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Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One) 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2019
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number 001-33708
Philip Morris International Inc.
 
 
 
 
 
(Exact name of registrant as specified in its charter)
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)
Registrant’s telephone number, including area code
(917)
663-2000
 
 
 
 
 
Former name, former address and former fiscal year, if changed since last report

Securities registered pursuant to Section 12(b) of the Act:
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 2019
 
PM19D
 
New York Stock Exchange
2.000% Notes due 2020
 
PM20B
 
New York Stock Exchange
Floating Notes due 2020
 
PM20C
 
New York Stock Exchange
1.750% Notes due 2020
 
PM20A
 
New York Stock Exchange
4.500% Notes due 2020
 
PM20
 
New York Stock Exchange
1.875% Notes due 2021
 
PM21B
 
New York Stock Exchange
1.875% Notes due 2021
 
PM21C
 
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
Title of each class                    
 
Trading Symbol(s)
 
Name of each exchange on which registered
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
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 (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  þ        No  ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  þ        No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer    þ                        Accelerated filer              
Non-accelerated filer                             Smaller reporting company    
Emerging growth company    
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  þ
At October 21, 2019, there were 1,555,874,621 shares outstanding of the registrant’s common stock, no par value per share.

-1-

Table of Contents


PHILIP MORRIS INTERNATIONAL INC.
TABLE OF CONTENTS
 
 
 
Page No.
 
 
 
PART I -
 
 
 
 
Item 1.
 
 
 
 
 
Condensed Consolidated Statements of Earnings for the
 
 
Nine Months Ended September 30, 2019 and 2018
 
Three Months Ended September 30, 2019 and 2018
 
 
 
 
Condensed Consolidated Statements of Comprehensive Earnings for the
 
 
Nine Months Ended September 30, 2019 and 2018
 
Three Months Ended September 30, 2019 and 2018
 
 
 
 
Condensed Consolidated Balance Sheets at
 
 
September 30, 2019 and December 31, 2018
7 – 8
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the
 
 
Nine Months Ended September 30, 2019 and 2018
9 – 10
 
 
 
 
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the
 
 
Nine Months Ended September 30, 2019 and 2018
 
Three Months Ended September 30, 2019 and 2018
 
 
 
 
13 – 47
 
 
 
Item 2.
48 – 96
 
 
 
Item 4.
 
 
 
PART II -
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 

In this report, “PMI,” “we,” “us” and “our” refer to Philip Morris International Inc. and its subsidiaries.

Trademarks and service marks in this report are the registered property of, or licensed by, the subsidiaries of Philip Morris International Inc. and are italicized.

-2-

Table of Contents


PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)

 
For the Nine Months Ended September 30,
 
2019
 
2018
Revenues including excise taxes
$
58,072

 
$
59,965

Excise taxes on products
35,980

 
37,839

Net revenues
22,092

 
22,126

Cost of sales
7,735

 
7,977

Gross profit
14,357

 
14,149

Marketing, administration and research costs (Notes 8, 19 & 20)
6,282

 
5,411

Amortization of intangibles
50

 
63

Operating income
8,025

 
8,675

Interest expense, net
434

 
540

Pension and other employee benefit costs (Note 3)
61

 
19

Earnings before income taxes
7,530

 
8,116

Provision for income taxes
1,670

 
1,894

Equity investments and securities (income)/loss, net
(86
)
 
(61
)
Net earnings
$
5,946

 
$
6,283

Net earnings attributable to noncontrolling interests
377

 
282

Net earnings attributable to PMI
$
5,569

 
$
6,001


Per share data (Note 6):
 
 
 
Basic earnings per share
$
3.57

 
$
3.85

Diluted earnings per share
$
3.57

 
$
3.85










See notes to condensed consolidated financial statements.

-3-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)

 
For the Three Months Ended September 30,
 
2019
 
2018
Revenues including excise taxes
$
20,380

 
$
20,439

Excise taxes on products
12,738

 
12,935

Net revenues
7,642

 
7,504

Cost of sales
2,605

 
2,618

Gross profit
5,037

 
4,886

Marketing, administration and research costs (Notes 8 & 19)
2,234

 
1,710

Amortization of intangibles
15

 
20

Operating income
2,788

 
3,156

Interest expense, net
132

 
145

Pension and other employee benefit costs (Note 3)
20

 
7

Earnings before income taxes
2,636

 
3,004

Provision for income taxes
635

 
691

Equity investments and securities (income)/loss, net
(45
)
 
(28
)
Net earnings
2,046

 
2,341

Net earnings attributable to noncontrolling interests
150

 
94

Net earnings attributable to PMI
$
1,896

 
$
2,247


Per share data (Note 6):
 
 
 
Basic earnings per share
$
1.22

 
$
1.44

Diluted earnings per share
$
1.22

 
$
1.44








See notes to condensed consolidated financial statements.

-4-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Earnings
(in millions of dollars)
(Unaudited)


 
 
For the Nine Months Ended September 30,
 
 
2019
 
2018
Net earnings
 
$
5,946

 
$
6,283

Other comprehensive earnings (losses), net of income taxes:
 
 
 
 
Change in currency translation adjustments:
 
 
 
 
Unrealized gains (losses), net of income taxes of ($230) in 2019 and $60 in 2018
 
363

 
(939
)
(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of $- in 2019 and $- in 2018 (Note 20)
 
502

 


Change in net loss and prior service cost:
 
 
 
 
Net gains (losses) and prior service costs, net of income taxes of $133 in 2019 and $- in 2018
 
133

 

Amortization of net losses, prior service costs and net transition costs, net of income taxes of ($43) in 2019 and ($30) in 2018
 
180

 
150

(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of ($15) in 2019 and $- in 2018 (Note 20)
 
27

 


Change in fair value of derivatives accounted for as hedges:
 
 
 
 
Gains (losses) recognized, net of income taxes of $5 in 2019 and ($4) in 2018
 
(34
)
 
29

(Gains) losses transferred to earnings, net of income taxes of $3 in 2019 and $2 in 2018
 
(12
)
 
(9
)
Total other comprehensive earnings (losses)
 
1,159

 
(769
)
Total comprehensive earnings
 
7,105

 
5,514

Less comprehensive earnings attributable to:
 
 
 
 
Noncontrolling interests
 
391

 
177

Comprehensive earnings attributable to PMI
 
$
6,714

 
$
5,337














See notes to condensed consolidated financial statements.

-5-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Earnings
(in millions of dollars)
(Unaudited)

 
 
For the Three Months Ended September 30,
 
 
2019
 
2018
Net earnings
 
$
2,046

 
$
2,341

Other comprehensive earnings (losses), net of income taxes:
 
 
 
 
Change in currency translation adjustments:
 
 
 
 
Unrealized gains (losses), net of income taxes of ($163) in 2019 and $87 in 2018
 
12

 
(394
)

Change in net loss and prior service cost:
 
 
 
 
Net gains (losses) and prior service costs, net of income taxes of ($2) in 2019 and $- in 2018
 
(2
)
 

Amortization of net losses, prior service costs and net transition costs, net of income taxes of ($13) in 2019 and ($9) in 2018
 
61

 
50


Change in fair value of derivatives accounted for as hedges:
 
 
 
 
Gains (losses) recognized, net of income taxes of $2 in 2019 and ($5) in 2018
 
(14
)
 
40

(Gains) losses transferred to earnings, net of income taxes of $- in 2019 and $2 in 2018
 
13

 
(15
)
Total other comprehensive earnings (losses)
 
70

 
(319
)
Total comprehensive earnings
 
2,116

 
2,022

Less comprehensive earnings attributable to:
 
 
 
 
Noncontrolling interests
 
135

 
66

Comprehensive earnings attributable to PMI
 
$
1,981

 
$
1,956

















See notes to condensed consolidated financial statements.

-6-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of dollars)
(Unaudited)
 
 
September 30,
2019
 
December 31,
2018
ASSETS
 
 
 
Cash and cash equivalents
$
6,507

 
$
6,593

Trade receivables (less allowances of $27 in 2019 and $25 in 2018)
3,073

 
2,950

Other receivables
656

 
614


Inventories:
 
 
 
Leaf tobacco
2,081

 
2,318

Other raw materials
1,514

 
1,405

Finished product
4,934

 
5,081

 
8,529

 
8,804

Other current assets
810

 
481


Total current assets
19,575

 
19,442


Property, plant and equipment, at cost
14,164

 
14,557

Less: accumulated depreciation
7,528

 
7,356

 
6,636

 
7,201

Goodwill (Note 4)
5,720

 
7,189

Other intangible assets, net (Note 4)
2,088

 
2,278

Investments in unconsolidated subsidiaries and equity securities (Notes 11&14)
4,499

 
1,269

Deferred income taxes
968

 
977

Other assets
1,934

 
1,445

TOTAL ASSETS
$
41,420

 
$
39,801










See notes to condensed consolidated financial statements.
Continued

-7-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(in millions of dollars, except share data)
(Unaudited)
 
 
September 30,
2019
 
December 31,
2018
LIABILITIES
 
 
 
Short-term borrowings (Note 10)
$
355

 
$
730

Current portion of long-term debt (Note 10)
5,035

 
4,054

Accounts payable
1,704

 
2,068

Accrued liabilities:
 
 
 
Marketing and selling
677

 
732

Taxes, except income taxes
5,130

 
5,088

Employment costs
813

 
794

Dividends payable
1,831

 
1,783

Other
1,777

 
1,366

Income taxes
723

 
576

Total current liabilities
18,045

 
17,191


Long-term debt (Note 10)
26,426

 
26,975

Deferred income taxes
905

 
898

Employment costs
2,859

 
3,083

Income taxes and other liabilities
2,340

 
2,393

Total liabilities
50,575

 
50,540


Contingencies (Note 8)

 


STOCKHOLDERS’ (DEFICIT) EQUITY
 
 
 

Common stock, no par value
(2,109,316,331 shares issued in 2019 and 2018)

 

Additional paid-in capital
1,981

 
1,939

Earnings reinvested in the business
31,197

 
31,014

Accumulated other comprehensive losses
(8,966
)
 
(10,111
)
 
24,212

 
22,842

Less: cost of repurchased stock
   (553,456,284 and 554,736,610 shares in 2019 and 2018, respectively)
35,222

 
35,301

Total PMI stockholders’ deficit
(11,010
)
 
(12,459
)
Noncontrolling interests
1,855

 
1,720

Total stockholders’ deficit
(9,155
)
 
(10,739
)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY
$
41,420

 
$
39,801






See notes to condensed consolidated financial statements.

-8-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)
 
 
For the Nine Months Ended September 30,
 
2019
 
2018
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES
 
 
 
 
 
 
 
Net earnings
$
5,946

 
$
6,283

 
 
 
 
Adjustments to reconcile net earnings to operating cash flows:
 
 
 
Depreciation and amortization
709

 
734

Deferred income tax (benefit) provision
(124
)
 
(42
)
Cash effects of changes in:
 
 
 
Receivables, net
(506
)
 
112

Inventories
(64
)
 
(149
)
Accounts payable
(31
)
 
(376
)
Accrued liabilities and other current assets
292

 
621

Income taxes
(6
)
 
(272
)
Pension plan contributions
(89
)
 
(58
)
Other
639

(1) 
203

Net cash provided by operating activities
6,766

 
7,056

 
 
 
 
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
 
 
 
 
 
 
 
Capital expenditures
(696
)
 
(1,102
)
Investments in unconsolidated subsidiaries and equity securities
(31
)
 
(41
)
Deconsolidation of RBH (Note 20)
(1,346
)
(2) 

Net investment hedges
429

 
(60
)
Other
17

 
39

Net cash used in investing activities
(1,627
)
 
(1,164
)
 

















See notes to condensed consolidated financial statements.

Continued

-9-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
(Unaudited)
 
 
For the Nine Months Ended September 30,
 
2019
 
2018
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
 
 
 
 
 
 
 
Short-term borrowing activity by original maturity:
 
 
 
    Net issuances (repayments) - maturities of 90 days or less
$
(340
)
 
$
75

    Issuances - maturities longer than 90 days
989

 

    Repayments - maturities longer than 90 days
(989
)
 

Long-term debt proceeds
3,819

 

Long-term debt repaid
(2,971
)
 
(2,483
)
Dividends paid
(5,336
)
 
(5,110
)
Sale (purchase) of subsidiary shares to/(from) noncontrolling interests (Note 17)
47

 
(82
)
Other
(321
)
 
(304
)
Net cash used in financing activities
(5,102
)
 
(7,904
)
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(146
)
 
(551
)
 
 
 
 
Cash, cash equivalents and restricted cash(3):
 
 
 
Increase (Decrease)
(109
)
 
(2,563
)
Balance at beginning of period
6,620

 
8,476

Balance at end of period
$
6,511

 
$
5,913

 
 
 
 
(1) Includes the Loss on Deconsolidation of RBH ($239 million), the Canadian tobacco litigation-related charge ($194 million) and the Asset impairment and exit cost charge ($65 million) that were included in marketing, administration and research costs in the condensed consolidated statements of earnings for the nine months ended September 30, 2019. For further details on these charges, see Note 19. Asset Impairment and Exit Costs and Note 20. Deconsolidation of RBH.

(2) Includes deconsolidation of RBH cash and cash equivalents of $1,323 million and restricted cash of $23 million.

(3) The amounts for cash and cash equivalents shown above include restricted cash of $4 million and $33 million as of September 30, 2019 and 2018, respectively, and $27 million and $29 million as of December 31, 2018, and 2017, respectively, which were included in other current assets in the condensed consolidated balance sheets.




See notes to condensed consolidated financial statements.

-10-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
For the Nine Months Ended September 30, 2019 and 2018
(in millions of dollars, except per share amounts)
(Unaudited)
 
PMI Stockholders’ (Deficit) Equity
 
 
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Earnings
Reinvested in
the
Business
 
Accumulated
Other
Comprehensive Losses
 
Cost of
Repurchased
Stock
 
Noncontrolling
Interests
 
Total
Balances, January 1, 2018
$

 
$
1,972

 
$
29,859

 
$
(8,535
)
 
$
(35,382
)
 
$
1,856

 
$
(10,230
)
Net earnings
 
 
 
 
6,001

 
 
 
 
 
282

 
6,283

Other comprehensive earnings (losses), net of income taxes
 
 
 
 
 
 
(660
)
 
 
 
(109
)
 
(769
)
Issuance of stock awards
 
 
15

 
 
 
 
 
78

 
 
 
93

Dividends declared ($3.35 per share)
 
 
 
 
(5,221
)
 
 
 
 
 
 
 
(5,221
)
Payments to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
(250
)
 
(250
)
Adoption of new accounting standards
 
 
 
 
238

 
 
 
 
 
 
 
238

Other (Note 17)
 
 
(81
)
 
 
 
(4
)
 
 
 
(1
)
 
(86
)
Balances, September 30, 2018
$

 
$
1,906

 
$
30,877

 
$
(9,199
)
 
$
(35,304
)
 
$
1,778

 
$
(9,942
)
Balances, January 1, 2019
$

 
$
1,939

 
$
31,014

 
$
(10,111
)
 
$
(35,301
)
 
$
1,720

 
$
(10,739
)
Net earnings
 
 
 
 
5,569

 
 
 
 
 
377

 
5,946

Other comprehensive earnings (losses), net of income taxes
 
 
 
 
 
 
616

 
 
 
14

 
630

Issuance of stock awards
 
 
44

 
 
 
 
 
79

 
 
 
123

Dividends declared ($3.45 per share)
 
 
 
 
(5,386
)
 
 
 
 
 
 
 
(5,386
)
Payments to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
(305
)
 
(305
)
Deconsolidation of RBH (Note 20)
 
 
 
 
 
 
529

 
 
 
 
 
529

Other
 
 
(2
)
 
 
 

 
 
 
49

 
47

Balances, September 30, 2019
$

 
$
1,981

 
$
31,197

 
$
(8,966
)
 
$
(35,222
)
 
$
1,855

 
$
(9,155
)





 
See notes to condensed consolidated financial statements.

-11-

Table of Contents


Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ (Deficit) Equity
For the Three Months Ended September 30, 2019 and 2018
(in millions of dollars, except per share amounts)
(Unaudited)
 
PMI Stockholders’ (Deficit) Equity
 
 
 
 
 
Common
Stock
 
Additional
Paid-in
Capital
 
Earnings
Reinvested in
the
Business
 
Accumulated
Other
Comprehensive Losses
 
Cost of
Repurchased
Stock
 
Noncontrolling
Interests
 
Total
Balances, July 1, 2018
$

 
$
1,893

 
$
30,406

 
$
(8,908
)
 
$
(35,306
)
 
$
1,747

 
$
(10,168
)
Net earnings
 
 
 
 
2,247

 
 
 
 
 
94

 
2,341

Other comprehensive earnings (losses), net of income taxes
 
 
 
 
 
 
(291
)
 
 
 
(28
)
 
(319
)
Issuance of stock awards
 
 
11

 
 
 
 
 
2

 
 
 
13

Dividends declared ($1.14 per share)
 
 
 
 
(1,776
)
 
 
 
 
 
 
 
(1,776
)
Payments to noncontrolling interests
 
 
 
 
 
 
 
 
 
 
(36
)
 
(36
)
Other
 

 
2

 
 

 
 

 
 

 
1

 
3

Balances, September 30, 2018
$

 
$
1,906

 
$
30,877

 
$
(9,199
)
 
$
(35,304
)
 
$
1,778

 
$
(9,942
)
Balances, July 1, 2019
$

 
$
1,948

 
$
31,128

 
$
(9,051
)
 
$
(35,224
)
 
$
1,790

 
$
(9,409
)
Net earnings