Asset Impairment and Exit Costs

12 Months Ended

Dec. 31, 2021

Restructuring and Related Activities [Abstract]

Asset Impairment and Exit Costs

Asset Impairment and Exit Costs:

For the years ended December 31, 2021, 2020 and 2019, PMI recorded total pre-tax asset impairment and exit costs of $216 million, $149 million and $422 million, respectively. The total pre-tax asset impairment and exit costs were included in marketing, administration and research costs on the consolidated statements of earnings.

South Korea

In the first quarter of 2021, PM Korea commenced the implementation of a new business operating model, which requires the restructuring of its current distribution agreements. As a result, PMI recorded exit costs of $57 million in the year ended December 31, 2021, related to contract terminations and restructuring with certain distributors.

Organizational Design Optimization

As part of PMI’s transformation to a smoke-free future, PMI seeks to optimize its organizational design, which includes the elimination, relocation and outsourcing of certain operations center and centralized activities. In January 2020, PMI commenced a multi-phase restructuring project in Switzerland. PMI initiated the employee consultation procedures, as required under Swiss law, for the impacted employees. The consultation procedures for the first two phases were completed in 2020 with the final phases initiated and completed in 2021. Additionally, since the commencement of this multi-phase restructuring project in 2020, PMI launched a voluntary separation program in Switzerland for certain eligible employees and announced the outsourcing of certain activities in Argentina, Indonesia, Poland and the United States. This multi-phase restructuring project was completed in the fourth quarter of 2021.

For the years ended December 31, 2021 and 2020, PMI recorded pre-tax charges of $159 million and $149 million, respectively, related to the organizational design optimization. Since inception of this multi-phase restructuring project in January 2020 through December 31, 2021, approximately 1,020 positions in total were impacted, resulting in cumulative pre-tax charges of $308 million related to the organizational design optimization program. Of this cumulative pre-tax amount, $300 million related to separation program charges and $8 million related to asset impairment charges.

Global Manufacturing Infrastructure Optimization

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

Germany

On November 4, 2019, PMI announced that, as part of its global manufacturing infrastructure optimization, its German affiliate, Philip Morris Manufacturing GmbH ("PMMG"), reached an agreement with employee representatives to end cigarette production in its factory in Berlin, Germany, by January 1, 2020. As a result of this agreement, during 2019, PMI recorded pre-tax asset impairment and exit costs of $342 million in the European Union segment. This amount included pension and employee separation costs of $251 million, which are paid in cash, and asset impairment costs of $91 million, primarily related to machinery and equipment, which were non-cash charges.

Other

During 2019, PMI also recorded pre-tax asset impairment and exit costs of $80 million as part of its global manufacturing infrastructure optimization. These costs were related to cigarette plant closures in Argentina ($15 million), Colombia ($45 million) and Pakistan ($20 million). The charges were reflected in the Americas segment (Argentina and Colombia) and the South & Southeast Asia segment (Pakistan).

Asset Impairment and Exit Costs by Segment

During 2021, 2020 and 2019, PMI recorded the following pre-tax asset impairment and exit costs by segment:

(in millions)	2021		2020		2019
Separation programs: (1)
European Union	$	68	$	53	$	251
Eastern Europe	14		14		—
Middle East & Africa	17		18		—
South & Southeast Asia	21		22		3
East Asia & Australia	31		25		—
Americas	8		9		49
Total separation programs	159		141		303
Contract termination charges:
East Asia & Australia	57		—		—
Total contract termination charges	57		—		—
Asset impairment charges (1)
European Union	—		4		91
Eastern Europe	—		1		—
Middle East & Africa	—		1		—
South & Southeast Asia	—		1		17
East Asia & Australia	—		1		—
Americas	—		—		11
Total asset impairment charges	—		8		119
Asset impairment and exit costs	$	216	149		422

(1) Organizational design optimization pre-tax charges in 2021 and 2020 were allocated across all geographical segments.

Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the year ended December 31, 2021 was as follows:

(in millions)
Liability balance, January 1, 2021	$	180
Charges, net	216
Cash spent	(238)
Currency/other	(16)
Liability balance, December 31, 2021	$	142

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2023.