the trial court dismissed the claim. Plaintiff has appealed. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that the plaintiff did not have standing to bring the lawsuit. This appeal is still pending.

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Condensed Consolidated Statements Of Stockholders' (Deficit) Equity (Parenthetical) (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Statement of Stockholders' Equity [Abstract]
Dividends declared, per share	$ 0.85	$ 0.77	$ 2.39	$ 2.05
Net earnings (losses) attributable to redeemable noncontrolling interest			$ 126	$ 80
Currency translation adjustment gains related to redeemable noncontrolling interest			$ 17	$ 2

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Indebtedness (Tables)

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

Long-Term Debt

At September 30, 2012 and December 31, 2011, PMI’s long-term debt consisted of the following:

(in millions)	September 30, 2012		December 31, 2011
U.S. dollar notes, 1.125% to 6.875% (average interest rate 4.462%), due through 2042	$	14,698	$	11,269
Foreign currency obligations:
Euro notes, 2.125% to 5.875% (average interest rate 4.227%), due through 2024	3,637		3,533
Swiss franc notes, 1.0% to 3.250% (average interest rate 1.984%), due through 2021	1,540		1,719
Other (average interest rate 3.004%), due through 2024	420		513
	20,295		17,034
Less current portion of long-term debt	2,775		2,206
	$	17,520	$	14,828

Debt Offerings During the Current Period

PMI's debt offerings in the first three quarters of 2012 were as follows:

(in millions)
Type		Face Value	Interest Rate	Issuance	Maturity
U.S. dollar notes	(a)	$700	4.500%	March 2012	March 2042
U.S. dollar notes	(a)	$550	1.625%	March 2012	March 2017
EURO notes	(b)	€750 (approximately $951)	2.125%	May 2012	May 2019
EURO notes	(b)	€600 (approximately $761)	2.875%	May 2012	May 2024
U.S. dollar notes	(c)	$750	1.125%	August 2012	August 2017
U.S. dollar notes	(c)	$750	2.500%	August 2012	August 2022
U.S. dollar notes	(c)	$750	3.875%	August 2012	August 2042
Swiss franc notes	(d)	CHF 325 (approximately $334)	1.000%	September 2012	September 2020

(a) Interest on these notes is payable semiannually beginning in September 2012

(b) Interest on these notes is payable annually beginning in May 2013

(c) Interest on these notes is payable semiannually beginning in February 2013

(d) Interest on these notes is payable annually beginning in September 2013

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Goodwill and Other Intangible Assets, Net Segment (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Goodwill and Other Intangible Assets, net [Line Items]
Goodwill	$ 9,903	$ 9,928
Other Intangible Assets, net	3,651	3,697
European Union [Member]
Goodwill and Other Intangible Assets, net [Line Items]
Goodwill	1,415	1,392
Other Intangible Assets, net	647	663
Eastern Europe, Middle East & Africa [Member]
Goodwill and Other Intangible Assets, net [Line Items]
Goodwill	631	666
Other Intangible Assets, net	244	250
Asia [Member]
Goodwill and Other Intangible Assets, net [Line Items]
Goodwill	4,804	4,966
Other Intangible Assets, net	1,552	1,633
Latin America & Canada [Member]
Goodwill and Other Intangible Assets, net [Line Items]
Goodwill	3,053	2,904
Other Intangible Assets, net	$ 1,208	$ 1,151

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Redeemable Noncontrolling Interest Movement In Redeemable Noncontrolling Interest After Business Combination (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011
Increase (Decrease) in Temporary Equity [Roll Forward]
Redeemable Noncontrolling Interest, Beginning balance	$ 1,212
Share of net earnings	126	80
Dividend payments	(79)	(54)
Currency translation	17	2
Redeemable Noncontrolling Interest, Ending balance	$ 1,276	$ 1,216

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Condensed Consolidated Balance Sheets (USD $) In Millions, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
ASSETS
Cash and cash equivalents	$ 4,817	$ 2,550
Receivables (less allowances of $54 in 2012 and $45 in 2011)	3,562	3,201
Inventories:
Leaf tobacco	3,633	3,463
Other raw materials	1,490	1,185
Finished product	3,120	3,472
Total inventory, net	8,243	8,120
Deferred income taxes	394	397
Other current assets	584	591
Total current assets	17,600	14,859
Property, plant and equipment, at cost	13,482	12,913
Less: accumulated depreciation	7,118	6,663
Total property, plant and equipment, net	6,364	6,250
Goodwill	9,903	9,928
Other intangible assets, net	3,651	3,697
Other assets	791	754
TOTAL ASSETS	38,309	35,488
LIABILITIES
Short-term borrowings	2,141	1,511
Current portion of long-term debt	2,775	2,206
Accounts payable	1,127	1,031
Accrued liabilities:
Marketing and selling	511	519
Taxes, except income taxes	5,701	5,346
Employment costs	876	894
Dividends payable	1,436	1,341
Other	904	873
Income taxes	1,125	897
Deferred income taxes	130	176
Total current liabilities	16,726	14,794
Long-term debt	17,520	14,828
Deferred income taxes	1,902	1,976
Employment costs	1,601	1,665
Other liabilities	444	462
Total liabilities	38,193	33,725
Contingencies (Note 10)
Redeemable noncontrolling interest (Note 7)	1,276	1,212
STOCKHOLDERS' (DEFICIT) EQUITY
Common stock, no par value (2,109,316,331 shares issued in 2012 and 2011)	0	0
Additional paid-in capital	1,285	1,235
Earnings reinvested in the business	24,394	21,757
Accumulated other comprehensive losses	(2,835)	(2,863)
Total stockholders' equity before treasury stock	22,844	20,129
Less: cost of repurchased stock (433,382,409 and 383,407,665 shares in 2012 and 2011, respectively)	24,325	19,900
Total PMI stockholders' (deficit) equity	(1,481)	229
Noncontrolling interests	321	322
Total stockholders' (deficit) equity	(1,160)	551
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY	$ 38,309	$ 35,488

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Financial Instruments Narrative (Details) (Foreign Exchange Contract [Member], USD $) In Billions, unless otherwise specified	Sep. 30, 2012
Foreign Exchange Contract [Member]
Derivative [Line Items]
Foreign exchange contracts, notional amount	$ 13.4
Foreign exchange contracts, cash flow hedges, notional amount	3.9
Foreign exchange contracts, net investment hedges, notional amount	0.9
Foreign exchange contracts, other derivatives, notional amount	$ 8.6

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Condensed Consolidated Statements of Comprehensive Earnings (Parenthetical) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Statement of Other Comprehensive Income [Abstract]
Other Comprehensive Income (Loss), Foreign Currency Translation Adjustment, Tax Effect	$ 64	$ (71)	$ 31	$ 22
Other Comprehensive Income Net Losses and Prior Service Costs, Tax Effect	(1)	0	(1)	(2)
Other Comprehensive Income Amortization Of Net Losses Prior Service Costs And Net Transition Costs, Tax Effect	(8)	(9)	(29)	(21)
Other Comprehensive Income (Loss), Derivatives Qualifying as Hedges, Tax Effect	0	(1)	1	(3)
Derivative Instruments Gain (Loss) Recognized In Other Comprehensive Earnings (Losses) Tax Effect	$ 4	$ 2	$ 3	$ 2

XML

Contingencies Smoking And Health Litigation (Details)	Nov. 01, 2012 Litigation_Cases	Nov. 01, 2011 Litigation_Cases	Nov. 01, 2010 Litigation_Cases
Individual Smoking And Health Cases [Member]
Loss Contingencies [Line Items]
Cases brought against PM	75	84	111
Individual Smoking And Health Cases [Member] | ARGENTINA [Member]
Loss Contingencies [Line Items]
Cases brought against PM	30
Individual Smoking And Health Cases [Member] | BRAZIL [Member]
Loss Contingencies [Line Items]
Cases brought against PM	29
Individual Smoking And Health Cases [Member] | CANADA [Member]
Loss Contingencies [Line Items]
Cases brought against PM	2
Individual Smoking And Health Cases [Member] | CHILE [Member]
Loss Contingencies [Line Items]
Cases brought against PM	4
Individual Smoking And Health Cases [Member] | COSTA RICA [Member]
Loss Contingencies [Line Items]
Cases brought against PM	1
Individual Smoking And Health Cases [Member] | GREECE [Member]
Loss Contingencies [Line Items]
Cases brought against PM	1
Individual Smoking And Health Cases [Member] | ITALY [Member]
Loss Contingencies [Line Items]
Cases brought against PM	5
Individual Smoking And Health Cases [Member] | PHILLIPPINES [Member]
Loss Contingencies [Line Items]
Cases brought against PM	1
Individual Smoking And Health Cases [Member] | SCOTLAND [Member]
Loss Contingencies [Line Items]
Cases brought against PM	1
Individual Smoking And Health Cases [Member] | TURKEY [Member]
Loss Contingencies [Line Items]
Cases brought against PM	1
Smoking And Health Class Actions [Member]
Loss Contingencies [Line Items]
Cases brought against PM	10	10	11
Smoking And Health Class Actions [Member] | BRAZIL [Member]
Loss Contingencies [Line Items]
Cases brought against PM	2
Smoking And Health Class Actions [Member] | CANADA [Member]
Loss Contingencies [Line Items]
Cases brought against PM	8

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Asset Impairment and Exit Costs Schedule of Asset Impairment and Exit Costs (Details) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Restructuring Cost and Reserve [Line Items]
Separation programs	$ 21,000,000	$ 28,000,000	$ 37,000,000	$ 45,000,000
Asset impairment charges	8,000,000	3,000,000	8,000,000	3,000,000
Asset impairment and exit costs	34,000,000	43,000,000	50,000,000	60,000,000
European Union [Member]
Restructuring Cost and Reserve [Line Items]
Separation programs	0	11,000,000	0	23,000,000
Eastern Europe, Middle East & Africa [Member]
Restructuring Cost and Reserve [Line Items]
Separation programs	0	4,000,000	0	6,000,000
Asia [Member]
Restructuring Cost and Reserve [Line Items]
Separation programs	13,000,000	5,000,000	13,000,000	7,000,000
Asset impairment charges	6,000,000	0	6,000,000	0
Latin America & Canada [Member]
Restructuring Cost and Reserve [Line Items]
Separation programs	8,000,000	8,000,000	24,000,000	9,000,000
Asset impairment charges	2,000,000	3,000,000	2,000,000	3,000,000
Contract Termination [Member]
Restructuring Cost and Reserve [Line Items]
Contract termination charges	5,000,000	12,000,000	5,000,000	12,000,000
Contract Termination [Member] | Eastern Europe, Middle East & Africa [Member]
Restructuring Cost and Reserve [Line Items]
Contract termination charges	0	12,000,000	0	12,000,000
Contract Termination [Member] | Asia [Member]
Restructuring Cost and Reserve [Line Items]
Contract termination charges	$ 5,000,000	$ 0	$ 5,000,000	$ 0

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Indebtedness Narrative (Details) (USD $)	Sep. 30, 2012	Dec. 31, 2011
Debt Disclosure [Abstract]
Short-term borrowings, carrying value	$ 2,141,000,000	$ 1,511,000,000
Committed credit facilities, maximum borrowing capacity	6,000,000,000
Credit facilities, outstanding amount	$ 0

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Fair Value Measurements

9 Months Ended

Sep. 30, 2012

Fair Value Disclosures [Abstract]

Fair Value Measurements

Fair Value Measurements:

The authoritative guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of input that may be used to measure fair value, which are as follows:

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

Level 2 - Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and

Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Derivative Financial Instruments – Foreign Exchange Contracts

PMI assesses the fair value of its derivative financial instruments, which consist of deliverable and non-deliverable foreign exchange forward contracts, foreign currency swaps, foreign currency collars and foreign currency options, using internally developed models that use, as their basis, readily observable market inputs. The fair value of PMI’s foreign exchange forward contracts is determined by using the prevailing foreign exchange spot rates and interest rate differentials, and the respective maturity dates of the instruments. The fair value of PMI’s currency options is determined by using a Black-Scholes methodology based on foreign exchange spot rates and interest rate differentials, currency volatilities and maturity dates. PMI’s derivative financial instruments have been classified within Level 2 in the table shown below. See Note 6. Financial Instruments for an additional discussion of derivative financial instruments.

Debt

The fair value of PMI’s outstanding debt, which is utilized solely for disclosure purposes, is determined using quotes and market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities. The aggregate carrying value of PMI’s debt, excluding short-term borrowings and $50 million of capital lease obligations, was $20,245 million at September 30, 2012. The fair value of PMI’s outstanding debt, excluding the aforementioned short-term borrowings and capital lease obligations, has been classified within Level 1 and Level 2 in the table shown below.

The aggregate fair value of PMI’s derivative financial instruments and debt as of September 30, 2012, was as follows:

(in millions)	Fair Value at September 30, 2012		Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets:
Foreign exchange contracts	$	72	$	—	$	72	$	—
Total assets	$	72	$	—	$	72	$	—
Liabilities:
Debt	$	22,645	$	22,249	$	396	$	—
Foreign exchange contracts	63		—		63		—
Total liabilities	$	22,708	$	22,249	$	459	$	—

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Asset Impairment and Exit Costs Movement In The Exit Cost Liabilities (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Restructuring Reserve [Roll Forward]
Liability beginning balance			$ 28
Charges			42
Cash spent	(11)	(49)	(31)	(74)
Currency/other			(3)
Liability ending balance	36		36
Effect on Future Cash Flows, Amount			$ 36

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Asset Impairment and Exit Costs (Tables)

9 Months Ended

Sep. 30, 2012

Restructuring and Related Activities [Abstract]

Schedule of Asset Impairment and Exit Costs

Pre-tax asset impairment and exit costs consisted of the following:

(in millions)	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2012		2011		2012		2011
Separation programs:
European Union	$	—	$	23	$	—	$	11
Eastern Europe, Middle East & Africa	—		6		—		4
Asia	13		7		13		5
Latin America & Canada	24		9		8		8
Total separation programs	37		45		21		28
Contract termination charges:
Eastern Europe, Middle East & Africa	—		12		—		12
Asia	5		—		5		—
Total contract termination charges	5		12		5		12
Asset impairment charges:
Asia	6		—		6		—
Latin America & Canada	2		3		2		3
Total asset impairment charges	8		3		8		3
Asset impairment and exit costs	$	50	$	60	$	34	$	43

Movement in the Exit Cost Liabilities

The movement in exit cost liabilities for the nine months ended September 30,2012 was as follows:

(in millions)
Liability balance, January 1, 2012	$	28
Charges	42
Cash spent	(31		)
Currency/other	(3		)
Liability balance, September 30, 2012	$	36

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Fair Value Measurements Narrative (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012
Fair Value Disclosures [Abstract]
Capital lease obligations, carrying value	$ 50
Debt excluding short-term borrowings and capital lease obligations, carrying value	$ 20,245

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Condensed Consolidated Statements Of Stockholders' (Deficit) Equity (USD $) In Millions	Total		Common Stock [Member]	Additional Paid-in Capital [Member]	Earnings Reinvested in the Business [Member]	Accumulated Other Comprehensive Losses [Member]	Cost of Repurchased Stock [Member]	Noncontrolling Interests [Member]
Beginning balance at Dec. 31, 2010	$ 3,933		$ 0	$ 1,225	$ 18,133	$ (1,140)	$ (14,712)	$ 427
Net earnings	6,853	[1]			6,705			148	[1]
Other comprehensive earnings, net of income taxes	(315)	[1]				(285)		(30)	[1]
Exercise of stock options and issuance of other stock awards	187			(24)			211
Dividends declared	(3,630)				(3,630)
Payments to noncontrolling interests	(236)							(236)
Purchase of subsidiary shares from noncontrolling interests	(2)			(1)				(1)
Common stock repurchased	(4,352)						(4,352)
Ending balance at Sep. 30, 2011	2,438		0	1,200	21,208	(1,425)	(18,853)	308
Beginning balance at Dec. 31, 2011	551		0	1,235	21,757	(2,863)	(19,900)	322
Net earnings	6,837	[1]			6,705			132	[1]
Other comprehensive earnings, net of income taxes	57	[1]				28		29	[1]
Exercise of stock options and issuance of other stock awards	165			50			115
Dividends declared	(4,068)				(4,068)
Payments to noncontrolling interests	(162)							(162)
Common stock repurchased	(4,540)						(4,540)
Ending balance at Sep. 30, 2012	$ (1,160)		$ 0	$ 1,285	$ 24,394	$ (2,835)	$ (24,325)	$ 321

[1] (a) For the nine months ended September 30, 2011, net earnings attributable to noncontrolling interests exclude $80 million of earnings related to the redeemable noncontrolling interest, which is reported outside of the equity section in the condensed consolidated balance sheet. Other comprehensive losses, net of income taxes, also exclude $2 million of net currency translation adjustment gains related to the redeemable noncontrolling interest at September 30, 2011. For the nine months ended September 30, 2012, net earnings attributable to noncontrolling interests exclude $126 million of earnings related to the redeemable noncontrolling interest, which is reported outside of the equity section in the condensed consolidated balance sheet. Other comprehensive earnings, net of income taxes, also exclude $17 million of net currency translation adjustment gains related to the redeemable noncontrolling interest at September 30, 2012.

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Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Millions, except Share data, unless otherwise specified	Sep. 30, 2012	Dec. 31, 2011
Statement of Financial Position [Abstract]
Receivables, allowances	$ 54	$ 45
Common stock, no par value	$ 0	$ 0
Common stock, shares issued	2,109,316,331	2,109,316,331
Repurchased stock, shares	433,382,409	383,407,665

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Earnings Per Share

9 Months Ended

Sep. 30, 2012

Earnings Per Share [Abstract]

Earnings Per Share

Earnings Per Share:

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

(in millions)	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2012		2011		2012		2011
Net earnings attributable to PMI	$	6,705	$	6,705	$	2,227	$	2,377
Less distributed and undistributed earnings attributable to share-based payment awards	36		38		12		14
Net earnings for basic and diluted EPS	$	6,669	$	6,667	$	2,215	$	2,363
Weighted-average shares for basic EPS	1,701		1,771		1,683		1,749
Plus incremental shares from assumed conversions:
Stock options	—		—		—		—
Weighted-average shares for diluted EPS	1,701		1,771		1,683		1,749

Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities and therefore are included in PMI’s earnings per share calculation pursuant to the two-class method.

For the 2012 and 2011 computations, there were no antidilutive stock options.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2012	Oct. 31, 2012
Document And Entity Information [Abstract]
Entity Registrant Name	Philip Morris International Inc.
Entity Central Index Key	0001413329
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Document Type	10-Q
Document Period End Date	Sep. 30, 2012
Document Fiscal Year Focus	2012
Document Fiscal Period Focus	Q3
Amendment Flag	false
Entity Common Stock, Shares Outstanding		1,670,552,937

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Segment Reporting

9 Months Ended

Sep. 30, 2012

Segment Reporting [Abstract]

Segment Reporting

Segment Reporting:

PMI’s subsidiaries and affiliates are engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States of America. Reportable segments for PMI are organized and managed by geographic region. PMI’s reportable segments are European Union; Eastern Europe, Middle East & Africa; Asia; and Latin America & Canada.

PMI’s management evaluates segment performance and allocates resources based on operating companies income, which PMI defines as operating income before general corporate expenses and amortization of intangibles. Interest expense, net, and provision for income taxes are centrally managed and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by management.

Segment data were as follows:

(in millions)	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2012			2011			2012			2011
Net revenues:
European Union	$	20,654		$	22,650		$	6,904		$	8,155
Eastern Europe, Middle East & Africa	14,256			13,195			5,125			4,921
Asia	15,668			14,577			5,174			5,143
Latin America & Canada	7,073			7,048			2,389			2,487
Net revenues	$	57,651		$	57,470		$	19,592		$	20,706
Earnings before income taxes:
Operating companies income:
European Union	$	3,232		$	3,548		$	1,085		$	1,262
Eastern Europe, Middle East & Africa	2,805			2,482			1,047			925
Asia	4,068			3,800			1,297			1,309
Latin America & Canada	753			774			267			255
Amortization of intangibles	(73		)	(73		)	(24		)	(25		)
General corporate expenses	(155		)	(135		)	(49		)	(49		)
Operating income	10,630			10,396			3,623			3,677
Interest expense, net	(633		)	(613		)	(211		)	(192		)
Earnings before income taxes	$	9,997		$	9,783		$	3,412		$	3,485

Items affecting the comparability of results from operations are asset impairment and exit costs. See Note 2. Asset Impairment and Exit Costs for a breakdown of these costs by segment.

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Condensed Consolidated Statements Of Earnings (USD $) In Millions, except Per Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Statement [Abstract]
Net revenues	$ 19,592	$ 20,706	$ 57,651	$ 57,470
Cost of sales	2,584	2,847	7,692	7,986
Excise taxes on products	11,672	12,344	34,163	34,044
Gross profit	5,336	5,515	15,796	15,440
Marketing, administration and research costs	1,655	1,770	5,043	4,911
Asset impairment and exit costs	34	43	50	60
Amortization of intangibles	24	25	73	73
Operating income	3,623	3,677	10,630	10,396
Interest expense, net	211	192	633	613
Earnings before income taxes	3,412	3,485	9,997	9,783
Provision for income taxes	1,088	1,024	3,034	2,850
Net earnings	2,324	2,461	6,963	6,933
Net earnings attributable to noncontrolling interests	97	84	258	228
Net earnings attributable to PMI	$ 2,227	$ 2,377	$ 6,705	$ 6,705
Per share data (Note 8):
Basic earnings per share ($ per share)	$ 1.32	$ 1.35	$ 3.92	$ 3.76
Diluted earnings per share ($ per share)	$ 1.32	$ 1.35	$ 3.92	$ 3.76
Dividends declared ($ per share)	$ 0.85	$ 0.77	$ 2.39	$ 2.05

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Stock Plans

9 Months Ended

Sep. 30, 2012

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Stock Plans

Stock Plans:

In May 2012, PMI’s stockholders approved the Philip Morris International Inc. 2012 Performance Incentive Plan (the “2012 Plan”). The 2012 Plan replaced the 2008 Performance Incentive Plan (the “2008 Plan”) and, as a result, there will be no additional grants under the 2008 Plan. Under the 2012 Plan, PMI may grant to eligible employees restricted stock, restricted stock units and deferred stock units, performance-based cash incentive awards and performance-based equity awards. While the 2008 Plan authorized incentive stock options, non-qualified stock options and stock appreciation rights, the 2012 Plan does not authorize any stock options or stock appreciation rights. Up to 30 million shares of PMI’s common stock may be issued under the 2012 Plan. At September 30, 2012, shares available for grant under the 2012 Plan were 29,998,060.

In 2008, PMI adopted the Philip Morris International Inc. 2008 Stock Compensation Plan for Non-Employee Directors (the “Non-Employee Directors Plan”). A non-employee director is defined as a member of the PMI Board of Directors who is not a full-time employee of PMI or of any corporation in which PMI owns, directly or indirectly, stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to 1 million shares of PMI common stock may be awarded under the Non-Employee Directors Plan. As of September 30, 2012, shares available for grant under the plan were 798,801.

During the nine months ended September 30,2012, PMI granted 3.2 million shares of deferred stock awards to eligible employees at a weighted-average grant date fair value of $79.58 per share. During the nine months ended September 30,2011, PMI granted 3.8 million shares of restricted and deferred stock awards to eligible employees at a weighted average grant date fair value of $59.41 per share. PMI recorded compensation expense for stock awards of $191 million and $122 million during the nine months ended September 30,2012 and 2011, respectively, and $55 million and $41 million during the three months ended September 30,2012 and 2011, respectively. During the first quarter of 2012, compensation expense included approximately $27 million of accelerated expense primarily associated with employees approaching or reaching certain age milestones that accelerate the vesting. As of September 30, 2012, PMI had $277 million of total unrecognized compensation cost related to non-vested restricted and deferred stock awards. The cost is recognized over the original restriction period of the awards, which is typically three or more years after the date of the award, subject to earlier vesting on death or disability or normal retirement, or separation from employment by mutual agreement after reaching age 58.

During the nine months ended September 30,2012, 3.7 million shares of PMI restricted stock and deferred stock awards vested. The grant date fair value of all the vested shares was approximately $146 million. The total fair value of restricted stock and deferred stock awards that vested during the nine months ended September 30,2012 was approximately $294 million.

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Asset Impairment and Exit Costs

9 Months Ended

Sep. 30, 2012

Restructuring and Related Activities [Abstract]

Asset Impairment and Exit Costs

Asset Impairment and Exit Costs:

Pre-tax asset impairment and exit costs consisted of the following:

(in millions)	For the Nine Months Ended September 30,				For the Three Months Ended September 30,
	2012		2011		2012		2011
Separation programs:
European Union	$	—	$	23	$	—	$	11
Eastern Europe, Middle East & Africa	—		6		—		4
Asia	13		7		13		5
Latin America & Canada	24		9		8		8
Total separation programs	37		45		21		28
Contract termination charges:
Eastern Europe, Middle East & Africa	—		12		—		12
Asia	5		—		5		—
Total contract termination charges	5		12		5		12
Asset impairment charges:
Asia	6		—		6		—
Latin America & Canada	2		3		2		3
Total asset impairment charges	8		3		8		3
Asset impairment and exit costs	$	50	$	60	$	34	$	43

Exit Costs

Separation Programs

The 2012 pre-tax separation program charges primarily related to severance costs associated with factory restructurings in Asia and in Latin America & Canada. The 2011 pre-tax separation program charges primarily related to severance costs for factory and R&D restructurings, primarily in the European Union and in Latin America & Canada.

Contract Termination Charges

During the third quarter of 2012, PMI recorded exit costs of $5 million related to the termination of a distribution agreement in Asia. During the third quarter of 2011, PMI recorded exit costs of $12 million related to the termination of a distribution agreement in Eastern Europe, Middle East & Africa.

Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the nine months ended September 30,2012 was as follows:

(in millions)
Liability balance, January 1, 2012	$	28
Charges	42
Cash spent	(31		)
Currency/other	(3		)
Liability balance, September 30, 2012	$	36

Cash payments related to exit costs at PMI were $31 million and $11 million for the nine months and three months ended September 30,2012, respectively, and $74 million and $49 million for the nine months and three months ended September 30,2011, respectively. Future cash payments for exit costs incurred to date are expected to be approximately $36 million, and will be substantially paid by 2013.

Asset Impairment Charges

During the third quarter of 2012, PMI recorded pre-tax asset impairment charges of $8 million related to factory restructurings in Asia and in Latin America & Canada.

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Accumulated Other Comprehensive Losses

9 Months Ended

Sep. 30, 2012

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Accumulated Other Comprehensive Losses

Accumulated Other Comprehensive Losses:

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

(in millions)	At September 30, 2012			At December 31, 2011			At September 30, 2011
Currency translation adjustments	$	(358	)	$	(293	)	$	141
Pension and other benefits	(2,467		)	(2,585		)	(1,576		)
Derivatives accounted for as hedges	(10		)	15			9
Equity securities	—			—			1
Total accumulated other comprehensive losses	$	(2,835	)	$	(2,863	)	$	(1,425	)

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Contingencies

9 Months Ended

Sep. 30, 2012

Commitments and Contingencies Disclosure [Abstract]

Contingencies

Contingencies:

Litigation - General

Legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. Our indemnitees include distributors, licensees, and others that have been named as parties in certain cases and that we have agreed to defend, as well as to pay costs and some or all of judgments, if any, that may be entered against them. Pursuant to the terms of the Distribution Agreement between Altria Group, Inc. ("Altria") and PMI, PMI will indemnify Altria and PM USA for tobacco product claims based in substantial part on products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for tobacco product claims based in substantial part on products manufactured by PM USA, excluding tobacco products contract manufactured for PMI. Various types of claims are raised in these proceedings, including, among others, product liability, consumer protection, antitrust, employment and tax.

It is possible that there could be adverse developments in pending cases against us and our subsidiaries. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation.

Damages claimed in some of the tobacco-related litigation are significant and, in certain cases in Brazil, Canada, Israel and Nigeria, range into the billions of U.S. dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. Much of the tobacco-related litigation is in its early stages and litigation is subject to uncertainty. However, as discussed below, we have to date been largely successful in defending tobacco-related litigation.

We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any. Legal defense costs are expensed as incurred.

It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Nevertheless, although litigation is subject to uncertainty, we and each of our subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that we have valid defenses to the litigation pending against us, as well as valid bases for appeal of adverse verdicts, if any. All such cases are, and will continue to be, vigorously defended. However, we and our subsidiaries may enter into settlement discussions in particular cases if we believe it is in our best interests to do so.

Tobacco-Related Litigation

To date, we have paid total judgments, including costs, of approximately six thousand Euros in tobacco-related cases. These payments were made in order to appeal three Italian small claims cases, all of which were subsequently reversed on appeal. To date, no tobacco-related case has been finally resolved in favor of a plaintiff against us, our subsidiaries or indemnitees.

The table below lists the number of tobacco-related cases pending against us and/or our subsidiaries or indemnitees as of November 1, 2012, 2011 and 2010:

Type of Case	Number of Cases Pending as of November 1, 2012	Number of Cases Pending  as of November 1, 2011	Number of Cases Pending  as of November 1, 2010
Individual Smoking and Health Cases	75	84	111
Smoking and Health Class Actions	10	10	11
Health Care Cost Recovery Actions	15	11	10
Lights Class Actions	2	2	2
Individual Lights Cases (small claims court)	7	9	10
Public Civil Actions	4	3	8

Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 387 Smoking and Health, Lights, Health Care Cost Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated in our favor. Ten cases have had decisions in favor of plaintiffs. Seven of these cases have subsequently reached final resolution in our favor and three remain on appeal.

The table below lists the verdicts and post-trial developments in the three pending cases in which verdicts were returned in favor of plaintiffs:

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
May 2011	Brazil/Laszlo	Individual Smoking and Health	The Civil Court of São Vicente found for plaintiff and ordered Philip Morris Brasil to pay damages of R$31,333 (approximately $15,435), plus future costs for cessation and medical treatment of smoking related diseases.	In June 2011, Philip Morris Brasil filed an appeal. In December 2011, the Appellate Court reversed the trial court decision. In February 2012, plaintiff appealed the decision. This appeal is still pending.

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
September 2009	Brazil/Bernhardt	Individual Smoking and Health	The Civil Court of Rio de Janeiro found for plaintiff and ordered Philip Morris Brasil to pay R$13,000 (approximately $6,400) in “moral damages.”	Philip Morris Brasil filed its appeal against the decision on the merits with the Court of Appeals in November 2009. In February 2010, without addressing the merits, the Court of Appeals annulled the trial court's decision and remanded the case to the trial court to issue a new ruling, which was required to address certain compensatory damage claims made by the plaintiff that the trial court did not address in its original ruling. In July 2010, the trial court reinstated its original decision, while specifically rejecting the compensatory damages claim. Philip Morris Brasil appealed this decision. In March 2011, the Court of Appeals affirmed the trial court's decision and denied Philip Morris Brasil's appeal. The Court of Appeals increased the amount of damages awarded to the plaintiff to R$100,000 (approximately $49,300). Philip Morris Brasil filed an appeal in June 2011. This appeal is still pending.

Date	Location of Court/Name of Plaintiff	Type of Case	Verdict	Post-Trial Developments
February 2004	Brazil/The Smoker Health Defense Association (“ADESF”)	Class Action	The Civil Court of São Paulo found defendants liable without hearing evidence. The court did not assess moral or actual damages, which were to be assessed in a second phase of the case. The size of the class was not defined in the ruling.	In April 2004, the court clarified its ruling, awarding “moral damages” of R$1,000 (approximately $490) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not award actual damages, which were to be assessed in the second phase of the case. The size of the class was not estimated. Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In May 2011, the trial court dismissed the claim. Plaintiff has appealed. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that the plaintiff did not have standing to bring the lawsuit. This appeal is still pending.

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

Smoking and Health Litigation: These cases primarily allege personal injury and are brought by individual plaintiffs or on behalf of a class or purported class of individual plaintiffs. Plaintiffs' allegations of liability in these cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of express and implied warranties, violations of deceptive trade practice laws and consumer protection statutes. Plaintiffs in these cases seek various forms of relief, including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include licit activity, failure to state a claim, lack of defect, lack of proximate cause, assumption of the risk, contributory negligence, and statute of limitations.

As of November 1, 2012, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

• 75 cases brought by individual plaintiffs in Argentina (30), Brazil (29), Canada (2), Chile (4), Costa Rica (1), Greece (1), Italy (5), the Philippines (1), Scotland (1) and Turkey (1), compared with 84 such cases on November 1, 2011, and 111 cases on November 1, 2010; and

• 10 cases brought on behalf of classes of individual plaintiffs in Brazil (2) and Canada (8), compared with 10 such cases on November 1, 2011, and 11 such cases on November 1, 2010.

In the first class action pending in Brazil, The Smoker Health Defense Association (ADESF) v. Souza Cruz, S.A. and Philip Morris Marketing, S.A., Nineteenth Lower Civil Court of the Central Courts of the Judiciary District of São Paulo, Brazil, filed July 25, 1995, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer organization, is seeking damages for smokers and former smokers and injunctive relief. The verdict and post-trial developments in this case are described in the above table.

In the second class action pending in Brazil, Public Prosecutor of São Paulo v. Philip Morris Brasil Industria e Comercio Ltda., Civil Court of the City of São Paulo, Brazil, filed August 6, 2007, our subsidiary is a defendant. The plaintiff, the Public Prosecutor of the State of São Paulo, is seeking (i) unspecified damages on behalf of all smokers nationwide, former smokers, and their relatives; (ii) unspecified damages on behalf of people exposed to environmental tobacco smoke (“ETS”) nationwide, and their relatives; and (iii) reimbursement of the health care costs allegedly incurred for the treatment of tobacco-related diseases by all Brazilian States and Municipalities, and the Federal District. In an interim ruling issued in December 2007, the trial court limited the scope of this claim to the State of São Paulo only. In December 2008, the Seventh Civil Court of São Paulo issued a decision declaring that it lacked jurisdiction because the case involved issues similar to the ADESF case discussed above and should be transferred to the Nineteenth Lower Civil Court in São Paulo where the ADESF case is pending. The court further stated that these cases should be consolidated for the purposes of judgment. Our subsidiary appealed this decision to the State of São Paulo Court of Appeals, which subsequently declared the case stayed pending the outcome of the appeal. In April 2010, the São Paulo Court of Appeals reversed the Seventh Civil Court's decision that consolidated the cases, finding that they are based on different legal claims and are progressing at different stages of proceedings. This case was returned to the Seventh Civil Court of São Paulo, and our subsidiary filed its closing arguments in December 2010. In March 2012, the trial court dismissed the case on the merits. This decision has been appealed.

In the first class action pending in Canada, Cecilia Letourneau v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and JTI Macdonald Corp., Quebec Superior Court, Canada, filed in September 1998, our subsidiary and other Canadian manufacturers are defendants. The plaintiff, an individual smoker, is seeking compensatory and unspecified punitive damages for each member of the class who is deemed addicted to smoking. The class was certified in 2005. On February 14, 2012, the court ruled that the federal government will remain as a third-party in the case. Trial began on March 12, 2012. At the present pace, trial is expected to last well into 2013 and possibly 2014, with a judgment to follow at an indeterminate point after the conclusion of the trial proceedings.

In the second class action pending in Canada, Conseil Québécois Sur Le Tabac Et La Santé and Jean-Yves Blais v. Imperial Tobacco Ltd.,Rothmans, Benson & Hedges Inc. and JTI Macdonald Corp., Quebec Superior Court, Canada, filed in November 1998, our subsidiary and other Canadian manufacturers are defendants. The plaintiffs, an anti-smoking organization and an individual smoker, are seeking compensatory and unspecified punitive damages for each member of the class who allegedly suffers from certain smoking-related diseases. The class was certified in 2005. On February 14, 2012, the court ruled that the federal government will remain as a third-party in the case. Trial began on March 12, 2012. At the present pace, trial is expected to last well into 2013 and possibly 2014, with a judgment to follow at an indeterminate point after the conclusion of the trial proceedings.

In the third class action pending in Canada, Kunta v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Winnipeg, Canada, filed June 12, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic obstructive pulmonary disease (“COPD”), severe asthma, and mild reversible lung disease resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. In September 2009, plaintiff's counsel informed defendants that he did not anticipate taking any action in this case while he pursues the class action filed in Saskatchewan (see description of Adams, below).

In the fourth class action pending in Canada, Adams v. Canadian Tobacco Manufacturers' Council, et al.,The Queen's Bench, Saskatchewan, Canada, filed July 10, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, emphysema, heart disease, or cancer, as well as restitution of profits. Preliminary motions are pending.

In the fifth class action pending in Canada, Semple v. Canadian Tobacco Manufacturers' Council, et al.,The Supreme Court (trial court), Nova Scotia, Canada, filed June 18, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and COPD resulting from the use of tobacco products. He is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. No activity in this case is anticipated while plaintiff's counsel pursues the class action filed in Saskatchewan (see description of Adams, above).

In the sixth class action pending in Canada, Dorion v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Alberta, Canada, filed June 15, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic bronchitis and severe sinus infections resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. To date, we, our subsidiaries, and our indemnitees have not been properly served with the complaint. No activity in this case is anticipated while plaintiff's counsel pursues the class action filed in Saskatchewan (see description of Adams, above).

In the seventh class action pending in Canada, McDermid v. Imperial Tobacco Canada Limited, et al.,Supreme Court, British Columbia, Canada, filed June 25, 2010, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and heart disease resulting from the use of tobacco products. He is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from heart disease allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954 to the date the claim was filed. Defendants have filed jurisdictional challenges on the grounds that this action should not proceed during the pendency of the Saskatchewan class action (see description of Adams, above).

In the eighth class action pending in Canada, Bourassa v. Imperial Tobacco Canada Limited, et al.,Supreme Court, British Columbia, Canada, filed June 25, 2010, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, the heir to a deceased smoker, alleges that the decedent was addicted to tobacco products and suffered from emphysema resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from chronic respiratory diseases allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954 to the date the claim was filed. Defendants have filed jurisdictional challenges on the grounds that this action should not proceed during the pendency of the Saskatchewan class action (see description of Adams, above).

Health Care Cost Recovery Litigation: These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of health care cost expenditures allegedly caused by tobacco products. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied warranties, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, defective product, failure to warn, sale of cigarettes to minors, and claims under statutes governing competition and deceptive trade practices. Plaintiffs in these cases seek various forms of relief including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, remoteness of injury, failure to state a claim, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), and statute of limitations.

As of November 1, 2012, there were 15 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Canada (9), Nigeria (5) and Spain (1), compared with 11 such cases on November 1, 2011 and 10 such cases on November 1, 2010.

In the first health care cost recovery case pending in Canada, Her Majesty the Queen in Right of British Columbia v. Imperial Tobacco Limited, et al., Supreme Court, British Columbia, Vancouver Registry, Canada, filed January 24, 2001, we, our subsidiaries, our indemnitee (PM USA), and other members of the industry are defendants. The plaintiff, the government of the province of British Columbia, brought a claim based upon legislation enacted by the province authorizing the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, resulting from a “tobacco related wrong.” The Supreme Court of Canada has held that the statute is constitutional. We and certain other non-Canadian defendants challenged the jurisdiction of the court. The court rejected the jurisdictional challenge. Pre-trial discovery is ongoing.

In the second health care cost recovery case filed in Canada, Her Majesty the Queen in Right of New Brunswick v. Rothmans Inc., et al., Court of Queen's Bench of New Brunswick, Trial Court, New Brunswick, Fredericton, Canada, filed March 13, 2008, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of New Brunswick based on legislation enacted in the province. This legislation is similar to the law introduced in British Columbia that authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Pre-trial discovery is ongoing.

In the third health care cost recovery case filed in Canada, Her Majesty the Queen in Right of Ontario v. Rothmans Inc., et al., Ontario Superior Court of Justice, Toronto, Canada, filed September 29, 2009, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Ontario based on legislation enacted in the province. This legislation is similar to the laws introduced in British Columbia and New Brunswick that authorize the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the fourth health care cost recovery case filed in Canada, Attorney General of Newfoundland and Labrador v. Rothmans Inc., et al., Supreme Court of Newfoundland and Labrador, St. Johns, Canada, filed February 8, 2011, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Newfoundland and Labrador based on legislation enacted in the province that is similar to the laws introduced in British Columbia, New Brunswick and Ontario. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the fifth health care cost recovery case filed in Canada, Attorney General of Quebec v. Imperial Tobacco Limited, et al., Superior Court of Quebec, Canada, filed June 8, 2012, we, our subsidiary, our indemnitee (PM USA), and other members of the industry are defendants. The claim was filed by the government of the province of Quebec based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the sixth health care cost recovery case filed in Canada, Her Majesty in Right of Alberta v. Altria Group, Inc., et al., Supreme Court of Queen's Bench Alberta, Canada, filed June 8, 2012, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Alberta based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” We, our subsidiaries and our indemnitees have all been served with the statement of claim.

In the seventh health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Manitoba v. Rothmans, Benson & Hedges, Inc., et al., The Queen's Bench, Winnipeg Judicial Centre, Canada, filed May 31, 2012, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Manitoba based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the eighth health care cost recovery case filed in Canada, The Government of Saskatchewan v. Rothmans, Benson & Hedges Inc., et al., Queen's Bench, Judicial Centre of Saskatchewan, Canada, filed June 8, 2012, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Saskatchewan based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Preliminary motions are pending.

In the ninth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Prince Edward Island v. Rothmans, Benson & Hedges Inc., et al., Supreme Court of Prince Edward Island (General Section), Canada, filed September 10, 2012, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Prince Edward Island based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.” Our subsidiary has been served with the statement of claim.

In the first health care cost recovery case in Nigeria, The Attorney General of Lagos State v. British American Tobacco (Nigeria) Limited, et al., High Court of Lagos State, Lagos, Nigeria, filed April 30, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In February 2008, our subsidiary was served with a Notice of Discontinuance. The claim was formally dismissed in March 2008. However, the plaintiff has since refiled its claim. Our subsidiary is in the process of making challenges to service and the court's jurisdiction. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections. We currently have no employees, operations or assets in Nigeria.

In the second health care cost recovery case in Nigeria, The Attorney General of Kano State v. British American Tobacco (Nigeria) Limited, et al., High Court of Kano State, Kano, Nigeria, filed May 9, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. Our subsidiary is in the process of making challenges to service and the court's jurisdiction.

In the third health care cost recovery case in Nigeria, The Attorney General of Gombe State v. British American Tobacco (Nigeria) Limited, et al., High Court of Gombe State, Gombe, Nigeria, filed May 18, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In July 2008, the court dismissed the case against all defendants based on the plaintiff's failure to comply with various procedural requirements when filing and serving the complaint. The plaintiff did not appeal the dismissal. However, in October 2008, the plaintiff refiled its claim. In June 2010, the court ordered the plaintiff to amend the claim to properly name Philip Morris International Inc. as a defendant. Philip Morris International Inc. objected to plaintiff's attempted service of amended process. In February 2011, the court granted, in part, our service objections, ruling that the plaintiff had not complied with the procedural steps necessary to serve us. As a result of this ruling, Philip Morris International Inc. is not currently a defendant in the case. Plaintiff may appeal the ruling or follow the procedural steps required to serve Philip Morris International Inc.

In the fourth health care cost recovery case in Nigeria, The Attorney General of Oyo State, et al., v. British American Tobacco (Nigeria) Limited, et al., High Court of Oyo State, Ibadan, Nigeria, filed May 25, 2007, our subsidiary and other members of the industry are defendants. Plaintiffs seek reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. Our subsidiary challenged service as improper. In June 2010, the court ruled that plaintiffs did not have leave to serve the writ of summons on the defendants and that they must re-serve the writ. Our subsidiary has not yet been re-served.

In the fifth health care cost recovery case in Nigeria, The Attorney General of Ogun State v. British American Tobacco (Nigeria) Limited, et al., High Court of Ogun State, Abeokuta, Nigeria, filed February 26, 2008, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In May 2010, the trial court rejected our subsidiary's service objections. Our subsidiary has appealed.

In a series of proceedings in Spain, Junta de Andalucia, et al. v. Philip Morris Spain, et al., Court of First Instance, Madrid, Spain, the first of which was filed February 21, 2002, our subsidiary and other members of the industry were defendants. The plaintiffs sought reimbursement for the cost of treating certain of their citizens for various alleged smoking-related illnesses. In May 2004, the first instance court dismissed the initial case, finding that the State was a necessary party to the claim, and thus, the claim must be filed in the Administrative Court. In September 2007, the plaintiffs filed their complaint in the Administrative Court, which dismissed the claim based on a procedural issue in November 2007. In November 2009, the Supreme Court rejected plaintiffs' appeal, resulting in the final dismissal of the claim. However, plaintiffs have filed a second claim in the Administrative Court against the Ministry of Economy. This second claim seeks the same relief as the original claim, but relies on a different procedural posture. The Administrative Court has recognized our subsidiary as a party in this proceeding. Our subsidiary and other defendants filed preliminary objections that resulted in a stay of the term to file the answer. In May 2011, the court rejected the defendants' preliminary objections, but it has not yet set a deadline for defendants to file their answers.

Lights Cases: These cases, brought by individual plaintiffs, or on behalf of a class of individual plaintiffs, allege that the use of the term “lights” constitutes fraudulent and misleading conduct. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including misrepresentation, deception, and breach of consumer protection laws. Plaintiffs seek various forms of relief including restitution, injunctive relief, and compensatory and other damages. Defenses raised include lack of causation, lack of reliance, assumption of the risk, and statute of limitations.

As of November 1, 2012, there were a number of lights cases pending against our subsidiaries or indemnitees, as follows:

• 2 cases brought on behalf of overlapping classes of individual plaintiffs in Israel, compared with 2 such cases on November 1, 2011 and November 1, 2010; and

• 7 cases brought by individuals in the equivalent of small claims courts in Italy, where the maximum damages are approximately one thousand Euros per case, compared with 9 such cases on November 1, 2011, and 10 such cases on November 1, 2010.

In the first class action pending in Israel, El-Roy, et al. v. Philip Morris Incorporated, et al., District Court of Tel-Aviv/Jaffa, Israel, filed January 18, 2004, our subsidiary and our indemnitees (PM USA and our former importer) are defendants. The plaintiffs filed a purported class action claiming that the class members were misled by the descriptor “lights” into believing that lights cigarettes are safer than full flavor cigarettes. The claim seeks recovery of the purchase price of lights cigarettes and compensation for distress for each class member. Hearings took place in November and December 2008 regarding whether the case meets the legal requirements necessary to allow it to proceed as a class action. The parties' briefing on class certification was completed in March 2011. A hearing for final oral argument on class certification took place in November 2011. We are awaiting the court's decision.

The claims in the second class action pending in Israel, Navon, et al. v. Philip Morris Products USA, et al., District Court of Tel-Aviv/Jaffa, Israel, filed December 5, 2004, against our indemnitee (our distributor) and other members of the industry are similar to those in El-Roy, and the case is currently stayed pending a ruling on class certification in El-Roy.

Public Civil Actions: Claims have been filed either by an individual, or a public or private entity, seeking to protect collective or individual rights, such as the right to health, the right to information or the right to safety. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including product defect, concealment, and misrepresentation. Plaintiffs in these cases seek various forms of relief including injunctive relief such as banning cigarettes, descriptors, smoking in certain places and advertising, as well as implementing communication campaigns and reimbursement of medical expenses incurred by public or private institutions.

As of November 1, 2012, there were 4 public civil actions pending against our subsidiaries in Argentina (2), Brazil (1), and Venezuela (1), compared with 3 such cases on November 1, 2011, and 8 such cases on November 1, 2010.

In the first public civil action in Argentina, Asociación Argentina de Derecho de Danos v. Massalin Particulares S.A., et al., Civil Court of Buenos Aires, Argentina, filed February 26, 2007, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer association, seeks the establishment of a relief fund for reimbursement of medical costs associated with diseases allegedly caused by smoking. Our subsidiary filed its answer in September 2007. In March 2010, the case file was transferred to the Federal Court on Administrative Matters after the Civil Court granted the plaintiff's request to add the national government as a co-plaintiff in the case.

In the second public civil action in Argentina, Conciencia Ciudadana Mejorar Asociación Civil, et al.v. Massalin Particulares S.A., 4th Civil & Commercial Court of Zarate, Argentina, filed September 20, 2012, our subsidiary is a defendant. Plaintiffs, a civil association and an individual, seek an order requiring our subsidiary to place information regarding tar, nicotine, and carbon monoxide yields on the packages of cigarettes in the Marlboro brand family. Plaintiffs also seek moral and punitive damages. Our subsidiary has been served with the complaint.

In the public civil action in Brazil, The Brazilian Association for the Defense of Consumer Health (“SAUDECON”) v. Philip Morris Brasil Industria e Comercio Ltda. and Souza Cruz S.A., Civil Court of City of Porto Alegre, Brazil, filed November 3, 2008, our subsidiary is a defendant. The plaintiff, a consumer organization, is asking the court to establish a fund that will be used to provide treatment to smokers who claim to be addicted and who do not otherwise have access to smoking cessation treatment. Plaintiff requests that each defendant's liability be determined according to its market share. In May 2009, the trial court dismissed the case on the merits. Plaintiff has appealed.

In the public civil action in Venezuela, Federation of Consumers and Users Associations (“FEVACU”), et al. v. National Assembly of Venezuela and the Venezuelan Ministry of Health, Constitutional Chamber of the Venezuelan Supreme Court, filed April 29, 2008, we were not named as a defendant, but the plaintiffs published a notice pursuant to court order, notifying all interested parties to appear in the case. In January 2009, our subsidiary appeared in the case in response to this notice. The plaintiffs purport to represent the right to health of the citizens of Venezuela and claim that the government failed to protect adequately its citizens' right to health. The claim asks the court to order the government to enact stricter regulations on the manufacture and sale of tobacco products. In addition, the plaintiffs ask the court to order companies involved in the tobacco industry to allocate a percentage of their “sales or benefits” to establish a fund to pay for the health care costs of treating smoking-related diseases. In October 2008, the court ruled that plaintiffs have standing to file the claim and that the claim meets the threshold admissibility requirements.

Other Litigation

Other litigation includes an antitrust suit, a breach of contract action, various tax and individual employment cases and tort claims.

Antitrust: In the antitrust class action in Kansas, Smith v. Philip Morris Companies Inc., et al., District Court of Seward County, Kansas, filed February 7, 2000, we and other members of the industry are defendants. The plaintiff asserts that the defendant cigarette companies engaged in an international conspiracy to fix wholesale prices of cigarettes and sought certification of a class comprised of all persons in Kansas who were indirect purchasers of cigarettes from the defendants. The plaintiff claims unspecified economic damages resulting from the alleged price-fixing, trebling of those damages under the Kansas price-fixing statute and counsel fees. The trial court granted plaintiff's motion for class certification in 2001. In March 2012, the trial court granted defendants' motions for summary judgment in their entirety and, accordingly, entered judgment for the defendants on all claims. In July 2012, plaintiff appealed this ruling.

Breach of Contract: In the breach of contract action in Ontario, Canada, The Ontario Flue-Cured Tobacco Growers' Marketing Board, et al. v. Rothmans, Benson & Hedges Inc., Superior Court of Justice, London, Ontario, Canada, filed November 5, 2009, our subsidiary is a defendant. Plaintiffs in this putative class action allege that our subsidiary breached contracts with the proposed class members (Ontario tobacco growers and their related associations) concerning the sale and purchase of flue-cured tobacco from January 1, 1986 to December 31, 1996. Plaintiffs allege that our subsidiary was required by the contracts to disclose to plaintiffs the quantity of tobacco included in cigarettes to be sold for duty free and export purposes (which it purchased at a lower price per pound than tobacco that was included in cigarettes to be sold in Canada), but failed to disclose that some of the cigarettes it designated as being for export and duty free purposes were ultimately sold in Canada. Similar lawsuits were filed against other Canadian cigarette manufacturers. In September 2011, plaintiffs served a notice of motion seeking class certification. The court has agreed to hear preliminary motions prior to its consideration of plaintiffs' certification motion. A hearing on the question of whether the plaintiffs' claims are released by settlements entered into previously between our subsidiary and other Canadian cigarette manufacturers, on the one hand, and the federal government, on the other hand, was heard in September 2012. The court took the motion under reserve and has not yet issued a decision. The court has also agreed to hear argument on defendants' motion to dismiss plaintiffs' claims based on statute of limitations grounds prior to considering plaintiffs' class certification motion.

Tax: In Brazil, there are 112 tax cases involving Philip Morris Brasil S.A. and Philip Morris Brasil Ltda. relating to the payment of state tax on the sale and transfer of goods and services, federal social contributions, excise, social security and income tax, and other matters. Fifty-six of these cases are under administrative review by the relevant fiscal authorities and 56 are under judicial review by the courts.

Employment: Our subsidiaries, Philip Morris Brasil S.A. and Philip Morris Brasil Ltda., are defendants in various individual employment cases resulting, among other things, from the termination of employment in connection with the shut-down of one of our factories in Brazil.

Tort: In the first action in Delaware, Antonio Emilio Hupan et al. v. Alliance One International, Inc. et al. Superior Court for the State of Delaware in and for New Castle County, filed February 14, 2012, we, our subsidiaries, other members of the industry, certain companies allegedly involved in the purchase of tobacco leaf in Argentina, and certain companies allegedly involved in the manufacture of herbicides are defendants. Plaintiffs in this action are eight children born between the years of 1996 and 2008 and their families, all residing in Argentina. Plaintiffs claim that the children developed birth defects as a result of the exposure of their parents to herbicides while working on farms in Argentina. Plaintiffs allege that we, our subsidiaries, other members of the industry, and certain companies allegedly involved in the purchase of tobacco leaf in Argentina required the use of certain herbicides in tobacco growing while failing to warn tobacco growers of the risks. Plaintiffs claim unspecified compensatory and punitive damages. The court has set a schedule for filing preliminary motions.

In the second action in Delaware, Pabla Chalañuk, et al. v. Alliance One International, Inc., et al. Superior Court for the State of Delaware in and for New Castle County, filed April 5, 2012, we, our subsidiaries, other members of the industry, certain companies allegedly involved in the purchase of tobacco leaf in Argentina, and certain companies allegedly involved in the manufacture of herbicides are defendants. Plaintiffs in this action are 41 children born between the years of 1986 and 2009 and their families, all residing in Argentina. Plaintiffs claim that the children developed birth defects as a result of the exposure of their parents to herbicides while working on farms in Argentina. Plaintiffs allege that we, our subsidiaries, other members of the industry, and certain companies allegedly involved in the purchase of tobacco leaf in Argentina required the use of certain herbicides in tobacco growing while failing to warn tobacco growers of the risks. Plaintiffs claim unspecified compensatory and punitive damages. The court has stayed this case pending resolution of the preliminary motions in the Hupan case (see description of Hupan, above).

In the third action in Delaware, Clarisa Rodriguez Da Silva et al. v. Alliance One International, Inc. et al. Superior Court for the State of Delaware in and for New Castle County, filed October 25, 2012, we, our subsidiaries, other members of the industry, certain companies allegedly involved in the purchase of tobacco leaf in Argentina, and certain companies allegedly involved in the manufacture of herbicides are defendants. Plaintiffs in this action are 38 children born between the years of 1979 and 2010 and their families, all residing in Argentina. Plaintiffs claim that the children developed birth defects as a result of the exposure of their parents to herbicides while working on farms in Argentina. Plaintiffs allege that we, our subsidiaries, other members of the industry, and certain companies allegedly involved in the purchase of tobacco leaf in Argentina required the use of certain herbicides in tobacco growing while failing to warn tobacco growers of the risks. Plaintiffs claim unspecified compensatory and punitive damages. We and our subsidiaries have not been served with the complaint.

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Financial Instruments

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Financial Instruments

Financial Instruments:

Overview

PMI operates in markets outside of the United States of America, with manufacturing and sales facilities in various locations around the world. PMI utilizes certain financial instruments to manage foreign currency exposure. Derivative financial instruments are used by PMI principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange rates by creating offsetting exposures. PMI is not a party to leveraged derivatives and, by policy, does not use derivative financial instruments for speculative purposes. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. PMI formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of the forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in earnings. PMI reports its net transaction gains or losses in marketing, administration and research costs on the condensed consolidated statements of earnings.

PMI uses deliverable and non-deliverable forward foreign exchange contracts, foreign currency swaps, foreign currency collars and foreign currency options, collectively referred to as foreign exchange contracts, to mitigate its exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. The primary currencies to which PMI is exposed include the Euro, Indonesian rupiah, Japanese yen, Mexican peso, Russian ruble, Swiss franc and Turkish lira. At September 30, 2012, PMI had contracts with aggregate notional amounts of $13.4 billion. Of the $13.4 billion aggregate notional amount at September 30, 2012, $3.9 billion related to cash flow hedges, $0.9 billion related to hedges of net investments in foreign operations and $8.6 billion related to other derivatives that primarily offset currency exposures on intercompany financing.

The fair value of PMI’s foreign exchange contracts included in the condensed consolidated balance sheet as of September 30, 2012 and December 31, 2011, were as follows:

	Asset Derivatives					Liability Derivatives
		Fair Value					Fair Value
(in millions)	Balance Sheet Classification	At September 30, 2012		At December 31, 2011		Balance Sheet Classification	At September 30, 2012		At December 31, 2011
Foreign exchange contracts designated as hedging instruments	Other current assets	$	38	$	57	Other accrued liabilities	$	4	$	4
	Other assets	15		—		Other liabilities	3		—
Foreign exchange contracts not designated as hedging instruments	Other current assets	19		88		Other accrued liabilities	55		62
						Other liabilities	1		—
Total derivatives		$	72	$	145		$	63	$	66

Hedging activities, which represent movement in derivatives as well as the respective underlying transactions, had the following effect on PMI’s condensed consolidated statements of earnings and other comprehensive earnings for the nine months and three months ended September 30,2012 and 2011:

(in millions)	For the Nine Months Ended September 30, 2012
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges			Other Derivatives		Income Taxes		Total
Statement of Earnings:
Net revenues	$	33					$	—			$	33
Cost of sales	19						—				19
Marketing, administration and research costs	—						—				—
Operating income	52						—				52
Interest expense, net	(43		)				11				(32		)
Earnings before income taxes	9						11				20
Provision for income taxes	(1		)				1				—
Net earnings attributable to PMI	$	8					$	12			$	20
Other Comprehensive Earnings:
Gains transferred to earnings	$	(9	)						$	1	$	(8	)
Recognized losses	(20		)						3		(17		)
Net impact on equity	$	(29	)						$	4	$	(25	)
Cumulative translation adjustment				$	(11	)			$	4	$	(7	)

(in millions)	For the Nine Months Ended September 30, 2011
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges		Other Derivatives			Income Taxes			Total
Statement of Earnings:
Net revenues	$	(9	)			$	—					$	(9	)
Cost of sales	5					—						5
Marketing, administration and research costs	—					—						—
Operating income	(4		)			—						(4		)
Interest expense, net	(26		)			37						11
Earnings before income taxes	(30		)			37						7
Provision for income taxes	3					(9		)				(6		)
Net earnings attributable to PMI	$	(27	)			$	28					$	1
Other Comprehensive Earnings:
Losses transferred to earnings	$	30							$	(3	)	$	27
Recognized losses	(22		)						2			(20		)
Net impact on equity	$	8							$	(1	)	$	7
Cumulative translation adjustment				$	2							$	2

(in millions)	For the Three Months Ended September 30, 2012
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges			Other Derivatives		Income Taxes		Total
Statement of Earnings:
Net revenues	$	9					$	—			$	9
Cost of sales	—						—				—
Marketing, administration and research costs	—						—				—
Operating income	9						—				9
Interest expense, net	(13		)				5				(8		)
Earnings before income taxes	(4		)				5				1
Provision for income taxes	—						1				1
Net earnings attributable to PMI	$	(4	)				$	6			$	2
Other Comprehensive Earnings:
Losses transferred to earnings	$	4							$	—	$	4
Recognized losses	(33		)						4		(29		)
Net impact on equity	$	(29	)						$	4	$	(25	)
Cumulative translation adjustment				$	(11	)			$	4	$	(7	)

(in millions)	For the Three Months Ended September 30, 2011
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges		Other Derivatives			Income Taxes			Total
Statement of Earnings:
Net revenues	$	(9	)			$	—					$	(9	)
Cost of sales	5					—						5
Marketing, administration and research costs	—					—						—
Operating income	(4		)			—						(4		)
Interest expense, net	(10		)			23						13
Earnings before income taxes	(14		)			23						9
Provision for income taxes	1					(5		)				(4		)
Net earnings attributable to PMI	$	(13	)			$	18					$	5
Other Comprehensive Earnings:
Losses transferred to earnings	$	14							$	(1	)	$	13
Recognized losses	(27		)						2			(25		)
Net impact on equity	$	(13	)						$	1		$	(12	)
Cumulative translation adjustment				$	—							$	—

Each type of hedging activity is described in greater detail below.

Cash Flow Hedges

PMI has entered into foreign exchange contracts to hedge foreign currency exchange risk related to certain forecasted transactions. The effective portion of gains and losses associated with qualifying cash flow hedge contracts is deferred as a component of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s condensed consolidated statements of earnings. During the nine months and three months ended September 30,2012 and 2011, ineffectiveness related to cash flow hedges was not material. As of September 30, 2012, PMI has hedged forecasted transactions for periods not exceeding the next fifteen months. The impact of these hedges is included in operating cash flows on PMI’s condensed consolidated statements of cash flows.

For the nine months and three months ended September 30,2012 and 2011, foreign exchange contracts that were designated as cash flow hedging instruments impacted the condensed consolidated statements of earnings and other comprehensive earnings as follows:

(pre-tax, in millions)	For the Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive  Earnings into Earnings						Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012			2011			2012			2011
Foreign exchange contracts								$	(20	)	$	(22	)
	Net revenues	$	33		$	(9	)
	Cost of sales	19			5
	Marketing, administration and research costs	—			—
	Interest expense, net	(43		)	(26		)
Total		$	9		$	(30	)	$	(20	)	$	(22	)

(pre-tax, in millions)	For the Three Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive  Earnings into Earnings						Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012			2011			2012			2011
Foreign exchange contracts								$	(33	)	$	(27	)
	Net revenues	$	9		$	(9	)
	Cost of sales	—			5
	Marketing, administration and research costs	—			—
	Interest expense, net	(13		)	(10		)
Total		$	(4	)	$	(14	)	$	(33	)	$	(27	)

Hedges of Net Investments in Foreign Operations

PMI designates certain foreign currency denominated debt and foreign exchange contracts as net investment hedges of its foreign operations. For the nine months ended September 30,2012 and 2011, these hedges of net investments resulted in gains (losses), net of income taxes, of $(30) million and $(137) million, respectively. For the three months ended September 30,2012 and 2011, these hedges of net investments resulted in gains (losses), net of income taxes, of $(70) million and $139 million, respectively. These gains (losses) were reported as a component of accumulated other comprehensive losses within currency translation adjustments. For the nine months and three months ended September 30,2012 and 2011, ineffectiveness related to net investment hedges was not material. Other investing cash flows on PMI’s condensed consolidated statements of cash flows includes the premiums paid for and settlements of net investment hedges.

For the nine months and three months ended September 30,2012 and 2011, foreign exchange contracts that were designated as net investment hedging instruments impacted the condensed consolidated statements of earnings and other comprehensive earnings as follows:

(pre-tax, in millions)	For the Nine Months Ended September 30,
Derivatives in Net Investment Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings				Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012		2011		2012			2011
Foreign exchange contracts						$	(11	)	$	2
	Interest expense, net	$	—	$	—

(pre-tax, in millions)	For the Three Months Ended September 30,
Derivatives in Net Investment Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings				Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012		2011		2012			2011
Foreign exchange contracts						$	(11	)	$	—
	Interest expense, net	$	—	$	—

Other Derivatives

PMI has entered into foreign exchange contracts to hedge the foreign currency exchange risks related to intercompany loans between certain subsidiaries, and third-party loans. While effective as economic hedges, no hedge accounting is applied for these contracts; therefore, the unrealized gains (losses) relating to these contracts are reported in PMI’s condensed consolidated statements of earnings. For the nine months ended September 30,2012 and 2011, the gains (losses) from contracts for which PMI did not apply hedge accounting were $66 million and $144 million, respectively. For the three months ended September 30,2012 and 2011, the gains (losses) from contracts for which PMI did not apply hedge accounting were $190 million and $6 million, respectively. The gains (losses) from these contracts substantially offset the losses and gains generated by the underlying intercompany and third-party loans being hedged.

As a result, for the nine months and three months ended September 30,2012 and 2011, these items impacted the condensed consolidated statements of earnings as follows:

(pre-tax, in millions)
Derivatives not Designated    as Hedging Instruments	Statement of Earnings Classification of Gain/(Loss)	Amount of Gain/(Loss) Recognized in Earnings
		For the Nine Months Ended September 30,				For the Three Months Ended September 30,
		2012		2011		2012		2011
Foreign exchange contracts
	Marketing, administration and research costs	$	—	$	—	$	—	$	—
	Interest expense, net	11		37		5		23
		$	11	$	37	$	5	$	23

Qualifying Hedging Activities Reported in Accumulated Other Comprehensive Losses

Derivative gains or losses reported in accumulated other comprehensive losses are a result of qualifying hedging activity. Transfers of these gains or losses to earnings are offset by the corresponding gains or losses on the underlying hedged item. Hedging activity impacted accumulated other comprehensive losses, net of income taxes, as follows:

(in millions)	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2012			2011			2012			2011
Gain at beginning of period	$	15		$	2		$	15		$	21
Derivative (gains)/losses transferred to earnings	(8		)	27			4			13
Change in fair value	(17		)	(20		)	(29		)	(25		)
(Loss)/gain as of September 30	$	(10	)	$	9		$	(10	)	$	9

At September 30, 2012, PMI expects $11 million of derivative losses that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next twelve months. These losses are expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.

Credit Exposure and Credit Risk

PMI is exposed to credit loss in the event of non-performance by counterparties. While PMI does not anticipate non-performance, its risk is limited to the fair value of the financial instruments. PMI actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting and continuously monitoring a diverse group of major international banks and financial institutions as counterparties.

Contingent Features

PMI’s derivative instruments do not contain contingent features.

Fair Value

See Note 13. Fair Value Measurements for disclosures related to the fair value of PMI’s derivative financial instruments.

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Contingencies Health Care Cost Recovery Litigation (Details) (Health Care Cost Recovery Actions [Member])	Nov. 01, 2012 Litigation_Cases	Nov. 01, 2011 Litigation_Cases	Nov. 01, 2010 Litigation_Cases
Loss Contingencies [Line Items]
Cases brought against PM	15	11	10
CANADA [Member]
Loss Contingencies [Line Items]
Cases brought against PM	9
Nigeria [Member]
Loss Contingencies [Line Items]
Cases brought against PM	5
Spain [Member]
Loss Contingencies [Line Items]
Cases brought against PM	1

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Benefit Plans

9 Months Ended

Sep. 30, 2012

Compensation and Retirement Disclosure [Abstract]

Benefit Plans

Benefit Plans:

Pension coverage for employees of PMI’s subsidiaries is provided, to the extent deemed appropriate, through separate plans, many of which are governed by local statutory requirements. In addition, PMI provides health care and other benefits to substantially all U.S. retired employees and certain non-U.S. retired employees. In general, health care benefits for non-U.S. retired employees are covered through local government plans.

Pension Plans

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:

	U.S. Plans						Non-U.S. Plans
	For the Nine Months Ended September 30,						For the Nine Months Ended September 30,
(in millions)	2012			2011			2012			2011
Service cost	$	5		$	5		$	143		$	132
Interest cost	12			13			142			155
Expected return on plan assets	(11		)	(12		)	(243		)	(240		)
Amortization:
Net loss	7			6			92			42
Prior service cost	1			1			8			6
Net transition obligation	—			—			1			—
Other	—			1			—			—
Net periodic pension cost	$	14		$	14		$	143		$	95

	U.S. Plans						Non-U.S. Plans
	For the Three Months Ended September 30,						For the Three Months Ended September 30,
(in millions)	2012			2011			2012			2011
Service cost	$	1		$	2		$	47		$	47
Interest cost	4			4			46			54
Expected return on plan assets	(3		)	(4		)	(81		)	(84		)
Amortization:
Net loss	2			2			30			14
Prior service cost	—			1			4			2
Net transition obligation	—			—			1			—
Net periodic pension cost	$	4		$	5		$	47		$	33

Employer Contributions

PMI makes, and plans to make, contributions, to the extent that they are tax deductible and to meet specific funding requirements of its funded U.S. and non-U.S. plans. Employer contributions of $84 million were made to the pension plans during the nine months ended September 30,2012. Currently, PMI anticipates making additional contributions during the remainder of 2012 of approximately $79 million to its pension plans, based on current tax and benefit laws. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest rates.

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Goodwill and Other Intangible Assets, Net

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets, net

Goodwill and Other Intangible Assets, net:

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

	Goodwill				Other Intangible Assets, net
(in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
European Union	$	1,415	$	1,392	$	647	$	663
Eastern Europe, Middle East & Africa	631		666		244		250
Asia	4,804		4,966		1,552		1,633
Latin America & Canada	3,053		2,904		1,208		1,151
Total	$	9,903	$	9,928	$	3,651	$	3,697

Goodwill is due primarily to PMI’s acquisitions in Canada, Indonesia, Mexico, Greece, Serbia, Colombia and Pakistan, as well as the business combination in the Philippines in February 2010. The movements in goodwill from December 31, 2011, were as follows:

(in millions)	European Union		Eastern Europe, Middle East & Africa			Asia			Latin America & Canada		Total
Balance at December 31, 2011	$	1,392	$	666		$	4,966		$	2,904	$	9,928
Changes due to:
Acquisitions	—		—			—			—		—
Currency	23		(35		)	(162		)	149		(25		)
Balance at September 30, 2012	$	1,415	$	631		$	4,804		$	3,053	$	9,903

Additional details of other intangible assets were as follows:

	September 30, 2012				December 31, 2011
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Non-amortizable intangible assets	$	2,061			$	2,067
Amortizable intangible assets	2,038		$	448	2,001		$	371
Total other intangible assets	$	4,099	$	448	$	4,068	$	371

Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia in 2005 and Mexico in 2007. Amortizable intangible assets primarily consist of certain trademarks, distribution networks and non-compete agreements associated with business combinations. The range of useful lives as well as the weighted-average remaining useful life of amortizable intangible assets at September 30, 2012 is as follows:

Description	Initial Estimated Useful Lives	Weighted-Average Remaining Useful Life
Trademarks	2 - 40 years	26	years
Distribution networks	20 - 30 years	15	years
Non-compete agreements	3 - 10 years	3	years
Other (including farmer   contracts and intellectual property rights)	12.5 - 17 years	13	years

Pre-tax amortization expense for intangible assets was $73 million for each of the nine months ended September 30,2012 and 2011, and $24 million and $25 million for the three months ended September 30,2012 and 2011, respectively. Amortization expense for each of the next five years is estimated to be $98 million or less, assuming no additional transactions occur that require the amortization of intangible assets.

The increase in the gross carrying amount of other intangible assets from December 31, 2011, was due to currency movements.

During the first quarter of 2012, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment, and no impairment charges were required as a result of this review.

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Redeemable Noncontrolling Interest

9 Months Ended

Sep. 30, 2012

Temporary Equity Disclosure [Abstract]

Redeemable Noncontrolling Interest

Redeemable Noncontrolling Interest:

Philippines Business Combination:

On February 25, 2010, PMI's affiliate, Philip Morris Philippines Manufacturing Inc. (“PMPMI”), and Fortune Tobacco Corporation (“FTC”) combined their respective business activities by transferring selected assets and liabilities of PMPMI and FTC to a new company called PMFTC Inc. (“PMFTC”). PMPMI and FTC hold equal economic interests in PMFTC, while PMI manages the day-to-day operations of PMFTC and has a majority of its Board of Directors. Consequently, PMI accounted for the contributed assets and liabilities of FTC as a business combination.

The fair value of the assets and liabilities contributed by FTC in this non-cash transaction was determined to be $1.17 billion. FTC holds the right to sell its interest in PMFTC to PMI, except in certain circumstances, during the period from February 25, 2015 through February 24, 2018, at an agreed-upon value of $1.17 billion, which was recorded on PMI’s condensed consolidated balance sheet as a redeemable noncontrolling interest at the date of the business combination.

With the consolidation of PMFTC, FTC’s share of PMFTC’s comprehensive income or loss is attributable to the redeemable noncontrolling interest, impacting the carrying value. To the extent that the attribution of these amounts would cause the carrying value to fall below the redemption amount of $1.17 billion, the carrying amount would be adjusted back up to the redemption value through stockholders’ (deficit) equity. The movement in redeemable noncontrolling interest for the nine months ended September 30,2012 was as follows:

(in millions)
Redeemable noncontrolling interest at December 31, 2011	$	1,212
Share of net earnings	126
Dividend payments	(79		)
Currency translation	17
Redeemable noncontrolling interest at September 30, 2012	$	1,276

The redeemable noncontrolling interest balance at September 30, 2011 was $1,216 million. The increase in redeemable noncontrolling interest from December 31, 2010 through September 30, 2011 of $28 million was due to $80 million of net earnings and currency translation gains of $2 million, partially offset by dividend payments of $54 million.

In future periods, if the fair value of 50% of PMFTC were to drop below the redemption value of $1.17 billion, the difference would be treated as a special dividend to FTC and would reduce PMI’s earnings per share. Reductions in earnings per share may be partially or fully reversed in subsequent periods if the fair value of the redeemable noncontrolling interest increases relative to the redemption value. Such increases in earnings per share would be limited to cumulative prior reductions. At September 30, 2012, PMI determined that 50% of the fair value of PMFTC exceeded the redemption value of $1.17 billion.

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Income Taxes Narrative (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Income Taxes [Line Items]
Effective tax rate	31.90%	29.40%	30.30%	29.10%
GREECE [Member]
Income Taxes [Line Items]
Favorable (unfavorable) impact on effective tax rate due to a discrete tax event				11
BRAZIL [Member]
Income Taxes [Line Items]
Valuation Allowance, Deferred Tax Asset, Change in Amount				(15)
UNITED STATES [Member]
Income Taxes [Line Items]
Open Tax Year			2007 onward
GERMANY [Member]
Income Taxes [Line Items]
Open Tax Year			2007 onward
INDONESIA [Member]
Income Taxes [Line Items]
Open Tax Year			2007 onward
RUSSIAN FEDERATION [Member]
Income Taxes [Line Items]
Open Tax Year			2010 onward
SWITZERLAND [Member]
Income Taxes [Line Items]
Open Tax Year			2011 onward
Internal Revenue Service (IRS) [Member] | Altria [Member]
Income Taxes [Line Items]
Additional Income Tax Provision Upon Conclusion of IRS Examination	79		79

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Indebtedness Long-Term Debt (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012	Dec. 31, 2011
Debt Instrument [Line Items]
Long term debt obligations	$ 20,295	$ 17,034
Long-term Debt, Current	2,775	2,206
Long-term Debt	17,520	14,828
US Dollar Notes [Member] | U.S. Dollar Notes [Member]
Debt Instrument [Line Items]
Long-term Debt	14,698	11,269
Due through	2042
Interest rate, minimum	1.125%
Interest rate, maximum	6.875%
Interest rate, average	4.462%
Foreign Currency Obligations [Member] | Euro Notes [Member]
Debt Instrument [Line Items]
Long-term Debt	3,637	3,533
Due through	2024
Interest rate, minimum	2.125%
Interest rate, maximum	5.875%
Interest rate, average	4.227%
Foreign Currency Obligations [Member] | Swiss Franc Notes [Member]
Debt Instrument [Line Items]
Long-term Debt	1,540	1,719
Due through	2021
Interest rate, minimum	1.00%
Interest rate, maximum	3.25%
Interest rate, average	1.984%
Foreign Currency Obligations [Member] | Other [Member]
Debt Instrument [Line Items]
Long term debt obligations	$ 420	$ 513
Due through	2024
Interest rate, average	3.004%

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Contingencies Other Litigation (Details) (Other Litigation [Member], Tax [Member], BRAZIL [Member])	Nov. 01, 2012 Litigation_Cases
Loss Contingencies [Line Items]
Cases brought against PM	112
Cases Under Administrative Review [Member]
Loss Contingencies [Line Items]
Cases brought against PM	56
Cases Under Judicial Review [Member]
Loss Contingencies [Line Items]
Cases brought against PM	56

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Accumulated Other Comprehensive Losses (Tables)

9 Months Ended

Sep. 30, 2012

Accumulated Other Comprehensive Income (Loss), Net of Tax [Abstract]

Components of Accumulated Other Comprehensive Earnings (Losses), Net of Taxes

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

(in millions)	At September 30, 2012			At December 31, 2011			At September 30, 2011
Currency translation adjustments	$	(358	)	$	(293	)	$	141
Pension and other benefits	(2,467		)	(2,585		)	(1,576		)
Derivatives accounted for as hedges	(10		)	15			9
Equity securities	—			—			1
Total accumulated other comprehensive losses	$	(2,835	)	$	(2,863	)	$	(1,425	)

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Financial Instruments Hedging Activity Reported In Accumulated Other Comprehensive Earnings (Losses) Net Of Income Taxes (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Hedging Activity, Affecting Accumulated Other Comprehensive Income [Roll Forward]
Gain (loss) at beginning of period			$ 15
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	4	13	(8)	27
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net	(29)	(25)	(17)	(20)
(Loss)/gain as of September 30	(10)	9	(10)	9
Foreign Exchange Contract [Member]
Hedging Activity, Affecting Accumulated Other Comprehensive Income [Roll Forward]
Derivative Instruments, gains to be reclassified to earnings.	11		11
Foreign Exchange Contract [Member] | Other Comprehensive Income (Loss) [Member]
Hedging Activity, Affecting Accumulated Other Comprehensive Income [Roll Forward]
Gain (loss) at beginning of period	15	21	15	2
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	4	13	(8)	27
Derivative Instruments, Gain (Loss) Recognized in Other Comprehensive Income (Loss), Effective Portion, Net	(29)	(25)	(17)	(20)
(Loss)/gain as of September 30	$ (10)	$ 9	$ (10)	$ 9

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Indebtedness

9 Months Ended

Sep. 30, 2012

Debt Disclosure [Abstract]

Indebtedness

Indebtedness:

Short-term Borrowings:

At September 30, 2012 and December 31, 2011, PMI’s short-term borrowings, consisting of commercial paper and bank loans to certain PMI subsidiaries, had a carrying value of $2,141 million and $1,511 million, respectively. The fair value of PMI’s short-term borrowings, based on current market interest rates, approximates carrying value.

Long-term Debt:

At September 30, 2012 and December 31, 2011, PMI’s long-term debt consisted of the following:

(in millions)	September 30, 2012		December 31, 2011
U.S. dollar notes, 1.125% to 6.875% (average interest rate 4.462%), due through 2042	$	14,698	$	11,269
Foreign currency obligations:
Euro notes, 2.125% to 5.875% (average interest rate 4.227%), due through 2024	3,637		3,533
Swiss franc notes, 1.0% to 3.250% (average interest rate 1.984%), due through 2021	1,540		1,719
Other (average interest rate 3.004%), due through 2024	420		513
	20,295		17,034
Less current portion of long-term debt	2,775		2,206
	$	17,520	$	14,828

Other foreign currency debt above includes capital lease obligations primarily associated with PMI's vending machine distribution network in Japan. Other foreign currency debt also includes debt from our business combination in the Philippines and mortgage debt in Switzerland.

PMI's debt offerings in the first three quarters of 2012 were as follows:

(in millions)
Type		Face Value	Interest Rate	Issuance	Maturity
U.S. dollar notes	(a)	$700	4.500%	March 2012	March 2042
U.S. dollar notes	(a)	$550	1.625%	March 2012	March 2017
EURO notes	(b)	€750 (approximately $951)	2.125%	May 2012	May 2019
EURO notes	(b)	€600 (approximately $761)	2.875%	May 2012	May 2024
U.S. dollar notes	(c)	$750	1.125%	August 2012	August 2017
U.S. dollar notes	(c)	$750	2.500%	August 2012	August 2022
U.S. dollar notes	(c)	$750	3.875%	August 2012	August 2042
Swiss franc notes	(d)	CHF 325 (approximately $334)	1.000%	September 2012	September 2020

(a) Interest on these notes is payable semiannually beginning in September 2012

(b) Interest on these notes is payable annually beginning in May 2013

(c) Interest on these notes is payable semiannually beginning in February 2013

(d) Interest on these notes is payable annually beginning in September 2013

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

Credit Facilities:

At September 30, 2012, PMI’s total committed credit facilities were $6.0 billion. There were no borrowings outstanding under these committed credit facilities.

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Goodwill and Other Intangible Assets, Net (Tables)

9 Months Ended

Sep. 30, 2012

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Other Intangible Assets, Net, by Segment

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

	Goodwill				Other Intangible Assets, net
(in millions)	September 30, 2012		December 31, 2011		September 30, 2012		December 31, 2011
European Union	$	1,415	$	1,392	$	647	$	663
Eastern Europe, Middle East & Africa	631		666		244		250
Asia	4,804		4,966		1,552		1,633
Latin America & Canada	3,053		2,904		1,208		1,151
Total	$	9,903	$	9,928	$	3,651	$	3,697

Movements in Goodwill

The movements in goodwill from December 31, 2011, were as follows:

(in millions)	European Union		Eastern Europe, Middle East & Africa			Asia			Latin America & Canada		Total
Balance at December 31, 2011	$	1,392	$	666		$	4,966		$	2,904	$	9,928
Changes due to:
Acquisitions	—		—			—			—		—
Currency	23		(35		)	(162		)	149		(25		)
Balance at September 30, 2012	$	1,415	$	631		$	4,804		$	3,053	$	9,903

Other Intangible Assets

Additional details of other intangible assets were as follows:

	September 30, 2012				December 31, 2011
(in millions)	Gross Carrying Amount		Accumulated Amortization		Gross Carrying Amount		Accumulated Amortization
Non-amortizable intangible assets	$	2,061			$	2,067
Amortizable intangible assets	2,038		$	448	2,001		$	371
Total other intangible assets	$	4,099	$	448	$	4,068	$	371

Range of Useful Lives and Weighted-Average Remaining Useful Life of Amortizable Intangible Assets

The range of useful lives as well as the weighted-average remaining useful life of amortizable intangible assets at September 30, 2012 is as follows:

Description	Initial Estimated Useful Lives	Weighted-Average Remaining Useful Life
Trademarks	2 - 40 years	26	years
Distribution networks	20 - 30 years	15	years
Non-compete agreements	3 - 10 years	3	years
Other (including farmer   contracts and intellectual property rights)	12.5 - 17 years	13	years

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Financial Instruments Pre-Tax Effect Of Foreign Exchange Contracts Designated As Net Investment Hedging Instruments (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	$ 4	$ 13	$ (8)	$ 27
Foreign Exchange Contract [Member] | Net Investment Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Other Comprehensive Income (Loss), Foreign Currency Transaction and Translation Gain (Loss) Arising During Period, Net of Tax	(70)	139	(30)	(137)
Foreign Exchange Contract [Member] | Other Comprehensive Income (Loss) [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Translation Adjustment For Cash Flow And Net Investment Hedge Increase Decrease	(7)	0	(7)	2
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	4	13	(8)	27
Foreign Exchange Contract [Member] | Other Comprehensive Income (Loss) [Member] | Net Investment Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Translation Adjustment For Cash Flow And Net Investment Hedge Increase Decrease	(11)	0	(11)	2
Foreign Exchange Contract [Member] | Interest Expense, Net [Member] | Net Investment Hedges [Member]
Derivative Instruments, Gain (Loss) [Line Items]
Derivative Instruments, Gain (Loss) Reclassified from Accumulated OCI into Income, Effective Portion, Net	$ 0	$ 0	$ 0	$ 0

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Goodwill and Other Intangible Assets, Net Movement In Goodwill (Details) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2012
Goodwill [Roll Forward]
Balance Beginning	$ 9,928
Acquisitions	0
Currency	(25)
Balance Ending	9,903
European Union [Member]
Goodwill [Roll Forward]
Balance Beginning	1,392
Acquisitions	0
Currency	23
Balance Ending	1,415
Eastern Europe, Middle East & Africa [Member]
Goodwill [Roll Forward]
Balance Beginning	666
Acquisitions	0
Currency	(35)
Balance Ending	631
Asia [Member]
Goodwill [Roll Forward]
Balance Beginning	4,966
Acquisitions	0
Currency	(162)
Balance Ending	4,804
Latin America & Canada [Member]
Goodwill [Roll Forward]
Balance Beginning	2,904
Acquisitions	0
Currency	149
Balance Ending	$ 3,053

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Condensed Consolidated Statements of Comprehensive Earnings (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
Statement of Other Comprehensive Income [Abstract]
Net earnings	$ 2,324	$ 2,461	$ 6,963	$ 6,933
Other comprehensive earnings (losses), net of income taxes:
Currency translation adjustments, net of income taxes for the nine months ended of $31 in 2012 and $22 in 2011 for the three months ended $64 in 2012 and ($71) in 2011	546	(1,222)	(20)	(394)
Change in net loss and prior service cost:
Net losses and prior service costs, net of income taxes for the nine months ended ($1) in 2012 and ($2) in 2011 and for the three months ended ($1) in 2012 and $- in 2011	(1)	0	(2)	8
Less amortization of net losses, prior service costs and net transition costs, net of income taxes for the nine months ended ($29) in 2012 and ($21) in 2011 and for the three months ended ($8) in 2012 and ($9) in 2011	43	22	121	66
Change in fair value of derivatives accounted for as hedges:
(Gains)/losses transferred to earnings, net of income taxes for the nine months ended $1 in 2012 and ($3) in 2011 and for the three months ended $- in 2012 and ($1) in 2011	4	13	(8)	27
Losses recognized, net of income taxes for the nine months ended $3 in 2012 and $2 in 2011 and for the three months ended $4 in 2012 and $2 in 2011	(29)	(25)	(17)	(20)
Change in fair value of equity securities	0	1
Total other comprehensive earnings (losses)	563	(1,211)	74	(313)
Total comprehensive earnings	2,887	1,250	7,037	6,620
Less comprehensive earnings attributable to:
Noncontrolling interests	75	6	161	118
Redeemable noncontrolling interests	44	30	143	82
Comprehensive earnings attributable to PMI	$ 2,768	$ 1,214	$ 6,733	$ 6,420

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Background and Basis of Presentation

9 Months Ended

Sep. 30, 2012

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Background and Basis of Presentation

Background and Basis of Presentation:

Background

Philip Morris International Inc. is a holding company incorporated in Virginia, U.S.A., whose subsidiaries and affiliates and their licensees are engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States of America. Throughout these financial statements, the term “PMI” refers to Philip Morris International Inc. and its subsidiaries.

Basis of Presentation

The interim condensed consolidated financial statements of PMI are unaudited. These interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and such principles are applied on a consistent basis. It is the opinion of PMI’s management that all adjustments necessary for a fair statement of the interim results presented have been reflected therein. All such adjustments were of a normal recurring nature. Net revenues and net earnings attributable to PMI for any interim period are not necessarily indicative of results that may be expected for the entire year.

In June 2011, the Financial Accounting Standards Board issued Accounting Standards Update 2011-05, Presentation of Comprehensive Income, which became effective for PMI in the first quarter of 2012. Under the new guidance, PMI evaluated the presentation options and elected to present comprehensive earnings in a separate statement. As a result of this new standard, certain amounts reported in the prior year statements have been reclassified to conform to the current year presentation.

These statements should be read in conjunction with the audited consolidated financial statements and related notes, which appear in PMI’s Annual Report to Shareholders and which are incorporated by reference into PMI’s Annual Report on Form 10-K for the year ended December 31, 2011.

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Contingencies Verdicts And Post-Trial Developments (Details)				10 Months Ended									10 Months Ended										10 Months Ended
	Nov. 01, 2012 Individual Smoking And Health Cases [Member] Litigation_Cases	Nov. 01, 2011 Individual Smoking And Health Cases [Member] Litigation_Cases	Nov. 01, 2010 Individual Smoking And Health Cases [Member] Litigation_Cases	Nov. 01, 2012 Individual Smoking And Health Cases [Member] Bernhardt [Member] USD ($)	Nov. 01, 2012 Individual Smoking And Health Cases [Member] Bernhardt [Member] BRL	Nov. 01, 2012 Individual Smoking And Health Cases [Member] Laszlo [Member] USD ($)	Nov. 01, 2012 Individual Smoking And Health Cases [Member] Laszlo [Member] BRL	Nov. 01, 2012 Individual Smoking And Health Cases [Member] ITALY [Member] Litigation_Cases	Nov. 01, 2012 Individual Smoking And Health Cases [Member] BRAZIL [Member] Litigation_Cases	Nov. 01, 2012 Smoking And Health Class Actions [Member] Litigation_Cases	Nov. 01, 2011 Smoking And Health Class Actions [Member] Litigation_Cases	Nov. 01, 2010 Smoking And Health Class Actions [Member] Litigation_Cases	Nov. 01, 2012 Smoking And Health Class Actions [Member] The Smoker Health Defense Association (ADESF) [Member] USD ($)	Nov. 01, 2012 Smoking And Health Class Actions [Member] The Smoker Health Defense Association (ADESF) [Member] BRL	Nov. 01, 2012 Smoking And Health Class Actions [Member] BRAZIL [Member] Litigation_Cases	Nov. 01, 2012 Individual Lights Cases Small Claims Court [Member] ITALY [Member] Litigation_Cases	Nov. 01, 2011 Individual Lights Cases Small Claims Court [Member] ITALY [Member] Litigation_Cases	Nov. 01, 2010 Individual Lights Cases Small Claims Court [Member] ITALY [Member] Litigation_Cases	Nov. 01, 2012 Lights Class Actions [Member] ISRAEL [Member] Litigation_Cases	Nov. 01, 2011 Lights Class Actions [Member] ISRAEL [Member] Litigation_Cases	Nov. 01, 2010 Lights Class Actions [Member] ISRAEL [Member] Litigation_Cases	Nov. 01, 2012 Cases With Verdicts And Post Trial Developments [Member] Litigation_Cases	Nov. 01, 2012 Cases With Verdicts And Post Trial Developments [Member] Individual Smoking And Health Cases [Member] BRAZIL [Member] Bernhardt [Member]	Nov. 01, 2012 Cases With Verdicts And Post Trial Developments [Member] Individual Smoking And Health Cases [Member] BRAZIL [Member] Laszlo [Member]	Nov. 01, 2012 Cases With Verdicts And Post Trial Developments [Member] Smoking And Health Class Actions [Member] BRAZIL [Member] The Smoker Health Defense Association (ADESF) [Member]	Nov. 01, 2010 Cases Reversed On Appeal [Member] Individual Lights Cases Small Claims Court [Member] ITALY [Member] Litigation_Cases
Loss Contingencies [Line Items]
Cases Brought Against Company	75	84	111					5	29	10	10	11			2	7	9	10	2	2	2	3				3
Date																							September 2009	May 2011	February 2004
Verdict																							The Civil Court of Rio de Janeiro found for plaintiff and ordered Philip Morris Brasil to pay R$13,000 (approximately $6,400) in “moral damages.”	The Civil Court of São Vicente found for plaintiff and ordered Philip Morris Brasil to pay damages of R$31,333 (approximately $15,435), plus future costs for cessation and medical treatment of smoking related diseases.	The Civil Court of São Paulo found defendants liable without hearing evidence. The court did not assess moral or actual damages, which were to be assessed in a second phase of the case. The size of the class was not defined in the ruling.
Post-Trial Developments																							Philip Morris Brasil filed its appeal against the decision on the merits with the Court of Appeals in November 2009. In February 2010, without addressing the merits, the Court of Appeals annulled the trial court's decision and remanded the case to the trial court to issue a new ruling, which was required to address certain compensatory damage claims made by the plaintiff that the trial court did not address in its original ruling. In July 2010, the trial court reinstated its original decision, while specifically rejecting the compensatory damages claim. Philip Morris Brasil appealed this decision. In March 2011, the Court of Appeals affirmed the trial court's decision and denied Philip Morris Brasil's appeal. The Court of Appeals increased the amount of damages awarded to the plaintiff to R$100,000 (approximately $49,300). Philip Morris Brasil filed an appeal in June 2011. This appeal is still pending.	In June 2011, Philip Morris Brasil filed an appeal. In December 2011, the Appellate Court reversed the trial court decision. In February 2012, plaintiff appealed the decision. This appeal is still pending.	In April 2004, the court clarified its ruling, awarding “moral damages” of R$1,000 (approximately $490) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not award actual damages, which were to be assessed in the second phase of the case. The size of the class was not estimated. Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In May 2011, the trial court dismissed the claim. Plaintiff has appealed. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that the plaintiff did not have standing to bring the lawsuit. This appeal is still pending.
Amount Loss Contingency Actions Taken By Court Arbitrator Or Mediator				$ 6,400	13,000	$ 15,435	31,333						$ 490	1,000
Increased Amount, Loss Contingency, Actions Taken By Court, Arbitrator Or Mediator.				$ 49,300	100,000
Smoking and health loss contingency accrual interest rate													1.00%	1.00%

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Fair Value Measurements Aggregate Fair Value Of Derivative Financial Instruments And Debt (Details) (USD $) In Millions, unless otherwise specified	Sep. 30, 2012
Fair Value at September 30, 2012 [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign exchange contracts, Assets	$ 72
Total assets	72
Debt	22,645
Foreign exchange contracts, Liabilities	63
Total liabilities	22,708
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign exchange contracts, Assets	0
Total assets	0
Debt	22,249
Foreign exchange contracts, Liabilities	0
Total liabilities	22,249
Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign exchange contracts, Assets	72
Total assets	72
Debt	396
Foreign exchange contracts, Liabilities	63
Total liabilities	459
Significant Unobservable Inputs (Level 3) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Foreign exchange contracts, Assets	0
Total assets	0
Debt	0
Foreign exchange contracts, Liabilities	0
Total liabilities	$ 0

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Financial Instruments (Tables)

9 Months Ended

Sep. 30, 2012

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Fair Value of Foreign Exchange Contracts

The fair value of PMI’s foreign exchange contracts included in the condensed consolidated balance sheet as of September 30, 2012 and December 31, 2011, were as follows:

	Asset Derivatives					Liability Derivatives
		Fair Value					Fair Value
(in millions)	Balance Sheet Classification	At September 30, 2012		At December 31, 2011		Balance Sheet Classification	At September 30, 2012		At December 31, 2011
Foreign exchange contracts designated as hedging instruments	Other current assets	$	38	$	57	Other accrued liabilities	$	4	$	4
	Other assets	15		—		Other liabilities	3		—
Foreign exchange contracts not designated as hedging instruments	Other current assets	19		88		Other accrued liabilities	55		62
						Other liabilities	1		—
Total derivatives		$	72	$	145		$	63	$	66

Hedging Activities Effect on Condensed Consolidated Statements of Earnings and Other Comprehensive Earnings

Hedging activities, which represent movement in derivatives as well as the respective underlying transactions, had the following effect on PMI’s condensed consolidated statements of earnings and other comprehensive earnings for the nine months and three months ended September 30,2012 and 2011:

(in millions)	For the Nine Months Ended September 30, 2012
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges			Other Derivatives		Income Taxes		Total
Statement of Earnings:
Net revenues	$	33					$	—			$	33
Cost of sales	19						—				19
Marketing, administration and research costs	—						—				—
Operating income	52						—				52
Interest expense, net	(43		)				11				(32		)
Earnings before income taxes	9						11				20
Provision for income taxes	(1		)				1				—
Net earnings attributable to PMI	$	8					$	12			$	20
Other Comprehensive Earnings:
Gains transferred to earnings	$	(9	)						$	1	$	(8	)
Recognized losses	(20		)						3		(17		)
Net impact on equity	$	(29	)						$	4	$	(25	)
Cumulative translation adjustment				$	(11	)			$	4	$	(7	)

(in millions)	For the Nine Months Ended September 30, 2011
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges		Other Derivatives			Income Taxes			Total
Statement of Earnings:
Net revenues	$	(9	)			$	—					$	(9	)
Cost of sales	5					—						5
Marketing, administration and research costs	—					—						—
Operating income	(4		)			—						(4		)
Interest expense, net	(26		)			37						11
Earnings before income taxes	(30		)			37						7
Provision for income taxes	3					(9		)				(6		)
Net earnings attributable to PMI	$	(27	)			$	28					$	1
Other Comprehensive Earnings:
Losses transferred to earnings	$	30							$	(3	)	$	27
Recognized losses	(22		)						2			(20		)
Net impact on equity	$	8							$	(1	)	$	7
Cumulative translation adjustment				$	2							$	2

(in millions)	For the Three Months Ended September 30, 2012
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges			Other Derivatives		Income Taxes		Total
Statement of Earnings:
Net revenues	$	9					$	—			$	9
Cost of sales	—						—				—
Marketing, administration and research costs	—						—				—
Operating income	9						—				9
Interest expense, net	(13		)				5				(8		)
Earnings before income taxes	(4		)				5				1
Provision for income taxes	—						1				1
Net earnings attributable to PMI	$	(4	)				$	6			$	2
Other Comprehensive Earnings:
Losses transferred to earnings	$	4							$	—	$	4
Recognized losses	(33		)						4		(29		)
Net impact on equity	$	(29	)						$	4	$	(25	)
Cumulative translation adjustment				$	(11	)			$	4	$	(7	)

(in millions)	For the Three Months Ended September 30, 2011
Gain (Loss)	Cash Flow Hedges			Net Investment Hedges		Other Derivatives			Income Taxes			Total
Statement of Earnings:
Net revenues	$	(9	)			$	—					$	(9	)
Cost of sales	5					—						5
Marketing, administration and research costs	—					—						—
Operating income	(4		)			—						(4		)
Interest expense, net	(10		)			23						13
Earnings before income taxes	(14		)			23						9
Provision for income taxes	1					(5		)				(4		)
Net earnings attributable to PMI	$	(13	)			$	18					$	5
Other Comprehensive Earnings:
Losses transferred to earnings	$	14							$	(1	)	$	13
Recognized losses	(27		)						2			(25		)
Net impact on equity	$	(13	)						$	1		$	(12	)
Cumulative translation adjustment				$	—							$	—

Pre-Tax Effect of Foreign Exchange Contracts Designated as Cash Flow Hedging Instruments

For the nine months and three months ended September 30,2012 and 2011, foreign exchange contracts that were designated as cash flow hedging instruments impacted the condensed consolidated statements of earnings and other comprehensive earnings as follows:

(pre-tax, in millions)	For the Nine Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive  Earnings into Earnings						Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012			2011			2012			2011
Foreign exchange contracts								$	(20	)	$	(22	)
	Net revenues	$	33		$	(9	)
	Cost of sales	19			5
	Marketing, administration and research costs	—			—
	Interest expense, net	(43		)	(26		)
Total		$	9		$	(30	)	$	(20	)	$	(22	)

(pre-tax, in millions)	For the Three Months Ended September 30,
Derivatives in Cash Flow Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive  Earnings into Earnings						Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012			2011			2012			2011
Foreign exchange contracts								$	(33	)	$	(27	)
	Net revenues	$	9		$	(9	)
	Cost of sales	—			5
	Marketing, administration and research costs	—			—
	Interest expense, net	(13		)	(10		)
Total		$	(4	)	$	(14	)	$	(33	)	$	(27	)

Pre-Tax Effect of Foreign Exchange Contracts Designated as Net Investment Hedging Instruments

For the nine months and three months ended September 30,2012 and 2011, foreign exchange contracts that were designated as net investment hedging instruments impacted the condensed consolidated statements of earnings and other comprehensive earnings as follows:

(pre-tax, in millions)	For the Nine Months Ended September 30,
Derivatives in Net Investment Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings				Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012		2011		2012			2011
Foreign exchange contracts						$	(11	)	$	2
	Interest expense, net	$	—	$	—

(pre-tax, in millions)	For the Three Months Ended September 30,
Derivatives in Net Investment Hedging Relationship	Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings	Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings				Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivatives
		2012		2011		2012			2011
Foreign exchange contracts						$	(11	)	$	—
	Interest expense, net	$	—	$	—

Pre-Tax Effect of Foreign Exchange Contracts Not Designated as Hedging Instruments

As a result, for the nine months and three months ended September 30,2012 and 2011, these items impacted the condensed consolidated statements of earnings as follows:

(pre-tax, in millions)
Derivatives not Designated    as Hedging Instruments	Statement of Earnings Classification of Gain/(Loss)	Amount of Gain/(Loss) Recognized in Earnings
		For the Nine Months Ended September 30,				For the Three Months Ended September 30,
		2012		2011		2012		2011
Foreign exchange contracts
	Marketing, administration and research costs	$	—	$	—	$	—	$	—
	Interest expense, net	11		37		5		23
		$	11	$	37	$	5	$	23

Hedging Activity Reported in Accumulated Other Comprehensive Earnings (Losses), Net of Income Taxes

Hedging activity impacted accumulated other comprehensive losses, net of income taxes, as follows:

(in millions)	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
	2012			2011			2012			2011
Gain at beginning of period	$	15		$	2		$	15		$	21
Derivative (gains)/losses transferred to earnings	(8		)	27			4			13
Change in fair value	(17		)	(20		)	(29		)	(25		)
(Loss)/gain as of September 30	$	(10	)	$	9		$	(10	)	$	9

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Benefit Plans Components Of Net Periodic Benefit Cost (Details) (USD $) In Millions, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2012	Sep. 30, 2011	Sep. 30, 2012	Sep. 30, 2011
U.S. Plans - Pension [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	$ 1	$ 2	$ 5	$ 5
Interest cost	4	4	12	13
Expected return on plan assets	(3)	(4)	(11)	(12)
Amortization:
Net loss	2	2	7	6
Prior service cost	0	1	1	1
Net transition obligation	0	0	0	0
Other			0	1
Net periodic pension cost	4	5	14	14
Non-U.S. Plans - Pension [Member]
Defined Benefit Plan Disclosure [Line Items]
Service cost	47	47	143	132
Interest cost	46	54	142	155
Expected return on plan assets	(81)	(84)	(243)	(240)
Amortization:
Net loss	30	14	92	42
Prior service cost	4	2	8	6
Net transition obligation	1	0	1	0
Other			0	0
Net periodic pension cost	$ 47	$ 33	$ 143	$ 95

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Income Taxes

9 Months Ended

Sep. 30, 2012

Income Tax Disclosure [Abstract]

Income Taxes

Income Taxes:

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

PMI’s effective tax rates for the nine months and three months ended September 30,2012 were 30.3% and 31.9%, respectively. PMI’s effective tax rates for the nine months and three months ended September 30,2011, were 29.1% and 29.4%, respectively. The effective tax rates for the nine months and three months ended September 30,2012, were unfavorably impacted by an additional income tax provision of $79 million following the conclusion of the IRS examination of Altria's consolidated tax returns for the years 2004-2006. Prior to March 28, 2008, PMI was a wholly owned subsidiary of Altria. The effective tax rate for the nine months ended September 30,2011, was favorably impacted by an enacted decrease in corporate income tax rates in Greece ($11 million) and the reversal of a valuation allowance in Brazil ($15 million).

The effective tax rates are based on PMI’s full-year geographic earnings mix projections and cash repatriation plans. Changes in earnings mix or in cash repatriation plans could have an impact on the effective tax rates, which PMI monitors each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions.

PMI is regularly examined by tax authorities around the world and is currently under examination in a number of jurisdictions. The U.S. federal statute of limitations remains open for the years 2007 onward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years. Years still open to examination by foreign tax authorities in major jurisdictions include Germany (2007 onward), Indonesia (2007 onward), Russia (2010 onward) and Switzerland (2011 onward).

It is reasonably possible that, within the next twelve 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.