Segment Reporting

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Segment Reporting

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 Six Months Ended June 30,					For the Three Months Ended June 30,
	2020		2019			2020		2019
Net revenues:
European Union	$	5,010	$	4,736		$	2,475	$	2,577
Eastern Europe	1,571		1,401			783		822
Middle East & Africa	1,580		1,931			704		1,004
South & Southeast Asia	2,140		2,361			889		1,248
East Asia & Australia	2,687		2,842			1,432		1,521
Latin America & Canada (1)	816		1,179			368		527
Net revenues	$	13,804	$	14,450		$	6,651	$	7,699
Operating income (loss):
European Union	$	2,336	$	2,091		$	1,178	$	1,195
Eastern Europe	365		385			266		256
Middle East & Africa	558		785			237		441
South & Southeast Asia	888		932			289		492
East Asia & Australia	1,155		1,069			669		642
Latin America & Canada (1)	218		(25		)	92		161
Operating income	$	5,520	$	5,237		$	2,731	$	3,187

⁽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 six months ended June 30, 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 six months ended June 30, 2019.

• Asset impairment and exit costs - See Note 18. Asset Impairment and Exit Costs for a breakdown of these costs by segment for the six months and three months ended June 30, 2020 and 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,
	2020		2019		2020		2019
Net revenues:
Combustible products:
European Union	$	3,855	$	3,961	$	1,945	$	2,149
Eastern Europe	1,045		1,110		522		640
Middle East & Africa	1,528		1,746		696		918
South & Southeast Asia	2,140		2,361		889		1,248
East Asia & Australia	1,272		1,394		630		756
Latin America & Canada	803		1,168		363		522
Total combustible products	$	10,643	$	11,741	$	5,045	$	6,233
Reduced-risk products:
European Union	$	1,155	$	775	$	530	$	428
Eastern Europe	526		291		261		182
Middle East & Africa	52		185		8		86
South & Southeast Asia	—		—		—		—
East Asia & Australia	1,415		1,448		802		765
Latin America & Canada	13		11		5		5
Total reduced-risk products	$	3,161	$	2,709	$	1,606	$	1,466
Total PMI net revenues	$	13,804	$	14,450	$	6,651	$	7,699

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.