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Table of Contents




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
OR 
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.

-1-

Table of Contents


PHILIP MORRIS INTERNATIONAL INC.
TABLE OF CONTENTS
 
 
 
Page No.
 
 
 
PART I -
 
 
 
 
Item 1.
 
 
 
 
 
Condensed Consolidated Statements of Earnings for the
 
 
Six Months Ended June 30, 2020 and 2019
 
Three Months Ended June 30, 2020 and 2019
 
 
 
 
Condensed Consolidated Statements of Comprehensive Earnings for the
 
 
Six Months Ended June 30, 2020 and 2019
 
Three Months Ended June 30, 2020 and 2019
 
 
 
 
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
 
Three Months Ended June 30, 2020 and 2019
 
 
 
 
13 – 45
 
 
 
Item 2.
46 – 95
 
 
 
Item 4.
 
 
 
PART II -
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 6.
 
 
 
 

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.

-2-

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.

-3-

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.

-4-

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.

-5-

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.

-6-

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

-7-

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.

-8-

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

-9-

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.

-10-

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.

-11-

Table of Contents


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
)