Segment Reporting

6 Months Ended

Jun. 30, 2019

Segment Reporting:

PMI’s subsidiaries and affiliates are engaged in the manufacture and sale of cigarettes and other nicotine-containing products, including RRPs, in markets outside of the United States of America. Reportable segments for PMI are organized by geographic region and managed by segment managers who are responsible for the operating and financial results of the regions inclusive of all product categories sold in the region. PMI’s reportable segments are the European Union; Eastern Europe; Middle East & Africa; South & Southeast Asia; East Asia & Australia; and Latin America & Canada. PMI records net revenues and operating income to its segments based upon the geographic area in which the customer resides.

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

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

Segment data were as follows:



(in millions)	For the Six Months Ended June 30,					For the Three Months Ended June 30,
	2019			2018		2019		2018
Net revenues:
European Union	$	4,736		$	4,491	$	2,577	$	2,503
Eastern Europe	1,401			1,327		822		760
Middle East & Africa	1,931			1,983		1,004		1,022
South & Southeast Asia	2,361			2,237		1,248		1,156
East Asia & Australia	2,842			3,069		1,521		1,478
Latin America & Canada	1,179			1,515		527		807
Net revenues	$	14,450		$	14,622	$	7,699	$	7,726
Operating income (loss):
European Union	$	2,091		$	1,917	$	1,195	$	1,177
Eastern Europe	385			412		256		261
Middle East & Africa	785			777		441		403
South & Southeast Asia	932			869		492		440
East Asia & Australia	1,069			1,013		642		498
Latin America & Canada	(25		)	531		161		314
Operating income	$	5,237		$	5,519	$	3,187	$	3,093

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


•	Asset impairment and exit costs - See Note 19. Asset Impairment and Exit Costs for a breakdown of these costs by segment.


•	Canadian tobacco litigation-related expense - See Note 8. 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 six months ended June 30, 2019.


•	Loss on deconsolidation of RBH - See Note 20. Deconsolidation of RBH for details of the $239 million loss included in the Latin America & Canada segment for the six months ended June 30, 2019.

PMI's net revenues by product category were as follows:



(in millions)	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2019		2018		2019		2018
Net revenues:
Combustible products:
European Union	$	3,961	$	4,157	$	2,149	$	2,321
Eastern Europe	1,110		1,222		640		695
Middle East & Africa	1,746		1,794		918		910
South & Southeast Asia	2,361		2,237		1,248		1,156
East Asia & Australia	1,394		1,559		756		822
Latin America & Canada	1,168		1,506		522		802
Total combustible products	$	11,741	$	12,475	$	6,233	$	6,706
Reduced-risk products:
European Union	$	775	$	334	$	428	$	182
Eastern Europe	291		105		182		65
Middle East & Africa	185		189		86		112
South & Southeast Asia	—		—		—		—
East Asia & Australia	1,448		1,510		765		656
Latin America & Canada	11		9		5		5
Total reduced-risk products	$	2,709	$	2,147	$	1,466	$	1,020

Total PMI net revenues	$	14,450	$	14,622	$	7,699	$	7,726

Note: Sum of product categories or Regions might not foot to total PMI due to roundings.

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

Net revenues related to reduced-risk products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net revenue amounts consist of the sale of PMI's heated tobacco units, IQOS devices and related accessories, and other nicotine-containing products, which primarily include PMI's e-vapor products.

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