Document

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 June 30, 2020



☐	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 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
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



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
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 July 23, 2020, there were 1,557,287,371 shares outstanding of the registrant’s common stock, no par value per share.

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Table of Contents

PHILIP MORRIS INTERNATIONAL INC.

TABLE OF CONTENTS



		Page No.

PART I -	FINANCIAL INFORMATION

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Earnings for the
	Six Months Ended June 30, 2020 and 2019	3
	Three Months Ended June 30, 2020 and 2019	4

	Condensed Consolidated Statements of Comprehensive Earnings for the
	Six Months Ended June 30, 2020 and 2019	5
	Three Months Ended June 30, 2020 and 2019	6

	Condensed Consolidated Balance Sheets at
	June 30, 2020 and December 31, 2019	7 – 8

	Condensed Consolidated Statements of Cash Flows for the
	Six Months Ended June 30, 2020 and 2019	9 – 10

	Condensed Consolidated Statements of Stockholders’ (Deficit) Equity for the
	Six Months Ended June 30, 2020 and 2019	11
	Three Months Ended June 30, 2020 and 2019	12

	Notes to Condensed Consolidated Financial Statements	13 – 45

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	46 – 95

Item 4.	Controls and Procedures	96

PART II -	OTHER INFORMATION

Item 1.	Legal Proceedings	97

Item 1A.	Risk Factors	97

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	98

Item 6.	Exhibits	99

Signature		100

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.

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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 Six Months Ended June 30,
	2020		2019
Revenues including excise taxes	$	36,072	$	37,692
Excise taxes on products	22,268		23,242
Net revenues	13,804		14,450
Cost of sales	4,581		5,130
Gross profit	9,223		9,320
Marketing, administration and research costs (Notes 8, 18 & 19)	3,666		4,048
Amortization of intangibles	37		35
Operating income	5,520		5,237
Interest expense, net	291		302
Pension and other employee benefit costs (Note 3)	45		41
Earnings before income taxes	5,184		4,894
Provision for income taxes	1,124		1,035
Equity investments and securities (income)/loss, net	24		(41		)
Net earnings	$	4,036	$	3,900
Net earnings attributable to noncontrolling interests	263		227
Net earnings attributable to PMI	$	3,773	$	3,673
Per share data (Note 6):
Basic earnings per share	$	2.42	$	2.36
Diluted earnings per share	$	2.42	$	2.36

See notes to condensed consolidated financial statements.

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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 June 30,
	2020			2019
Revenues including excise taxes	$	17,819		$	19,987
Excise taxes on products	11,168			12,288
Net revenues	6,651			7,699
Cost of sales	2,179			2,665
Gross profit	4,472			5,034
Marketing, administration and research costs (Note 18)	1,722			1,831
Amortization of intangibles	19			16
Operating income	2,731			3,187
Interest expense, net	162			150
Pension and other employee benefit costs (Note 3)	22			20
Earnings before income taxes	2,547			3,017
Provision for income taxes	528			611
Equity investments and securities (income)/loss, net	(30		)	(30		)
Net earnings	2,049			2,436
Net earnings attributable to noncontrolling interests	102			117
Net earnings attributable to PMI	$	1,947		$	2,319
Per share data (Note 6):
Basic earnings per share	$	1.25		$	1.49
Diluted earnings per share	$	1.25		$	1.49

See notes to condensed consolidated financial statements.

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Table of Contents

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Earnings

(in millions of dollars)

(Unaudited)



	For the Six Months Ended June 30,
	2020			2019
Net earnings	$	4,036		$	3,900
Other comprehensive earnings (losses), net of income taxes:
Change in currency translation adjustments:
Unrealized gains (losses), net of income taxes of ($40) in 2020 and ($67) in 2019	(785		)	351
(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of $0 in 2020 and 2019 (Note 19)	—			502
Change in net loss and prior service cost:
Net gains (losses) and prior service costs, net of income taxes of $0 in 2020 and $135 in 2019	—			135
Amortization of net losses, prior service costs and net transition costs, net of income taxes of ($34) in 2020 and ($30) in 2019	149			119
(Gains)/losses transferred to earnings - deconsolidation of RBH, net of income taxes of $0 in 2020 and ($15) in 2019 (Note 19)	—			27
Change in fair value of derivatives accounted for as hedges:
Gains (losses) recognized, net of income taxes of $1 in 2020 and $3 in 2019	(6		)	(20		)
(Gains) losses transferred to earnings, net of income taxes of $2 in 2020 and $3 in 2019	(15		)	(25		)
Total other comprehensive earnings (losses)	(657		)	1,089
Total comprehensive earnings	3,379			4,989
Less comprehensive earnings attributable to:
Noncontrolling interests	252			256
Comprehensive earnings attributable to PMI	$	3,127		$	4,733

See notes to condensed consolidated financial statements.

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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 June 30,
	2020			2019
Net earnings	$	2,049		$	2,436
Other comprehensive earnings (losses), net of income taxes:
Change in currency translation adjustments:
Unrealized gains (losses), net of income taxes of $56 in 2020 and $61 in 2019	797			65
Change in net loss and prior service cost:
Net gains (losses) and prior service costs, net of income taxes of $0 in 2020 and $135 in 2019	—			135
Amortization of net losses, prior service costs and net transition costs, net of income taxes of ($17) in 2020 and ($26) in 2019	75			56
Change in fair value of derivatives accounted for as hedges:
Gains (losses) recognized, net of income taxes of $6 in 2020 and $2 in 2019	(32		)	(19		)
(Gains) losses transferred to earnings, net of income taxes of $1 in 2020 and $2 in 2019	(6		)	(21		)
Total other comprehensive earnings (losses)	834			216
Total comprehensive earnings	2,883			2,652
Less comprehensive earnings attributable to:
Noncontrolling interests	171			147
Comprehensive earnings attributable to PMI	$	2,712		$	2,505

See notes to condensed consolidated financial statements.

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Table of Contents

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions of dollars)

(Unaudited)



	June 30, 2020		December 31, 2019
ASSETS
Cash and cash equivalents	$	4,200	$	6,861
Trade receivables (less allowances of $22 in 2020 and $20 in 2019)	3,344		3,080
Other receivables	600		637
Inventories:
Leaf tobacco	2,138		2,052
Other raw materials	1,958		1,596
Finished product	4,872		5,587
	8,968		9,235
Other current assets	664		701
Total current assets	17,776		20,514
Property, plant and equipment, at cost	14,076		14,446
Less: accumulated depreciation	7,892		7,815
	6,184		6,631
Goodwill (Note 4)	5,653		5,858
Other intangible assets, net (Note 4)	1,948		2,113
Investments in unconsolidated subsidiaries and equity securities (Notes 11&14)	4,516		4,635
Deferred income taxes	1,159		1,153
Other assets	1,926		1,971
TOTAL ASSETS	$	39,162	$	42,875

See notes to condensed consolidated financial statements.

Continued

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Table of Contents

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Balance Sheets (Continued)

(in millions of dollars, except share data)

(Unaudited)



	June 30, 2020			December 31, 2019
LIABILITIES
Short-term borrowings (Note 10)	$	281		$	338
Current portion of long-term debt (Note 10)	2,304			4,051
Accounts payable	1,991			2,299
Accrued liabilities:
Marketing and selling	718			666
Taxes, except income taxes	5,293			5,837
Employment costs	928			1,042
Dividends payable	1,833			1,831
Other	1,656			1,973
Income taxes	788			796
Total current liabilities	15,792			18,833
Long-term debt (Note 10)	27,043			26,656
Deferred income taxes	775			908
Employment costs	3,547			3,634
Income taxes and other liabilities	2,125			2,443
Total liabilities	49,282			52,474
Contingencies (Note 8)
STOCKHOLDERS’ (DEFICIT) EQUITY
Common stock, no par value (2,109,316,331 shares issued in 2020 and 2019)	—			—
Additional paid-in capital	2,044			2,019
Earnings reinvested in the business	31,103			30,987
Accumulated other comprehensive losses	(10,009		)	(9,363		)
	23,138			23,643
Less: cost of repurchased stock (552,032,954 and 553,421,668 shares in 2020 and 2019, respectively)	35,135			35,220
Total PMI stockholders’ deficit	(11,997		)	(11,577		)
Noncontrolling interests	1,877			1,978
Total stockholders’ deficit	(10,120		)	(9,599		)
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY	$	39,162		$	42,875

See notes to condensed consolidated financial statements.

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Table of Contents

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions of dollars)

(Unaudited)



	For the Six Months Ended June 30,
	2020			2019
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

Net earnings	$	4,036		$	3,900

Adjustments to reconcile net earnings to operating cash flows:
Depreciation and amortization	470			472
Deferred income tax (benefit) provision	(94		)	(125		)
Asset impairment and exit costs, net of cash paid (Note 18)	(2		)	35
Cash effects of changes in:
Receivables, net	(338		)	(773		)
Inventories	(20		)	386
Accounts payable	(164		)	(101		)
Accrued liabilities and other current assets	(780		)	542
Income taxes	(233		)	(101		)
Pension plan contributions	(52		)	(71		)
Other	213			519			⁽¹⁾
Net cash provided by operating activities	3,036			4,683

CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES

Capital expenditures	(310		)	(502		)
Investments in unconsolidated subsidiaries and equity securities	(3		)	(28		)
Deconsolidation of RBH (Note 19)	—			(1,346		)	⁽²⁾
Net investment hedges	174			116
Other	5			11
Net cash used in investing activities	(134		)	(1,749		)

See notes to condensed consolidated financial statements.

Continued

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Table of Contents

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows (Continued)

(in millions of dollars)

(Unaudited)



	For the Six Months Ended June 30,
	2020			2019
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES

Short-term borrowing activity by original maturity:
Net issuances (repayments) - maturities of 90 days or less	$	(75	)	$	(429	)
Issuances - maturities longer than 90 days	45			989
Repayments - maturities longer than 90 days	—			(989		)
Long-term debt proceeds	2,230			1,628
Long-term debt repaid	(3,641		)	(2,971		)
Dividends paid	(3,658		)	(3,557		)
Sale (purchase) of subsidiary shares to/(from) noncontrolling interests	2			45
Other	(406		)	(271		)
Net cash used in financing activities	(5,503		)	(5,555		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(57		)	14

Cash, cash equivalents and restricted cash⁽³⁾:
Increase (Decrease)	(2,658		)	(2,607		)
Balance at beginning of period	6,865			6,620
Balance at end of period	$	4,207		$	4,013

⁽¹⁾ Includes the Loss on Deconsolidation of RBH ($239 million) and the Canadian tobacco litigation-related charge ($194 million) that were included in marketing, administration and research costs in the condensed consolidated statements of earnings for the six months ended June 30, 2019. For further details on these charges, see Note 19. 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 $7 million and $5 million as of June 30, 2020 and 2019, respectively, and $4 million and $27 million as of December 31, 2019, and 2018, respectively, which were included in other current assets in the condensed consolidated balance sheets.

See notes to condensed consolidated financial statements.

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Table of Contents

Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Six Months Ended June 30, 2020 and 2019

(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, 2019	$	—	$	1,939	$	31,014		$	(10,111	)	$	(35,301	)	$	1,720		$	(10,739	)
Net earnings					3,673									227			3,900
Other comprehensive earnings (losses), net of income taxes								531						29			560
Issuance of stock awards			9								77						86
Dividends declared ($2.28 per share)					(3,559		)										(3,559		)
Payments to noncontrolling interests														(231		)	(231		)
Deconsolidation of RBH (Note 19)								529									529
Other														45			45
Balances, June 30, 2019	$	—	$	1,948	$	31,128		$	(9,051	)	$	(35,224	)	$	1,790		$	(9,409	)
Balances, January 1, 2020	$	—	$	2,019	$	30,987		$	(9,363	)	$	(35,220	)	$	1,978		$	(9,599	)
Net earnings					3,773									263			4,036
Other comprehensive earnings (losses), net of income taxes								(646		)				(11		)	(657		)
Issuance of stock awards			9								85						94
Dividends declared ($2.34 per share)					(3,657		)										(3,657		)
Payments to noncontrolling interests														(339		)	(339		)
Other			16					—						(14		)	2
Balances, June 30, 2020	$	—	$	2,044	$	31,103		$	(10,009	)	$	(35,135	)	$	1,877		$	(10,120	)

See notes to condensed consolidated financial statements.

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Philip Morris International Inc. and Subsidiaries

Condensed Consolidated Statements of Stockholders’ (Deficit) Equity

For the Three Months Ended June 30, 2020 and 2019

(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, April 1, 2019	$	—	$	1,907	$	30,588		$	(9,237	)	$	(35,226	)	$	1,783		$	(10,185	)
Net earnings					2,319									117			2,436
Other comprehensive earnings (losses), net of income taxes								186						30			216
Issuance of stock awards			41								2						43
Dividends declared ($1.14 per share)					(1,779		)										(1,779		)
Payments to noncontrolling interests														(185		)	(185		)
Other														45			45
Balances, June 30, 2019	$	—	$	1,948	$	31,128		$	(9,051	)	$	(35,224	)	$	1,790		$	(9,409	)
Balances, April 1, 2020	$	—	$	1,992	$	30,984		$	(10,774	)	$	(35,146	)	$	1,881		$	(11,063	)
Net earnings					1,947									102			2,049
Other comprehensive earnings (losses), net of income taxes								765						69			834
Issuance of stock awards			34								11						45
Dividends declared ($1.17 per share)					(1,828		)