Segment Reporting

12 Months Ended

Dec. 31, 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. In addition, PMI ships a version of its Platform 1 device and its consumables authorized by the FDA to Altria Group, Inc. for sale in the United States under license. Operating 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 operating 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. Revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc. for sale under license in the United States are included in Net Revenues of the Latin America & Canada segment.

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. Interest expense, net, and provision for income taxes are centrally managed and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by management. Information about total assets by segment is not disclosed because such information is not reported to or used by PMI’s chief operating decision maker. Segment goodwill and other intangible assets, net, are disclosed in Note 3. Goodwill and Other Intangible Assets, net. The accounting policies of the segments are the same as those described in Note 2. Summary of Significant Accounting Policies.

PMI disaggregates its net revenue from contracts with customers by both geographic location and product category for each of PMI's six operating 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.

Net revenues by segment were as follows:



	For the Years Ended December 31,
(in millions)	2019		2018		2017
Net revenues:
European Union	$	9,817	$	9,298	$	8,318
Eastern Europe	3,282		2,921		2,711
Middle East & Africa	4,042		4,114		3,988
South & Southeast Asia	5,094		4,656		4,417
East Asia & Australia	5,364		5,580		6,373
Latin America & Canada	2,206		3,056		2,941
Net revenues	$	29,805	$	29,625	$	28,748

Total net revenues attributable to customers located in Japan, PMI's largest market in terms of net revenues, were $3.9 billion, $3.8 billion and $4.7 billion in 2019, 2018 and 2017, respectively. Total net revenues attributable to customers located in Indonesia were $3.1 billion, $3.1 billion and $3.2 billion in 2019, 2018 and 2017, respectively. PMI had one customer in the East Asia & Australia segment that accounted for 13%, 13% and 16% of PMI’s consolidated net revenues, and one customer in the European Union segment that accounted for 10%, 10% and 10% of PMI’s consolidated net revenues in 2019, 2018 and 2017, respectively.

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



	For the Years Ended December 31,
(in millions)	2019		2018		2017
Combustible products:
European Union	$	8,093	$	8,433	$	8,048
Eastern Europe	2,438		2,597		2,657
Middle East & Africa	3,721		3,732		3,893
South & Southeast Asia	5,094		4,656		4,417
East Asia & Australia	2,693		3,074		3,156
Latin America & Canada	2,179		3,037		2,937
Total combustible products	$	24,218	$	25,529	$	25,107
Reduced-risk products:
European Union	$	1,724	$	865	$	269
Eastern Europe	844		324		55
Middle East & Africa	321		382		94
South & Southeast Asia	—		—		—
East Asia & Australia	2,671		2,506		3,218
Latin America & Canada	27		19		4
Total reduced-risk products	$	5,587	$	4,096	$	3,640
Total PMI net revenues	$	29,805	$	29,625	$	28,748

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.

Operating income by segment were as follows:



	For the Years Ended December 31,
(in millions)	2019		2018		2017
Operating income:
European Union	$	3,970	$	4,105	$	3,691
Eastern Europe	547		902		887
Middle East & Africa	1,684		1,627		1,884
South & Southeast Asia	2,163		1,747		1,514
East Asia & Australia	1,932		1,851		2,608
Latin America & Canada	235		1,145		997
Operating income	$	10,531	$	11,377	$	11,581

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


•	Russia excise and VAT audit charge - See Note 18. Contingencies for details of the $374 million pre-tax charge included in the Eastern Europe segment for the year ended December 31, 2019.


•	Asset impairment and exit costs - See Note 21. Asset Impairment and Exit Costs for details of the $422 million pre-tax charge for the year ended December 31, 2019, as well as a breakdown of these costs by segment.


•	Canadian tobacco litigation-related expense - See Note 18. Contingencies and Note 22. Deconsolidation of RBH for details of the $194 million pre-tax charge included in the Latin America & Canada segment for the year ended December 31, 2019.


•	Loss on deconsolidation of RBH - See Note 22. Deconsolidation of RBH for details of the $239 million loss included in the Latin America & Canada segment for the year ended December 31, 2019.

Other segment data were as follows:



	For the Years Ended December 31,
(in millions)	2019		2018		2017
Depreciation expense:
European Union	$	254	$	269	$	213
Eastern Europe	147		101		76
Middle East & Africa	90		105		88
South & Southeast Asia	142		154		153
East Asia & Australia	185		173		160
Latin America & Canada	69		94		85
	887		896		775
Other	11		11		12
Total depreciation expense	$	898	$	907	$	787



	For the Years Ended December 31,
(in millions)	2019		2018		2017
Capital expenditures:
European Union	$	466	$	813	$	956
Eastern Europe	132		136		97
Middle East & Africa	35		65		85
South & Southeast Asia	100		129		140
East Asia & Australia	67		215		87
Latin America & Canada	52		74		175
	852		1,432		1,540
Other	—		4		8
Total capital expenditures	$	852	$	1,436	$	1,548



	At December 31,
(in millions)	2019		2018		2017
Long-lived assets:
European Union	$	4,275	$	4,216	$	4,130
Eastern Europe	774		547		546
Middle East & Africa	369		362		430
South & Southeast Asia	1,361		1,297		1,419
East Asia & Australia	829		781		659
Latin America & Canada	478		779		885
Total long-lived assets	8,086		7,982		8,069
Other	516		664		1,126
Total property, plant and equipment, net and Other assets	$	8,602	$	8,646	$	9,195

Long-lived assets consist of non-current assets other than goodwill; other intangible assets, net; deferred tax assets, investments in unconsolidated subsidiaries and equity securities, and financial instruments. PMI's largest markets in terms of long-lived assets are Italy, Switzerland and Indonesia. Total long-lived assets located in Italy, which is reflected in the European Union segment above, were $1.1 billion, $1.1 billion and $1.2 billion at December 31, 2019, 2018 and 2017, respectively. Total long-lived assets located in Switzerland, which is reflected in the European Union segment above, were $1.1 billion, $1.0 billion and $0.9 billion at December 31, 2019, 2018 and 2017, respectively. Total long-lived assets located in Indonesia, which is reflected in the South & Southeast Asia segment above, were $0.8 billion, $0.7 billion and $0.8 billion at December 31, 2019, 2018 and 2017, respectively.