Investments in Unconsolidated Subsidiaries, Equity Securities and Other Related Parties

6 Months Ended

Jun. 30, 2019

Equity Method Investments and Joint Ventures [Abstract]

Investments in Unconsolidated Subsidiaries, Equity Securities and Other Related Parties

Investments in Unconsolidated Subsidiaries, Equity Securities and Other Related Parties:

Investments in unconsolidated subsidiaries:

At June 30, 2019 and December 31, 2018, PMI had total investments in unconsolidated subsidiaries of $1,074 million and $981 million, respectively, which were accounted for under the equity method of accounting. Equity method investments are initially recorded at cost. Under the equity method of accounting, the investment is adjusted for PMI's proportionate share of earnings or losses, dividends, capital contributions, changes in ownership interests and movements in currency translation adjustments. The carrying value of our equity method investments at June 30, 2019 and December 31, 2018 exceeded our share of the unconsolidated subsidiaries' book value by $903 million and $835 million, respectively. The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $860 million and $793 million attributable to goodwill as of June 30, 2019 and December 31, 2018, respectively, is being amortized on a straight-line basis over the underlying assets' estimated useful lives of 10 to 20 years. At June 30, 2019 and December 31, 2018, PMI received year-to-date dividends from unconsolidated subsidiaries of $17 million and $118 million, respectively.

PMI holds a 23% equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (Eastern Europe segment).

PMI holds a 49% equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”). PMI holds an approximate 25% economic interest in Société des Tabacs Algéro-Emiratie (“STAEM”), an Algerian joint venture that is 51% owned by EITA and 49% by the Algerian state-owned enterprise Management et Développement des Actifs et des Ressources Holding ("MADAR Holding"), formerly known as Société Nationale des Tabacs et Allumettes SpA. STAEM, which is part of the Middle East & Africa segment, manufactures and distributes under license some of PMI’s brands.

The initial investments in Megapolis Distribution BV and EITA were recorded at cost and are included in investments in unconsolidated subsidiaries and equity securities on the condensed consolidated balance sheets.

Equity securities:

Following the deconsolidation of RBH, PMI recorded the continuing investment in RBH, PMI's wholly owned subsidiary, at fair value of $3,280 million at the date of deconsolidation, within investments in unconsolidated subsidiaries and equity securities. For further details, see Note 20. Deconsolidation of RBH. Transactions between PMI and RBH are considered to be related party transactions from the date of deconsolidation and are included in the tables below.

Other related parties:

United Arab Emirates-based Trans-Emirates Trading and Investments (FZC) ("TTI") holds a 33% non-controlling interest in Philip Morris Misr LLC ("PMM"), an entity incorporated in Egypt which is consolidated in PMI’s financial statements in the Middle East & Africa segment. PMM sells, under license, PMI brands in Egypt through an exclusive distribution agreement with a local entity that is also controlled by TTI. Amounts in the tables below have been updated to reflect the transactions with this other related party for all periods. 

IPM India, PMI's consolidated subsidiary in the South & Southeast Asia segment, has a non-controlling interest of 43.7% held by Godfrey Phillips India Ltd, who also acts as contract manufacturer and distributor for IPM. Amounts in the tables below include transactions between these related parties, beginning in 2019. Prior periods do not include these transactions as they were not material.

Financial activity with unconsolidated subsidiaries, equity securities and other related parties:

PMI’s net revenues and expenses with unconsolidated subsidiaries, equity securities and the other related parties were as follows:

	For the Six Months Ended June 30,				For the Three Months Ended June 30,
(in millions)	2019		2018		2019		2018
Net revenues:
Megapolis Group	$	915	$	878	$	556	$	521
Other	491		315		278		151
Net revenues (a)	$	1,406	$	1,193	$	834	$	672
Expenses:
Other	$	27	$	10	$	14	$	5
Expenses	$	27	$	10	$	14	$	5

^(a) Net revenues exclude excise taxes and VAT billed to customers. Prior year's amounts have been reclassified to conform with the current year's presentation.

PMI’s balance sheet activity related to unconsolidated subsidiaries, equity securities and the other related parties was as follows:

(in millions)	At June 30, 2019		At December 31, 2018
Receivables:
Megapolis Group	$	541	$	172
Other	225		136
Receivables	$	766	$	308
Payables:
Other	$	13	$	8
Payables	$	13	$	8

The activity primarily related to agreements with PMI’s unconsolidated subsidiaries, equity securities and other related parties, which are in the ordinary course of business, and are primarily for distribution, service fees, contract manufacturing and licenses. PMI eliminated its respective share of all significant intercompany transactions with the equity method investees.