v3.26.1
Financial Instruments:
 6 Months Ended
Jun. 30, 2026
Derivative Instruments and Hedging Activities Disclosure [Abstract]  
Financial Instruments: Financial Instruments:
Overview

PMI operates globally with manufacturing and sales facilities in various locations around the world and is exposed to risks such as changes in foreign currency exchange rates and interest rates. As a result, PMI uses deliverable and non-deliverable forward foreign exchange contracts, foreign currency swaps and foreign currency options, (collectively referred to as "foreign exchange contracts"), and interest rate contracts to mitigate its exposure to changes in foreign currency exchange and interest rates related to net investments in foreign operations, as well as third-party and intercompany actual and forecasted transactions. The primary currencies to which PMI is exposed include the Euro, Indian rupee, Indonesian rupiah, Japanese yen, Russian ruble and Swiss franc.

Additionally, certain materials that PMI uses in the manufacturing of its products are exposed to market price risks. PMI uses commodity derivative contracts (“commodity contracts") to manage its exposure to the market price volatility of certain commodity components of these materials.
These foreign exchange contracts, interest rate contracts and commodity contracts are collectively referred to as "derivative contracts". PMI is not a party to leveraged derivatives and, by policy, does not use derivative financial instruments for speculative purposes. Substantially all of PMI's derivative financial instruments are subject to master netting arrangements, whereby the right to offset occurs in the event of default by a participating party. While these contracts contain the enforceable right to offset through close-out netting rights, PMI elects to present them on a gross basis in the condensed consolidated balance sheets. Collateral associated with these arrangements is in the form of cash and is unrestricted. Changes in collateral posted are included in cash flows from investing activities and changes in collateral received are included in cash flows from financing activities. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. PMI formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of the forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in earnings.

The gross notional amounts for outstanding derivatives at the end of each period were as follows:
(in millions)At June 30, 2026At December 31, 2025
Derivative contracts designated as hedging instruments:
Foreign exchange contracts$29,207 $29,062 
Interest rate contracts4,800 4,700 
Commodity contracts3 3 
Derivative contracts not designated as hedging instruments:
Foreign exchange contracts18,144 16,278 
Total$52,154 $50,043 
The fair value of PMI’s derivative contracts included in the condensed consolidated balance sheets as of June 30, 2026 and December 31, 2025, were as follows:
 Derivative AssetsDerivative Liabilities
 Fair ValueFair Value
AtAtAtAt
(in millions)Balance Sheet ClassificationJune 30, 2026December 31, 2025Balance Sheet ClassificationJune 30, 2026December 31, 2025
Derivative contracts designated as hedging instruments:
Foreign exchange contractsOther current assets$587 $378 Other accrued liabilities$161 $499 
Other assets130 107 Other liabilities492 853 
Interest rate contractsOther current assets4 — Other accrued liabilities4 27 
Other assets12 77 Other liabilities22 — 
Commodity contractsOther current assets— — Other accrued liabilities— 1 
Derivative contracts not designated as hedging instruments:
Foreign exchange contracts
Other current assets 
442 91 Other accrued liabilities151 319 
Other assets— — Other liabilities184 276 
Total gross amount derivatives contracts presented in the condensed consolidated balance sheets $1,175 $653  $1,014 $1,975 
Gross amounts not offset in the condensed consolidated balance sheets
Financial instruments(575)(444)(575)(444)
Cash collateral received/pledged(553)(183)(410)(1,374)
Net amount$47 $26 $29 $157 

PMI assesses the fair value of its derivative contracts using standard valuation models that use, as their basis, readily observable market inputs. The fair value of PMI’s foreign exchange forward contracts, foreign currency swaps and interest rate derivatives is determined using prevailing spot and forward foreign exchange rates, spot and forward interest rates, and the instruments' respective maturity dates. The fair value of currency options is estimated using a Black-Scholes valuation model that incorporates foreign exchange spot rates, interest rate differentials, currency volatilities, strike rates and maturity dates. The fair value of PMI’s commodity contracts is determined using prevailing market spot and futures prices and the corresponding maturity dates. PMI’s derivative contracts have been classified within Level 2 at June 30, 2026 and December 31, 2025.
For the six months ended June 30, 2026 and 2025, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:
(pre-tax, in millions)For the Six Months Ended June 30,
Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on DerivativesStatement of Earnings
Classification of Gain/(Loss)
on Derivatives		Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings/(Losses) into EarningsAmount of Gain/(Loss) Recognized in Earnings
202620252026202520262025
Derivative contracts designated as hedging instruments:
Cash flow hedges:
Foreign exchange contracts$148 $(279)Net revenues$53 $63 
Marketing, administration and research costs12 (27)
Interest expense, net— (1)
Interest rate contracts12 1 Interest expense, net24 28 
Commodity contracts1 — Cost of sales— (4)
Fair value hedges:
Interest rate contracts
Interest expense, net (a)
$(68)$66 
Net investment hedges (b):
Foreign exchange contracts638 (1,992)
Interest expense, net (c)
174 141 
Derivative contracts not designated as hedging instruments:
Foreign exchange contractsInterest expense, net135 183 
Marketing, administration and research costs (d)
317 (1,350)
Total$799 $(2,270)$89 $59 $558 $(960)
(a) The gains (losses) from these contracts are offset by the changes in the fair value of the hedged item
(b) Amount of gains (losses) on hedges of net investments principally related to changes in foreign currency exchange and interest rates between the Euro and U.S. dollar
(c) Represents the gains for amounts excluded from the effectiveness testing
(d) The gains (losses) from these contracts attributable to changes in foreign currency exchange rates are largely offset by the (losses) and gains generated by the underlying intercompany and third-party loans being hedged
For the three months ended June 30, 2026 and 2025, PMI's derivative contracts impacted the condensed consolidated statements of earnings and comprehensive earnings as follows:
(pre-tax, in millions)For the Three Months Ended June 30,
Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings/(Losses) on DerivativesStatement of Earnings
Classification of Gain/(Loss)
on Derivatives		Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings/(Losses) into EarningsAmount of Gain/(Loss) Recognized in Earnings
202620252026202520262025
Derivative contracts designated as hedging instruments:
Cash flow hedges:
Foreign exchange contracts$50 $(133)Net revenues$31 $11 
Marketing, administration and research costs7 14 
Interest expense, net— (1)
Interest rate contracts(1)2 Interest expense, net12 14 
Commodity contracts— (1)Cost of sales— (2)
Fair value hedges:
Interest rate contracts
Interest expense, net (a)
$(31)$19 
Net investment hedges (b):
Foreign exchange contracts83 (1,555)
Interest expense, net (c)
86 71 
Derivative contracts not designated as hedging instruments:
Foreign exchange contractsInterest expense, net69 90 
Marketing, administration and research costs (d)
57 (1,108)
Total$132 $(1,687)$50 $36 $181 $(928)
(a) The gains (losses) from these contracts are offset by the changes in the fair value of the hedged item
(b) Amount of gains (losses) on hedges of net investments principally related to changes in foreign currency exchange and interest rates between the Euro and U.S. dollar
(c) Represents the gains for amounts excluded from the effectiveness testing
(d) The gains (losses) from these contracts attributable to changes in foreign currency exchange rates are largely offset by the (losses) and gains generated by the underlying intercompany and third-party loans being hedged

Cash Flow Hedges

PMI has entered into derivative contracts to hedge the foreign currency exchange, interest rate and commodity price risks related to certain forecasted transactions. Gains and losses associated with qualifying cash flow hedge contracts are deferred as components of accumulated other comprehensive losses until the underlying hedged transactions are reported in PMI’s condensed consolidated statements of earnings. As of June 30, 2026, PMI has hedged forecasted transactions with derivative contracts expiring at various dates through December 2028. Premiums paid for, and settlements of, the derivative contracts designated as cash flow hedges are included primarily in cash flows from operating activities on PMI’s condensed consolidated statements of cash flows.
Fair Value Hedges
PMI has entered into fixed-to-floating interest rate contracts, designated as fair value hedges to minimize exposure to changes in the fair value of fixed rate U.S. dollar-denominated debt that results from fluctuations in benchmark interest rates. For derivative contracts that are designated and qualify as fair value hedges, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged items attributable to the hedged risk, is recognized in current earnings. The carrying amount of the debt hedged, which includes the cumulative adjustment for fair value gains/losses, as of June 30, 2026 was $6,148 million, including $1,396 million related to discontinued hedges, and was recorded in long-term debt in the condensed consolidated balance sheets. The cumulative amount of fair value gains/(losses) included in the carrying amount of the debt hedged was $12 million as of June 30, 2026.

Hedges of Net Investments in Foreign Operations

PMI designates derivative contracts and certain foreign currency denominated debt and other financial instruments as net investment hedges, primarily of its Euro net assets. For the six months ended June 30, 2026 and 2025, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive gains within currency translation adjustments, was $7 million and nil, respectively. For the three months ended June 30, 2026 and 2025, the amount of pre-tax gain/(loss) related to the non-derivative financial instruments, that was reported as a component of accumulated other comprehensive losses within currency translation adjustments, was $(6) million and nil, respectively. Settlements of the derivative contracts designated as net investment hedges are included in cash flows from investing activities on PMI’s condensed consolidated statements of cash flows.

Other Derivatives

PMI has entered into derivative contracts to hedge the foreign currency exchange and interest rate risks related to intercompany loans between certain subsidiaries and third-party loans. While effective as economic hedges, no hedge accounting is applied for these contracts; therefore, the gains (losses) relating to these contracts are reported in PMI’s condensed consolidated statements of earnings. Settlements of other derivative contracts are included primarily in cash flows from investing activities on PMI's condensed consolidated statements of cash flows.

Qualifying Hedging Activities Reported in Accumulated Other Comprehensive Losses

Derivative gains or losses reported in accumulated other comprehensive losses are a result of qualifying hedging activity. Transfers of these gains or losses to earnings are offset by the corresponding gains or losses on the underlying hedged item. Hedging activity affected accumulated other comprehensive losses, net of income taxes, as follows:
(in millions)For the Six Months Ended June 30,For the Three Months Ended June 30,
 2026202520262025
Gain/(loss) as of beginning of period,$284 $467 $346 $324 
Derivative (gains)/losses transferred to earnings(73)(50)(41)(29)
Change in fair value135 (235)41 (113)
Gain/(loss) as of June 30,$346 $182 $346 $182 

At June 30, 2026, PMI expects $171 million of derivative gains that are included in accumulated other comprehensive losses to be reclassified to the condensed consolidated statement of earnings within the next 12 months. These gains are expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.
Contingent Features
PMI’s derivative instruments do not contain contingent features.
Credit Exposure and Credit Risk
PMI is exposed to credit loss in the event of non-performance by counterparties. While PMI does not anticipate non-performance, its risk is limited to the fair value of the financial instruments less any cash collateral received or pledged. PMI actively monitors its exposure to credit risk through the use of credit approvals and credit limits and by selecting and continuously monitoring a diverse group of major international banks and financial institutions as counterparties.
Other Investments
Certain PMI investments, which are comprised of Indonesian rupiah denominated bonds in Indonesia, have been classified within Level 2 and had a fair value of $24 million at June 30, 2026. For the six months and three months ended June 30, 2026,
the gross unrealized pre-tax gains (losses) on these investments were immaterial.