Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,Washington, D.C. 20549
FORM 10-Q
(Mark One) 
☑QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 20202021
OR 
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-33708
Philip Morris International Inc.
(Exact name of registrant as specified in its charter)
Virginia13-3435103
(State or other jurisdiction of
    incorporation or organization)
(I.R.S. Employer
    Identification No.)
Virginia13-3435103
(State or other jurisdiction of
    incorporation or organization)		(I.R.S. Employer
    Identification No.)
120 Park AvenueNew YorkNew York10017
(Address of principal executive offices)(Zip Code)
Registrant’s telephone number, including area code(917)663-2000
Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:
Title of each class                    Trading Symbol(s)Name of each exchange on which registered
Common Stock, no par valuePMNew York Stock Exchange
1.875%4.125% Notes due 2021PM21BPM21New York Stock Exchange
1.875%2.900% Notes due 2021PM21CPM21ANew York Stock Exchange
4.125%2.625% Notes due 20212022PM21PM22ANew York Stock Exchange
2.900%2.375% Notes due 20212022PM21APM22BNew York Stock Exchange
2.625%2.500% Notes due 2022PM22APM22New York Stock Exchange
2.375%2.500% Notes due 2022PM22BPM22CNew York Stock Exchange
2.500%2.625% Notes due 20222023PM22PM23New York Stock Exchange
2.500%2.125% Notes due 20222023PM22CPM23BNew York Stock Exchange
2.625%3.600% Notes due 2023PM23PM23ANew York Stock Exchange
2.125%2.875% Notes due 20232024PM23BPM24New York Stock Exchange
3.600%2.875% Notes due 20232024PM23APM24CNew York Stock Exchange
2.875%0.625% Notes due 2024PM24PM24BNew York Stock Exchange
2.875%3.250% Notes due 2024PM24CPM24ANew York Stock Exchange
0.625%2.750% Notes due 20242025PM24BPM25New York Stock Exchange
3.250%3.375% Notes due 20242025PM24APM25ANew York Stock Exchange
2.750% Notes due 2026PM26ANew York Stock Exchange
Title of each class                    Trading Symbol(s)Name of each exchange on which registered
2.750%2.875% Notes due 20252026PM25PM26New York Stock Exchange
3.375%0.125% Notes due 20252026PM25APM26BNew York Stock Exchange
2.750%3.125% Notes due 20262027PM26APM27New York Stock Exchange
2.875%3.125% Notes due 20262028PM26PM28New York Stock Exchange
0.125%2.875% Notes due 20262029PM26BPM29New York Stock Exchange
3.125%3.375% Notes due 20272029PM27PM29ANew York Stock Exchange
3.125%0.800% Notes due 20282031PM28PM31New York Stock Exchange
2.875%3.125% Notes due 20292033PM29PM33New York Stock Exchange
3.375%2.000% Notes due 20292036PM29APM36New York Stock Exchange
0.800%1.875% Notes due 20312037PM31PM37ANew York Stock Exchange
3.125%6.375% Notes due 20332038PM33PM38New York Stock Exchange
2.000%1.450% Notes due 20362039PM36PM39New York Stock Exchange
1.875%4.375% Notes due 20372041PM37APM41New York Stock Exchange
6.375%4.500% Notes due 20382042PM38PM42New York Stock Exchange
1.450%3.875% Notes due 20392042PM39PM42ANew York Stock Exchange
4.375%4.125% Notes due 20412043PM41PM43New York Stock Exchange
4.500%4.875% Notes due 20422043PM42PM43ANew York Stock Exchange
3.875%4.250% Notes due 20422044PM42APM44New York Stock Exchange
4.125% Notes due 2043PM43New York Stock Exchange
4.875% Notes due 2043PM43ANew York Stock Exchange
4.250% Notes due 2044PM44New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ        No  ¨

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large"large accelerated filer,” “accelerated" "accelerated filer,” “smaller" "smaller reporting company,”" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer    þ                        Accelerated filer            ☐  
Non-accelerated filer    ☐                         Smaller reporting company    ☐
Emerging growth company    ☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  þ
At April 23, 2020,22, 2021, there were 1,557,129,5381,558,536,997 shares outstanding of the registrant’s common stock, no par value per share.

1
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Table of Contents


PHILIP MORRIS INTERNATIONAL INC.
TABLE OF CONTENTS
Page No.
PART I -
Page No.
PART I -Item 1.
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Statements of Earnings for the
Three Months Ended March 31, 20202021 and 20192020
3
Condensed Consolidated Statements of Comprehensive Earnings for the
Three Months Ended March 31, 20202021 and 20192020
4
Condensed Consolidated Balance Sheets at
March 31, 20202021 and December 31, 20192020
5 – 6
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 20202021 and 20192020
7 – 8
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the
Three Months Ended March 31, 20202021 and 20192020
9
10 – 39
Item 2.
40 – 8081
Item 4.
8182
PART II -
Item 1.
8283
Item 1A.
8283
Item 2.
8384
Item 6.
8485
8587

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

Trademarks and service marks in this report are the registered property of, or licensed by, the subsidiaries of Philip Morris International Inc. and are italicized.

2
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Table of Contents


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)

 For the Three Months Ended March 31,
 20212020
Revenues including excise taxes$19,355 $18,253 
Excise taxes on products11,770 11,100 
Net revenues7,585 7,153 
Cost of sales2,274 2,402 
Gross profit5,311 4,751 
Marketing, administration and research costs (Note 16)1,849 1,944 
Amortization of intangibles18 18 
Operating income3,444 2,789 
Interest expense, net167 129 
Pension and other employee benefit costs (Note 3)28 23 
Earnings before income taxes3,249 2,637 
Provision for income taxes697 596 
Equity investments and securities (income)/loss, net(43)54 
Net earnings$2,595 $1,987 
Net earnings attributable to noncontrolling interests177 161 
Net earnings attributable to PMI$2,418 $1,826 

Per share data (Note 6):
Basic earnings per share$1.55 $1.17 
Diluted earnings per share$1.55 $1.17 

 For the Three Months Ended March 31,
 2020 2019
Revenues including excise taxes$18,253
 $17,705
Excise taxes on products11,100
 10,954
Net revenues7,153
 6,751
Cost of sales2,402
 2,465
Gross profit4,751
 4,286
Marketing, administration and research costs (Notes 8, 18 & 19)1,944
 2,217
Amortization of intangibles18
 19
Operating income2,789
 2,050
Interest expense, net129
 152
Pension and other employee benefit costs (Note 3)23
 21
Earnings before income taxes2,637
 1,877
Provision for income taxes596
 424
Equity investments and securities (income)/loss, net54
 (11)
Net earnings1,987
 1,464
Net earnings attributable to noncontrolling interests161
 110
Net earnings attributable to PMI$1,826
 $1,354

Per share data (Note 6):
   
Basic earnings per share$1.17
 $0.87
Diluted earnings per share$1.17
 $0.87








See notes to condensed consolidated financial statements.

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Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Earnings
(in millions of dollars)
(Unaudited)

For the Three Months Ended March 31,
20212020
Net earnings$2,595 $1,987 
Other comprehensive earnings (losses), net of income taxes:
Change in currency translation adjustments:
Unrealized gains (losses), net of income taxes of $(85) in 2021 and $(96) in 2020223 (1,582)

Change in net loss and prior service cost:
Amortization of net losses, prior service costs and net transition costs, net of income taxes of $(18) in 2021 and $(17) in 202081 74 

Change in fair value of derivatives accounted for as hedges:
Gains (losses) recognized, net of income taxes of $(14) in 2021 and $(5) in 202076 26 
(Gains) losses transferred to earnings, net of income taxes of $0 in 2021 and $1 in 202021 (9)
Total other comprehensive earnings (losses)401 (1,491)
Total comprehensive earnings2,996 496 
Less comprehensive earnings attributable to:
Noncontrolling interests143 81 
Comprehensive earnings attributable to PMI$2,853 $415 
  For the Three Months Ended March 31,
  2020 2019
Net earnings $1,987
 $1,464
Other comprehensive earnings (losses), net of income taxes:    
Change in currency translation adjustments:    
Unrealized gains (losses), net of income taxes of ($96) in 2020 and ($128) in 2019 (1,582) 286
(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of $0 in 2020 and 2019 (Note 19) —
 502

Change in net loss and prior service cost:
    
Amortization of net losses, prior service costs and net transition costs, net of income taxes of ($17) in 2020 and ($4) in 2019 74
 63
(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of $0 in 2020 and ($15) in 2019 (Note 19) —
 27

Change in fair value of derivatives accounted for as hedges:
    
Gains (losses) recognized, net of income taxes of ($5) in 2020 and $1 in 2019 26
 (1)
(Gains) losses transferred to earnings, net of income taxes of $1 in 2020 and $1 in 2019 (9) (4)
Total other comprehensive earnings (losses) (1,491) 873
Total comprehensive earnings 496
 2,337
Less comprehensive earnings attributable to:    
Noncontrolling interests 81
 109
Comprehensive earnings attributable to PMI $415
 $2,228


















See notes to condensed consolidated financial statements.

4
-4-

Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of dollars)
(Unaudited)
 
March 31,
2021		December 31,
2020
ASSETS
Cash and cash equivalents$3,902 $7,280 
Trade receivables (less allowances of $21 in 2021 and $23 in 2020)3,303 2,905 
Other receivables (less allowances of $37 in 2021 and $38 in 2020)784 856 

Inventories:
Leaf tobacco1,987 2,063 
Other raw materials1,719 1,712 
Finished product5,313 5,816 
9,019 9,591 
Other current assets902 860 

Total current assets		17,910 21,492 

Property, plant and equipment, at cost		14,249 14,909 
Less: accumulated depreciation8,297 8,544 
5,952 6,365 
Goodwill (Note 4)5,768 5,964 
Other intangible assets, net (Note 4)1,952 2,019 
Equity Investments (Note 12)4,637 4,798 
Deferred income taxes1,070 1,410 
Other assets (less allowances of $21 in 2021 and $22 in 2020)2,515 2,767 
TOTAL ASSETS$39,804 $44,815 
 March 31,
2020		 December 31,
2019
ASSETS   
Cash and cash equivalents$3,746
 $6,861
Trade receivables (less allowances of $19 in 2020 and $20 in 2019)2,785
 3,080
Other receivables549
 637

Inventories:
   
Leaf tobacco2,012
 2,052
Other raw materials2,155
 1,596
Finished product4,878
 5,587
 9,045
 9,235
Other current assets736
 701

Total current assets
16,861
 20,514

Property, plant and equipment, at cost
13,700
 14,446
Less: accumulated depreciation7,593
 7,815
 6,107
 6,631
Goodwill (Note 4)5,284
 5,858
Other intangible assets, net (Note 4)1,850
 2,113
Investments in unconsolidated subsidiaries and equity securities (Notes 11&14)4,390
 4,635
Deferred income taxes1,113
 1,153
Other assets1,889
 1,971
TOTAL ASSETS$37,494
 $42,875










See notes to condensed consolidated financial statements.
Continued

5
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Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(in millions of dollars, except share data)
(Unaudited)
 
March 31,
2021		December 31,
2020
LIABILITIES
Short-term borrowings (Note 10)$192 $244 
Current portion of long-term debt (Note 10)1,930 3,124 
Accounts payable2,537 2,780 
Accrued liabilities:
Marketing and selling634 782 
Taxes, except income taxes4,253 6,403 
Employment costs939 1,189 
Dividends payable1,885 1,880 
Other1,826 2,122 
Income taxes1,019 1,091 
Total current liabilities15,215 19,615 

Long-term debt (Note 10)		27,276 28,168 
Deferred income taxes511 684 
Employment costs4,164 4,470 
Income taxes and other liabilities2,212 2,509 
Total liabilities49,378 55,446 

Contingencies (Note 8)		00

STOCKHOLDERS’ (DEFICIT) EQUITY

Common stock, no par value
   (2,109,316,331 shares issued in 2021 and 2020)
0 0 
Additional paid-in capital2,080 2,105 
Earnings reinvested in the business32,178 31,638 
Accumulated other comprehensive losses(10,746)(11,181)
23,512 22,562 
Less: cost of repurchased stock
   (550,803,047 and 551,942,600 shares in 2021 and 2020, respectively)
35,060 35,129 
Total PMI stockholders’ deficit(11,548)(12,567)
Noncontrolling interests1,974 1,936 
Total stockholders’ deficit(9,574)(10,631)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY$39,804 $44,815 
 March 31,
2020		 December 31,
2019
LIABILITIES   
Short-term borrowings (Note 10)$1,438
 $338
Current portion of long-term debt (Note 10)1,933
 4,051
Accounts payable2,073
 2,299
Accrued liabilities:   
Marketing and selling645
 666
Taxes, except income taxes5,058
 5,837
Employment costs783
 1,042
Dividends payable1,832
 1,831
Other2,011
 1,973
Income taxes811
 796
Total current liabilities16,584
 18,833

Long-term debt (Note 10)
24,999
 26,656
Deferred income taxes838
 908
Employment costs3,560
 3,634
Income taxes and other liabilities2,576
 2,443
Total liabilities48,557
 52,474

Contingencies (Note 8)

 


STOCKHOLDERS’ (DEFICIT) EQUITY
   

Common stock, no par value
(2,109,316,331 shares issued in 2020 and 2019)
—
 —
Additional paid-in capital1,992
 2,019
Earnings reinvested in the business30,984
 30,987
Accumulated other comprehensive losses(10,774) (9,363)
 22,202
 23,643
Less: cost of repurchased stock
   (552,210,107 and 553,421,668 shares in 2020 and 2019, respectively)
35,146
 35,220
Total PMI stockholders’ deficit(12,944) (11,577)
Noncontrolling interests1,881
 1,978
Total stockholders’ deficit(11,063) (9,599)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY$37,494
 $42,875






See notes to condensed consolidated financial statements.

6
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Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)
 
For the Three Months Ended March 31,  For the Three Months Ended March 31,
2020 2019  20212020
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES    CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
    
Net earnings$1,987
 $1,464
 Net earnings$2,595 $1,987 
    
Adjustments to reconcile net earnings to operating cash flows:    Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization241
 240
 Depreciation and amortization245 241 
Deferred income tax (benefit) provision(24) (94) Deferred income tax (benefit) provision33 (24)
Asset impairment and exit costs, net of cash paid (Note 18)(48) 17
 
Asset impairment and exit costs, net of cash paid (Note 16)Asset impairment and exit costs, net of cash paid (Note 16)(36)(48)
Cash effects of changes in:    Cash effects of changes in:
Receivables, net116
 4
 Receivables, net(427)116 
Inventories(575) 237
 Inventories305 (575)
Accounts payable(65) (7) Accounts payable(67)(65)
Accrued liabilities and other current assets(662) (855) Accrued liabilities and other current assets(2,108)(662)
Income taxes(54) (251) Income taxes(91)(54)
Pension plan contributions(23) (17) Pension plan contributions(30)(23)
Other218
 503
(1) 
Other16 218 
Net cash provided by operating activities1,111
 1,241
 Net cash provided by operating activities435 1,111 
    
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES    CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
    
Capital expenditures(170) (324) Capital expenditures(179)(170)
Investments in unconsolidated subsidiaries and equity securities(2) (24) 
Deconsolidation of RBH (Note 19)—
 (1,346)
(2) 
Equity investmentsEquity investments0 (2)
Net investment hedges684
 91
 Net investment hedges199 684 
Other2
 7
 Other35 2 
Net cash provided by (used in) investing activities514
 (1,596) 
Net cash provided by investing activitiesNet cash provided by investing activities55 514 
 
















See notes to condensed consolidated financial statements.

Continued

7
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Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
(Unaudited)
 
 For the Three Months Ended March 31,
 2020 2019
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES   
    
Short-term borrowing activity by original maturity:   
    Net issuances (repayments) - maturities of 90 days or less$1,097
 $(167)
    Issuances - maturities longer than 90 days25
 989
Long-term debt repaid(3,641) (2,137)
Dividends paid(1,828) (1,780)
Sale (purchase) of subsidiary shares to/(from) noncontrolling interests2
 —
Other(204) (56)
Net cash used in financing activities(4,549) (3,151)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(191) (28)
    
Cash, cash equivalents and restricted cash(3):
   
Increase (Decrease)(3,115) (3,534)
Balance at beginning of period6,865
 6,620
Balance at end of period$3,750
 $3,086
    

 For the Three Months Ended March 31,
 20212020
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
Short-term borrowing activity by original maturity:
    Net issuances (repayments) - maturities of 90 days or less$(49)$1,097 
    Issuances - maturities longer than 90 days0 25 
Long-term debt repaid(1,632)(3,641)
Dividends paid(1,879)(1,828)
Payments to noncontrolling interests and Other(89)(202)
Net cash used in financing activities(3,649)(4,549)
Effect of exchange rate changes on cash, cash equivalents and restricted cash(220)(191)
Cash, cash equivalents and restricted cash (1):
Increase (Decrease)(3,379)(3,115)
Balance at beginning of period7,285 6,865 
Balance at end of period$3,906 $3,750 
(1) Includes the Loss on Deconsolidation of RBH ($239 million) and the Canadian tobacco litigation-related charge ($194 million) that were included in marketing, administration and research costs in the condensed consolidated statements of earnings for the three months ended March 31, 2019. For further details on these charges, see Note 19. Deconsolidation of RBH.

(2) Includes deconsolidation of RBH cash and cash equivalents of $1,323 million and restricted cash of $23 million.

(3)(1) The amounts for cash and cash equivalents shown above include restricted cash of $4 million and $5$4 million as of March 31, 20202021 and 2019,2020, respectively, and $4$5 million and $27$4 million as of December 31, 2019,2020 and 2018,2019, respectively, which were included in other current assets in the condensed consolidated balance sheets.






See notes to condensed consolidated financial statements.

8
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Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
For the Three Months Ended March 31, 20202021 and 20192020
(in millions of dollars, except per share amounts)
(Unaudited)
 PMI Stockholders’ (Deficit) Equity  
 Common
Stock		Additional
Paid-in
Capital		Earnings
Reinvested in
the
Business		Accumulated
Other
Comprehensive Losses		Cost of
Repurchased
Stock		Noncontrolling
Interests		Total
Balances, January 1, 2020$0 $2,019 $30,987 $(9,363)$(35,220)$1,978 $(9,599)
Net earnings1,826 161 1,987 
Other comprehensive earnings (losses), net of income taxes(1,411)(80)(1,491)
Issuance of stock awards(25)74 49 
Dividends declared ($1.17 per share)(1,829)(1,829)
Payments to noncontrolling interests(182)(182)
Other(2)4 2 
Balances, March 31, 2020$0 $1,992 $30,984 $(10,774)$(35,146)$1,881 $(11,063)
Balances, January 1, 2021$0 $2,105 $31,638 $(11,181)$(35,129)$1,936 $(10,631)
Net earnings2,418 177 2,595 
Other comprehensive earnings (losses), net of income taxes435 (34)401 
Issuance of stock awards(25)69 44 
Dividends declared ($1.20 per share)(1,878)(1,878)
Payments to noncontrolling interests(105)(105)
Balances, March 31, 2021$0 $2,080 $32,178 $(10,746)$(35,060)$1,974 $(9,574)
 PMI Stockholders’ (Deficit) Equity    
 Common
Stock		 Additional
Paid-in
Capital		 Earnings
Reinvested in
the
Business		 Accumulated
Other
Comprehensive Losses		 Cost of
Repurchased
Stock		 Noncontrolling
Interests		 Total
Balances, January 1, 2019$—
 $1,939
 $31,014
 $(10,111) $(35,301) $1,720
 $(10,739)
Net earnings    1,354
     110
 1,464
Other comprehensive earnings (losses), net of income taxes      345
   (1) 344
Issuance of stock awards  (32)     75
   43
Dividends declared ($1.14 per share)    (1,780)       (1,780)
Payments to noncontrolling interests          (46) (46)
Deconsolidation of RBH (Note 19)      529
     529
Balances, March 31, 2019$—
 $1,907
 $30,588
 $(9,237) $(35,226) $1,783
 $(10,185)
Balances, January 1, 2020$—
 $2,019
 $30,987
 $(9,363) $(35,220) $1,978
 $(9,599)
Net earnings    1,826
     161
 1,987
Other comprehensive earnings (losses), net of income taxes      (1,411)   (80) (1,491)
Issuance of stock awards  (25)     74
   49
Dividends declared ($1.17 per share)    (1,829)       (1,829)
Payments to noncontrolling interests          (182) (182)
Other  (2)   —
   4
 2
Balances, March 31, 2020$—
 $1,992
 $30,984
 $(10,774) $(35,146) $1,881
 $(11,063)





See notes to condensed consolidated financial statements.

9
-9-

Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
 
Note 1. Background and Basis of Presentation:

Background

Philip Morris International Inc. is a holding company incorporated in Virginia, U.S.A., whose subsidiaries and affiliates and their licensees are engaged in the manufacture and sale of cigarettes and other nicotine-containing products, including reduced-risk products, in markets outside of the United States of America. In addition, PMI ships a versionversions of its Platform 1 device and its consumables authorized by the U.S. Food and Drug Administration ("FDA") to Altria Group, Inc., for sale in the United States under license. Throughout these financial statements, the term "PMI" refers to Philip Morris International Inc. and its subsidiaries.

Reduced-risk products ("RRPs") is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking. PMI has a range of RRPs in various stages of development, scientific assessment and commercialization.

"Platform 1" is the term PMI uses to refer to PMI’s reduced-risk product that uses a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.


Basis of Presentation

The interim condensed consolidated financial statements of PMI are unaudited. These interim condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") 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.

PMI has analyzedCertain prior years' amounts have been reclassified to conform with the impact of the Coronavirus pandemic ("COVID-19") on its financial statements as of March 31, 2020. PMI has determined that thecurrent year's presentation. The changes to its significant judgements and estimates did not have a material impact with respect to goodwill, intangible assets, long-lived assets or its hedge accounting activities. Additionally, PMI believes that the modification of certain customer payment terms has not changed its assessment of collectability and therefore, there has been no material impact on PMI’s revenue recognition.

As of March 22, 2019, PMI deconsolidated thePMI's consolidated financial position, results of its Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH") from PMI's financial statements. For further details, see Note 19. operations or cash flows in any of the periods presented.Deconsolidation of RBH.

These statements should be read in conjunction with the audited consolidated financial statements and related notes, which appear in PMI’s Annual Report on Form 10-K for the year ended December 31, 2019.2020.


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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 2. Stock Plans:

In May 2017, PMI’s shareholders approved the Philip Morris International Inc. 2017 Performance Incentive Plan (the “2017 Plan”). Under the 2017 Plan, PMI may grant to eligible employees restricted shares and restricted share units, performance-based cash incentive awards and performance-based equity awards. Up to 25 million shares of PMI’s common stock may be issued under the 2017 Plan. At March 31, 2020,2021, shares available for grant under the 2017 Plan were 17,384,530.14,833,071.

In May 2017, PMI’s shareholders also approved the Philip Morris International Inc. 2017 Stock Compensation Plan for Non-Employee Directors (the “2017 Non-Employee Directors Plan”). A non-employee director is defined as a member of the PMI Board of Directors who is not a full-time employee of PMI or of any corporation in which PMI owns, directly or indirectly, stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to 1 million shares of PMI common stock may be awarded under the 2017 Non-Employee Directors Plan. At March 31, 2020,2021, shares available for grant under the plan were 954,084.932,803.


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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Restricted share unit (RSU) awards

During the three months ended March 31, 20202021 and 2019,2020, shares granted to eligible employees, the weighted-average grant date fair value per share related to RSU awards and the recorded compensation expense related to RSU awards were as follows:
Number of
Shares
Granted		Weighted-Average Grant Date Fair Value Per RSU Award GrantedCompensation Expense Related to RSU Awards (in millions)
20211,972,770 $  81.86 $40 
20201,599,380 $  86.62 $39 
 
Number of
Shares
Granted
 Weighted-Average Grant Date Fair Value Per RSU Award Granted Compensation Expense Related to RSU Awards (in millions)
20201,599,380
 $ 86.62
 $39
20191,621,070
 
$ 77.13
 $36

As of March 31, 2020,2021, PMI had $218$245 million of total unrecognized compensation cost related to non-vested RSU awards. The cost is recognized over the original restriction period of the awards, which is typically three years after the date of the award, or upon death, disability or reaching the age of 58.

During the three months ended March 31,2020, 1,011,318 2021, 1,038,162 RSU awards vested. The grant date fair value of all the vested awards was approximately $99$103 million. The total fair value of RSU awards that vested during the three months ended March 31,2020 2021 was approximately $88$89 million.

Performance share unit (PSU) awards

During the three months ended March 31, 20202021 and 2019,2020, PMI granted PSU awards to certain executives. The PSU awards require the achievement of certain performance factors, which are predetermined at the time of grant, typically over a three-year performance cycle. The performance metrics for such PSU's granted during the three months ended March 31, 2021 and 2020 consisted of PMI's Total Shareholder Return ("TSR") relative to a predetermined peer group and on an absolute basis (40% weight), PMI’s currency-neutral compound annual adjusted diluted earnings per share growth rate (30% weight), and PMI’s performance against specific measures of PMI’s transformation, defined as net revenues from PMI's RRPs and any other non-combustible products as a percentage of PMI's total net revenues in the last year of the performance cycle (30% weight). The performance metrics for such PSUs granted during the three months ended March 31, 2019 consisted of PMI’s TSR relative to a predetermined peer group and on an absolute basis (50% weight), PMI’s currency-neutral compound annual adjusted operating income growth rate, excluding acquisitions (30% weight), and PMI’s performance against specific measures of PMI’s transformation (20% weight).

The aggregate of the weighted performance factors for the 3 metrics in each such PSU award determines the percentage of PSUs that will vest at the end of the three-year performance cycle. The minimum percentage of such PSUs that can vest is 0, with a target percentage of 100 and a maximum percentage of 200. Each such vested PSU entitles the participant to 1 share of common stock. An aggregate weighted PSU performance factor of 100 will result in the targeted number of PSUs being vested. At the end of the performance cycle, participants are entitled to an amount equivalent to the accumulated dividends paid on common stock during the performance cycle for the number of shares earned.

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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
During the three months ended March 31, 2021 and 2020, and 2019, shares granted to eligible employees, the grant date fair value per share and the recorded compensation expense related to PSU awards were as follows:
Number of Shares GrantedGrant Date 
Fair Value Subject to Other Performance Factors		Grant Date 
Fair Value Subject to TSR Performance Factor		Compensation Expense Related to PSU Awards (in millions)
(Per Share)(Per Share)
2021574,410 $  81.86 $  106.93 $12 
2020643,640 $  86.69 $ 79.76 $23 
 Number of Shares GrantedPSU Grant Date Fair Value Subject to Other Performance Factors Per SharePSU Grant Date Fair Value Subject to TSR Performance Factor Per ShareCompensation Expense Related to PSU Awards (in millions)
2020643,640
$ 86.69
$ 79.76
$23
2019625,200

$ 77.20

$ 83.59
$18

The grant date fair value of the PSU awards subject to the other performance factors was determined by using the average of the high and low market price of PMI’s stock at the date of the grant. The grant date fair value of the PSU market based awards subject to the TSR performance factor was determined by using the Monte Carlo simulation model. The following assumptions were used to determine the grant date fair value of the PSU awards subject to the TSR performance factor:

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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

2020 201920212020
Risk-free interest rate (a)
1.4% 2.4%
Risk-free interest rate (a)
0.2 %1.4 %
Expected volatility (b)
23.5% 21.4%
Expected volatility (b)
31.7 %23.5 %
(a) Based on the U.S. Treasury yield curve.
(b) Determined using the observed historical volatility.


As of March 31, 2020,2021, PMI had $60$62 million of total unrecognized compensation cost related to non-vested PSU awards. The cost is recognized over the performance cycle of the awards, or upon death, disability or reaching the age of 58.

During the three months ended March 31,2020, 343,806 2021, 189,839 PSU awards vested. The grant date fair value of all the vested awards was approximately $35$21 million. The total fair value of PSU awards that vested during the three months ended March 31,2020 2021 was approximately $30$16 million.


Note 3. Benefit Plans:

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

Pension and other employee benefit costs per the condensed consolidated statements of earnings consisted of the following:
 For the Three Months Ended March 31,
(in millions)20212020
Net pension costs (income)$(1)$(4)
Net postemployment costs28 25 
Net postretirement costs1 2 
Total pension and other employee benefit costs$28 $23 
 For the Three Months Ended March 31,
(in millions)2020 2019
Net pension costs (income)$(4) $(5)
Net postemployment costs25
 24
Net postretirement costs2
 2
Total pension and other employee benefit costs$23
 $21


Pension Plans

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:
12
 
Pension (1)
 For the Three Months Ended March 31,
(in millions)2020 2019
Service cost$65
 $54
Interest cost17
 29
Expected return on plan assets(86) (79)
Amortization:   
Net loss65
 45
Prior service cost—
 —
Net periodic pension cost$61
 $49
(1) Primarily non-U.S. based defined benefit retirement plans.

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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Pension Plans

Components of Net Periodic Benefit Cost

Net periodic pension cost consisted of the following:
 
Pension (1)
 For the Three Months Ended March 31,
(in millions)20212020
Service cost$75 $65 
Interest cost13 17 
Expected return on plan assets(95)(86)
Amortization:
Net loss80 65 
Prior service cost1 0 
Net periodic pension cost$74 $61 
(1) Primarily non-U.S. based defined benefit retirement plans.

Employer Contributions
PMI makes, and plans to make, contributions, to the extent that they are tax deductible and to meet specific funding requirements of its funded pension plans. Employer contributions of $23$30 million were made to the pension plans during the three months ended March 31,2020. 2021. Currently, PMI anticipates making additional contributions during the remainder of 20202021 of approximately $62$237 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 and currency rates.


Note 4. Goodwill and Other Intangible Assets, net:

The movements in goodwill were as follows:
(in millions)European UnionEastern EuropeMiddle East & AfricaSouth & Southeast AsiaEast Asia & AustraliaLatin America & CanadaTotal
Balances, December 31, 2020$1,434 $317 $86 $2,915 $559 $653 $5,964 
Changes due to:
Currency(60)(12)(2)(78)(16)(28)(196)
Balances, March 31, 2021$1,374 $305 $84 $2,837 $543 $625 $5,768 
(in millions)European UnionEastern EuropeMiddle East & AfricaSouth & Southeast AsiaEast Asia & AustraliaLatin America & CanadaTotal
Balances, December 31, 2019$1,338
$300
$89
$2,898
$551
$682
$5,858
Changes due to:       
Currency(53)(13)(19)(327)(47)(115)(574)
Balances, March 31, 2020$1,285
$287
$70
$2,571
$504
$567
$5,284


At March 31, 2020,2021, goodwill primarily reflects PMI’s acquisitions in Colombia, Greece, Indonesia, Mexico, Pakistan and Serbia, as well as the business combination in the Philippines.

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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Details of other intangible assets were as follows:
 March 31, 2020 December 31, 2019March 31, 2021December 31, 2020
(in millions)Weighted-Average Remaining Useful LifeGross Carrying AmountAccumulated AmortizationNet Gross Carrying AmountAccumulated AmortizationNet(in millions)Weighted-Average Remaining Useful LifeGross Carrying AmountAccumulated AmortizationNetGross Carrying AmountAccumulated AmortizationNet
Non-amortizable intangible assets $1,112
 $1,112
 $1,319
 $1,319
Non-amortizable intangible assets$1,246 $1,246 $1,289 $1,289 
Amortizable intangible assets:    Amortizable intangible assets:
Trademarks14 years1,160
$518
642
 1,217
$526
691
Trademarks13 years1,224 $605 619 1,233 $594 639 
Distribution networks8 years103
67
36
 113
72
41
Distribution networks7 years112 77 35 115 78 37 
Other*9 years104
44
60
 106
44
62
Other*8 years103 51 52 104 50 54 
Total other intangible assets $2,479
$629
$1,850
 $2,755
$642
$2,113
Total other intangible assets$2,685 $733 $1,952 $2,741 $722 $2,019 
* Primarily includes intellectual property rights

Non-amortizable intangible assets substantially consist of trademarks from PMI’s acquisitions in Indonesia and Mexico. The decrease since December 31, 20192020 was due to currency movements of ($20743 million).

The decrease in the gross carrying amount of amortizable intangible assets from December 31, 2019,2020, was mainly due to currency movements of ($6913 million).

The change in the accumulated amortization from December 31, 2019,2020, was mainly due to the 2021 amortization of $18 million, partially offset by currency movements of ($317 million), partially offset by the 2020 amortization of $18 million..

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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Amortization expense for each of the next five years is estimated to be $75$74 million or less, assuming no additional transactions occur that require the amortization of intangible assets.


Note 5. Financial Instruments:

Overview

PMI operates in markets outside of the United States of America, with manufacturing and sales facilities in various locations around the world. PMI utilizes certain financial instruments to manage foreign currency and interest rate exposure.exposures. Derivative financial instruments are used by PMI principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange and interest rates by creating offsetting exposures. PMI is not a party to leveraged derivatives and, by policy, does not use derivative financial instruments for speculative purposes. Substantially all of PMI's derivative financial instruments are subject to master netting arrangements, whereby the right to offset occurs in the event of default by a participating party. While these contracts contain the enforceable right to offset through close-out netting rights, PMI elects to present them on a gross basis in the consolidated balance sheets. Collateral associated with these arrangements is in the form of cash and is unrestricted. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. PMI formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of the forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in earnings.

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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
PMI uses deliverable and non-deliverable forward foreign exchange contracts, foreign currency swaps and foreign currency options, collectively referred to as foreign exchange contracts ("foreign exchange contracts"), and interest rate contracts to mitigate its exposure to changes in exchange and interest rates from third-party and intercompany actual and forecasted transactions. Both foreign exchange contracts and interest rate contracts are collectively referred to as derivative contracts ("derivative contracts"). The primary currencies to which PMI is exposed include the Euro, Indonesian rupiah, Japanese yen, Mexican peso, Philippine peso, Russian ruble and Swiss franc. At March 31, 2020,2021, PMI had contracts with aggregate notional amounts of $24.0$23.8 billion of which $6.5$4.2 billion related to cash flow hedges, $8.4$8.2 billion related to hedges of net investments in foreign operations and $9.1$11.4 billion related to other derivatives that primarily offset currency exposures on intercompany financing.


The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of March 31, 20202021 and December 31, 2019,2020, were as follows:
 Derivative AssetsDerivative Liabilities
 Fair ValueFair Value
AtAtAtAt
(in millions)Balance Sheet ClassificationMarch 31, 2021December 31, 2020Balance Sheet ClassificationMarch 31, 2021December 31, 2020
Derivative contracts designated as hedging instrumentsOther current assets$213 $130 Other accrued liabilities$86 $241 
Other assets9 6 Income taxes and other liabilities372 605 
Derivative contracts not designated as hedging instruments 
Other current assets 
184 46 Other accrued liabilities35 207 
Other assets0 0 Income taxes and other liabilities28 57 
Total gross amount derivatives contracts presented in the condensed consolidated balance sheets $406 $182  $521 $1,110 
Gross amounts not offset in the condensed consolidated balance sheets
Finance instruments(155)(156)(155)(156)
Cash collateral received/pledged(177)(23)(362)(892)
Net amount$74 $3 $4 $62 
  Derivative Assets Derivative Liabilities
  
 Fair Value 
 Fair Value
(in millions) Balance Sheet Classification At March 31, 2020 At December 31, 2019 Balance Sheet Classification At March 31, 2020 At December 31, 2019
Derivative contracts designated as hedging instruments Other current assets $239
 $319
 Other accrued liabilities $35
 $23
  Other assets 161
 21
 Income taxes and other liabilities 89
 301
Derivative contracts not designated as hedging instruments  Other current assets  92
 50
 Other accrued liabilities 100
 70
  Other assets —
 —
 Income taxes and other liabilities 25
 25
Total derivatives   $492
 $390
   $249
 $419


PMI assesses the fair value of its foreign exchange contracts and interest rate contracts using standard valuation models that use, as their basis, readily observable market inputs. The fair value of PMI’s foreign exchange forward contracts, foreign currency swaps and interest rate contracts is determined by using the prevailing foreign exchange spot rates and interest rate differentials, and the respective maturity dates of the instruments. The fair value of PMI’s currency options is determined by using a Black-Scholes methodology based on foreign exchange spot rates and interest rate differentials, currency volatilities and maturity dates. PMI’s derivative contracts have been classified within Level 2 at March 31, 2021 and December 31, 2020.
For the three months ended March 31,2020 and 2019, PMI's cash flow and net investment hedging instruments impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:









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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

For the three months ended March 31, 2021 and 2020, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:
(pre-tax, in millions)For the Three Months Ended March 31,
Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on DerivativesStatement of Earnings
Classification of Gain/(Loss)
on Derivatives		Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings/(Losses) into EarningsAmount of Gain/(Loss) Recognized in Earnings
202120202021202020212020
Derivative contracts designated as hedging instruments:
Cash flow hedges$90 $31 
Net revenues$0 $3 
Cost of sales0 4 
Marketing, administration and research costs(18)5 
Interest expense, net(3)(2)
Net investment hedges (a)
318 407 
Interest expense, net (b)
$42 $56 
Derivative contracts not designated as hedging instruments:Interest expense, net11 34 
Marketing, administration and research costs (c)
287 29 
Total$408 $438 $(21)$10 $340 $119 
(pre-tax, in millions)For the Three Months Ended March 31,
 Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on Derivatives 
Statement of Earnings
Classification of Gain/(Loss)
Reclassified from Other
Comprehensive
Earnings/(Losses) into
Earnings
 Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings/(Losses) into Earnings
 2020 2019   2020 2019
Derivatives in Cash Flow Hedging Relationship         
Derivative contracts$31
 $(2)      
     Net revenues $3
 $10
     Cost of sales 4
 —
     Marketing, administration and research costs 5
 (3)
     Interest expense, net (2) (2)
Derivatives in Net Investment Hedging Relationship         
Derivative contracts407
 211
      
Total$438
 $209
   $10
 $5

(a) Amount of gains (losses) on hedges of net investments principally related to changes in exchange and interest rates between the Euro and U.S. dollar
(b) Represent the gains for amounts excluded from the effectiveness testing
(c) The gains (losses) from these contracts attributable to changes in foreign currency exchange rates substantially offset the (losses) and gains generated by the underlying intercompany and third-party loans being hedged

Cash Flow Hedges

PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to certain forecasted transactions. Gains and losses associated with qualifying cash flow hedge contracts are deferred as components of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s condensed consolidated statements of earnings. As of March 31, 2020,2021, PMI has hedged forecasted transactions for periods not exceeding the next twenty-onefifteen months with the exception of one derivative contract that expires in May 2024. The impact of these hedges is primarily included in operating cash flows on PMI’s condensed consolidated statements of cash flows.


Hedges of Net Investments in Foreign Operations

PMI designates derivative contracts and certain foreign currency denominated debt and derivative contractsinstruments as net investment hedges, primarily of its Euro net assets. For the three months ended March 31, 2021 and 2020, and 2019, these hedgesthe amount of net investments resulted in gains (losses), net of income taxes, of $314 million and $291 million, respectively, principallypre-tax gain/(loss) related to changes in the exchange rates between the Euro and U.S. dollar. These gains (losses) werethese debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, and were substantially offset by the losses and gains generated on the underlying assets. For the three months ended March 31, 2020 and 2019, the gains for amounts excluded from the effectiveness testing recognized in earnings were $56was $181 million and $56$(5) million, respectively. These gains were accounted for in interest expense, net, on the condensed consolidated statement of earnings. The premiums paid for, and settlements of, net investment hedges are included in investing cash flows on PMI’s condensed consolidated statements of cash flows.

Other Derivatives

PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to intercompany
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
loans between certain subsidiaries, and third-party loans. While effective as economic hedges, no hedge accounting is applied for these contracts; therefore, the unrealized gains (losses) relating to these contracts are reported in marketing, administration and research costs in PMI’s condensed consolidated statements of earnings. For the three months ended March 31, 2020 and 2019, the gains (losses) from contracts for which PMI did not apply hedge accounting were $56 million and $(7) million, respectively. The gains (losses) from these contracts substantially offset the losses and gains generated by the underlying intercompany and third-party loans being hedged.


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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

For the three months ended March 31,2020 and 2019, these items impacted the condensed consolidated statement of earnings as follows:
(pre-tax, in millions) For the Three Months Ended March 31,
Derivatives not Designated
as Hedging Instruments		 Statement of Earnings
Classification of Gain/(Loss)		 Amount of Gain/(Loss)
Recognized in Earnings
    For the Three Months Ended March 31,
    2020 2019
Derivative contracts      
  
 
 

  Interest expense, net $34
 $17
Total   $34
 $17

Qualifying Hedging Activities Reported in Accumulated Other Comprehensive Losses

Derivative gains or losses reported in accumulated other comprehensive losses are a result of qualifying hedging activity. Transfers of these gains or losses to earnings are offset by the corresponding gains or losses on the underlying hedged item. Hedging activity affected accumulated other comprehensive losses, net of income taxes, as follows:
(in millions)For the Three Months Ended March 31,
 20202019
Gain/(loss) as of January 1,$3
$35
Derivative (gains)/losses transferred to earnings(9)(4)
Change in fair value26
(1)
Gain/(loss) as of March 31,$20
$30

(in millions)For the Three Months Ended March 31,
 20212020
Gain/(loss) as of January 1,$(85)$3 
Derivative (gains)/losses transferred to earnings21 (9)
Change in fair value76 26 
Gain/(loss) as of March 31,$12 $20 
At March 31, 2020,2021, PMI expects $36$40 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months. These gains are expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.
Contingent Features
PMI’s derivative instruments do not contain contingent features.
Credit Exposure and Credit Risk
PMI is exposed to credit loss in the event of non-performance by counterparties. While PMI does not anticipate non-performance, its risk is limited to the fair value of the financial instruments less any cash collateral received or pledged. PMI actively monitors its exposure to credit risk through the use of credit approvals and credit limitlimits and by selecting and continuously monitoring a diverse group of major international banks and financial institutions as counterparties.
Fair Value
See Note 11. Fair Value Measurements and Note 13. Balance Sheet Offsetting for additional discussion of derivative financial instruments.


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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)

Note 6. Earnings Per Share:
Basic and diluted earnings per share (“EPS”) were calculated using the following:
(in millions)For the Three Months Ended March 31,
 20212020
Net earnings attributable to PMI$2,418 $1,826 
Less distributed and undistributed earnings attributable to share-based payment awards7 5 
Net earnings for basic and diluted EPS$2,411 $1,821 
Weighted-average shares for basic EPS1,558 1,557 
Plus contingently issuable performance stock units (PSUs)2 1 
Weighted-average shares for diluted EPS1,560 1,558 
(in millions)For the Three Months Ended March 31,
 20202019
Net earnings attributable to PMI$1,826
$1,354
Less distributed and undistributed earnings attributable to share-based payment awards5
4
Net earnings for basic and diluted EPS$1,821
$1,350
Weighted-average shares for basic EPS1,557
1,555
Plus contingently issuable performance stock units (PSUs)
1
1
Weighted-average shares for diluted EPS1,558
1,556


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

For the 20202021 and 20192020 computations, there were no0 antidilutive stock awards.

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Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 7. Segment Reporting:

PMI’s subsidiaries and affiliates are engaged in the manufacture and sale of cigarettes and other nicotine-containing products, including RRPs, in markets outside of the United States of America. In addition, PMI ships a versionversions of its Platform 1 device and its consumables authorized by the FDA to Altria Group, Inc. for sale in the United States under license. Operating segments for PMI are organized by geographic region and managed by segment managers who are responsible for the operating and financial results of the regions inclusive of all product categories sold in the region. PMI’s operating segments are the European Union; Eastern Europe; Middle East & Africa; South & Southeast Asia; East Asia & Australia; and Latin America & Canada. PMI records net revenues and operating income to its segments based upon the geographic area in which the customer resides. Revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc. for sale under license in the United States are included in Net Revenuesnet revenues of the Latin America & Canada segment.

PMI’s chief operating decision maker evaluates segment performance and allocates resources based on regional operating income, which includes results from all product categories sold in each region.

PMI disaggregates its net revenue from contracts with customers by both geographic location and product category for each of PMI's 6 operating segments, as PMI believes this best depicts how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors.

Segment data were as follows:
(in millions)For the Three Months Ended March 31,
20212020
Net revenues:
European Union$2,909 $2,535 
Eastern Europe796 788 
Middle East & Africa801 876 
South & Southeast Asia1,173 1,251 
East Asia & Australia1,472 1,255 
Latin America & Canada434 448 
Net revenues$7,585 $7,153 
Operating income:
European Union$1,490 $1,158 
Eastern Europe261 99 
Middle East & Africa335 321 
South & Southeast Asia529 599 
East Asia & Australia695 486 
Latin America & Canada134 126 
Operating income$3,444 $2,789 

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

•Asset impairment and exit costs - See Note 16. Asset Impairment and Exit Costs for details of the $48 million pre-tax charge and a breakdown of these costs by segment for the three months ended March 31, 2021.

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Segment data were as follows:
(in millions)For the Three Months Ended March 31,
 20202019
Net revenues:  
European Union$2,535
$2,159
Eastern Europe788
579
Middle East & Africa876
927
South & Southeast Asia1,251
1,113
East Asia & Australia1,255
1,321
Latin America & Canada (1)
448
652
Net revenues$7,153
$6,751
Operating income (loss):  
European Union$1,158
$896
Eastern Europe99
129
Middle East & Africa321
344
South & Southeast Asia599
440
East Asia & Australia486
427
Latin America & Canada (1)
126
(186)
Operating income$2,789
$2,050
(1) As of March 22, 2019, PMI deconsolidated the financial results of its Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH") from PMI's financial statements. For further details, see Note 19. Deconsolidation of RBH.

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

•
Canadian tobacco litigation-related expense - See Note 8. Contingencies and Note 19. Deconsolidation of RBH for details of the $194 million pre-tax charge included in the Latin America & Canada segment for the three months ended March 31, 2019.
•
Loss on deconsolidation of RBH - See Note 19. Deconsolidation of RBH for details of the $239 million loss included in the Latin America & Canada segment for the three months ended March 31, 2019.
•
Asset impairment and exit costs - See Note 18. Asset Impairment and Exit Costs for details of the $20 million pre-tax charge included in the South & Southeast Asia segment for the three months ended March 31, 2019.


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PMI's net revenues by product category were as follows:
(in millions)For the Three Months Ended March 31,
 20202019
Net revenues:  
Combustible products:  
European Union$1,911
$1,812
Eastern Europe523
471
Middle East & Africa832
829
South & Southeast Asia1,251
1,113
East Asia & Australia642
638
Latin America & Canada440
646
Total combustible products$5,598
$5,508
Reduced-risk products:  
European Union$624
$347
Eastern Europe265
108
Middle East & Africa44
98
South & Southeast Asia—
—
East Asia & Australia613
683
Latin America & Canada8
6
Total reduced-risk products$1,555
$1,243
   
Total PMI net revenues$7,153
$6,751

(in millions)For the Three Months Ended March 31,
20212020
Net revenues:
Combustible products:
European Union$1,950 $1,911 
Eastern Europe492 523 
Middle East & Africa780 832 
South & Southeast Asia1,171 1,251 
East Asia & Australia648 642 
Latin America & Canada422 440 
Total combustible products$5,463 $5,598 
Reduced-risk products:
European Union$959 $624 
Eastern Europe304 265 
Middle East & Africa21 44 
South & Southeast Asia2 0 
East Asia & Australia824 613 
Latin America & Canada12 8 
Total reduced-risk products$2,122 $1,555 
Total PMI net revenues$7,585 $7,153 
Note: Sum of product categories or Regions might not foot to total PMI due to roundings.

Net revenues related to combustible products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net revenue amounts consist of the sale of PMI's cigarettes and other tobacco products combined. Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include reduced-risk products.

Net revenues related to reduced-risk products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net revenue amounts consist of the sale of PMI's heated tobacco units, heat-not-burnIQOS devices and related accessories, and other nicotine-containing products, which primarily include PMI's e-vapor products.

PMI recognizes revenue, when control is transferred to the customer, typically either upon shipment or delivery of goods.


Note 8. Contingencies:
Tobacco-Related Litigation
Legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. Our indemnitees include distributors, licensees, and others that have been named as parties in certain cases and that we have agreed to defend, as well as to pay costs and some or all of judgments, if any, that may be entered against them. Pursuant to the terms of the Distribution Agreement between Altria Group, Inc. (“Altria”) and PMI, PMI will indemnify Altria and Philip Morris USA Inc. (“PM USA”), a U.S. tobacco subsidiary of Altria, for tobacco product claims based in substantial part on products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for tobacco product claims based in substantial part on products manufactured by PM USA, excluding tobacco products contract manufactured for PMI.

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It is possible that there could be adverse developments in pending cases against us and our subsidiaries. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation.
Damages claimed in some of the tobacco-related litigation are significant and, in certain cases in Brazil, Canada and Nigeria, range into the billions of U.S. dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. Much of the tobacco-related litigation is in its early stages, and litigation is subject to uncertainty. However, as discussed below, we have to date been largely successful in defending tobacco-related litigation.
We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, except as stated otherwise in this Note 8. Contingencies, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any. Legal defense costs are expensed as incurred.
It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Nevertheless, although litigation is subject to uncertainty, we and each of our subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that we have valid defenses to the litigation pending against us, as well as valid bases for appeal of adverse verdicts. All such cases are, and will continue to be, vigorously defended. However, we and our subsidiaries may enter into settlement discussions in particular cases if we believe it is in our best interests to do so.    
CCAA Proceedings and Stay of Tobacco-Related Cases Pending in Canada
As a result of the Court of Appeal of Quebec’s decision in both the Létourneau and Blais cases described below, our subsidiary, Rothmans, Benson & Hedges Inc. (“RBH”), and the other defendants, JTI Macdonald Corp., and Imperial Tobacco Canada Limited, sought protection in the Ontario Superior Court of Justice under the Companies’ Creditors Arrangement Act (“CCAA”) on March 22, March 8, and March 12, 2019 respectively. CCAA is a Canadian federal law that permits a Canadian business to restructure its affairs while carrying on its business in the ordinary course. The initial CCAA order made by the Ontario Superior Court on March 22, 2019 authorizes RBH to pay all expenses incurred in carrying on its business in the ordinary course after the CCAA filing, including obligations to employees, vendors, and suppliers. As further described in Item 8, Note 19.20. Deconsolidation of RBH, RBH is now of PMI's Annual Report on Form 10-K for the year ended December 31, 2020, RBH's financial results have been deconsolidated from our consolidated financial statements.statements since March 22, 2019. As part of the CCAA proceedings, there is currently a comprehensive stay up to and including September 30, 20202021 of all tobacco-related litigation pending in Canada against RBH and the other defendants, including PMI and our indemnitees (PM USA and Altria), namely, the smoking and health class actions filed in various Canadian provinces and health care cost recovery actions. These proceedings are presented below under the caption “Stayed Litigation — Canada.” Ernst & Young Inc. has been appointed as monitor of RBH in the CCAA proceedings. In accordance with the CCAA process, as the parties work towards a plan of arrangement or compromise in a confidential mediation, it is anticipated that the court will set additional hearings and further extend the stay of proceedings. On April 17, 2019, the Ontario Superior Court ruled that RBH and the other defendants will not be allowed to file an application to the Supreme Court of Canada for leave to appeal the Court of Appeal’s decision in the Létourneau and the Blais cases so long as the comprehensive stay of all tobacco-related litigation in Canada remains in effect and that the time period to file the application would be extended by the stay period. While RBH believes that the findings of liability and damages in both Létourneau and the Blais cases were incorrect, the CCAA proceedings will provide a forum for RBH to seek resolution through a plan of arrangement or compromise of all tobacco-related litigation pending in Canada. It is not possible to predict the resolution of the underlying legal proceedings or the length of the CCAA process.




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Stayed Litigation — Canada

Smoking and Health Litigation — Canada

In the first class action pending in Canada, Conseil Québécois Sur Le Tabac Et La Santé and Jean-Yves Blais v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and JTI-Macdonald Corp., Quebec Superior Court, Canada, filed in November 1998, RBH and other Canadian manufacturers (Imperial Tobacco Canada Ltd. and JTI-Macdonald Corp.) are defendants. The plaintiffs, an anti-smoking organization and an individual smoker, sought compensatory and punitive damages for each member of the class who allegedly suffers from certain smoking-related diseases. The class was certified in 2005. The trial court issued its judgment on May 27, 2015. The trial court found RBH and 2 other Canadian manufacturers liable and found that the class members’ compensatory damages totaled approximately CAD 15.5 billion, including pre-judgment interest (approximately $11$12.4 billion). The trial court awarded compensatory damages on a joint and several liability basis, allocating 20% to our subsidiary (approximately CAD 3.1 billion, including pre-judgment interest (approximately $2.2$2.5 billion)). In addition, the trial court awarded CAD 90,000 (approximately $63,760)$71,990) in punitive damages, allocating CAD 30,000 (approximately $21,250)$24,000) to RBH. The trial court estimated the disease class at 99,957 members. RBH appealed to the Court of Appeal of Quebec. In October 2015, the Court of Appeal ordered RBH to furnish security totaling CAD 226 million (approximately $160.1$180.8 million) to cover both the Létourneau and Blais cases, which RBH has paid in installments through March 2017. The Court of Appeal ordered Imperial Tobacco Canada Ltd. to furnish security totaling CAD 758 million (approximately $537$606 million) in installments through June 2017. JTI Macdonald Corp. was not required to furnish security in accordance with plaintiffs’ motion. The Court of Appeal ordered that the security is payable upon a final judgment of the Court of Appeal affirming the trial court’s judgment or upon further order of the Court of Appeal. On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court’s findings of liability and the compensatory and punitive damages award while reducing the total amount of compensatory damages to approximately CAD 13.5 billion including interest (approximately $9.6$10.8 billion) due to the trial court’s error in the calculation of interest. The compensatory damages award is on a joint and several basis with an allocation of 20% to RBH (approximately CAD 2.7 billion, including pre-judgment interest (approximately $1.91$2.16 billion)). The Court of Appeal upheld the trial court’s findings that defendants violated the Civil Code of Quebec, the Quebec Charter of Human Rights and Freedoms, and the Quebec Consumer Protection Act by failing to warn adequately of the dangers of smoking and by conspiring to prevent consumers from learning of the dangers of smoking. The Court of Appeal further held that the plaintiffs either need not prove, or had adequately proven, that these faults were a cause of the class members’ injuries. In accordance with the judgment, defendants are required to deposit their respective portions of the damages awarded in both the Létourneau case described below and the Blais case, approximately CAD 1.1 billion (approximately $779$880 million), into trust accounts within 60 days. RBH’s share of the deposit is approximately CAD 257 million (approximately $194.1$194 million). PMI recorded a pre-tax charge of $194 million in its consolidated results, representing $142 million net of tax, as tobacco litigation-related expense, in the first quarter of 2019. The charge reflects PMI’s assessment of the portion of the judgment that represents probable and estimable loss prior to the deconsolidation of RBH and corresponds to the trust account deposit required by the judgment.

In the second class action pending in Canada, Cecilia Létourneau v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and JTI-Macdonald Corp., Quebec Superior Court, Canada, filed in September 1998, RBH and other Canadian manufacturers (Imperial Tobacco Canada Ltd. and JTI-Macdonald Corp.) are defendants.  The plaintiff, an individual smoker, sought compensatory and punitive damages for each member of the class who is deemed addicted to smoking. The class was certified in 2005. The trial court issued its judgment on May 27, 2015. The trial court found RBH and 2 other Canadian manufacturers liable and awarded a total of CAD 131 million (approximately $93$104.8 million) in punitive damages, allocating CAD 46 million (approximately $32.6$37 million) to RBH. The trial court estimated the size of the addiction class at 918,000 members but declined to award compensatory damages to the addiction class because the evidence did not establish the claims with sufficient accuracy. The trial court found that a claims process to allocate the awarded punitive damages to individual class members would be too expensive and difficult to administer. On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court’s findings of liability and the total amount of punitive damages awarded allocating CAD 57 million including interest (approximately $40.4$45.6 million) to RBH. See the Blais description above and Item 8, Note 19.20. Deconsolidation of RBH belowin PMI's Annual Report on Form 10-K for the year ended December 31, 2020 for further detail concerning the security order pertaining to both Létourneau and Blais cases and the impact of the decision on PMI’s financial statements.

RBH and PMI believe the findings of liability and damages in both Létourneau and the Blais cases were incorrect and in contravention of applicable law on several grounds including the following: (i) defendants had no obligation to warn class members who knew, or should have known, of the risks of smoking; (ii) defendants cannot be liable to class members who
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would have smoked regardless of what warnings were given; and (iii) defendants cannot be liable to all class members given the individual differences between class members.

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In the third class action pending in Canada, Kunta v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Winnipeg, Canada, filed June 12, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic obstructive pulmonary disease (“COPD”), severe asthma, and mild reversible lung disease resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.
In the fourth class action pending in Canada, Adams v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Saskatchewan, Canada, filed July 10, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, emphysema, heart disease, or cancer, as well as restitution of profits.
In the fifth class action pending in Canada, Semple v. Canadian Tobacco Manufacturers' Council, et al., The Supreme Court (trial court), Nova Scotia, Canada, filed June 18, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and COPD resulting from the use of tobacco products. He is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.
In the sixth class action pending in Canada, Dorion v. Canadian Tobacco Manufacturers' Council, et al., The Queen's Bench, Alberta, Canada, filed June 15, 2009, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic bronchitis and severe sinus infections resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. To date, we, our subsidiaries, and our indemnitees have not been properly served with the complaint.
In the seventh class action pending in Canada, McDermid v. Imperial Tobacco Canada Limited, et al., Supreme Court, British Columbia, Canada, filed June 25, 2010, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and heart disease resulting from the use of tobacco products. He is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from heart disease allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954, to the date the claim was filed.

In the eighth class action pending in Canada, Bourassa v. Imperial Tobacco Canada Limited, et al., Supreme Court, British Columbia, Canada, filed June 25, 2010, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, the heir to a deceased smoker, alleges that the decedent was addicted to tobacco products and suffered from emphysema resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from chronic respiratory diseases allegedly caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954, to the date the claim was filed. In December 2014, plaintiff filed an amended statement of claim.

In the ninth class action pending in Canada, Suzanne Jacklin v. Canadian Tobacco Manufacturers' Council, et al., Ontario Superior Court of Justice, filed June 20, 2012, we, RBH, and our indemnitees (PM USA and Altria), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products. She is seeking compensatory and punitive damages on behalf of a proposed class comprised of all smokers who have smoked a minimum of 25,000 cigarettes and have allegedly suffered, or suffer, from COPD, heart disease, or cancer, as well as restitution of profits.

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Health Care Cost Recovery Litigation — Canada
In the first health care cost recovery case pending in Canada, Her Majesty the Queen in Right of British Columbia v. Imperial Tobacco Limited, et al., Supreme Court, British Columbia, Vancouver Registry, Canada, filed January 24, 2001, we, RBH, our indemnitee (PM USA), and other members of the industry are defendants. The plaintiff, the government of the province of British

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Columbia, brought a claim based upon legislation enacted by the province authorizing the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, resulting from a “tobacco related wrong.”
In the second health care cost recovery case filed in Canada, Her Majesty the Queen in Right of New Brunswick v. Rothmans Inc., et al., Court of Queen's Bench of New Brunswick, Trial Court, New Brunswick, Fredericton, Canada, filed March 13, 2008, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of New Brunswick based on legislation enacted in the province. This legislation is similar to the law introduced in British Columbia that authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the third health care cost recovery case filed in Canada, Her Majesty the Queen in Right of Ontario v. Rothmans Inc., et al., Ontario Superior Court of Justice, Toronto, Canada, filed September 29, 2009, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Ontario based on legislation enacted in the province. This legislation is similar to the laws introduced in British Columbia and New Brunswick that authorize the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the fourth health care cost recovery case filed in Canada, Attorney General of Newfoundland and Labrador v. Rothmans Inc., et al., Supreme Court of Newfoundland and Labrador, St. Johns, Canada, filed February 8, 2011, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Newfoundland and Labrador based on legislation enacted in the province that is similar to the laws introduced in British Columbia, New Brunswick and Ontario. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the fifth health care cost recovery case filed in Canada, Attorney General of Quebec v. Imperial Tobacco Limited, et al., Superior Court of Quebec, Canada, filed June 8, 2012, we, RBH, our indemnitee (PM USA), and other members of the industry are defendants. The claim was filed by the government of the province of Quebec based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the sixth health care cost recovery case filed in Canada, Her Majesty in Right of Alberta v. Altria Group, Inc., et al., Supreme Court of Queen's Bench Alberta, Canada, filed June 8, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Alberta based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the seventh health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Manitoba v. Rothmans, Benson & Hedges, Inc., et al., The Queen's Bench, Winnipeg Judicial Centre, Canada, filed May 31, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Manitoba based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
In the eighth health care cost recovery case filed in Canada, The Government of Saskatchewan v. Rothmans, Benson & Hedges Inc., et al., Queen's Bench, Judicial Centre of Saskatchewan, Canada, filed June 8, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Saskatchewan based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”
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In the ninth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Prince Edward Island v. Rothmans, Benson & Hedges Inc., et al., Supreme Court of Prince Edward Island (General Section), Canada, filed September 10, 2012, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Prince Edward Island based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action

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against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”

In the tenth health care cost recovery case filed in Canada, Her Majesty the Queen in Right of the Province of Nova Scotia v. Rothmans, Benson & Hedges Inc., et al., Supreme Court of Nova Scotia, Canada, filed January 2, 2015, we, RBH, our indemnitees (PM USA and Altria), and other members of the industry are defendants. The claim was filed by the government of the province of Nova Scotia based on legislation enacted in the province that is similar to the laws enacted in several other Canadian provinces. The legislation authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a “tobacco related wrong.”

__________
The table below lists the number of tobacco-related cases pertaining to combustible products pending against us and/or our subsidiaries or indemnitees as of April 23, 2021, April 24, 2020 and April 23, 2019 and April 24, 2018:2019:¹

Type of CaseNumber of Cases Pending as of April 23, 2021Number of Cases Pending as of April 24, 2020Number of Cases Pending as of April 23, 2019
Individual Smoking and Health Cases414853
Smoking and Health Class Actions91010
Health Care Cost Recovery Actions171716
Label-Related Class Actions001
Individual Label-Related Cases547
Public Civil Actions222
Type of Case Number of Cases Pending as of April 24, 2020 Number of Cases Pending as of April 23, 2019 Number of Cases Pending as of April 24, 2018
Individual Smoking and Health Cases 48 53 62
Smoking and Health Class Actions 10 10 11
Health Care Cost Recovery Actions 17 16 16
Label-Related Class Actions — 1 1
Individual Label-Related Cases 4 7 1
Public Civil Actions 2 2 2


Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 503512 Smoking and Health, Label-Related, Health Care Cost Recovery, and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated in our favor. NaN cases have had decisions in favor of plaintiffs. NaN of these cases have subsequently reached final resolution in our favor and 43 remain on appeal.

The table below lists the verdict and significant post-trial developments in the 43 pending cases where a verdict was returned in favor of the plaintiff:

DateLocation of


Court/Name of
Plaintiff
Type of
Case		VerdictPost-Trial
Developments
February 2004Brazil/The Smoker Health Defense AssociationClass ActionThe Civil Court of São Paulo found defendants liable without hearing evidence. In April 2004, the court awarded “moral damages” of R$1,000 (approximately $183) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not assess actual damages, which were to be assessed in a second phase of the case. The size of the class was not defined in the ruling.
Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In May 2011, the trial court dismissed the claim. In March 2017, plaintiff filed an en banc appeal to the Superior Court of Justice. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that plaintiff did not have standing to bring the lawsuit. Both appeals are still pending.
______
¹ Includes cases pending in Canada.


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DateLocation of
Court/Name of
Plaintiff		Type of
Case		VerdictPost-Trial
Developments
May 27, 2015
Canada/Conseil Québécois Sur Le Tabac Et La Santé and Jean-Yves Blais

Class Action
On May 27, 2015, the Superior Court of the District of Montreal, Province of Quebec ruled in favor of the Blais class on liability and found the class members’ compensatory damages totaled approximately CAD 15.5 billion (approximately $11$12.4 billion), including pre-judgment interest. The trial court awarded compensatory damages on a joint and several liability basis, allocating 20% to our subsidiary (approximately CAD 3.1 billion including pre-judgment interest (approximately $2.2$2.5 billion)). The trial court awarded CAD 90,000 (approximately $63,760)$71,990) in punitive damages, allocating CAD 30,000 (approximately $21,250)$24,000) to our subsidiary. The trial court ordered defendants to pay CAD 1 billion (approximately $708.5$800 million) of the compensatory damage award, CAD 200 million (approximately $141.7$160 million) of which is our subsidiary’s portion, into a trust within 60 days.
In June 2015, RBH commenced the appellate process with the Court of Appeal of Quebec. On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court's decision. (See “Stayed Litigation — Canada” for further detail.)


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DateLocation of
Court/Name of
Plaintiff		Type of
Case		VerdictPost-Trial
Developments
May 27, 2015Canada/Cecilia Létourneau
Class Action
On May 27, 2015, the Superior Court of the District of Montreal, Province of Quebec ruled in favor of the Létourneau class on liability and awarded a total of CAD 131 million (approximately $92.8$104.8 million) in punitive damages, allocating CAD 46 million (approximately $32.6$37 million) to RBH. The trial court ordered defendants to pay the full punitive damage award into a trust within 60 days. The court did not order the payment of compensatory damages.
In June 2015, RBH commenced the appellate process with the Court of Appeal of Quebec. On March 1, 2019, the Court of Appeal issued a decision largely affirming the trial court's decision. (See “Stayed Litigation — Canada” for further detail.)

DateLocation of
Court/Name of
Plaintiff		Type of
Case		VerdictPost-Trial
Developments
August 5, 2016Argentina/Hugo LespadaIndividual ActionOn August 5, 2016, the Civil Court No. 14 - Mar del Plata, issued a verdict in favor of plaintiff, an individual smoker, and awarded him ARS 110,000 (approximately $1,661)$1,183), plus interest, in compensatory and moral damages. The trial court found that our subsidiary failed to warn plaintiff of the risk of becoming addicted to cigarettes.On August 23, 2016, our subsidiary filed its notice of appeal. On October 31, 2017, the Civil and Commercial Court of Appeals of Mar del Plata ruled that plaintiff's claim was barred by the statute of limitations and it reversed the trial court's decision. On November 28, 2017, plaintiff filed an extraordinary appeal of the reversal of the trial court's decision to the Supreme Court of the Province of Buenos Aires. On April 19, 2021, the Supreme Court of the Province of Buenos Aires rejected plaintiff's extraordinary appeal.


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

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As of April 24, 2020,23, 2021, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:

•41 cases brought by individual plaintiffs in Argentina (29), Brazil (3), Canada (2), Chile (2), China (1), Italy (1), the Philippines (1), Turkey (1) and Scotland (1), compared with 48 such cases on April 24, 2020, and 53 cases on April 23, 2019; and
•9 cases brought on behalf of classes of individual plaintiffs in Canada, compared with 10 such cases on April 24, 2020 and 10 such cases on April 23, 2019.

•
48 cases brought by individual plaintiffs in Argentina (31), Brazil (5), Canada (2), Chile (4), Costa Rica (1), Italy (1), the Philippines (1), Poland (1), Turkey (1) and Scotland (1), compared with 53 such cases on April 23, 2019, and 62 cases on April 24, 2018; and
•
10 cases brought on behalf of classes of individual plaintiffs in Brazil (1) and Canada (9), compared with 10 such cases on April 23, 2019 and 11 such cases on April 24, 2018.

The class actions pending in Canada are described above under the caption “Smoking and Health Litigation — Canada.”

In the class action pending in Brazil, The Smoker Health Defense Association (ADESF) v. Souza Cruz, S.A. and Philip Morris Marketing, S.A., Nineteenth Lower Civil Court of the Central Courts of the Judiciary District of São Paulo, Brazil, filed July 25, 1995, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer organization, is seeking damages for all addicted smokers and former smokers, and injunctive relief. In 2004, the trial court found defendants liable without hearing evidence and awarded “moral damages” of R$1,000 (approximately $183) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not award actual damages, which were to be assessed in the second phase of the case. The size of the class was not estimated. Defendants appealed to the São Paulo Court of Appeals, which annulled the ruling in November 2008, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In May 2011, the trial court dismissed the claim. In February 2015, the appellate court unanimously dismissed plaintiff's appeal. In September 2015, plaintiff appealed to the Superior Court of Justice. In February 2017, the Chief Justice of the Superior Court of Justice denied plaintiff's appeal. In March 2017, plaintiff filed an en banc appeal to the Superior Court of Justice. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that plaintiff did not have standing to bring the lawsuit. Both appeals are still pending.

Health Care Cost Recovery Litigation: These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of health care cost expenditures allegedly caused by tobacco products. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied warranties, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, defective product, failure to warn, sale of cigarettes to minors, and claims under statutes governing competition and deceptive trade practices. Plaintiffs in these cases seek various forms of relief including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, remoteness of injury, failure to state a claim, adequate remedy at law, “unclean hands” (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), and statute of limitations.
As of April 24, 2020,23, 2021, there were 17 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Brazil (1), Canada (10)(10), Korea (1)(1) and Nigeria (5)(5), compared with 1617 such cases on April 23, 201924, 2020 and 16 such cases on April 24, 2018.23, 2019.

The health care cost recovery actions pending in Canada are described above under the caption “Health Care Cost Recovery Litigation — Canada.”
In the health care cost recovery case in Brazil, The Attorney General of Brazil v. Souza Cruz Ltda., et al., Federal Trial Court, Porto Alegre, Rio Grande do Sul, Brazil, filed May 21, 2019, we, our subsidiaries, and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past fivein certain prior years, payment of anticipated costs of treating future alleged smoking-related diseases, and moral damages. Defendants'Defendants filed answers to the complaint are due in May 2020. A challenge to the service of PMI as improper remains pending.
In the first health care cost recovery case in Nigeria, The Attorney General of Lagos State v. British American Tobacco (Nigeria) Limited, et al., High Court of Lagos State, Lagos, Nigeria, filed March 13, 2008, we and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. We are in the process of making challenges to service and the court's jurisdiction. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections.
In the second health care cost recovery case in Nigeria, The Attorney General of Kano State v. British American Tobacco (Nigeria) Limited, et al., High Court of Kano State, Kano, Nigeria, filed May 9, 2007, we and other members of the industry are defendants.

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Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. We are in the process of making challenges to service andchallenging the court's jurisdiction. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections.
In the third health care cost recovery case in Nigeria, The Attorney General of Gombe State v. British American Tobacco (Nigeria) Limited, et al., High Court of Gombe State, Gombe, Nigeria, filed October 17, 2008, we and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In February 2011, the court ruled that the plaintiff had not complied with the procedural steps necessary to serve us. As a result of this ruling, plaintiff must re-serve its claim. We have not yet been re-served.
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In the fourth health care cost recovery case in Nigeria, The Attorney General of Oyo State, et al., v. British American Tobacco (Nigeria) Limited, et al., High Court of Oyo State, Ibadan, Nigeria, filed May 25, 2007, we and other members of the industry are defendants. Plaintiffs seek reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. We challenged service as improper. In June 2010, the court ruled that plaintiffs did not have leave to serve the writ of summons on the defendants and that they must re-serve the writ. We have not yet been re-served.
In the fifth health care cost recovery case in Nigeria, The Attorney General of Ogun State v. British American Tobacco (Nigeria) Limited, et al., High Court of Ogun State, Abeokuta, Nigeria, filed February 26, 2008, we and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In May 2010, the trial court rejected our service objections.objections to the court's jurisdiction. We have appealed. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections.

In the health care cost recovery case in Korea, the National Health Insurance Service v. KT&G, et. al., filed April 14, 2014, our subsidiary and other Korean manufacturers are defendants. Plaintiff alleges that defendants concealed the health hazards of smoking, marketed to youth, added ingredients to make their products more harmful and addictive, and misled consumers into believing that Lights cigarettes are safer than regular cigarettes. The National Health Insurance Service seeks to recover damages allegedly incurred in treating 3,484 patients with small cell lung cancer, squamous cell lung cancer, and squamous cell laryngeal cancer from 2003 to 2012. The trial court dismissed the case is now in the evidentiary phase.its entirety on November 20, 2020. Plaintiff appealed.

Label-Related Cases: These cases, now brought only by individual plaintiffs, allege that the use of the descriptor “Lights” or other alleged misrepresentations or omissions of labeling information constitute fraudulent and misleading conduct. Plaintiffs' allegations of liability in these cases are based on various theories of recovery including misrepresentation, deception, and breach of consumer protection laws. Plaintiffs seek various forms of relief including restitution, injunctive relief, and compensatory and other damages. Defenses raised include lack of causation, lack of reliance, assumption of the risk, and statute of limitations.

As of April 24, 2020,23, 2021, there were 45 label-related cases brought by individual plaintiffs in Italy (1) and Chile (3)(4) pending against our subsidiaries, compared with 4 such cases on April 24, 2020, and 7 such cases on April 23, 2019, and 1 such case on April 24, 2018.2019.

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

As of April 24, 2020,23, 2021, there were 2 public civil actions pending against our subsidiaries in Argentina (1)(1) and Venezuela (1)(1), compared with 2 such cases on April 23, 2019,24, 2020, and 2 such cases on April 24, 2018.23, 2019.

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

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In the public civil action in Venezuela, Federation of Consumers and Users Associations (“FEVACU”), et al. v. National Assembly of Venezuela and the Venezuelan Ministry of Health, Constitutional Chamber of the Venezuelan Supreme Court, filed April 29, 2008, we were not named as a defendant, but the plaintiffs published a notice pursuant to court order, notifying all interested parties to appear in the case. In January 2009, our subsidiary appeared in the case in response to this notice. The plaintiffs purport to represent the right to health of the citizens of Venezuela and claim that the government failed to protect adequately its citizens' right to health. The claim asks the court to order the government to enact stricter regulations on the manufacture and sale of tobacco products. In addition, the plaintiffs ask the court to order companies involved in the tobacco industry to allocate a percentage of their “sales or benefits” to establish a fund to pay for the health care costs of treating
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smoking-related diseases. In October 2008, the court ruled that plaintiffs have standing to file the claim and that the claim meets the threshold admissibility requirements. In December 2012, the court admitted our subsidiary and BAT's subsidiary as interested third parties. In February 2013, our subsidiary answered the complaint.



Reduced-Risk Products

In Colombia, an individual filed a purported class action, Ana Ferrero Rebolledo v. Philip Morris Colombia S.A., et al., in April 2019 against our subsidiaries with the Civil Court of Bogota related to the marketing of our Platform 1 product. Plaintiff alleged that our subsidiaries advertise the product in contravention of law and in a manner that misleads consumers by portraying the product in a positive light, and further asserts that the Platform 1 vapor contains many toxic compounds, creates a high level of dependence, and has damaging second-hand effects. Plaintiff sought injunctive relief and damages on her behalf and on a behalf of two classes (class 1 - all Platform 1 consumers in Colombia who seek damages for the purchase price of the product and personal injuries related to the alleged addiction, and class 2 - all residents of the neighborhood where the advertising allegedly took place who seek damages for exposure to the alleged illegal advertising). Our subsidiaries answered the complaint in January 2020, and in February 2020, plaintiff filed an amended complaint. The amended complaint modifies the relief sought on behalf of the named plaintiff and on behalf of a single class (all consumers of Platform 1 products in Colombia who seek damages for the product purchase price and personal injuries related to the use of an allegedly harmful product). The amended complaint has not yet been served on our subsidiaries.product.)


Other Litigation

The Department of Special Investigations of the government of Thailand ("DSI") conducted an investigation into alleged underpayment by our subsidiary, Philip Morris (Thailand) Limited ("PM Thailand"), of customs duties and excise taxes relating to imports from the Philippines covering the period 2003-2007. On January 18, 2016, the Public Prosecutor filed charges against our subsidiary and seven former and current employees in the Bangkok Criminal Court alleging that PM Thailand and the individual defendants jointly and with the intention to defraud the Thai government, under-declared import prices of cigarettes to avoid full payment of taxes and duties in connection with import entries of cigarettes from the Philippines during the period of July 2003 to June 2006. The government is seeking a fine of approximately THB 80.8 billion (approximately $2.5$2.6 billion). In May 2017, Thailand enacted a new customs act. The new act, which took effect in November 2017, substantially limits the amount of fines that Thailand could seek in these proceedings. PM Thailand believes that its declared import prices are in compliance with the Customs Valuation Agreement of the World Trade Organization and Thai law and that the allegations of the Public Prosecutor are inconsistent with several decisions already taken by Thai Customs and other Thai governmental agencies. Trial in the case began in November 2017 and concluded in September 2019. In November 2019, the trial court found our subsidiary guilty of under-declaration of the prices and imposed a fine of approximately THB 1.2 billion (approximately $37.1$38.2 million). The trial court dismissed all charges against the individual defendants. In December 2019, as required by the Thai law, our subsidiary paid the fine. This payment is included in other assets on the condensed consolidated balance sheets and negatively impacted net cash provided by operating activities in the condensed consolidated statements of cash flows in the period of payment. Our subsidiary willfiled an appeal of the trial court's decision. In addition, the Public Prosecutor filed an appeal of the trial court's decision challenging the dismissal of charges against the individual defendants and the amount of the fine imposed. If our subsidiary ultimately prevails on appeal, then Thailand will be required to return this payment to our subsidiary.

The DSI also conducted an investigation into alleged underpayment by PM Thailand of customs duties and excise taxes relating to imports from Indonesia covering the period 2000-2003. On January 26, 2017, the Public Prosecutor filed charges against PM Thailand and its former Thai employee in the Bangkok Criminal Court alleging that PM Thailand and its former employee jointly and with the intention to defraud the Thai government under-declared import prices of cigarettes to avoid full payment of taxes and duties in connection with import entries during the period from January 2002 to July 2003. The government is seeking a fine

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of approximately THB 19.8 billion (approximately $612$631 million). In May 2017, Thailand enacted a new customs act. The new act, which took effect in November 2017, substantially limits the amount of fines that Thailand could seek in these proceedings. PM Thailand believes that its declared import prices are in compliance with the Customs Valuation Agreement of the World Trade Organization and Thai law, and that the allegations of the Public Prosecutor are inconsistent with several decisions already taken by Thai Customs and a Thai court. Trial in the case began in November 2018 and concluded in December 2019. In March 2020, the trial court found our subsidiary guilty of under-declaration of the prices and imposed a fine of approximately THB 130 million (approximately $4$4.1 million). The trial court dismissed all charges against the individual defendant. In April 2020, as required by Thai law, our subsidiary paid the fine. This payment is included in other assets on the condensed consolidated balance sheets and negatively impacted net cash provided by operating activities in the condensed consolidated statements of cash flows in the period of payment. Our subsidiary will appeal the trial court's decision. In addition, the Public Prosecutor filed an appeal of the trial court's decision challenging the dismissal of charges against the
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individual defendant and the amount of the fine imposed. If our subsidiary ultimately prevails on appeal, then Thailand will be required to return this payment to our subsidiary.

The South Korean Board of Audit and Inspection (“BAI”) conducted an audit of certain Korean government agencies and the tobacco industry into whether inventory movements ahead of the January 1, 2015 increase of cigarette-related taxes by tobacco companies, including Philip Morris Korea Inc. ("PM Korea"), our South Korean affiliate,subsidiary, were in compliance with South Korean tax laws.  In November 2016, the tax authorities completed their audit and assessed allegedly underpaid taxes and penalties.  In order to avoid nonpayment financial costs, PM Korea paid approximately KRW 272 billion (approximately $221$243 million), of which KRW 100 billion (approximately $81.1$89.4 million) was paid in 2016 and KRW 172 billion (approximately $139.5$153.7 million) was paid in the first quarter of 2017.  These paid amounts are included in other assets in the condensed consolidated balance sheets and negatively impacted net cash provided by operating activities in the condensed consolidated statements of cash flows in the period of payment.  PM Korea appealed the assessments. In January 2020, a trial court ruled that PM Korea did not underpay taxes in the amount of approximately KRW 218 billion (approximately $177$195 million) in taxes that were subject to its jurisdiction.. The tax authorities appealed this decision to the appellate court. In September 2020, the appellate court upheld the trial court's decision. The tax authorities have appealed to the Supreme Court of South Korea. In June 2020, another trial court ruled that PM Korea did not underpay approximately KRW 54 billion (approximately $48 million) of alleged underpayments. The government agencies appealed this decision. In January 2021, the appellate court upheld the trial court's decision. The government agencies appealed to the Supreme Court of South Korea. If the tax authorities and government agencies ultimately lose, then they would be required to return the paid amounts to PM Korea. The hearing for this case is scheduled in May 2020. The hearing for PM Korea's appeal of approximately KRW 54 billion of alleged underpayments (approximately $43.8 million) was held in April 2020, and a decision is scheduled for June 2020.

The Moscow Tax Inspectorate for Major Taxpayers (“MTI”) conducted an audit of AO Philip Morris Izhora (“PM Izhora”), our Russian affiliate,subsidiary, for the 2015-2017 financial years. On July 26, 2019, MTI issued its initial assessment, claiming that intercompany sales of cigarettes between PM Izhora and another Russian affiliatesubsidiary prior to excise tax increases and submission by PM Izhora of the maximum retail sales price notifications for cigarettes to the tax authorities were improper under Russian tax laws and resulted in underpayment of excise taxes and VAT. In August 2019, PM Izhora submitted its objections disagreeing with MTI’s allegations set forth in the initial assessment and MTI’s methodology for calculating the alleged underpayments. MTI accepted some of PM Izhora’s arguments and in September 2019, issued the final tax assessment claiming an underpayment of RUB 24.3 billion (approximately $374 million), including penalties and interest. In accordance with Russian tax laws, PM Izhora paid the entire amount of MTI’s final assessment. This amount was neither imposed on, nor concurrent with, the specific revenue-producing transaction, nor was it collected from customers of our Russian affiliates. PMI believes that the loss of $374 million in this matter is probable and estimable. Consequently, insubsidiaries. In the third quarter of 2019, PMI recorded a pre-tax charge of $374 million, in marketing, administration and research costs in the condensed consolidated statements of earnings, representing $315 million net of an associated income tax. Undertax benefit of $59 million.

The Saudi Arabia Customs General Authority issued its assessments requiring our distributors (one former and one current) to pay additional customs duties in an amount of approximately 1.5 billion Saudi Riyal, or approximately $396 million, in relation to the Russian law, PM Izhora has until mid-September 2020fees paid by these distributors under their agreements with our subsidiary for exclusive rights to distribute our products in Saudi Arabia during the period of 2014 through 2018. In order to challenge these assessments, the final tax assessmentdistributors posted bank guarantees equaling the amount of the above assessments. To enable the distributors' challenge, our subsidiary agreed with the banks to bear 80 percent of the Federal Tax Serviceamount the authority may draw on the bank guarantees. In September and is considering whether to pursue such challenge.October 2020, respectively, the distributors lost their challenges of the assessments; both distributors appealed. Our subsidiary and our distributors believe that customs duties paid in Saudi Arabia were in compliance with the applicable law and the WTO Customs Valuation Agreement.

A putative shareholder class action lawsuit, In re Philip Morris International Inc. Securities Litigation, is pending in the United States District Court for the Southern District of New York, purportedly on behalf of purchasers of Philip Morris International Inc. stock between July 26, 2016 and April 18, 2018.  The lawsuit names Philip Morris International Inc. and certain officers and employees as defendants and includes allegations that the defendants made false and/or misleading statements and/or failed to disclose information about PMI’s business, operations, financial condition, and prospects, related to product sales of, and alleged irregularities in clinical studies of, PMI’s Platform 1 product.  The lawsuit seeks various forms of relief, including damages. In November 2018, the court consolidated three putative shareholder class action lawsuits with similar allegations previously filed in the Southern District of New York (namely, City of Westland Police and Fire Retirement System v. Philip Morris International Inc., et al, Greater Pennsylvania Carpenters’ Pension Fund v. Philip Morris International Inc., et al., and Gilchrist v. Philip Morris International Inc., et al.) into these proceedings. A putative shareholder class action lawsuit, Rubenstahl v. Philip Morris International Inc., et al., that had been previously filed in December 2017 in the United States District Court for the District of New Jersey, was voluntarily dismissed by the plaintiff due to similar allegations in these proceedings. On February 4, 2020, the court granted defendants’ motion in its entirety, dismissing all but one of the plaintiffs’
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claims with prejudice.  The court noted that one of plaintiffs’ claims (allegations relating to four non-clinical studies of PMI’s Platform 1 product) did not state a viable claim but allowed plaintiffs to replead that claim by March 3, 2020. On February 18, 2020, the plaintiffs filed a motion for reconsideration of the court's February 4th decision. The court extended the time fordecision; this motion was denied on September 21, 2020. On September 28, 2020, plaintiffs filed an amended complaint seeking to replead the claimallegations relating to four

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non-clinical studies mentioned above within 30 days after the court's decision on the motion.of PMI's Platform 1 product. We believe that this lawsuit is without merit and will continue to defend it vigorously.

In April 2020, affiliates of British American Tobacco plc (“BAT”) commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris International Inc.,Altria Client Services LLC, et al.,  in the federal court in the Eastern District of Virginia, where PMI and itsPMI's subsidiary, Philip Morris Products S.A., as well as Altria Group, Inc. and its's subsidiaries, are defendants. Plaintiffs seek damages and injunctive relief against furtherthe commercialization of the Platform 1 products in the United States.  In April 2020, BAT affiliates filed a complaint against the same PMI, andPhilip Morris Products S.A., Altria Group, Inc. parties, and its subsidiaries before the International Trade Commission.Commission ("ITC"). Plaintiffs seek an order to prevent the importation of Platform 1 products into the United States. The ITC evidentiary hearing closed on February 1, 2021. The administrative law judge has scheduled an initial determination date of May 14, 2021 and the target date for the final determination of the ITC is September 15, 2021. In June 2020, defendants filed their responses in both proceedings. In the Eastern District of Virginia case, the defendants also counterclaimed that BAT infringed their patents relating to certain e-vapor products, seeking damages for, and injunctive relief against, the commercialization of these products by BAT. Upon petition of Philip Morris Products S.A., the Patent Trial and Appeal Board of the United States Patent and Trademark Office has instituted review of certain claims pertaining to four of the six patents asserted by BAT affiliates in both proceedings.

In April 2020, BAT’s affiliate commenced patent infringement proceedings, Nicoventures Trading Limited v. PM GmbH, et al., against PMI’s German subsidiary, Philip Morris GmbH, and Philip Morris Products S.A., in the Regional Court in Munich, Germany. Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 products in Germany.

In July 2020, in response to a challenge in the United Kingdom by PMI’s subsidiary to patents related to the BAT patents in the German proceedings, BAT affiliates brought a patent infringement action, Nicoventures Trading Limited, et al. v. Philip Morris Products S.A., et al., against Philip Morris Products S.A. and PMI’s U.K. subsidiary, Philip Morris Limited, in the English High Court, seeking damages and injunctive relief against the commercialization of the Platform 1 products in the United Kingdom. On March 9, 2021, the court revoked the BAT patents and found that, had the BAT patents not been revoked as invalid, they would have been infringed. BAT affiliates have sought to appeal the court’s judgment.

In September 2020, BAT’s affiliates commenced patent infringement and unfair competition proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Products S.A., et al., against Philip Morris Products S.A. and PMI’s Italian subsidiaries, Philip Morris Manufacturing & Technology Bologna S.p.A. and Philip Morris Italia S.r.l., in the Court of Milan, Italy. Plaintiffs seek damages, as well as injunctive relief against the manufacture in Italy of the Platform 1 heated tobacco units allegedly infringing the asserted patents and the commercialization of the Platform 1 products in Italy. As part of this proceeding, in October 2020, BAT’s affiliates filed a request based on one of the two asserted patents seeking preliminary injunctive relief against the manufacture and commercialization of the Platform 1 products in Italy.

In October 2020, BAT’s affiliate commenced patent infringement proceedings, Nicoventures Trading Limited v. Philip Morris CR a.s., et al., against PMI's Czech subsidiary, Philip Morris CR a.s., and Philip Morris Products S.A., in the Town Court of Prague, Czech Republic, seeking preliminary injunctive relief against the commercialization of the Platform 1 products in the Czech Republic. In October 2020, the court dismissed plaintiff’s request for preliminary injunction in its entirety. In October 2020, plaintiff appealed.In February 2021, the appellate court denied plaintiffs’ appeal, confirming the dismissal of plaintiffs’ request.

In October 2020, BAT’s affiliate commenced patent infringement proceedings, RAI Strategic Holdings, Inc. v. Philip Morris Polska Distribution sp. z o.o., against PMI’s Polish subsidiary, Philip Morris Polska Distribution Sp. z o.o., in the Regional Court in Warsaw, IP Division. Plaintiff seeks preliminary injunctive relief against the commercialization of the Platform 1 products in Poland. In November 2020, the court dismissed plaintiff’s request for preliminary injunction in its entirety. Plaintiff appealed. In April 2021, the court dismissed plaintiff's appeal, confirming the dismissal of plaintiff's request.

In October 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Japan, Limited, et al., against PMI’s Japanese subsidiary, Philip Morris Japan Limited, and a third-party distributor in the Tokyo District Court. Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 products in Japan.

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In November 2020, BAT’s affiliate commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Bulgaria EOOD, against PMI’s Bulgarian subsidiary, Philip Morris Bulgaria EOOD, in the Sofia City Court, Bulgaria, seeking preliminary injunctive relief against the commercialization of the Platform 1 products in Bulgaria. In November 2020, the court dismissed plaintiffs’ request for preliminary injunction in its entirety. Plaintiffs have appealed. In January 2021, the appellate court denied plaintiffs’ appeal, confirming the dismissal of plaintiffs’ request.

In November 2020, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Romania SRL, et al., against PMI’s Romanian subsidiaries, Philip Morris Romania S.R.L. and Philip Morris Trading S.R.L., and a third-party distributor in the Court of Law of Bucharest, Civil Registry. Plaintiffs seek damages and preliminary and permanent injunctive relief against the manufacture and commercialization of the Platform 1 products in Romania. In February 2021, the court dismissed plaintiffs’ request for a preliminary injunction. In April 2021, the appellate court denied plaintiffs' appeal, confirming the dismissal of plaintiffs' request for preliminary injunction. Plaintiffs' proceeding requesting damages and a permanent injunction remains pending before the Court of Law of Bucharest, Civil Registry.

In December 2020, BAT’s affiliate commenced proceedings, Nicoventures Trading Limited v. Philip Morris Products S.A., et al., against PMI’s German subsidiaries, Philip Morris GmbH and f6 Cigarettenfabrik GmbH & Co.KG, and Philip Morris Products S.A., in the Hamburg Regional Court, for the alleged infringement of a patent utility model, seeking preliminary injunctive relief against the manufacture and commercialization of the Platform 1 products in Germany. At the March 16, 2021 hearing, BAT’s affiliate withdrew the action.

In February 2021, BAT’s affiliate commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Papastratos SA, et al., against PMI’s Greek subsidiary, Papastratos Cigarettes Manufacturing Company S.A., and Philip Morris Products S.A., in the First Instance Court of Athens. Plaintiff seeks preliminary injunctive relief against the commercialization of the Platform 1 products in Greece.

In March 2021, BAT’s affiliates commenced patent infringement proceedings, RAI Strategic Holdings, Inc., et al. v. Philip Morris Korea, Co., Ltd., against PM Korea in the Seoul Central District Court. Plaintiffs seek damages and injunctive relief against the commercialization of the Platform 1 heated tobacco units in South Korea.

Other patent challenges by both parties are pending in various jurisdictions.

We believe that the foregoing proceedings by the affiliates of BAT are without merit and will defend them vigorously.

We are also involved in additional litigation arising in the ordinary course of our business. While the outcomes of these proceedings are uncertain, management does not expect that the ultimate outcomes of other litigation, including any reasonably possible losses in excess of current accruals, will have a material adverse effect on our consolidated results of operations, cash flows or financial position.

Third-Party Guarantees

On October 17, 2020, Medicago Inc., an equity method investee of Philip Morris Investments B.V. (“PMIBV”), a PMI subsidiary, entered into a contribution agreement with the Canadian government (the “Contribution Agreement”) whereby the Canadian government agreed to contribute up to CAD 173 million (approximately $131 million on the date of signing) to Medicago Inc., to support its on-going COVID-19 vaccine development and clinical trials, and for the construction of its Quebec City manufacturing facility (the “Project”). PMIBV and the majority shareholder of Medicago Inc. are also parties to the Contribution Agreement as guarantors of Medicago Inc.’s obligations thereunder on a joint and several basis (“Co-Guarantors”). The Co-Guarantors agreed to repay amounts contributed by the Canadian government plus interest, if Medicago Inc. fails to do so, and could be responsible for the costs of other Medicago’s obligations (such as the achievement of specific milestones of the Project). The maximum amount of these obligations is currently non-estimable. As of March 31, 2021, PMI has determined that these guarantees did not have a material impact on its condensed consolidated financial statements.

In connection with the Contribution Agreement, PMIBV and the majority shareholder of Medicago Inc. entered into a guarantors’ agreement that apportions Co-Guarantors’ obligations and limits those of PMIBV to its then share of holdings in Medicago Inc., which as of March 31, 2021 was approximately 32%. The guarantees are in effect through March 31, 2026.

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Note 9. Income Taxes:
Income tax provisions for jurisdictions outside the United States of America, 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.

On March 27, 2020,11, 2021, the Coronavirus Aid, Relief, and Economic SecurityAmerican Rescue Plan Act (“CARES Act”of 2021 ("the Act") was signed into law in the U.S. to provide certain relief as a result of the COVID-19 pandemic. In addition, governments around the world have enacted or implemented various forms of tax relief measures in response to the economic conditions in the wake of COVID-19. As of March 31, 2020,2021, PMI has determined that neither the CARES Act nor changes to income tax laws or regulations in other jurisdictions had ano significant impact on PMI’sPMI's effective tax rate.

PMI’s effective tax rates for the three months ended March 31, 2021 and 2020 and 2019 were 22.6%21.5% and 22.6%, respectively. The effective tax rate for the three months ended March 31, 20202021 was favorably impacted by a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($16 million). For further details, see Note 11. Fair Value Measurements. The effectivecorporate income tax rate forreductions in Indonesia (enacted in the three months ended March 31, 2019 was favorably impactedsecond quarter of 2020) and the Philippines (enacted in the first quarter of 2021), as well as changes in earnings mix by the reversal of a deferred tax liability on the unremitted earnings of PMI's Canadian subsidiary, RBH ($49 million) and by the Tax Cuts and Jobs Act.taxing jurisdiction. PMI estimates that its full-year 20202021 effective tax rate will be approximately 23%around 22%, excluding the discrete tax event mentioned above.events. Changes in currency exchange rates, earnings mix by taxing jurisdiction or future regulatory developments may have an impact on the effective tax rates, which PMI monitors each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions.


PMI is regularly examined by tax authorities around the world and is currently under examination in a number of jurisdictions. The U.S. federal statute of limitations remains open for the years 20152017 and onward. Foreign and U.S. state jurisdictions have statutes of limitations generally ranging from three to five years.

It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in unrecognized tax benefits along with related interest and penalties. An estimate of any possible change cannot be made at this time.

Note 10. Indebtedness:
Short-term Borrowings:
PMI's short-term borrowings, consisting of commercial paper and bank loans to certain PMI subsidiaries at March 31, 20202021 and bank loans to certain PMI subsidiaries at December 31, 2019,2020, had a carrying value of $1,438$192 million and $338$244 million,, respectively. The fair valuevalues of PMI’s short-term borrowings, based on current market interest rates, approximatesapproximate carrying value.


Long-term Debt:
At March 31, 2021 and December 31, 2020, PMI’s long-term debt consisted of the following:
(in millions)March 31, 2021December 31, 2020
U.S. dollar notes, 0.875% to 6.375% (average interest rate 3.248%), due through 2044$20,478 $21,221 
Foreign currency obligations:
Euro notes, 0.125% to 3.125% (average interest rate 1.995%), due through 20397,962 9,253 
Swiss franc notes, 1.625% to 2.000% (average interest rate 1.830%), due through 2024584 622 
Other (average interest rate 3.140%), due through 2025 (a)
182 196 
Carrying value of long-term debt29,206 31,292 
Less current portion of long-term debt1,930 3,124 
 $27,276 $28,168 
(a) Includes mortgage debt in Switzerland as well as $33 million and $37 million in finance leases at March 31, 2021 and December 31, 2020, respectively.


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Long-term Debt:
At March 31, 2020 and December 31, 2019, PMI’s long-term debt consisted of the following:

(in millions) March 31, 2020 December 31, 2019
U.S. dollar notes, 1.875% to 6.375% (average interest rate 3.567%), due through 2044 $17,489
 $19,783
Foreign currency obligations:    
Euro notes, 0.125% to 3.125% (average interest rate 1.983%), due through 2039 8,331
 9,822
Swiss franc notes, 1.000% to 2.000% (average interest rate 1.521%), due through 2024 915
 899
Other (average interest rate 3.009%), due through 2025 197
 203
  26,932
 30,707
Less current portion of long-term debt 1,933
 4,051
  $24,999
 $26,656


Other foreign currency debt above includes mortgage debt in Switzerland and finance lease obligations at March 31, 2020 and December 31, 2019.

Credit Facilities:

On January 31, 2020, PMI entered into an agreement to amend and extend the term of its $2.0 billion 364-day revolving credit facility from February 4, 2020, to February 2, 2021.

On February 10, 2020, PMI entered into a new $2.0 billion multi-year revolving credit facility, expiring on February 10, 2025. The new credit facility replaced the $2.5 billion multi-year revolving credit facility, which was terminated effective February 10, 2020. PMI had 0 borrowings outstanding under the terminated facility, which was due to expire on February 28, 2021.

At March 31, 2020, PMI's total committed credit facilities were as follows:

(in billions)


Type
 
Committed
Credit
Facilities
364-day revolving credit, expiring February 2, 2021 $2.0
Multi-year revolving credit, expiring October 1, 2022 3.5
Multi-year revolving credit, expiring February 10, 2025 2.0
Total facilities $7.5


At March 31, 2020, there were 0 borrowings under these committed credit facilities, and the entire committed amounts were available for borrowing.

Note 11. Fair Value Measurements:
The authoritative guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy, which requires an entity to maximize

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the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of input that may be used to measure fair value, which are as follows:
Level 1 -Quoted prices in active markets for identical assets or liabilities;
Level 2 -Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; and
Level 3 -Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

Equity Securities

The fair value of PMI’s equity securities, which are determined by using quoted prices in active markets, have been classified within Level 1.

Derivative Financial Instruments

PMI assesses the fair value of its foreign exchange contracts and interest rate contracts using standard valuation models that use, as their basis, readily observable market inputs. The fair value of PMI’s foreign exchange forward contracts is determined by using the prevailing foreign exchange spot rates and interest rate differentials, and the respective maturity dates of the instruments. The fair value of PMI’s currency options is determined by using a Black-Scholes methodology based on foreign exchange spot rates and interest rate differentials, currency volatilities and maturity dates. PMI’s derivative financial instruments have been classified within Level 2 in the table shown below. See Note 5. Financial Instruments for additional discussion of derivative financial instruments.

Debt

The fair value of PMI’s outstanding long-term debt, which is utilized solely for disclosure purposes, is determined using quotes and market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities. The aggregate carrying value of PMI’s debt, excluding short-term borrowings and $49 million of finance leases, was $26,883 million atAt March 31, 2020. The2021, the fair value of PMI’sPMI's outstanding long-term debt, excluding the aforementioned short-term borrowings and finance leases, was classified within as follows:

(in millions)March 31, 2021
Level 1$31,583 
Level 2165 
For a description of the fair value hierarchy and the three levels of inputs used to measure fair values, see Item 8, Note 2. Summary of Significant Accounting Policies of PMI's Annual Report on Form 10-K for the year ended December 31, 2020.

Credit Facilities:

On January 29, 2021, PMI entered into an agreement to amend and extend the term of its 364-day revolving credit facility from February 2, 2021, to February 1, and Level 22022 in the table shown below.amount of $1.75 billion.

The aggregate fair values of PMI's investments in equity securities, derivative financial instruments and PMI's debt as ofAt March 31, 2020,2021, PMI's total committed credit facilities were as follows:
(in millions) Fair Value at March 31, 2020 Quoted Prices
in Active
Markets for
Identical
Assets/Liabilities
(Level 1)		 Significant
Other
Observable
Inputs
(Level 2)		 Significant
Unobservable
Inputs
(Level 3)
Assets:        
Equity securities (1)
 $254
 $254
 $—
 $—
Derivative contracts 492
 —
 492
 —
Total assets $746
 $254
 $492
 $—
Liabilities:        
Debt $28,127
 $27,959
 $168
 $—
Derivative contracts 249
 —
 249
 —
Total liabilities $28,376
 $27,959
 $417
 $—

(in billions)


Type
Committed
Credit
Facilities
364-day revolving credit, expiring February 1, 2022$1.75 
Multi-year revolving credit, expiring October 1, 20223.50 
Multi-year revolving credit, expiring February 10, 2025(a)
2.00 
Total facilities$7.25 
(1) (a) Unrealized pre-tax lossOn January 29, 2021, PMI entered into an agreement, effective February 10, 2021, to amend and extend the term of $78 million ($62 million net of tax) on equity securities was recordedits $2.0 billion multi-year revolving credit facility, for an additional year covering the period February 11, 2025 to February 10, 2026, in the condensed consolidated statementamount of earnings for the three months ended$1.86 billion.

At March 31, 2020.2021, there were 0 borrowings under these committed credit facilities, and the entire committed amounts were available for borrowing.



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Note 12.11. Accumulated Other Comprehensive Losses:
PMI’s accumulated other comprehensive losses, net of taxes, consisted of the following:
(Losses) EarningsAtAtAt
(in millions)March 31, 2021December 31, 2020March 31, 2020
Currency translation adjustments$(6,586)$(6,843)$(7,039)
Pension and other benefits(4,172)(4,253)(3,755)
Derivatives accounted for as hedges12 (85)20 
Total accumulated other comprehensive losses$(10,746)$(11,181)$(10,774)
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(in millions) At March 31, 2020 At December 31, 2019 At March 31, 2019
Currency translation adjustments $(7,039) $(5,537) $(5,711)
Pension and other benefits (3,755) (3,829) (3,556)
Derivatives accounted for as hedges 20
 3
 30
Total accumulated other comprehensive losses $(10,774) $(9,363) $(9,237)
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Reclassifications from Other Comprehensive Earnings

The movements in accumulated other comprehensive losses and the related tax impact, for each of the components above, that are due to current period activity and reclassifications to the income statement, including those related to the deconsolidation of RBH, are shown on the condensed consolidated statements of comprehensive earnings for the three months ended March 31,2020 2021 and 2019.2020. For additional information, see Note 3. Benefit Plans for disclosures related to PMI's pension and other benefits and Note 5. Financial Instruments for disclosures related to derivative financial instruments and Note 19. Deconsolidation of RBH for disclosures related to the deconsolidation of RBH.instruments.

Note 13. Balance Sheet Offsetting:

Derivative Financial Instruments

PMI uses foreign exchange contracts and interest rate contracts to mitigate its exposure to changes in exchange and interest rates from third-party and intercompany actual and forecasted transactions. Substantially all of PMI's derivative financial instruments are subject to master netting arrangements, whereby the right to offset occurs in the event of default by a participating party. While these contracts contain the enforceable right to offset through close-out netting rights, PMI elects to present them on a gross basis in the condensed consolidated balance sheets. Collateral associated with these arrangements is in the form of cash and is unrestricted. See Note 5. Financial Instruments for disclosures related to PMI's derivative financial instruments.


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The effects of these derivative financial instrument assets and liabilities on PMI's condensed consolidated balance sheets were as follows:
 (in millions)Gross Amounts RecognizedGross Amount Offset in the Condensed Consolidated Balance SheetNet Amounts Presented in the Condensed Consolidated Balance Sheet
Gross Amounts Not Offset in the
Condensed Consolidated
Balance Sheet
 
 Financial InstrumentsCash Collateral Received/PledgedNet Amount
 
        
 At March 31, 2020      
 Assets      
 Derivative contracts$492
$—
$492
$(212)$(253)$27
 Liabilities      
 Derivative contracts$249
$—
$249
$(212)$(1)$36
 At December 31, 2019      
 Assets      
 Derivative contracts$390
$—
$390
$(297)$(91)$2
 Liabilities      
 Derivative contracts$419
$—
$419
$(297)$(59)$63



Note 14.12. Related Parties - Investments in Unconsolidated Subsidiaries, Equity SecuritiesInvestments and Other:

Investments in unconsolidated subsidiaries:

Equity Method Investments:

At March 31, 20202021 and December 31, 2019,2020, PMI had total equity method investments in unconsolidated subsidiaries of $923$964 million and $1,053$966 million, respectively, which were accounted for under the equity method of accounting.respectively. Equity method investments are initially recorded at cost. Under the equity method of accounting, the investment is adjusted for PMI's proportionate share of earnings or losses, dividends, capital contributions, changes in ownership interests and movements in currency translation adjustments. The carrying value of our equity method investments at March 31, 20202021 and December 31, 20192020 exceeded our share of the unconsolidated subsidiaries'investees' book value by $782$758 million and $901$773 million, respectively. The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $751$726 million and $863$745 million attributable to goodwill as of March 31, 20202021 and December 31, 2019,2020, respectively, is being amortized on a straight-line basis over the underlying assets' estimated useful lives of 10 to 20 years. At March 31, 2020 and2021, PMI received 0 year-to-date dividends from equity method investees. At December 31, 2019,2020, PMI received year-to-date dividends from unconsolidated subsidiariesequity method investees of $23 million and $100 million, respectively.$79 million.

PMI holds a 23% equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (Eastern Europe segment).

PMI holds a 49% equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”). PMI holds an approximate 25% economic interest in Société des Tabacs Algéro-Emiratie (“STAEM”), an Algerian joint venture that is 51% owned by EITA and 49% by the Algerian state-owned enterprise Management et Développement des Actifs et des Ressources Holding ("MADAR Holding"), which is part of the Middle East & Africa segment, manufactures and distributes under license some of PMI’s brands.

The initial investments in Megapolis Distribution BV and EITA were recorded at cost and are included in investments in unconsolidated subsidiaries and equity securitiesinvestments on the condensed consolidated balance sheets.

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Equity securities:

Following the deconsolidation of RBH on March 22, 2019, PMI recorded the continuing investment in RBH, PMI's wholly owned subsidiary in Canada, at fair value of $3,280 million at the date of deconsolidation, within investments in unconsolidated subsidiaries and equity securities.investments. For further details, see Item 8, Note 19.20. Deconsolidation of RBH., in PMI's Annual Report on Form 10-K for the year ended December 31, 2020. Transactions between PMI and RBH are considered to be related party transactions from the date of deconsolidation and are included in the tables below.

The fair value of PMI’s other equity securities, which have been classified within Level 1, was $237 million at March 31, 2021. Unrealized pre-tax gain (loss) was immaterial for the three months ended March 31, 2021.

Other related parties:

United Arab Emirates-based Trans-Emirates Trading and Investments (FZC) ("TTI") holds a 33% non-controlling interest in Philip Morris Misr LLC ("PMM"), an entity incorporated in Egypt which is consolidated in PMI’s financial statements in the Middle East & Africa segment. PMM sells, under license, PMI brands in Egypt through an exclusive distribution agreement with a local entity that is also controlled by TTI.

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Godfrey Phillips India Ltd ("GPI") is one of the non-controlling interest holders in IPM India, which is a 56.3% owned PMI consolidated subsidiary in the South & Southeast Asia segment. GPI also acts as contract manufacturer and distributor for IPM India. Amounts in the tables below include transactions between these related parties.

Financial activity with the above related parties:

PMI’s net revenues and expenses with the above related parties were as follows:
For the Three Months Ended March 31,For the Three Months Ended March 31,
(in millions)20202019(in millions)20212020
 
Net revenues:
Net revenues:
Megapolis Group$496
$359
Megapolis Group$483 $496 
Other281
213
Other280 281 
Net revenues (a)
$777
$572
Net revenues (a)
$763 $777 
 
Expenses: Expenses:
Other$19
$13
Other$17 $19 
Expenses$19
$13
Expenses$17 $19 
(a) Net revenues exclude excise taxes and VAT billed to customers.

PMI’s balance sheet activity with the above related parties was as follows:
(in millions) At March 31, 2020At December 31, 2019
    
Receivables: 


Megapolis Group $271
$375
Other 242
148
Receivables $513
$523
    
Payables:   
Other $10
$20
Payables $10
$20

(in millions)At March 31, 2021At December 31, 2020
Receivables:
Megapolis Group$429 $209 
Other213 156 
Receivables$642 $365 
Payables:
Other$14 $13 
Payables$14 $13 

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The activities with the above related parties are in the ordinary course of business, and are primarily for distribution, service fees, contract manufacturing and license agreements. PMI eliminated its respective share of all significant intercompany transactions with the equity method investees.

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Note 15.13. Sale of Accounts Receivable:
To mitigate risk and enhance cash and liquidity management PMI sells trade receivables to unaffiliated financial institutions. These arrangements allow PMI to sell, on an ongoing basis, certain trade receivables without recourse. The trade receivables sold are generally short-term in nature and are removed from the condensed consolidated balance sheets. PMI sells trade receivables under two types of arrangements, servicing and non-servicing. For servicing arrangements, PMI continues to service the sold trade receivables on an administrative basis and does not act on behalf of the unaffiliated financial institutions. When applicable, a servicing liability is recorded for the estimated fair value of the servicing. The amounts associated with the servicing liability were not0t material as of March 31, 20202021 and March 31, 2019.2020. Under the non-servicing arrangements, PMI does not provide any administrative support or servicing after the trade receivables have been sold to the unaffiliated financial institutions.

Cumulative trade receivables sold, including excise taxes, for the three months ended March 31, 2021 and 2020, and 2019, were $2.9$2.5 billion and $2.4$2.9 billion, respectively. PMI’s operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the condensed consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions. The trade receivables sold that remained outstanding under these arrangements as of March 31, 20202021 and March 31, 2019,2020, were $1.0$0.6 billion, and $0.5$1.0 billion, respectively. The net proceeds received are included in cash provided by operating activities in the condensed consolidated statements of cash flows. The difference between the carrying amount of the trade receivables sold and the sum of the cash received is recorded as a loss on sale of trade receivables within marketing, administration and research costs in the condensed consolidated statements of earnings. For the three months ended March 31, 20202021 and 2019,2020, the loss on sale of trade receivables was immaterial.

Note 16.14. Product Warranty:

PMI's IQOSheat-not-burn devices and e-vapor products are subject to standard product warranties generally for a period of 12 months from the date of purchase or such other periods as required by law. PMI generally provides in cost of sales for the estimated cost of warranty in the period the related revenue is recognized. PMI assesses the adequacy of its accrued product warranties and adjusts the amounts as necessary based on actual experience and changes in future estimates. Factors that affect product warranties may vary across markets but typically include device version mix, product failure rates, logistics and service delivery costs, and warranty policies. PMI accounts for its product warranties within other accrued liabilities. At March 31, 20202021 and December 31, 2019,2020, these amounts were as follows:
(in millions)At March 31, 2021At December 31, 2020
Balance at beginning of period$137 $140 
Changes due to:
   Warranties issued46 242 
    Settlements(49)(254)
    Currency/Other(1)9 
Balance at end of period$133 $137 
(in millions)At March 31, 2020At December 31, 2019
Balance at beginning of period$140
$67
Changes due to:  
   Warranties issued84
303
    Settlements(66)(230)
    Currency—
—
Balance at end of period$158
$140


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Note 17.15. Leases:

The components of PMI’s lease cost were as follows for the three months ended March 31, 20202021 and 2019:2020:
 For the Three Months Ended March 31,
(in millions)2020 2019
Operating lease cost

$60
 $60
Short-term lease cost13
 12
Variable lease cost8
 8
Total lease cost

$81
 $80

For the Three Months Ended March 31,
(in millions)20212020
Operating lease cost$60 $60 
Short-term lease cost10 13 
Variable lease cost7 8 
Total lease cost$77 $81 
For the three months ended March 31, 2020, lease cost of $19 million were recorded in cost of sales and $62 million were recorded in marketing, administration and research cost. For the three months ended March 31, 2019, lease costs of $19 million were recorded in cost of sales and $61 million were recorded in marketing, administration and research cost.

Note 18.16. Asset Impairment and Exit Costs:

For the three months ended March 31, 2020, PMI did not record any pre-tax charges for asset impairment and exit costs.

Global Manufacturing Infrastructure Optimization

In light of declining PMI cigarette volumes resulting from lower total industry volumes and the shift to smoke-free alternatives, PMI continues to optimize its global manufacturing infrastructure. During 2019,2021, PMI recorded asset impairment and exit costs related to plant closures in Argentina, Colombia, Germany and Pakistan as part of its global manufacturing infrastructure optimization.

For the three months ended March 31, 2019, PMI recordedtotal pre-tax asset impairment and exit costs of $20$48 million, related to a plant closure in Pakistan. This total pre-tax charge in the first quarter of 2019which was included in marketing, administration and research costs on the condensed consolidated statements of earningsearnings. For the three months ended March 31, 2020, PMI did 0t record any charges related to asset impairment and was includedexit costs.

South Korea

In the first quarter of 2021, PM Korea commenced the implementation of a new business operating model, which will require the restructuring of its current distribution agreements. As a result, for the three months ended March 31, 2021, PMI recorded exit costs of $26 million related to contract terminations with certain distributors during the first quarter; exit costs will continue to be recorded as the agreements are executed. The implementation of the new business operating model is expected to be completed in the operating incomethird quarter of 2021.

Organizational Design Optimization

As part of PMI’s transformation to a smoke-free future, PMI seeks to optimize its organizational design, which includes the elimination, relocation and outsourcing of certain operations center and centralized activities. In January 2020, PMI commenced a multi-phase restructuring project in Switzerland. PMI initiated the employee consultation procedures, as required under Swiss law, for the impacted employees. In 2020, the consultation procedures for two phases were completed. The final phases commenced during the first quarter of 2021 and are expected to impact approximately 220 positions. Until the consultation process for the final phases is concluded, these phases are not considered probable under U.S. GAAP, and the total potential costs cannot be determined. PMI expects the consultation process for these phases to be completed in the second quarter of 2021. Additionally, since the commencement of this multi-phase restructuring project in 2020, PMI launched a voluntary separation program in Switzerland for certain eligible employees and announced the outsourcing of certain activities in Argentina, Indonesia, Poland and the United States.

For the three months ended March 31, 2021, PMI recorded pre-tax charges of $22 million representing additional agreements under the voluntary separation program in Switzerland and outsourcing of activities in other locations. Since inception of this multi-phase restructuring project in 2020 through March 31, 2021, approximately 750 positions in total were impacted, excluding the final phases of the South & Southeast Asia segment.project in Switzerland, resulting in cumulative pre-tax charges of $171 million related to the organizational design optimization program. Of this cumulative pre-tax amount, $163 million related to separation program charges and $8 million related to asset impairment charges.

The amounts related to the potential pension settlement accounting impact of the restructuring, which could be significant, have not been reflected in 2021 as the full-year thresholds for accounting were not expected to be exceeded as of March 31, 2021.

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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Asset Impairment and Exit Costs by Segment

PMI recorded the following pre-tax asset impairment and exit costs by segment:

(in millions)For the Three Months Ended March 31,
2021
Separation programs: (1)
European Union$9 
Eastern Europe2 
Middle East & Africa2 
South & Southeast Asia3 
East Asia & Australia5 
Latin America & Canada1 
Total separation programs22 
Contract termination charges:
East Asia & Australia26 
Total contract termination charges26 
Asset impairment and exit costs$48 
(1) Organizational design optimization pre-tax charges in 2021 were allocated across all operating segments.


Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the three months ended March 31, 20202021 was as follows:
(in millions)
Liability balance, January 1, 2021$180 
Charges, net48 
Cash spent(84)
Currency/other(10)
Liability balance, March 31, 2021$134 
(in millions) 
Liability balance, January 1, 2020$191
Charges, net—
Cash spent(48)
Currency/other(3)
Liability balance, March 31, 2020$140


Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2021,2022, with approximately $66$104 million expected to be paid in the remainder of 2020.


2021.
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)


Note 19. Deconsolidation of RBH:

As discussed in Note 8. Contingencies, following the March 1, 2019 judgment of the Court of Appeal of Québec in 2 class action lawsuits against PMI's Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH"), PMI recorded in its consolidated results a pre-tax charge of $194 million, representing $142 million net of tax, in the first quarter of 2019. This pre-tax Canadian tobacco litigation-related expense was included in marketing, administration and research costs on PMI's condensed consolidated statement of earnings for the three months ended March 31, 2019. The charge reflects PMI’s assessment of the portion of the judgment that represents probable and estimable loss prior to the deconsolidation of RBH and corresponds to the trust account deposit required by the judgment. RBH’s share of the deposit is approximately CAD 257 million.

On March 22, 2019, RBH obtained an initial order from the Ontario Superior Court of Justice granting it protection under the Companies’ Creditors Arrangement Act ("CCAA"), which is a Canadian federal law that permits a Canadian business to restructure its affairs while carrying on its business in the ordinary course with minimal disruption to its customers, suppliers and employees.

The administration of the CCAA process, principally relating to the powers provided to the court and the court appointed monitor, removes certain elements of control of the business from both PMI and RBH. As a result, PMI has determined that it no longer has a controlling financial interest over RBH as defined in ASC 810 (Consolidation), and PMI deconsolidated RBH as of the date of the CCAA filing. PMI has also determined that it does not exert "significant influence" over RBH as that term is defined in ASC 323 (Investments-Equity Method and Joint Ventures). Therefore, as of March 22, 2019, PMI accounted for its continuing investment in RBH in accordance with ASC 321 (Investments-Equity Securities) as an equity security, without readily determinable fair value.

Following the deconsolidation, the carrying value of assets and liabilities of RBH was removed from the consolidated balance sheet of PMI, and the continuing investment in RBH was recorded at fair value at the date of deconsolidation. The total amount deconsolidated from PMI’s balance sheet was $3,519 million, including $1,323 million of cash, $1,463 million of goodwill, $529 million of accumulated other comprehensive earnings, primarily related to historical currency translation and $204 million of other assets and liabilities, net. While PMI is accounting for its investment in RBH as an equity security, PMI would recognize dividends as income upon receipt. However, while it remains under creditor protection, RBH does not anticipate paying dividends.

The fair value of PMI’s continuing investment in RBH of $3,280 million was determined at the date of deconsolidation, recorded within Investments in unconsolidated subsidiaries and equity securities and is assessed for impairment on an ongoing basis. The estimated fair value of the underlying business was determined based on an income approach using a discounted cash flow analysis, as well as a market approach for certain contingent liabilities. The information used in the estimate includes observable inputs, primarily a discount rate of 8%, a terminal growth rate of 2.5% and information about total tobacco market size in Canada and RBH’s share of the market, as well as unobservable inputs such as operating budgets and strategic plans, various inflation scenarios, estimated shipment volumes, and expected product pricing and projected margins.

The difference between the carrying value of the assets and liabilities of RBH that were deconsolidated, and the fair value of the continuing investment, as determined at the date of deconsolidation, was $239 million, before tax, and this loss on deconsolidation is reflected within marketing, administration and research costs on PMI’s condensed consolidated statement of earnings for the three months ended March 31, 2019. PMI also recorded a tax benefit of $49 million within the provision for income taxes for the three months ended March 31, 2019, related to the reversal of a deferred tax liability on unremitted earnings of RBH.

RBH is party to transactions with PMI and its consolidated subsidiaries entered into in the normal course of business; these transactions include royalty payments and recharge of various corporate expenses for services benefiting RBH. Up to the date of the CCAA filing, these transactions were eliminated on consolidation and had no impact on PMI’s consolidated statement of earnings. After deconsolidating RBH, these transactions are treated as third-party transactions in PMI’s financial statements. The amount of these related party transactions is included within Note 14. Related Parties - Investments in Unconsolidated Subsidiaries, Equity Securities and Other.

Developments in the CCAA process, including resolution through a plan of arrangement or compromise of all pending tobacco-related litigation currently stayed in Canada, as discussed in Note 8. Contingencies, could result in a material change in the fair value of PMI’s continuing investment in RBH.


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Item 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Description of Our Company

We are leading a transformation in the tobacco industry to create a smoke-free future and ultimately replace cigarettes with smoke-free products to the benefit of adults who would otherwise continue to smoke, society, the company and its shareholders. We are a leading international tobacco company engaged in the manufacture and sale of cigarettes, as well as smoke-free products, and associated electronic devices and accessories, and other nicotine-containing products in markets outside the United States.In addition, we ship a versionversions of our Platform 1device and its consumables authorized byto Altria Group, Inc. for sale under license in the United States, where these products have received marketing authorizations from the U.S. Food and Drug Administration ("FDA") under the premarket tobacco product application ("PMTA") pathway; the FDA has also authorized the marketing of a version of our Platform 1 device and its consumables as a Modified Risk Tobacco Product ("MRTP"), finding that an exposure modification order for these products is appropriate to Altria Group, Inc. for sale inpromote the United States under license. public health. We areare building a future on a new category of smoke-free products that, while not risk-free, are a much better choice than continuing to smoke. We describe the PMTA and MRTP orders in more detail in the "Business Environment" section of this Item 2. Through multidisciplinary capabilities in product development, state-of-the-art facilities and scientific substantiation, we aim to ensure that our smoke-free products meet adult consumer preferences and rigorous regulatory requirements. Our IQOSsmoke-free product brand portfolio includes heat-not-burn tobacco and nicotine-containing vapor products.

We manage our business in six operating segments:

•European Union ("EU");
•Eastern Europe ("EE");
•Middle East & Africa ("ME&A"), which includes our international duty free business;
•South & Southeast Asia ("S&SA");
•East Asia & Australia ("EA&A"); and
•Latin America & Canada ("LA&C"), which includes transactions under license with Altria Group, Inc. for the distribution of our Platform 1 product in the United States.

Our cigarettes are sold in more than 180175 markets, and in many of these markets they hold the number one or number two market share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio comprises both international and local brands. In addition to the manufacture and sale of cigarettes, we are engaged in the development and commercialization of reduced-risk products ("RRPs"). RRPs is the term we use to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking. 

We use the term net revenues to refer to our operating revenues from the sale of our products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. Our net revenues and operating income are affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange rates and the mix of products we sell. Mix is a term used to refer to the proportionate value of premium-price brands to mid-price or low-price brands in any given market (product mix). Mix can also refer to the proportion of shipment volume in more profitable markets versus shipment volume in less profitable markets (geographic mix).

Our cost of sales consists principally of: tobacco leaf, non-tobacco raw materials, labor and manufacturing costs; shipping and handling costs; and the cost of the IQOSdevices produced by third-party electronics manufacturing service providers. Estimated costs associated with IQOSdevice warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.

Our marketing, administration and research costs include the costs of marketing and selling our products, other costs generally not related to the manufacture of our products (including general corporate expenses), and costs incurred to develop new products. The most significant components of our marketing, administration and research costs are marketing and sales expenses and general and administrative expenses.
Philip Morris International Inc. is a legal entity separate and distinct from its direct and indirect subsidiaries. Accordingly, our right, and thus the right of our creditors and stockholders, to participate in any distribution of the assets or earnings of any
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subsidiary is subject to the prior rights of creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be recognized. As a holding company, our principal sources of funds, including funds to make payment on our debt securities, are from the receipt of dividends and repayment of debt from our subsidiaries. Our principal wholly owned and majority-owned

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subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions with respect to their common stock that are otherwise compliant with law.

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

Consolidated Operating Results for the Three Months Ended March 31, 20202021

The results below include•Net Revenues - Net revenues of $7.6 billion for the impact of favorable estimated distributor and trade inventory movements related to COVID-19, as further discussed in "Operating Results - Three Months Endedthree months ended March 31, 2021 increased by $0.4 billion, or 6.0%, from the comparable 2020." We expect such favorable impact amount. The change in our net revenues from the comparable 2020 amount was driven by the following (variances not to reverse in the second quarter of 2020.scale with quarterly results):

•
Net Revenues - Net revenues of $7.2 billion for the three months ended March 31,2020 increased by $402 million, or 6.0%, from the comparable 2019 amount. The change in our net revenues from the comparable 2019 amount was driven by the following (variances not to scale with quarterly results):
chart-5d412136002553feb20.jpgpm-20210331_g1.jpg
During the quarter, net revenues, excluding unfavorablefavorable currency, increased by 7.1%2.9%, mainly reflecting: a favorable pricing variance notably(notably driven by Australia, the GCC, Germany, Mexico,Japan, the Philippines and Turkey, partly offset by Italy;Indonesia); and a favorablehigher fees for certain distribution rights billed to customers in certain markets, shown in "Other;" partly offset by unfavorable volume/mix, primarily drivendue to lower cigarette volume (mainly in Indonesia, Japan, North Africa, the Philippines, PMI Duty Free and Spain), partially offset by higher heated tobacco unit volume (notably in the EU, Japan and Eastern Europe,Russia, partly offset by PMI Duty Free), partially offset by lower IQOS device volume (notably in Japan) and lower cigarette volume (mainly due to Mexico, the Philippines, Saudi Arabia and Turkey, largely offset by Germany, Italy, Japan, North Africa and Russia). The currency-neutral growth in net revenues of 7.1% came despite the unfavorable "Other" impact of $228 million, shown above, mainly resulting from the deconsolidation of our Canadian subsidiary, Rothmans, Benson & Hedges ("RBH"), effective March 22, 2019. For further details on the deconsolidation of RBH, see Note 8. Contingencies and Note 19. Deconsolidation of RBH.

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Net revenues by product category for the three months ended March 31, 20202021 and 2019,2020, are shown below:
chart-e14ccb2c2fe45b30b1c.jpgpm-20210331_g2.jpg        chart-cf490a37695f5fcf81c.jpg


•
Diluted Earnings Per Share - The changes in our reported diluted earnings per share ("diluted EPS") for the three months ended March 31,2020, from the comparable 2019 amounts, were as follows:
 Diluted EPS% Growth (Decline) 
For the three months ended March 31, 2019$0.87
 
2019 Asset impairment and exit costs0.01
 
2019 Canadian tobacco litigation-related expense0.09
 
2019 Loss on deconsolidation of RBH0.12
 
2019 Tax items—
 
       Subtotal of 2019 items0.22
 
2020 Asset impairment and exit costs—
 
2020 Fair value adjustment for equity security investments(0.04) 
2020 Tax items—
 
       Subtotal of 2020 items(0.04) 
Currency(0.13) 
Interest0.01
 
Change in tax rate(0.01) 
Operations0.25
 
For the three months ended March 31, 2020$1.17
34.5%

Asset impairment and exit costs – We recorded pre-tax asset impairment and exit costs of $20 million (or $0.01 per share impact on diluted EPS) during the three months ended March 31, 2019, related to a plant closure in Pakistan as a part of the optimization of our global manufacturing footprint. The total pre-tax charge was included in marketing, administration and research costs on the condensed consolidated statements of earnings. For further details, see Note 18. Asset Impairment and Exit Costs.

Canadian tobacco litigation-related expense– In the first quarter of 2019, we recorded a pre-tax charge of $194 million, representing $142 million net of tax, relating to the judgment against our Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH"), in two Québec smoking and health class actions. The charge of $0.09 per share reflects our assessment of the portion of the judgment that represents probable and estimable loss prior to the deconsolidation of RBH and corresponds to the trust account deposit required by the judgment. The total pre-tax charge was included in marketing, administration and research costs on the condensed

pm-20210331_g3.jpg
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consolidated statements of earnings and was included
•Diluted Earnings Per Share - The changes in the operating income of the Latin America & Canada segment. For further details, see Note 8. Contingencies and Note 19. Deconsolidation of RBH.

Loss on deconsolidation of RBH– Following the judgment in the two Québec smoking and health class actions, RBH obtained an initial order from the Ontario Superior Court of Justice granting it protection under the Companies’ Creditors Arrangement Actour reported diluted EPS (“CCAA”diluted EPS”), which is a Canadian federal law that permits a Canadian business to restructure its affairs while carrying on its business in the ordinary course with minimal disruption to its customers, suppliers and employees. The administration of the CCAA process, principally relating to the powers provided to the court and the court appointed monitor, removes certain elements of control of the business from both PMI and RBH. As a result, we have determined that we no longer have a controlling financial interest over RBH and that we do not exert "significant influence" over RBH under U.S. GAAP. Therefore, we deconsolidated RBH as of the date of the CCAA filing on March 22, 2019, and will account for our continuing investment in RBH as an equity security, without readily determinable fair value.

A loss on the deconsolidation of RBH of $239 million was included in marketing, administration and research costs on the condensed consolidated statements of earnings for the three months ended March 31, 2019 and was included in2021, from the operating income of the Latin America & Canada segment. The $0.12 per share impact also included a tax benefit of $49 million within the provision for income taxes,comparable 2020 amounts, were as discussed above, related to the reversal of a deferred tax liability on the unremitted earnings of RBH. For further details, see Note 8. Contingencies and Note 19. Deconsolidation of RBH.follows:
Diluted EPS% Growth
For the three months ended March 31, 2020$1.17 
2020 Asset impairment and exit costs— 
2020 Fair value adjustment for equity security investments0.04 
2020 Tax items— 
       Subtotal of 2020 items0.04 
2021 Asset impairment and exit costs(0.02)
2021 Tax items— 
       Subtotal of 2021 items(0.02)
Currency0.10 
Interest(0.02)
Change in tax rate0.04 
Operations0.24 
For the three months ended March 31, 2021$1.55 32.5 %

Fair Value adjustment for equity security investments – In the first quarter of 2020, we recorded an unfavorable fair value adjustment for our equity security investments of $(62)$62 million after tax (or $0.04 per share decrease in diluted EPS). The fair value adjustment for our equity security investments was included in equity investments and securities (income)/loss, net ($78 million loss) and provision for income taxes ($16 million benefit) on the condensed consolidated statements of earnings for the three months ended March 31, 2020.

Asset impairment and exit costs – In the first quarter of 2021, we recorded pre-tax asset impairment and exit costs of $48 million, representing $38 million net of income tax and a diluted EPS charge of $0.02 per share, related to product distribution restructuring in South Korea and the organizational design optimization plan, primarily in Switzerland. The total pre-tax charge was included in marketing, administration and research costs on the condensed consolidated statements of earnings. For further details, see Note 11.16. Fair Value Measurements.Asset Impairment and Exit Costs.

Currency – The unfavorablefavorable impact of $0.13$0.10 per share in the first quarter includes $0.07 per share of transactional impact incurred in March 2020, primarily from the revaluation of Euro or Dollar denominated payables in certain markets, such as Russia, where the local currency hashad seen a significant devaluation. The unfavorablefavorable currency impact also includes the fluctuations of the U.S. dollar to other currencies, especially against the Argentine peso, Brazilian real, and Euro. This unfavorablefavorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Interest – The unfavorable impact of interest was due primarily to lower interest income related to derivative financial instruments.

Income Taxes – The change in the tax rate that decreasedincreased our diluted EPS by $0.01$0.04 per share in the table above was primarily due to corporate income tax rate reductions in Indonesia and the Philippines, as well as changes in earnings mix by taxing jurisdiction. For further details, see Note 9. Income Taxes.

Operations – The increase in diluted EPS of $0.25$0.24 from our operations in the table above was due primarily to the following segments:

•
•East Asia & Australia: Favorable pricing, favorable volume/mix, and lower manufacturing costs;
•European Union: Favorable volume/mix, lower manufacturing costs and favorable pricing, partially offset byhigher marketing, administration and research costs, and higher manufacturing costs;
South & Southeast Asia: Favorable pricing, partially offset by unfavorable volume/mix and higher marketing, administration and research costs;
•
East Asia & Australia: Lower
•Eastern Europe: Favorable volume/mix, lower manufacturing costs, favorable pricing and lower marketing, administration
42

and research costs;
•Middle East & Africa: Favorable pricing, lower marketing, administration and research costs, higher fees for certain distribution rights, and lower manufacturing costs,lower marketing, administration and research costs and favorable pricing, partially offset by unfavorable volume/mix; and
•Latin America & Canada: Lower marketing, administration and research costs, partially offset by unfavorable volume/mix;
•
Eastern Europe: Favorable volume/mix and favorable pricing, partially offset by higher manufacturing costs and higher marketing, administration and research costs;
partially offset by
•
Latin America & Canada:
•South & Southeast Asia: Unfavorable impact resulting from the deconsolidation of RBH, as well as unfavorable volume/mix partially offset by favorable pricing and unfavorable pricing, partially offset by lower marketing, administration and research costs.

lower marketing, administration and research costs; and
•
Middle East & Africa: Unfavorable volume/mix, higher manufacturing costs and lower fees for certain distribution rights billed to customers in certain markets, partially offset by favorable pricing and lower marketing, administration and research costs.

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


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COVID-19 Impact on Our Business

COVID-19: Business Continuity Update

Since the onset of the COVID-19 pandemic, PMI has undertaken a number of business continuity measures to mitigate potential disruption to its operations and route-to-market in order to preserve the availability of products to its customers and adult consumers.

Currently, Currently:

•PMI has sufficient access to the inputs for its products and is not facing any significant business continuity issues.issues with respect to key suppliers;

The large majority•All of PMI's cigarette and heated tobacco unit manufacturing facilities globally are currently operational, including all heated tobacco unit factories. Certain cigarette production facilities are temporarily impacted by government-mandated shutdowns or production limitations. Such facilities account for approximately 20%operational;
•COVID-related restrictions do not have a significant impact on the availability of PMI's total cigarette production capacity worldwide.

Based on current sales trends, there are adequate inventories of PMI finished goods, on average across all markets, of over two months for heated tobacco units, over three months for tobacco heating devices, and over one and a half months for cigarettes. While government-related restrictions have led to complexities in the company's route-to-market in select geographies, PMI does not currently anticipate out-of-stock situations in any major operating income markets and generally expects consumers to have adequate accessproducts to its products. However, in Argentina, in light of a factory lockdown, we are currently experiencing an out-of-stock situation. In certain emerging markets, potential difficulties for some smaller general trade outlets could lead to temporary localized out-of-stock situations given less developed route-to-market infrastructures.

customers and adult consumers; and
Currently, •PMI has sufficient liquidity resources through cash on hand, the ongoing cash generation of its business, and continuedits access to commercial paper. As of March 31, 2020, PMI had approximately $3.7 billion of cash and cash equivalents. We had $1.1 billion ofthe commercial paper with an average term of approximately 30 days, and $7.5 billion in stand-by revolving credit facilities. PMI repaid approximately $3.6 billion in bond maturities during the first quarter and paid approximately $3.6 billion in dividends to shareholders year-to-date April (reflecting dividends declared in the fourth quarter of 2019 and the first quarter of 2020). The company has a well laddered bond portfolio and $0.3 billion of bonds maturing through the end of 2020. For further details on our liquidity position, see the "Financial Review" section of this MD&A.debt markets.

COVID-19: Primary Business Impacts

WhileNonetheless, significant uncertainty remains as the trajectory and durationspread of the COVID-19 pandemic -- and related government restrictions -- remain uncertain, PMI anticipates the primary areasdisease is increasing in a number of impact from temporary changes to its operating environment to be as follows:

Reduced Duty-Free Sales: Government travelmarkets, resulting in additional restrictions and related reductions in passenger travel are having a significant impact on the company's duty-free business, which contributed approximately 4%increasing risk of total net revenues in 2019 and has relatively high unit margins reflecting its skew to premium brands. As a result of this premium skew, only a portion of the COVID-linked duty-free volume decline is expected to be recovered by the company's own brand portfolio in local markets, and generally at lower margins.
•
Delayed IQOS User Acquisition: Lock-down measures and other restrictions limit PMI's ability to engage with adult smokers through the company's field sales forces, as well as company-owned and third-party retail touch-points, and are only partly mitigated by PMI's increasing use of digital tools that enable virtual guided trials and other e-commerce activities. Based on trends since lock-down measures were introduced, PMI expects the rate of new user acquisition to be, on average, around 50% lower than it previously anticipated for as long as government restrictions are in place, with variations depending on the level of restrictions by market. We do not expect customer retention or conversion rates to be significantly affected.
Indonesia - Minimum Retail Price Delay: The Indonesian government has announced that the enforcement of the new minimum price, originally scheduled for April 1, 2020, is delayed until June, due to COVID-19 restrictions. PMI expects the delay to prolong unfavorable retail price gaps between the low end of the market and PMI's cigarette brands, with a corresponding negative impact on PMI's cigarette market share and timing of pricing.disruptions.

PMI also anticipates uncertainty as to the general economic impact of the global pandemic and ultimate shape of the recovery, particularly with respect to the effects of increased unemployment and decreased disposable income on consumption and down-trading.

Recent devaluations of currencies against the U.S. dollar, in particular in developing markets, are also expected to impact PMI's financial results.


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Discussion and Analysis
Consolidated Operating Results
See pages 75-8174-81 for a discussion of our "Cautionary Factors That May Affect Future Results." Our net revenues and operating income by segment are shown in the table below:
(in millions)For the Three Months Ended March 31,(in millions)For the Three Months Ended March 31,
20202019Change20212020Change
Net revenues:  Net revenues:
European Union$2,535
$2,159
17.4 %European Union$2,909 $2,535 14.8 %
Eastern Europe788
579
36.1 %Eastern Europe796 788 1.0 %
Middle East & Africa876
927
(5.5)%Middle East & Africa801 876 (8.6)%
South & Southeast Asia1,251
1,113
12.4 %South & Southeast Asia1,173 1,251 (6.2)%
East Asia & Australia1,255
1,321
(5.0)%East Asia & Australia1,472 1,255 17.3 %
Latin America & Canada (1)
448
652
(31.3)%
Latin America & CanadaLatin America & Canada434 448 (3.1)%
Net revenues$7,153
$6,751
6.0 %Net revenues$7,585 $7,153 6.0 %
Operating income (loss):  
Operating income:Operating income:
European Union$1,158
$896
29.2 %European Union$1,490 $1,158 28.7 %
Eastern Europe99
129
(23.3)%Eastern Europe261 99 +100%
Middle East & Africa321
344
(6.7)%Middle East & Africa335 321 4.4 %
South & Southeast Asia599
440
36.1 %South & Southeast Asia529 599 (11.7)%
East Asia & Australia486
427
13.8 %East Asia & Australia695 486 43.0 %
Latin America & Canada (1)
126
(186)+100%
Latin America & CanadaLatin America & Canada134 126 6.3 %
Operating income$2,789
$2,050
36.0 %Operating income$3,444 $2,789 23.5 %
(1)
As of March 22, 2019, PMI deconsolidated the financial results of its Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH") from PMI's financial statements. For further details, see Note 19. Deconsolidation of RBH.

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

•
Canadian tobacco litigation-related expense - See Note 8. Contingencies and Note 19. Deconsolidation of RBH for details of the $194 million pre-tax charge included in the Latin America & Canada segment for the three months ended March 31, 2019.
•
Loss on deconsolidation of RBH - See Note 19. Deconsolidation of RBH for details of the $239 million loss included in the Latin America & Canada segment for the three months ended March 31, 2019.
•
Asset impairment and exit costs - See Note 18. Asset Impairment and Exit Costs for details of the $20 million pre-tax charge included in the South & Southeast Asia segment for the three months ended March 31, 2019.

•Asset impairment and exit costs - See Note 16. Asset Impairment and Exit Costs for details of the $48 million pre-tax charge and a breakdown of these costs by segment for the three months ended March 31, 2021.

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Our net revenues by product category are shown in the table below:
PMI Net Revenues by Product Category

PMI Net Revenues by Product Category

PMI Net Revenues by Product Category
(in millions)For the Three Months Ended March 31,(in millions)For the Three Months Ended March 31,
20202019Change20212020Change
Combustible Products  Combustible Products
European Union$1,911
$1,812
5.4 %European Union$1,950 $1,911 2.1 %
Eastern Europe523
471
11.1 %Eastern Europe492 523 (6.0)%
Middle East & Africa832
829
0.5 %Middle East & Africa780 832 (6.3)%
South & Southeast Asia1,251
1,113
12.4 %South & Southeast Asia1,171 1,251 (6.4)%
East Asia & Australia642
638
0.6 %East Asia & Australia648 642 1.0 %
Latin America & Canada440
646
(31.9)%Latin America & Canada422 440 (4.1)%
Total Combustible Products$5,598
$5,508
1.6 %Total Combustible Products$5,463 $5,598 (2.4)%
Reduced-Risk Products  Reduced-Risk Products
European Union$624
$347
79.9 %European Union$959 $624 53.5 %
Eastern Europe265
108
+100%
Eastern Europe304 265 14.7 %
Middle East & Africa44
98
(55.7)%Middle East & Africa21 44 (51.5)%
South & Southeast Asia—
—
— %South & Southeast Asia2 — — %
East Asia & Australia613
683
(10.2)%East Asia & Australia824 613 34.4 %
Latin America & Canada8
6
38.5 %Latin America & Canada12 8 49.3 %
Total Reduced-Risk Products$1,555
$1,243
25.1 %Total Reduced-Risk Products$2,122 $1,555 36.5 %
  
Total PMI Net Revenues$7,153
$6,751
6.0 %Total PMI Net Revenues$7,585 $7,153 6.0 %
Note: Sum of product categories or Regions might not foot to total PMI due to roundings.

Net revenues related to combustible products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net revenue amounts consist of the sale of our cigarettes and other tobacco products combined. Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include reduced-risk products.

Net revenues related to reduced-risk products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net revenue amounts consist of the sale of our heated tobacco units, IQOS heat-not-burn devices and related accessories, and other nicotine-containing products, which primarily include our e-vapor products.


PMI's heat-not-burn products include licensed KT&G heat-not-burn products.
We recognize revenue when control is transferred to the customer, typically either upon shipment or delivery of goods.

Revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc., commencing in the third quarter of 2019, for sale under license in the United States, are included in Net Revenues of the Latin America & Canada segment.

References to "Cost/Other" in the Consolidated Financial Summary table of total PMI and the six operating segments throughout this "Discussion and Analysis" reflects the currency-neutral variances of: cost of sales (excluding the volume/mix cost component); marketing, administration and research costs (including asset impairment and exit costs, the Canadian tobacco litigation-related expense, and the charge related to the deconsolidation of RBH in Canada)costs); and amortization of intangibles. “Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to fees for certain distribution rights billed to customers in certain markets in the ME&A Region, as well as the impact of the deconsolidation in RBH.Region.




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Our shipment volume by segment for cigarettes and heated tobacco units is shown in the table below:
PMI Shipment Volume (Million Units)
PMI Shipment Volume (Million Units)
PMI Shipment Volume (Million Units)
For the Three Months Ended March 31,For the Three Months Ended March 31,
20202019Change20212020Change
Cigarettes Cigarettes
European Union40,646
39,488
2.9 %European Union36,769 40,646 (9.5)%
Eastern Europe21,419
20,320
5.4 %Eastern Europe19,966 21,419 (6.8)%
Middle East & Africa29,996
33,304
(9.9)%Middle East & Africa27,642 29,996 (7.8)%
South & Southeast Asia37,595
41,492
(9.4)%South & Southeast Asia34,888 37,595 (7.2)%
East Asia & Australia12,299
12,113
1.5 %East Asia & Australia11,362 12,299 (7.6)%
Latin America & Canada15,063
17,580
(14.3)%Latin America & Canada14,885 15,063 (1.2)%
Total Cigarettes157,018
164,297
(4.4)%Total Cigarettes145,512 157,018 (7.3)%
Heated Tobacco Units Heated Tobacco Units
European Union4,661
2,293
+100%
European Union6,426 4,661 37.9 %
Eastern Europe4,366
1,548
+100%
Eastern Europe5,635 4,366 29.1 %
Middle East & Africa470
754
(37.7)%Middle East & Africa396 470 (15.7)%
South & Southeast Asia—
—
— %South & Southeast Asia33 — — %
East Asia & Australia7,122
6,849
4.0 %East Asia & Australia9,139 7,122 28.3 %
Latin America & Canada (1)
108
54
+100%
Latin America & CanadaLatin America & Canada105 108 (2.8)%
Total Heated Tobacco Units16,727
11,498
45.5 %Total Heated Tobacco Units21,734 16,727 29.9 %
Cigarettes and Heated Tobacco Units Cigarettes and Heated Tobacco Units
European Union45,307
41,781
8.4 %European Union43,195 45,307 (4.7)%
Eastern Europe25,785
21,868
17.9 %Eastern Europe25,601 25,785 (0.7)%
Middle East & Africa30,466
34,058
(10.5)%Middle East & Africa28,038 30,466 (8.0)%
South & Southeast Asia37,595
41,492
(9.4)%South & Southeast Asia34,921 37,595 (7.1)%
East Asia & Australia19,421
18,962
2.4 %East Asia & Australia20,501 19,421 5.6 %
Latin America & Canada15,171
17,634
(14.0)%Latin America & Canada14,990 15,171 (1.2)%
Total Cigarettes and Heated Tobacco Units173,745
175,795
(1.2)%Total Cigarettes and Heated Tobacco Units167,246 173,745 (3.7)%
(1)
 Includes shipments to Altria Group, Inc., commencing in the third quarter of 2019, for sale in the United States under license.

Following the deconsolidation of our Canadian subsidiary, we will continue to report the volume of brands sold by RBH for which other PMI subsidiaries are the trademark owners. These include HEETS, Next, Philip Morris and Rooftop.

Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables, which for us include our HEETS, HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO, defined (defined collectively as HEETS), as well as Marlboro Dimensions, Marlboro HeatSticks and Parliament HeatSticks.HeatSticks, as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea).

Market share for HTUs is defined as the total sales volume for HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs.

Shipment volume of heated tobacco units to the United States is included in the heated tobacco unit shipment volume of the Latin America & Canada segment.

References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States, total industry, total market and market shares throughout this "Discussion and Analysis" are our estimates for tax-paid products based on the latest available data from a number of internal and external sources and may, in defined instances, exclude the People's Republic of China and/or our duty free business. In addition, to reflect the deconsolidation of RBH, effective March 22, 2019, PMI's

2020 and 2021 estimates for total industry volume and market share has been restated for previous periods.


in certain geographies reflect limitations on the availability and accuracy of industry data during pandemic-related restrictions.
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In-market sales ("IMS") is defined as sales to the retail channel, depending on the market and distribution model.

North Africa is defined as Algeria, Egypt, Libya, Morocco and Tunisia.

The Gulf Cooperation Council ("GCC") is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Unless otherwise stated, references to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units.

From time to time, PMI’s shipment volumes are subject to the impact of distributor inventory movements, and estimated total industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade inventory movements of PMI’s competitors arising from market-specific factors that significantly distort reported volume disclosures. Such factors may include changes to the manufacturing supply chain, shipment methods, consumer demand, timing of excise tax increases or other influences that may affect the timing of sales to customers. In such instances, in addition to reviewing PMI shipment volumes and certain estimated total industry/market volumes on a reported basis, management reviews these measures on an adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements. Management also believes that disclosing PMI shipment volumes and estimated total industry/market volumes in such circumstances on a basis that excludes the impact of distributor and/or estimated trade inventory movements such as on an IMS basis, improves the comparability of performance and trends for these measures over different reporting periods.



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Key market data regarding total market size, our shipments and market share are shown in the tables below:
For the Three Months Ended March 31,
PMI Shipments (billion units)
PMI Market Share (%)(1)
MarketTotal Market
(billion units)		TotalCigaretteHeated Tobacco UnitTotalHeated Tobacco Unit
202120202021202020212020202120202021202020212020
Total611.2615.6167.2173.7145.5157.021.716.726.827.53.52.8
European Union
France8.28.33.84.03.74.00.1—43.644.50.60.4
Germany17.416.07.16.76.56.40.60.440.942.23.62.4
Italy15.915.79.69.27.57.82.21.452.851.911.37.4
Poland10.810.84.04.33.43.90.60.536.740.05.44.3
Spain9.610.42.73.72.63.50.10.131.230.91.20.9
Eastern Europe
Russia48.646.915.715.012.112.43.62.631.332.37.76.5
Middle East & Africa
Saudi Arabia5.54.32.21.12.21.0——42.140.60.8—
Turkey25.225.911.010.211.010.2——43.438.9——
South & Southeast Asia
Indonesia70.867.419.920.419.920.4——28.130.3——
Philippines13.115.38.210.78.110.7——62.470.10.2—
East Asia & Australia
Australia2.42.50.80.70.80.7——32.728.0——
Japan32.635.513.812.85.96.87.96.039.236.323.419.1
South Korea16.816.23.43.52.22.41.11.120.121.86.86.6
Latin America & Canada
Argentina9.18.05.35.35.35.3——57.665.9——
Mexico6.86.74.04.14.04.1——59.661.00.30.2
(1) Market share estimates are calculated using IMS data
Note: % change for Total Market and PMI shipments is computed based on millions of units. "-" indicates volume below 50 million units and market share below 0.1%
  For the Three Months Ended March 31,
    PMI Shipments (billion units) 
PMI Market Share (%)(1)
Market 
Total Market
(billion units)
 Total Cigarette Heated Tobacco Unit Total Heated Tobacco Unit
  20202019 20202019 20202019 20202019 20202019 20202019
Total 606.6624.7 173.7175.8 157.0164.3 16.711.5 27.928.1 2.92.0
                   
European Union                
France 8.39.1 4.04.2 4.04.1 —— 44.545.0 0.40.2
Germany 16.015.4 6.76.1 6.45.9 0.40.2 42.239.5 2.41.0
Italy 15.715.6 9.27.7 7.87.1 1.40.6 51.951.0 7.43.7
Poland 10.810.6 4.34.2 3.94.0 0.50.2 40.039.9 4.31.8
Spain 10.410.2 3.73.6 3.53.5 0.10.1 31.031.7 0.90.6
                   
Eastern Europe                
Russia 46.646.7 15.012.1 12.411.3 2.60.8 32.628.4 6.53.0
                   
Middle East & Africa                
Saudi Arabia 4.35.3 1.13.8 1.03.8 —— 40.841.7 ——
Turkey 22.429.5 10.213.9 10.213.9 —— 45.147.2 ——
                   
South & Southeast Asia                
Indonesia 67.267.6 20.422.1 20.422.1 —— 30.432.7 ——
Philippines 15.316.8 10.711.7 10.711.7 —— 70.270.1 ——
                   
East Asia & Australia                
Australia 2.53.1 0.70.8 0.70.8 —— 28.024.4 ——
Japan 35.537.7 12.812.1 6.86.5 6.05.7 36.334.5 19.117.0
Korea 16.215.6 3.53.6 2.42.5 1.11.2 21.823.3 6.67.3
                   
Latin America & Canada               
Argentina 8.08.5 5.36.1 5.36.1 —— 66.172.3 ——
Mexico 6.77.4 4.14.7 4.14.7 —— 61.163.6 0.2—
                   
(1) Market share estimates are calculated using IMS data
Note: % change for Total Market and PMI shipments is computed based on millions of units; PMI Market Share estimates for previous periods are restated to reflect RBH deconsolidation and exclude RBH-owned brands.

Consolidated Operating Results for the Three Months Ended March 31,2020 2021
The following discussion compares our consolidated operating results for the three months ended March 31,2020, 2021, with the three months ended March 31,2019. 2020.

Our total shipment volume decreased by 1.2%3.7%, principally due to:

Middle East & Africa,•the EU, reflecting lower cigarette shipment volume, notably in Saudi Arabiathe Czech Republic, Poland and Turkey,Spain, partly offset by North Africa;
South & Southeast Asia, reflecting lower cigarette shipment volume, primarily in Indonesia, Pakistan and the Philippines; and
Latin America & Canada, reflecting lower cigarette shipment volume, primarily in Argentina, Canada (mainly due to the impact of the deconsolidation of RBH), and Mexico. Excluding the volume impact from the RBH deconsolidation, our total shipment volume in the Region decreased by 8.8%;

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partly offset by
the EU, reflecting higher heated tobacco unit shipment volume across the Region, particularly in Italy, as well as higher cigarette shipment volume, notably in Germany and Italy;
Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, notably in Russia andItaly;
•Eastern Europe, reflecting lower cigarette shipment volume, notably in Ukraine, as well aspartly offset by higher heated tobacco unit shipment volume across the Region, primarily in Russia;
•Middle East & Africa, mainly reflecting lower cigarette shipment volume, mainly in Russia,North Africa (primarily Egypt) and PMI Duty Free, partly offset by Ukraine;Turkey;
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•South & Southeast Asia, primarily reflecting lower cigarette shipment volume, primarily in Indonesia and the Philippines, partly offset by Pakistan; and
•Latin America & Canada, reflecting lower cigarette shipment volume, notably in Colombia, partly offset by Brazil;
partly offset by
•East Asia & Australia, mainly reflecting higher cigarette and heated tobacco unit shipment volume, primarily in Japan.

Excluding the volume impact from the RBH deconsolidation of approximately 1.0 billion units (reflecting first quarter 2019 volume of RBH-owned brands and including Duty-Free sales of these brands in Canada), PMI's totalJapan, partly offset by lower cigarette shipment volume, decreased by 0.6%.mainly in Japan.

First-Quarter Impact of Inventory Movements

Excluding the volume impact from the deconsolidation of RBH, and the net favorableunfavorable impact of estimated distributor inventory movements of approximately 5.40.9 billion units, our total in-market sales declined by 3.7%3.3%, due to a 6.7%6.2% decline in cigarettes, partly offset by a 35.6%22.7% increase in heated tobacco units.

The net favorableunfavorable impact of estimated distributor inventory movements of approximately 5.40.9 billion units reflected:

•A net unfavorable impact of 2.0 billion cigarettes, mainly due to inventory movements in the first quarter of 2020 related to higher shipments to distributors at the onset of the pandemic;
partly offset by
•A net favorable impact of 4.7 billion cigarettes, mainly driven by the EU Region, Japan, North Africa, PMI Duty Free and Russia, partly offset by Saudi Arabia; and
A net favorable impact of 0.71.1 billion heated tobacco units, mainly driven by inventory movements in the EU Region and Russia.first quarter of 2020 due to the temporary shutdown of the company's Bologna manufacturing facility due to pandemic-related lockdown restrictions.

PMI's total heated tobacco unit in-market sales volume in the quarter was 21.3 billion units, broadly consistent with heated tobacco unit shipment volume. The company believes that the current level of heated tobacco unit inventory is appropriate based on anticipated sales.


Our cigarette shipment volume by brand and heated tobacco units shipment volume are shown in the table below:
PMI Shipment Volume by Brand (Million Units)
 First-Quarter
 20202019Change
Cigarettes

   
Marlboro59,245
59,963
(1.2)%
L&M22,641
21,816
3.8 %
Chesterfield12,903
14,298
(9.8)%
Philip Morris11,463
10,723
6.9 %
Sampoerna A8,548
7,901
8.2 %
Parliament7,573
8,830
(14.2)%
Dji Sam Soe6,175
6,651
(7.2)%
Bond Street5,612
5,671
(1.0)%
Lark4,025
5,270
(23.6)%
Fortune2,482
3,045
(18.5)%
Others16,351
20,129
(18.8)%
Total Cigarettes157,018
164,297
(4.4)%
Heated Tobacco Units (1)
16,727
11,498
45.5 %
Total Cigarettes and Heated Tobacco Units173,745
175,795
(1.2)%
(1) Includes shipments to Altria Group, Inc., commencing in the third quarter of 2019, for sale in the United States under license.
PMI Shipment Volume by Brand (Million Units)
First-Quarter
20212020Change
Cigarettes
Marlboro53,682 59,245 (9.4)%
L&M20,367 22,641 (10.0)%
Chesterfield12,758 12,903 (1.1)%
Philip Morris10,184 11,463 (11.2)%
Parliament8,957 7,573 18.3 %
Sampoerna A8,698 8,548 1.8 %
Dji Sam Soe5,704 6,175 (7.6)%
Bond Street4,527 5,612 (19.3)%
Lark3,899 4,025 (3.1)%
Sampoerna Hijau2,199 1,477 48.9 %
Others14,537 17,356 (16.2)%
Total Cigarettes145,512 157,018 (7.3)%
Heated Tobacco Units21,734 16,727 29.9 %
Total Cigarettes and Heated Tobacco Units167,246 173,745 (3.7)%
Note: Sampoerna A includes Sampoerna; Philip Morris includes Philip Morris/Dubliss; and Lark includes Lark Harmony
.
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Our cigarette shipment volume of the following brands decreased:
•
•Marlboro, mainly due to Japan, North Africa, the Philippines, PMI Duty Free and Spain, partly offset by Turkey;mainly due to the GCC, Indonesia, Mexico and Turkey, partially offset by Germany, Italy, Japan, North Africa and Russia;

•L&M, notably due to Egypt and Poland;
-50-•Chesterfield, mainly due to the GCC and Spain, partly offset by Brazil and Russia;
•Philip Morris, primarily due to Italy and Russia;
•Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild;
Table•Bond Street, notably due to Russia and Ukraine;
•Lark, primarily due to Japan and PMI Duty Free; and
•"Others," notably due to: mid-price Fortune in the Philippines and Sampoerna U in Indonesia; partly offset by low-price Morven in Pakistan.
Our cigarette shipment volume of Contentsthe following brands increased:

•Parliament, mainly driven by Russia, Saudi Arabia and Turkey;
•Sampoerna A in Indonesia, primarily driven by premium A Mild; and
•Sampoerna Hijau in Indonesia.

•
Chesterfield, mainly due to Argentina, Russia, Saudi Arabia and Turkey, partly offset by Brazil;
•
Parliament, mainly due to Russia and Turkey;
•
Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild, reflecting adult smoker down-trading to super-low-price brands due to widened price gaps;
•
Bond Street, mainly due to Ukraine, partly offset by Russia;
•
Lark, mainly due to Japan and Turkey;
•
Fortune in the Philippines, mainly reflecting the impact of the August 2019 price increase, which widened price gaps with competitive brands; and
•
"Others," notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Sampoerna U in Indonesia and Muratti in Turkey; and low-price Morven in Pakistan.

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Italy), Eastern Europe (notably RussiaRussia) and Ukraine) and Japan, partly offset by PMI Duty Free.Japan.

Our cigarette shipment volume of the following brands increased:
•
L&M, mainly driven by Mexico and North Africa (primarily Egypt), partly offset by Saudi Arabia;
•
Philip Morris, primarily driven by Japan and Russia, partly offset by Argentina; and
•
Sampoerna A in Indonesia, mainly driven by premium A Mild, notably reflecting reduced price gaps with directly competitive mid and low-price brands.

First-Quarter International Share of Market (excluding China and the United States)

Our total international market share (excluding China and the U.S.)United States), defined as our cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, decreased by 0.20.7 points to 27.9%26.8%, reflecting:
•Total international market share for cigarettes of 25.0%23.3%, down by 1.11.4 points; and
•Total international market share for heated tobacco units of 2.9%3.5%, up by 0.90.7 points.
Our total international cigarette sales volume as a percentage of total industry cigarette sales volume was down by 0.81.2 points to 25.9%24.3%, mainly reflecting: out-switching to heated tobacco units, as well as lower cigarette market share and/or an unfavorable geographic mix impact, notably in Argentina, Indonesia, Mexico, Pakistan, Saudi ArabiaJapan, the Philippines, PMI Duty Free and Ukraine, partly offset by Turkey.














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Financial SummaryFinancial SummaryFinancial Summary
Financial Summary -
Quarters Ended March 31,		   Change
Fav./(Unfav.)		 Variance
Fav./(Unfav.)		Financial Summary -
Quarters Ended March 31,		Change
Fav./(Unfav.)		Variance
Fav./(Unfav.)
20202019 TotalExcl.
Curr.		 TotalCur-
rency		PriceVol/
Mix
Cost/
Other(1)
20212020TotalExcl.
Curr.		TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions) (in millions)
Net Revenues $7,153
$6,751
 6.0%7.1% $402
$(74)$323
$381
$(228)Net Revenues$ 7,585 $ 7,153 6.0 %2.9 %$432 $225 $206 $(31)$32 
Cost of Sales (2,402)(2,465) 2.6%0.6% 63
49
—
29
(15)Cost of Sales(2,274)(2,402)5.3 %9.0 %128 (87)— 29 186 
Marketing, Administration and Research Costs(2)
 (1,944)(2,217) 12.3%20.0% 273
(171)—
—
444
Marketing, Administration and Research Costs (1)
Marketing, Administration and Research Costs (1)
(1,849)(1,944)4.9 %2.4 %95 49 — — 46 
Amortization of Intangibles (18)(19) 5.3%5.3% 1
—
—
—
1
Amortization of Intangibles(18)(18)— %— %— — — — — 
Operating Income $2,789
$2,050
 36.0%45.6% $739
$(196)$323
$410
$202
Operating Income$ 3,444 $ 2,789 23.5 %16.8 %$655 $187 $206 $(2)$264 
(1)Cost/Other variance includes the impact of the RBH deconsolidation.
(2) Unfavorable Cost/Other variance of $9 million, excluding 2019a charge in 2021 for asset impairment and exit costs of $20 million, the 2019 Canadian tobacco litigation-related expense of $194 million and the 2019 Loss on deconsolidation of RBH of $239$48 million.
Note: Net Revenues include revenues from shipments
50
Table of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc., commencing in the third quarter of 2019, for sale under license in the United States.

Contents

During the quarter, net revenues, excluding unfavorablefavorable currency, increased by 7.1%2.9%, mainly reflecting: a favorable pricing variance notably(notably driven by Australia, the GCC, Germany, Mexico,Japan, the Philippines and Turkey, partly offset by Italy;Indonesia); and a favorablehigher fees for certain distribution rights billed to customers in certain markets, shown in "Cost/Other"; partly offset by unfavorable volume/mix, primarily drivendue to lower cigarette volume (mainly in Indonesia, Japan, North Africa, the Philippines, PMI Duty Free and Spain), partially offset by higher heated tobacco unit volume (notably in the EU, Japan and Eastern Europe,Russia, partly offset by PMI Duty Free), partially offset by lower IQOS device volume (notably in Japan) and lower cigarette volume (mainly due to Mexico, the Philippines, Saudi Arabia and Turkey, largely offset by Germany, Italy, Japan, North Africa and Russia). The currency-neutral growth in net revenues of 7.1% came despite the unfavorable impact of $228 million, shown in "Cost/Other," mainly resulting from the deconsolidation of RBH.

The unfavorablefavorable currency in net revenues was due primarily to the Brazilian real, Euro and Turkish lira,Japanese yen, partially offset by the Egyptian pound, Philippine pesoRussian ruble and Ukrainian hryvnia.Turkish lira.

Net revenues include $1,555 million$2.1 billion in 20202021 and $1,243 million$1.6 billion in 20192020 related to the sale of RRPs.

Operating income, excluding unfavorable currency, increased by 45.6%, notably reflecting a favorable comparison to charges recordedIQOS devices accounted for approximately 6% of RRP net revenues in the first quarter of 2019 of $453 million, related2021, reflecting longer replacement times for existing users due to the loss on deconsolidation of RBH of $239 million, the Canadian tobacco litigation-related expense of $194 million,improving battery lives and asset impairmentreliability; and exit costs related to a plant closurelower device prices in Pakistan of $20 million.certain markets.

Excluding the impact of these 2019 charges, operatingOperating income, excluding unfavorablefavorable currency, increased by 19.3%16.8%, primarily reflecting: a favorable pricing variance; lower manufacturing costs (driven by productivity gains related to reduced-risk and favorable volume/mix, primarily driven by heated tobacco unit volume (notably in the EU and Eastern Europe, partly offset by PMI Duty Free)combustible products); partially offset by higher manufacturing costs; higherlower marketing, administration and research costs (notably reflecting increased investment behind reduced-risk products, mainly(largely driven by cost efficiencies, partially offset by the impact of 2021 asset impairment and exit costs of $48 million related to product distribution restructuring in the EUSouth Korea and Eastern Europe)organizational design optimization); and thehigher fees for certain distribution rights, as noted above for net unfavorable impact resulting from the deconsolidation of RBH, included in "Cost/Other."revenues.

Interest expense, net, of $129$167 million decreasedincreased by $23$38 million (15.1%(29.5%). due primarily to lower interest income related to derivative financial instruments.

Our effective tax rate was 22.6% in the first quarter of 2020 and 2019.decreased by 1.1 percentage points to 21.5%. The effective tax rate for the three months ended March 31, 20202021 was favorably impacted by a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($16 million). The effectivecorporate income tax rate forreductions in Indonesia and the three months ended March 31, 2019 was favorably impacted by the reversal of a deferred tax liability on the unremitted earnings of our Canadian subsidiary, RBH ($49 million) and by the Tax Cuts and Jobs Act. We estimate that our full-year 2020 effective tax rate will be approximately 23%, excluding the discrete tax event mentioned above. ChangesPhilippines, as well as changes in currency exchange rates, earnings mix by taxing jurisdiction or future regulatory developments may have an impact on the effective tax rates, which we monitor each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions.jurisdiction. For further details, see Note 9. Income Taxes.


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We are regularly examined by tax authorities around the world, and we are currently under examination in a number of jurisdictions. It is reasonably possible that within the next 12 months certain tax examinations will close, which could result in a change in unrecognized tax benefits along with related interest and penalties. An estimate of any possible change cannot be made at this time.

Net earnings attributable to PMI of $1.8$2.4 billion increased by $472$592 million or 34.9%32.4%. This increase was due primarily to higher operating income as discussed above. Diluted and basic EPS of $1.17$1.55 increased by 34.5%32.5%. Excluding an unfavorablea favorable currency impact of $0.13,$0.10, diluted EPS increased by 49.4%23.9%.


Operating Results by Business Segment

Business Environment
Taxes, Legislation, Regulation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco Products
The tobacco industry and our company face a number of challenges that may adversely affect our business, volume, results of operations, cash flows and financial position. These challenges, which are discussed below and in “Cautionary Factors That May Affect Future Results,” include:

•regulatory restrictions on our products, including restrictions on the packaging, marketing, and sale of tobacco or other nicotine-containing products that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or even ban certain of our products;
•fiscal challenges, such as excessive excise tax increases and discriminatory tax structures;
•illicit trade in cigarettes and other tobacco and nicotine-containing products, including counterfeit, contraband and so-called “illicit whites”;
•intense competition, including from non-tax paid volume by certain local manufacturers;
•
•pending and threatened litigation as discussed in Note 8. Contingencies; and
•Contingencies; and
governmental investigations.

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Regulatory Restrictions: The tobacco industry operates in a highly regulated environment. The well-known risks of smoking have led regulators to impose significant restrictions and high excise taxes on cigarettes.

We support a comprehensive regulatory framework for tobacco and nicotine-containing products based on the principle of harm reduction, including mandated health warnings, minimum age laws, restrictions on advertising, and public place smoking restrictions. We also support regulatory measures that help reduce illicit trade.

Much of the regulation that shapes the business environment in which we operate is driven by the World Health Organization's (“WHO”(the “WHO”) Framework Convention on Tobacco Control (“FCTC”(the “FCTC”), which entered into force in 2005. The FCTC has as its main objective to establish a global agenda for tobacco regulation, with the purpose of reducing tobacco use. To date, 180182 countries and the European Union are Parties to the FCTC. The treaty requires Parties to have in place various tobacco control measures and recommends others. The FCTC governing body, the Conference of the Parties (“CoP”), has also adopted non-binding guidelines and policy recommendations related to certain articles of the FCTC that go beyond the text of the treaty. In October 2018, the CoP recognized the need for more scientific assessment and improved reporting to define policy on heated tobacco products. Similar to its previous policy recommendations on e-cigarettes, the CoP invited countries to regulate, restrict or prohibit heated tobacco products, as appropriate under their national laws.

In July 2019, the WHO issued the Report on the Global Tobacco Epidemic 2019. While citing insufficient independent studies regarding the benefits and the unknown long-term health impacts of electronic nicotine delivery systems and heated tobacco products, the WHO has taken the position that such products are not risk-free and should be regulated in the same manner as cigarettes and in line with the FCTC provisions. In December 2020, the WHO issued a report recommending substantial restrictions on the commercialization of heated tobacco products and e-cigarettes and the prohibition of e-cigarettes with open tank systems. It is not possible to predict whether or to what extent measures recommended by the WHO includingor the FCTC guidelines will be implemented.

We agreebelieve that all tobacco and nicotine-containing products, including our RRPs, need to be regulated; however, we continue to seek to engage in a dialogue with regulators with respect to those measures that we do not believe would protect public health and, if implemented, could disrupt competition, severely limit our ability to market and sell our products (including our RRPs) to adult smokers, or increase illicit trade. We advocate for measures that would accelerate switching towhen better alternatives to continued smokingcigarettes exist, the discussion should not be whether these alternatives should be made available to the more than one billion people who smoke today, but how fast, and embrace awithin what regulatory framework to maximize their adoption while minimizing unintended use. Therefore, we advocate for regulatory frameworks that recognizesrecognize a significant difference on a risk continuum ofbetween combustible tobacco on the one hand and non-combustible tobacco and other nicotine-containing products on the other. Regulation should include measures that will accelerate switching to non-combustible products, for example, by allowing adult consumers who would not otherwise quit to receive truthful and non-misleading information about such products to enable them to make informed decisions and by applying uniform product standards to enable manufacturers to demonstrate the safety of these products, as well as the absence of combustion. Regulation should also include specific rules for ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-containing products. Importantly, regulation must include measures designed to prevent initiation by youth and non-smokers. We support mandated health warnings, minimum age laws, restrictions on advertising, and public place smoking restrictions. We also support regulatory measures that help reduce illicit trade.

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Certain measures are discussed in more detail below and in the Reduced-Risk Products (RRPs) section.

Fiscal Challenges: Excessive and disruptive excise, sales and other tax increases and discriminatory tax structures are expected to continue to have an adverse impact on our profitability, due to lower consumption and consumer down-trading to non-premium, discount, other low-price or low-taxed combustible tobacco products such as fine cut tobacco and illicit cigarettes. In addition, in certain jurisdictions, some of our combustible products are subject to tax structures that discriminate against premium-price products and manufactured cigarettes. We believe that such tax policies undermine public health by encouraging consumers to turn to illicit trade, and ultimately undercut government revenue objectives, disrupt the competitive environment, and encourage criminal activity. Other jurisdictions have imposed, or are seeking to impose, levies or other taxes specifically on tobacco companies, such as taxes on revenues and/or profits.

World Customs Organization Developments: In 2020, the World Customs Organization (the “WCO”) amended the harmonized system nomenclature to introduce dedicated custom codes for novel tobacco and nicotine products, including heated tobacco products, e-cigarettes and other nicotine-containing products. The amendments will be effective as of January 1, 2022. These amendments require WCO member states to transfer products from customs codes in the current nomenclature to the new one. These amendments are not expected to significantly impact current customs duty rates.

EU Tobacco Products Directive: In April 2014, the EU adopted a significantly revised EU Tobacco Products Directive (TPD)(the “TPD”), which entered into force in May 2016. All Member Statesmember states have adopted laws transposing the TPD.  The TPD sets forth a comprehensive set of regulatory requirements for tobacco products, including:

•health warnings covering 65% of the front and back panels of cigarette packs, with an option for Member Statesmember states to further standardize tobacco packaging, including the introduction of plain packaging;
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•a ban on characterizing flavors in some tobacco products, with a transition period for menthol expiringthat expired in May 2020;
•security features and tracking and tracing measures that became effective onin May 20, 2019; and
•a framework for the regulation of novel tobacco products and e-cigarettes, including requirements for health warnings and information leaflets, a prohibition on product packaging text related to reduced risk, and the introduction of notification requirements or authorization procedures in advance of commercialization.

The EU Commission’s Directorate General for Health and Food Safety is preparing a report on the implementation of the TPD, including the evaluation of whether the TPD has achieved its objectives and is still relevant considering scientific, international and technical developments, including in novel tobacco products and e-cigarettes. The report is expected to include recommendations on potential revisions of the TPD to account for such developments. The report is due by May 2021.

EU Tobacco Excise Directive: The EU Commission is preparing a legislative proposal for the revision of the 2011 EU Tobacco Excise Directive that may include definitions and tax treatment for novel tobacco and nicotine-containing products, including heated tobacco products and e-cigarettes. The proposal is expected to be finalized by the end of 2021. The adoption of the proposal will require unanimous agreement by all EU member states.

Plain Packaging and Other Packaging Restrictions: Plain packaging legislation bans the use of branding, logos and colors on packaging other than the brand name and variant that may be printed only in specified locations and in a uniform font. To date, plain packaging laws have been adopted in certain markets in all of our operating segments, including the key markets of Australia, France, Saudi Arabia and Turkey, and are in various degrees of implementation.Turkey. Some countries, such as Canada, New Zealand, Israel and Israel,Denmark, adopted plain packaging regulations that apply to all tobacco products, including RRPs. Other countries are also considering plain packaging legislation.

Some countries have adopted, or are considering adopting, packaging restrictions that could have an impact similar to plain packaging. Examples of such restrictions include standardizing the shape and size of packages, prohibiting certain colors or the use of certain descriptive phrases on packaging, and requiring very large graphic health warnings that leave little space for branding.

Restrictions and Bans on the Use of Ingredients: The WHO and others in the public health community have recommended restrictions or total bans on the use of some or all ingredients in tobacco products, including menthol. Broad restrictions and ingredient bans would require us to reformulate our American blend tobacco products and could reduce our ability to differentiate these products in the market in the long term. In many countries, menthol bans would eliminate the entire category of mentholated tobacco products. The European Union has banned flavoredcigarettes and roll-your-own tobacco products subjectwith characterizing flavors. Other tobacco products, including heated tobacco products, are exempted from this flavor ban. The EU Commission is required to anwithdraw this exemption until May 2020 for menthol.a particular product category if it determines that there is a substantial change of circumstances, such as a significant increase of EU-wide sales volumes in such product category. Other countries may follow the EU’s approach. For instance, Turkey has banned menthol as of May 2020. Broader ingredient bans have been adopted by Canada and Brazil. In Brazil, an ingredient ban is currently on appeal by a tobacco industry union, of which our Brazilian subsidiary is a member. It is not possible to predict the outcome of these legal proceedings.

Bans on Display of Tobacco Products at Retail: In a number of our markets, including, but not limited to, Australia and Russia, governments have banned the display of tobacco products at the point of sale. Other countries are considering similar bans.

Bans and Restrictions on Advertising, Marketing, Promotions and Sponsorships: For many years, the FCTC has called for, and countries have imposed, partial or total bans on tobacco advertising, marketing, promotions and sponsorships, including bans and restrictions on advertising on radio and television, in print and on the Internet. The FCTC's non-binding guidelines recommend that governments prohibit all forms of communication with adult smokers.

Restrictions on Product Design: Some members of the public health community are calling for the further standardization of tobacco products by requiring, for example, that cigarettes have a certain minimum diameter, which would amount to a ban on slim cigarettes, or requiring the use of standardized filter and cigarette paper designs. In addition, at its meeting in November 2016, the CoP adopted non-binding guidelines recommending that countries regulate product design features that increase the attractiveness of tobacco products, such as the diameter of cigarettes and the use of flavor capsules.


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Restrictions on Public Smoking:Smoking and Use of Nicotine-Containing Products in Public: The pace and scope of public smoking restrictions on the use of our products have increased significantly in most of our markets. Many countries around the world have adopted, or are likely to adopt, regulations that restrict or ban smoking and use of nicotine-containing products in public and/or work places,
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restaurants, bars and nightclubs. Some public health groups have called for, and some countries, regional governments and municipalities have adopted or proposed, bans on smoking in outdoor places, as well as bans on smoking in cars (typically, when minors are present) and private homes.

Other Regulatory Issues: Some regulators are considering, or in some cases have adopted, regulatory measures designed to reduce the supply of tobacco products. These include regulations intended to reduce the number of retailers selling tobacco products by, for example, reducing the overall number of tobacco retail licenses available or banning the sale of tobacco products within specified distances of certain public facilities. In addition, South Africa banned the sale of tobacco products, e-cigarettes, and electronic devices that heat tobacco for several months during the COVID-19 pandemic. The ban, which was lifted on August 17, 2020, resulted in a significant increase of illicit trade of tobacco products.

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

The EU Single-Use Plastics Directive, which will require tobacco manufacturers and importers to cover the costs of public collection systems for tobacco product filters, entered into force on July 2, 2019, after which Member States willmember states have two years to transpose it into national law. While we cannot predict the impact of this initiative on our business at this time, we are monitoring developments in this area.

Illicit Trade: Illicit tobacco trade creates a cheap and unregulated supply of tobacco products, undermines efforts to reduce smoking prevalence, especially among youth, damages legitimate businesses and intellectual property rights, stimulates organized crime, increases corruption and reduces government tax revenue. ExcludingWe generally estimate that, excluding China and the U.S., illicit trade may account for as much as 10 to 12% of global cigarette consumption; this includes counterfeit, contraband and the growingpersistent problem of “illicit whites,” which are cigarettes legally produced in one jurisdiction for the sole purpose of being exported and illegally sold in another jurisdiction where they have no legitimate market. Currently, we estimate that illicit trade in the European Union accounted for approximately 8%10% of total cigarette consumption in 2019.2020.

A number of jurisdictions are considering actions to prevent illicit trade. In November 2012, the FCTC adopted the Protocol to Eliminate Illicit Trade in Tobacco Products (the “Protocol”), which includes supply chain control measures, such as licensing of manufacturers and distributors, enforcement of these control measures in free trade zones, controls on duty free and Internet channels and the implementation of tracking and tracing technologies. To date, 5862 Parties, including the European Union, have ratified it. The Protocol came into force in September 2018. Parties must now start implementing its provisions in their national legislation. In October 2018, the first Meeting of the Parties to the Protocol decided to produce a comprehensive report on good practices for the implementation of tracking and tracing systems and to prepare a conceptual framework for global information sharing to combat illicit tobacco trade. We welcome this decision and expect that other Parties will ratify the Protocol.

We devote substantial resources to help prevent illicit trade in combustible tobacco products and RRPs. For example, we engage with governments, our business partners and other stakeholders to implement effective measures to combat illicit trade and, in some instances, pursue legal remedies to protect our intellectual property rights.

The tracking and tracing regulations for cigarettes and roll-your-own products manufactured or destined for the EU became effective on May 20, 2019. The effective date for other tobacco-containing products, including some of our RRPs such as heated tobacco units, is May 20, 2024. While we expect that this regulation will increase our operating expenses, we do not expect this increase to be significant.

In 2009, our Colombian subsidiaries entered into an Investment and Cooperation Agreement with the national and regional governments of Colombia to promote investment in, and cooperation on, anti-contraband and anti-counterfeit efforts. The agreement provides $200 million in funding over a 20-year period to address issues such as combating illegal cigarette trade and increasing the quality and quantity of locally-grown tobacco.

In May 2016, PMI launched PMI IMPACT, a global initiative that supports third-party projects dedicated to fighting illegal trade and related crimes such as corruption, organized criminal networks and money laundering. The centerpiece of PMI IMPACT is a council of external independent experts in the fields of law, anti-corruption and law enforcement. The experts are responsible for evaluating and approving funding proposals for PMI IMPACT grants. PMI has pledged $100 million to fund projects within PMI IMPACT over three funding rounds.


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Reduced-Risk Products (RRPs)    

Our Approach to RRPs: We recognize that smoking cigarettes causes serious diseases and that the best way to avoid the harms of smoking is never to start or to quit. Nevertheless, it is predicted that over the next decadeby 2025 the number of smokers will remain largely unchanged from the current estimate of 1.1 billion, despite the considerable efforts to discourage smoking.

Cigarettes burn tobacco, which produces smoke. As a result of the combustion process, the smoker inhales various toxic substances. In contrast, RRPs do not burn tobacco and produce an aerosol that contains significantly lower levels of harmful and potentially harmful constituents ("HPHCs") than found in cigarette smoke.

For adult smokers who would otherwise continue to smoke, we believe that RRPs, while not risk-free, offer a much better consumer choice. Accordingly, our key strategic priorities are: to develop and commercialize products that present less risk of harm to adult smokers who switch to those products versus continued smoking; and to convince current adult smokers who would otherwise continue to smoke to switch to those products.

We recognize that this transformation from cigarettes to RRPs will take time and that the speed of transformation will depend in part upon factors beyond our control, such as the willingness of governments, regulators and other policy groups to embrace RRPs as a desired alternative to continued cigarette smoking. We also recognize that our part in this transformation must be funded from our existing cigarette business. For as long as a significant number of adult smokers continues to smoke, itresponsible leadership of the category is critical thatcritical. We aim to maintain our competitive position in the industry be led by responsible and ethical manufacturers. Therefore, during the transformation, we intend to remaincigarette market through selective investment. As a leading international cigarette manufacturer.manufacturer, we will continue to accelerate this transformation by using our regulatory and commercial expertise and extensive commercial and distribution infrastructure as an effective platform for the commercialization of our RRPs and communication with adult smokers and trade partners about the benefits of switching to our RRPs.

While seeking to remain competitive in the cigarette market, we are judiciously reallocating resources from cigarettes to RRPs and are streamlining our cigarette portfolio.

We have a range of RRPs in various stages of development, scientific assessment and commercialization. We conduct rigorous scientific assessments of our RRP platforms to substantiate that they reduce exposure to HPHCs and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking. We draw upon a team of expert scientists and engineers from a broad spectrum of scientific disciplines and our extensive learnings of adult consumer preferences to develop and assess our RRPs. Our efforts are guided by the following key objectives:

•to develop RRPs that adult smokers who would otherwise continue to smoke find to be satisfying alternatives to smoking;
•for those adult smokers, our goal is to offer RRPs with a scientifically substantiated risk-reduction profile that approaches as closely as possible that associated with smoking cessation;
•to substantiate the reduction of risk for the individual adult smoker and the reduction of harm to the population as a whole, based on scientific evidence of the highest standard that is made available for scrutiny and review by external independent scientists and relevant regulatory bodies; and
•to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs, including the communication of scientifically substantiated information to enable adult smokers to make better consumer choices.

Our RRP Platforms: Our product development is based on the elimination of combustion via tobacco heating and other innovative systems for aerosol generation, which we believe is the most promising path to providing a better consumer choice for those who would otherwise continue to smoke. We recognize that no single product will appeal to all adult smokers. Therefore, we are developing a portfolio of products intended to appeal to a variety of distinct adult consumer preferences.

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

        Platform 1 uses a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol. We have conducted a series of clinical studies for this platform, the results of which were included in our submission to the U.S. Food and Drug Administration (“FDA”) described below. The results of the first six-month term of theWe completed a 6+6 month exposure response study were received atand shared the end of 2017, and the related report was completed and submitted toresults with the FDA in the second quarter of 2018.April 2020. The study showed that all eight of the co-primary clinical risk endpoints moved in the same direction infor the group that switched to our Platform 1 product, the eight clinical risk
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endpoints that were tested as co-primary endpoints in the first six-month term moved in the same direction as observed for smoking cessation with statistically significant changes in fiveafter 12 months of the eight endpoints compared with on-going smoking. We received the resultsuse of the second six-month term of the 6+6 month exposure response study in the second quarter of 2018, and expect to finalize our analysis and report the results for submission to the FDA in the next few months.this product. In addition, we completed an 18-month combined chronic toxicity and carcinogenicity study in mice, which was on-going at the time of our FDA submission. We shared the results with the FDA in August 2018.


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    Platform 2 uses a pressed carbon heat source which, when ignited, generates a nicotine-containing aerosol by heating tobacco. The results of our pharmacokinetic study (that measured the nicotine pharmacokinetic profile as well as subjective effects) and of our five-day reduced exposure study indicate that this platform could be an acceptable substitute for adult smokers who seek an alternative to cigarettes. The reduced exposure study results showed a substantial reduction in relevant biomarkers of exposure to the measured HPHCs in those who switched to Platform 2 compared to those who continued to smoke cigarettes over a five-day period. The sustainability of this reduction as well as changes in clinical risk markers were assessed in a three-month reduced exposure study. The results of this study, were received at the end of 2017, and the related reportwhich was finalizedcompleted in the second quarter of 2018.

    Platform 3 provides an aerosol of nicotine salt. We have explored two routes for this platform, one with electronics and one without, and conducted nicotine pharmacokinetic studies with both versions. The results of theour pharmacokinetic study related to the version without electronics were received, and the related report was finalized in the fourth quarter of 2018. The results indicate this product's potential as an acceptable alternative to continued cigarette smoking in terms of product satisfaction. In February 2020, we completed a one-month product use and adaptation study in adult smokers.smokers for the product variant without electronics. The results of the study indicated that while during the study period, the adult smokers did not fully switch from smoking cigarettes to this Platform 3 product, on average, they used this product on a daily basis and significantly reduced their daily consumption of cigarettes. We expectare working on product modifications to finalize our analysis and report the results in the next few months.enable switching by those adult smokers who are looking for better alternatives to cigarettes.

    Platform 4 covers e-vapor products, which are battery-powered devices that produce an aerosol by vaporizing a nicotine-containing liquid solution. OurIn 2020, our e-vapor products comprisecomprised devices using current generationwith the "coil and wick" technology andas well as our new e-vapor mesh technology that addresses certain challenges presented by some e-vapor products currently on the market. Our IQOSMESH products are designed to ensure the consistency and quality of the generated aerosol.aerosol compared to the products with the “coil and wick” technology. Recently, we discontinued the commercialization of devices with the “coil and wick” technology. We conducted a nicotine pharmacokinetic study with respect to products with our e-vapor mesh technology in 2017. The results of this study were received in the second quarter of 2018 for analysis, and the related report was finalized in the fourth quarter of 2018. The results of this study indicate that IQOS MESHthese products are an effective means of nicotine delivery while being a satisfying alternative for e-cigarette users. In March 2019, a six-month pre-clinical study in mice evaluating the impact of e-cigarette vapor on the risks of pulmonary and cardiovascular disease compared to cigarette smoke was completed; this study did not pertain to a specific product. The study demonstrated that e-cigarette vapors induce significantly lower biological responses associated with cardiovascular and pulmonary diseases compared with cigarette smoke. We will also initiate a clinical study to measure selected biomarkers of exposure to HPHCs and assess changes in clinical risk markers.

We aim to expand our brand portfolio and market positions with additional RRPs. In addition, we are continuing to use our expertise, technology and capabilities to explore new growth opportunities beyond our current business, including products that do not contain nicotine or tobacco.

After we receive the results of our scientific studies, including those mentioned above, in accordance with standard scientific practices, we intend to share the conclusions in scientific forums and to submit them for inclusion in peer-reviewed publications.

Commercialization of RRPs: We are building a new product category and tailor our commercialization strategy to the characteristics of each specific market. We focus our commercialization efforts on consumer retail experience, guided consumer trials and customer care, as well asand increasingly, digital communication programs.programs and e-commerce.  In order to accelerate switching to our Platform 1 product,products, our initial market introductions typically entail one-on-oneone-to-one consumer engagement (in person or by digital means) and introductory device discounts.  These initial commercialization efforts require substantial investment, which we believe will moderate over time.time and further benefit from the increased use of digital engagement capabilities. During the COVID-19 pandemic, we accelerated our investments in, and pivot to, digital consumer engagement.

In 2014, we introduced our Platform 1 product in pilot city launches in Nagoya, Japan, and in Milan, Italy. Since then, we have continuously expanded our commercialization activities, and the productis currentlyactivities. As of March 31, 2021, PMI's smoke-free products are available for sale in 5366 markets in key cities or nationwide. While our Platform 1 products are currently available for sale in Mexico, that country recently banned the importation of e-cigarettes and devices that heat tobacco.

We estimatebelieve that only a very small percentage of adult smokers who convert to our Platform 1 product switch back to cigarettes.

We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, are progressing with our plans to build manufacturing capacity for our other RRP platforms, and continue to optimize our manufacturing infrastructure.
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An adequate supply chain for our RRP portfolio, including the supply of electronic devices, is important to our business. We work with twothree electronics manufacturing service providers for the supply of our Platform 1 and IQOS MESHPlatform 4 devices and a small number of other providers for other products in our RRP portfolio and related accessories. Due to the COVID-19 pandemic, the operations of our two electronic manufacturing service providers were temporarily suspended at different times. Even though these suspensions did not materially affect our operations, if bothone or more of these service providers were significantly constrained at the same time, the supply of the devices could be disrupted. Although we work closely with these service providers on monitoring their production capability and financial health, we cannot guarantee that they will remain capable of meeting their commitments, particularly during the COVID-19 pandemic; if they will not, the commercialization of our RRPs could be adversely affected. The production of our RRP portfolio requires various metals, and we believe that there is an adequate supply of such metals in the world markets to satisfy our current and anticipated production requirements. However, some components and materials necessary for the

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production of our RRPs, including those for the electronic devices, are obtained from single or limited sources, and can be subject to industry-wide shortages and price fluctuations. While we were successful in maintaining adequate supply of such components and materials so far, we may not be able to secure such supply going forward, particularly during the COVID-19 pandemic; this could negatively impact the commercialization of our RRPs. For example, currently, we are exposed to a world-wide shortage of semiconductors. While the impact of this development has not been significant, if this shortage intensifies, the supply of our electronic devices may be disrupted, which may affect our consumer acquisition and retention rates. For details on the impact of COVID-19 on our production and supply chain, see the "Executive Summary" section of this MD&A.

Our Platform 1 and IQOS MESH devices are subject to standard product warranties generally for a period of 12 months from the date of purchase or such other periods as required by law. We discuss product warranties in more detail in Note 16.14. Product Warranty. The significance of warranty claims is dependent on a number of factors, including device version mix, product failure rates, logistics and service delivery costs, and warranty policies, and may increase with the number of devices sold.

Product quality may affect consumer acceptance of our RRPs.

Our commercialization efforts for the other RRP platforms are as follows:

In light of the current confusion in the e-vapor category, in February 2020, we postponed our planned launch of•We started commercializing an improved version of our IQOS MESH product in New Zealand, Italy, Finland and the Czech Republic under the IQOS VEEV or VEEV brand names. We currently plan to launch this product until the third quarter of 2020, expecting to reach the optimal capacity for commercialization at scale. We will adjust our launch plans based on market-specific factors.in additional markets.

•
•With respect to TEEPS, our Platform 2 product, we are finalizing our improvements to this product and plan to conduct a consumer test in the beginning of 2021.

We plan to conduct a consumer test in 2021.

•Following the consumer test conducted in 2020 and the results of the product use and adaptation study described above, we are incorporating our learnings into our plans to improve our Platform 3 product by the end of 2020.product.

Due to the COVID-19 pandemic, these plans may be delayed.

RRP Regulation and Taxation: RRPs contain nicotine and are not risk-free. We thereforeAs we describe in more detail above, we support science-based regulation and taxation of RRPs. RegulationRRPs and believe that regulation and taxation should differentiate between cigarettes and products that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products versus continued smoking and should recognize a continuum of risk for tobacco and other nicotine-containing products. Regulation, should provide minimum standards for all RRP categories and specific rules for product assessment methodologies, ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-containing products. Regulation, as well as industry practices, should reflect the fact that youth should not consume nicotine in any form.

Some governments have banned or are seeking to ban or severely restrict emerging tobacco and nicotine-containing products such as our RRPs and communication of truthful and non-misleading information about such products. For example, the commercialization of e-cigarettes and heat-not-burn products is prohibited in Australia, the commercialization of e-cigarettes is prohibited in Argentina, the  importation of e-cigarettes and heat-not-burn products is prohibited in Turkey, and the importation of e-cigarettes and devices that heat tobacco is prohibited in Mexico.

These regulations might foreclose or unreasonably restrict adult consumer access even to products that might be shown to be a better consumer choice than continuing to smoke. During the COVID-19 pandemic, some governments have been and may continue to be temporarily be unable to focus on the development of science-based regulatory frameworks for the development and commercialization of RRPs or on the enforcement or implementation of regulations that are significant to our business.

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We oppose blanket bans and unreasonable restrictions of products that have the potential to present less risk of harm compared to continued smoking. By contrast, we support regulation that sets clear standards for all RRP categories and propels innovation to benefit adult smokers who would otherwise continue to smoke.

In the United States, an established regulatory framework for assessing “Modified Risk Tobacco Products” and “New Tobacco Products” exists under the jurisdiction of the FDA. We submitted to the FDA a Modified Risk Tobacco Product Application (“MRTPA”) for our Platform 1 product in December 2016, and a Premarket Tobacco Product Application (“PMTA”) for our Platform 1 product in March 2017.

On April 30, 2019, the FDA determined that a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, is appropriate for the protection of public health and authorized it for sale in the United States. The FDA’s decision followed its comprehensive assessment of our PMTA. On December 7, 2020, the FDA reached the same determination for the IQOS3 device and authorized that version of our Platform 1 product for sale in the United States.

On July 7, 2020, the FDA determined that the available scientific evidence demonstrates that the issuance of an exposure modification order would be appropriate for the promotion of public health and authorized the marketing of a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, as a "modified risk tobacco product." The FDA authorized the marketing of this product in the U.S. with the following information:

"AVAILABLE EVIDENCE TO DATE:

•the IQOS system heats tobacco but does not burn it.
•this significantly reduces the production of harmful and potentially harmful chemicals.
•scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces your body’s exposure to harmful or potentially harmful chemicals."

We must request and receive authorization from the FDA in order to continue marketing this product with the same modified exposure information after the present order expires in four years from the date of the orders.

There are two types of MRTP orders the FDA may issue: a “risk modification” order or an “exposure modification” order. We had requested both types of orders. After review, the FDA determined that the evidence did not support issuing a "risk modification" order at this time but that it did support issuing an "exposure modification" order for the product. This determination included a finding that issuance of the exposure modification order is expected to benefit the health of the population as a whole.

We look forward to working with the FDA to provide any additional information they may require in order to market this product with reduced risk claims.

The FDA’s marketing order doesPMTA and MRTP orders do not mean that the agency “approved” our Platform 1 product.  The authorization isThese authorizations are subject to strict marketing, reporting and other requirements and isare not a guarantee that the product will remain authorized, particularly if there is a significant uptake in youth or non-smoker initiation.  The FDA will monitor the marketing of the product.

We filed a supplemental PMTA applicationSome states and municipalities in the U.S. have introduced severe restrictions for the IQOS 3 device in March 2020.

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The FDA referred our MRTPA to the Tobacco Product Scientific Advisory Committee (“TPSAC”). TPSAC held a meeting on January 24certain e-cigarettes and January 25, 2018 to discuss our MRTPA. The recommendations and votes of TPSAC are not binding ontobacco products, including those authorized by the FDA. By regulation, the FDA’s decisionWe believe that such restrictions on our MRTPAFDA-authorized products will take into account, in additionnot advance public health and will unreasonably limit adult consumer access to the views of TPSAC, scientific evidence as well as comments, data and information submitted by interested persons. The FDA closed the public comment period on February 11, 2019. In late 2019, we providedproducts that are shown to be a responsebetter alternative to the FDA's request for clarification regarding our mice study described above. Following our response, the FDA re-opened a public comment period that ended on February 24, 2020. The FDA review of our MRTPA is on-going.continued smoking.

In March 2020, we requested a clarification from the FDA regarding the applicability of its new health warning requirements to our heated tobacco units sold in the United States.

In July 2017, the FDA issued a policy announcement aiming to explore the potential of nicotine reduction in cigarettes in conjunction with the availability of less harmful products that deliver nicotine for adults who choose to use such products. In July 2018, as part of a public consultation procedure, we submitted our views on this topic to the FDA. It is not possible to predict the regulatory measures that may be recommended by the FDA as a result of this policy.

In the U.S., tobacco and nicotine-containing products that were not commercially marketed as of February 15, 2007 are subject to review and authorization by the FDA. Manufacturers of all non-authorized products currently on the market arewere required to file a PMTA with the FDA by May 12,September 9, 2020. In April 2020, the U.S. District Court allowed the FDA to extend the filing date by 120 days given the COVID-19 pandemic.

On January 2, 2020, theThe FDA announced anon September 9, 2020 that it will prioritize enforcement policy against the sale of e-vapor productsany tobacco and nicotine-containing product sold without FDA authorization, prioritizing enforcement against the sale of cartridge-based e-vapor products with flavors other than tobacco and menthol, and sale of any nicotine-containing products to minors and where the manufacturer fails to take adequate measures to prevent access by minors. The FDA indicated that the enforcement policy will be amended to reflect the PMTA deadline extension mentioned above.a PMTA.

While we do not sell e-vapor products in the U.S. and therefore are not subject to these actions, we continue to support regulation and industry practices that reflect the fact that youth should not consume nicotine in any form.

FDA actions may influence the regulatory approach of other governments.

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Until recently, there were no countries with specific product standards for heat-not-burn products. Currently, national standards setting minimum quality and safety requirements for heat-not-burnsuch products have been adopted in several countries with definedtechnical heat-not-burn specifications and/or methods for demonstrating the absence of combustioncombustion. They are mandatory in Egypt, Jordan, Saudi Arabia, Tunisia and the UAE, and voluntary in the U.K., Russia, Ukraine, Kazakhstan, the UAE, Egypt, Jordan,Kyrgyzstan, Tajikistan, Vietnam, and Kyrgyzstan.Indonesia. In Japan, a voluntary standard sets minimum safety requirements for tobacco heating devices. We expect and encourage other governments to consider similar product standards going forward.and encourage making them mandatory.

In theAll EU all EU Member Statesmember states have transposed the EU Tobacco Products Directive, including the provisions on novel tobacco products, such as heated tobacco units, and e-cigarettes. Most of the EU Member Statesmember states require a notification submitted six months before the intended placing on the market of a novel tobacco product,such products, while some require pre-market authorizations for the introduction of such products. To date, we have filed a comprehensive dossier summarizing our scientific assessment of our Platform 1 product in over 20 Member States.member states.

In addition, in Italy, in April 2018, we submitted under recent legislation an application for HEETS, used with the IQOS device, requesting regulatory recognition of the reduction of toxic substances and potential risk reduction resulting from switching to this product compared to continued cigarette smoking. In January 2019, our application was not granted primarily on the grounds of insufficient data and questions of methodology.  Due to the constraints of the review process, we had been unable to supplement the application with all the data we subsequently filed with the FDA and to address methodological questions during the review. We plan to submit a new application where we will clarify the concerns raised by the decision and further strengthen our application by submitting additional evidence that became available since we submitted our first application, consistent with our FDA filing.filings. We are confident that our evidence supports our application.

On October 31, 2019, our Australian subsidiary, Philip Morris Limited (“PML”), submitted an application to the Scheduling Committee of the Therapeutic Goods Administration of Australia (“TGA”) seeking to exempt heated tobacco products from being prohibited in Australia. In August 2020, the TGA issued its decision denying the application and stating that it did not present compelling evidence to establish a public health benefit from greater access to nicotine in heated tobacco products.

To date, several governmental agencies have published their scientific findings that analyze the harm-reduction potential of certain RRPs versus continuing smoking, including:

In December 2017, at the request of the U.K. Department of Health and Public Health England, the U.K. Committee on Toxicity published its assessment of the risk of heat-not-burn products relative to cigarette smoking. This assessment included analysis of

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scientific data for two heat-not-burn products, one of which was our Platform 1 product. The assessment concluded that, while still harmful to health, compared with the known risks from cigarettes, heat-not-burn products are probably less harmful. Subsequently, in February 2018, Public Health England published a report stating that the available evidence suggests that heat-not-burn products may be considerably less harmful than cigarettes and more harmful than e-cigarettes.

In May 2018, the German Federal Institute for Risk Assessment (“BfR”) published a study on the Platform 1 aerosol relative to cigarette smoke using the Health Canada Intense Smoking Regimen. BfR found reductions in selected HPHCs in a range of 80-99%. This publication indicates that significant reductions in the levels of selected toxicants are likely to reduce toxicant exposure, which BfR stated might be regarded as a discrete benefit compared to combustible cigarettes.

In May 2018, the Dutch National Institute for Public Health and Environment (“RIVM”) published a factsheet on novel tobacco products that heat rather than burn tobacco, focusing on our Platform 1 product. RIVM analyzed the aerosol generated by our Platform 1 product and concluded that the use of this product, while still harmful to health, is probably less harmful than continued smoking.

In June 2018, the Korean Food and Drug Administration (“KFDA”) issued a statement on products that heat rather than burn tobacco. The KFDA tested three heat-not-burn products, one of which was our Platform 1 product. The KFDA confirmed that the levels of the nine HPHCs tested in the aerosol of these products were on average approximately 90% lower compared to those measured in the cigarette smoke of the top five cigarette brands in South Korea. However, the KFDA stated that it could not establish that the tested heat-not-burn products are less harmful than cigarettes. In October 2018, our Korean affiliatesubsidiary filed a request with a local court seeking information underlying KFDA’s analysis, conclusions and public statements. We expect a decision inIn May 2020.2020, the court ordered KFDA to produce certain records.

In August 2018, the Science & Technology Committee of the U.K. House of Commons published a report of its inquiry into e-cigarettes and heat-not-burn products. The report concluded that e-cigarettes are significantly less harmful to health than smoking tobacco. The report also observed that for those smokers who don’tdo not accept e-cigarettes, heat-not-burn products may
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offer a public health benefit despite their relative risk. The report called for a risk-proportionate regulatory environment for both e-cigarettes and heat-not-burn products and noted that e-cigarettes should remain the least taxed, cigarettes the most taxed, with heat-not-burn products falling between the two. The U.K. Committee on Advertising Practice announced the removal of a prohibition of health claims in the advertising of e-cigarettes in the U.K. effective November 2018.

In November 2018, the Eurasian Economic Commission (regulatory body of the Eurasian Union consisting of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia) published the results of its commissioned study on novel nicotine-containing products, including our Platform 1 product. The study confirms significantly lower levels of HPHCs in the aerosol generated by this product compared to cigarette smoke.

In January 2019, scientific media published the results of the study of the China National Tobacco Quality Supervision and Test Centre (“CNTQST”) comparing the aerosol generated by our Platform 1 product with cigarette smoke. The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating tobacco in our Platform 1 product contributed to the difference. The CNTQST stated that the reduction in emissions of harmful constituents cannot be interpreted as equivalent to a proportionate harm/risk reduction for smokers.

In 2020, the Superior Health Council of Belgium (“SHC”) published results of its inquiry into heat-not-burn products. The SHC concluded that heat-not-burn products, while not safe, have a more favorable toxicity profile than cigarettes. However, in light of the uncertainty of such products’ short and long-term impacts, the toxic effects of the dual use with cigarettes, and the existence of approved smoking cessation tools, the SHC recommended that current regulations for cigarettes should apply to heat-not-burn products.

The foregoing scientific findings of government agencies may not be indicative of the measures that the relevant government authorities could take in regulating our products.

We make our scientific findings publicly available for scrutiny and peer review through several channels, including our websites. From time to time, adult consumers, competitors, members of the scientific community, and others inquire into our scientific methodologies, challenge our scientific conclusions or request further study of certain aspects of our RRPs and their health effects. We are committed to a robust and open scientific debate butand believe that such debate should be based on accurate and reliable scientific information. We seek to provide accurate and reliable scientific information about our RRPs; nonetheless, we may not be able to prevent third-party dissemination of false, misleading or unsubstantiated information about these products. The dissemination of scientifically unsubstantiated information or studies with a strong confirmation bias by third parties may cause confusion among adult smokers and affect their decision to switch to better alternatives to continued smoking, such as our RRPs.

To date, we have been largely successful in demonstrating to regulators that our heated tobacco units are not cigarettes due to the absence of combustion, and as such they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes. Although we believe that this is sensible from the public health perspective, we cannot guarantee that regulators will continue this approach.


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There can be no assurance that we will succeed in our efforts to replace cigarettes with RRPs or that regulation will allow us to commercialize RRPs in all markets, to communicate about our RRPs, including making scientifically substantiated risk-reduction claims, or to treat RRPs differently from cigarettes.

Legal Challenges to RRPs: We face various administrative and legal challenges related to certain RRP activities, including allegations concerning product classification, advertising restrictions, corporate communications, product coach activities, scientific substantiation, product liability, and unfair competition.  While we design our programs to comply with relevant regulations, we expect these or similar challenges to continue as we expand our efforts to commercialize RRPs and to communicate publicly. The outcomes of these matters may affect our RRP commercialization and public communication activities and performance in one or more countries.markets.

Our RRP Business Development Initiatives: In December 2013, we established a strategic framework with Altria Group, Inc. (“Altria”) setting out terms on how the parties would collaborate to develop and commercialize e-vapor products and commercialize two of our RRPs in the U.S. In late 2018, Altria announced that it will participate in the e-vapor category only through another e-vapor company in which Altria acquired a minority interest. Regarding heat-not-burn products, as discussed above, the FDA has authorized a version of our Platform 1 product for sale in the U.S., and we are seeking authorization for our MRTP submission. These efforts are not affected by Altria's e-vapor announcement. In September 2019, Altria's subsidiary, Philip Morris USA Inc. (“PM USA”), began commercialization of a version of our Platform 1 product in the U.S. PM USA is responsible for the marketing of this product in the U.S. and communication of the reduced exposure information authorized by the FDA in its MRTP marketing order described above.
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In January 2020, we announced an agreement with KT&G, a leading tobacco and nicotine company in South Korea, for the commercialization of KT&G’s smoke-free products outside of South Korea on an exclusive basis.  For more information, see Acquisitions and Other Business Arrangements below.

Other Developments: In September 2017, we announced our support of the Foundation for a Smoke-Free World. In September 2020, our pledge agreement with the Foundation was amended. We agreedcontributed $45 million in 2020 and expect to contribute $80$40 million per year over the next 12 years,in 2021 and $35 million annually from 2022 through 2029, as specified in the amended pledge agreement. We made an initial contributionTo date, we contributed a total of $4.5 million in 2017, the first annual contribution of $80 million in the first quarter of 2018 and the second annual contribution of $80 million in the first quarter of 2019.$209.5 million. The Foundation is an independent body and is governed by its independent Board of Directors. The Foundation’s role, as set out in its corporate charter, includes funding research in the field of tobacco harm reduction, encouraging measures that reduce the harm caused by smoking, and assessing the effect of reduced cigarette consumption on the industry value chain.


Governmental Investigations

From time to time, we are subject to governmental investigations on a range of matters, including tax, customs, antitrust, advertising, and labor practices. We describe certain matters pending in Thailand, Russia and South Korea in Note 8. Contingencies.

In November 2010, a WTO panel issued its decision in a dispute relating to facts that arose from August 2006 between the Philippines and Thailand concerning a series of Thai customs and tax measures affecting cigarettes imported by PM Thailand into Thailand (see Note 8. Contingencies for additional information). The WTO panel decision, which was upheld by the WTO Appellate Body, concluded that Thailand had no basis to find that PM Thailand's declared customs values and taxes paid were too low, as alleged by the DSIDepartment of Special Investigations of the government of Thailand ("DSI") in 2009. The decision also created obligations for Thailand to revise its laws, regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports. Thailand agreed in September 2011 to fully comply with the decision by October 2012. The Philippines asserts that to date Thailand has not fully complied with the WTO panel decision. The Philippines has repeatedly expressed concerns with ongoing investigations by Thailand of PM Thailand, including those that led to the criminal charges described in Note 8. Contingencies,decision and has commenced two formal proceedingschallenges at the WTO to challenge criminal charges against PM Thailand arguing that the criminal charges appear to be based on grounds not supported by WTO customs valuation rules and inconsistent with several decisions already taken by Thai Customs and other Thai governmental agencies. On November 12, 2018 and July 12, 2019, the WTO issued its decisions agreeing with the Philippines that the criminal charges against PM Thailand and its former and current employeesin connection with import entries of cigarettes from the Philippines and Indonesia, respectively, described in Note 8. Contingencies, are inconsistent with WTO customs valuation rules. In January 2019 and September 2019, Thailand appealed the WTO decision related to the criminal charges in connection with import entries of cigarettes from the Philippines and Indonesia, respectively.Appellate Body. The WTO Appellate Body is not operational, and the appeals by Thailand are suspended indefinitely. In FebruaryDecember 2020, the Philippines requested an authorization from the WTO Dispute Settlement Bodyand Thailand agreed to suspend certain concessionspursue facilitator-assisted discussions aimed at progressing and other trade obligations to Thailand.resolving outstanding issues. It is not possible to predict any future developments in these proceedings.proceedings or the outcome of these discussions.


The Public Prosecutor’s office of Rome, Italy, notified our Italian subsidiary, Philip Morris Italia S.r.l. (“PM Italia”), as well as three former or current employees and a former external consultant of PM Italia in July 2020 and March 2020, respectively, that it concluded a preliminary investigation against them for alleged contravention of anti-corruption laws and related disruption of trade freedom. The Public Prosecutor alleges that the individuals involved promised certain personal favors to government officials from January to July of 2018 in exchange for favorable treatment for PM Italia, and that PM Italia lacked appropriate organizational controls to prevent the alleged actions by the individuals. In September 2020, the Public Prosecutor referred the matter to trial. PM Italia believes the charges brought against it by the Public Prosecutor are without merit and will defend them vigorously.
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Asset Impairment and Exit Costs

We discuss asset impairment and exit costs in Note 18.16. Asset Impairment and Exit Costs to our condensed consolidated financial statements.

Organizational Design Optimization

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As part
Table of our transformation to a smoke-free future, we seek to optimize our organizational design, including relocation and outsourcing of certain activities.Contents

In January 2020, we commenced the first phase of a two-phase restructuring project in Switzerland. During the first quarter of 2020, we initiated the employee consultation procedure, as required under Swiss law, for the impacted employees in the first phase. This consultation was completed in April 2020; however, in light of the COVID-19 pandemic, PMI management has communicated that it has suspended restructuring plans. Due to the timing of the closure of the consultation, in combination with the suspension announced by PMI management, no amounts have been recorded in the first quarter of 2020, as the proposed exit activity is not considered probable (under U.S. GAAP) as of March 31, 2020.

Acquisitions and Other Business Arrangements

In January 2020, PMI announced a global collaboration agreement with the leading tobacco and nicotine company in South Korea, KT&G, to commercialize KT&G’s smoke-free products outside of the country. The agreement will run for an initial period of three years. The two companies plan for global collaboration with the intention to actively expand to cover many markets, based on commercial success. The agreement allows PMI to distribute current KT&G smoke-free products, and their evolutions, on an exclusive basis, and does not restrict PMI from distributing its own or third-party products. KT&G’s smoke-free product brand portfolio includes heat-not-burn tobacco products (e.g., LilLIL Mini and Lil Plus)LIL Plus), hybrid technologies that combine heat-not-burn tobacco and e-vapor technologies (e.g., Lil Hybrid)LIL HYBRID), and e-vapor products (e.g., Lil Vapor)LIL Vapor). PMI will be responsible for the commercialization of smoke-free products supplied under the agreement.

Products sold under the agreement will beare subject to careful assessment to ensure they meet the regulatory requirements in the markets where they are launched, as well as our standards of quality and scientific substantiation to confirm the absence of their harm reduction potential.combustion and significant reductions of emissions of harmful chemicals compared to cigarettes. PMI and KT&G will seek any necessary regulatory approvals that may be required on a market-by-market basis. There are no current plans to commercialize KT&G products in the United States.

Due toIn the COVID-19 pandemic, the timingthird quarter of our2020, we launched commercial initiatives planned for the licensed KT&G products later this year could be delayed.in select markets.

Investments in Unconsolidated Subsidiaries and
Equity SecuritiesInvestments

We discuss our equity investments in unconsolidated subsidiaries and equity securities in Note 11. Fair Value Measurements and Note 14.12. Related Parties - Equity Investments in Unconsolidated Subsidiaries, Equity Securitiesand Other to our condensed consolidated financial statements.

Trade Policy
Trade Policy

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

Tobacco products are agricultural products under U.S. law and are not technological or strategic in nature. From time to time we make sales in countries subject to Trade Sanctions, either where such sanctions do not apply to our business or pursuant to exemptions or licenses.

AFrom time to time, a subsidiary sells products to distributors that, in turn, sell those products to duty free customers that supply U.N. peacekeeping forces around the world, including those in the U.N. peacekeeping mission located in Abyei, a special administrative territory in Sudan. We do not believe that these sales, which are not subject to Trade Sanctions, and are de minimis in volume and value, present a material risk to our shareholders, our reputation or the value of our shares. We have no employees, operations or assets in Sudan.

To our knowledge, none of our commercial arrangements results in the governments of any country identified by the U.S. government

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as a state sponsor of terrorism, nor entities controlled by those governments, receiving cash or acting as intermediaries in violation of U.S. laws.

We do not sell products in Iran, North Korea and Syria. From time to time, we explore opportunities to sell our products in one or more of these countries, as permitted by law.

We sell cigarettes in Cuba under a distribution agreement. These sales are permitted by U.S. law under a License Exception for Agricultural Commodities, issued by the United States Department of Commerce (Bureau of Industry and Security), granted to our distributor.

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




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Operating Results – Three Months Ended March 31, 20202021

The following discussion compares operating results within each of our operating segments for the three months ended March 31, 2020,2021, with the three months ended March 31, 2019.2020.

Unless otherwise stated, references to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units. Estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of industry data.

European Union:
Financial Summary -
Quarters Ended March 31,		    Change
Fav./(Unfav.)		 Variance
Fav./(Unfav.)
 20202019 TotalExcl.
Curr.		 TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)   
Net Revenues $2,535
$2,159
 17.4%20.7% $376
$(70)$16
$430
$—
Operating Income $1,158
$896
 29.2%36.5% $262
$(65)$16
$378
$(67)

Financial Summary -
Quarters Ended March 31,		Change
Fav./(Unfav.)		Variance
Fav./(Unfav.)
20212020TotalExcl.
Curr.		TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)
Net Revenues$ 2,909 $ 2,535 14.8 %5.5 %$374 $235 $37 $102 $— 
Operating Income$ 1,490 $ 1,158 28.7 %15.2 %$332 $156 $37 $101 $38 

During the quarter, net revenues, excluding unfavorablefavorable currency, increased by 20.7%5.5%, primarily reflectingreflecting: favorable volume/mix, mainly driven by higher heated tobacco unit volume across the Region (notably in the Czech Republic, Germany, Italy and Poland), as well as higher cigarette volume (notably in Germany and Italy). The favorable pricing variance reflected higher combustible pricing across the Region (notably in Germany), partly offset by lower heated tobacco unit pricingcigarette volume (notably in Italy)Spain); and lower IQOS device pricing.a favorable pricing variance (driven by higher combustible pricing, particularly in Germany).

The net revenues of the European Union segment include $624 million in 2020 and $347 million in 2019 related to the sale of RRPs.

Operating income, excluding unfavorablefavorable currency, increased by 36.5%15.2%, mainlyprimarily reflecting: favorable volume/mix, driven by the same factors as for net revenues noted above; lower manufacturing costs (driven mainly by reduced-risk products); and a favorable pricing variance; partly offset by higher manufacturing costs; and higher marketing, administration and research costs largely(including the impact of 2021 asset impairment and exit costs related to increased investments behind reduced-risk products.organizational design optimization).

European Union - Total Market, PMI Shipment Volume and Market Share Commentaries

Total market PMI shipment volume and market share performance are shown in the table below:

European Union Key DataFirst-Quarter
Change
20212020% / pp
Total Market (billion units)105.8109.4(3.3)%
PMI Market Share
Marlboro17.1 %17.6 %(0.5)
L&M5.8 %6.5 %(0.7)
Chesterfield5.5 %5.6 %(0.1)
Philip Morris2.2 %2.6 %(0.4)
HEETS5.7 %3.9 %1.8 
Others3.2 %3.2 %— 
Total European Union39.5 %39.4 %0.1 
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European Union Key Data First-Quarter
    Change
  2020
2019
% / pp
Total Market (billion units) 109.3
107.4
1.8%
     
PMI Shipment Volume (million units)    
Cigarettes 40,646
39,488
2.9%
Heated Tobacco Units 4,661
2,293
+100%
Total European Union 45,307
41,781
8.4%
     
PMI Market Share    
Marlboro 17.7%18.2%(0.5)
L&M 6.5%6.7%(0.2)
Chesterfield 5.7%5.9%(0.2)
Philip Morris 2.6%2.8%(0.2)
HEETS 3.9%2.1%1.8
Others 3.0%3.2%(0.2)
Total European Union 39.4%38.9%0.5

In the quarter, the estimated total market in the EU increaseddecreased by 1.8%3.3% to 109.3105.8 billion units, mainlynotably driven by:
Denmark, up•Czech Republic, down by +100%24.9%, mainly reflecting the net favorable impact of estimated trade inventory movements in advance of a significant excise tax increase on April 1, 2020. Excluding these movements, the total estimated market decreasedlower border sales due to pandemic-related lockdown measures;
•Denmark, down by 2.0%; and
Germany, up by 3.7%58.9%, or down by 1.8%15.1% excluding the net favorableunfavorable impact of estimated trade inventory movements, primarily reflecting the impact of excise tax-driven price increases in March 2019;increases;
•Romania, down by 12.8%, mainly reflecting the impact of pandemic-related lockdown measures; and
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•Spain, down by 7.7%, notably reflecting lower in-bound tourism due to the pandemic;
partly offset by
France, down•Germany, up by 8.7%8.5%, primarily reflecting the pandemic-related impact of significant excise tax-driven price increases in November 2019lower cross-border (non-domestic) purchases and March 2020, and a higher prevalence of illicit trade.reduced out-bound tourism.
Excluding the net favorable impact of estimated trade inventory movements, the estimated total market in the EU was down by 0.4%.

pm-20210331_g4.jpg
Our total shipment volume increaseddecreased by 8.4%4.7% to 45.343.2 billion units, or by 3.0% excluding the net unfavorable impact of estimated distributor inventory movements (notably in Spain), reflecting:
•lower cigarette shipment volume, mainly due to the lower total market, as well as lower market share (notably in Germany, Italy and Poland, partly reflecting out-switching to heated tobacco units);
partly offset by
•higher heated tobacco unit shipment volume across the Region, driven by higher market share (notably in Germany, Hungary, Italy and Poland) and the net favorable impact of estimated distributor inventory movements (partly driven by distributor inventory increases related to COVID-19, notably in Italy); and
higher cigarette shipment volume, mainly driven by the net favorable impact of estimated distributor inventory movements (partly driven by distributor inventory increases related to COVID-19, notably in Italy and Spain), partly offset by lower market share (notably in Italy and Poland, partially reflecting out-switching to heated tobacco units).
Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales in the Region increased by 3.1%.


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Eastern Europe:
Financial Summary -
Quarters Ended March 31,		    Change
Fav./(Unfav.)		 Variance
Fav./(Unfav.)
 20202019 TotalExcl.
Curr.		 TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)   
Net Revenues $788
$579
 36.1 %35.1% $209
$6
$14
$189
$—
Operating Income $99
$129
 (23.3)%48.1% $(30)$(92)$14
$129
$(81)

Financial Summary -
Quarters Ended March 31,		Change
Fav./(Unfav.)		Variance
Fav./(Unfav.)
20212020TotalExcl.
Curr.		TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)
Net Revenues$ 796 $ 788 1.0 %10.5 %$8 $(75)$24 $59 $— 
Operating Income$ 261 $ 99 +100%+100%$162 $7 $24 $57 $74 

During the quarter, net revenues, excluding favorableunfavorable currency, increased by 35.1%10.5%, mainly reflecting: favorable volume/mix, predominantly driven by higher heated tobacco unit volume in Russia and Ukraine; and a favorable pricing variance, driven mainly by higher combustible pricing (notably(primarily in Russia and Ukraine), partly offset by lower IQOS deviceunfavorable cigarette volume (mainly in Ukraine); and a favorable pricing (predominantlyvariance, driven by higher combustible pricing (notably in Russia)Ukraine).

The net revenues of the Eastern Europe segment include $265 million in 2020 and $108 million in 2019 related to the sale of RRPs.

Operating income increased by over 100%, excluding unfavorablefavorable currency (primarily related(note: currency variance includes a favorable comparison due to an adverse transaction currency impact fromin the first quarter of 2020 related to the revaluation of foreign
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currency payables in Russia), increased by 48.1%, mainlyprimarily reflecting: favorable volume/mix, reflectingdriven by the same driversfactors as for net revenues noted above; and a favorable pricing variance; partially offset by higherlower manufacturing costs and higher marketing, administration and research costs (primarily related to reduced-risk products, mainly in RussiaRussia); a favorable pricing variance; and Ukraine).lower marketing, administration and research costs.


Eastern Europe - Total Market, PMI Shipment Volume and Market Share Commentaries

In the quarter, the estimated total market in Eastern Europe decreased, notablymainly due to:
Russia,•Ukraine, down by 0.1%15.7%, or by 3.9%9.9% excluding the net unfavorable impact of estimated trade inventory movements, mainly reflecting the impact of excise tax-driven price increases and a higher prevalence of illicit trade;
partly offset by
•Russia, up by 3.6%, primarily reflecting the net favorable impact of estimated trade inventory movements, primarily reflectingpartly related to the impact of price increases, as well as an increase inban on discounts on cigarettes effective April 1, 2021. Excluding these movements, the prevalence of illicit trade; and
Ukraine, downtotal estimated market decreased by 6.5%2.4%, mainly reflectingdue to the impact of excise tax-driven price increases.increases, partly offset by a lower prevalence of illicit trade.

PMI Shipment Volume (million units)First-Quarter
 2020
2019
Change
Cigarettes21,419
20,320
5.4%
Heated Tobacco Units4,366
1,548
+100%
Total Eastern Europe25,785
21,868
17.9%

pm-20210331_g5.jpg
Our total shipment volume increaseddecreased by 17.9%0.7% to 25.825.6 billion units, mainly driven by:notably due to:
Kazakhstan, up•Ukraine, down by 15.6%10.9%, or by 7.7% excluding the net unfavorable impact of estimated distributor inventory movements, mainly reflecting the lower total market, partly offset by a higher market share ofdriven by heated tobacco units; and
partly offset by
•Russia, up by 24.0%, or by 14.5% excluding4.2%. Excluding the net favorable impact of estimated distributor inventory movements (primarily forof 0.4 billion cigarettes and driven0.2 billion heated tobacco units, PMI's in-market sales increased by distributor inventory increases due to COVID-19)0.3%, mainly reflecting the higher total market, partly offset by a higherlower market share of heated tobacco units.due to cigarettes.



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Middle East & Africa:
Financial Summary -
Quarters Ended March 31,		    Change
Fav./(Unfav.)		 Variance
Fav./(Unfav.)
 20202019 TotalExcl.
Curr.		 TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)   
Net Revenues $876
$927
 (5.5)%(5.3)% $(51)$(2)$72
$(76)$(45)
Operating Income $321
$344
 (6.7)%(1.2)% $(23)$(19)$72
$(30)$(46)

Financial Summary -
Quarters Ended March 31,		Change
Fav./(Unfav.)		Variance
Fav./(Unfav.)
20212020TotalExcl.
Curr.		TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)
Net Revenues$ 801 $ 876 (8.6)%(5.9)%$(75)$(23)$77 $(159)$30 
Operating Income$ 335 $ 321 4.4 %8.4 %$14 $(13)$77 $(130)$80 

During the quarter, net revenues, excluding unfavorable currency, decreased by 5.3%5.9%, primarily reflecting: unfavorable volume/mix, mainly due to lower cigarette and heated tobacco unit and IQOS device volume in PMI Duty Free, andas well as lower cigarette volume (notably in Saudi Arabia and Turkey,North Africa (particularly Egypt); partly offset by Kuwait and North Africa)a favorable pricing variance (driven by combustible pricing, mainly in Turkey); and lowerhigher fees for certain distribution rights billed to customers in certain markets, shown in "Cost/Other"; partially offset by a favorable pricing variance, driven predominantly by the GCC and Turkey.Other."

The net revenues of the Middle East & Africa segment include $44 million in 2020 and $98 million in 2019 related to the sale of RRPs.

Operating income, excluding unfavorable currency, decreasedincreased by 1.2%8.4%, mainly reflecting: unfavorable volume/mix, mainly due toa favorable pricing variance; lower heated tobacco unit volume in PMI Duty Freemarketing, administration and lower cigarette volume (notably in Saudi Arabia, partly offset by Kuwait and North Africa); and unfavorable "Cost/Other," mainly due to lowerresearch costs; higher fees for certain distribution rights, as noted above for net revenues; and lower manufacturing costs; partly offset by unfavorable volume/mix, due to the same factors as for net revenues noted above, and higher manufacturing costs, partly offset by lower marketing, administration and research costs; partially offset by a favorable pricing variance.above.

Middle East & Africa - Total Market, PMI Shipment Volume and Market Share Commentaries

In the quarter, the estimated total market in the Middle East & Africa decreased, mainly due to:
•International Duty Free, down by 33.0%58.4%, primarily reflecting the impact of government travel restrictions and reduced passenger traffic due to the COVID-19 pandemic; and
Saudi Arabia,•South Africa, down by 18.6%29.2%, notably reflecting the increased prevalence of non-domestic products following the implementation of plain packaging in the fourth quarter of 2019; and
Turkey, down by 24.1%, mainlyprimarily reflecting a higher estimated prevalence of illicit trade related to cutresulting from the pandemic-related ban on all tobacco following significant industry-wide price increases in 2019;sales from March 27, 2020, through August 17, 2020;
partly offset by
•Egypt, up by 5.9%7.6%, partlyor by 4.6% excluding the net favorable impact of estimated trade inventory movements, notably reflecting a lower estimated prevalence of illicit trade and in-switching to cigarettes from other combustible tobacco products.

pm-20210331_g6.jpg
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PMI Shipment Volume (million units)First-Quarter
 2020
2019
Change
Cigarettes29,996
33,304
(9.9)%
Heated Tobacco Units470
754
(37.7)%
Total Middle East & Africa30,466
34,058
(10.5)%
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Our total shipment volume decreased by 10.5%8.0% to 30.528.0 billion units, notably due to:
PMI Duty Free,•Egypt, down by 12.8%16.6%, or by 28.1%9.1% excluding the net favorable impact of estimated distributor inventory movements (driven by cigarettes), mainly reflecting the lower total market;
Saudi Arabia, down by 72.6%. Excluding the net unfavorable impact of estimated distributor inventory movements, mainly reflecting a lower market share (notably for L&M); and
•PMI Duty Free, down by 67.4%, or by 54.5% excluding the net unfavorable impact of 2.3 billionestimated distributor inventory movements (due to cigarettes), mainly reflecting the lower total market for both cigarettes largely attributableand heated tobacco units;
partly offset by
•Turkey, up by 7.9%, primarily reflecting a higher market share, driven by the growth of Marlboro and Parliament, partly offset by a lower total market.


South & Southeast Asia:

Financial Summary -
Quarters Ended March 31,		Change
Fav./(Unfav.)		Variance
Fav./(Unfav.)
20212020TotalExcl.
Curr.		TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)
Net Revenues$ 1,173 $ 1,251 (6.2)%(8.5)%$(78)$28 $(38)$(68)$— 
Operating Income$ 529 $ 599 (11.7)%(13.9)%$(70)$13 $(38)$(72)$27 

During the quarter, net revenues, excluding favorable currency, decreased by 8.5%, reflecting: unfavorable volume/mix, due to lower cigarette volume in Indonesia and the Philippines, partly offset by favorable cigarette mix in Indonesia and the Philippines; and an unfavorable pricing variance, due to Indonesia, partially offset by the Philippines.

Operating income, excluding favorable currency, decreased by 13.9%, primarily reflecting: unfavorable volume/mix, due to the timingsame factors as for net revenues noted above; and an unfavorable pricing variance; partly offset by lower marketing, administration and research costs.

South & Southeast Asia - Total Market, PMI Shipment Volume and Market Share Commentaries

In the quarter, the estimated total market in South & Southeast Asia increased, notably due to:
•Indonesia, up by 4.9%, mainly reflecting the growth of shipmentsthe tax-advantaged 'below tier one' segment; and
•Pakistan, up by 26.7%, or by 5.0% excluding the net favorable impact of estimated trade inventory movements, primarily reflecting a lower prevalence of illicit trade;
partly offset by
•the Philippines, down by 14.4%, primarily reflecting the impact of industry-wide price increases in 2019, PMI's in-market salesthe fourth quarter of 2020.





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pm-20210331_g7.jpg
Our total shipment volume decreased by 20.4%7.1% to 34.9 billion units, notably due to:
•Indonesia, down by 2.7%, primarily reflecting a lower market share, mainly due to adult smoker down-trading to the 'below tier one' segment as a result of significantly lower total market;retail prices; and

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Turkey,the Philippines, down by 27.0%23.9%, mainly reflecting the lower total market, and a lower market share due(due primarily to adult smoker down-trading followingmid-price Fortune, reflecting the impact of price increases;increases in the fourth quarter of 2020, partly offset by Marlboro);
partly offset by
Egypt,•Pakistan, up by 17.1%19.8%, or by 6.1% excluding the net favorable impact of estimated distributor inventory movements, mainlyprimarily reflecting the higher total market.


South

East Asia & Southeast Asia:Australia:
Financial Summary -
Quarters Ended March 31,		Change
Fav./(Unfav.)		Variance
Fav./(Unfav.)
20212020TotalExcl.
Curr.		TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)
Net Revenues$ 1,472$ 1,25517.3 %11.6 %$217 $71 $105 $41 $— 
Operating Income$ 695$ 48643.0 %39.3 %$209 $18 $105 $58 $28 
Financial Summary -
Quarters Ended March 31,		    Change
Fav./(Unfav.)		 Variance
Fav./(Unfav.)
 20202019 TotalExcl.
Curr.		 TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)   
Net Revenues $1,251
$1,113
 12.4%10.7% $138
$19
$159
$(40)$—
Operating Income $599
$440
 36.1%31.8% $159
$19
$159
$(18)$(1)

During the quarter, net revenues, excluding favorable currency, increased by 10.7%11.6%, reflectingreflecting: a favorable pricing variance, principallyprimarily driven by the Philippines, partly offset by unfavorablehigher heated tobacco and combustible pricing in Japan; and favorable volume/mix, mainly due to higher heated tobacco unit volume in Japan, partly offset by: lower cigarette volume (mainly in Indonesia and the Philippines,Japan, partially offset by favorableAustralia), unfavorable cigarette mix (mainly in Indonesia.Australia and Japan), and unfavorable heated tobacco unit mix in Japan.

Operating income, excluding favorable currency, increased by 31.8%39.3%, partly reflectingmainly reflecting: a favorable comparisonpricing variance; favorable volume/mix, due to a charge recordedthe same factors as for net revenues noted above; and lower manufacturing costs (primarily related to reduced-risk products in Japan). Marketing, administration and research costs were essentially stable, despite the unfavorable impact of 2021 asset impairment and exit costs (primarily related to product distribution restructuring in South Korea).



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East Asia & Australia - Total Market, PMI Shipment Volume and Market Share Commentaries

In the quarter, the estimated total market in East Asia & Australia, excluding China, decreased, primarily due to:
•Japan, down by 8.0%, primarily due to the impact of excise tax-driven price increases in October 2020;
partly offset by
•South Korea, up by 3.7%, mainly reflecting the shift of adult smokers from duty-free to domestic purchases due to the pandemic-related decline in international travel; and
•Taiwan, up by 12.7%, mainly reflecting the same factor as for South Korea.
pm-20210331_g8.jpg
Our total shipment volume increased by 5.6% to 20.5 billion units, or decreased by 0.2% excluding the net favorable impact of estimated distributor inventory movements, notably reflecting:
•Japan, up by 7.8%. Excluding the net favorable impact of estimated distributor inventory movements of 1.1 billion heated tobacco units (primarily driven by inventory movements in the first quarter of 2019 for asset impairment and exit costs related2020), PMI's in-market sales decreased by 0.8%, mainly due to the lower total market, partly offset by a plant closurehigher market share driven by heated tobacco units.


Latin America & Canada:
Financial Summary -
Quarters Ended March 31,		Change
Fav./(Unfav.)		Variance
Fav./(Unfav.)
20212020TotalExcl.
Curr.		TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)
Net Revenues$ 434 $ 448 (3.1)%(0.7)%$(14)$(11)$1 $(6)$2 
Operating Income$ 134 $ 126 6.3 %1.6 %$8 $6 $1 $(16)$17 



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During the quarter, net revenues, excluding unfavorable currency, decreased by 0.7%, mainly reflecting: unfavorable volume/mix, notably due to lower cigarette volume in Pakistan ($20 million).Colombia, partly offset by Brazil.

Excluding the impact of the 2019 charge, operatingOperating income, excluding favorable currency, increased by 26.1%1.6%, reflecting a favorable pricing variance,primarily reflecting: lower marketing, administration and research costs (mainly related to combustible products); partly offset by unfavorable volume/mix, due to the same factors as for net revenues noted above, and higher marketing, administration and research costs.

South & Southeast Asia - Total Market, PMI Shipment Volume and Market Share Commentaries

In the quarter, the estimated total market in South & Southeast Asia decreased, notably due to:
Indonesia, down by 0.6%, or by approximately 7% excluding the net favorable impact of estimated trade inventory movements, mainly reflecting the impact of excise tax-driven price increases;
Pakistan, down by 25.3%, or by 41.9% excluding the net favorable impact of estimated trade inventory movements, mainly due to the impact of excise tax-driven price increases in June 2019; and
the Philippines, down by 8.9%, or by 13.2% excluding the net favorable impact of estimated trade inventory movements, mainly reflecting the impact of industry-wide price increases in the third quarter of 2019 and the implementation of quarantines related to COVID-19 in select geographies beginning in mid-March 2020.

PMI Shipment Volume (million units)First-Quarter
 2020
2019
Change
Cigarettes37,595
41,492
(9.4)%
Heated Tobacco Units—
—
— %
Total South & Southeast Asia37,595
41,492
(9.4)%

Our total shipment volume decreased by 9.4% to 37.6 billion units, notably due to:
•
Indonesia, down by 7.6%, primarily reflecting lower market share, mainly due to Marlboro and Dji Sam Soe Magnum Mild, partly offset by Sampoerna A;

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Pakistan, down by 35.0%, mainly due to the lower total market; and
the Philippines, down by 8.8%, mainly reflecting the lower total market.


above.
East Asia & Australia:
Financial Summary -
Quarters Ended March 31,		    Change
Fav./(Unfav.)		 Variance
Fav./(Unfav.)
 20202019 TotalExcl.
Curr.		 TotalCur-
rency		PriceVol/
Mix		Cost/
Other
(in millions)   
Net Revenues $ 1,255$ 1,321 (5.0)%(4.3)% $(66)$(9)$13
$(70)$—
Operating Income $ 486$ 427 13.8 %14.8 % $59
$(4)$13
$(11)$61

During the quarter, net revenues, excluding unfavorable currency, decreased by 4.3%, reflecting: unfavorable volume/mix, mainly due to lower IQOS device volume in Japan and unfavorable cigarette volume/mix in Australia, partly offset by higher cigarette and heated tobacco unit volume in Japan. The unfavorable volume/mix was partly offset by a favorable pricing variance, mainly driven by Australia.

The net revenues of the East Asia & Australia segment include $613 million in 2020 and $683 million in 2019 related to the sale of RRPs.

Operating income, excluding unfavorable currency, increased by 14.8%, mainly reflecting lower manufacturing costs related to Japan; lower marketing, administration and research costs; and a favorable pricing variance; partly offset by unfavorable volume/mix, notably due to unfavorable cigarette volume/mix in Australia, partially offset by higher cigarette volume in Japan.

East Asia & Australia - Total Market, PMI Shipment Volume and Market Share Commentaries

In the quarter, the estimated total market in East Asia & Australia, excluding China, decreased, notably due to:
Australia, down by 19.1%, or by 7.9% excluding the net unfavorable impact of estimated trade inventory movements, mainly due to the impact of excise tax-driven retail price increases;
Japan, down by 5.7%, mainly reflecting adult smoker out-switching from cigarettes to the cigarillo category; and
Taiwan, down by 14.4%, or by 3.2% excluding the net unfavorable impact of estimated trade inventory movements, notably due to an increase in the prevalence of illicit trade.

PMI Shipment Volume (million units)First-Quarter
 2020
2019
Change
Cigarettes12,299
12,113
1.5%
Heated Tobacco Units7,122
6,849
4.0%
Total East Asia & Australia19,421
18,962
2.4%

Our total shipment volume increased by 2.4% to 19.4 billion units, notably in:
Japan, up by 5.6%, reflecting the net favorable impact of estimated distributor inventory movements of approximately 0.8 billion units (driven by a 0.9 billion favorable impact for cigarettes), partly due to accelerated cigarette and heated tobacco unit shipments to the distributor related to COVID-19. Excluding the impact of these inventory movements, PMI's in-market sales decreased by 0.9%, mainly due to the lower total market, partly offset by higher heated tobacco unit market share.



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Latin America & Canada:
Financial Summary -
Quarters Ended March 31,		    Change
Fav./(Unfav.)		 Variance
Fav./(Unfav.)
 20202019 TotalExcl.
Curr.		 TotalCur-
rency		PriceVol/
Mix
Cost/
Other(1)
(in millions)   
Net Revenues $448
$652
 (31.3)%(28.5)% $(204)$(18)$49
$(52)$(183)
Operating Income $126
$(186) +100%
+100%
 $312
$(35)$49
$(38)$336
(1) Cost/Other variance includes the impact of the RBH deconsolidation.
Note: Net Revenues include revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc., commencing in the third quarter of 2019, for sale under license in the United States.

During the quarter, net revenues, excluding unfavorable currency, decreased by 28.5%, reflecting: the unfavorable impact of the deconsolidation of RBH shown in "Cost/Other"; and unfavorable volume/mix, notably due to lower cigarette volume in Argentina and Mexico; partly offset by a favorable pricing variance, driven by Mexico.

The net revenues of the Latin America & Canada segment include $8 million in 2020 and $6 million in 2019 related to the sale of RRPs.

Operating income, excluding unfavorable currency, increased by +100%, notably reflecting a favorable comparison to charges recorded in the first quarter of 2019 of $433 million, included in "Cost/Other," related to the loss on deconsolidation of RBH of $239 million and the Canadian tobacco litigation-related expense of $194 million.

Excluding the impact of these 2019 charges, operating income, excluding unfavorable currency, decreased by 34.8%, reflecting: the unfavorable impact of the deconsolidation of RBH, included in "Cost/Other"; and unfavorable volume/mix, due to the same factors as for net revenues noted above; partly offset by a favorable pricing variance and lower marketing, administration and research costs.

Latin America & Canada - Total Market, PMI Shipment Volume and Market Share Commentaries

In the quarter, the estimated total market in Latin America & Canada decreased, notablyincreased, mainly due to:
•Argentina, downup by 5.7%14.2%, or by 9.4% excluding the net favorable impact of estimated trade inventory movements, primarily reflecting a lower estimated prevalence of illicit trade; and
•Brazil, up by 8.3%, mainly reflecting the impact of price increases; and
Mexico, down by 10.5%, mainly due to the impact of excise tax-driven price increases in January 2020;
partly offset by
Brazil, up by 10.3%, mainly reflecting ana lower estimated lower prevalence of illicit trade due toto: reduced price gaps with legal products and improved macro-economic conditions.the impact of border restrictions imposed as a result of the pandemic.

PMI Shipment Volume (million units)First-Quarter
 2020
2019
Change
Cigarettes15,063
17,580
(14.3)%
Heated Tobacco Units108
54
+100%
Total Latin America & Canada15,171
17,634
(14.0)%

pm-20210331_g9.jpg
Our total shipment volume decreased by 14.0%1.2% to 15.215.0 billion units, or by 8.8% excluding the impact of the RBH deconsolidation, notably due to:
Argentina,•Colombia, down by 13.2%15.3%, primarily reflecting a lower total market, share due to adult smoker down-trading to ultra-low-price brands produced by local manufacturers, as well as the lower total market; and

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Mexico, down by 14.0%, mainlyprimarily due to the lowerimpact of price increases in January 2021 and increased pandemic-related restrictions;
partly offset by
•Brazil, up by 9.7%, mainly reflecting the higher total market and lower market share due to adult smoker down-trading.market.

Excluding the net unfavorable impact of estimated distributor inventory movements, PMI's heated tobacco unit in-market sales volume in the Region increased by 10.1%.


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Financial Review

COVID-19 Impact on Our LiquidityCash Flow Highlights

pm-20210331_g10.jpgpm-20210331_g11.jpgpm-20210331_g12.jpg
During the first quarter of 2020, the COVID-19 pandemic created significant volatility in the financial markets. The pandemic also increased our working capital requirements, primarily due to a build-up of inventory levels across our supply chain, with extended payment terms to selected customers as part of our ongoing business continuity plans.
For the Three Months Ended March 31,
(in millions)20212020
Net cash provided by operating activities$435 $1,111 
Net cash provided by investing activities55 514 
Net cash used in financing activities(3,649)(4,549)

Currently, PMI has sufficient liquidity resources through cash on hand, the ongoing cash generation of our business, and continued access to commercial paper. As of March 31, 2020, PMI had approximately $3.7 billion of cash and cash equivalents. We had $1.1 billion of commercial paper, with an average term of approximately 30 days, and $7.5 billion in stand-by revolving credit facilities.

At the end of March 2020, the commercial paper market experienced considerable strain as a result of the COVID-19 pandemic. This situation for PMI was limited to a few days, after which the access to the commercial paper market was fully restored. The Federal Reserve Bank of New York established a Commercial Paper Funding Facility ("CPFF") as part of the U.S. COVID-19 stimulus package to provide liquidity to U.S. issuers of commercial paper. While we are currently not planning to register for this funding facility, the CPFF and our revolving credit facilities could serve as a liquidity back-stop in case of renewed financial market strains. Additionally, the continued or increasing strength of the U.S. dollar could delay further deleveraging of our balance sheet versus our previous expectations.

To further mitigate the potential impact of COVID-19 pandemic, we have actively managed our exposure to foreign currency exchange primarily through the increased usage of derivative financial instruments to hedge the primary currencies to which PMI is exposed. We have introduced more stringent cash management policies to manage our counterparty exposure.
































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Cash Flow Highlights
chart-9169fb7f6cb55c14baf.jpgchart-91fe1253518154d0b16.jpgchart-effff21c58d15e89979.jpg
 For the Three Months Ended March 31,
(in millions)20202019
Net cash provided by operating activities$1,111
$1,241
Net cash provided by (used in) investing activities514
(1,596)
Net cash used in financing activities(4,549)(3,151)

Net Cash Provided by Operating Activities

During the first quarter of 2020,2021, net cash provided by operating activities decreased by $130 million$0.7 billion compared with the first quarter of 2019.2020. Excluding unfavorablefavorable currency movements of $50 million,$0.2 billion, net cash provided by operating activities decreased by $80 million,$0.9 billion, due primarily to higher working capital requirements of $0.4$1.3 billion, and higher cash payments in 2020 for asset impairment and exit costs, partially offset by higher net earnings (excluding the non-cash charges in 2019 related to the Canadian tobacco litigation-related expense and the 2019 loss on deconsolidation of RBH).earnings.

The higher working capital requirements in the first quarter of 2021 as compared with the first quarter of 2020 were primarily due to COVID-19 pandemic related build-up of inventory levels across our supply chain, with extended payment terms to selected customers, as well asthe timing of shipmentsexcise tax-paid inventory movements and excise tax payments, partially offsetincluding the settlement of excise tax liabilities driven by increasedthe COVID-19 pandemic-related build-up of inventory. The higher working capital requirements were also due to lower usage of our factoring arrangements to sell trade receivables in the first quarter of 20202021 compared with the first quarter of 2019.2020. For further details on our factoring arrangements to sell trade receivables, see Note 15.13. Sale of Accounts Receivable.

Net Cash Provided by (Used in) Investing Activities

During the first quarter of 2020,2021, net cash provided by investing activities was $514 million,decreased by $0.5 billion compared with net cash used in investing activities of $1,596 million in the first quarter of 2019. The2020. This change was primarily due to the reduction of cashmovements in 2019 resulting from the deconsolidation of RBH, higher cash collateral receivedexchanged with financial institutions to secure derivatives designated as net investment hedges of Euro assets principally related to changes in exchange rates between the Euro and the U.S. dollar, and lower capital expenditures. For further details on deconsolidation of RBH, see Note 19. Deconsolidation of RBH.dollar. For further details on our derivatives designated as net investment hedges, see Note 5.Financial InstrumentsInstrument.s.

During the first quarter of 2020, capital expenditures decreased by $154 million compared with the first quarter of 2019. The 2020 and 20192021 capital expenditures were primarily related to our ongoing investments in RRPs. We expect total capital expenditures in 20202021 to be approximately $0.8 billion, compared to approximately $1.0 billion disclosed previously.billion.


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Net Cash Used in Financing Activities

During the first quarter of 2020,2021, net cash used in financing activities increaseddecreased by $1.4$0.9 billion compared with the first quarter of 2019.2020. The change was due primarily to higherlower long-term debt repayments ($3.61.6 billion in 20202021 compared with $2.1$3.6 billion in 2019)2020), partially offset by lower proceeds from short-term borrowings (primarily commercial paper).

Debt and Liquidity

We define cash and cash equivalents as short-term, highly liquid investments, readily convertible to known amounts of cash that mature within a maximum of three months and have an insignificant risk of change in value due to interest rate or credit risk changes. As a policy, we do not hold any investments in structured or equity-linked products. Our cash and cash equivalents are predominantly held in demand deposits with institutions that have investment-grade long-term credit rating. As part of our cash management strategy and in order to manage counterparty exposure, we also enter into reverse repurchase agreements. Such agreements are collateralized with government or corporate securities held by a custodial bank and, at maturity, cash is paid back to PMI, and the collateral is returned to the bank. DuringFor the three months ended March 31, 2020, we had an average balance of $0.1 billion,2021 and we had zero balance at March 31, 2020. For the full-year 2019,2020, the activityactivities for such reverse repurchase agreements waswere not material.

We utilize long-term and short-term debt financing, including a commercial paper program that is regularly used to finance ongoing liquidity requirements, as part of our overall cash management strategy. Our ability to access the capital and credit markets as well as overall dynamics of these markets may impact borrowing costs. We expect that the combination of our long-term and short-term debt financing, the commercial paper program and the committed credit facilities, coupled with our operating cash flows, will enable us to meet our liquidity requirements.

Credit Ratings – The cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings. At March 31, 2020,2021, our credit ratings and outlook by major credit rating agencies were as follows:
Short-termLong-termOutlook
Moody’sP-1A2Stable
Standard & Poor’sA-1AStable
FitchF1AStable

Credit Facilities – On January 31, 2020,29, 2021, we entered into an agreement to amend and extend the term of our $2.0 billion 364-day revolving credit facility from February 4, 2020,2, 2021, to February 2, 2021.1, 2022 in the amount of $1.75 billion.

At March 31, 2021, our committed credit facilities were as follows:
(in billions)
TypeCommitted
Credit
Facilities
364-day revolving credit, expiring February 1, 2022$1.75 
Multi-year revolving credit, expiring October 1, 20223.50 
Multi-year revolving credit, expiring February 10, 2025(a)
2.00 
Total facilities
$7.25 
(a) On February 10, 2020,January 29, 2021, we entered into a new $2.0 billionan agreement, effective February 10, 2021, to amend and extend the term of our multi-year revolving credit facility, expiring onfor an additional year covering the period February 11, 2025 to February 10, 2025. The new credit facility replaced2026, in the $2.5 billion multi-year revolving credit facility, which was terminated effective February 10, 2020. We had no borrowings outstanding under the terminated facility, which was due to expire on February 28, 2021.amount of $1.86 billion.

At March 31, 2020, our committed credit facilities and commercial paper outstanding were as follows:

(in billions) 
  
 
  
Type 
Committed
Credit
Facilities
 
Commercial
Paper
364-day revolving credit, expiring February 2, 2021 $2.0
  
Multi-year revolving credit, expiring October 1, 2022 3.5
  
Multi-year revolving credit, expiring February 10, 2025 2.0
  
 
Total facilities 
 $7.5
  
 
Commercial paper outstanding 
  
 $1.1

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At March 31, 2020,2021, there were no borrowings under the committed credit facilities, and the entire committed amounts were available for borrowing.

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

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These facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral. The $3.5 billion multi-year revolving credit facility in the table above requires us to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“consolidated EBITDA”) to consolidated interest expense of not less than 3.5 to 1.0 on a rolling four-quarter basis. At March 31, 2020,2021, our ratio calculated in accordance with the agreementsagreement was 11.713.5 to 1.0. We expect to continue to meet our covenants. The terms “consolidated EBITDA” and “consolidated interest expense,” both of which include certain adjustments, are defined in the facility agreement previously filed with the U.S. Securities and Exchange Commission.
In addition to the committed credit facilities discussed above, certain of our subsidiaries maintain short-term credit arrangements to meet their respective working capital needs. These credit arrangements, which amounted to approximately $2.5 billion at March 31, 20202021 and $2.7 billion at December 31, 2019,2020, are for the sole use of our subsidiaries. Borrowings under these arrangements and other bank loans amounted to $365$192 million at March 31, 2020,2021, and $338$244 million at December 31, 2019.2020.

Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S. and in Europe having an aggregate issuance capacity of $8.0 billion. At March 31, 2020, we had commercial paper outstanding of $1.1 billion. At2021 and December 31, 2019,2020, we had no commercial paper outstanding. The average commercial paper balance outstanding during the first quarter of 20202021 was $2.7$0.9 billion. The average commercial paper balance outstanding during 20192020 was $2.3$1.2 billion.

Sale of Accounts Receivable – To mitigate credit risk and enhance cash and liquidity management we sell trade receivables to unaffiliated financial institutions. These arrangements allow us to sell, on an ongoing basis, certain trade receivables without recourse. The trade receivables sold are generally short-term in nature and are removed from the condensed consolidated balance sheets. We sell trade receivables under two types of arrangements, servicing and nonservicing.

Our operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the condensed consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions. The trade receivables sold that remained outstanding under these arrangements as of March 31, 2020,2021, and March 31, 20192020 were $1.0$0.6 billion and $0.5$1.0 billion, respectively. The net proceeds received are included in cash provided by operating activities in the condensed consolidated statements of cash flows.

For further details, see Note 15.13. Sale of Accounts Receivable to our condensed consolidated financial statements.

Debt – Our total debt was $28.4$29.4 billion at March 31, 20202021 and $31.0$31.5 billion at December 31, 2019.2020.

On February 11, 2020, we filed a shelf registration statement with the U.S. Securities and Exchange Commission, under which we may from time to time sell debt securities and/or warrants to purchase debt securities over a three-year period.
Guarantees – At March 31, 2020,2021, we were contingently liable for guarantees of our own performance, of which $0.3 billion were related to our obligations under indemnity agreements to enable appeals of customs assessments against our distributors. In October 2020, we guaranteed an obligation for an equity method investee. For further details, see Note 8. Contingencies to our condensed consolidated financial statements. Additionally, we have other guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products. There is no liability in the condensed consolidated financial statements associated with these guarantees. These guarantees have not had, and are not expected to have, a significant impact on PMI’s liquidity.

Equity and Dividends

We discuss our stock awards as of March 31, 20202021 in Note 2. Stock Plans to our condensed consolidated financial statements.

During 2019,2020 and the first quarter of 2021, we did not repurchase any shares under a share repurchase program, and we do not presently intend to repurchase shares of our common stock in 2020.

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program.
Dividends paid in the first quarter of 20202021 were $1.8$1.9 billion. During the third quarter of 2019,2020, our Board of Directors approved a 2.6% increase in the quarterly dividend to $1.17$1.20 per common share. As a result, the present annualized dividend rate is $4.68$4.80 per common share.

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Market Risk
Counterparty Risk - We predominantly work with financial institutions with strong short- and long-term credit ratings as assigned by Standard & Poor’s and Moody’s. These banks are also part of a defined group of relationship banks. Non-investment grade institutions are only used in certain emerging markets to the extent required by local business needs. We have a conservative approach when it comes to choosing financial counterparties and financial instruments. As such, we do not invest or hold investments in any structured or equity-linked products. The majority of our cash and cash equivalents is currently invested in demand deposits maturing withinwith maturities of less than 30 days.
We continuously monitor and assess the credit worthiness of all our counterparties.
Derivative Financial Instruments - We operate in markets outside of the United States of America, with manufacturing and sales facilities in various locations throughout the world. Consequently, we use certain financial instruments to manage our foreign currency and interest rate exposure. We use derivative financial instruments principally to reduce our exposure to market risks resulting from fluctuations in foreign exchange and interest rates by creating offsetting exposures. We are not a party to leveraged derivatives and, by policy, do not use derivative financial instruments for speculative purposes.
See Note 5. Financial Instruments, Note 11. Fair Value Measurements,and Note 13. Balance Sheet Offsettingto our condensed consolidated financial statements for further details on our derivative financial instruments and the related collateral arrangements.

Contingencies
See Note 8. Contingencies to our condensed consolidated financial statements for a discussion of contingencies.


Cautionary Factors That May Affect Future Results

Forward-Looking and Cautionary Statements
We may from time to time make written or oral forward-looking statements, including statements contained in filings with the SEC, in reports to stockholders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "aspires," "estimates," "intends," "projects," "aims," "goals," "targets," "forecasts" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Our RRPs constitute a new product category in its early stages that is less predictable than our mature cigarette business. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in our securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in the “Business Environment” "Business Environment"section. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time, except in the normal course of our public disclosure obligations.

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Risks Related to Our Business and IndustryRisks
Consumption of tax-paid cigarettes continues to decline in many of our markets.
This decline is due to multiple factors, including increased taxes and pricing, governmental actions, the diminishing social acceptance of smoking and health concerns, continuing economic and geopolitical uncertainty, and the continuing prevalence of illicit products. These factors and their potential consequences are discussed more fully below and in the "Business Environment" section.
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Cigarettes are subject to substantial taxes. Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions. These tax increases may disproportionately affect our profitability and make us less competitive versus certain of our competitors.
Tax regimes, including excise taxes, sales taxes and import duties, can disproportionately affect the retail price of cigarettes versus other combustible tobacco products, or disproportionately affect the relative retail price of our cigarette brands versus cigarette brands manufactured by certain of our competitors. Because our portfolio is weighted toward the premium-price cigarette category, tax regimes based on sales price can place us at a competitive disadvantage in certain markets. As a result, our volume and profitability may be adversely affected in these markets.
Increases in cigarette taxes are expected to continue to have an adverse impact on our sales of cigarettes, due to resulting lower consumption levels, a shift in sales from manufactured cigarettes to other combustible tobacco products and from the premium-price to the mid-price or low-price cigarette categories, where we may be under-represented, from local sales to legal cross-border purchases of lower price products, or to illicit products such as contraband, counterfeit and "illicit whites."
Our business faces significant governmental action aimed at increasing regulatory requirements with the goal of reducing or preventing the use of tobacco products.
Governmental actions, combined with the diminishing social acceptance of smoking and private actions to restrict smoking, have resulted in reduced industry volumevolumes in many of our markets, and we expect that such factors will continue to reduce consumption levels and will increase down-trading and the risk of counterfeiting, contraband, "illicit whites" and legal cross-border purchases. Significant regulatory developments will continue to take place over the next few years in most of our markets, driven principally by the World Health Organization's Framework Convention on Tobacco Control ("FCTC"(the "FCTC"). Since it came into force in 2005, the FCTC has led to increased efforts by tobacco control advocates and public health organizations to promote increasingly restrictive regulatory measures on the marketing and sale of tobacco products to adult smokers. Regulatory initiatives that have been proposed, introduced or enacted include:

•restrictions on or licensing of outlets permitted to sell cigarettes;
•the levying of substantial and increasing tax and duty charges;
•restrictions or bans on advertising, marketing and sponsorship;
•the display of larger health warnings, graphic health warnings and other labeling requirements;
•restrictions on packaging design, including the use of colors, and mandating plain packaging;
•restrictions on packaging and cigarette formats and dimensions;
•restrictions or bans on the display of tobacco product packaging at the point of sale and restrictions or bans on vending machines;
•requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents;
•disclosure, restrictions, or bans of tobacco product ingredients;
•increased restrictions on smoking and use of tobacco and nicotine-containing products in public and work places and, in some instances, in private places and outdoors;
•restrictions or prohibitions of novel tobacco or nicotine-containing products;
•elimination of duty free sales and duty free allowances for travelers;
restrictions on packaging and cigarette formats and dimensions;
•encouraging litigation against tobacco companies; and
restrictions or bans on the display of tobacco product packaging at the point of sale and restrictions or bans on cigarette vending machines;
requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents;
disclosure, restrictions, or bans of tobacco product ingredients;
increased restrictions on smoking in public and work places and, in some instances, in private places and outdoors;
regulation, restrictions or prohibitions of novel tobacco or nicotine-containing products;
elimination of duty free sales and duty free allowances for travelers;
encouraging litigation against tobacco companies; and
excluding tobacco companies from transparent public dialogue regarding public health and other policy matters.

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•excluding tobacco companies from transparent public dialogue regarding public health and other policy matters.
Our financial results could be significantly affected by regulatory initiatives resulting in a significant decrease in demand for our brands, in particularbrands. More specifically, requirements that lead to a commoditization of tobacco products or impede adult consumers' ability to convert to our RRPs, as well as any significant increase in the cost of complying with new regulatory requirements.
Litigation related to tobacco use and exposure to environmental tobacco smoke could substantially reduce our profitability and could severely impair our liquidity.
There is litigation related to tobacco products pending in certain jurisdictions. Damages claimed in some tobacco-related litigation are significant and, in certain cases in Brazil, Canada, and Nigeria, range into the billions of U.S. dollars. We anticipate that new cases will continue to be filed. The FCTC encourages litigation against tobacco product manufacturers. It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. See Note 8. Contingencies to our condensed consolidated financial statements for a discussion of pending litigation and "Business Environment—Reduced-Risk Products (RRPs)—Legal Challenges to RRPs."

We face intense competition, and our failure to compete effectivelyrequirements could have a material adverse effect on our profitabilityfinancial results.
Changes in the earnings mix and results of operations.changes in tax laws may result in significant variability in our effective tax rates. Our ability to receive payments from foreign subsidiaries or to repatriate royalties and dividends could be restricted by local country currency exchange controls and other regulations.
We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs.
We are subject to highly competitive conditionsincome tax laws in all aspectsthe United States and numerous foreign jurisdictions. The results of our business. The competitive environmentthe 2020 U.S. presidential and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price products or innovative products, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs. Competitors include three large international tobacco companies, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, the PRC, Taiwan, Thailand and Vietnam. Industry consolidation and privatizations of state-owned enterprises have led to an overall increase in competitive pressures. Some competitors have different profit and volume objectives, and some international competitors are susceptiblecongressional elections could lead to changes in differentthe U.S. tax system, including significant increases in the U.S. corporate income tax rate and the minimum tax rate on certain earnings of foreign subsidiaries. If ultimately enacted into law,
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such changes could have a material adverse impact on our effective tax rate thereby reducing our net earnings. Further changes in the tax laws of foreign jurisdictions could arise as a result of the base erosion and profit shifting project undertaken by the Organisation for Economic Co-operation and Development, which recommended changes to numerous long-standing tax principles. If implemented, such changes, as well as changes in taxing jurisdictions’ administrative interpretations, decisions, policies, or positions, could also have a material adverse impact on our effective tax rate thereby reducing our net earnings. In future periods, our ability to recover deferred tax assets could be subject to additional uncertainty as a result of such developments. Furthermore, changes in the earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates. 

Because we are a U.S. holding company, our most significant source of funds is distributions from our non-U.S. subsidiaries. Certain countries in which we operate have adopted or could institute currency exchange rates. Certain new market entrants may alienate consumers from innovative products through inappropriate marketing campaignscontrols and messagingother regulations that limit or prohibit our local subsidiaries' ability to convert local currency into U.S. dollars or to make payments outside the country. This could subject us to the risks of local currency devaluation and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information aboutbusiness disruption.

Risks Related to our RRPs.International Operations
Because we have operations in numerous countries, our results may be influencedadversely impacted by economic, regulatory and political developments, natural disasters, pandemics or conflicts.
Some of the countries in which we operate face the threat of civil unrest and can be subject to regime changes. In others, nationalization, terrorism, conflict and the threat of war may have a significant impact on the business environment. Natural disasters, pandemics, economic, political, regulatory or other developments could disrupt our supply chain, manufacturing capabilities or distribution capabilities. In addition, such developments could increase costs of our materials and operations and lead to loss of property or equipment that are critical to our business in certain markets and difficulty in staffing and managing our operations, all of which could reduce our volumes, revenues and net earnings. We discuss risks associated with the COVID-19 pandemic below.
In certain markets, we are dependent on governmental approvals of various actions such as price changes, and failure to obtain such approvals could impair growth of our profitability.
In addition, despite our high ethical standards and rigorous control and compliance procedures aimed at preventing and detecting unlawful conduct, given the breadth and scope of our international operations, we may not be able to detect all potential improper or unlawful conduct by our employees and partners. Such improper or unlawful conduct (actual or alleged) could lead to litigation and regulatory action, cause damage to our reputation and that of our brands and result in substantial costs.
Our reported results could be adversely affected by unfavorable currency exchange rates, and currency devaluations could impair our competitiveness.
We conduct our business primarily in local currency and, for purposes of financial reporting, the local currency results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period. During times of a strengthening U.S. dollar, our reported net revenues, operating income and EPS will be reduced because the local currency translates into fewer U.S. dollars. During periods of economic crises, such as during the ongoing COVID-19 pandemic, foreign currencies may be devalued significantly against the U.S. dollar, reducing our margins. Actions to recover margins may result in lower volume and a weaker competitive position.
Risks Related to Legal Challenges and Investigations
Litigation related to tobacco use and exposure to environmental tobacco smoke could substantially reduce our profitability and could severely impair our liquidity.
There is litigation related to tobacco products pending in certain jurisdictions in which we operate. Damages claimed in some tobacco-related litigation are significant and, in certain cases in Brazil, Canada, and Nigeria, range into the billions of U.S. dollars. We anticipate that new cases will continue to be filed. The FCTC encourages litigation against tobacco product manufacturers. It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. See Note 8. Contingencies to our condensed consolidated financial statements for a discussion of pending litigation and "Business Environment—Reduced-Risk Products (RRPs)—Legal Challenges to RRPs."
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From time to time, we are subject to governmental investigations on a range of matters.
Investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of income taxes, customs duties and/or excise taxes, allegations of false and misleading usage of descriptors, allegations of unlawful advertising, and allegations of unlawful labor practices. We cannot predict the outcome of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially affected by an unfavorable outcome of pending or future investigations. See Note 8. Contingencies—Other Litigation and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Results by Business Segment—Business Environment—Governmental Investigations” for a description of certain governmental investigations to which we are subject.
We may be unable to adequately protect our intellectual property rights, and disputes relating to intellectual property rights could harm our business.
Our intellectual property rights are valuable assets, and their protection is important to our business.  If the steps we take to protect our intellectual property rights globally, including through a combination of trademark, design, patent and other intellectual property rights, are inadequate, or if others infringe or misappropriate our intellectual property rights, notwithstanding legal protection, our business could be adversely impacted. Intellectual property rights of third parties may limit our ability to commercialize our products or improve product quality in one or more markets. Competitors or other third parties may claim that we infringe their intellectual property rights. Any such claims, regardless of merit, could divert management’s attention, be costly, disruptive, time-consuming and unpredictable and expose us to litigation costs and damages, and impede our ability to manufacture, commercialize and improve our products. If, as a result, we are unable to manufacture or sell our RRPs or improve their quality in one or more markets, our ability to convert adult smokers to our RRPs in such markets would be adversely affected. See Note 8. Contingencies— Other Litigation to our condensed consolidated financial statements for a description of certain intellectual property proceedings.
Risks Related to our Competitive Environment

We face intense competition, and our failure to compete effectively could have a material adverse effect on our profitability and results of operations.
We are subject to highly competitive conditions in all aspects of our business. We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs. The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price products or innovative products, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs. Competitors include three large international tobacco companies, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, the PRC, Taiwan, Thailand and Vietnam. Industry consolidation and privatizations of state-owned enterprises have led to an overall increase in competitive pressures. Some competitors have different profit, volume and regulatory objectives, and some international competitors are susceptible to changes in different currency exchange rates. Certain new market entrants may alienate consumers from innovative products through inappropriate marketing campaigns, messaging and inferior product satisfaction, while not relying on scientific substantiation based on appropriate R&D protocols and standards. The growing use of digital media could increase the speed and extent of the dissemination of inaccurate and misleading information about our RRPs.
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We may be unable to anticipate changes in adult consumer preferences.
Our business is subject to changes in adult consumer preferences, which may be influenced by local economic conditions.
To be successful, we must: 
•promote brand equity successfully;
•anticipate and respond to new adult consumer trends;
•develop new products and markets and broaden brand portfolios;
•improve productivity;
•convince adult smokers to convert to our RRPs;
•ensure effective adult consumer engagement, including communication about product characteristics and usage of RRPs;
•provide excellent customer care;
•ensure adequate production capacity to meet demand for our products; and
•be able to protect or enhance margins through price increases.
In periods of economic uncertainty, adult consumers may tend to purchase lower-price brands, and the volume of our premium-price and mid-price brands and our profitability could be materially adversely impacted as a result. Such down-trading trends may be reinforced by regulation that limits branding, communication and product differentiation.

Our ability to grow profitability may be limited by our inability to introduce new products, enter new markets or improve our margins through higher pricing and improvements in our brand and geographic mix.
Our profit growth may be adversely impacted if we are unable to introduce new products or enter new markets successfully, to raise prices or to improve the proportion of our sales of higher margin products and in higher margin geographies.

We may be unable to expand our brand portfolio through successful acquisitions or the development of strategic business relationships, and the intended benefits from our investments may not materialize.
One element of our growth strategy is to expand our brand portfolio and market positions through selective acquisitions and the development of strategic business relationships. Acquisition and strategic business development opportunities are limited and present risks of failing to achieve efficient and effective integration, strategic objectives and/or anticipated revenue improvements and cost savings. There is no assurance that we will be able to acquire attractive businesses or enter into strategic business relationships on favorable terms ahead of our competitors, or that such acquisitions or strategic business development relationships will be accretive to earnings or improve our competitive position. In addition, we may not have a controlling position in certain strategic investments or relationships, which could impact the extent to which the intended financial growth and other benefits from these investments or relationships may ultimately materialize.
Our ability to achieve our strategic goals may be impaired if we fail to attract, motivate and retain the best global talent and effectively align our organizational design with the goals of our transformation.
To be successful, we must continue transforming our culture and ways of working, align our talent and organizational design with our increasingly complex business needs, and innovate and transform to a consumer-centric business. We compete for talent, including in areas that are new to us, such as digital and technical solutions, with companies in the consumer products, technology and other sectors that enjoy greater societal acceptance. As a result, we may be unable to attract, motivate and retain the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.
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Risks Related to the Impact of COVID-19 on our Business
Our business, results of operations, cash flows and financial position will be adversely impacted during the continuation of the COVID-19 pandemic.
The COVID-19 pandemic has created significant societal and economic disruption, and resulted in closures of stores, factories and offices, and restrictions on manufacturing, distribution and travel, all of which have and will continue to adversely impact our business, results of operations, cash flows and financial position duringwhile the continuation of the pandemic.pandemic continues. Our business continuity plans and other safeguards may not be effective to mitigate the resultsimpact of the pandemic.

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While much of the COVID-19 pandemic and its effect on our business is still unknown, currently,Currently, significant risks include our diminished ability to convert adult smokers to our RRPs, as store closures preclude in-person guided trials, significant volume declines in our duty-free business and certain other key markets, disruptions or delays in our manufacturing and supply chain, increased currency volatility, and delays in certain cost saving, transformation and restructuring initiatives. Our business could also be adversely impacted if key personnel or a significant number of employees or business partners become unavailable due to the COVID-19 outbreak. The significant adverse impact of COVID-19 on the economic or political conditions in markets in which we operate could result in changes to the preferences of our adult consumers and lower demand for our products, particularly for our mid-price or premium-price brands. Continuation of the pandemic could disrupt our access to the credit markets or increase our borrowing costs. Governments may temporarily be unable to focus on the development of science-based regulatory frameworks for the development and commercialization of RRPs or on the enforcement or implementation of regulations that are significant to our business. In addition, messaging about the potential negative impacts of the use of our products on COVID-19 risks may lead to increasingly restrictive regulatory measures on the sale and use of our products, negatively impact demand for our products and the willingness of adult consumers to switch to our RRPs, and adversely impact our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs.
The impact of these risks also depends on factors beyond our knowledge or control, including the duration and severity of the outbreakCOVID-19 pandemic in general and specifically in the jurisdictions in which we operate, its recurrence in our key markets, actions taken to contain its spread and to mitigate its public health effects, and the ultimate economic consequences thereof.
Risks Related to Sourcing of Materials, Products and Services
Use of third-party resources may negatively impact quality of our products and services, and we may be required to replace third-party contract manufacturers or service providers with our own resources.

We increasingly rely on third-party resources to manufacture some of our products and product parts (particularly, the electronic devices and accessories) and to provide services, including to support our finance and information technology processes. While many of these arrangements improve efficiencies and decrease our operating costs, they also diminish our direct control. Such diminished control may have an adverse effect on the quality of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult consumer preferences, all of which may place us at a competitive disadvantage. In addition, we may be unable to anticipate changesrenew these agreements on satisfactory terms for numerous reasons, including government regulations, and our costs may increase significantly if we must replace such third parties with our own resources.
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Government mandated prices, production control programs, shifts in adult consumer preferences.crops driven by economic conditions and the impact of climate change may increase the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.
Our business is subject to changesAs with other agricultural commodities, the price of tobacco leaf and cloves can be influenced by imbalances in adult consumer preferences, whichsupply and demand and the impacts of natural disasters and pandemics such as COVID-19. Furthermore, crop quality may be influenced by local economic conditions. To be successful, we must: 
promote brand equity successfully;
anticipatevariations in weather patterns, including those caused by climate change. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and respond to new adult consumer trends;
develop new products and markets and broaden brand portfolios;
improve productivity;
convince adult smokers to convert to our RRPs;
ensure adequate production capacity to meetcontrol programs. Changes in the patterns of demand for agricultural products could cause farmers to produce less tobacco or cloves. Any significant change in tobacco leaf and clove prices, quality and quantity could affect our products;profitability and our business.
be ableRisks Related to protect or enhance margins through price increases.
In periods of economic uncertainty, adult consumers may tend to purchase lower-price brands, and the volumeSuccess of our premium-price and mid-price brands and our profitability could suffer accordingly. Such down-trading trends may be reinforced by regulation that limits branding, communication and product differentiation.Reduced-Risk Products
The financial and business performance of our reduced-risk products is less predictable than our cigarette business.
Our RRPs are novel products in a new category, and the pace at which adult smokers adopt them may vary, depending on the competitive, regulatory, fiscal and cultural environment, and other factors in a specific market. There may be periods of accelerated growth and periods of slower growth for these products, the timing and drivers of which may be more difficult for us to predict versus our mature cigarette business. The impact of this lower predictability on our projected results for a specific period may be significant, particularly during the early stages of this new product category and during the COVID-19 pandemic.
We lose revenues as a result of counterfeiting, contraband, cross-border purchases, "illicit whites," non-tax-paid volume produced by local manufacturers, and counterfeiting of our Platform 1 device and heated tobacco units.
Large quantities of counterfeit cigarettes are sold in the international market. We believe that Marlboro is the most heavily counterfeited international cigarette brand, although we cannot quantify the revenues we lose as a result of this activity. In addition, our revenues are reduced by contraband, legal cross-border purchases, "illicit whites" and non-tax-paid volume produced by local manufacturers. Our revenues and consumer satisfaction with our Platform 1 device and heated tobacco units may be adversely affected by counterfeit products that do not meet our product quality standards and scientific validation procedures.

From time to time, we are subject to governmental investigations on a range of matters.
Investigations include allegations of contraband shipments of cigarettes, allegations of unlawful pricing activities within certain markets, allegations of underpayment of income taxes, customs duties and/or excise taxes, allegations of false and misleading usage of descriptors, allegations of unlawful advertising, and allegations of unlawful labor practices. We cannot predict the outcome

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of those investigations or whether additional investigations may be commenced, and it is possible that our business could be materially affected by an unfavorable outcome of pending or future investigations. See Note 8. Contingencies—Other Litigation and “Management's Discussion and Analysis of Financial Condition and Results of Operations—Operating Results by Business Segment—Business Environment—Governmental Investigations” for a description of certain governmental investigations to which we are subject.
We may be unsuccessful in our attempts to introduce reduced-risk products, and regulators may not permit the commercialization of these products or the communication of scientifically substantiated risk-reductioninformation and claims.

Our key strategic priorities are: to develop and commercialize products that present less risk of harm to adult smokers who switch to those products versus continued smoking; and to convince current adult smokers who would otherwise continue to smoke to switch to those RRPs. For our efforts to be successful, we must: develop RRPs that such adult smokers find acceptable alternatives to smoking; conduct rigorous scientific studies to substantiate that they reduce exposure to harmful and potentially harmful constituents in smoke and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking; and effectively advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to make better consumer choices.
•develop RRPs that such adult smokers find acceptable alternatives to smoking;
•conduct rigorous scientific studies to substantiate that they reduce exposure to harmful and potentially harmful constituents in smoke and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking; and
•effectively advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to make better consumer choices.
We might not succeed in our efforts. If we do not succeed, but others do, or if heat-not-burn products are inequitably regulated compared to other RRP categories without regard to the totality of the scientific evidence available for such products, we may be at a competitive disadvantage. In addition, actions of some market entrants, such as the inappropriate marketing of e-vapor products to youth, as well as alleged health consequences associated with the use of certain e-vapor products, may unfavorably impact public opinion and/or mischaracterize all e-vapor products or other RRPs to consumers, regulators and policy makers without regard to the totality of scientific evidence for specific products. This may impede our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs. We cannot predict whether regulators will permit the sale and/or marketing of RRPs with scientifically substantiated risk-reductioninformation and claims. Such restrictions could limit the success of our RRPs.

Our RRPs and commercial activities for these products are designed for, and directed toward, current adult smokers and users of nicotine-containing products, and not for non-smokers or youth. If nonetheless there is a significant usage of our products or competitive products among youth or non-smokers, even in situations over which we have no control, our credibility may suffer, and our efforts to advocate for the development of science-based regulatory frameworks for the commercialization of RRPs may be significantly impacted.

Moreover, the FDA’s premarket tobacco product authorizationand modified risk tobacco product authorizations of a version of our Platform 1 product isare subject to strict marketing, reporting and other requirements andrequirements. Although we have received these product authorizations from the FDA, there is not ano guarantee that the product will remain authorized, particularly if there is a significant uptake in youth or non-smoker initiation.
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We may be unsuccessful in our efforts to differentiate reduced-risk products and cigarettes with respect to taxation.

To date, we have been largely successful in demonstrating to regulators that our RRPs are not cigarettes due to the absence of combustion, and as such they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes. If we cease to be successful in these efforts, RRP unit margins may be adversely affected.
Risks Related to Illicit Trade
We lose revenues as a result of counterfeiting, contraband, cross-border purchases, "illicit whites," non-tax-paid volume produced by local manufacturers, and counterfeiting of our Platform 1 device and heated tobacco units.
Large quantities of counterfeit cigarettes are sold in the international market. We believe that Marlboro is the most heavily counterfeited international cigarette brand, although we cannot quantify the revenues we lose as a result of this activity. In addition, our revenues are reduced by contraband, legal cross-border purchases, "illicit whites" and non-tax-paid volume produced by local manufacturers. Our reported results couldrevenues and consumer satisfaction with our Platform 1 device and heated tobacco units may be adversely affected by unfavorable currency exchange rates,counterfeit products that do not meet our product quality standards and currency devaluations could impair our competitiveness.scientific validation procedures.
We conduct our business primarily in local currency
Risks Related to Cybersecurity and for purposes of financial reporting, the local currency results are translated into U.S. dollars based on average exchange rates prevailing during a reporting period. During times of a strengthening U.S. dollar, our reported net revenues, operating income and EPS will be reduced because the local currency translates into fewer U.S. dollars. During periods of economic crises, such as during the ongoing COVID-19 pandemic, foreign currencies may be devalued significantly against the U.S. dollar, reducing our margins. Actions to recover margins may result in lower volume and a weaker competitive position.
Changes in the earnings mix and changes in tax laws may result in significant variability in our effective tax rates. Our ability to receive payments from foreign subsidiaries or to repatriate royalties and dividends could be restricted by local country currency exchange controls and other regulations.

The Tax Cuts and Jobs Act that was signed into law in December 2017 constitutes a major change to the U.S. tax system. Our estimated impact of the Tax Cuts and Jobs Act is based on management’s current interpretations, and our analysis is ongoing.  Our final tax liability may be materially different from current estimates due to developments such as implementing regulations and clarifications. In future periods, our effective tax rate and our ability to recover deferred tax assets could be subject to additional uncertainty as a result of such developments. Furthermore, changes in the earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates. Because we are a U.S. holding company, our most significant source of funds is distributions from our non-U.S. subsidiaries. Certain countries in which we operate have adopted or could institute currency exchange controls and other regulations that limit or prohibit our local subsidiaries' ability to convert local currency into U.S. dollars or to make payments outside the country. This could subject us to the risks of local currency devaluation and business disruption.

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Our ability to grow profitability may be limited by our inability to introduce new products, enter new markets or improve our margins through higher pricing and improvements in our brand and geographic mix.
Our profit growth may suffer if we are unable to introduce new products or enter new markets successfully, to raise prices or to improve the proportion of our sales of higher margin products and in higher margin geographies.

We may be unable to expand our brand portfolio through successful acquisitions or the development of strategic business relationships.
One element of our growth strategy is to strengthen our brand portfolio and market positions through selective acquisitions and the development of strategic business relationships. Acquisition and strategic business development opportunities are limited and present risks of failing to achieve efficient and effective integration, strategic objectives and anticipated revenue improvements and cost savings. There is no assurance that we will be able to acquire attractive businesses on favorable terms, or that future acquisitions or strategic business developments will be accretive to earnings.
Government mandated prices, production control programs, shifts in crops driven by economic conditions and the impact of climate change may increase the cost or reduce the quality of the tobacco and other agricultural products used to manufacture our products.
As with other agricultural commodities, the price of tobacco leaf and cloves can be influenced by imbalances in supply and demand and the impacts of natural disasters and pandemics such as COVID-19, and crop quality can be influenced by variations in weather patterns, including those caused by climate change. Tobacco production in certain countries is subject to a variety of controls, including government mandated prices and production control programs. Changes in the patterns of demand for agricultural products could cause farmers to produce less tobacco or cloves. Any significant change in tobacco leaf and clove prices, quality and quantity could affect our profitability and our business.
Our ability to achieve our strategic goals may be impaired if we fail to attract and retain the best global talent.
To be successful, we must continue transforming our culture and ways of working, align our talent with our business needs, innovate and transform to a consumer-centric business. We compete for talent, including in areas that are new to us, such as digital and technical solutions, with companies in the consumer products, technology and other sectors that enjoy greater societal acceptance. As a result, we may be unable to attract and retain the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.Data Governance
The failure of our information systems to function as intended or their penetration by outside parties with the intent to corrupt them or our failure to adhere to strict data governance and cybersecurity protocols and to comply with privacy laws and regulations could result in business disruption, loss of reputation, litigation and regulatory action, and loss of revenue, assets or personal or other confidential data.
We use information systems to help manage business processes, collect and interpret data and communicate internally and externally with employees, suppliers, consumers, customers and others. Some of these information systems are managed by third-party service providers. We have backup systems and business continuity plans in place, and we take carework with our internal specialists and these third-party service providers to protect ourthese systems and data from unauthorized access. Nevertheless, failure of ourthese systems to function as intended, or penetration of ourthese systems by outside parties intent on extracting or corrupting information or otherwise disrupting business processes, could place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs. Failure to protect personal data, respect the rights of data subjects, and adhere to strict data governance and cybersecurity protocols could subject us to substantial fines and other legal challenges under regulations such as the EU General Data Protection Regulation. As we are increasingly relying on digital platforms in our business, and as privacy laws in the jurisdictions in which we do business become more stringent, the magnitude of these risks is likely to increase.
We may be unable to adequately protect our intellectual property rights, and disputes relating to intellectual property rights could harm our business.
Our intellectual property rights are valuable assets, and their protection is important to our business.  If the steps we take to protect our intellectual property rights globally, including through a combination of trademark, design, patent and other intellectual property rights, are inadequate, or if others infringe or misappropriate our intellectual property rights, notwithstanding legal protection, our business could suffer. Intellectual property rights of third parties may limit our ability to introduce new products or improve the quality of existing products in one or more markets. Competitors or other third parties may claim that we infringe their intellectual property rights. Any such claims, regardless of merit, could divert management’s attention, be costly, disruptive, time-consuming and unpredictable and expose us to litigation costs and damages, and impede our ability to manufacture and sell new products or improve existing products. If, as a result, we are unable to manufacture or sell our RRPs or improve their quality in one or more markets, our ability to convert adult smokers to our RRPs in such markets would be adversely affected.

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

In certain instances, we contract with third parties to manufacture some of our products or product parts or to provide other services. We may be unable to renew these agreements on satisfactory terms for numerous reasons, including government regulations. Accordingly, our costs may increase significantly if we must replace such third parties with our own resources.


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Item 4. Controls and Procedures.

PMI carried out an evaluation, with the participation of PMI’s management, including PMI’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of PMI’s disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based upon that evaluation, PMI’s Chief Executive Officer and Chief Financial Officer concluded that PMI’s disclosure controls and procedures are effective. There have been no changes in PMI’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, PMI’s internal control over financial reporting.



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Part II - OTHER INFORMATION
 
Item 1.Legal Proceedings.
Item 1.Legal Proceedings.
See Note 8. Contingencies of the Notes to the Condensed Consolidated Financial Statements included in Part I – Item 1 of this report for a discussion of legal proceedings pending against Philip Morris International Inc. and its subsidiaries.

Item 1A.Risk Factors.
Item 1A. Risk Factors.
Information regarding Risk Factors appears in “MD&A – Cautionary Factors That May Affect Future Results,” in Part I – Item 2 of this Form 10-Q and in Part I – Item 1A. Risk Factors of our Annual Report on Form 10-K for the year ended December 31, 2019.

2020.
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Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds.
Our share repurchase activity for each of the three months in the quarter ended March 31, 20202021 was as follows:
 
Period 
Total Number
of Shares
Repurchased
 
Average
Price Paid
Per Share
 
Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs
 
Approximate Dollar
Value of Shares that
May Yet be Purchased
Under the Plans or
Programs
January 1, 2020 –
January 31, 2020 (1)
 —
 $—
 —
 $—
February 1, 2020 –
February 29, 2020 (1)
 —
 $—
 —
 $—
March 1, 2020 –
March 31, 2020 (1)
 —
 $—
 —
 $—
Pursuant to Publicly
  Announced Plans
  or Programs
 —
 $—
    
January 1, 2020 –
January 31, 2020 (2)
 5,814
 $84.25
    
February 1, 2020 –
February 29, 2020 (2)
 135,549
 $87.41
    
March 1, 2020 –
March 31, 2020 (2)
 2,200
2,342
$79.85
    
For the Quarter Ended March 31, 2020 143,563
 $87.16
    
PeriodTotal Number
of Shares
Repurchased		Average
Price Paid
Per Share		Total Number of
Shares Purchased as
Part of Publicly
Announced Plans or
Programs		Approximate Dollar
Value of Shares that
May Yet be Purchased
Under the Plans or
Programs
January 1, 2021 –
January 31, 2021 (1)		— $— — $— 
February 1, 2021 –
February 28, 2021 (1)		— $— — $— 
March 1, 2021 –
March 31, 2021 (1)		— $— — $— 
Pursuant to Publicly
  Announced Plans
  or Programs		— $— 
January 1, 2021 –
January 31, 2021 (2)		6,260 $82.11 
February 1, 2021 –
February 28, 2021 (2)		135,584 $86.27 
March 1, 2021 –
March 31, 2021 (2)		3,058 $85.59 
For the Quarter Ended March 31, 2021144,902 $86.07 
 

(1)During this reporting period, we did not have an authorized share repurchase program.

(2)Shares repurchased represent shares tendered to us by employees who vested in restricted and performance share unit awards and used shares to pay all, or a portion of, the related taxes.
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Item 6.Exhibits.
(1)During this reporting period, we did not have an authorized share repurchase program.

(2)Shares repurchased represent shares tendered to us by employees who vested in restricted and performance share unit awards and used shares to pay all, or a portion of, the related taxes.

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Item 6.
Exhibits.
3.1
3.1
10.1
10.2
10.3
10.4
10.5
10.6
31.110.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
31.1
31.2
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32.1
32.2
101.INS
XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

101.SCHXBRL Taxonomy Extension Schema.
101.CALXBRL Taxonomy Extension Calculation Linkbase.
101.DEFXBRL Taxonomy Extension Definition Linkbase.
101.LABXBRL Taxonomy Extension Label Linkbase.
101.PREXBRL Taxonomy Extension Presentation Linkbase.
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)


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Signature

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

PHILIP MORRIS INTERNATIONAL INC.
/s/ EMMANUEL BABEAU
/s/ MARTIN G. KINGEmmanuel Babeau
Martin G. King
Chief Financial Officer
April 28, 202027, 2021

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