Asset Impairment and Exit Costs

6 Months Ended

Jun. 30, 2020

Restructuring and Related Activities [Abstract]

Asset Impairment and Exit Costs:

Organizational Design Optimization

As part of PMI’s transformation to a smoke-free future, PMI seeks to optimize its organizational design, which includes the elimination, relocation and outsourcing of certain operations center and centralized activities. In January 2020, PMI commenced the first phase of a multi-phase restructuring project in Switzerland. PMI initiated the employee consultation procedure, as required under Swiss law, for the impacted employees in the first phase and offered a voluntary severance program. This consultation was completed in April 2020; however, in light of the COVID-19 pandemic, PMI management temporarily suspended its restructuring plans.

In June 2020, PMI resumed its restructuring activities in Switzerland and additionally, announced the outsourcing of certain activities in New York, U.S.A. These activities are expected to impact approximately 240 positions that will be either eliminated, relocated or outsourced. For the six months and three months ended June 30, 2020, PMI recorded pre-tax asset impairment and exit costs of $71 million. Additionally, the amounts related to the pension accounting impacts of the restructuring, which could be significant, have not been reflected in the second quarter of 2020 as the thresholds for accounting for any related pension curtailment or settlement were not exceeded by June 30, 2020.

The employee consultation for the second phase of the restructuring project in Switzerland has not yet commenced. Until the consultation process for the second phase is concluded, it is not considered probable (under U.S. GAAP), and the total potential costs cannot be determined. As a result, no related costs were recorded for the six months ended June 30, 2020 related to the second phase.

Global Manufacturing Infrastructure Optimization

In light of declining PMI cigarette volumes resulting from lower total industry volumes and the shift to smoke-free alternatives, PMI continues to optimize its global manufacturing infrastructure. During 2019, PMI recorded asset impairment and exit costs related to plant closures in Argentina, Colombia, Germany and Pakistan as part of its global manufacturing infrastructure optimization.

For the six months and three months ended June 30, 2019, PMI recorded pre-tax asset impairment and exit costs of $43 million and $23 million, respectively. These costs were related to cigarette plants closures in Pakistan in the three months ended March 31, 2019 and in Colombia in the three months ended June 30, 2019.

Asset Impairment and Exit Costs by Segment

PMI recorded the following pre-tax asset impairment and exit costs by segment:



(in millions)	For the Six Months Ended June 30,				For the Three Months Ended June 30,
	2020		2019		2020		2019
Separation programs: ⁽¹⁾
European Union	$	24	$	—	$	24	$	—
Eastern Europe	6		—		6		—
Middle East & Africa	8		—		8		—
South & Southeast Asia	10		3		10		—
East Asia & Australia	12		—		12		—
Latin America & Canada	4		15		4		15
Total separation programs	64		18		64		15
Asset impairment charges: ⁽¹⁾
European Union	3		—		3		—
Eastern Europe	1		—		1		—
Middle East & Africa	1		—		1		—
South & Southeast Asia	1		17		1		—
East Asia & Australia	1		—		1		—
Latin America & Canada	—		8		—		8
Total asset impairment charges	7		25		7		8
Asset impairment and exit costs	$	71	$	43	$	71	$	23

⁽¹⁾Organizational design optimization pre-tax charges were allocated across all operating segments.

The total pre-tax asset impairment and exit costs above were included in marketing, administration and research costs on the condensed consolidated statements of earnings.

Movement in Exit Cost Liabilities

The movement in exit cost liabilities for the six months ended June 30, 2020 was as follows:



(in millions)
Liability balance, January 1, 2020	$	191
Charges, net	64
Cash spent	(73		)
Currency/other	(1		)
Liability balance, June 30, 2020	$	181

Future cash payments for exit costs incurred to date are anticipated to be substantially paid by the end of 2021, with approximately $76 million expected to be paid in the remainder of 2020.