Related Parties - Investments in Unconsolidated Subsidiaries, Equity Securities and Other

9 Months Ended

Sep. 30, 2020

Equity Method Investments and Joint Ventures [Abstract]

Related Parties - Investments in Unconsolidated Subsidiaries, Equity Securities and Other:

Investments in unconsolidated subsidiaries:

At September 30, 2020 and December 31, 2019, PMI had total investments in unconsolidated subsidiaries of $918 million and $1,053 million, respectively, which were accounted for under the equity method of accounting. Equity method investments are initially recorded at cost. Under the equity method of accounting, the investment is adjusted for PMI's proportionate share of earnings or losses, dividends, capital contributions, changes in ownership interests and movements in currency translation adjustments. The carrying value of our equity method investments at September 30, 2020 and December 31, 2019 exceeded our share of the unconsolidated subsidiaries' book value by $762 million and $901 million, respectively. The difference between the investment carrying value and the amount of underlying equity in net assets, excluding $733 million and $863 million attributable to goodwill as of September 30, 2020 and December 31, 2019, respectively, is being amortized on a straight-line basis over the underlying assets' estimated useful lives of 10 to 20 years. At September 30, 2020 and December 31, 2019, PMI received year-to-date dividends from unconsolidated subsidiaries of $53 million and $100 million, respectively.

PMI holds a 23% equity interest in Megapolis Distribution BV, the holding company of CJSC TK Megapolis, PMI's distributor in Russia (Eastern Europe segment).

PMI holds a 49% equity interest in United Arab Emirates-based Emirati Investors-TA (FZC) (“EITA”). PMI holds an approximate 25% economic interest in Société des Tabacs Algéro-Emiratie (“STAEM”), an Algerian joint venture that is 51% owned by EITA and 49% by the Algerian state-owned enterprise Management et Développement des Actifs et des Ressources Holding ("MADAR Holding"), which is part of the Middle East & Africa segment, manufactures and distributes under license some of PMI’s brands.

The initial investments in Megapolis Distribution BV and EITA were recorded at cost and are included in investments in unconsolidated subsidiaries and equity securities on the condensed consolidated balance sheets.

Equity securities:

Following the deconsolidation of RBH on March 22, 2019, PMI recorded the continuing investment in RBH, PMI's wholly owned subsidiary in Canada, at fair value of $3,280 million at the date of deconsolidation, within investments in unconsolidated subsidiaries and equity securities. For further details, see Note 19. Deconsolidation of RBH. Transactions between PMI and RBH are considered to be related party transactions from the date of deconsolidation and are included in the tables below.

Other related parties:

United Arab Emirates-based Trans-Emirates Trading and Investments (FZC) ("TTI") holds a 33% non-controlling interest in Philip Morris Misr LLC ("PMM"), an entity incorporated in Egypt which is consolidated in PMI’s financial statements in the Middle East & Africa segment. PMM sells, under license, PMI brands in Egypt through an exclusive distribution agreement with a local entity that is also controlled by TTI.

Godfrey Phillips India Ltd ("GPI") is one of the non-controlling interest holders in IPM India, which is a 56.3% owned PMI consolidated subsidiary in the South & Southeast Asia segment. GPI also acts as contract manufacturer and distributor for IPM India. Amounts in the tables below include transactions between these related parties.

Financial activity with the above related parties:

PMI’s net revenues and expenses with the above related parties were as follows:


	For the Nine Months Ended September 30,						For the Three Months Ended September 30,
(in millions)	2020		2019		2020		2019

Net revenues:
Megapolis Group	$	1,609	$	1,537	$	583	$	622
Other	813		770		290		279
Net revenues ^(a)	$	2,422	$	2,307	$	873	$	901

Expenses:

Other	$	38	$	41	$	11	$	14
Expenses	$	38	$	41	$	11	$	14

^(a) Net revenues exclude excise taxes and VAT billed to customers.

PMI’s balance sheet activity with the above related parties was as follows:


(in millions)	At September 30, 2020		At December 31, 2019

Receivables:
Megapolis Group	$	534	$	375
Other	239		148
Receivables	$	773	$	523

Payables:

Other	$	19	$	20
Payables	$	19	$	20

The activities with the above related parties are in the ordinary course of business, and are primarily for distribution, service fees, contract manufacturing and license agreements. PMI eliminated its respective share of all significant intercompany transactions with the equity method investees.