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10-Q
false
N.A.
2009-06-30
Philip Morris International Inc.
0001413329
PM
--12-31
Yes
No
Yes
Large Accelerated Filer
1071000000
2125000000
<div>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 8.
Acquisitions:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Rothmans:</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">On July 31, 2008, PMI
announced that it had entered into an agreement with Rothmans Inc.
(“Rothmans”), which is located in Canada, to purchase,
by way of a tender offer, all of the outstanding common shares of
Rothmans for CAD $30 per share in cash, or CAD $2.0 billion
(approximately $1.9 billion based on exchange rates prevailing at
the time of the acquisition). Prior to this agreement,
Rothmans’ sole holding was a 60% interest in Rothmans,
Benson & Hedges Inc. (“RBH”). The remaining
40% interest in RBH was owned by PMI. In October 2008, PMI
completed the acquisition of all the Rothmans shares. From January
2008 to September 2008, PMI recorded equity earnings on its equity
interest in RBH. After the completion of the acquisition, Rothmans
became a wholly-owned subsidiary of PMI and, as a result, PMI
recorded all of Rothmans’ earnings during the fourth quarter
of 2008. Rothmans contributed $114 million of incremental operating
income and $48 million of incremental net earnings attributable to
PMI during the first six months of 2009, and $62 million of
incremental operating income and $25 million of incremental net
earnings attributable to PMI during the second quarter of
2009.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The final allocation of
purchase price to Rothmans assets and liabilities at June 30,
2009 was principally as follows (in billions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="34%"></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td width="29%"></td>
<td valign="bottom" width="2%"></td>
<td width="29%"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Goodwill</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1.9</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" colspan="3" rowspan="17"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Acquired cash</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">0.3</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Inventories</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">0.2</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Definite-lived brand names</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">0.3</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Fixed assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">0.1</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Other assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">0.1</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2.9</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<p style=
"MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px; MARGIN-LEFT: 1em; TEXT-INDENT: -1em">
<font face="Times New Roman" size="2">Short-term debt</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">0.2</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Accrued settlement costs</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">0.4</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Other liabilities</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">0.4</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total liabilities</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1.0</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<p style=
"MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px; MARGIN-LEFT: 2em; TEXT-INDENT: -1em">
<font face="Times New Roman" size="2">Cash paid for
Rothmans</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1.9</font></td>
<td valign="bottom"><font size="1">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Other:</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In February 2009, PMI
purchased the <i>Petterøes</i> tobacco business. Assets
purchased consist primarily of amortizable intangible assets
related to brands primarily sold in Norway and Sweden.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In June 2008, PMI purchased
the fine cut trademark <i>Interval</i> and certain other trademarks
in the other tobacco products category from Imperial Tobacco Group
PLC for $407 million. This purchase is reflected in other investing
activities in the condensed consolidated statement of cash flows
for the six months ended June 30, 2008.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The effect of these other
acquisitions presented above was not material to PMI’s
consolidated financial position, results of operations or operating
cash flows in any of the periods presented.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In July 2009, PMI announced
that it had entered into an agreement to purchase 100% of the
shares of privately owned Colombian cigarette manufacturer,
Productora Tabacalera de Colombia, Protabaco Ltda., for $452
million. The transaction, which is subject to competition authority
approval and final confirmatory due diligence, is expected to close
within six months of the announcement.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In July 2009, PMI also
entered into an agreement with Swedish Match AB to purchase its
South African affiliate, Swedish Match South Africa (Proprietary)
Limited, for ZAR 1.75 billion (approximately $222 million). The
transaction is subject to South African regulatory approval and is
expected to be completed by the end of the year.</font></p>
</div>
1.53
1.52
<div>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 16. Colombian Investment and
Cooperation Agreement:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">On June 19, 2009, PMI
announced that it had signed an agreement with the Republic of
Colombia, together with the Departments of Colombia and the Capital
District of Bogota, to promote investment and cooperation with
respect to the Colombian tobacco market and to fight counterfeit
and contraband tobacco products. The Investment and Cooperation
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. As a result of the
Investment and Cooperation Agreement, PMI recorded a pre-tax charge
of $135 million in the operating results of the Latin
America & Canada segment during the second quarter of
2009. This pre-tax charge, which represents the net present value
of the payments prescribed by the agreement, is reflected in
marketing, administration and research costs on the condensed
consolidated statements of earnings.</font></p>
</div>
<div>
<p style="MARGIN-TOP: 24px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 11.
Contingencies:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">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 pay costs and some or all of judgments, if
any, that may be entered against them. Altria Group, Inc. and
PM USA are also indemnitees, in certain cases, pursuant to the
terms of the Distribution Agreement between Altria Group, Inc. and
PMI. Various types of claims are raised in these proceedings,
including, among others, product liability, consumer protection,
antitrust, and tax.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Damages claimed in some of
the tobacco-related litigation are significant and, in certain
cases in Brazil, Israel, Nigeria and Canada, range into the
billions of 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 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">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, (i) management has
concluded that it is not 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 that could
result from an unfavorable outcome of any of the pending
tobacco-related cases; and (iii) accordingly, management has
not provided any amounts in the consolidated financial statements
for unfavorable outcomes in these cases, if any. Legal defense
costs are expensed as incurred.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The table below lists the
number of tobacco-related cases pending against us and/or our
subsidiaries or indemnitees as of August 1, 2009, 2008
and 2007:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table cellspacing="0" cellpadding="0" width="92%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="50%"></td>
<td valign="bottom" width="13%"></td>
<td></td>
<td valign="bottom" width="13%"></td>
<td></td>
<td valign="bottom" width="13%"></td>
<td></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px"><font face=
"Times New Roman" size="2"><b>Type of Case</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle"><font face="Times New Roman" size=
"2"><b>Number of Cases<br />
Pending as of<br />
August 1,<br />
2009</b></font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle"><font face="Times New Roman" size=
"2"><b>Number of Cases<br />
Pending as of<br />
August 1,<br />
2008</b></font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle"><font size="+0"><font face="Times New Roman" size=
"2"><b>Number of Cases<br />
Pending as of<br />
August 1,</b></font><br />
<font face="Times New Roman" size=
"2"><b>2007</b></font></font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Individual Smoking and Health
Cases</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">119</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">125</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">138</font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Smoking and Health Class
Actions</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font size="+0"><font face=
"Times New Roman" size="2">  9</font> <font face=
"Times New Roman" size="1"><sup style=
"VERTICAL-ALIGN: baseline; BOTTOM: 0.8ex; POSITION: relative">(1)</sup></font></font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">3</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">2</font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Health Care Cost Recovery
Actions</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">10</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">9</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">7</font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Lights Class Actions</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">3</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">3</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">2</font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font size=
"+0"><font face="Times New Roman" size="2">Individual Lights Cases
(small claims court)</font><font face="Times New Roman" size=
"1"><sup style=
"VERTICAL-ALIGN: baseline; BOTTOM: 0.8ex; POSITION: relative">(2)</sup></font></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">1,990</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">2,011</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">2,043</font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Public Civil Actions</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">12</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">10</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle"><font face="Times New Roman"
size="2">7</font></td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 6px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td valign="top" align="left" width="4%"><font face=
"Times New Roman" size="2">(1)</font></td>
<td valign="top" align="left">
<p align="justify"><font face="Times New Roman" size="2">Includes
two cases due to the acquisition of Rothmans in Canada.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 6px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td valign="top" align="left" width="4%"><font face=
"Times New Roman" size="2">(2)</font></td>
<td valign="top" align="left">
<p align="justify"><font face="Times New Roman" size="2">The 1,990
cases are all pending in small claims courts in Italy where the
maximum damage award claimed is approximately one thousand Euros
per case. Of these 1,990 cases, 1,977, which were filed by the same
plaintiffs’ attorney, have now been stayed pending an
investigation by the public prosecutor into the conduct of that
plaintiffs’ attorney. In May 2009, the case files in
these cases were permanently confiscated by the court as
<!--##PBStart##-->a result of the investigation. As a consequence
of the confiscation of these case files, the small claims courts in
which the cases are pending have begun dismissing the cases, and
the remainder of the cases should be dismissed in the coming
months.</font></p>
</td>
</tr>
</tbody>
</table>
<p style=
"MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px; PADDING-BOTTOM: 3px" align=
"justify"><font size="+0"><font face="Times New Roman" size=
"2">Since 1995, when the first tobacco-related litigation was filed
against a PMI entity, approximately 328</font><font face=
"Times New Roman" size="1"><sup style=
"VERTICAL-ALIGN: baseline; BOTTOM: 0.8ex; POSITION: relative">(3)</sup></font>
<font face="Times New Roman" size="2">Smoking and Health, Lights,
Health Care Cost Recovery cases and Public Civil Actions in which
we and/or one of our subsidiaries and/or indemnitees was a
defendant have been terminated in our favor. Eight cases have had
decisions in favor of plaintiffs. Five of these cases have
subsequently reached final resolution in our favor, one has been
annulled and returned to the trial court for further proceedings,
and two remain on appeal. To date, we have paid total judgments
including costs of approximately six thousand Euros. These payments
were made in order to appeal three Italian small claims cases, two
of which were subsequently reversed on appeal and one of which
remains on appeal. To date, no tobacco-related case has been
finally resolved in favor of a plaintiff against us, our
subsidiaries or indemnitees.</font></font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 6px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td valign="top" align="left" width="4%"><font face=
"Times New Roman" size="2">(3)</font></td>
<td valign="top" align="left"><font face="Times New Roman" size=
"2">Includes 130 individual lights cases filed in small claims
courts in Italy.</font></td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The table below lists the
verdicts and post-trial developments in the two pending cases
(excluding one individual case on appeal from Italian small claims
court) in which verdicts were returned in favor of
plaintiffs:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="21%"></td>
<td valign="bottom" width="2%"></td>
<td width="18%"></td>
<td valign="bottom" width="2%"></td>
<td width="18%"></td>
<td valign="bottom" width="2%"></td>
<td width="18%"></td>
<td valign="bottom" width="2%"></td>
<td width="17%"></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px"><font face=
"Times New Roman" size="2"><b>Date</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2"><b>Location of<br />
Court/Name<br />
of Plaintiff</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2"><b>Type of
Case</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2"><b>Verdict</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size=
"2"><b>Post-Trial Developments</b></font></p>
</td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-TOP: 0px; FONT-SIZE: 6px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="justify">
<font face="Times New Roman" size="2">February 2004</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="top"><font face="Times New Roman" size="2">Brazil/The
Smoker Health Defense Association (ADESF)</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="top">
<p align="justify"><font face="Times New Roman" size="2">Class
Action</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="top"><font face="Times New Roman" size="2">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.</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="top"><font face="Times New Roman" size="2">In April
2004, the court clarified its ruling, awarding “moral
damages” of R$1,000 (approximately $500) 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 still has not been estimated. Defendants appealed to
the São Paulo Court of Appeals, and the case, including the
execution of the judgment, was stayed pending appeal. On November
12, 2008, the São Paulo Court of Appeals annulled the ruling
finding that the trial court had inappropriately ruled without
hearing evidence and returned the case to the trial court for
further proceedings. In addition, the defendants have filed a
constitutional appeal to the Federal Supreme Court on the basis
that the plaintiff did not have standing to bring the lawsuit. This
appeal is still pending.</font></td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="21%"></td>
<td valign="bottom" width="2%"></td>
<td width="18%"></td>
<td valign="bottom" width="2%"></td>
<td width="18%"></td>
<td valign="bottom" width="2%"></td>
<td width="18%"></td>
<td valign="bottom" width="2%"></td>
<td width="17%"></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px"><font face=
"Times New Roman" size="2"><b>Date</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2"><b>Location of<br />
Court/Name<br />
of Plaintiff</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2"><b>Type of
Case</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2"><b>Verdict</b></font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size=
"2"><b>Post-Trial Developments</b></font></p>
</td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-TOP: 0px; FONT-SIZE: 6px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="justify">
<font face="Times New Roman" size="2">October 2003</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="top">
<p align="justify"><font face="Times New Roman" size=
"2">Brazil/Da Silva</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="top"><font face="Times New Roman" size="2">Individual
Smoking and Health</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="top"><font face="Times New Roman" size="2">The Court of
Appeal of Rio Grande do Sul reversed the trial court ruling in
favor of Philip Morris Brasil and awarded plaintiffs R$768,000
(approximately $383,000).</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="top"><font face="Times New Roman" size="2">In December
2004, a larger panel of the Court of Appeal of Rio Grande do Sul
overturned the adverse decision. Plaintiffs appealed to the
Superior Court of Justice. In May 2009, a single judge in the
Superior Court of Justice rejected plaintiffs’ appeal.
Plaintiffs have filed a further appeal to the full panel of the
Superior Court of Justice.</font></td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Pending claims related to tobacco
products generally fall within the following categories:</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2"><i>Smoking and Health
Litigation</i>: These cases primarily allege personal injury
and are brought by individual plaintiffs or on behalf of a 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As of August 1, 2009,
there were a number of smoking and health cases pending against our
subsidiaries or indemnitees, as follows:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="justify"><font face="Times New Roman" size="2">119 cases
brought by individual plaintiffs against our subsidiaries
(117) or indemnitees (2) in Argentina (42), Australia
(2), Brazil (51), Canada (1), Chile (9), Costa Rica (1), Finland
(2), Greece (1), Israel (1), Italy (6), Japan (1), the Philippines
(1), and Scotland (1), compared with 125 such cases on
August 1, 2008, and 138 cases on August 1, 2007;
and</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="justify"><font face="Times New Roman" size="2">9 cases
brought on behalf of classes of individual plaintiffs against our
subsidiaries in Brazil (2), Bulgaria (1) and Canada (6),
compared with 3 such cases on August 1, 2008, and 2 such cases
on August 1, 2007.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the individual cases in
Finland, our two indemnitees (our former licensees now known as
Amer Sports Corporation and Amerintie 1 Oy) and another member of
the industry are defendants. Plaintiffs allege personal injuries as
a result of smoking. All three cases were tried together before the
District Court of Helsinki. Trial began in March 2008 and concluded
in May 2008. In October 2008, the District Court issued decisions
in favor of defendants in all three cases. Plaintiffs filed
appeals. One of the three plaintiffs has since withdrawn her
appeal, making the District Court’s decision in favor of the
defendant final. The other two plaintiffs continue to pursue their
appeals. The appellate hearing, which is essentially a re-trial of
these cases before the Appellate Court, is scheduled to start on
August 31, 2009.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the first class action
pending in Brazil, <i>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,</i> 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. In February 2004, the
trial court 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</font>
<!-- 28 Begin_Flowing_Text * DO NOT REMOVE OR EDIT --><font face=
"Times New Roman" size="2">2004, the court clarified its ruling,
awarding “moral damages” of R$1,000 (approximately
$500) 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 still has not been
estimated. Defendants appealed to the São Paulo Court of
Appeals, and the case, including the execution of the judgment, was
stayed pending appeal. In November 2008, the São Paulo Court
of Appeals annulled the ruling finding that the trial court had
inappropriately ruled without hearing evidence and returned the
case to the trial court for further proceedings. In addition, the
defendants have filed a constitutional appeal to the Federal
Supreme Court on the basis that the consumer association did not
have standing to bring the lawsuit. This appeal is still
pending.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the second class action
pending in Brazil, <i>Public Prosecutor of São Paulo v. Philip
Morris Brasil Industria e Comercio Ltda, Civil Court of the City of
São Paulo, Brazil,</i> filed August 6, 2007, our
subsidiary is a defendant. The plaintiff, the Public Prosecutor of
the State of São Paulo, is seeking (1) unspecified
damages on behalf of all smokers nationwide, former smokers, and
their relatives; (2) unspecified damages on behalf of people
exposed to environmental tobacco smoke (“ETS”)
nationwide, and their relatives; and (3) reimbursement of the
health care costs allegedly incurred for the treatment of
tobacco-related diseases by all 26 States, approximately 5,000
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. Our subsidiary was
served with the claim in February 2008, and filed its answer to the
complaint in March 2008. In December 2008, the trial court issued a
decision declaring that it lacked jurisdiction and transferred the
case to the Nineteenth Lower Civil Court in São Paulo where
the <i>ADESF</i> case discussed above is pending.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the class action in
Bulgaria, <i>Yochkolovski v. Sofia BT AD, et al., Sofia City Court,
Bulgaria,</i> filed March 12, 2008, our subsidiaries and other
members of the industry are defendants. The plaintiff brought a
collective claim on behalf of classes of smokers who were allegedly
misled by tar and nicotine yields printed on packages and on behalf
of a class of minors who were allegedly misled by marketing.
Plaintiff seeks damages for economic loss, pain and suffering,
medical treatment, and withdrawal from the market of all cigarettes
that allegedly do not comply with tar and nicotine labeling
requirements. The court dismissed the youth marketing claims, and
plaintiff appealed that decision. The court also has ordered
plaintiff to provide additional evidence in support of the
remaining claims. Our subsidiaries have not been served with the
complaint.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the first class action
pending in Canada, <i>Cecilia Letourneau v. Imperial Tobacco Ltd.,
Rothmans, Benson & Hedges Inc. and JTI Macdonald Corp.,
Quebec Superior Court, Canada,</i> filed in September 1998, our
subsidiary and two 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. Defendants’ motion to dismiss on
statute-of-limitations grounds was denied in May
2008. Discovery is ongoing; no trial date has been
set.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the second class action
pending in Canada, <i>Conseil Quebecois 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,</i> filed in November 1998, our subsidiary
and two 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 suffers from certain smoking-related
diseases. The class was certified in 2005. Discovery is
ongoing; no trial date has been set.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the third class action
pending in Canada, <i>Kunta v. Canadian Tobacco
Manufacturers’ Council, et al., The Queen’s Bench,
Winnipeg, Canada</i>, 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.
We, our subsidiaries, and our indemnitees have been served with the
complaint.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the fourth class action
pending in Canada, <i>Adams v. Canadian Tobacco
Manufacturers’ Council, et al.</i>, <i>The Queen’s
Bench, Saskatchewan, Canada</i>, 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 suffered, or suffer, from COPD,
emphysema, heart disease, or cancer. We, our subsidiaries, and our
indemnitees have been served with the complaint.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the fifth class action
pending in Canada, <i>Semple v. Canadian Tobacco
Manufacturers’ Council, et al.</i>, <i>The Supreme Court
(trial court), Nova Scotia, Canada</i>, 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. We, our subsidiaries,
and our indemnitees have been served with the complaint.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the sixth class action
pending in Canada, <i>Dorion v. Canadian Tobacco
Manufacturers’ Council, et al., The Queen’s Bench,
Alberta, Canada,</i> 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, as well as 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2"><i>Health Care Cost Recovery
Litigation</i>: 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As of August 1, 2009,
there were a total of 10 health care cost recovery cases pending
against us, our subsidiaries or indemnitees, compared with 9 such
cases on August 1, 2008, and 7 such cases on August 1,
2007, as follows:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size="2">3 cases
brought against us, our subsidiaries and our indemnitees in Canada
(2) and in Israel (1); and</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size="2">7 cases
brought in Nigeria (6) and Spain (1) against our
subsidiaries.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the first health care cost
recovery case pending in Canada, <i>Her Majesty the Queen in Right
of British Columbia v. Imperial Tobacco Limited, et al., Supreme
Court, British Columbia, Vancouver Registry, Canada,</i> filed
January 24, 2001, we, our subsidiary, 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 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 and the case
is in the early stages of litigation. At the request of the
parties,</font>
<!-- 28 Begin_Flowing_Text * DO NOT REMOVE OR EDIT --><font face=
"Times New Roman" size="2">the trial date scheduled for
September 2010 has been cancelled. No new trial date has been
set. Discovery is ongoing.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">On March 13, 2008, a
second health care cost recovery case was filed in Canada, <i>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,</i> in which we, our
subsidiary, 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 very
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.”
Our subsidiary, indemnitees, and we have been served with the
complaint. Preliminary motions are pending before the
Court.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the case in Israel,
<i>Kupat Holim Clalit v. Philip Morris USA, et al., Jerusalem
District Court, Israel,</i> filed September 28, 1998, we, our
subsidiary, and our indemnitee (PM USA), together with other
members of the industry are defendants. The plaintiff, a private
health care provider, brought a claim seeking reimbursement of the
cost of treating its members for alleged smoking-related illnesses
for the years 1990 to 1998. Certain defendants filed a motion to
dismiss the case. The motion was rejected, and those defendants
filed a motion with the Israel Supreme Court for leave to appeal.
The appeal was heard by the Supreme Court in March 2005, and the
parties are awaiting the court’s decision.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the first case in Nigeria,
<i>The Attorney General of Lagos State v. British American Tobacco
(Nigeria) Limited, et al., High Court of Lagos State, Lagos,
Nigeria,</i> 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
has been served with the refiled complaint but is contesting
service. We currently conduct no business in Nigeria.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the second case in
Nigeria, <i>The Attorney General of Kano State v. British American
Tobacco (Nigeria) Limited, et al., High Court of Kano State, Kano,
Nigeria,</i> 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. The case
is in the early stages of litigation, and the defendants have filed
various preliminary motions upon which the court is yet to rule.
Our subsidiary is contesting service.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the third case in Nigeria,
<i>The Attorney General of Gombe State v. British American Tobacco
(Nigeria) Limited, et al., High Court of Gombe State, Gombe,
Nigeria,</i> filed May 18, 2007, our subsidiary and other
members of the industry are defendants<i>.</i> 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 claim. The plaintiff did
not appeal the dismissal. However, in October 2008, the plaintiff
refiled its claim. Our subsidiary has not yet been served with the
refiled complaint.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the fourth case in
Nigeria, <i>The Attorney General of Oyo State, et al., v. British
American Tobacco (Nigeria) Limited, et al., High Court of Oyo
State, Ibadan, Nigeria,</i> filed May 25, 2007, our subsidiary
and other members of the industry are defendants<i>.</i> 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. The case
is in the early stages of litigation, and the defendants have filed
various preliminary motions upon which the court is yet to rule.
Our subsidiary is contesting service.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the fifth case in Nigeria,
<i>The Attorney General of the Federation v. British American
Tobacco (Nigeria) Limited, et al., Federal High Court, Abuja,
Nigeria,</i> filed July 25, 2007, our subsidiary and other
members of the industry are defendants<i>.</i> 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 has not yet been served with the claim.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the sixth case in Nigeria,
<i>The Attorney General of Ogun State v. British American Tobacco
(Nigeria) Limited, et al., High Court of Ogun State, Abeokuta,
Nigeria</i>, 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. Our
subsidiary was served with notice of the claim in December 2008,
but is contesting service.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the series of proceedings
in Spain, <i>Junta de Andalucia, et al. v. Philip Morris Spain, et
al., Court of First Instance, Madrid, Spain,</i> 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 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. The plaintiffs appealed. In
February 2006, the appellate court affirmed the lower court’s
dismissal. The plaintiffs then filed notice that they intended to
pursue their claim in the Administrative Court against the State.
Because they were defendants in the original proceeding, our
subsidiary and other members of the industry filed notices with the
Administrative Court that they are interested parties in the case.
In September 2007, the plaintiffs filed their complaint in the
Administrative Court. In November 2007, the Administrative Court
dismissed the claim. The plaintiffs asked the Administrative Court
to reconsider its decision dismissing the case, and that request
was rejected in a ruling rendered in February 2008. Plaintiffs
appealed to the Supreme Court. In June 2008, our subsidiary filed a
brief of appearance before the Supreme Court giving notice that it
is an interested party in the appeal proceedings initiated by the
plaintiffs. The Supreme Court has recognized our subsidiary as a
party. 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2"><i>Lights
Cases</i>: 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">As of August 1, 2009, there were a
number of lights cases pending against our subsidiaries or
indemnitees, as follows:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size="2">3 cases
brought on behalf of various classes of individual plaintiffs (some
overlapping) in Israel, compared with 3 such cases on
August 1, 2008, and 2 such cases on August 1,
2007;</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size="2">1,990 cases
brought by individuals against our subsidiaries in the equivalent
of small claims courts in Italy where the maximum damages claimed
are approximately one thousand Euros per case, compared with 2,011
such cases on August 1, 2008, and 2,043 such cases on
August 1, 2007.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In one class action pending
in Israel, <i>El-Roy, et al. v. Philip Morris Incorporated, et al.,
District Court of Tel-Aviv/Jaffa, Israel,</i> filed
January 18, 2004, our subsidiary and our indemnitees (PM USA
and our former importer Menache H. Eliachar Ltd.) 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</font>
<!-- 28 Begin_Flowing_Text * DO NOT REMOVE OR EDIT --><font face=
"Times New Roman" size="2">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 will now file final briefs on class
certification.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The claims in a second class
action pending in Israel, <i>Navon, et al. v. Philip Morris
Products USA, et al., District Court of Tel-Aviv/Jaffa, Israel</i>,
filed December 5, 2004, against our indemnitee (our
distributor M.H. Eliashar Distribution Ltd.) and other members of
the industry are similar to those in <i>El-Roy,</i> and the case is
currently stayed pending a ruling on class certification in
<i>El-Roy</i>.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the third class action
pending in Israel, <i>Numberg, et al. v. Philip Morris Products
S.A., et al., District Court of Tel Aviv/Jaffa, Israel,</i> filed
May 19, 2008, our subsidiaries and our indemnitee (our
distributor M.H. Eliashar Distribution Ltd.) and other members of
the industry are defendants. The plaintiffs filed a purported class
action claiming that the class members were misled by pack colors,
terms such as “slims” or “super slims” or
“blue,” and text describing tar and nicotine yields.
Plaintiffs allege that these pack features misled consumers to
believe that the cigarettes with those descriptors are safer than
full flavor cigarettes. Plaintiffs seek recovery of the price of
the brands at issue that were purchased from December 31, 2004
to the date of filing of the claim. They also seek compensation for
mental anguish, punitive damages and injunctive relief. Our
subsidiaries and our indemnitee have been served with the claim.
Defendants filed their oppositions to class certification in March
2009.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2"><i>Public Civil Actions</i>:
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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As of August 1, 2009,
there were 12 public civil actions pending against our subsidiaries
in Argentina (1), Brazil (3), Colombia (7) and Venezuela (1),
compared with 10 such cases on August 1, 2008, and 7 such
cases on August 1, 2007.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the public civil action in
Argentina, <i>Asociación Argentina de Derecho de Danos v.
Massalin Particulares S.A., et al., Civil Court of Buenos Aires,
Argentina,</i> 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the first public civil
action in Brazil, <i>Osorio v. Philip Morris Brasil Industria e
Comercio Ltda., et al., Federal Court of São Paulo,
Brazil,</i> filed September 2003, our subsidiary, another member of
the industry and various government entities are defendants<i>.</i>
The plaintiff seeks a ban on the production and sale of cigarettes
on the grounds that they are harmful to health and cause the
government to spend money on health care. Plaintiff alleges that
smoking violates the Brazilian constitutional right to health, that
smokers have no free will because they are addicted, and that ETS
is harmful. Plaintiff seeks the suspension of the defendants’
licenses to manufacture cigarettes, the revocation of any import
licenses for tobacco-related products, the collection of all
tobacco-containing products from the market, and a daily fine
amounting to R$1 million (approximately $500,000) for any
violation of the injunction order. Our subsidiary filed its answer
in June 2004.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the second public civil
action in Brazil, <i>Associacao dos Consumidores Explorados do
Distrito Federal v. Sampoerna Tabacos America Latina Ltda., State
Trial Court of Brasilia, Brazil,</i> filed April 18, 2006, our
subsidiary is a defendant. The plaintiff, a consumer association,
seeks a ban on the production and sale of cigarettes on the grounds
that they are harmful to health. Plaintiff’s complaint also
requests that a fine amounting to R$1 million (approximately
$500,000) per day be imposed should the ban be granted and
defendant continue to produce or sell cigarettes. Our subsidiary
filed its answer in May 2006. The trial court dismissed the case in
November 2007. Plaintiff appealed. In November 2008, the appellate
court affirmed the trial court’s dismissal. Plaintiff has
filed a further appeal.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the third public civil
action pending in Brazil, <i>The Brazilian Association for the
Defense of Consumer Health (SAUDECON) v. Philip Morris Brasil
Industria e Comercio Ltd and Souza Cruz S.A., Civil Court of City
of Porto Alegre, Brazil,</i> 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, for a minimum of two years, 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. Our
subsidiary filed its answer in January 2009. In May 2009, the trial
court dismissed the case on the merits. Plaintiff has
appealed.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the first public civil
action in Colombia, <i>Garrido v. Philip Morris Colombia S.A.,
Civil Court of Bogotá</i>, <i>Colombia,</i> filed
August 28, 2006, our subsidiary is a defendant. The plaintiff
seeks various forms of injunctive relief, including the ban of the
use of “lights” descriptors, and requests that
defendant be ordered to finance a national campaign against
smoking. Our subsidiary filed its answer in April 2007.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the second public civil
action in Colombia, <i>Garrido v. Coltabaco (Garrido II), Civil
Court of Bogotá, Colombia,</i> filed October 27, 2006,
our subsidiary is a defendant. The plaintiff’s claims are
identical to those in <i>Garrido</i>, above. Our subsidiary filed
its answer in April 2007.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the third public civil
action in Colombia, <i>Morales v. Philip Morris Colombia S.A. and
Colombian Government, Administrative Court of Bogotá,
Colombia,</i> filed February 12, 2007, our subsidiary and a
government entity are defendants. The plaintiff alleges violations
of the collective right to a healthy environment, public health
rights, and the rights of consumers, and that the government failed
to protect those rights. Plaintiff seeks various monetary damages
and other relief, including a ban on descriptors and a ban on
cigarette advertising. Our subsidiary filed its answer in March
2007.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the fourth public civil
action in Colombia<i>, Morales, et al. v. Coltabaco (Morales II),
Civil Court of Bogotá, Colombia,</i> filed February 5,
2008, our subsidiary, which was served in June 2008, is a
defendant. The plaintiffs allege misleading advertising, product
defect, failure to inform, and the targeting of minors in
advertising and marketing. Plaintiffs seek various monetary relief
including a percentage of the costs incurred by the state each year
for treating tobacco-related illnesses to be paid to the Ministry
of Social Protection (from the date of incorporation of Coltabaco).
After this initial payment, plaintiffs seek a fixed annual
contribution to the government of $50 million. Plaintiffs also
request that a statutory incentive award be paid to them for filing
the claim. Our subsidiary filed its answer in July 2008.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the fifth public civil
action in Colombia, <i>Morales, et al. v. Productora Tabacalera de
Colombia S.A. (Protabaco), et al., (Morales III), Administrative
Court of Bogotá, Colombia</i>, filed December 19, 2007,
two of our subsidiaries, which were served in July and August 2008,
other members of the industry, and various government entities are
defendants. The plaintiffs’ claims are identical to those in
<i>Morales II</i>, above. Our subsidiaries filed their answers in
August 2008.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the sixth public civil
action in Colombia, <i>Guzman v. Coltabaco, et al., Administrative
Court of Bogotá, Colombia,</i> filed May 8, 2007, our
subsidiary, another member of the industry, and various government
entities are defendants. The plaintiff is seeking economic
restitution to the country, an increase in sales tax for
cigarettes, as well as various forms of injunctive relief. Our
subsidiary filed its answer in June 2007.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the seventh public civil
action in Colombia, <i>Roche v. Philip Morris Colombia S.A., Civil
Court of Bogotá, Colombia,</i> filed November 14, 2008,
our subsidiary is a defendant. Plaintiff alleges violations of the
collective right to health because the defendant failed to include
information about ingredients and their toxicity on cigarette
packs. Plaintiff asks the court to order our subsidiary to
immediately cease manufacture and/or distribution of cigarettes
until information on ingredients and their toxicity is included on
packs. Our subsidiary filed its answer in January 2009.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the public civil action in
Venezuela, <i>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</i></font>
<!-- 28 Begin_Flowing_Text * DO NOT REMOVE OR EDIT --><font face=
"Times New Roman" size="2"><i>Supreme Court</i>, filed
April 29, 2008, we were not named as a defendant, but the
plaintiff 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 claims
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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Other
Litigation:</i><b><i> </i></b>Other litigation includes an
antitrust suit and various tax and individual employment
cases:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size=
"2"><i>Antitrust:</i> One case brought on behalf of a class of
individual plaintiffs in the state of Kansas in the United States
against us and other members of the industry alleging
price-fixing;</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size="2"><i>Tax:</i>
In Brazil, there are 99 tax cases involving Philip Morris
Brasil S.A. 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. Thirty-eight of these cases are under
administrative review by the relevant fiscal authorities and 61 are
under judicial review by the courts; and</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size=
"2"><i>Employment:</i> 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.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In the antitrust class action
in Kansas, <i>Smith v. Philip Morris Companies, Inc., et al.,
District Court of Seward County, Kansas,</i> filed February 7,
2000, we and other members of the industry are defendants<i>.</i>
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 and
refused to permit the defendants to appeal. The case is now in the
discovery phase. No trial date has yet been set.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2"><b>Guarantees</b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">At June 30, 2009,
PMI’s third-party guarantees, which are primarily related to
excise taxes, were $48 million, of which $43 million have no
specific expiration dates. The remainder ($5 million) expires
through 2013, with no guarantees expiring through June 30,
2010. PMI is required to perform under these guarantees in the
event that a third party fails to make contractual payments. PMI
does not have a liability on its condensed consolidated balance
sheet at June 30, 2009, as the fair value of these guarantees
is insignificant due to the fact that the probability of future
payments under these guarantees is remote.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Under the terms of the
Distribution Agreement between Altria and PMI, liabilities
concerning tobacco products will be allocated based in substantial
part on the manufacturer. PMI will indemnify Altria and PM USA for
liabilities related to tobacco products manufactured by PMI or
contract manufactured for PMI by PM USA, and PM USA will indemnify
PMI for liabilities related to tobacco products manufactured by PM
USA, excluding tobacco products contract manufactured for PMI. PMI
does not have a liability recorded on its balance sheet at
June 30, 2009, as the fair value of this indemnification is
insignificant since the probability of future payments under this
indemnification is remote.</font></p>
</div>
1.08
<div>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 15. Accumulated Other
Comprehensive Earnings (Losses):</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">PMI’s accumulated other
comprehensive earnings (losses) consisted of the following (in
millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
<font size="+0"> </font></p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="67%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font size="+0"><font face="Times New Roman"
size="2">At June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font size="+0"><font face="Times New Roman"
size="2">At December 31,</font><br />
<font face="Times New Roman" size="2">2008</font></font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font size="+0"><font face="Times New Roman"
size="2">At June 30,</font><br />
<font face="Times New Roman" size="2">2008</font></font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Currency translation
adjustments</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(278</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(768</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,452</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Pension and other benefits</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1,416</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1,444</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(102</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Derivatives accounted for as
hedges</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(24</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(68</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(121</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Debt and equity securities</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom"><font size="+0">  </font></td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
<font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
<font size="+0"> </font></td>
<td><font size="+0"> </font></td>
<td valign="bottom"><font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
<font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
<font size="+0"> </font></td>
<td><font size="+0"> </font></td>
<td valign="bottom"><font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
<font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
<font size="+0"> </font></td>
<td><font size="+0"> </font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total accumulated other
comprehensive<br />
earnings (losses)</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1,719</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(2,281</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,229</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom"><font size="+0">  </font></td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
<font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
<font size="+0"> </font></td>
<td><font size="+0"> </font></td>
<td valign="bottom"><font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
<font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
<font size="+0"> </font></td>
<td><font size="+0"> </font></td>
<td valign="bottom"><font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
<font size="+0"> </font></td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
<font size="+0"> </font></td>
<td><font size="+0"> </font></td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
</div>
<div>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
</p>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 13.
Indebtedness:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">At June 30, 2009 and
December 31, 2008, PMI’s long-term debt consisted of the
following (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="70%"></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">June 30, 2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">December 31, 2008</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Short-term borrowings, reclassified as
long-term debt</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,020</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Notes, 4.875% to 6.875% (average
interest rate 5.796%),<br />
due through 2038</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">7,196</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">7,193</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Foreign currency obligations:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Euro notes payable (average interest
rate 5.240%), due<br />
through 2016</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">5,216</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,484</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Swiss Franc notes payable (average
interest rate<br />
3.625%), due through 2013</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">915</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">473</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Other (average interest rate 5.038%),
due through 2014</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">348</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">416</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">13,675</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">11,586</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Less current portion of long-term
debt</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(195</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(209</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">13,480</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">11,377</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In March 2009, PMI issued
Euro 2.0 billion (approximately $2.6 billion) of notes. The Euro
notes bear the following terms:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size="2">Euro 1.25
billion total principal due March 2012 at a fixed interest rate of
4.250%.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="left"><font face="Times New Roman" size="2">Euro
750 million total principal due March 2016 at a fixed interest
rate of 5.750%.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">In March 2009, PMI also issued CHF
500 million (approximately $431 million) of 3.250% bonds, due
in March 2013.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">The net proceeds of these offerings were
used to repay commercial paper borrowings and for general corporate
purposes.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
</div>
36000000
4156000000
77000000
395000000
<div>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
</p>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 7. Financial
Instruments:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Overview</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI operates in markets
outside of the United States, 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 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 will not occur, the
gain or loss would be recognized in earnings currently. PMI reports
its net transaction losses and its net transaction gains in
marketing, administration and research costs on the condensed
consolidated statements of earnings.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI uses forward foreign
exchange contracts, foreign currency swaps and foreign currency
options, hereafter 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 June 30, 2009,
PMI had foreign exchange contracts with aggregate notional amounts
of $9.2 billion. Of this amount, $0.8 billion related to cash flow
hedges, $1.2 billion related to hedges of net investments in
foreign operations and $7.2 billion related to other derivatives
that primarily offset currency exposures on inter-company
financing.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">The fair value of PMI’s foreign
exchange contracts as of June 30, 2009, was as follows (in
millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="49%"></td>
<td valign="bottom" width="2%"></td>
<td width="18%"></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
<td valign="bottom" width="2%"></td>
<td width="22%"></td>
<td valign="bottom" width="2%"></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="4">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Asset Derivatives</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="4">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Liability
Derivatives</font></p>
</td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Balance Sheet</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Classification</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Fair<br />
Value</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Balance Sheet</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Classification</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Fair</font><br />
<font face="Times New Roman" size="2">Value</font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Foreign exchange
contracts</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">designated as
hedging</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="justify">
<font face="Times New Roman" size="2">instruments under SFAS
No. 133</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom">
<p align="justify"><font face="Times New Roman" size="2">Other
current assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">53</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom">
<p align="justify"><font face="Times New Roman" size="2">Other
accrued liabilities</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">54</font></td>
</tr>
<tr>
<td height="16"></td>
<td colspan="2" height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="2" height="16"></td>
<td colspan="3" height="16"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Foreign exchange contracts
not</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">designated as
hedging</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="justify">
<font face="Times New Roman" size="2">instruments under SFAS
No. 133</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom">
<p align="justify"><font face="Times New Roman" size="2">Other
current assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">55</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom">
<p align="justify"><font face="Times New Roman" size="2">Other
accrued liabilities</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">36</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="3" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p align="justify"><font face="Times New Roman" size="2">Total
Derivatives</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">108</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">90</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font><font size="1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">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 six months and three months ended
June 30, 2009 (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="58%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="22"><font face="Times New Roman" size="2">For the
Six Months Ended June 30, 2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font face="Times New Roman" size="2">Gain
(Loss)</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Cash<br />
Flow</font><br />
<font face="Times New Roman" size="2">Hedges</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Fair<br />
Value</font><br />
<font face="Times New Roman" size="2">Hedges</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Net</font><br />
<font face="Times New Roman" size="2">Investment</font><br />
<font face="Times New Roman" size="2">Hedges</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Other<br />
Derivatives</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Deferred</font><br />
<font face="Times New Roman" size="2">Income</font><br />
<font face="Times New Roman" size="2">Taxes</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Total</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Statement of Earnings:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom" colspan="17"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net revenues</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">48</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">48</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Marketing,<br />
administration and<br />
research costs</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">13</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">12</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Operating income</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">61</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">60</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Interest expense, net</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(41</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">37</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(8</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(12</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Earnings before income<br />
taxes</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">20</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">37</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(9</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">48</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Provision for income taxes</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net earnings<br />
attributable to PMI</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">17</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">34</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(6</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">45</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Other Comprehensive Earnings:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Transferred to earnings</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(20</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(17</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Recognized</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">68</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(7</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">61</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net impact</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">48</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">44</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Cumulative translation<br />
adjustment</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(19</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(19</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="59%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="21"><font face="Times New Roman" size="2">For the
Three Months Ended June 30, 2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font face="Times New Roman" size="2">Gain
(Loss)</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Cash<br />
Flow</font><br />
<font face="Times New Roman" size="2">Hedges</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Fair<br />
Value</font><br />
<font face="Times New Roman" size="2">Hedges</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Net</font><br />
<font face="Times New Roman" size="2">Investment</font><br />
<font face="Times New Roman" size="2">Hedges</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Other<br />
Derivatives</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Deferred</font><br />
<font face="Times New Roman" size="2">Income</font><br />
<font face="Times New Roman" size="2">Taxes</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Total</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Statement of Earnings:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom" colspan="17"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net revenues</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">16</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">16</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Marketing,<br />
administration and<br />
research costs</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(5</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Operating income</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">12</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Interest expense, net</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(23</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">20</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(7</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Earnings before income<br />
taxes</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">20</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(5</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Provision for income taxes</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(2</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net earnings<br />
attributable to PMI</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">18</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Other Comprehensive Earnings:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Transferred to earnings</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Recognized</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(12</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(10</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net impact</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Cumulative translation<br />
adjustment</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(83</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(83</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Each type of hedging activity is
described in greater detail below.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Cash Flow Hedges</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI has entered into foreign
exchange contracts to hedge foreign currency exchange risk related
to certain forecasted transactions. The effective portion of
unrealized gains and losses associated with qualifying cash flow
hedge contracts is deferred as a component of accumulated other
comprehensive earnings (losses) until the underlying hedged
transactions are reported in PMI’s condensed consolidated
statements of earnings. During the six months and three months
ended June 30, 2009 and 2008, ineffectiveness related to cash
flow hedges was not material. As of June 30, 2009, PMI has
hedged forecasted transactions for periods not exceeding the next
six months. The impact of these hedges is included in operating
cash flows on PMI’s condensed consolidated statement of cash
flows.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font><font size="1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">For the six months and three
months ended June 30, 2009, foreign exchange contracts, which
were designated as cash flow hedging instruments under SFAS
No. 133, impacted the condensed consolidated statements of
earnings and other comprehensive earnings as follows (pre-tax, in
millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="31%"></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="14">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">For the Six Months Ended
June 30, 2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Derivatives in</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">SFAS No. 133</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Cash Flow</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Hedging</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Relationship</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification<br />
of Gain/(Loss)<br />
on</font><br />
<font face="Times New Roman" size="2">Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Amount of<br />
Gain/(Loss)<br />
Recognized<br />
in Earnings<br />
on<br />
Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification of<br />
Gain/(Loss)<br />
Reclassified from<br />
Other<br />
Comprehensive<br />
Earnings into</font><br />
<font face="Times New Roman" size="2">Earnings</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Reclassified<br />
from Other<br />
Comprehensive<br />
Earnings into</font><br />
<font face="Times New Roman" size="2">Earnings</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Recognized in<br />
Other<br />
Comprehensive<br />
Earnings on<br />
Derivative</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Foreign exchange contracts</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">68</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Net revenues</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">48</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Marketing,<br />
  administration and<br />
  research costs</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">13</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="2" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr>
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size="2">Interest
expense,<br />
  net</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(41</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">20</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">68</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td colspan="15" height="16"></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="14">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">For the Three Months Ended
June 30, 2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Derivatives in</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">SFAS No. 133</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Cash Flow</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Hedging</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Relationship</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification<br />
of Gain/(Loss)<br />
on</font><br />
<font face="Times New Roman" size="2">Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Amount of<br />
Gain/(Loss)<br />
Recognized<br />
in Earnings<br />
on<br />
Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification of<br />
Gain/(Loss)<br />
Reclassified from<br />
Other<br />
Comprehensive<br />
Earnings into</font><br />
<font face="Times New Roman" size="2">Earnings</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Reclassified<br />
from Other<br />
Comprehensive<br />
Earnings into</font><br />
<font face="Times New Roman" size="2">Earnings</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Recognized in<br />
Other<br />
Comprehensive<br />
Earnings on<br />
Derivative</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Foreign exchange contracts</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(12</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size="2">Net
revenues</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">16</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Marketing,<br />
  administration and<br />
  research costs</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size="2">Interest
expense,<br />
  net</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(23</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(12</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Fair Value Hedges</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI has entered into foreign
exchange contracts to hedge the foreign currency exchange risk
related to an inter-company loan between subsidiaries. For
derivative instruments that are designated and qualify as a fair
value hedge, the gain or loss on the derivative, as well as the
offsetting gain or loss on the hedged item attributable to the
hedged risk, is recognized in current earnings. For the six months
and three months ended June 30, 2009, ineffectiveness related
to fair value hedges was not material. Gains (losses) associated
with qualifying fair value hedges are
recorded</font> <font face="Times New Roman" size="2">in the
condensed consolidated statement of earnings and were $42 million
and ($4) million for the six months and three months ended
June 30, 2009, respectively. The impact of fair value hedges
is included in operating cash flows on PMI’s condensed
consolidated statement of cash flows. At June 30, 2009, all
fair value hedges had matured and were settled.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">For the six months and three
months ended June 30, 2009, foreign exchange contracts, which
were designated as fair value hedging instruments under SFAS
No. 133, impacted the condensed consolidated statement of
earnings as follows (pre-tax, in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="36%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Derivative in</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">SFAS No. 133</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Fair Value</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Hedging</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Relationship</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification of<br />
Gain/(Loss) on</font><br />
<font face="Times New Roman" size="2">Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="5"><font face=
"Times New Roman" size="2">Amount of</font><br />
<font face="Times New Roman" size="2">Gain/(Loss)
Recognized</font><br />
<font face="Times New Roman" size="2">in Earnings on</font><br />
<font face="Times New Roman" size="2">Derivative</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification of<br />
Gain/(Loss)</font><br />
<font face="Times New Roman" size="2">on Hedged Item</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="6"><font face=
"Times New Roman" size="2">Amount of</font><br />
<font face="Times New Roman" size="2">Gain/(Loss) Recognized<br />
in Earnings</font><br />
<font face="Times New Roman" size="2">Attributable to
the</font><br />
<font face="Times New Roman" size="2">Risk Being Hedged</font></td>
</tr>
<tr>
<td valign="bottom"> <font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Six Months<br />
Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Three Months<br />
Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Six Months<br />
Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Three Months<br />
Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Foreign<br />
exchange contracts</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Marketing,<br />
  administration<br />
  and research<br />
  costs</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">5</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(24</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Marketing,<br />
  administration<br />
  and research<br />
  costs</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(5</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">24</font></td>
</tr>
<tr>
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Interest<br />
  expense, net</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">37</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">20</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Interest<br />
  expense, net</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">42</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(5</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">24</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Hedges of Net Investments in Foreign
Operations</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI designates certain
foreign currency denominated debt and forward exchange contracts as
net investment hedges of its foreign operations. For the six months
ended June 30, 2009 and 2008, these hedges of net investments
resulted in gains, net of income taxes, of $22 million and $32
million, respectively. For the three months ended June 30,
2009 and 2008, these hedges of net investments resulted in losses,
net of income taxes, of $165 million and $5 million, respectively.
These gains (losses) were reported as a component of accumulated
other comprehensive earnings (losses) within currency translation
adjustments. Settlement of net investment hedges is included in
other investing cash flows on PMI’s condensed consolidated
statement of cash flows.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font><font size="1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">For the six months and three
months ended June 30, 2009, foreign exchange contracts, which
were designated as net investment hedging instruments under SFAS
No. 133, impacted the condensed consolidated statements of
earnings and other comprehensive earnings as follows (pre-tax, in
millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="41%"></td>
<td valign="bottom" width="8%"></td>
<td></td>
<td valign="bottom" width="8%"></td>
<td></td>
<td></td>
<td valign="bottom" width="8%"></td>
<td></td>
<td valign="bottom" width="8%"></td>
<td></td>
<td></td>
<td valign="bottom" width="8%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="14">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">For the Six Months Ended
June 30, 2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Derivatives in</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">SFAS No. 133</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Net Investment</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Hedging</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Relationship</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification<br />
of Gain/(Loss)<br />
on</font><br />
<font face="Times New Roman" size="2">Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Recognized<br />
in Earnings<br />
on<br />
Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification of<br />
Gain/(Loss)<br />
Reclassified from</font><br />
<font face="Times New Roman" size="2">Other<br />
Comprehensive<br />
Earnings into</font><br />
<font face="Times New Roman" size="2">Earnings</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Reclassified<br />
from Other<br />
Comprehensive<br />
Earnings into</font><br />
<font face="Times New Roman" size="2">Earnings</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Recognized in<br />
Other<br />
Comprehensive<br />
Earnings on<br />
Derivative</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Foreign exchange<br />
contracts</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Interest expense, net</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(19</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td colspan="15" height="16"></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="14">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">For the Three Months Ended
June 30, 2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Derivatives in</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">SFAS No. 133</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Net Investment</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Hedging</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px" align="center">
<font face="Times New Roman" size="2">Relationship</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification<br />
of Gain/(Loss)<br />
on</font><br />
<font face="Times New Roman" size="2">Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Recognized<br />
in Earnings<br />
on<br />
Derivative</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle"><font face="Times New Roman" size=
"2">Statement of<br />
Earnings<br />
Classification of<br />
Gain/(Loss)<br />
Reclassified from<br />
Other<br />
Comprehensive<br />
Earnings into</font><br />
<font face="Times New Roman" size="2">Earnings</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Reclassified<br />
from Other<br />
Comprehensive<br />
Earnings into</font><br />
<font face="Times New Roman" size="2">Earnings</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom"
nowrap="nowrap" align="middle" colspan="2"><font face=
"Times New Roman" size="2">Amount of<br />
Gain/(Loss)<br />
Recognized in<br />
Other<br />
Comprehensive<br />
Earnings on<br />
Derivative</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Foreign exchange<br />
contracts</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Interest expense, net</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(83</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Other Derivatives</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI has entered into foreign
exchange contracts to hedge the foreign currency exchange risks
related to inter-company loans between certain subsidiaries. While
effective as economic hedges, no hedge accounting is applied for
these contracts and, therefore, the unrealized gains (losses)
relating to these contracts are reported in PMI’s condensed
consolidated statements of earnings. For the six months and three
months ended June 30, 2009, the gains and (losses) from
contracts for which we did not apply hedge accounting were $285
million and ($134) million, respectively, which substantially
offset the losses and gains generated by the underlying
inter-company loans being hedged.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font><font size="1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As a result, for the six
months and three months ended June 30, 2009, these items
affected the condensed consolidated statement of earnings as
follows (pre-tax, in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="60%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom" nowrap="nowrap" align="middle">
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">Derivatives not
Designated</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
<font face="Times New Roman" size="2">as Hedging
Instruments</font></p>
<p style=
"MARGIN-TOP: 0px; MARGIN-BOTTOM: 1px; WIDTH: 109pt; BORDER-BOTTOM: #000000 1px solid"
align="center"><font face="Times New Roman" size="2">under SFAS
No.133</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle"><font face="Times New Roman" size=
"2">Statement of Earnings<br />
Classification of</font><br />
<font face="Times New Roman" size="2">Gain/(Loss)</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">Amount of Gain/(Loss)</font><br />
<font face="Times New Roman" size=
"2">Recognized in Earnings</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"> <font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Six Months</font><br />
<font face="Times New Roman" size=
"2">Ended June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Three Months</font><br />
<font face="Times New Roman" size=
"2">Ended June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Foreign exchange<br />
contracts</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Marketing,<br />
  administration and<br />
  research costs</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td height="16"></td>
<td colspan="2" height="16"></td>
<td colspan="4" height="16"></td>
<td colspan="4" height="16"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">Interest expense, net</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(8</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(9</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(5</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Qualifying Hedging Activities
Reported in Accumulated Other Comprehensive Earnings
(Losses)</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Derivative gains or losses
reported in accumulated other comprehensive earnings (losses) are a
result of qualifying hedging activity. Transfers of these gains or
losses to earnings are offset by the corresponding gains or losses
on the underlying hedged item. Hedging activity affected
accumulated other comprehensive earnings (losses), net of income
taxes, as follows (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="62%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">For the Six Months Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">For the Three Months Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2008</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2008</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Loss at beginning of period</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(68</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(10</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(25</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(182</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Derivative (gains) losses transferred to
earnings</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(17</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">51</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">22</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Change in fair value</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">61</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(162</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(10</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">39</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Loss as of June 30</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(24</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(121</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(24</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(121</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">At June 30, 2009, PMI
expects $42 million of after-tax derivative losses reported in
accumulated other comprehensive earnings (losses) to be
reclassified to the condensed consolidated statement of earnings
within the next twelve months. Thereafter, PMI expects the
remaining $18 million of after-tax derivative gains to be
reclassified to the condensed consolidated statement of earnings.
These losses and gains are expected to be substantially offset by
the statement of earnings impact of the respective forecasted
transactions.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Credit exposure and credit
risk</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">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 major international banks and
financial institutions as counterparties.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Contingent features</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">PMI’s derivative instruments do
not contain contingent features.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">See Note 14. <i>Fair Value
Measurements</i> for disclosures related to the fair value of
PMI’s derivative financial instruments.</font></p>
</div>
<div>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
</p>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 4. Stock
Plans:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Under the Philip Morris
International Inc. 2008 Performance Incentive Plan (the
“Plan”), PMI may grant to certain eligible employees
stock options, stock appreciation rights, restricted stock,
restricted stock units and deferred stock units and other
stock-based awards based on PMI’s common stock, as well as
performance-based incentive awards. Up to 70 million shares of
PMI’s common stock may be issued under the Plan. At
June 30, 2009, shares available for grant under the Plan were
33,363,977.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font><font size="1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI has also 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 each 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 1,000,000 shares of PMI common stock may
be awarded under the Non-Employee Directors Plan. As of
June 30, 2009, 866,494 shares were available for grant under
the plan.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">During the six months ended
June 30, 2009, PMI granted 3.8 million shares of
restricted stock and deferred stock awards to eligible employees at
a weighted-average grant date fair value of $36.93. PMI recorded
compensation expense for restricted stock and deferred stock awards
of $44 million and $30 million during the six months ended
June 30, 2009 and 2008, respectively, and $25 million and $20
million during the three months ended June 30, 2009 and 2008,
respectively. As of June 30, 2009, PMI had $194 million of
total unrecognized compensation cost related to non-vested
restricted and deferred shares. The cost is recognized over the
original restriction period of the awards, which is typically three
years from the date of the original grant.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">During the six months ended
June 30, 2009, 1.4 million shares of PMI restricted stock
and deferred stock awards vested. Of this amount 0.9 million
shares went to PMI employees and the remainder went to Altria and
Kraft employees who held PMI stock awards as a result of the
Spin-off. The grant date fair value of all the vested shares was
approximately $104 million or $73.92 per share. The total fair
value of restricted stock and deferred stock awards that vested
during the six months ended June 30, 2009 was approximately
the same as the grant date fair value. The grant price information
for restricted stock and deferred stock awarded prior to
January 30, 2008 reflects historical market prices of Altria
stock at date of grant and is not adjusted to reflect the
Spin-off.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">For the six months ended
June 30, 2009, the total intrinsic value of the
5.4 million PMI stock options exercised was $102
million.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<!-- 8 Repeat_Hdr_Start * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
 </p>
</div>
38000000
16768000000
<div>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 14. Fair Value
Measurements:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">On January 1, 2008, PMI
adopted SFAS No. 157 “Fair Value Measurements”
(“SFAS No. 157”). SFAS No. 157 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.
SFAS No. 157 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 standard describes three levels of input that may be used to
measure fair value:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="6%"></td>
<td valign="bottom" width="5%"></td>
<td width="89%"></td>
</tr>
<tr>
<td valign="top">
<p align="justify"><font face="Times New Roman" size="2">Level 1
-</font></p>
</td>
<td valign="bottom"><font size=
"1">    </font></td>
<td valign="top">
<p align="justify"><font face="Times New Roman" size="2">Quoted
prices in active markets for identical assets or
liabilities.</font></p>
</td>
</tr>
<tr>
<td height="16"></td>
<td colspan="2" height="16"></td>
</tr>
<tr>
<td valign="top">
<p align="justify"><font face="Times New Roman" size=
"2">Level 2 -</font></p>
</td>
<td valign="bottom"><font size=
"1">    </font></td>
<td valign="top">
<p align="justify"><font face="Times New Roman" size="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.</font></p>
</td>
</tr>
<tr>
<td height="16"></td>
<td colspan="2" height="16"></td>
</tr>
<tr>
<td valign="top">
<p align="justify"><font face="Times New Roman" size="2">Level 3
-</font></p>
</td>
<td valign="bottom"><font size=
"1">    </font></td>
<td valign="top">
<p align="justify"><font face="Times New Roman" size=
"2">Unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets
or liabilities.</font></p>
</td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 24px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Debt</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The fair value of PMI’s
outstanding debt, as utilized solely for disclosure purposes, is
determined by utilizing 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 capital leases obligations, was $13,425 million at
June 30, 2009.</font></p>
<p style="MARGIN-TOP: 24px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Derivative Financial
Instruments</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI assesses the fair value
of its derivative financial instruments using internally developed
models that use, as their basis, readily observable future amounts,
such as cash flows, earnings, and the current market expectations
of those future amounts. These derivatives include forward foreign
exchange contracts, foreign currency swaps and foreign currency
options. Derivative financial instruments have been classified
within Level 2. See Note 7. <i>Financial Instruments</i> for
additional discussion on derivative financial
instruments.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The aggregate fair value of
PMI’s debt and derivative financial instruments as of
June 30, 2009, was as follows (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0">
<!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="50%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Quoted Prices<br />
in Active<br />
Markets for<br />
Identical<br />
Assets/Liabilities</font><br />
<font face="Times New Roman" size="2">(Level 1)</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Significant<br />
Other<br />
Observable<br />
Inputs</font><br />
<font face="Times New Roman" size="2">(Level 2)</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Significant<br />
Unobservable<br />
Inputs</font><br />
<font face="Times New Roman" size="2">(Level 3)</font></td>
</tr>
<tr>
<td height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Derivatives - Assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">108</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">108</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<tr>
<td height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Debt</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">14,299</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">14,202</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">97</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<tr>
<td height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
<td colspan="3" height="16"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Derivatives –
Liabilities</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">90</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">90</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<!-- 8 Repeat_Hdr_Start * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center">
 </p>
</div>
<div>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
</p>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 6. Goodwill and Other
Intangible Assets, net:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Goodwill and other intangible assets,
net, by segment were as follows (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="60%"></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
<td valign="bottom" width="6%"></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="5"><font face="Times New Roman" size=
"2">Goodwill</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="5"><font face="Times New Roman" size=
"2">Other Intangible Assets, net</font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">December 31,</font><br />
<font face="Times New Roman" size="2">2008</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">December 31,</font><br />
<font face="Times New Roman" size="2">2008</font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">European Union</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,477</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,456</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">678</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">469</font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Eastern Europe, Middle East and
Africa</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">579</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">648</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">196</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">200</font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Asia</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,653</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,387</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,265</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,188</font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Latin America & Canada</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,705</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,524</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,182</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,227</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">8,414</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">8,015</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,321</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,084</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Goodwill is due primarily to
PMI’s acquisitions in Canada, Indonesia, Mexico, Greece,
Serbia, Colombia and Pakistan. The movement in goodwill and the
gross carrying amount of intangible assets from December 31,
2008, is as follows (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="84%" border="0">
<!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="84%"></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
<td valign="bottom" width="4%"></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Goodwill</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Other</font><br />
<font face="Times New Roman" size="2">Intangible</font><br />
<font face="Times New Roman" size="2">Assets,<br />
gross</font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Balance at December 31, 2008</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">8,015</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,200</font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Changes due to:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Acquisitions</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">116</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">137</font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Currency</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">283</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">138</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Balance at June 30, 2009</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">8,414</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,475</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The changes from acquisitions
are due to the purchase price allocation for PMI’s February
2009 purchase of the <i>Petterøes</i> tobacco business and its
September 2008 acquisition of Rothmans Inc. in Canada. For further
details on acquisitions, see Note 8.
<i>Acquisitions.</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Additional details of other intangible
assets were as follows (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0">
<!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="58%"></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
<td valign="bottom" width="7%"></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="5"><font face="Times New Roman" size=
"2">June 30, 2009</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="5"><font face="Times New Roman" size=
"2">December 31, 2008</font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Gross</font><br />
<font face="Times New Roman" size="2">Carrying<br />
Amount</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Accumulated<br />
Amortization</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Gross<br />
Carrying<br />
Amount</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">Accumulated<br />
Amortization</font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Non-amortizable intangible
assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,974</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,878</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Amortizable intangible assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,501</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">154</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,322</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">116</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total other intangible assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,475</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">154</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,200</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">116</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<!-- 8 Repeat_Hdr_Start * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center"></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center"></p>
<font size="1"> </font>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Non-amortizable intangible
assets substantially consist of trademarks from PMI’s
acquisition in Indonesia in 2005 and Mexico in 2007. Amortizable
intangible assets consist of certain trademarks, distribution
networks and non-compete agreements associated with acquisitions.
Pre-tax amortization expense for intangible assets during the six
months ended June 30, 2009 and 2008 was $36 million and $16
million, respectively, and $21 million and $7 million for the three
months ended June 30, 2009 and 2008, respectively.
Amortization expense for each of the next five years is estimated
to be $75 million or less, assuming no additional transactions
occur that require the amortization of intangible
assets.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">During the first quarter of
2009, PMI completed its annual review of goodwill and
non-amortizable intangible assets, and no impairment charges were
required as a result of this review.</font></p>
</div>
7575000000
<div>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 12. Income
Taxes:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI accounts for income taxes
in accordance with SFAS No. 109, “Accounting for 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI’s effective tax
rates for the six months and three months ended June 30, 2009
were 29.2% and 28.6%, respectively. PMI’s effective tax rates
for the six months and three months ended June 30, 2008 were
30.3% and 31.0%, respectively. The 2008 tax rates were unfavorably
impacted by 0.7 percentage points for the six months and by 1.4
percentage points for the three months due to the after-tax charge
of $124 million related to the RBH settlement with the Government
of Canada and all ten provinces. The effective tax rates are based
on PMI’s full year geographical 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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI is regularly examined by
tax authorities around the world. It is reasonably possible that
within the next 12 months certain tax examinations will close,
which could result in a decrease in unrecognized tax benefits along
with related interest and penalties. An estimate of the range of
the possible decrease cannot be made at this time.</font></p>
</div>
1284000000
-27000000
-201000000
0
-1344000000
-101000000
326000000
-351000000
179000000
-3145000000
-395000000
4573000000
3022000000
4749000000
<div>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="center"></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 1. Basis of Presentation and
Separation from Altria Group, Inc.:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Basis of Presentation</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The interim condensed
consolidated financial statements of Philip Morris International
Inc. and subsidiaries (“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.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">These statements should be
read in conjunction with the audited consolidated financial
statements and related notes, which appear in PMI’s Annual
Report to Stockholders and which are incorporated by reference into
PMI’s Annual Report on Form 10-K for the year ended
December 31, 2008 (the “2008 Form
10-K”).</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As discussed in the 2008 Form
10-K, certain of PMI’s subsidiaries prior to 2008 reported
their results up to ten days before the end of December, rather
than on December 31. During 2008, these subsidiaries moved to
a December 31, 2008 closing date, which impacted the first
quarter and fourth quarter results of previous periods. As a
result, certain amounts in the first quarter of 2008 have been
revised to reflect this change. The impact of this change resulted
in a decrease in net earnings attributable to PMI and diluted
earnings per share (“EPS”) of $194 million and
approximately $0.10, respectively, in the first six months of
2008.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As discussed in Note 18.
<i>New Accounting Standards</i>, certain prior year balance sheet
amounts related to noncontrolling interests have been reclassified
to conform with the current year’s presentation.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI has evaluated subsequent
events through the time of filing for this Form 10-Q on
August 6, 2009, which was the date of issuance of the interim
condensed consolidated financial statements.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Separation from Altria Group,
Inc.</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As discussed in the 2008 Form
10-K, prior to March 28, 2008, PMI was a wholly-owned
subsidiary of Altria Group, Inc. (“Altria”). On
January 30, 2008, the Altria Board of Directors announced
Altria’s plans to spin off all of its interest in PMI to
Altria’s stockholders in a tax-free transaction pursuant to
Section 355 of the U.S. Internal Revenue Code (the
“Spin-off”). The distribution of all of the PMI shares
owned by Altria was made on March 28, 2008 (the
“Distribution Date”) to stockholders of record as of
the close of business on March 19, 2008 (the “Record
Date”). Altria distributed one share of PMI common stock for
each share of Altria common stock outstanding as of the Record
Date.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">For additional information
regarding PMI’s transactions with Altria Group, Inc. and its
affiliates after the Spin-off, see Note 3. <i>Transactions with
Altria Group, Inc</i>.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"> </p>
</div>
135000000
555000000
28000000
-8000000
44000000
-4000000
483000000
-137000000
2850000000
0
2161000000
209000000
323000000
362000000
<div>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 5. Benefit
Plans:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Pension coverage for
employees of PMI’s non-U.S. subsidiaries is provided, to the
extent deemed appropriate, through separate plans, many of which
are governed by local statutory requirements. Prior to the
Spin-off, certain employees of PMI participated in the U.S. benefit
plans offered by Altria. After the Distribution Date, the benefits
previously provided by Altria are now provided by PMI. As a result,
new postretirement and pension plans have been established by PMI,
and the related plan assets (to the extent that the benefit plans
were previously funded) and liabilities have been transferred to
the new plans. In addition, PMI provides health care and other
benefits to certain non-U.S. retired employees. In general, health
care benefits for non-U.S. retired employees are covered through
local government plans.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Pension Plans</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b>Components of Net Periodic Benefit
Cost</b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Net periodic pension cost consisted of
the following (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="92%" border="0">
<!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="61%"></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="11%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">U.S. Plans</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">Non-U.S. Plans</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">For the Six Months</font><br />
<font face="Times New Roman" size="2">Ended
June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">For the Six Months</font><br />
<font face="Times New Roman" size="2">Ended
June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2008</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Service cost</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">6</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">62</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">65</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Interest cost</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">9</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">82</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">83</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Expected return on plan
assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(6</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(107</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(128</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Amortization:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net loss</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">16</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Prior service cost</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Other</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">7</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net periodic pension cost</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">15</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">56</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">34</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td height="16"></td>
<td colspan="4" height="16"></td>
<td colspan="8" height="16"></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">U.S. Plans</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size="2">Non-U.S.
Plans</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">For the Three Months</font><br />
<font face="Times New Roman" size="2">Ended
June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">For the Three Months</font><br />
<font face="Times New Roman" size="2">Ended
June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2008</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Service cost</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">31</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">33</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Interest cost</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">41</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">43</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Expected return on plan
assets</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(3</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(54</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(66</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Amortization:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net loss</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">8</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Prior service cost</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Other</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">7</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net periodic pension cost</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">5</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">28</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">20</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Other above was primarily
related to early retirement programs in 2009 and curtailment losses
related to plan changes in 2008. The U.S. pension expense for the
six months and three months ended June 30, 2008 was
insignificant.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font><font size="1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b>Employer Contributions</b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">PMI presently makes, and
plans to make, contributions, to the extent that they are tax
deductible and meet funding requirements, in order to maintain plan
assets in excess of the accumulated benefit obligation of its
funded U.S. and non-U.S. plans. Employer contributions of $362
million were made to the pension plans during the six months ended
June 30, 2009. Currently, PMI anticipates making additional
contributions during the remainder of 2009 of approximately $156
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.</font></p>
</div>
-226000000
105000000
2987000000
<div>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 3. Transactions with Altria
Group, Inc.:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Operations</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Prior to 2009, PMI had
contracts with PM USA for the purchase of U.S.-grown tobacco leaf,
the contract manufacture of cigarettes for export from the United
States and certain research and development activities. Billings
for services were generally based upon PM USA’s cost to
provide such services, plus a service fee. The cost of leaf
purchases was the market price of the leaf plus a service fee. Fees
paid have been included in operating cash flows on PMI’s
condensed consolidated statements of cash flows.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font><font size="1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As previously discussed, PMI
terminated its contract manufacturing arrangement in 2008 with PM
USA and completed the process of shifting all of its PM USA
contract manufactured production to PMI facilities in Europe during
the fourth quarter of 2008. During the first quarter of 2008, PMI
recorded exit costs of $15 million related to the termination of
its manufacturing contract with PM USA.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">The goods and services purchased from PM
USA were as follows (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="76%"></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="10%"></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">For the Six<br />
Months Ended</font><br />
<font face="Times New Roman" size="2">June 30,
2008</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">For the Three<br />
Months Ended</font><br />
<font face="Times New Roman" size="2">June 30,
2008</font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Contract manufacturing, cigarette
volume</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">14,520</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">6,273</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="3" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Contract manufacturing
expense</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">240</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">107</font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Research and development, net of
billings to PM USA</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(2</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total pre-tax expense</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">238</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">107</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="3" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Leaf purchases</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">93</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Contract manufacturing
expense included the cost of cigarettes manufactured for PMI, as
well as the cost of PMI’s purchases of reconstituted tobacco
and production materials. The expenses shown above also included
total service fees of $11 million and $5 million for the six months
and three months ended June 30, 2008, respectively.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Net amounts due from/(to)
Altria Group, Inc. and affiliates related to ongoing operations
consisted of the following (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="81%"></td>
<td valign="bottom" width="8%"></td>
<td></td>
<td></td>
<td valign="bottom" width="8%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">June 30,</font><br />
<font face="Times New Roman" size="2">2009</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">December 31,</font><br />
<font face="Times New Roman" size="2">2008</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net receivable from Altria Group, Inc.
and affiliates</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">69</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">69</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Payable for services from PM
USA</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(53</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Due from Altria Group, Inc. and
affiliates</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">69</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">16</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The amounts due from Altria
Group, Inc. and affiliates are reflected in receivables on the
condensed consolidated balance sheet and primarily relate to income
taxes for years in which PMI was part of Altria’s
consolidated tax return. The amounts payable for services from PM
USA are reflected in accounts payable on the condensed consolidated
balance sheet.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><i>Other</i></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">On March 28, 2008, PMI
Global Services Inc. purchased from Altria’s subsidiary,
Altria Corporate Services, Inc. (“ALCS”), at a fair
market value of $108 million, a subsidiary of ALCS, the principal
assets of which are two Gulfstream airplanes. Given that the
purchase was from an entity under common control, the planes were
recorded at book value ($89 million) and a portion of the purchase
price ($19 million) was treated as a dividend to Altria.</font></p>
</div>
1000000
-35000000
<div>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 2. Asset Impairment and Exit
Costs:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Pre-tax asset impairment and exit costs
consisted of the following (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="60%"></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
<td valign="bottom" width="9%"></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="5"><font face="Times New Roman" size=
"2">For the Six Months Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="5"><font face="Times New Roman" size=
"2">For the Three Months Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2008</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2008</font></p>
</td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Separation programs:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">European Union</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">56</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">48</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total separation programs</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">56</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">48</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="3" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Contract termination charges:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Eastern Europe, Middle East and
Africa</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Asia</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">14</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Total contract termination
charges</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">15</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">-</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="3" height="8"></td>
<td colspan="3" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Asset impairment and exit
costs</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">71</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1</font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">48</font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">In 2008, PMI terminated its
contract manufacturing arrangement with Philip Morris USA Inc.
(“PM USA”), a U.S. tobacco subsidiary of Altria, and
completed the process of shifting all of its PM USA contract
manufactured production to PMI facilities in Europe during the
fourth quarter of 2008. During the first quarter of 2008, PMI
recorded exit costs of $15 million related to the termination of
its manufacturing contract with PM USA. The 2009 and 2008 pre-tax
separation program charges primarily related to severance
costs.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Cash payments related to exit
costs at PMI were $37 million and $15 million for the six months
and three months ended June 30, 2009, respectively, and $63
million and $34 million for the six months and three months ended
June 30, 2008, respectively. Future cash payments for exit
costs incurred to date are expected to be approximately $76
million, which will be substantially paid by 2011.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">The movement in the exit cost
liabilities for the six months ended June 30, 2009 was as
follows (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="64%" border="0">
<!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="95%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Liability balance, January 1,
2009</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">115</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Charges</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Cash spent</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(37</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Currency/other</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Liability balance, June 30,
2009</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">76</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
</tbody>
</table>
</div>
2000000
28499000000
<div>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 18. New Accounting
Standards:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As previously discussed in
Note 9. <i>Earnings Per Share</i>, PMI adopted FSP 03-6-1
“Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating
Securities.”</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Effective January 1,
2009, PMI adopted SFAS No. 160 “Noncontrolling Interests
in Consolidated Financial Statements” (“SFAS
No. 160”). SFAS No. 160 changed the reporting for
minority interest by requiring that noncontrolling interests be
reported within equity. Additionally, SFAS No. 160 requires that
any transaction between an entity and a noncontrolling interest be
accounted for as an equity transaction. SFAS No. 160 has been
applied prospectively, except for the presentation and disclosure
requirements which have been adjusted retrospectively for all
periods presented.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Effective January 1,
2009, PMI adopted SFAS No. 141 (Revised 2007) “Business
Combinations” (“SFAS No. 141(R)”). SFAS
No. 141(R) requires the recognition of assets acquired,
liabilities assumed and any noncontrolling interest in the acquiree
to be measured at fair value as of the acquisition date.
Additionally, costs incurred to effect the acquisition are to be
recognized separately from the acquisition and expensed as
incurred.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Effective January 1,
2009, PMI adopted SFAS No. 161 “Disclosures about
Derivative Instruments and Hedging Activities” (“SFAS
No. 161”). SFAS No. 161 changes the disclosure
requirements for derivative instruments and hedging activities.
SFAS No. 161 requires disclosures about how and why a company
uses derivative instruments, how derivative instruments and related
hedged items are accounted for and how derivative instruments and
related hedged items affect the company’s financial position,
financial performance, and cash flows. SFAS No. 161 is effective
for financial statements issued for fiscal years beginning after
November 15, 2008. PMI has amended its disclosures
accordingly.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">The adoption of these new
accounting standards did not have a material impact on PMI’s
consolidated financial position, results of operations or cash
flows.</font></p>
</div>
<div>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 10. Segment
Reporting:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">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 and Africa; Asia; and Latin
America & Canada.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">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.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font><font size="1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Segment data were as follows (in
millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="68%"></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="3%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">For the Six Months Ended<br />
June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">For the Three Months Ended<br />
June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">2008</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">2009</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="2"><font face="Times New Roman" size=
"2">2008</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net revenues:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">European Union</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">13,205</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">14,976</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">7,155</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">8,279</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Eastern Europe, Middle East and
Africa</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">6,231</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">7,085</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,400</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,802</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Asia</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">5,804</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">6,146</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,947</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,170</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Latin America &
Canada</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,259</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,850</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,711</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,452</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 4em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net revenues</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">28,499</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">31,057</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">15,213</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">16,703</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Earnings before income taxes:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Operating companies income:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">European Union</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,130</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,454</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,163</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,287</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Eastern Europe, Middle East and
Africa</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,221</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,493</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">635</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">813</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Asia</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,280</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,073</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">619</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">523</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Latin America &
Canada</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">226</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">172</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">71</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">23</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Amortization of intangibles</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(36</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(16</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(21</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(7</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">General corporate expenses</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(72</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(44</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(38</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(31</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Operating income</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">4,749</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">5,132</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,429</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,608</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 2em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Interest expense, net</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(351</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(136</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(193</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(61</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 4em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Earnings before income taxes</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">4,398</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">4,996</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,236</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,547</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<!-- 6 Last_Row * DO NOT REMOVE OR EDIT --></tbody>
</table>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Items affecting the comparability of
PMI’s results from operations were as follows:</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="justify"><font face="Times New Roman" size="2"><i>Asset
Impairment and Exit Costs –</i> See Note 2. <i>Asset
Impairment and Exit Costs</i> for a breakdown of asset impairment
and exit costs by segment.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="justify"><font face="Times New Roman" size="2"><i>Equity
loss from RBH Legal Settlement –</i> As discussed in Note 17.
<i>RBH Legal Settlement</i>, operating companies income of the
Latin America & Canada segment for the six months and
three months ended June 30, 2008 included a $124 million
charge related to the RBH settlement with the Government of Canada
and all ten provinces.</font></p>
</td>
</tr>
</tbody>
</table>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table style="BORDER-COLLAPSE: collapse" cellspacing="0"
cellpadding="0" width="100%" border="0">
<tbody>
<tr>
<td width="4%"><font size="1"> </font></td>
<td valign="top" align="left" width="3%"><font face=
"Times New Roman" size="2">•</font></td>
<td valign="top" width="1%"><font size="1"> </font></td>
<td valign="top" align="left">
<p align="justify"><font face="Times New Roman" size=
"2"><i>Colombian Investment and Cooperation Agreement charge</i>
– As discussed in Note 16. <i>Colombian Investment and
Cooperation Agreement,</i> during the second quarter of 2009, PMI
recorded a pre-tax charge of $135 million related to the Investment
and Cooperation Agreement in Colombia. The charge was recorded in
the operating companies income of the Latin America &
Canada segment for the six months and three months ended
June 30, 2009.</font></p>
</td>
</tr>
</tbody>
</table>
</div>
2736000000
-999000000
4398000000
<div>
<p style="MARGIN-TOP: 18px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 17. RBH Legal
Settlement:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">On July 31, 2008,
Rothmans announced the finalization of a CAD $550 million (or $475
million) settlement between itself and RBH on the one hand and the
Government of Canada and all ten provinces on the other hand. The
settlement resolves the Royal Canadian Mounted Police’s
investigation relating to products exported from Canada by RBH
during the 1989-1996 period. Rothmans’ sole holding was a 60%
interest in RBH. The remaining 40% interest in RBH was owned by
PMI.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">As a result of the
finalization of the settlement, PMI recorded a charge of $124
million in the operating results of the Latin America &
Canada segment during the second quarter of 2008. The charge
represented the present value of PMI’s 40% equity interest in
RBH’s portion of the settlement.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Subsequent to the
finalization of the settlement, PMI announced on July 31, 2008
that it had entered into an agreement with Rothmans to purchase, by
way of a tender offer, all of the outstanding common shares of
Rothmans. See Note 8. <i>Acquisitions</i> for more details
regarding this acquisition.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">At June 30, 2009, PMI
had $225 million of discounted accrued settlement charges
associated with the RBH legal settlement. These accrued settlement
charges are reflected in other accrued liabilities ($25 million)
and other long-term liabilities ($200 million) on the condensed
consolidated balance sheet.</font></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font size=
"1"> </font></p>
<!-- 9 Repeat_Hdr_End * DO NOT REMOVE OR EDIT -->
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">At December 31, 2008,
PMI had $207 million of discounted accrued settlement charges
associated with the RBH legal settlement. These accrued settlement
charges are reflected in other accrued liabilities ($15 million)
and other long-term liabilities ($192 million) on the condensed
consolidated balance sheet.</font></p>
</div>
0
-358000000
2788000000
154000000
3114000000
92000000
3669000000
<div>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"></p>
<p style="MARGIN-TOP: 0px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2"><b><u>Note 9. Earnings Per
Share:</u></b></font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px" align="justify">
<font face="Times New Roman" size="2">Effective January 1,
2009, PMI adopted FASB Staff Position No. EITF 03-6-1
“Determining Whether Instruments Granted in Share-Based
Payment Transactions Are Participating Securities”
(“FSP 03-6-1”). FSP 03-6-1 states that unvested
share-based payment awards that contain nonforfeitable rights to
dividends are participating securities and therefore shall be
included in the earnings per share calculation pursuant to the
two-class method described in SFAS No. 128, “Earnings
Per Share.” FSP 03-6-1 requires the retrospective adjustment
of all prior period earnings per share data. The adoption and
retrospective application of FSP 03-6-1 did not have a material
impact on PMI’s basic and diluted EPS.</font></p>
<p style="MARGIN-TOP: 12px; MARGIN-BOTTOM: 0px"><font face=
"Times New Roman" size="2">Basic and diluted EPS were calculated
using the following (in millions):</font></p>
<p style="MARGIN-TOP: 0px; FONT-SIZE: 12px; MARGIN-BOTTOM: 0px">
 </p>
<table cellspacing="0" cellpadding="0" width="100%" align="center"
border="0"><!-- 5 First_Row * DO NOT REMOVE OR EDIT -->
<tbody>
<tr>
<td width="64%"></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
<td valign="bottom" width="5%"></td>
<td></td>
<td></td>
<td></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">For the Six Months Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td style="BORDER-BOTTOM: #000000 1px solid" valign="bottom" align=
"middle" colspan="6"><font face="Times New Roman" size=
"2">For the Three Months Ended</font><br />
<font face="Times New Roman" size="2">June 30,</font></td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2008</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2009</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom" align="middle" colspan="2">
<p style="WIDTH: 20pt; BORDER-BOTTOM: #000000 1px solid" align=
"center"><font face="Times New Roman" size="2">2008</font></p>
</td>
<td valign="bottom"><font size="1"> </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net earnings attributable to
PMI</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,022</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,365</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,546</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,692</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Less distributed and undistributed<br />
earnings attributable to share-based<br />
payment awards</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(6</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(6</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">(4</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">) </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Net earnings for basic and diluted
EPS</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,011</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">3,359</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,540</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2">$</font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,688</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
<tr>
<td height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
<td colspan="4" height="8"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Weighted-average shares for basic
EPS</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,974</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,101</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,955</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,095</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Plus incremental shares from
assumed<br />
conversions:</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
<td valign="bottom"></td>
</tr>
<tr>
<td valign="top">
<p style="MARGIN-LEFT: 3em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Stock options</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">6</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">6</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">6</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">11</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 1px solid" valign="bottom">
 </td>
<td> </td>
</tr>
<tr bgcolor="#CCEEFF">
<td valign="top">
<p style="MARGIN-LEFT: 1em; TEXT-INDENT: -1em"><font face=
"Times New Roman" size="2">Weighted-average shares for diluted
EPS</font></p>
</td>
<td valign="bottom"><font size="1">  </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,980</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,107</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">1,961</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
<td valign="bottom"><font size="1"> </font></td>
<td valign="bottom"><font face="Times New Roman" size=
"2"> </font></td>
<td valign="bottom" align="right"><font face="Times New Roman"
size="2">2,106</font></td>
<td valign="bottom" nowrap="nowrap"><font face="Times New Roman"
size="2">  </font></td>
</tr>
<tr style="FONT-SIZE: 1px">
<td valign="bottom"></td>
<td valign="bottom">  </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
<td valign="bottom"> </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td style="BORDER-TOP: #000000 3px double" valign="bottom">
 </td>
<td> </td>
</tr>
</tbody>
</table>
</div>
0
28000000
-8000000
44000000
-4000000
490000000
-124000000
2125000000
1.08
3022000000
2736000000
278000000
179000000
-7000000
92000000
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2009-07-31
shares
iso4217:USD
iso4217:USD
shares
Total comprehensive earnings were $2,886 million and $2,151 million for the quarters ended June 30, 2009 and 2008, respectively, including $90 million and $74 million related to noncontrolling interests, respectively.