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Table of Contents


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
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, 2021
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.)
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
4.125% Notes due 2021PM21New York Stock Exchange
2.900% Notes due 2021PM21ANew York Stock Exchange
2.625% Notes due 2022PM22ANew York Stock Exchange
2.375% Notes due 2022PM22BNew York Stock Exchange
2.500% Notes due 2022PM22New York Stock Exchange
2.500% Notes due 2022PM22CNew York Stock Exchange
2.625% Notes due 2023PM23New York Stock Exchange
2.125% Notes due 2023PM23BNew York Stock Exchange
3.600% Notes due 2023PM23ANew York Stock Exchange
2.875% Notes due 2024PM24New York Stock Exchange
2.875% Notes due 2024PM24CNew York Stock Exchange
0.625% Notes due 2024PM24BNew York Stock Exchange
3.250% Notes due 2024PM24ANew York Stock Exchange
2.750% Notes due 2025PM25New York Stock Exchange
3.375% Notes due 2025PM25ANew 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
2.875% Notes due 2026PM26New York Stock Exchange
0.125% Notes due 2026PM26BNew York Stock Exchange
3.125% Notes due 2027PM27New York Stock Exchange
3.125% Notes due 2028PM28New York Stock Exchange
2.875% Notes due 2029PM29New York Stock Exchange
3.375% Notes due 2029PM29ANew York Stock Exchange
0.800% Notes due 2031PM31New York Stock Exchange
3.125% Notes due 2033PM33New York Stock Exchange
2.000% Notes due 2036PM36New York Stock Exchange
1.875% Notes due 2037PM37ANew York Stock Exchange
6.375% Notes due 2038PM38New York Stock Exchange
1.450% Notes due 2039PM39New York Stock Exchange
4.375% Notes due 2041PM41New York Stock Exchange
4.500% Notes due 2042PM42New York Stock Exchange
3.875% Notes due 2042PM42ANew 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 accelerated filer," "accelerated filer," "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 22, 2021, there were 1,558,536,997 shares outstanding of the registrant’s common stock, no par value per share.
1

Table of Contents

PHILIP MORRIS INTERNATIONAL INC.
TABLE OF CONTENTS
 
  Page No.
PART I -
Item 1.
Condensed Consolidated Statements of Earnings for the
Three Months Ended March 31, 2021 and 2020
Condensed Consolidated Statements of Comprehensive Earnings for the
Three Months Ended March 31, 2021 and 2020
Condensed Consolidated Balance Sheets at
March 31, 2021 and December 31, 2020
56
Condensed Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 2021 and 2020
7 – 8
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the
Three Months Ended March 31, 2021 and 2020
1039
Item 2.
4081
Item 4.
PART II -
Item 1.
Item 1A.
Item 2.
Item 6.

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

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 









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 2020
223 (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 2020
81 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 2020
76 26 
(Gains) losses transferred to earnings, net of income taxes of $0 in 2021 and $1 in 2020
21 (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 


















See notes to condensed consolidated financial statements.
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Table of Contents

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 









See notes to condensed consolidated financial statements.
Continued
5

Table of Contents

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)

STOCKHOLDERS’ (DEFICIT) EQUITY

Common stock, no par value
   (2,109,316,331 shares issued in 2021 and 2020)
  
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 





See notes to condensed consolidated financial statements.
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Table of Contents

Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)
 
 For the Three Months Ended March 31,
 20212020
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
Net earnings$2,595 $1,987 
Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization245 241 
Deferred income tax (benefit) provision33 (24)
Asset impairment and exit costs, net of cash paid (Note 16)(36)(48)
Cash effects of changes in:
Receivables, net(427)116 
Inventories305 (575)
Accounts payable(67)(65)
Accrued liabilities and other current assets(2,108)(662)
Income taxes(91)(54)
Pension plan contributions(30)(23)
Other16 218 
Net cash provided by operating activities435 1,111 
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
Capital expenditures(179)(170)
Equity investments (2)
Net investment hedges199 684 
Other35 2 
Net cash provided by investing activities55 514 
 
















See notes to condensed consolidated financial statements.

Continued
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Table of Contents

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,
 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 days 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) The amounts for cash and cash equivalents shown above include restricted cash of $4 million and $4 million as of March 31, 2021 and 2020, respectively, and $5 million and $4 million as of December 31, 2020 and 2019, respectively, which were included in other current assets in the condensed consolidated balance sheets.






See notes to condensed consolidated financial statements.
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Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
For the Three Months Ended March 31, 2021 and 2020
(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$ $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 ($1.17 per share)
(1,829)(1,829)
Payments to noncontrolling interests(182)(182)
Other(2)4 2 
Balances, March 31, 2020$ $1,992 $30,984 $(10,774)$(35,146)$1,881 $(11,063)
Balances, January 1, 2021$ $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 ($1.20 per share)
(1,878)(1,878)
Payments to noncontrolling interests(105)(105)
Balances, March 31, 2021$ $2,080 $32,178 $(10,746)$(35,060)$1,974 $(9,574)




See notes to condensed consolidated financial statements.
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Table of Contents

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 versions 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 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.

Certain prior years' amounts have been reclassified to conform with the current year's presentation. The changes did not have a material impact on PMI's consolidated financial position, results of operations or cash flows in any of the periods presented.

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, 2020.


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Table of Contents
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, 2021, shares available for grant under the 2017 Plan were 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, 2021, shares available for grant under the plan were 932,803.

Restricted share unit (RSU) awards

During the three months ended March 31, 2021 and 2020, shares granted to eligible employees, the weighted-average grant date fair value per share 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 

As of March 31, 2021, PMI had $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, 2021, 1,038,162 RSU awards vested. The grant date fair value of all the vested awards was approximately $103 million. The total fair value of RSU awards that vested during the three months ended March 31, 2021 was approximately $89 million.

Performance share unit (PSU) awards

During the three months ended March 31, 2021 and 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 aggregate of the weighted performance factors for the three metrics in each such PSU award determines the percentage of PSUs that will vest at the end of the three-year performance cycle. The minimum percentage of such PSUs that can vest is zero, with a target percentage of 100 and a maximum percentage of 200. Each such vested PSU entitles the participant to one share of common stock. An aggregate weighted PSU performance factor of 100 will result in the targeted number of PSUs being vested. At the end of the performance cycle, participants are entitled to an amount equivalent to the accumulated dividends paid on common stock during the performance cycle for the number of shares earned.

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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, 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 

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:
20212020
Risk-free interest rate (a)
0.2 %1.4 %
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, 2021, PMI had $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, 2021, 189,839 PSU awards vested. The grant date fair value of all the vested awards was approximately $21 million. The total fair value of PSU awards that vested during the three months ended March 31, 2021 was approximately $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 

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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  
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 $30 million were made to the pension plans during the three months ended March 31, 2021. Currently, PMI anticipates making additional contributions during the remainder of 2021 of approximately $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 

At March 31, 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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Table of Contents
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Details of other intangible assets were as follows:
March 31, 2021December 31, 2020
(in millions)Weighted-Average Remaining Useful LifeGross Carrying AmountAccumulated AmortizationNetGross Carrying AmountAccumulated AmortizationNet
Non-amortizable intangible assets$1,246 $1,246 $1,289 $1,289 
Amortizable intangible assets:
Trademarks13 years1,224 $605 619 1,233 $594 639 
Distribution networks7 years112 77 35 115 78 37 
Other*8 years103 51 52 104 50 54 
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, 2020 was due to currency movements of ($43 million).

The decrease in the gross carrying amount of amortizable intangible assets from December 31, 2020, was mainly due to currency movements of ($13 million).

The change in the accumulated amortization from December 31, 2020, was mainly due to the 2021 amortization of $18 million, partially offset by currency movements of ($7 million).

Amortization expense for each of the next five years is estimated to be $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 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, 2021, PMI had contracts with aggregate notional amounts of $23.8 billion of which $4.2 billion related to cash flow hedges, $8.2 billion related to hedges of net investments in foreign operations and $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, 2021 and December 31, 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 assets  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 

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.










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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 $31 
Net revenues$ $3 
Cost of sales 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 

(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, 2021, PMI has hedged forecasted transactions for periods not exceeding the next fifteen 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 instruments as net investment hedges, primarily of its Euro net assets. For the three months ended March 31, 2021 and 2020, the amount of pre-tax gain/(loss) related to these debt instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $181 million and $(5) million, respectively. 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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Table of Contents
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 gains (losses) relating to these contracts are reported in PMI’s condensed consolidated statements of earnings.
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,
 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, 2021, PMI expects $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 limits and by selecting and continuously monitoring a diverse group of major international banks and financial institutions as counterparties.

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,
 2021