Segment Reporting

3 Months Ended

Mar. 31, 2020

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.

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.

Segment data were as follows:



(in millions)	For the Three Months Ended March 31,
	2020		2019
Net revenues:
European Union	$	2,535	$	2,159
Eastern Europe	788		579
Middle East & Africa	876		927
South & Southeast Asia	1,251		1,113
East Asia & Australia	1,255		1,321
Latin America & Canada ⁽¹⁾	448		652
Net revenues	$	7,153	$	6,751
Operating income (loss):
European Union	$	1,158	$	896
Eastern Europe	99		129
Middle East & Africa	321		344
South & Southeast Asia	599		440
East Asia & Australia	486		427
Latin America & Canada ⁽¹⁾	126		(186		)
Operating income	$	2,789	$	2,050

⁽¹⁾As of March 22, 2019, PMI deconsolidated the financial results of its Canadian subsidiary, Rothmans, Benson & Hedges Inc. ("RBH") from PMI's financial statements. For further details, see Note 19. Deconsolidation of RBH.

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


•	Canadian tobacco litigation-related expense - See Note 8. Contingencies and Note 19. Deconsolidation of RBH for details of the $194 million pre-tax charge included in the Latin America & Canada segment for the three months ended March 31, 2019.


•	Loss on deconsolidation of RBH - See Note 19. Deconsolidation of RBH for details of the $239 million loss included in the Latin America & Canada segment for the three months ended March 31, 2019.


•	Asset impairment and exit costs - See Note 18. Asset Impairment and Exit Costs for details of the $20 million pre-tax charge included in the South & Southeast Asia segment for the three months ended March 31, 2019.

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



(in millions)	For the Three Months Ended March 31,
	2020		2019
Net revenues:
Combustible products:
European Union	$	1,911	$	1,812
Eastern Europe	523		471
Middle East & Africa	832		829
South & Southeast Asia	1,251		1,113
East Asia & Australia	642		638
Latin America & Canada	440		646
Total combustible products	$	5,598	$	5,508
Reduced-risk products:
European Union	$	624	$	347
Eastern Europe	265		108
Middle East & Africa	44		98
South & Southeast Asia	—		—
East Asia & Australia	613		683
Latin America & Canada	8		6
Total reduced-risk products	$	1,555	$	1,243

Total PMI net revenues	$	7,153	$	6,751

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.