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

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

For the transition period from              to             

Virginia						13-3435103
(State or other jurisdiction of incorporation or organization)						(I.R.S. Employer Identification No.)
120 Park Avenue
New York
New York						10017
(Address of principal executive offices)						(Zip Code)

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, no par value

PM

New York Stock Exchange

1.875% Notes due 2021

PM21B

New York Stock Exchange

4.125% Notes due 2021

PM21

New York Stock Exchange

2.900% Notes due 2021

PM21A

New York Stock Exchange

2.625% Notes due 2022

PM22A

New York Stock Exchange

2.375% Notes due 2022

PM22B

New York Stock Exchange

2.500% Notes due 2022

PM22

New York Stock Exchange

2.500% Notes due 2022

PM22C

New York Stock Exchange

2.625% Notes due 2023

PM23

New York Stock Exchange

2.125% Notes due 2023

PM23B

New York Stock Exchange

3.600% Notes due 2023

PM23A

New York Stock Exchange

2.875% Notes due 2024

PM24

New York Stock Exchange

2.875% Notes due 2024

PM24C

New York Stock Exchange

0.625% Notes due 2024

PM24B

New York Stock Exchange

3.250% Notes due 2024

PM24A

New York Stock Exchange

2.750% Notes due 2025

PM25

New York Stock Exchange

3.375% Notes due 2025

PM25A

New York Stock Exchange

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

2.750% Notes due 2026

PM26A

New York Stock Exchange

2.875% Notes due 2026

PM26

New York Stock Exchange

0.125% Notes due 2026

PM26B

New York Stock Exchange

3.125% Notes due 2027

PM27

New York Stock Exchange

3.125% Notes due 2028

PM28

New York Stock Exchange

2.875% Notes due 2029

PM29

New York Stock Exchange

3.375% Notes due 2029

PM29A

New York Stock Exchange

0.800% Notes due 2031

PM31

New York Stock Exchange

3.125% Notes due 2033

PM33

New York Stock Exchange

2.000% Notes due 2036

PM36

New York Stock Exchange

1.875% Notes due 2037

PM37A

New York Stock Exchange

6.375% Notes due 2038

PM38

New York Stock Exchange

1.450% Notes due 2039

PM39

New York Stock Exchange

4.375% Notes due 2041

PM41

New York Stock Exchange

4.500% Notes due 2042

PM42

New York Stock Exchange

3.875% Notes due 2042

PM42A

New York Stock Exchange

4.125% Notes due 2043

PM43

New York Stock Exchange

4.875% Notes due 2043

PM43A

New York Stock Exchange

4.250% Notes due 2044

PM44

New York Stock Exchange

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Class						Outstanding at			January 29, 2021
Common Stock, no par value						1,557,451,856			shares

Document			Parts Into Which Incorporated
Portions of the registrant’s definitive proxy statement for use in connection with its annual meeting of shareholders to be held on May 5, 2021, to be filed with the Securities and Exchange Commission (“SEC”) on or about March 25, 2021.			Part III

									Page
PART I
Item 1.						Business			1
Item 1A.						Risk Factors			6
Item 1B.						Unresolved Staff Comments			12
Item 2.						Properties			12
Item 3.						Legal Proceedings			12
Item 4.						Mine Safety Disclosures			13
PART II
Item 5.						Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			13
Item 6.						Selected Financial Data			16
Item 7.						Management’s Discussion and Analysis of Financial Condition and Results of Operations			16
Item 7A.						Quantitative and Qualitative Disclosures About Market Risk			58
Item 8.						Financial Statements and Supplementary Data			59
Item 9.						Changes in and Disagreements with Accountants on Accounting and Financial Disclosure			119
Item 9A.						Controls and Procedures			119
Item 9B.						Other Information			119
PART III
Item 10.						Directors, Executive Officers and Corporate Governance			120
Item 11.						Executive Compensation			122
Item 12.						Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			122
Item 13.						Certain Relationships and Related Transactions, and Director Independence			122
Item 14.						Principal Accounting Fees and Services			122
PART IV
Item 15.						Exhibits and Financial Statement Schedules			123
Signatures									127

Our IQOS smoke-free product brand portfolio includes heated tobacco and nicotine-containing vapor products.  Our leading smoke-free platform ("Platform 1") is a precisely controlled device into which a specially designed heated tobacco unit is inserted and heated to generate an aerosol. 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 collectively as HEETS), Marlboro Dimensions, Marlboro HeatSticks and Parliament HeatSticks, as well as the KT&G-licensed brands, Fiit and Miix (outside of Korea). Platform 1 was first introduced in Nagoya, Japan, in 2014. As of December 31, 2020, Platform 1 is available for sale in 64 markets in key cities or nationwide.

Our cigarettes are sold in more than 175 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 and is led by Marlboro, the world’s best-selling international cigarette, which accounted for approximately 37% of our total 2020 cigarette shipment volume. Marlboro is complemented in the premium-price category by Parliament. Our other leading international cigarette brands are Bond Street, Chesterfield, L&M, Lark and Philip Morris. These seven international cigarette brands contributed approximately 79% of our cigarette shipment volume in 2020. We also own a number of important local cigarette brands, such as Dji Sam Soe, Sampoerna A and Sampoerna U in Indonesia, and Fortune and Jackpot in the Philippines.

•The European Union Region (“EU”) is headquartered in Lausanne, Switzerland, and covers all the European Union countries and also Switzerland, Norway, Iceland and the United Kingdom;

•The Eastern Europe Region (“EE”) is also headquartered in Lausanne and includes Southeast Europe, Central Asia, Ukraine, Israel and Russia;

•The Middle East & Africa Region (“ME&A”) is also headquartered in Lausanne and covers the African continent, the Middle East, Turkey and our international duty free business;

•The South & Southeast Asia Region (“S&SA”) is headquartered in Hong Kong and includes Indonesia, the Philippines and other markets in this region;

•The East Asia & Australia Region (“EA&A”) is also headquartered in Hong Kong and includes Australia, Japan, South Korea, the People's Republic of China and other markets in this region, as well as Malaysia and Singapore; and

•The Latin America & Canada Region (“LA&C”) is headquartered in New York and covers the South American continent, Central America, Mexico, the Caribbean and Canada. LA&C also includes transactions under license with Altria Group, Inc., for the distribution of our Platform 1 product in the United States.

As of March 22, 2019, we deconsolidated the financial results of our Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH") from our financial statements. For further details, see Item 8, Financial Statements and Supplementary Data of this Annual Report on Form 10-K (“Item 8”) Note 20. Deconsolidation of RBH.

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.

Shipments of our principal cigarette brand, Marlboro, decreased by 11.3% in 2020 and represented approximately 9.5% of the international cigarette market, excluding the PRC, in 2020, 10.0% in 2019 and 9.7% in 2018.

•Direct sales and distribution, where we have set up our own distribution selling directly to the retailers;

•Distribution through independent distributors that often distribute other fast-moving consumer goods and are responsible for distribution in a particular market;

•Exclusive zonified distribution, where the distributors are dedicated to us in tobacco products distribution and assigned to exclusive territories within a market;

•Distribution through national or regional wholesalers that then supply the retail trade; and

•Our own brand retail and e-commerce infrastructures for our RRP products and accessories.

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. In the combustible product category, we predominantly sell American blend cigarette brands, such as Marlboro, L&M, Parliament, Philip Morris and Chesterfield, which are the most popular across many of our markets. In the RRP product category, we predominantly sell Platform 1 devices and heated tobacco units under the IQOS brand umbrella. We seek to compete in all profitable retail price categories, although our brand portfolio is weighted towards the premium-price category.

We discuss the details of our supply chain for our RRPs in Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations of this Annual Report on Form 10-K (“Item 7”) in Business Environment—Reduced-Risk Products.

Information called for by this Item is hereby incorporated by reference to the paragraphs in Item 7, Business Environment.

As described in more detail in “Distribution & Sales” above, in many of our markets we sell our products to distributors. In 2020, sales to a distributor in the European Union Region and a distributor in the East Asia & Australia Region each amounted to 10 percent or more of our consolidated net revenues. See Item 8, Note 12. Segment Reporting for more information. We believe that none of our business segments is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on our consolidated results of operations.  In some of our markets, particularly in the European Union and in the East Asia & Australia Regions, a loss of a distributor may result in a temporary market disruption.

      

Our Workforce. At December 31, 2020, we employed approximately 71,000 people worldwide, including full-time, temporary and part-time staff. Our businesses are subject to a number of laws and regulations relating to our relationship with our employees. Generally, these laws and regulations are specific to the location of each business. We engage with legally recognized employee representative bodies and we have collective bargaining agreements in many of the countries in which we operate. In addition, in accordance with European Union requirements, we have established a European Works Council composed of management and elected members of our workforce. We believe we maintain good relations with our employees and their representative organizations.

As a company with global operations in a heavily regulated industry, we are subject to multiple laws and regulations of jurisdictions in which we operate. We discuss our regulatory environment in Item 7, Business Environment.

As discussed in more detail in Item 1A. Risk Factors, our financial results could be significantly affected by regulatory initiatives that could result in a significant decrease in demand for our brands. More specifically, any regulatory 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 could have a material adverse effect on our financial results.

The disclosure regarding executive officers is hereby incorporated by reference to the discussion under the heading “Information about our Executive Officers as of February 8, 2021” in Part III, Item 10. Directors, Executive Officers and Corporate Governance of this Annual Report on Form 10-K (“Item 10”).

Our trademarks are valuable assets, and their protection and reputation are essential to us. We own the trademark rights to all of our principal brands, including Marlboro, HEETS and IQOS, or have the right to use them in all countries where we use them.

•PMI owns all rights to jointly funded intellectual property outside the United States, its territories and possessions; and

•PM USA owns all rights to jointly funded intellectual property in the United States, its territories and possessions.

Item 1A.     Risk Factors.     

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 Item 7, Business Environment. 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.

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 Item 7, Business Environment.

•			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;

•			encouraging litigation against tobacco companies; and

•			excluding tobacco companies from transparent public dialogue regarding public health and other policy matters.

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 Item 8, Note 17. Contingencies to our condensed consolidated financial statements for a discussion of pending litigation and "Business Environment—Reduced-Risk Products (RRPs)—Legal Challenges to RRPs."

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 Item 8, Note 17. 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.

convert adult smokers to our RRPs in such markets would be adversely affected. See Item 8, Note 17. Contingencies—Other Litigation to our condensed consolidated financial statements for a description of certain intellectual property proceedings.

•			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.

•			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.

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

The information called for by this Item is incorporated herein by reference to Item 8, Note 17. Contingencies.

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Date						PMI									PMI Peer Group (1)						S&P 500 Index
December 31, 2015						$100.00									$100.00						$100.00
December 31, 2016						$108.60									$101.70						$112.00
December 31, 2017						$130.20									$119.60						$136.40
December 31, 2018						$86.90									$107.80						$130.40
December 31, 2019						$117.30									$133.50						$171.50
December 31, 2020						$121.80									$143.10						$203.00

(1) The PMI Peer Group presented in this graph is the same as that used in the prior year. The PMI Peer Group was established based on a review of four characteristics: global presence; a focus on consumer products; and net revenues and a market capitalization of a similar size to those of PMI. The review also considered the primary international tobacco companies. As a result of this review, the following companies constitute the PMI Peer Group: Altria Group, Inc., Anheuser-Busch InBev SA/NV, British American Tobacco p.l.c., The Coca-Cola Company, Colgate-Palmolive Co., Diageo plc, Heineken N.V., Imperial Brands PLC, Japan Tobacco Inc., Johnson & Johnson, Kimberly-Clark Corporation, The Kraft-Heinz Company, McDonald's Corp., Mondelēz International, Inc., Nestlé S.A., PepsiCo, Inc., The Procter & Gamble Company, Roche Holding AG, and Unilever NV and PLC.

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
October 1, 2020 – October 31, 2020 (1)						—						$	—					—						$	—
November 1, 2020 – November 30, 2020 (1)						—						$	—					—						$	—
December 1, 2020 – December 31, 2020 (1)						—						$	—					—						$	—
Pursuant to Publicly Announced    Plans or Programs						—						$	—
October 1, 2020 – October 31, 2020 (2)						1,126						$	75.97
November 1, 2020 – November 30, 2020 (2)						3,139						$	70.54
December 1, 2020 – December 31, 2020 (2)						1,155						$	75.82
For the Quarter Ended December 31, 2020						5,420						$	72.79

(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.

Item 6.     Selected Financial Data.

			2020						2019						2018						2017						2016
Summary of Operations:
Revenues including excise taxes			$	76,047					$	77,921					$	79,823					$	78,098					$	74,953
Excise taxes on products			47,353						48,116						50,198						49,350						48,268
Net revenues			28,694						29,805						29,625						28,748						26,685
Operating income			11,668						10,531						11,377						11,581						10,903
Net earnings attributable to PMI			8,056						7,185						7,911						6,035						6,967
Basic earnings per share			5.16						4.61						5.08						3.88						4.48
Diluted earnings per share			5.16						4.61						5.08						3.88						4.48
Dividends declared per share			4.74						4.62						4.49						4.22						4.12
Total assets			44,815						42,875						39,801						42,968						36,851
Long-term debt (1)			28,168						26,656						26,975						31,334						25,851
Total debt			31,536						31,045						31,759						34,339						29,067

(1) Excluding current portion of long-term debt.

The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of risks and cautionary factors that may affect future results in Item 1A. Risk Factors.

•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 175 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. 

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

•Net Revenues – Net revenues of $28.7 billion for the year ended December 31, 2020, decreased by $1.1 billion, or 3.7%, from the comparable 2019 amount, and were impacted by the effects of the COVID-19 pandemic, particularly in the second quarter of 2020 and continuing throughout the second half of the year. The change in our net revenues from the comparable 2019 amount was driven by the following (variances not to scale):

Net revenues, excluding unfavorable currency, decreased by 2.2%, reflecting: unfavorable volume/mix, primarily due to lower cigarette volume (mainly in Argentina, Indonesia, Italy, Japan, Mexico, the Philippines, PMI Duty Free, Poland, Russia and Ukraine, partly offset by Germany), partially offset by higher heated tobacco unit volume (notably in the EU, Japan, Russia and Ukraine, partly offset by PMI Duty Free); and the unfavorable impact of $253 million, shown in "Cost/Other," mainly resulting from the deconsolidation of our Canadian subsidiary, Rothman, Benson & Hedges, Inc. ("RBH"), effective March 22, 2019, and lower fees for certain distribution rights billed to customers in certain markets; partly offset by a favorable pricing variance (notably driven by the Gulf Cooperation Council, Germany, Japan, Mexico, North Africa, the Philippines, PMI Duty Free, Russia and Ukraine, partially offset by Indonesia, Poland and Turkey). For further details on the deconsolidation of RBH, see Item 8, Note 17. Contingencies and Note 20. Deconsolidation of RBH. The Gulf Cooperation Council ("GCC") is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

        

•Diluted Earnings Per Share – The changes in our reported diluted earnings per share (“diluted EPS”) for the year ended December 31, 2020, from the comparable 2019 amounts, were as follows:

			Diluted EPS			% Growth (Decline)
For the year ended December 31, 2019			$	4.61
2019 Asset impairment and exit costs			0.23
2019 Canadian tobacco litigation-related expense			0.09
2019 Loss on deconsolidation of RBH			0.12
2019 Russia excise and VAT audit charge			0.20
2019 Fair value adjustment for equity security investments			(0.02)
2019 Tax items			(0.04)
Subtotal of 2019 items			0.58
2020 Asset impairment and exit costs			(0.08)
2020 Brazil indirect tax credit			0.05
2020 Fair value adjustment for equity security investments			(0.04)
2020 Tax items			0.06
Subtotal of 2020 items			(0.01)
Currency			(0.32)
Interest			(0.02)
Change in tax rate			0.05
Operations			0.27
For the year ended December 31, 2020			$	5.16		11.9		%

Asset impairment and exit costs – During 2019, as part of the optimization of our global manufacturing infrastructure, we recorded pre-tax asset impairment and exit costs of $422 million, representing $362 million net of income tax and a diluted EPS charge of $0.23 per share. This 2019 charge primarily related to a cigarette plant closure in Berlin, Germany (approximately $0.19 per share), as well as the closure of cigarette plants in Argentina, Colombia and Pakistan. During 2020, we recorded pre-tax asset impairment and exit costs of $149 million, representing $124 million net of income tax and a diluted EPS charge of

$0.08 per share, related to the organizational design optimization plan, primarily in Switzerland. The total pre-tax charges in 2019 and 2020 were included in marketing, administration and research costs on the consolidated statements of earnings. For further details, see Item 8, Note 19. 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 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 a 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 consolidated statements of earnings and was included in the operating income of the Latin America & Canada segment. For further details, see Item 8, Note 17. Contingencies and Item 8, Note 20. 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 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, 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 have accounted 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 consolidated statements of earnings for the year ended December 31, 2019, and was included in 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, as discussed below, related to the reversal of a deferred tax liability on the unremitted earnings of RBH. For further details, see Item 8, Note 17. Contingencies and Item 8, Note 20. Deconsolidation of RBH.

Russia excise and VAT audit charge – As a result of the final tax assessment for the 2015-2017 financial years received by our Russian affiliate, in the third quarter of 2019, PMI recorded a pre-tax charge of $374 million in marketing, administration and research costs in the consolidated statements of earnings, representing $315 million net of income tax and a diluted EPS charge of $0.20. The pre-tax charge of $374 million was included in the operating income of the Eastern Europe segment. For further details, see Item 8, Note 17. Contingencies.

Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI recorded a gain of $119 million for tax credits ($79 million net of income tax and $0.05 per share increase in diluted EPS) representing overpayments of indirect taxes for the period from March 2012 through December 2019; these tax credits will be applied to future tax liabilities in Brazil. This amount was included as a reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2020 and was included in the operating income of the Latin America & Canada segment. A decision regarding an additional amount of overpaid indirect taxes of approximately $90 million is still pending before this court.

Fair Value adjustment for equity security investments – In the fourth quarter of 2019, PMI recorded a favorable fair value adjustment for its equity security investments of $35 million after tax (or $0.02 per share increase in diluted EPS).  The fair value adjustment for its equity security investments was included in equity investments and securities (income)/loss, net ($44 million income) and provision for income taxes ($9 million expense) on the consolidated statements of earnings in 2019. During 2020, we recorded an unfavorable fair value adjustment for our equity security investments of $60 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 ($76 million loss) and provision for income taxes ($16 million benefit) on the consolidated statements of earnings. For further details, see Item 8, Note 4. Related Parties - Equity Investments and Other.

Income taxes – The 2019 Tax items that increased our 2019 diluted EPS by $0.04 per share in the table above were primarily due to a reduction in estimated U.S. federal income tax on dividend repatriation for the years 2015 - 2018 ($67 million). The 2020 Tax items that increased our 2020 diluted EPS by $0.06 per share in the table above were due to final U.S. tax regulations under the Global Intangible Low-Taxed Income ("GILTI") provisions of the Internal Revenue Code for years 2018 and 2019 ($93 million). For further details, see Item 8, Note 11. Income Taxes.

partially offset by a decrease in deductions related to foreign-derived intangible income for the years 2018 and 2019 and repatriation cost differences. For further details, see Item 8, Note 11. Income Taxes.

Currency – The unfavorable currency impact during 2020 results from the fluctuations of the U.S. dollar, especially against the Argentine peso, Brazilian real, Indonesian rupiah, Mexican peso, Russian ruble, Swiss franc and Turkish lira, partially offset by the Egyptian pound, Japanese yen and Philippine peso. This unfavorable 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 earned on cash balances.

Operations – The increase in diluted EPS of $0.27 from our operations in the table above was due primarily to the following segments:

•European Union: Favorable volume/mix, favorable pricing and lower manufacturing costs, partially offset by higher marketing, administration and research costs;

•East Asia & Australia: Lower marketing, administration and research costs, lower manufacturing costs and favorable pricing, partially offset by unfavorable volume/mix; and

•Eastern Europe: Favorable pricing, favorable volume/mix and lower manufacturing costs, partially offset by higher marketing, administration and research costs ;

partially offset by

•Middle East & Africa: Unfavorable volume/mix 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;

•South & Southeast Asia: Unfavorable volume/mix and unfavorable pricing, partially offset by lower marketing, administration and research costs; and

•Latin America & Canada: Unfavorable volume/mix, as well as the unfavorable impact resulting from the deconsolidation of RBH, 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.

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

•All of of PMI's cigarette and heated tobacco unit manufacturing facilities globally are operational;

•COVID-related restrictions do not have a significant impact on the availability of PMI's products to its customers and adult consumers; and

•PMI has sufficient liquidity resources through cash on hand, the ongoing cash generation of its business, and its access to the commercial paper and debt markets.

Nonetheless, significant uncertainty remains as the spread of the disease is increasing in a number of markets, resulting in additional restrictions and increasing risk of disruptions.

Item 8, Note 2. Summary of Significant Accounting Policies to our consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. In most instances, we must use a particular accounting policy or method because it is the only one that is permitted under U.S. GAAP.

Revenue Recognition - We recognize revenue as performance obligations are satisfied. Our primary performance obligation is the distribution and sales of cigarettes and other nicotine-containing products, including reduced-risk products. Our performance obligations are typically satisfied upon shipment or delivery to our customers. The company estimates the cost of sales returns based on historical experience, and these estimates are immaterial. Estimated costs associated with warranty programs for IQOS devices are generally provided for in cost of sales in the period the related revenues are recognized, based on a number of factors, including historical experience, product failure rates and warranty policies. The transaction price is typically based on the amount billed to the customer and includes estimated variable consideration where applicable. Such variable consideration is typically not constrained and is estimated based on the most likely amount that PMI expects to be entitled to under the terms of the contracts with customers, historical experience of discount or rebate redemption, where relevant, and the terms of any underlying discount or rebate programs, which may change from time to time as the business and product categories evolve.

Inventories - Our inventories are valued at the lower of cost or market based upon assumptions about future demand and market conditions.  The valuation of inventory also requires us to estimate obsolete and excess inventory.  We perform regular reviews of our inventory on hand, as well as our future purchase commitments with our suppliers, considering multiple factors, including demand forecasts, product life cycle, current sales levels, pricing strategy and cost trends. If our review indicates that inventories of raw materials, components or finished products have become obsolete or are in excess of anticipated demand or that inventory cost exceeds net realizable value, we may be required to make adjustments that will impact the results of operations. 

Goodwill and Non-Amortizable Intangible Assets Valuation - We test goodwill and non-amortizable intangible assets for impairment annually or more frequently if events occur that would warrant such review. While the company has the option to perform a qualitative assessment for both goodwill and non-amortizable intangible assets to determine if it is more likely than not that an impairment exists, the company elects to perform the quantitative assessment for our annual impairment analysis. The impairment analysis involves comparing the fair value of each reporting unit or non-amortizable intangible asset to the carrying value. If the carrying value exceeds the fair value, goodwill or a non-amortizable intangible asset is considered impaired. To determine the fair value of goodwill, we primarily use the market approach using earnings multiples of comparable global companies within the tobacco industry, supported by a discounted cash flow model. At December 31, 2020, the carrying value of our goodwill was $6.0 billion, which is related to ten reporting units, each of which consists of a group of markets with similar operating and economic characteristics. The estimated fair value of each of our ten reporting units exceeded the carrying value as of December 31, 2020. To determine the fair value of non-amortizable intangible assets, we primarily use a discounted cash flow model applying the relief-from-royalty method. We concluded that the fair value of our non-amortizable intangible assets exceeded the carrying value. These discounted cash flow models include management assumptions relevant for forecasting operating cash flows, which are subject to changes in business conditions, such as volumes and prices, costs to produce, discount rates and estimated capital needs. Management considers historical experience and all available information at the time the fair values are estimated, and we believe these assumptions are consistent with the assumptions a hypothetical marketplace participant would use. Since the March 28, 2008, spin-off from Altria Group, Inc., we have not recorded a charge to earnings for an impairment of goodwill or non-amortizable intangible assets.

Marketing Costs - We incur certain costs to support our products through programs that include advertising, marketing, consumer engagement and trade promotions. The costs of our advertising and marketing programs are expensed in accordance with U.S. GAAP. Recognition of the cost related to our consumer engagement and trade promotion programs contain uncertainties due to the

Employee Benefit Plans - As discussed in Item 8, Note 13. Benefit Plans to our consolidated financial statements, we provide a range of benefits to our employees and retired employees, including pensions, postretirement health care and postemployment benefits (primarily severance). We record annual amounts relating to these plans based on calculations specified by U.S. GAAP. These calculations include various actuarial assumptions, such as discount rates, assumed rates of return on plan assets, compensation increases, mortality, turnover rates and health care cost trend rates. We review actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As permitted by U.S. GAAP, any effect of the modifications is generally amortized over future periods. We believe that the assumptions utilized in calculating our obligations under these plans are reasonable based upon our historical experience and advice from our actuaries.

			2020			2019
Pension plans			0.56%			0.83%
Postretirement plans			2.84%			3.28%

Income Taxes - Income tax provisions for jurisdictions outside the United States, as well as state and local income tax provisions, are determined on a separate company basis, and the related assets and liabilities are recorded in our consolidated balance sheets.

For further details, see Item 8, Note 11. Income Taxes to our consolidated financial statements.

Hedging - As discussed below in “Market Risk,” we use derivative financial instruments principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange and interest rates by creating offsetting exposures. For derivatives to which we have elected to apply hedge accounting, gains and losses on these derivatives are initially deferred in accumulated other comprehensive losses on the consolidated balance sheet and recognized in the consolidated statement of earnings into the same line item as the impact of the underlying transaction and in the periods when the related hedged transactions are also recognized in operating results. If we had elected not to use the hedge accounting provisions, gains (losses) deferred in stockholders’ (deficit) equity would have been recorded in our net earnings for these derivatives.

Fair value of non-marketable equity securities - For further details, see Item 8, Note 20. Deconsolidation of RBH.

Contingencies - As discussed in Item 8, Note 17. Contingencies to our consolidated financial statements, 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. 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. 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. At the present time, except as stated otherwise in Item 8, Note 17. 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.

Our net revenues and operating income by segment were as follows:

(in millions)			2020			2019			2018
Net Revenues
European Union			$	10,702		$	9,817		$	9,298
Eastern Europe			3,378			3,282			2,921
Middle East & Africa			3,088			4,042			4,114
South & Southeast Asia			4,396			5,094			4,656
East Asia & Australia			5,429			5,364			5,580
Latin America & Canada (1)			1,701			2,206			3,056
Net revenues			$	28,694		$	29,805		$	29,625
Operating Income
European Union			$	5,098		$	3,970		$	4,105
Eastern Europe			871			547			902
Middle East & Africa			1,026			1,684			1,627
South & Southeast Asia			1,709			2,163			1,747
East Asia & Australia			2,400			1,932			1,851
Latin America & Canada (1)			564			235			1,145
Operating income			$	11,668		$	10,531		$	11,377

(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 Item 8, Note 20. Deconsolidation of RBH.

•Asset impairment and exit costs - See Item 8, Note 19. Asset Impairment and Exit Costs for details of the $149 million and $422 million pre-tax charges for the years ended December 31, 2020 and 2019, respectively, as well as a breakdown of these costs by segment.

•Russia excise and VAT audit charge - See Item 8, Note 17. Contingencies for details of the $374 million pre-tax charge included in the Eastern Europe segment for the year ended December 31, 2019.

•Canadian tobacco litigation-related expense - See Item 8, Note 17. Contingencies and Note 20. Deconsolidation of RBH for details of the $194 million pre-tax charge included in the Latin America & Canada segment for the year ended December 31, 2019.

•Loss on deconsolidation of RBH - See Item 8, Note 20. Deconsolidation of RBH for details of the $239 million loss included in the Latin America & Canada segment for the year ended December 31, 2019.

•Brazil indirect tax credit - Following a final and enforceable decision by the highest court in Brazil in October 2020, PMI recorded a gain of $119 million for tax credits representing overpayments of indirect taxes for the period from March 2012 through December 2019; these tax credits will be applied to future tax liabilities in Brazil. This amount was included as a reduction in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2020 and was included in the operating income of the Latin America & Canada segment. A decision regarding an additional amount of overpaid indirect taxes of approximately $90 million is still pending before this court.

PMI Net Revenues by Product Category
(in millions)			2020			2019			2018
Combustible Products
European Union			$	8,053		$	8,093		$	8,433
Eastern Europe			2,250			2,438			2,597
Middle East & Africa			3,031			3,721			3,732
South & Southeast Asia			4,395			5,094			4,656
East Asia & Australia			2,468			2,693			3,074
Latin America & Canada			1,670			2,179			3,037
Total Combustible Products			$	21,867		$	24,218		$	25,529
Reduced-Risk Products
European Union			$	2,649		$	1,724		$	865
Eastern Europe			1,128			844			324
Middle East & Africa			57			321			382
South & Southeast Asia			1			—			—
East Asia & Australia			2,961			2,671			2,506
Latin America & Canada			31			27			19
Total Reduced-Risk Products			$	6,827		$	5,587		$	4,096
Total PMI Net Revenues			$	28,694		$	29,805		$	29,625

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, the charge related to the deconsolidation of RBH in Canada, and the Russia excise and VAT audit charge); 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.

PMI Shipment Volume (Million Units)
			2020			2019			2018
Cigarettes
European Union			163,420			174,319			179,622
Eastern Europe			93,462			100,644			108,718
Middle East & Africa			117,999			134,568			136,605
South & Southeast Asia			144,788			174,934			178,469
East Asia & Australia			45,100			49,951			56,163
Latin America & Canada			63,749			72,293			80,738
Total Cigarettes			628,518			706,709			740,315
Heated Tobacco Units
European Union			19,842			12,569			5,977
Eastern Europe			20,898			13,453			4,979
Middle East & Africa			1,022			2,654			3,403
South & Southeast Asia			36			—			—
East Asia & Australia			33,862			30,677			26,866
Latin America & Canada (1)			451			299			147
Total Heated Tobacco Units			76,111			59,652			41,372
Cigarettes and Heated Tobacco Units
European Union			183,262			186,888			185,599
Eastern Europe			114,360			114,097			113,697
Middle East & Africa			119,021			137,222			140,008
South & Southeast Asia			144,824			174,934			178,469
East Asia & Australia			78,962			80,628			83,029
Latin America & Canada			64,200			72,592			80,885
Total Cigarettes and Heated Tobacco Units			704,629			766,361			781,687

(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 collectively as HEETS), Marlboro Dimensions, Marlboro HeatSticks and Parliament HeatSticks, as well as the KT&G-licensed brands, Fiit and Miix (outside of Korea).

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 total market share has been restated for previous periods.

•the EU, reflecting lower cigarette shipment volume, notably in Italy, Poland and Spain, partly offset by higher heated tobacco unit shipment volume across the Region, particularly in Italy and Poland;

•Middle East & Africa, reflecting lower cigarette shipment volume, primarily in PMI Duty Free and Turkey, as well as lower heated tobacco unit shipment volume due to PMI Duty Free;

•South & Southeast Asia, reflecting lower cigarette shipment volume, primarily in Indonesia, Pakistan and the Philippines;

•East Asia & Australia, reflecting lower cigarette shipment volume, predominantly in Japan, partly offset by higher heated tobacco unit shipment volume driven by Japan; and

•Latin America & Canada, reflecting lower cigarette shipment volume, primarily in Argentina and Mexico, partially offset by Brazil. Excluding the volume impact from the RBH deconsolidation, our total shipment volume in the Region decreased by 10.3%;

•Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, notably in Russia and Ukraine, partly offset by lower cigarette shipment volume, mainly in Russia and Ukraine.

PMI Shipment Volume by Brand (Million Units)
			Full-Year
			2020			2019			Change
Cigarettes
Marlboro			233,158			262,908			(11.3)		%
L&M			91,098			92,873			(1.9)		%
Chesterfield			52,139			57,185			(8.8)		%
Philip Morris			45,645			49,164			(7.2)		%
Parliament			34,737			38,723			(10.3)		%
Sampoerna A			32,862			35,133			(6.5)		%
Dji Sam Soe			24,754			32,435			(23.7)		%
Bond Street			24,113			28,025			(14.0)		%
Lark			15,489			19,602			(21.0)		%
Next			8,980			8,602			4.4		%
Others			65,543			82,059			(20.1)		%
Total Cigarettes			628,518			706,709			(11.1)		%
Heated Tobacco Units (1)			76,111			59,652			27.6		%
Total Cigarettes and Heated Tobacco Units			704,629			766,361			(8.1)		%

(1) Includes shipments to Altria Group, Inc., commencing in the third quarter of 2019, for sale in the United States under license.

Note: Sampoerna A includes Sampoerna; Philip Morris includes Philip Morris/Dubliss; Lark includes Lark Harmony; and Next includes Next/Dubliss

•Marlboro, mainly due to Indonesia, Italy, Japan, Mexico, the Philippines, PMI Duty Free, Saudi Arabia and Turkey, partly offset by Russia;

•L&M, notably due to PMI Duty Free and Poland, partly offset by Mexico and Turkey;

•Chesterfield, mainly due to Poland, Russia and Turkey, partly offset by Brazil and Saudi Arabia;

•Philip Morris, primarily due to Argentina and Italy, partly offset by Russia;

•Parliament, mainly due to PMI Duty Free, Russia and Turkey;

•Sampoerna A in Indonesia, mainly due to premium A Mild;

•Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild;

•Bond Street, largely due to Russia and Ukraine;

•Lark, primarily due to Japan and Turkey; and

•"Others," notably due to: the impact of the deconsolidation of RBH in Canada; mid-price Fortune and Hope in the Philippines, Muratti in Turkey and Sampoerna U in Indonesia; and low-price Baronet (morphed to L&M) in Mexico, Jackpot in the Philippines and Morven in Pakistan; partly offset by mid-price Sampoerna Hijau in Indonesia.

•Next, notably driven by Israel and Russia.

•Total international market share for cigarettes of 24.7%, down by 1.5 points; and

•Total international market share for heated tobacco units of 3.0%, up by 0.8 points.

In 2020, we owned five of the world's top 15 international cigarette brands, with international cigarette market shares as follows: Marlboro, 9.5%; L&M, 3.7%; Chesterfield, 2.2%; Philip Morris, 1.9%; and Parliament, 1.4%.

															PMI Shipments (billion units)																											PMI Market Share (%)(1)
Market						Total Market (billion units)									Total									Cigarette									Heated Tobacco Unit									Total									Heated Tobacco Unit
						2020			2019						2020			2019						2020			2019						2020			2019						2020			2019						2020			2019
Total						2,548.4			2,705.0						704.6			766.4						628.5			706.7						76.1			59.7						27.7			28.4						3.0			2.2
European Union
France						36.6			37.9						16.3			17.0						16.1			16.9						0.2			0.1						44.9			45.0						0.5			0.2
Germany						74.6			73.3						29.1			27.9						27.4			27.0						1.6			0.9						39.0			38.0						2.2			1.2
Italy						67.4			67.9						34.6			34.9						29.0			31.4						5.6			3.5						52.2			51.8						8.1			4.8
Poland						45.6			46.2						17.8			19.0						15.4			17.9						2.4			1.1						39.0			41.2						5.2			2.5
Spain						41.8			45.4						13.2			14.5						12.8			14.1						0.4			0.3						31.4			31.3						1.0			0.7
Eastern Europe
Russia						219.1			226.5						69.2			68.0						55.6			58.8						13.6			9.2						32.3			30.1						6.3			3.8
Middle East & Africa
Saudi Arabia						21.7			20.8						9.1			9.2						9.0			9.2						0.1			—						39.0			43.0						0.3			—
Turkey						114.8			119.7						47.5			51.9						47.5			51.9						—			—						41.3			43.4						—			—
South & Southeast Asia
Indonesia						276.3			305.7						79.5			98.5						79.5			98.5						—			—						28.8			32.2						—			—
Philippines						62.1			70.5						41.7			49.7						41.7			49.7						—			—						67.2			70.5						0.1			—
East Asia & Australia
Australia						11.0			12.0						3.3			3.3						3.3			3.3						—			—						29.9			27.5						—			—
Japan						142.9			157.8						51.1			52.4						22.2			26.6						28.9			25.8						37.1			34.5						20.4			17.1
Korea						71.6			68.6						14.8			15.5						10.2			10.8						4.6			4.6						20.7			22.6						6.5			6.8
Latin America & Canada
Argentina						33.6			33.4						20.5			23.3						20.5			23.3						—			—						61.0			70.0						—			—
Mexico						30.7			35.5						19.5			23.8						19.5			23.8						0.1			—						63.7			67.1						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.

Financial Summary
Financial Summary - Years Ended December 31,															Change Fav./(Unfav.)									Variance Fav./(Unfav.)
						2020			2019						Total			Excl. Curr.						Total			Cur- rency			Price			Vol/ Mix			Cost/Other(1)
(in millions)
Net Revenues						$	28,694		$	29,805					(3.7)		%	(2.2)		%				$	(1,111)		$	(469)		$	794		$	(1,183)		$	(253)
Cost of Sales						(9,569)			(10,513)						9.0		%	7.5		%				944			158			—			464			322
Marketing, Administration and Research Costs (2)						(7,384)			(8,695)						15.1		%	17.0		%				1,311			(166)			—			—			1,477
Amortization of Intangibles						(73)			(66)						(10.6)		%	(13.6)		%				(7)			2			—			—			(9)
Operating Income						$	11,668		$	10,531					10.8		%	15.3		%				$	1,137		$	(475)		$	794		$	(719)		$	1,537

(1) Cost/Other variance includes the impact of the RBH deconsolidation.

(2) Favorable Cost/Other variance includes the 2019 Russia excise and VAT audit charge of $374 million, the 2019 Canadian tobacco litigation-related expense of $194 million, the 2019 loss on deconsolidation of RBH of $239 million, the 2019 asset impairment and exit costs of $422 million, the 2020 asset impairment and exit costs of ($149 million) and the 2020 Brazil indirect tax credit of $119 million, as well as the impact of the RBH deconsolidation.

Net revenues include $6.8 billion in 2020 and $5.6 billion in 2019 related to the sale of RRPs. IQOS devices accounted for approximately 7% of RRP net revenues for the year ended December 31, 2020, mainly due to a naturally lower ratio of new users to existing users, longer replacement cycles and geographic mix.

foreign-derived intangible income for the years 2018 and 2019 and repatriation cost differences. We estimate that our 2021 effective tax rate will be around 22%, excluding discrete tax 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 we monitor each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions. For further details, see Item 8, Note 11. Income Taxes.

For a discussion comparing our consolidated operating results for the year ended December 31, 2019, with the year ended December 31, 2018, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Discussion and Analysis - Consolidated Operating Results in our Annual Report on Form 10-K for the year ended December 31, 2019, which was filed with the U.S. Securities and Exchange Commission on February 7, 2020.

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

•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 Item 8, Note 17. Contingencies; and

•governmental investigations.

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.

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.

EU Tobacco Products Directive: In April 2014, the EU adopted a significantly revised EU Tobacco Products Directive (TPD), which entered into force in May 2016. All member 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 states to further standardize tobacco packaging, including the introduction of plain packaging;

•a ban on characterizing flavors in some tobacco products, with a transition period for menthol that expired in May 2020;

•security features and tracking and tracing measures that became effective on 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.

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. Some countries, such as Canada, New Zealand, Israel and Denmark adopted plain packaging regulations that apply to all tobacco products, including RRPs. Other countries are also considering plain packaging legislation.

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 banned cigarettes and roll-your-own tobacco products with characterizing flavors. Other tobacco products, including heated tobacco products, are exempted from this flavor ban. The EU Commission is required to withdraw this exemption for 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. Turkey banned menthol as of May 2020. Broader ingredient bans have been adopted by Canada and Brazil.

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.

Restrictions on Public Smoking and Use of Nicotine-Containing Products in Public: The pace and scope of 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, 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.

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,

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 decade the number of smokers will remain largely unchanged from the current estimate of 1.1 billion, despite the considerable efforts to discourage smoking.

•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.

        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. We completed a 6+6-month exposure response study and shared the results with the FDA in April 2020. The study showed that for the group that switched to our Platform 1 product, the eight clinical risk endpoints that were tested as co-primary endpoints in the first six-month term moved in the same direction as observed for smoking cessation after 12 months of use of 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.

    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, which was completed in 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 our pharmacokinetic study related to the version without electronics indicate this product's potential as an acceptable alternative to continued cigarette smoking in terms of product satisfaction. In February 2020, we completed a product use and adaptation study in adult smokers for the product variant without electronics.

    Platform 4 covers e-vapor products, which are battery-powered devices that produce an aerosol by vaporizing a nicotine-containing liquid solution. In 2020, our e-vapor products comprised devices with the “coil and wick” technology as well as our e-vapor mesh technology designed to ensure the consistency and quality of the generated 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 indicate that these 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.

The research and development expense for our RRP portfolio accounted for 99%, 98% and 92% of our total research and development expense for the years ended December 31, 2020, 2019 and 2018, respectively.  The research and development expense for the years ended December 31, 2020, 2019 and 2018, is set forth in Item 8, Note 14. Additional Information to the consolidated financial statements.

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, and increasingly, digital communication programs and e-commerce.  In order to accelerate switching to our Platform 1 products, our initial market introductions typically entail one-to-one consumer engagement (in person or by digital means) and device discounts.  These initial commercialization efforts require substantial investment, which we believe will moderate over 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.

An adequate supply chain for our RRP portfolio, including the supply of electronic devices, is important to our business. We work with two electronics manufacturing service providers for the supply of our Platform 1 and IQOS VEEV 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 both 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 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 details on the impact of COVID-19 on our production and supply chain, see the "Executive Summary" section within this Item 7 of this Form 10-K.

Our Platform 1 and IQOS VEEV 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 Item 8, Note 5. 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.

•In 2020, we started commercializing an improved version of our IQOS MESH product in New Zealand and the Czech Republic under the IQOS VEEV brand name. We currently plan to launch this product in additional markets under the IQOS VEEV or VEEV brand names.

•With respect to TEEPS, our Platform 2 product, we are finalizing our improvements to this product and 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.

RRP Regulation and Taxation: RRPs contain nicotine and are not risk-free. As we describe in more detail above, we support science-based regulation and taxation of RRPs 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, as well as industry practices, should reflect the fact that youth should not consume nicotine in any form.

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 IQOS 3 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:

•the IQOS system heats tobacco but does not burn it.

•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."

In addition, in Italy, in April 2018, we submitted 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 filings. We are confident that our evidence supports our application.

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 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. 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.

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 contributed $45 million in 2020 and expect to contribute $40 million in 2021 and $35 million annually from 2022 through 2029, as specified in the amended pledge agreement. To date, we contributed a total of $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.

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 Item 8, Note 17. 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 Item 8, Note 17. 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 Department 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 and commenced challenges at the WTO Appellate Body. The WTO Appellate Body is not operational, and the appeals by Thailand are suspended indefinitely. In December 2020, the Philippines and Thailand agreed to pursue facilitator-assisted discussions aimed at progressing and resolving outstanding issues. It is not possible to predict any future developments in these proceedings or the outcome of these discussions.

We discuss asset impairment and exit costs in Item 8, Note 19. Asset Impairment and Exit Costs to our consolidated financial statements.

Acquisitions and Other Business Arrangements

We discuss our acquisitions in Item 8, Note 6. Acquisitions to our consolidated financial statements.

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., LIL Mini and LIL Plus), hybrid technologies that combine heat-not-burn tobacco and e-vapor technologies (e.g., LIL HYBRID), and e-vapor products (e.g., LIL Vapor). PMI will be responsible for the commercialization of smoke-free products supplied under the agreement.

We discuss our equity investments in Item 8, Note 4. Related Parties - Equity Investments and Other to our consolidated financial statements.

Trade Policy

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.

Financial Summary - Years Ended December 31,															Change Fav./(Unfav.)									Variance Fav./(Unfav.)
						2020			2019						Total			Excl. Curr.						Total			Cur- rency			Price			Vol/ Mix			Cost/ Other
(in millions)
Net Revenues						$	10,702		$	9,817					9.0		%	8.8		%				$	885		$	21		$	187		$	677		$	—
Operating Income						$	5,098		$	3,970					28.4		%	29.0		%				$	1,128		$	(24)		$	187		$	663		$	302