EX-99.1 2 earningsreleasepm-ex991xq4.htm EXHIBIT 99.1 Exhibit


EXHIBIT 99.1

PRESS RELEASE
 
pmilogoera01a01a01a16.jpg
 
 
 
 
 
Investor Relations:
 
Media:
 
 
New York: +1 (917) 663 2233
 
Lausanne: +41 (0)58 242 4500
 
 
Lausanne: +41 (0)58 242 4666
 
Email: Iro.Antoniadou@pmi.com
 
 
Email: InvestorRelations@pmi.com
 
 
 
 

PHILIP MORRIS INTERNATIONAL INC. REPORTS 2018 FOURTH QUARTER & FULL YEAR RESULTS;
FULL-YEAR 2018 REPORTED DILUTED EPS OF $5.08, UP BY 30.9% VS. $3.88 in 2017,
ADJUSTED DILUTED EPS OF $5.10, REFLECTING EX-CURRENCY GROWTH OF 10.4% VS. $4.72 IN 2017; PROVIDES 2019 EARNINGS PER SHARE FORECAST

2018 Full-Year
•
Reported diluted earnings per share of $5.08, up by $1.20 or 30.9% versus $3.88 in 2017
•
Excluding unfavorable currency of $0.11, reported diluted earnings per share up by $1.31 or 33.8% versus $3.88 in 2017 as detailed in the attached Schedule 2
•
Adjusted diluted earnings per share of $5.10, up by $0.38 or 8.1% versus $4.72 in 2017
•
Excluding unfavorable currency of $0.11, adjusted diluted earnings per share up by $0.49 or 10.4% versus $4.72 in 2017 as detailed in the attached Schedule 2
•
Cigarette and heated tobacco unit shipment volume of 781.7 billion units, down by 2.1%, or flat excluding the net impact of estimated distributor inventory movements, reflecting:
•
Cigarette shipment volume of 740.3 billion units, down by 21.6 billion units or 2.8%
•
Heated tobacco unit shipment volume of 41.4 billion units, up by 5.1 billion units or 14.2%
•
International market share, excluding China and the United States, increased by 0.5 points to 28.4%
•
Net revenues of $29.6 billion, up by 3.1%
•
Excluding unfavorable currency of $103 million, net revenues up by 3.4% as detailed in the attached
Schedule 4
•
Operating income of $11.4 billion, down by 1.8%
•
Excluding unfavorable currency of $214 million, operating income up by 0.1% as detailed in the attached Schedule 5
•
Adjusted operating income, reflecting the items detailed in the attached Schedule 6, of $11.4 billion, down by 1.8%
•
Excluding unfavorable currency of $214 million, adjusted operating income up by 0.1% as detailed in the attached Schedule 6
•
Operating cash flow of $9.5 billion
•
Capital expenditures of $1.4 billion
•
Regular quarterly dividend increase of 6.5% to an annualized rate of $4.56 per common share

2018 Fourth-Quarter
•
Reported diluted earnings per share of $1.23, up by $0.79 or +100% versus $0.44 in 2017
•
Excluding unfavorable currency of $0.09, reported diluted earnings per share up by $0.88 or +100% versus $0.44 in 2017 as detailed in the attached Schedule 2
•
Adjusted diluted earnings per share of $1.25, down by $0.07 or 5.3% versus $1.32 in 2017




•
Excluding unfavorable currency of $0.09, adjusted diluted earnings per share up by $0.02 or 1.5% versus $1.32 in 2017 as detailed in the attached Schedule 2
•
Cigarette and heated tobacco unit shipment volume of 202.4 billion units, down by 4.6%, or down by 0.9% excluding the net impact of estimated distributor inventory movements, reflecting:
•
Cigarette shipment volume of 190.2 billion units, down by 6.1 billion units or 3.1%
•
Heated tobacco unit shipment volume of 12.2 billion units, down by 3.5 billion units or 22.6%
•
Net revenues of $7.5 billion, down by 9.6%
•
Excluding unfavorable currency of $454 million, net revenues down by 4.1% as detailed in the attached
Schedule 3
•
Operating income of $2.7 billion, down by 19.1%
•
Excluding unfavorable currency of $210 million, operating income down by 12.8% as detailed in the attached Schedule 5
•
Adjusted operating income, reflecting the items detailed in the attached Schedule 6, of $2.7 billion, down by 19.1%
•
Excluding unfavorable currency of $210 million, adjusted operating income down by 12.8% as detailed in the attached Schedule 6

2019 Full-Year Forecast
Methodology Change
Since becoming a public company in 2008, PMI has expressed its annual reported diluted earnings per share forecast and the related adjusted diluted EPS growth rate as a range.  As PMI has previously communicated, its reduced-risk product category performance is expected to play an increasingly important role in the company's future results. However, its growth trajectory is inherently more difficult to predict with the same level of accuracy compared to the performance of its cigarette category. Specifically, the company anticipates periods of accelerated growth and periods of slower growth for reduced-risk products, the timing and drivers of which may be more difficult to predict compared to those for cigarettes. Therefore, the company believes it is more prudent to now forecast its annual reported diluted earnings per share, and the related currency-neutral adjusted diluted EPS growth rate, by reference to a minimum threshold of expected performance at the start of the year, and provide more details as the year unfolds.

2019 Full-Year Forecast
Reported diluted earnings per share forecast to be at least $5.37, at prevailing exchange rates, representing a projected increase of at least 5.7% versus reported diluted earnings per share of $5.08 in 2018.
•
Excluding an unfavorable currency impact, at prevailing exchange rates, of approximately $0.14 per share, this forecast represents a projected increase of at least 8.0% versus adjusted diluted earnings per share of $5.10 in 2018, as detailed in the attached Schedule 2.

2019 Full-Year Forecast Overview & Assumptions
This forecast assumes:
•
A total cigarette and heated tobacco unit shipment volume decline for PMI of approximately 1.5% to 2.0% versus an estimated total international industry volume decline, excluding China and the U.S., of approximately 2.5% to 3.0%; and

- -2 -


•
Currency-neutral net revenue growth of at least 5.0%, which includes an adverse impact of approximately 0.6 points related to the move to highly inflationary accounting in Argentina resulting in the treatment of the U.S. dollar as the functional currency of the company’s Argentinian affiliates, described below.
This forecast further assumes:
•
An increase in full-year reported operating income margin of at least one percentage point, ex-currency, compared to 2018;
•
Operating cash flow of at least $10.0 billion, subject to year-end working capital requirements;
•
Capital expenditures of approximately $1.1 billion;
•
An effective tax rate of approximately 23%; and
•
No share repurchases.
This forecast excludes the impact of any future acquisitions, unanticipated asset impairment and exit cost charges, future changes in currency exchange rates, further developments related to the Tax Cuts and Jobs Act, and any unusual events. Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections.
PMI’s 2019-2021 Targets
The company has communicated the following key targets related to the three-year period 2019 to 2021:
•
Net revenue compound annual currency-neutral growth of at least 5%;
•
Adjusted diluted EPS compound annual currency-neutral growth of at least 8%; and
•
Heated tobacco unit volume of 90-100 billion units by 2021;

2018 FOURTH-QUARTER AND FULL-YEAR CONSOLIDATED RESULTS
NEW YORK, February 7, 2019 – Philip Morris International Inc. (NYSE: PM) today announced its 2018 fourth-quarter and full-year results.
    
"We closed out a challenging year with a robust financial and strategic performance across the business. Excluding inventory movements largely associated with heated tobacco unit volume in Japan, our total volume variance was flat -- our best annual performance since 2012 -- underpinned by a near doubling of global in-market sales of heated tobacco units. We grew our international market share by 0.5 points to reach 28.4%, and maintained a stable share of the cigarette category, highlighting our ability to successfully manage our transition to reduced-risk products," said André Calantzopoulos, Chief Executive Officer.

"Our total net revenues were driven by an exceptional cigarette pricing variance of 7.6% and a strong contribution of more than $4 billion from our smoke-free products, despite the impact of the inventory adjustments. Our operating income was essentially flat, excluding currency, primarily reflecting increased investment behind our reduced-risk product portfolio. Our robust, currency-neutral double-digit adjusted EPS performance was assisted by a lower effective tax rate and interest expense."
    
"Thanks to the tremendous efforts of our employees around the world, and significant investments in portfolio development and organizational capabilities, including a state-of-the-art digital infrastructure to fuel our expansion, we believe we have laid the foundation for an even better performance in 2019. The underlying strength of our combustible tobacco business remains intact and our reduced-risk products are the catalysts to accelerate our

- -3 -


business growth and secure the long term future of our company and the sustainability of our earnings and dividend growth."

Conference Call
A conference call, hosted by André Calantzopoulos, Chief Executive Officer, and Martin King, Chief Financial Officer, will be webcast at 1:00 p.m., Eastern Time, on February 7, 2019. Access is at www.pmi.com/2018Q4earnings. The audio webcast may also be accessed on iOS or Android devices by downloading PMI’s free Investor Relations Mobile Application at www.pmi.com/irapp.

Tax Items & Impact of U.S. Tax Reform
PMI completed its analysis of the Tax Cuts and Jobs Act during 2018 and adjusted the 2017 provisional estimates to the final amounts based on its 2017 U.S. federal income tax return as filed. Accordingly, in the fourth quarter 2018, PMI recorded in its income tax provision a charge of $31 million representing a current income tax charge of $185 million, primarily due to an increase in its aggregate foreign cash position used to determine its final 2017 transition tax liability, mostly offset by a deferred income tax benefit of $154 million primarily due to the recognition of deferred tax assets for net operating losses in the state of New York. Updates to the provisional estimates have been recorded in accordance with Staff Accounting Bulletin No. 118 ("SAB 118").
PMI's 2019 full-year diluted earnings per share forecast assumes a full-year effective tax rate of approximately 23%, reflecting the current analysis, interpretation and clarifications of the scope and impact of the Tax Cuts and Jobs Act (the “Act”).
The Act has significant complexity, and PMI's final full-year effective tax rate may differ from this assumption, due to, among other things, additional guidance that may be issued by the U.S. Treasury Department and the Internal Revenue Service, related interpretations and clarifications of tax law, in addition to repatriation cost differences and earnings mix by taxing jurisdiction.

U.S. GAAP Treatment of Argentina as a Highly Inflationary Economy
Following the categorization of Argentina by the International Practices Task Force of the Center for Audit Quality as a country with a three-year cumulative inflation rate greater than 100%, the country is considered highly inflationary in accordance with U.S. GAAP. Consequently, PMI began to account for the operations of its Argentinian affiliates as highly inflationary, and to treat the U.S. dollar as the functional currency of the affiliates, effective July 1, 2018. The move to highly inflationary accounting in Argentina reduced PMI's currency-neutral net revenue growth by approximately 0.6 points in 2018.
 
Dividends
During 2018, PMI increased its regular quarterly dividend by 6.5%, from $1.07 to $1.14, representing an annualized rate of $4.56 per common share. Since its spin-off in March 2008, PMI has increased its regular quarterly dividend by a compound annual growth rate of 9.5%, or by 147.8% from the initial annualized rate of $1.84 per common share.


- -4 -


SHIPMENT VOLUME & MARKET SHARE

PMI Shipment Volume by Region
 
Fourth-Quarter
 
Full-Year
(million units)
 
2018

2017

Change

 
2018

2017

Change

Cigarettes
 
 
 
 
 
 
 
 
European Union
 
43,744

45,881

(4.7
)%
 
179,622

187,293

(4.1
)%
Eastern Europe
 
28,424

30,972

(8.2
)%
 
108,718

119,398

(8.9
)%
Middle East & Africa
 
35,774

35,360

1.2
 %
 
136,605

136,759

(0.1
)%
South & Southeast Asia
 
47,623

46,945

1.4
 %
 
178,469

171,600

4.0
 %
East Asia & Australia
 
12,772

14,289

(10.6
)%
 
56,163

62,653

(10.4
)%
Latin America & Canada
 
21,909

22,922

(4.4
)%
 
80,738

84,223

(4.1
)%
Total PMI
 
190,246

196,369

(3.1
)%
 
740,315

761,926

(2.8
)%
 
 
 
 
 
 
 
 
 
Heated Tobacco Units
 
 
 
 
 
 
 
 
European Union
 
2,124

849

+100%

 
5,977

1,889

+100%

Eastern Europe
 
2,312

323

+100%

 
4,979

674

+100%

Middle East & Africa
 
571

497

14.9
 %
 
3,403

907

+100%

South & Southeast Asia
 
—

—

—
 %
 
—

—

—
 %
East Asia & Australia
 
7,111

14,032

(49.3
)%
 
26,866

32,729

(17.9
)%
Latin America & Canada
 
49

15

+100%

 
147

27

+100%

Total PMI
 
12,167

15,716

(22.6
)%
 
41,372

36,226

14.2
 %
 
 
 
 
 
 
 
 
 
Cigarettes and Heated Tobacco Units
 
 
 
 
 
 
 
 
European Union
 
45,868

46,730

(1.8
)%
 
185,599

189,182

(1.9
)%
Eastern Europe
 
30,736

31,295

(1.8
)%
 
113,697

120,072

(5.3
)%
Middle East & Africa
 
36,345

35,857

1.4
 %
 
140,008

137,666

1.7
 %
South & Southeast Asia
 
47,623

46,945

1.4
 %
 
178,469

171,600

4.0
 %
East Asia & Australia
 
19,883

28,321

(29.8
)%
 
83,029

95,382

(13.0
)%
Latin America & Canada
 
21,958

22,937

(4.3
)%
 
80,885

84,250

(4.0
)%
Total PMI
 
202,413

212,085

(4.6
)%
 
781,687

798,152

(2.1
)%

Full-Year
Estimated international cigarette and heated tobacco unit volume, excluding China and the United States, of 2.8 trillion, decreased by 1.6%, mainly due to the EU, EE, EA&A and LA&C, partly offset by ME&A and S&SA, as described in the Regional sections below.
PMI's total shipment volume decreased by 2.1%, due to:
•
the EU, primarily reflecting lower cigarette shipment volume in France, Germany and Italy, partly offset by higher heated tobacco unit shipment volume across the Region, notably in Italy;
•
Eastern Europe, reflecting lower cigarette shipment volume, principally in Russia and Ukraine, partly offset by higher heated tobacco unit shipment volume across the Region, notably in Russia;
•
East Asia & Australia, reflecting lower cigarette shipment volume, principally in Japan and Korea; lower heated tobacco unit shipment volume in Japan, reflecting the net impact of estimated distributor inventory movements described in the East Asia & Australia Region section below; partly offset by higher heated tobacco unit shipment volume in Korea; and
•
Latin America & Canada, reflecting lower cigarette shipment volume, notably in Argentina and Colombia;

- -5 -


partly offset by
•
Middle East & Africa, reflecting essentially flat cigarette shipment volume, with declines, notably in Saudi Arabia and the UAE, almost completely offset by higher cigarette shipment volume, notably in Turkey, as well as by higher heated tobacco unit shipment volume, mainly in PMI Duty Free; and
•
South & Southeast Asia, reflecting higher cigarette shipment volume, principally in Pakistan, the Philippines and Thailand.
Excluding the net impact of estimated distributor inventory movements of approximately 16.6 billion units, due primarily to heated tobacco unit inventories in Japan, reflecting unfavorable cigarette and heated tobacco unit inventory movements of approximately 0.4 billion and 16.2 billion units, respectively, PMI's total shipment volume was flat.

Fourth-Quarter
PMI's total shipment volume decreased by 4.6%, principally due to:
•
the EU, reflecting lower cigarette shipment volume, principally in France, Italy and Spain, partly offset by higher heated tobacco unit shipment volume across the Region;
•
Eastern Europe, reflecting lower cigarette shipment volume, principally in Russia and Ukraine, partly offset by higher heated tobacco unit shipment volume, mainly in Russia;
•
East Asia & Australia, reflecting lower cigarette shipment volume, notably in Japan and Korea; lower heated tobacco unit shipment volume in Japan, primarily reflecting the net impact of estimated distributor inventory movements described in the East Asia & Australia Region section below; partly offset by higher heated tobacco unit shipment volume in Korea; and
•
Latin America & Canada, reflecting lower cigarette shipment volume, principally in Argentina, Colombia and Venezuela, partly offset by Brazil;
partly offset by
•
Middle East & Africa, primarily reflecting higher cigarette shipment volume, principally the GCC, notably Saudi Arabia, North Africa, notably Egypt, as well as Turkey, partly offset by lower cigarette shipment volume in PMI Duty Free; and
•
South & South East Asia, reflecting higher cigarette shipment volume, principally in the Philippines and Thailand, partly offset by Pakistan.
Excluding the net impact of estimated distributor inventory movements of approximately 7.8 billion units, due primarily to heated tobacco unit inventories in Japan, reflecting unfavorable cigarette and heated tobacco unit inventory movements of approximately 1.1 billion and 6.7 billion units, respectively, PMI's total shipment volume decreased by 0.9%.     


- -6 -


PMI shipment volume by brand is shown in the table below.

PMI Shipment Volume by Brand
 
Fourth-Quarter
 
Full-Year
(million units)
 
2018

2017

Change

 
2018

2017

Change

Cigarettes
 
 
 
 
 
 
 
 
Marlboro
 
68,436

70,251

(2.6
)%
 
264,423

270,366

(2.2
)%
L&M
 
23,038

21,726

6.0
 %
 
89,789

90,817

(1.1
)%
Chesterfield
 
14,831

14,764

0.5
 %
 
59,452

55,075

7.9
 %
Philip Morris
 
13,177

12,389

6.4
 %
 
49,864

48,522

2.8
 %
Sampoerna A
 
10,391

11,724

(11.4
)%
 
39,522

42,736

(7.5
)%
Parliament
 
10,656

12,243

(13.0
)%
 
41,697

43,965

(5.2
)%
Bond Street
 
8,212

9,312

(11.8
)%
 
32,173

37,987

(15.3
)%
Dji Sam Soe
 
8,044

7,065

13.9
 %
 
29,195

22,757

28.3
 %
Lark
 
5,417

5,904

(8.2
)%
 
23,021

24,530

(6.2
)%
Fortune
 
4,805

3,691

30.2
 %
 
16,596

13,451

23.4
 %
Others
 
23,239

27,300

(14.9
)%
 
94,583

111,720

(15.3
)%
Total Cigarettes
 
190,246

196,369

(3.1
)%
 
740,315

761,926

(2.8
)%
Heated Tobacco Units
 
12,167

15,716

(22.6
)%
 
41,372

36,226

14.2
 %
Total PMI
 
202,413

212,085

(4.6
)%
 
781,687

798,152

(2.1
)%
Note: Sampoerna A includes Sampoerna; Philip Morris includes Philip Morris/Dubliss; and Lark includes Lark Harmony.

Full-Year
PMI's cigarette shipment volume decreased, partly reflecting the impact of out-switching to heated tobacco units largely from premium and mid-price cigarette brands. PMI's cigarette shipment volume of the following brands decreased:
•
Marlboro, mainly due to France, the GCC, notably Saudi Arabia and the UAE, Italy, Japan and Korea, partly offset by Indonesia, North Africa and Turkey;
•
L&M, mainly due to the GCC, notably Saudi Arabia, as well as North Africa, Russia and Turkey, partly offset by Kazakhstan, Serbia and Thailand;
•
Sampoerna A in Indonesia, mainly reflecting the impact of its retail price increasing past its round pack price point in the fourth quarter of 2017;
•
Parliament, mainly due to Korea and Russia, partly offset by Turkey;
•
Bond Street, mainly due to Kazakhstan, Russia and Ukraine;
•
Lark, mainly due to Japan, partly offset by Turkey; and
•
"Others," mainly due to: mid-price brands, notably Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; the successful portfolio consolidation of local brands into international trademarks, notably in Brazil, Colombia, Mexico and Russia; low-price Jackpot in the Philippines, reflecting up-trading as a result of narrowed price gaps; partly offset by low-price Hope in the Philippines and Morven in Pakistan.
PMI's cigarette shipment volume of the following brands increased:
•
Chesterfield, mainly driven by Argentina, Brazil, Colombia, the GCC, notably Saudi Arabia, Mexico and Turkey, partly offset by Portugal, Russia and Venezuela;
•
Philip Morris, mainly driven by Russia, partly offset by Argentina, Italy and the Philippines;
•
Dji Sam Soe in Indonesia, notably reflecting the continued strong performance of its Magnum Mild 16s variant launched in the second quarter of 2017; and

- -7 -


•
Fortune in the Philippines, reflecting the favorable impact of its narrowed retail price gap to competitors' products.

PMI's heated tobacco unit shipment volume increased, reflecting favorable heated tobacco unit volume across the EU, notably Italy, as well as Korea, PMI Duty Free and Russia, partly offset by unfavorable heated tobacco unit volume in Japan, reflecting the net impact of estimated distributor inventory movements.

Fourth-Quarter
PMI's cigarette shipment volume decreased, partly reflecting the impact of out-switching to heated tobacco units largely from premium and mid-price cigarette brands. PMI's cigarette shipment volume of the following brands decreased:
•
Marlboro, mainly due to Italy, Japan and PMI Duty Free, partly offset by the GCC, notably Saudi Arabia, as well as Indonesia, North Africa and Turkey;
•
Sampoerna A in Indonesia, mainly reflecting the impact of its retail price increasing past its round pack price point in the fourth quarter of 2017;
•
Parliament, mainly due to Russia, partly offset by Turkey;
•
Bond Street, mainly due to Kazakhstan, Russia and Ukraine;
•
Lark, mainly due to Japan and Turkey; and
•
"Others," mainly due to: mid-price brands, notably Sampoerna U in Indonesia, partly reflecting the impact of above-inflation retail price increases; the successful portfolio consolidation of local brands into international trademarks, notably in Mexico and Russia; and low-price Jackpot in the Philippines, reflecting up-trading as a result of narrowed price gaps, partly offset by low-price Hope in the Philippines.
PMI's cigarette shipment volume of the following brands increased:
•
L&M, mainly driven by the GCC, notably Saudi Arabia, as well as Thailand, partly offset by Russia and Turkey;
•
Chesterfield, mainly driven by Brazil, Mexico and Turkey, partly offset by the GCC, notably Saudi Arabia, as well as Venezuela;
•
Philip Morris, mainly driven by Russia, partly offset by Argentina and the Philippines;
•
Dji Sam Soe in Indonesia, notably reflecting the continued strong performance of its Magnum Mild 16s variant; and
•
Fortune in the Philippines, reflecting the favorable impact of its narrowed retail price gap to competitors' products.

PMI's heated tobacco unit shipment volume decreased, due to unfavorable heated tobacco unit volume in Japan, reflecting the net impact of estimated distributor inventory movements, partly offset by favorable heated tobacco unit volume across the EU, as well as Korea and Russia.

Full-Year International Share of Market (excluding China and the United States)
PMI's 2018 total international market share, defined as PMI's cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, increased by 0.5 points to 28.4%, reflecting:
•
Total international cigarette market share of 26.8%, down by 0.3 points; and
•
Total international heated tobacco unit market share of 1.6%, up by 0.8 points.
PMI's total international cigarette market share, defined as PMI's cigarette sales volume as a percentage of total industry cigarette sales volume, was flat at 27.4%.

- -8 -


In 2018, PMI owned six of the world's top 15 international cigarette brands, with international cigarette market shares as follows: Marlboro, 9.7%; L&M, 3.3%; Chesterfield, 2.2%; Philip Morris, 1.8%; Parliament, 1.6%; and Bond Street, 1.2%.
FINANCIAL SUMMARY
Full-Year
Financial Summary -
Years Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 29,625

$ 28,748

 
3.1
 %
3.4
 %
 
877

(103
)
1,488

(724
)
216

Cost of Sales
 
(10,758
)
(10,432
)
 
(3.1
)%
(2.3
)%
 
(326
)
(83
)
—

(180
)
(63
)
Marketing, Administration and Research Costs
 
(7,408
)
(6,647
)
 
(11.4
)%
(11.0
)%
 
(761
)
(29
)
—

—

(732
)
Amortization of Intangibles
 
(82
)
(88
)
 
6.8
 %
5.7
 %
 
6

1

—

—

5

Operating Income
 
$ 11,377

$ 11,581

 
(1.8
)%
0.1
 %
 
(204
)
(214
)
1,488

(904
)
(574
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 11,377

$ 11,581

 
(1.8
)%
0.1
 %
 
(204
)
(214
)
1,488

(904
)
(574
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
38.4
%
40.3
%
 
(1.9)pp

(1.3)pp

 
 
 
 
 
 
“Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to fees for certain distribution rights billed to customers in certain markets in the ME&A Region.  This immaterial presentational change, made in conjunction with the new revenue recognition standard, is prospective only.
Net revenues, excluding unfavorable currency, increased by 3.4%, reflecting: a favorable pricing variance, notably in Argentina, Australia, Canada, Egypt, Germany, Indonesia, Italy, Japan, Mexico, the Philippines, Russia, Turkey, and Ukraine, partly offset by France, Korea, Saudi Arabia and Thailand; as well as a favorable "cost/other" variance as described above.
These favorable variances were partly offset by unfavorable volume/mix, primarily reflecting unfavorable cigarette volume/mix, notably in Australia, the GCC, notably Saudi Arabia and the UAE, Indonesia, Italy, Japan and Russia, partly offset by Pakistan, Thailand and Turkey. The unfavorable cigarette volume/mix was partly offset by favorable heated tobacco unit volume in the EU, notably the Czech Republic, Germany and Italy, as well as Korea, PMI Duty Free and Russia, partly offset by unfavorable heated tobacco unit volume in Japan, reflecting the net impact of estimated distributor inventory movements.
Operating income, excluding unfavorable currency, was essentially flat, reflecting: a favorable pricing variance; partly offset by unfavorable volume/mix, due mainly to lower volume in Japan and Saudi Arabia and lower mix in Indonesia and Russia, partly offset by higher volume in the EU, driven by heated tobacco units, as well as Korea, PMI Duty Free, Thailand and Turkey. The favorable pricing variance was also partly offset by higher marketing, administration and research costs, primarily related to increased investment behind reduced-risk products across all Regions, predominantly the EU and EA&A.
Adjusted operating income margin, excluding currency, decreased by 1.3 points to 39.0%, reflecting the factors mentioned above, as detailed in the attached Schedule 7.


- -9 -


Fourth-Quarter
Financial Summary -
Quarters Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 7,499

$ 8,294

 
(9.6
)%
(4.1
)%
 
(795
)
(454
)
323

(718
)
54

Cost of Sales
 
(2,781)

(3,001)

 
7.3
 %
3.3
 %
 
220

122

—

160

(62
)
Marketing, Administration and Research Costs
 
(1,997)

(1,930)

 
(3.5
)%
(9.7
)%
 
(67
)
121

—

—

(188
)
Amortization of Intangibles
 
(19)

(23)

 
17.4
 %
13.0
 %
 
4

1

—

—

3

Operating Income
 
$ 2,702

$ 3,340

 
(19.1
)%
(12.8
)%
 
(638
)
(210
)
323

(558
)
(193
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 2,702

$ 3,340

 
(19.1
)%
(12.8
)%
 
(638
)
(210
)
323

(558
)
(193
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
36.0
%
40.3
%
 
(4.3)pp

(3.7)pp

 
 
 
 
 
 
“Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to fees for certain distribution rights billed to customers in certain markets in the ME&A Region.  This immaterial presentational change, made in conjunction with the new revenue recognition standard, is prospective only.
Net revenues, excluding unfavorable currency, decreased by 4.1%, reflecting unfavorable volume/mix, due substantially to unfavorable heated tobacco unit volume in Japan, reflecting the net impact of estimated distributor inventory movements, partly offset by favorable heated tobacco unit volume across the EU, notably the Czech Republic, Germany and Italy, as well as Korea and Russia.
The unfavorable volume/mix was partly offset by a favorable pricing variance, notably in Australia, Canada, Egypt, Germany, Indonesia, Italy, Japan, Mexico, the Philippines, Russia, Turkey, and Ukraine, partly offset by Argentina, France, Korea and Saudi Arabia; as well as a favorable "cost/other" variance as described above.
Operating income, excluding unfavorable currency, decreased by 12.8%, reflecting: an unfavorable volume/mix due mainly to EA&A, principally heated tobacco unit volume in Japan, partly offset by the EU; and higher costs, notably higher manufacturing and marketing, administration and research costs, primarily related to increased investment behind reduced-risk products across all Regions. These unfavorable variances were partly offset by a favorable pricing variance.
Adjusted operating income margin, excluding currency, decreased by 3.7 points to 36.6%, reflecting the factors mentioned above, as detailed in the attached Schedule 7.


- -10 -



NET REVENUES BY PRODUCT CATEGORY
PMI Net Revenues
 
Fourth-Quarter
 
Full-Year
(in millions)
 
 
 
 
Excl.

 
 
 
 
Excl.

 
 
2018

2017

Change

Curr.

 
2018

2017

Change

Curr.

Combustible Products
 
 
 
 
 
 
 
 
 
 
European Union
 
$ 2,051

$ 2,140

(4.1
)%
(1.5
)%
 
$ 8,433

$ 8,048

4.8
 %
(0.9
)%
Eastern Europe
 
671

756

(11.3
)%
(1.5
)%
 
2,597

2,657

(2.2
)%
1.4
 %
Middle East & Africa
 
919

923

(0.4
)%
11.5
 %
 
3,732

3,893

(4.1
)%
0.9
 %
South & Southeast Asia
 
1,222

1,211

0.9
 %
10.3
 %
 
4,656

4,417

5.4
 %
10.9
 %
East Asia & Australia
 
726

793

(8.4
)%
(6.9
)%
 
3,074

3,156

(2.6
)%
(3.5
)%
Latin America & Canada
 
783

828

(5.4
)%
(0.9
)%
 
3,037

2,937

3.4
 %
6.8
 %
Total PMI
 
$ 6,373

$ 6,651

(4.2
)%
1.9
 %
 
$ 25,529

$ 25,107

1.7
 %
2.3
 %
 
 
 
 
 
 
 
 
 
 
 
RRPs
 
 
 
 
 
 
 
 
 
 
European Union
 
$ 289

$ 124

+100%

+100%

 
$ 865

$ 269

+100%

+100%

Eastern Europe
 
145

36

+100%

+100%

 
324

55

+100%

+100%

Middle East & Africa
 
69

49

40.2
 %
40.8
 %
 
382

94

+100%

+100%

South & Southeast Asia
 
—

—

—
 %
—
 %
 
—

—

—
 %
—
 %
East Asia & Australia
 
619

1,432

(56.8
)%
(55.0
)%
 
2,506

3,218

(22.1
)%
(23.1
)%
Latin America & Canada
 
5

3

74.1
 %
82.0
 %
 
19

4

+100%

+100%

Total PMI
 
$ 1,126

$ 1,643

(31.5
)%
(28.4
)%
 
$ 4,096

$ 3,640

12.5
 %
11.1
 %
 
 
 
 
 
 
 
 
 
 
 
Combustible Products and RRPs
 
 
 
 
 
 
 
 
 
 
European Union
 
$ 2,340

$ 2,264

3.4
 %
6.2
 %
 
$ 9,298

$ 8,318

11.8
 %
5.9
 %
Eastern Europe
 
816

793

2.9
 %
14.5
 %
 
2,921

2,711

7.7
 %
12.1
 %
Middle East & Africa
 
988

971

1.8
 %
13.1
 %
 
4,114

3,988

3.2
 %
8.0
 %
South & Southeast Asia
 
1,222

1,211

0.9
 %
10.3
 %
 
4,656

4,417

5.4
 %
10.9
 %
East Asia & Australia
 
1,345

2,224

(39.5
)%
(37.9
)%
 
5,580

6,373

(12.4
)%
(13.4
)%
Latin America & Canada
 
788

831

(5.2
)%
(0.7
)%
 
3,056

2,941

3.9
 %
7.3
 %
Total PMI
 
$ 7,499

$ 8,294

(9.6
)%
(4.1
)%
 
$ 29,625

$ 28,748

3.1
 %
3.4
 %
Note: Sum of product categories or Regions might not foot to total PMI due to rounding.

EUROPEAN UNION REGION
Full-Year
Financial Summary -
Years Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 9,298

$ 8,318

 
11.8
%
5.9
%
 
980

489

248

243

—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 4,105

$ 3,691

 
11.2
%
2.9
%
 
414

308

248

116

(258
)
Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 4,105

$ 3,691

 
11.2
%
2.9
%
 
414

308

248

116

(258
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
44.1
%
44.4
%
 
(0.3)pp

(1.3)pp

 
 
 
 
 
 

- -11 -


Net revenues, excluding favorable currency, increased by 5.9%, reflecting a favorable pricing variance, driven notably by Germany and Italy, partly offset by France, and favorable volume/mix, driven predominantly by heated tobacco unit volume, notably in the Czech Republic, Germany and Italy, partly offset by unfavorable cigarette volume in France, Germany and Italy.
Operating income, excluding favorable currency, increased by 2.9%, reflecting: a favorable pricing variance; favorable volume/mix, notably in Bulgaria, the Czech Republic and Poland, partly offset by France, Norway and the United Kingdom; partly offset by higher manufacturing costs and marketing, administration and research costs, primarily related to investments behind reduced-risk products across the Region.
Adjusted operating income margin, excluding currency, decreased by 1.3 points to 43.1%, reflecting the factors mentioned above, as detailed on Schedule 7.

Fourth-Quarter
Financial Summary -
Quarters Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 2,340

$ 2,264

 
3.4
%
6.2
%
 
76

(64
)
54

86

—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 1,009

$ 974

 
3.6
%
2.6
%
 
35

10

54

54

(83
)
Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 1,009

$ 974

 
3.6
%
2.6
%
 
35

10

54

54

(83
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
43.1
%
43.0
%
 
0.1pp

(1.4)pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 6.2%, reflecting: a favorable pricing variance, driven principally by Germany and Italy, partly offset by France; and favorable volume/mix, primarily reflecting favorable volume, mainly driven by heated tobacco unit volume.
Operating income, excluding favorable currency, increased by 2.6%, mainly reflecting: a favorable pricing variance and favorable volume/mix, notably in Bulgaria, the Czech Republic and Sweden, partly offset by Norway and the United Kingdom; partially offset by higher manufacturing costs and marketing, administration and research costs, primarily related to investments behind reduced-risk products.
Adjusted operating income margin, excluding currency, decreased by 1.4 points to 41.6%, reflecting the factors mentioned above, as detailed on Schedule 7.

- -12 -



Total Market, PMI Shipment & Market Share Commentaries

European Union Key Data
 
Fourth-Quarter
 
Full-Year
 
 
 
 
Change

 
 
 
Change

 
 
2018

2017

% / pp

 
2018

2017

% / pp

Total Market (billion units)
 
118.9

119.7

(0.7
)%
 
484.3

492.4

(1.7
)%
 
 
 
 
 
 
 
 
 
PMI Shipment Volume (million units)
 
 
 
 
 
 
 
 
Cigarettes
 
43,744

45,881

(4.7
)%
 
179,622

187,293

(4.1
)%
Heated Tobacco Units
 
2,124

849

+100.0%

 
5,977

1,889

+100.0%

Total EU
 
45,868

46,730

(1.8
)%
 
185,599

189,182

(1.9
)%
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
Marlboro
 
18.7
%
19.2
%
(0.5
)
 
18.5
%
18.8
%
(0.3
)
L&M
 
6.8
%
6.9
%
(0.1
)
 
6.9
%
6.9
%
—

Chesterfield
 
5.8
%
5.9
%
(0.1
)
 
5.9
%
6.0
%
(0.1
)
Philip Morris
 
2.8
%
3.0
%
(0.2
)
 
2.9
%
3.1
%
(0.2
)
HEETS
 
1.7
%
0.6
%
1.1

 
1.2
%
0.3
%
0.9

Others
 
3.2
%
3.2
%
—

 
3.1
%
3.2
%
(0.1
)
Total EU
 
39.0
%
38.8
%
0.2

 
38.5
%
38.3
%
0.2

Full-Year
The estimated total market in the EU decreased by 1.7% to 484.3 billion units, or by 1.5% excluding the net impact of estimated trade inventory movements, notably due to:
•
France, down by 9.2%, primarily reflecting the impact of significant excise tax-driven price increases and an increase in the prevalence of illicit trade;
•
Germany, down by 2.2%, primarily reflecting the impact of price increases;
•
Italy, down by 1.3%, primarily reflecting the impact of price increases; and
•
the United Kingdom, down by 6.9%, primarily reflecting the impact of price increases;
partly offset by
•
Poland, up by 3.7%, primarily driven by a decrease in the prevalence of illicit trade.
PMI's total shipment volume decreased by 1.9% to 185.6 billion units, or by 1.0% excluding the net impact of estimated distributor inventory movements, notably due to:
•
France, down by 6.4%, or by 5.0% excluding the net impact of estimated distributor inventory movements, primarily due to a lower total market, partly offset by higher market share, notably of Marlboro and Philip Morris;
•
Germany, down by 1.8%, primarily due to the lower total market, partly offset by higher market share; and
•
Italy, down by 4.1%, or by 1.9% excluding the net impact of estimated distributor inventory movements, primarily due to the lower total market and lower cigarette market share.
PMI's Regional market share increased by 0.2 points to 38.5%, with gains in Belgium, Bulgaria, the Canary Islands, Croatia, Denmark, France, Germany, Greece, Hungary, Latvia, Lithuania, Luxembourg, Portugal, Romania, the Slovak Republic and Slovenia.


- -13 -


Fourth-Quarter
The estimated total market in the EU decreased by 0.7% to 118.9 billion units, or by 0.4% excluding the net impact of estimated trade inventory movements, mainly due to:
•
France, down by 6.3%, or by 8.1% excluding the impact of estimated trade inventory movements, mainly due to the same factors as for the full year; and
•
the United Kingdom, down by 10.3%, or by 8.6% excluding the impact of estimated trade inventory movements, due mainly to the same factor as for the full year;
partly offset by
•
Poland, up by 7.1%, or by 6.5% excluding the impact of estimated trade inventory movements, primarily reflecting the same factor as for the full year.
PMI's total shipment volume decreased by 1.8% to 45.9 billion units, notably due to:
•
France, Italy and Spain, down by 5.4%, 4.1% and 9.0%, respectively. Excluding the net impact of estimated distributor inventory movements primarily associated with the adjustment of inventories in 2018, PMI's total shipment volume in these markets was down by 2.0%, up by 0.1% and down by 0.1%, respectively;
partly offset by
•
Poland, up by 1.7%, primarily reflecting the higher total market, partly offset by lower market share.
PMI's Regional market share increased by 0.2 points to 39.0%, with gains in Bulgaria, the Canary Islands, Croatia, the Czech Republic, Estonia, France, Greece, Hungary, Ireland, Latvia, Lithuania, Luxembourg, Romania, the Slovak Republic, Slovenia and Sweden.

EASTERN EUROPE REGION
Full-Year
Financial Summary -
Years Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 2,921

$ 2,711

 
7.7
%
12.1
%
 
210

(118
)
286

42

—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 902

$ 887

 
1.7
%
13.1
%
 
15

(101
)
286

(92
)
(78
)
Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 902

$ 887

 
1.7
%
13.1
%
 
15

(101
)
286

(92
)
(78
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
30.9
%
32.7
%
 
(1.8)pp

0.3pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 12.1%, reflecting a favorable pricing variance, mainly driven by Russia and Ukraine, and favorable volume/mix, primarily driven by heated tobacco unit volume, notably in Russia, partly offset by unfavorable cigarette volume/mix, notably in Russia.
Operating income, excluding unfavorable currency, increased by 13.1%, mainly reflecting a favorable pricing variance, partly offset by: unfavorable volume/mix, predominantly due to unfavorable mix in Russia, and higher manufacturing and marketing, administration and research costs, notably reflecting increased investments behind reduced-risk products, primarily in Russia.

- -14 -


Adjusted operating income margin, excluding currency, increased by 0.3 points to 33.0%, reflecting the factors mentioned above, as detailed on Schedule 7.

Fourth-Quarter
Financial Summary -
Quarters Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 816

$ 793

 
2.9
 %
14.5
 %
 
23

(92
)
43

72

—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 220

$ 260

 
(15.4
)%
(3.1
)%
 
(40
)
(32
)
43

6

(57
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 220

$ 260

 
(15.4
)%
(3.1
)%
 
(40
)
(32
)
43

6

(57
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
27.0
%
32.8
%
 
(5.8)pp

(5.0)pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 14.5%, reflecting a favorable pricing variance, mainly driven by Russia and Ukraine, and favorable volume/mix, primarily driven by heated tobacco unit volume in Russia reflecting accelerated shipments ahead of anticipated geographic expansion in 2019.
Operating income, excluding unfavorable currency, decreased by 3.1%, mainly due to higher manufacturing and marketing, administration and research costs, notably reflecting increased investments behind reduced-risk products, primarily in Russia, partly offset by a favorable pricing variance.
Adjusted operating income margin, excluding currency, decreased by 5.0 points to 27.8%, reflecting the factors mentioned above, as detailed on Schedule 7.

Total Market, PMI Shipment & Market Share Commentaries    

PMI Shipment Volume
 
Fourth-Quarter
 
Full-Year
(million units)
 
2018

2017

Change

 
2018

2017

Change

Cigarettes
 
28,424

30,972

(8.2
)%
 
108,718

119,398

(8.9
)%
Heated Tobacco Units
 
2,312

323

+100.0%

 
4,979

674

+100.0%

Total Eastern Europe
 
30,736

31,295

(1.8
)%
 
113,697

120,072

(5.3
)%
Full-Year
The estimated total market in Eastern Europe decreased by 7.1% to 416.7 billion units, notably due to:
•
Russia, down by 8.4%, primarily reflecting the timing and impact of excise tax-driven retail price increases, as well as an increase in the prevalence of illicit trade; and
•
Ukraine, down by 8.1%, primarily reflecting the timing and impact of excise tax-driven retail price increases and an increase in the prevalence of illicit trade.
PMI's Regional market share increased by 0.6 points to 27.3%.
PMI's total shipment volume decreased by 5.3% to 113.7 billion units, notably in:
•
Russia, down by 6.1%, due to the lower total market, partly offset by higher total market share driven by heated tobacco unit share, partially offset by lower cigarette market share, notably due to mid-price L&M and low-price Bond Street, reflecting the impact of down-trading to competitive products, partly offset by Philip Morris; and

- -15 -


•
Ukraine, down by 8.8%, mainly due to the lower total market, partly offset by higher total market share driven by heated tobacco unit volume.

Fourth-Quarter
The estimated total market in Eastern Europe decreased, notably due to:
•
Russia, down by 8.0%, primarily reflecting the same factors as for the full year; and
•
Ukraine, down by 8.7%, primarily reflecting the same factors as for the full year.
PMI's total shipment volume decreased by 1.8% to 30.7 billion units, primarily in:
•
Ukraine, down by 10.4%, mainly due to the lower total market, partly offset by higher total market share driven by heated tobacco unit volume;
partly offset by
•
Russia, up by 1.3%, or down by 1.4% excluding the net impact of estimated distributor inventory movements associated with heated tobacco unit inventories, mainly reflecting a lower total market, partly offset by higher market share.

MIDDLE EAST & AFRICA REGION
Full-Year
Financial Summary -
Years Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 4,114

$ 3,988

 
3.2
 %
8.0
%
 
126

(193
)
19

84

216

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 1,627

$ 1,884

 
(13.6
)%
0.3
%
 
(257
)
(263
)
19

13

(26
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 1,627

$ 1,884

 
(13.6
)%
0.3
%
 
(257
)
(263
)
19

13

(26
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
39.5
%
47.2
%
 
(7.7)pp

(3.3)pp

 
 
 
 
 
 
“Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to fees for certain distribution rights billed to customers in certain markets in the ME&A Region.  This immaterial presentational change, made in conjunction with the new revenue recognition standard, is prospective only.
Net revenues, excluding unfavorable currency, increased by 8.0%, reflecting: a favorable "cost/other" variance, as described above; a favorable pricing variance, driven notably by Egypt and Turkey, partly offset by Saudi Arabia; and favorable volume/mix, primarily driven by PMI Duty Free, reflecting higher heated tobacco unit volume, and Turkey, partly offset by the GCC, notably Saudi Arabia and the UAE, reflecting the impact of retail price increases following the introduction of excise tax in June and October 2017, respectively, and VAT in January 2018.
Operating income, excluding unfavorable currency, increased by 0.3%, mainly reflecting: a favorable pricing variance, and favorable volume/mix, primarily driven by PMI Duty Free and Turkey, partly offset by Saudi Arabia and the UAE. These favorable variances were partly offset by higher manufacturing costs predominantly related to reduced-risk products, partly offset by lower marketing, administration and research costs.
Adjusted operating income margin, excluding currency, decreased by 3.3 points to 43.9%, reflecting the factors mentioned above, as detailed on Schedule 7.

- -16 -



Fourth-Quarter
Financial Summary -
Quarters Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 988

$ 971

 
1.8
 %
13.1
%
 
17

(110
)
51

22

54

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 359

$ 421

 
(14.7
)%
13.8
%
 
(62
)
(120
)
51

4

3

Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 359

$ 421

 
(14.7
)%
13.8
%
 
(62
)
(120
)
51

4

3

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
36.3
%
43.4
%
 
(7.1)pp

0.2pp

 
 
 
 
 
 
“Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to fees for certain distribution rights billed to customers in certain markets in the ME&A Region.  This immaterial presentational change, made in conjunction with the new revenue recognition standard, is prospective only.
Net revenues, excluding unfavorable currency, increased by 13.1%, reflecting: a favorable "cost/other" variance, as described above, a favorable pricing variance, mainly driven by Egypt and Turkey, partly offset by Saudi Arabia; favorable volume/mix, principally driven by favorable volume in the GCC, notably Saudi Arabia, North Africa and Turkey, partly offset by PMI Duty Free, due largely to lower cigarette volume partly offset by higher heated tobacco unit volume.
Operating income, excluding unfavorable currency, increased by 13.8%, mainly reflecting a favorable pricing variance.
Adjusted operating income margin, excluding currency, increased by 0.2 points to 43.6%, reflecting the factors mentioned above, as detailed on Schedule 7.


Total Market, PMI Shipment & Market Share Commentaries    

PMI Shipment Volume
 
Fourth-Quarter
 
Full-Year
(million units)
 
2018

2017

Change

 
2018

2017

Change

Cigarettes
 
35,774

35,360

1.2
%
 
136,605

136,759

(0.1
)%
Heated Tobacco Units
 
571

497

14.9
%
 
3,403

907

+100.0%

Total Middle East & Africa
 
36,345

35,857

1.4
%
 
140,008

137,666

1.7
 %
Full-Year
The estimated total market in the Middle East & Africa increased by 0.4% to 590.1 billion units, notably driven by:
•
Turkey, up by 11.6%, primarily reflecting a reduction in the prevalence of illicit trade;
partly offset by
•
Algeria, down by 8.5%, or by 0.6% excluding the net impact of estimated trade inventory movements mainly associated with the timing of excise tax announcements in 2018 compared to 2017; and
•
The GCC, notably Saudi Arabia and the UAE, down by 21.1% and 23.9%, respectively, primarily reflecting the impact of price increases and the introduction of the new excise tax in 2017, and VAT in January 2018.
PMI's Regional market share increased by 0.3 points to 23.8%.

- -17 -


PMI's total shipment volume increased by 1.7% to 140.0 billion units, notably in:
•
Turkey, up by 10.8%, reflecting a higher total market, partly offset by lower market share; and
•
PMI Duty Free, up by 6.6%, reflecting higher heated tobacco shipment volume;
partly offset by
•
the GCC, notably Saudi Arabia and the UAE, down by 32.5% and 55.6%, respectively, reflecting the lower total market and market share due to the impact of excise tax and VAT-driven price increases.    

Fourth-Quarter
The estimated total market in the Middle East & Africa increased, notably driven by:
•
Turkey, up by 6.4%, or by 13.2%, excluding the net impact of estimated trade inventory purchasing patterns associated with expectations regarding excise tax and pricing changes in 2018 compared to 2017, reflecting the same factor as for the full year;
partly offset by
•
Algeria, down by 16.2%, or by 2.5% excluding the net impact of estimated trade inventory movements associated with the timing of excise tax announcements in 2018 compared to 2017.
PMI's total shipment volume increased by 1.4% to 36.3 billion units, notably in:
•
Egypt, up by 8.6%, reflecting higher market share, driven by L&M;
•
the GCC, notably in Saudi Arabia, up by 24.6%, reflecting higher market share, partly offset by a lower total market; and
•
Turkey, up by 4.3%, reflecting a higher total market, partly offset by a lower market share;
partly offset by
•
PMI Duty Free, down by 18.3%, mainly reflecting the net impact of estimated distributor inventory movements of cigarettes and heated tobacco units. Excluding these inventory movements, PMI's total shipment volume was up by 1.1%.


- -18 -


SOUTH & SOUTHEAST ASIA REGION
Full-Year
Financial Summary -
Years Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 4,656

$ 4,417

 
5.4
%
10.9
%
 
239

(244
)
548

(65
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 1,747

$ 1,514

 
15.4
%
23.6
%
 
233

(124
)
548

(126
)
(65
)
Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 1,747

$ 1,514

 
15.4
%
23.6
%
 
233

(124
)
548

(126
)
(65
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
37.5
%
34.3
%
 
3.2pp

3.9pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 10.9%, reflecting: a favorable pricing variance, driven principally by Indonesia and the Philippines, partly offset by Thailand; partly offset by unfavorable volume/mix, mainly due to unfavorable mix in Indonesia, partly offset by favorable volume in Pakistan, the Philippines and Thailand.
Operating income, excluding unfavorable currency, increased by 23.6%, mainly driven by a favorable pricing variance, partly offset by unfavorable volume/mix, mainly due to Indonesia, partly offset by Pakistan and Thailand, and higher manufacturing and marketing, administration and research costs.
Adjusted operating income margin, excluding currency, increased by 3.9 points to 38.2%, reflecting the factors mentioned above, as detailed on Schedule 7.

Fourth-Quarter
Financial Summary -
Quarters Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,222

$ 1,211

 
0.9
%
10.3
%
 
11

(114
)
147

(22
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 423

$ 414

 
2.2
%
14.3
%
 
9

(50
)
147

(36
)
(52
)
Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 423

$ 414

 
2.2
%
14.3
%
 
9

(50
)
147

(36
)
(52
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
34.6
%
34.2
%
 
0.4pp

1.2pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 10.3%, reflecting: a favorable pricing variance, driven principally by Indonesia and the Philippines, partly offset by unfavorable volume/mix largely due to unfavorable mix in Indonesia, partly offset by favorable volume in Thailand.
Operating income, excluding unfavorable currency, increased by 14.3%, mainly reflecting: a favorable pricing variance; partly offset by unfavorable volume/mix, mainly due to Indonesia, partly offset by Thailand, and higher manufacturing costs and marketing, administration and research costs, partly due to the Philippines.

- -19 -


Adjusted operating income margin, excluding currency, increased by 1.2 points to 35.4%, reflecting the factors mentioned above, as detailed on Schedule 7.

Total Market, PMI Shipment & Market Share Commentaries

PMI Shipment Volume
 
Fourth-Quarter
 
Full-Year
(million units)
 
2018

2017

Change

 
2018

2017

Change

Cigarettes
 
47,623

46,945

1.4
%
 
178,469

171,600

4.0
%
Heated Tobacco Units
 
—

—

—
%
 
—

—

—
%
Total South & Southeast Asia
 
47,623

46,945

1.4
%
 
178,469

171,600

4.0
%
Full-Year
The estimated total market in South & Southeast Asia increased by 1.8% to 756.7 billion units, notably driven by:
•
Pakistan, up by 31.2% or approximately 14.1 billion units, notably reflecting an increase in the duty-paid market driven by a reduction in the prevalence of illicit trade. Excluding the net impact of estimated trade inventory movements, the total market was up by 17.7%;
partly offset by
•
the Philippines, down by 2.2%, primarily reflecting the impact of excise tax-driven retail price increases; and
•
Thailand, down by 2.7%, primarily reflecting the impact of excise tax-driven price increases.

PMI's Regional market share increased by 0.4 points to 23.5%.
PMI's total shipment volume increased by 4.0% to 178.5 billion units, notably driven by:
•
Pakistan, up by 27.0%, reflecting the higher total market, partly offset by lower market share;
•
the Philippines, up by 1.1%, mainly reflecting higher market share, driven by Marlboro and Fortune, partly offset by a lower total market; and
•
Thailand, up by 67.1%, mainly reflecting higher market share driven by the price repositioning of the L&M 7.1 variant in 2017 and its subsequent distribution expansion during 2018.

Fourth-Quarter
The estimated total market in South & Southeast Asia increased, notably driven by:
•
Pakistan, up by 4.5% or approximately 0.6 billion units, reflecting the same factors as for the full year. Excluding the net impact of estimated trade inventory movements, the total market was up by 2.5%; and
•
Thailand, up by 26.8%, primarily reflecting a favorable comparison to the fourth quarter of 2017 that was unfavorably impacted by excise tax reform.
PMI's total shipment volume increased by 1.4% to 47.6 billion units, notably driven by:
•
the Philippines, up by 1.2%, mainly reflecting higher market share, notably of Fortune, benefiting from narrowed retail price gaps in the low price segment; and
•
Thailand, up by 76.0%, mainly reflecting a higher total market and higher market share, driven by the same factors as for the full year;
partly offset by
•
Pakistan, down by 7.8%, mainly reflecting lower market share, disproportionately impacted by the estimated trade inventory movements mentioned above, partly offset by a higher total market.

- -20 -



EAST ASIA & AUSTRALIA REGION
Full-Year
Financial Summary -
Years Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 5,580

$ 6,373

 
(12.4
)%
(13.4
)%
 
(793
)
62

55

(910
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 1,851

$ 2,608

 
(29.0
)%
(28.9
)%
 
(757
)
(2
)
55

(704
)
(106
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 1,851

$ 2,608

 
(29.0
)%
(28.9
)%
 
(757
)
(2
)
55

(704
)
(106
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
33.2
%
40.9
%
 
(7.7)pp

(7.3)pp

 
 
 
 
 
 
Net revenues, excluding favorable currency, decreased by 13.4%, reflecting an unfavorable volume/mix, substantially due to Japan, primarily related to the net impact of estimated distributor inventory movements described below, as well as Australia, partly offset by favorable heated tobacco unit volume in Korea. The unfavorable volume/mix was partly offset by a favorable pricing variance, driven by: Australia and Japan; partly offset by Korea, mainly due to higher excise tax.
Operating income, excluding unfavorable currency, decreased by 28.9%, mainly reflecting: unfavorable volume/mix, substantially due to Japan, as well as Australia, partly offset by favorable heated tobacco unit volume in Korea; and higher marketing, administration and research costs, primarily related to investments behind reduced-risk products. These unfavorable variances were partly offset by a favorable pricing variance, as well as favorable manufacturing costs related to Japan.
Adjusted operating income margin, excluding currency, decreased by 7.3 points to 33.6%, reflecting the factors mentioned above, as detailed on Schedule 7.


- -21 -


Fourth-Quarter
Financial Summary -
Quarters Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 1,345

$ 2,224

 
(39.5
)%
(37.9
)%
 
(879
)
(37
)
(10
)
(832
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 412

$ 978

 
(57.9
)%
(57.2
)%
 
(566
)
(7
)
(10
)
(542
)
(7
)
Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 412

$ 978

 
(57.9
)%
(57.2
)%
 
(566
)
(7
)
(10
)
(542
)
(7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
30.6
%
44.0
%
 
(13.4)pp

(13.7)pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, decreased by 37.9%, reflecting: an unfavorable volume/mix, substantially due to heated tobacco unit volume in Japan, resulting from the net impact of estimated distributor inventory movements described below, as well as Australia, partly offset by favorable heated tobacco unit volume in Korea.
Operating income, excluding unfavorable currency, decreased by 57.2%, mainly reflecting unfavorable volume/mix, substantially due to Japan, as well as Australia, partly offset by favorable heated tobacco unit volume in Korea.
Adjusted operating income margin, excluding currency, decreased by 13.7 points to 30.3%, reflecting the factors mentioned above, as detailed on Schedule 7.

Total Market, PMI Shipment & Market Share Commentaries    

PMI Shipment Volume
 
Fourth-Quarter
 
Full-Year
(million units)
 
2018

2017

Change

 
2018

2017

Change

Cigarettes
 
12,772

14,289

(10.6
)%
 
56,163

62,653

(10.4
)%
Heated Tobacco Units
 
7,111

14,032

(49.3
)%
 
26,866

32,729

(17.9
)%
Total East Asia & Australia
 
19,883

28,321

(29.8
)%
 
83,029

95,382

(13.0
)%
Full-Year
The estimated total market in East Asia & Australia, excluding China, decreased by 3.4% to 311.5 billion units, notably due to:
•
Australia, down by 8.4%, primarily reflecting the impact of excise tax-driven retail price increases;
•
Japan, down by 2.4%, or down by 2.8% excluding the impact of estimated trade and consumer inventory movements following the October 1 excise tax-driven retail price increases;
•
Korea, down by 1.5%, or by 2.2% excluding the net impact of estimated trade inventory movements, partly related to the implementation of graphic health warnings in December 2018; and
•
Taiwan, down by 13.5%, or by 12.7% excluding the net impact of estimated trade inventory movements, mainly due to excise tax-driven retail price increases in 2017.

PMI's Regional market share, excluding China, increased by 2.0 points to 27.4%.

- -22 -


PMI's total shipment volume decreased by 13.0% to 83.0 billion units, due to lower cigarette shipment volume, principally in Japan and Korea, and lower heated tobacco unit shipment volume in Japan, reflecting the net impact of estimated distributor inventory movements, partly offset by higher heated tobacco unit shipment volume in Korea.
Excluding the net impact of an estimated 15.5 billion units of total distributor inventory movements, primarily due to Japan, reflecting net unfavorable heated tobacco unit inventory movements of approximately 17.3 billion units, partly offset by net favorable cigarette inventory movements of approximately 1.8 billion units, PMI's total shipment volume increased by 3.7%.
PMI's total shipment volume in Japan was down by 21.0%. Excluding the net impact of estimated distributor inventory movements of approximately 15.6 billion units, PMI's total shipment volume in Japan was up by 3.1%, reflecting an increase of heated tobacco unit volume of 40.3%, partly offset by a decline of cigarette volume of 15.8%.

Fourth-Quarter
The estimated total market in East Asia & Australia, excluding China, decreased, notably driven by:
•
Australia, down by 14.6%, primarily reflecting the same factors as for the full year; and
•
Japan, down by 14.9%, mainly reflecting the net impact of estimated trade and consumer inventory movements, primarily in the fourth quarter of 2018 following the October 1 excise tax-driven retail price increases. Excluding these net inventory movements, the estimated total market decreased by 4.0%;
partly offset by
•
Korea, up by 4.7%, mainly reflecting a favorable comparison with the fourth quarter of 2017 that was impacted by the reversal of trade inventory movements ahead of public holidays in the fourth quarter of 2017. Excluding net estimated trade inventory movements, the estimated total market decreased by 1.9%; and
•
Taiwan, up by 43.7%, primarily reflecting a favorable comparison with the fourth quarter of 2017 that was impacted by the reversal of estimated trade inventory movements following the excise tax-driven retail price increases in June 2017. Excluding net estimated inventory movements, the total estimated market increased by 0.7%.
PMI's total shipment volume decreased by 29.8% to 19.9 billion units, due to lower cigarette shipment volume, notably in Japan and Korea, and lower heated tobacco unit shipment volume in Japan, reflecting the net impact of estimated distributor inventory movements, partly offset by higher heated tobacco unit shipment volume in Korea that also benefited from the estimated trade inventory movements described above.
Excluding the net impact of an estimated 6.3 billion units of total distributor inventory movements, primarily due to Japan, reflecting net unfavorable heated tobacco unit inventory movements of approximately 7.1 billion units, partly offset by net favorable cigarette inventory movements of approximately 0.8 billion units, PMI's total shipment volume decreased by 9.9%.
PMI's total shipment volume in Japan was down by 40.8%. Excluding the net impact of estimated distributor inventory movements of approximately 6.3 billion units, PMI's total shipment volume in Japan decreased by 15.5%, reflecting a decrease of heated tobacco unit volume of 7.0%, together with a decline of cigarette volume of 21.5%.


- -23 -


LATIN AMERICA & CANADA REGION
Full-Year
Financial Summary -
Years Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 3,056

$ 2,941

 
3.9
%
7.3
%
 
115

(99
)
332

(118
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 1,145

$ 997

 
14.8
%
18.1
%
 
148

(32
)
332

(111
)
(41
)
Asset Impairment & Exit Costs
 
—

—

 
—
%
—
%
 
—

—

—

—

—

Adjusted Operating Income
 
$ 1,145

$ 997

 
14.8
%
18.1
%
 
148

(32
)
332

(111
)
(41
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
37.5
%
33.9
%
 
3.6pp

3.4pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, increased by 7.3%, reflecting a favorable pricing variance across the Region, notably in Argentina, Canada and Mexico, partly offset by unfavorable volume/mix, mainly due to Argentina and Canada.
Operating income, excluding unfavorable currency, increased by 18.1%, largely reflecting a favorable pricing variance, partly offset by: unfavorable volume/mix, mainly in Argentina and Canada, as well as higher marketing, administration and research costs, primarily related to increased investment behind reduced-risk products in the Region, coupled with an unfavorable comparison to 2017 related to the sale of assets, primarily in the Dominican Republic.
Adjusted operating income margin, excluding currency, increased by 3.4 points to 37.3%, principally driven by the factors mentioned above, as detailed on Schedule 7.

Fourth-Quarter
Financial Summary -
Quarters Ended December 31,
 
 
 
 
Change
Fav./(Unfav.)
 
Variance
Fav./(Unfav.)
 
2018
2017
 
Total
Excl.
Curr.
 
Total
Cur-
rency
Price
Vol/
Mix
Cost/
Other
(in millions)
 
 
 
Net Revenues
 
$ 788

$ 831

 
(5.2
)%
(0.7
)%
 
(43
)
(37
)
38

(44
)
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
 
$ 279

$ 293

 
(4.8
)%
(1.0
)%
 
(14
)
(11
)
38

(44
)
3

Asset Impairment & Exit Costs
 
—

—

 
—
 %
—
 %
 
—

—

—

—

—

Adjusted Operating Income
 
$ 279

$ 293

 
(4.8
)%
(1.0
)%
 
(14
)
(11
)
38

(44
)
3

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income Margin
 
35.4
%
35.3
%
 
0.1pp

(0.1)pp

 
 
 
 
 
 
Net revenues, excluding unfavorable currency, decreased by 0.7%, reflecting: unfavorable volume/mix, mainly due to Canada, partly offset by a favorable pricing variance, notably in Canada and Mexico, partly offset by Argentina, partially reflecting the adoption of highly inflationary accounting.
Operating income, excluding unfavorable currency, decreased by 1.0%, reflecting: unfavorable volume/mix, mainly in Canada, partly offset by a favorable pricing variance.

- -24 -


Adjusted operating income margin, excluding currency, decreased by 0.1 point to 35.2%, principally driven by the factors mentioned above, as detailed on Schedule 7.

Total Market, PMI Shipment & Market Share Commentaries    

PMI Shipment Volume
 
Fourth-Quarter
 
Full-Year
(million units)
 
2018

2017

Change

 
2018

2017

Change

Cigarettes
 
21,909

22,922

(4.4
)%
 
80,738

84,223

(4.1
)%
Heated Tobacco Units
 
49

15

+100.0%

 
147

27

+100.0%

Total Latin America & Canada
 
21,958

22,937

(4.3
)%
 
80,885

84,250

(4.0
)%
Full-Year
The estimated total market in Latin America & Canada decreased by 4.8% to 202.7 billion units, primarily due to the impact of cumulative price increases in Argentina, down by 3.2%, Brazil, down by 6.2%, Canada, down by 5.1% and Colombia, down by 12.1%, where excise tax reform drove an approximate 25% increase in retail prices in January 2018.

PMI's Regional market share increased by 0.4 points to 40.0%.
PMI's total shipment volume decreased by 4.0% to 80.9 billion units, notably due to:
•
Argentina, down by 4.6%, reflecting the lower total market and lower market share; and
•
Colombia, down by 11.0%, reflecting the lower total market.

Fourth-Quarter
The estimated total market in Latin America & Canada decreased, notably due to:
•
Canada, down by 6.6%, primarily reflecting the same factor as for the full year; and
•
Colombia, down by 15.4%, primarily reflecting the same factor as for the full year.

PMI's total shipment volume decreased by 4.3% to 22.0 billion units, mainly due to:
•
Argentina, down by 3.1%, reflecting the lower total market and lower market share;
•
Canada, down by 6.8%, reflecting the lower total market;
•
Colombia, down by 19.2%, reflecting the lower total market; and
•
Venezuela, down by 78.6%, reflecting the lower total market and lower market share;
partly offset by
•
Brazil, up by 7.5%, reflecting higher market share, driven by Chesterfield.


- -25 -


Philip Morris International: Building a Smoke-Free Future
Philip Morris International (PMI) is leading a transformation in the tobacco industry to create a smoke-free future and ultimately replace cigarettes with smoke-free products to the benefit of adults who would otherwise continue to smoke, society, the company and its shareholders. PMI is a leading international tobacco company engaged in the manufacture and sale of cigarettes, smoke-free products and associated electronic devices and accessories, and other nicotine-containing products in markets outside the U.S. PMI is building a future on a new category of smoke-free products that, while not risk-free, are a much better choice than continuing to smoke. Through multidisciplinary capabilities in product development, state-of-the-art facilities and scientific substantiation, PMI aims to ensure that its smoke-free products meet adult consumer preferences and rigorous regulatory requirements. PMI's smoke-free IQOS product portfolio includes heated tobacco and nicotine-containing vapor products. As of December 31, 2018, PMI estimates that approximately 6.6 million adult smokers around the world have already stopped smoking and switched to PMI’s heated tobacco product, which is currently available for sale in 44 markets in key cities or nationwide under the IQOS brand. For more information, please visit www.pmi.com and www.pmiscience.com.

Forward-Looking and Cautionary Statements
This press release contains projections of future results and other forward-looking statements. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. In the event that risks or uncertainties materialize, or underlying assumptions prove inaccurate, actual results could vary materially from those contained in such forward-looking statements. Pursuant to the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, PMI is identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by PMI.
PMI's business risks include: excise tax increases and discriminatory tax structures; increasing marketing and regulatory restrictions that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or ban certain of our products; health concerns relating to the use of tobacco products and exposure to environmental tobacco smoke; litigation related to tobacco use; intense competition; the effects of global and individual country economic, regulatory and political developments, natural disasters and conflicts; changes in adult smoker behavior; lost revenues as a result of counterfeiting, contraband and cross-border purchases; governmental investigations; unfavorable currency exchange rates and currency devaluations, and limitations on the ability to repatriate funds; adverse changes in applicable corporate tax laws; adverse changes in the cost and quality of tobacco and other agricultural products and raw materials; and the integrity of its information systems and effectiveness of its data privacy policies. PMI's future profitability may also be adversely affected should it be unsuccessful in its attempts to produce and commercialize reduced-risk products or if regulation or taxation do not differentiate between such products and cigarettes; if it is unable to successfully introduce new products, promote brand equity, enter new markets or improve its margins through increased prices and productivity gains; if it is unable to expand its brand portfolio internally or through acquisitions and the development of strategic business relationships; or if it is unable to attract and retain the best global talent. Future results are also subject to the lower predictability of our reduced-risk product category's performance.
PMI is further subject to other risks detailed from time to time in its publicly filed documents, including the Form 10-Q for the quarter ended September 30, 2018. PMI cautions that the foregoing list of important factors is not a complete discussion of all potential risks and uncertainties. PMI does not undertake to update any forward-looking statement that it may make from time to time, except in the normal course of its public disclosure obligations.

- -26 -

Key Terms, Definitions and Explanatory Notes
General
•
"PMI" refers to Philip Morris International Inc. and its subsidiaries. Trademarks and service marks that are the registered property of, or licensed by, the subsidiaries of PMI, are italicized.
•
Comparisons are made to the same prior-year period unless otherwise stated.
•
Unless otherwise stated, references to total industry, total market, PMI shipment volume and PMI market share performance reflect cigarettes and heated tobacco units.
•
Key market data regarding total market size, PMI shipments and market share can be found in Appendixes 1 and 2 provided with this press release.
•
References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States, total industry, total market and market shares are PMI estimates for tax-paid products based on the latest available data from a number of internal and external sources and may, in defined instances, exclude the People's Republic of China and/or PMI's duty free business.
•
"OTP" is defined as "other tobacco products," primarily roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos, and does not include reduced-risk products.
•
"Combustible products" is the term PMI uses to refer to cigarettes and OTP, combined.
•
In-market sales, or "IMS," is defined as sales to the retail channel, depending on the market and distribution model.
•
"Total shipment volume" is defined as the combined total of cigarette shipment volume and heated tobacco unit shipment volume.
•
Effective January 1, 2018, PMI began managing its business in six reporting segments as follows: the European Union Region (EU); the Eastern Europe Region (EE); the Middle East & Africa Region (ME&A), which includes PMI Duty Free; the South & Southeast Asia Region (S&SA); the East Asia & Australia Region (EA&A); and the Latin America & Canada Region (LA&C).
•
"North Africa" is defined as Algeria, Egypt, Libya, Morocco and Tunisia.
•
"The GCC" (Gulf Cooperation Council) is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).
•
From time to time, PMI’s shipment volumes are subject to the impact of distributor inventory movements, and estimated total industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade inventory movements of PMI’s competitors arising from market-specific factors that significantly distort reported volume disclosures. Such factors may include changes to the manufacturing supply chain, shipment methods, consumer demand, timing of excise tax increases or other influences that may affect the timing of sales to customers. In such instances, in addition to reviewing PMI shipment volumes and certain estimated total industry/market volumes on a reported basis, management reviews these measures on an adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements. Management also believes that disclosing PMI shipment volumes and estimated total industry/market volumes in such circumstances on a basis that excludes the impact of distributor and/or estimated trade inventory movements improves the comparability of performance and trends for these measures over different reporting periods.
•
"OECD" is defined as Organisation for Economic Co-operation and Development.
Financial
•
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. PMI recognizes revenue when control is transferred to the customer, typically either upon shipment or delivery of goods.
•
Net revenues related to RRPs represent the sale of heated tobacco units, IQOS devices and related accessories, and other nicotine-containing products, primarily e-vapor products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. PMI recognizes revenue when control is transferred to the customer, typically either upon shipment or delivery of goods.
•
PMI has adopted Accounting Standard Update ASU 2014-09 "Revenue from Contracts with Customers" as of January 1, 2018 on a retrospective basis. PMI made an accounting policy election to exclude excise taxes collected from customers from the measurement of the transaction price, thereby presenting revenues, net of

- -27 -

excise taxes in all periods. The underlying principles of the new standard, relating to the measurement of revenue and the timing of recognition, are closely aligned with PMI's current business model and practices.
•
PMI adopted Accounting Standard Update ASU 2017-07 "Compensation - Retirement Benefits" as of January 1, 2018 on a retrospective basis. Previously, total pension and other employee benefit costs were included in operating income. Beginning January 1, 2018, only the service cost component is required to be shown in operating income, while all other cost components are presented in a new line item “pension and other employee benefit costs" below operating income.
•
Prior to 2018, management evaluated business segment performance, and allocated resources, based on operating companies income, or OCI. Effective January 1, 2018, management began evaluating business segment performance, and allocating resources, based on operating income, or OI.
•
"Cost of sales" consists principally of: tobacco leaf, non-tobacco raw materials, labor and manufacturing costs; shipping and handling costs; and the cost of IQOS devices produced by third-party electronics manufacturing service providers.  Estimated costs associated with IQOS warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.
•
"Marketing, administration and research costs" include the costs of marketing and selling our products, other costs generally not related to the manufacture of our products (including general corporate expenses), and costs incurred to develop new products. The most significant components of our marketing, administration and research costs are marketing and sales expenses and general and administrative expenses.
•
"Cost/Other" in the Financial Summary table of total PMI and the six reporting segments of this release reflects the currency-neutral variances of: cost of sales (excluding the volume/mix cost component); marketing, administration and research costs; asset impairment and exit costs; and amortization of intangibles. “Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to fees for certain distribution rights billed to customers in certain markets in the ME&A Region.
•
"Adjusted Operating Income Margin" is calculated as adjusted operating income, divided by net revenues.
•
"Adjusted EBITDA" is defined as earnings before interest, taxes, depreciation, amortization and equity (income)/loss in unconsolidated subsidiaries, excluding asset impairment and exit costs, and unusual items.
•
"Net debt" is defined as total debt, less cash and cash equivalents.
•
Management reviews net revenues, OI, OI margins, operating cash flow and earnings per share, or "EPS," on an adjusted basis, which may exclude the impact of currency and other items such as acquisitions, asset impairment and exit costs, tax items and other special items.
•
Management reviews these measures because they exclude changes in currency exchange rates and other factors that may distort underlying business trends, thereby improving the comparability of PMI’s business performance between reporting periods. Furthermore, PMI uses several of these measures in its management compensation program to promote internal fairness and a disciplined assessment of performance against company targets. PMI discloses these measures to enable investors to view the business through the eyes of management.
•
Non-GAAP measures used in this release should neither be considered in isolation nor as a substitute for the financial measures prepared in accordance with U.S. GAAP. For a reconciliation of non-GAAP measures to the most directly comparable GAAP measures, see the relevant schedules provided with this press release.

Reduced-Risk Products
•
"Reduced-risk products," or "RRPs," is the term PMI uses to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continued smoking.  PMI has a range of RRPs in various stages of development, scientific assessment and commercialization. Because PMI's RRPs do not burn tobacco, they produce an aerosol that contains far lower quantities of harmful and potentially harmful constituents than found in cigarette smoke.
•
The IQOS heat-not-burn device is a precisely controlled heating device into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.
•
"Heated tobacco units," or "HTUs," is the term PMI uses to refer to heated tobacco consumables, which for PMI include the company's HEETS, HEETS Marlboro and HEETS FROM MARLBORO, defined collectively as HEETS, as well as Marlboro HeatSticks and Parliament HeatSticks.

- -28 -


 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 1
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Key Market Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended December 31,
Market
 
Total Market,
bio units
 
PMI Shipments, bio units
 
PMI Market Share, % (1)
 
 
Total
 
Cigarette
 
HTU
 
Total
 
HTU
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
pp Change
 
2018
2017
pp Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Union
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
France
 
9.8

10.5

(6.3
)
 
4.4

4.7

(5.4
)
 
4.4

4.7

(5.4
)
 
—

—

—

 
46.3

44.3

2.0

 
0.2

0.1

0.1

Germany
 
19.0

19.2

(0.9
)
 
7.5

7.6

(0.7
)
 
7.4

7.5

(2.1
)
 
0.1

—

—

 
39.4

39.4

—

 
0.8

0.2

0.6

Italy
 
16.9

16.7

1.4

 
8.7

9.0

(4.1
)
 
8.1

8.7

(7.7
)
 
0.6

0.3

+100

 
52.0

52.6

(0.6
)
 
3.3

1.2

2.1

Poland
 
10.1

9.4

7.1

 
4.2

4.1

1.7

 
4.0

4.0

(0.5
)
 
0.1

0.1

+100

 
41.3

43.4

(2.1
)
 
1.5

0.6

0.9

Spain
 
10.9

10.8

0.5

 
3.0

3.3

(9.0
)
 
3.0

3.3

(9.3
)
 
0.1

—

—

 
31.8

32.0

(0.2
)
 
0.5

0.2

0.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eastern Europe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Russia
 
 
61.2

66.5

(8.0
)
 
19.3

19.1

1.3

 
17.5

18.9

(7.4
)
 
1.8

0.2

+100

 
29.8

27.8

2.0

 
1.8

0.2

1.6

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle East & Africa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Saudi Arabia
 
5.4

6.0

(9.4
)
 
2.1

1.7

24.6

 
2.1

1.7

24.6

 
—

—

—

 
42.7

35.2

7.5

 
—

—

—

Turkey
 
 
30.3

28.5

6.4

 
14.1

13.6

4.3

 
14.1

13.6

4.3

 
—

—

—

 
46.6

47.5

(0.9
)
 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
South & Southeast Asia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indonesia
 
82.1

81.5

0.8

 
26.9

26.9

—

 
26.9

26.9

—

 
—

—

—

 
32.7

33.0

(0.3
)
 
—

—

—

Philippines
 
20.6

20.7

(0.2
)
 
14.5

14.3

1.2

 
14.5

14.3

1.2

 
—

—

—

 
70.3

69.3

1.0

 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Asia & Australia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Australia
 
3.1

3.7

(14.6
)
 
1.0

1.2

(16.6
)
 
1.0

1.2

(16.6
)
 
—

—

—

 
31.0

31.7

(0.7
)
 
—

—

—

Japan
 
36.9

43.4

(14.9
)
 
12.3

20.8

(40.8
)
 
6.7

7.7

(13.2
)
 
5.7

13.1

(56.9
)
 
33.0

33.2

(0.2
)
 
15.2

13.9

1.3

Korea
 
17.1

16.4

4.7

 
4.3

4.0

7.7

 
2.8

3.1

(7.7
)
 
1.4

0.9

60.6

 
25.3

24.4

0.9

 
8.5

5.5

3.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Latin America & Canada
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Argentina
 
9.1

9.2

(0.6
)
 
6.6

6.9

(3.1
)
 
6.6

6.9

(3.1
)
 
—

—

—

 
72.7

74.6

(1.9
)
 
—

—

—

Canada
 
6.2

6.6

(6.6
)
 
2.3

2.5

(6.8
)
 
2.3

2.5

(7.1
)
 
—

—

—

 
37.3

37.4

(0.1
)
 
0.1

0.1

—

Mexico
 
10.1

10.2

(0.5
)
 
7.3

7.3

0.3

 
7.3

7.3

0.3

 
—

—

—

 
71.8

71.3

0.5

 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Market share estimates are calculated using IMS data
Note: % change for Total Market and PMI shipments is computed based on millions of units
 




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Appendix 2
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Key Market Data
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Years Ended December 31,
Market
 
Total Market,
bio units
 
PMI Shipments, bio units
 
PMI Market Share, % (1)
 
 
Total
 
Cigarette
 
HTU
 
Total
 
HTU
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
% Change
 
2018
2017
pp Change
 
2018
2017
pp Change
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Union
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
France
 
40.9

45.1

(9.2
)
 
18.5

19.7

(6.4
)
 
18.4

19.7

(6.4
)
 
—

—

—

 
45.5

43.5

2.0

 
0.1

—

0.1

Germany
 
75.2

76.9

(2.2
)
 
28.1

28.6

(1.8
)
 
27.7

28.5

(2.8
)
 
0.4

0.1

+100

 
37.3

37.2

0.1

 
0.5

0.2

0.3

Italy
 
69.0

69.8

(1.3
)
 
35.2

36.8

(4.1
)
 
33.5

36.1

(7.0
)
 
1.7

0.7

+100

 
51.8

52.2

(0.4
)
 
2.2

0.7

1.5

Poland
 
43.2

41.7

3.7

 
17.9

17.8

0.9

 
17.6

17.7

(0.6
)
 
0.4

0.1

+100

 
41.5

42.7

(1.2
)
 
0.9

0.2

0.7

Spain
 
45.0

45.0

—

 
14.1

14.5

(2.6
)
 
13.9

14.4

(3.2
)
 
0.2

0.1

77.8

 
32.1

32.3

(0.2
)
 
0.4

0.1

0.3

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Eastern Europe
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Russia
 
 
238.1

260.0

(8.4
)
 
68.0

72.4

(6.1
)
 
64.6

72.1

(10.4
)
 
3.4

0.3

+100

 
28.4

27.8

0.6

 
1.0

0.1

0.9

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Middle East & Africa
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Saudi Arabia
 
20.6

26.1

(21.1
)
 
7.4

10.9

(32.5
)
 
7.4

10.9

(32.5
)
 
—

—

—

 
41.5

45.2

(3.7
)
 
—

—

—

Turkey
 
 
118.5

106.2

11.6

 
55.0

49.6

10.8

 
55.0

49.6

10.8

 
—

—

—

 
46.4

46.7

(0.3
)
 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
South & Southeast Asia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Indonesia
 
307.0

307.4

(0.1
)
 
101.4

101.3

0.1

 
101.4

101.3

0.1

 
—

—

—

 
33.0

33.0

—

 
—

—

—

Philippines
 
73.2

74.9

(2.2
)
 
51.2

50.6

1.1

 
51.2

50.6

1.1

 
—

—

—

 
69.9

67.6

2.3

 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
East Asia & Australia
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Australia
 
12.8

13.9

(8.4
)
 
3.8

4.3

(11.2
)
 
3.8

4.3

(11.2
)
 
—

—

—

 
29.7

30.6

(0.9
)
 
—

—

—

Japan
 
167.3

171.5

(2.4
)
 
52.3

66.1

(21.0
)
 
30.8

34.9

(11.6
)
 
21.4

31.3

(31.5
)
 
34.0

32.1

1.9

 
15.5

10.8

4.7

Korea
 
69.5

70.6

(1.5
)
 
17.4

14.9

16.5

 
12.0

13.5

(11.2
)
 
5.4

1.4

+100

 
25.0

21.2

3.8

 
7.8

2.0

5.8

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Latin America & Canada
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Argentina
 
35.0

36.2

(3.2
)
 
25.8

27.0

(4.6
)
 
25.8

27.0

(4.6
)
 
—

—

—

 
73.7

74.7

(1.0
)
 
—

—

—

Canada
 
23.4

24.6

(5.1
)
 
8.9

9.3

(4.0
)
 
8.9

9.3

(4.2
)
 
—

—

—

 
38.1

37.3

0.8

 
0.1

—

0.1

Mexico
 
35.5

35.8

(0.6
)
 
24.2

24.4

(0.8
)
 
24.2

24.4

(0.8
)
 
—

—

—

 
68.0

68.1

(0.1
)
 
—

—

—

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Market share estimates are calculated using IMS data
Note: % change for Total Market and PMI shipments is computed based on millions of units
 




 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 1
 
 
 
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
 
 
 
Diluted Earnings Per Share (EPS)
 
 
 
($ in millions, except per share data) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
Diluted EPS
 
Years Ended
 
 
 
December 31,
 
 
December 31,
 
 
 
 
 
$
1.23
 
 
 
 
2018 Diluted Earnings Per Share (1)
 
 
 
$
5.08
 
 
 
 
 
 
 
 
$
0.44
 
 
 
 
2017 Diluted Earnings Per Share (1)
 
 
 
$
3.88
 
 
 
 
 
 
 
 
$
0.79
 
 
 
 
Change
 
 
 
$
1.20
 
 
 
 
 
 
 
 
+100%
 
 
 
 
% Change
 
 
 
30.9
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
 
 
 
 
$
0.44
 
 
 
 
2017 Diluted Earnings Per Share (1)
 
 
 
$
3.88
 
 
 
 
 
 
 
 
—
 
 
 
 
2017 Asset impairment and exit costs
 
 
 
—
 
 
 
 
 
 
 
 
0.88
 
 
 
 
2017 Tax items
 
 
 
0.84
 
 
 
 
 
 
 
 
—
 
 
 
 
2018 Asset impairment and exit costs
 
 
 
—
 
 
 
 
 
 
 
 
(0.02
)
 
 
 
2018 Tax items
 
 
 
(0.02
)
 
 
 
 
 
 
 
(0.09
)
 
 
 
Currency
 
 
 
(0.11
)
 
 
 
 
 
 
 
0.06
 
 
 
 
Interest
 
 
 
0.13
 
 
 
 
 
 
 
 
0.16
 
 
 
 
Change in tax rate
 
 
 
0.40
 
 
 
 
 
 
 
 
(0.20
)
 
 
 
Operations (2)
 
 
 
(0.04
)
 
 
 
 
 
 
 
$
1.23
 
 
 
 
2018 Diluted Earnings Per Share (1)
 
 
 
$
5.08
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Basic and diluted EPS were calculated using the following (in millions):
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended
 
 
 
Years Ended
 
 
 
December 31,
 
 
 
December 31,
 
 
 
2018
 
 
2017
 
 
 
 
2018
 
 
2017
 
 
 
 
$ 1,910
 
$ 694
 
Net Earnings attributable to PMI
 
$ 7,911
 
$ 6,035
 
 
 
3
 
 
4
 
 
Less distributed and undistributed earnings attributable
to share-based payment awards
 
16
 
 
14
 
 
 
 
$ 1,907
 
$ 690
 
Net Earnings for basic and diluted EPS
 
$ 7,895
 
$ 6,021
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
1,555
 
 
1,553
 
 
Weighted-average shares for basic EPS
 
1,555
 
 
1,552
 
 
 
 
—
 
 
1
 
 
Plus Contingently Issuable Performance Stock Units
 
—
 
 
1
 
 
 
 
1,555
 
 
1,554
 
 
Weighted-average shares for diluted EPS
 
1,555
 
 
1,553
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) Includes the impact of shares outstanding and share-based payments




 
 
 
 
 
 
 
 
 
Schedule 2
 
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency,
 and Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS, excluding Currency
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended December 31,
 
 
 
Years Ended December 31,
 
 
 
 
2018

2017

% Change

 
 
 
2018

2017

% Change

 
 
 
 
$ 1.23
$ 0.44
+100%

 
Reported Diluted EPS
 
$ 5.08
$ 3.88
30.9
%
 
 
 
 
(0.09
)
 
 
 
Currency
 
(0.11
)
 
 
 
 
 
 
$ 1.32
$ 0.44
+100%

 
Reported Diluted EPS, excluding Currency
 
$ 5.19
$ 3.88
33.8
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended December 31,
 
 
 
Years Ended December 31,
 
 
 
 
2018

2017

% Change

 
 
 
2018

2017

% Change

 
 
 
 
$ 1.23
$ 0.44
+100%

 
Reported Diluted EPS
 
$ 5.08
$ 3.88
30.9
%
 
 
 
 
—

—

 
 
Asset impairment and exit costs
 
—

—

 
 
 
 
 
0.02

0.88

 
 
Tax items
 
0.02

0.84

 
 
 
 
 
$ 1.25
$ 1.32
(5.3
)%
 
Adjusted Diluted EPS
 
$ 5.10
$ 4.72
8.1
%
 
 
 
 
(0.09
)
 
 
 
Currency
 
(0.11
)
 
 
 
 
 
 
$ 1.34
$ 1.32
1.5
 %
 
Adjusted Diluted EPS, excluding Currency
 
$ 5.21
$ 4.72
10.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
 
Schedule 3
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net
Revenues
Currency
Net
Revenues
excluding Currency
Acquisitions
Net
Revenues excluding Currency & Acquisitions
 
Quarters Ended
December 31,
 
Net
Revenues
 
Total
Excluding Currency
Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Combustible Products
 
2017
 
% Change
$ 2,051
$ (57)
$ 2,108
—
$ 2,108
 
European Union
 
$ 2,140
 
(4.1
)%
(1.5
)%
(1.5
)%
671

(74
)
745

—

745

 
Eastern Europe
 
756

 
(11.3
)%
(1.5
)%
(1.5
)%
919

(110
)
1,029

—

1,029

 
Middle East & Africa
 
923

 
(0.4
)%
11.5
 %
11.5
 %
1,222

(114
)
1,336

—

1,336

 
South & Southeast Asia
 
1,211

 
0.9
 %
10.3
 %
10.3
 %
726

(12
)
738

—

738

 
East Asia & Australia
 
793

 
(8.4
)%
(6.9
)%
(6.9
)%
783

(37
)
820

—

820

 
Latin America & Canada
 
828

 
(5.4
)%
(0.9
)%
(0.9
)%
$ 6,373
$ (404)
$ 6,777
—
$ 6,777
 
Total Combustible
 
$ 6,651
 
(4.2
)%
1.9
 %
1.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Reduced-Risk Products
 
2017
 
% Change
$ 289
$ (7)
$ 296
—
$ 296
 
European Union
 
$ 124
 
+100%

+100%

+100%

145

(18
)
163

—

163

 
Eastern Europe
 
36

 
+100%

+100%

+100%

69

—

69

—

69

 
Middle East & Africa
 
49

 
40.2
 %
40.8
 %
40.8
 %
—

—

—

—

—

 
South & Southeast Asia
 
—

 
—
 %
—
 %
—
 %
619

(25
)
644

—

644

 
East Asia & Australia
 
1,432

 
(56.8
)%
(55.0
)%
(55.0
)%
5

—

5

—

5

 
Latin America & Canada
 
3

 
74.1
 %
82.0
 %
82.0
 %
$ 1,126
$ (50)
$ 1,176
—
$ 1,176
 
Total RRPs
 
$ 1,643
 
(31.5
)%
(28.4
)%
(28.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
PMI
 
2017
 
% Change
$ 2,340
$ (64)
$ 2,404
—
$ 2,404
 
European Union
 
$ 2,264
 
3.4
 %
6.2
 %
6.2
 %
816

(92
)
908

—

908

 
Eastern Europe
 
793

 
2.9
 %
14.5
 %
14.5
 %
988

(110
)
1,098

—

1,098

 
Middle East & Africa
 
971

 
1.8
 %
13.1
 %
13.1
 %
1,222

(114
)
1,336

—

1,336

 
South & Southeast Asia
 
1,211

 
0.9
 %
10.3
 %
10.3
 %
1,345

(37
)
1,382

—

1,382

 
East Asia & Australia
 
2,224

 
(39.5
)%
(37.9
)%
(37.9
)%
788

(37
)
825

—

825

 
Latin America & Canada
 
831

 
(5.2
)%
(0.7
)%
(0.7
)%
$ 7,499
$ (454)
$ 7,953
—
$ 7,953
 
Total PMI
 
$ 8,294
 
(9.6
)%
(4.1
)%
(4.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: Sum of product categories or Regions might not foot to total PMI due to roundings. “-“ indicates amounts between -$0.5 million and +$0.5 million.




 
 
 
 
 
 
 
 
 
 
 
Schedule 4
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Net Revenues by Product Category and Adjustments of Net Revenues for the Impact of Currency and Acquisitions
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Net
Revenues
Currency
Net
Revenues
excluding Currency
Acquisitions
Net
Revenues excluding Currency & Acquisitions
 
Years Ended
December 31,
 
Net
Revenues
 
Total
Excluding Currency
Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Combustible Products
 
2017
 
% Change
$ 8,433
$ 453
$ 7,980
—
$ 7,980
 
European Union
 
$ 8,048
 
4.8
 %
(0.9
)%
(0.9
)%
2,597

(96
)
2,693

—

2,693

 
Eastern Europe
 
2,657

 
(2.2
)%
1.4
 %
1.4
 %
3,732

(197
)
3,929

—

3,929

 
Middle East & Africa
 
3,893

 
(4.1
)%
0.9
 %
0.9
 %
4,656

(244
)
4,900

—

4,900

 
South & Southeast Asia
 
4,417

 
5.4
 %
10.9
 %
10.9
 %
3,074

29

3,044

—

3,044

 
East Asia & Australia
 
3,156

 
(2.6
)%
(3.5
)%
(3.5
)%
3,037

(99
)
3,136

—

3,136

 
Latin America & Canada
 
2,937

 
3.4
 %
6.8
 %
6.8
 %
$ 25,529
$ (154)
$ 25,683
—
$ 25,683
 
Total Combustible
 
$ 25,107
 
1.7
 %
2.3
 %
2.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Reduced-Risk Products
 
2017
 
% Change
$ 865
$ 36
$ 829
—
$ 829
 
European Union
 
$ 269
 
+100%

+100%

+100%

324

(22
)
346

—

346

 
Eastern Europe
 
55

 
+100%

+100%

+100%

382

4

378

—

378

 
Middle East & Africa
 
94

 
+100%

+100%

+100%

—

—

—

—

—

 
South & Southeast Asia
 
—

 
—
 %
—
 %
—
 %
2,506

33

2,474

—

2,474

 
East Asia & Australia
 
3,218

 
(22.1
)%
(23.1
)%
(23.1
)%
19

—

19

—

19

 
Latin America & Canada
 
4

 
+100%

+100%

+100%

$ 4,096
$ 51
$ 4,045
—
$ 4,045
 
Total RRPs
 
$ 3,640
 
12.5
 %
11.1
 %
11.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
PMI
 
2017
 
% Change
$ 9,298
$ 489
$ 8,809
—
$ 8,809
 
European Union
 
$ 8,318
 
11.8
 %
5.9
 %
5.9
 %
2,921

(118
)
3,039

—

3,039

 
Eastern Europe
 
2,711

 
7.7
 %
12.1
 %
12.1
 %
4,114

(193
)
4,307

—

4,307

 
Middle East & Africa
 
3,988

 
3.2
 %
8.0
 %
8.0
 %
4,656

(244
)
4,900

—

4,900

 
South & Southeast Asia
 
4,417

 
5.4
 %
10.9
 %
10.9
 %
5,580

62

5,518

—

5,518

 
East Asia & Australia
 
6,373

 
(12.4
)%
(13.4
)%
(13.4
)%
3,056

(99
)
3,155

—

3,155

 
Latin America & Canada
 
2,941

 
3.9
 %
7.3
 %
7.3
 %
$ 29,625
$ (103)
$ 29,728
—
$ 29,728
 
Total PMI
 
$ 28,748
 
3.1
 %
3.4
 %
3.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
Note: Sum of product categories or Regions might not foot to total PMI due to roundings. “-“ indicates amounts between -$0.5 million and +$0.5 million.




 
 
 
 
 
 
 
 
 
 
 
Schedule 5
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Adjustments of Operating Income for the Impact of Currency and Acquisitions
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
Currency
Operating Income excluding Currency
Acquisitions
Operating Income excluding Currency & Acquisitions
 
 
 
Operating Income
 
Total
Excluding Currency
Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Quarters Ended
December 31,
 
2017
 
% Change
$ 1,009
$ 10
$ 999
—
$ 999
 
European Union
 
$ 974
 
3.6
 %
2.6
 %
2.6
 %
220

(32
)
252

—

252

 
Eastern Europe
 
260

 
(15.4
)%
(3.1
)%
(3.1
)%
359

(120
)
479

—

479

 
Middle East & Africa
 
421

 
(14.7
)%
13.8
 %
13.8
 %
423

(50
)
473

—

473

 
South & Southeast Asia
 
414

 
2.2
 %
14.3
 %
14.3
 %
412

(7
)
419

—

419

 
East Asia & Australia
 
978

 
(57.9
)%
(57.2
)%
(57.2
)%
279

(11
)
290

—

290

 
Latin America & Canada
 
293

 
(4.8
)%
(1.0
)%
(1.0
)%
$ 2,702
$ (210)
$ 2,912
—
$ 2,912
 
Total PMI
 
$ 3,340
 
(19.1
)%
(12.8
)%
(12.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
 
Years Ended
December 31,
 
2017
 
% Change
$ 4,105
$ 308
$ 3,797
—
$ 3,797
 
European Union
 
$ 3,691
 
11.2
 %
2.9
 %
2.9
 %
902

(101
)
1,003

—

1,003

 
Eastern Europe
 
887

 
1.7
 %
13.1
 %
13.1
 %
1,627

(263
)
1,890

—

1,890

 
Middle East & Africa
 
1,884

 
(13.6
)%
0.3
 %
0.3
 %
1,747

(124
)
1,871

—

1,871

 
South & Southeast Asia
 
1,514

 
15.4
 %
23.6
 %
23.6
 %
1,851

(2
)
1,853

—

1,853

 
East Asia & Australia
 
2,608

 
(29.0
)%
(28.9
)%
(28.9
)%
1,145

(32
)
1,177

—

1,177

 
Latin America & Canada
 
997

 
14.8
 %
18.1
 %
18.1
 %
$ 11,377
$ (214)
$ 11,591
—
$ 11,591
 
Total PMI
 
$ 11,581
 
(1.8
)%
0.1
 %
0.1
 %





 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 6
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Reconciliation of Operating Income to Adjusted Operating Income, excluding Currency and Acquisitions
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Income
Asset Impairment
& Exit Costs
Adjusted Operating Income
Currency
Adjusted Operating Income excluding Currency
Acqui-sitions
Adjusted Operating Income excluding Currency
& Acqui-sitions
 
 
 
Operating Income
Asset Impairment
& Exit Costs
Adjusted Operating Income
 
Total
Excluding Currency
Excluding Currency
& Acqui-sitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
Quarters Ended
December 31,
2017
 
% Change
$ 1,009
—
$ 1,009
$ 10
$ 999
—
$ 999
 
European Union
 
$ 974

—
$ 974

 
3.6
 %
2.6
 %
2.6
 %
220

—

220

(32
)
252

—

252

 
Eastern Europe
 
260

—

260

 
(15.4
)%
(3.1
)%
(3.1
)%
359

—

359

(120
)
479

—

479

 
Middle East & Africa
 
421

—

421

 
(14.7
)%
13.8
 %
13.8
 %
423

—

423

(50
)
473

—

473

 
South & Southeast Asia
 
414

—

414

 
2.2
 %
14.3
 %
14.3
 %
412

—

412

(7
)
419

—

419

 
East Asia & Australia
 
978

—

978

 
(57.9
)%
(57.2
)%
(57.2
)%
279

—

279

(11
)
290

—

290

 
Latin America & Canada
 
293

—

293

 
(4.8
)%
(1.0
)%
(1.0
)%
$ 2,702
—
$ 2,702
$ (210)
$ 2,912
—
$ 2,912
 
Total PMI
 
$ 3,340

—
$ 3,340

 
(19.1
)%
(12.8
)%
(12.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
Years Ended
December 31,
2017
 
% Change
$ 4,105
—
$ 4,105
$ 308
$ 3,797
—
$ 3,797
 
European Union
 
$ 3,691

—
$ 3,691

 
11.2
 %
2.9
 %
2.9
 %
902

—

902

(101
)
1,003

—

1,003

 
Eastern Europe
 
887

—

887

 
1.7
 %
13.1
 %
13.1
 %
1,627

—

1,627

(263
)
1,890

—

1,890

 
Middle East & Africa
 
1,884

—

1,884

 
(13.6
)%
0.3
 %
0.3
 %
1,747

—

1,747

(124
)
1,871

—

1,871

 
South & Southeast Asia
 
1,514

—

1,514

 
15.4
 %
23.6
 %
23.6
 %
1,851

—

1,851

(2
)
1,853

—

1,853

 
East Asia & Australia
 
2,608

—

2,608

 
(29.0
)%
(28.9
)%
(28.9
)%
1,145

—

1,145

(32
)
1,177

—

1,177

 
Latin America & Canada
 
997

—

997

 
14.8
 %
18.1
 %
18.1
 %
$ 11,377
—
$ 11,377
$ (214)
$ 11,591
—
$ 11,591
 
Total PMI
 
$ 11,581

—
$ 11,581

 
(1.8
)%
0.1
 %
0.1
 %




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 7
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Reconciliation of Adjusted Operating Income Margin, excluding Currency and Acquisitions
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Operating Income
(1)
Net Revenues
Adjusted Operating Income
Margin
 
Adjusted Operating Income
excluding Currency
(1)
Net Revenues excluding Currency
(2)
Adjusted Operating Income Margin excluding Currency
 
Adjusted Operating Income excluding Currency & Acqui-sitions (1)
Net Revenues excluding Currency & Acqui-sitions (2)
Adjusted Operating Income Margin excluding Currency & Acqui-sitions
 
 
 
Adjusted Operating
Income
(1)
Net
Revenues
Adjusted Operating Income
Margin
 
Adjusted Operating Income
Margin
Adjusted Operating Income Margin excluding Currency
Adjusted Operating Income Margin excluding Currency & Acqui-sitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
Quarters Ended
December 31,
2017
 
% Points Change
$ 1,009
$ 2,340
43.1
%
 
$ 999
$ 2,404
41.6
%
 
$ 999
$ 2,404
41.6
%
 
European Union
 
$ 974
$ 2,264
43.0
%
 
0.1

(1.4
)
(1.4
)
220
816
27.0
%
 
252
908
27.8
%
 
252
908
27.8
%
 
Eastern Europe
 
260
793
32.8
%
 
(5.8
)
(5.0
)
(5.0
)
359
988
36.3
%
 
479
1,098
43.6
%
 
479
1,098
43.6
%
 
Middle East & Africa
 
421
971
43.4
%
 
(7.1
)
0.2

0.2

423
1,222
34.6
%
 
473
1,336
35.4
%
 
473
1,336
35.4
%
 
South & Southeast Asia
 
414
1,211
34.2
%
 
0.4

1.2

1.2

412
1,345
30.6
%
 
419
1,382
30.3
%
 
419
1,382
30.3
%
 
East Asia & Australia
 
978
2,224
44.0
%
 
(13.4
)
(13.7
)
(13.7
)
279
788
35.4
%
 
290
825
35.2
%
 
290
825
35.2
%
 
Latin America & Canada
 
293
831
35.3
%
 
0.1

(0.1
)
(0.1
)
$ 2,702
$ 7,499
36.0
%
 
$ 2,912
$ 7,953
36.6
%
 
$ 2,912
$ 7,953
36.6
%
 
Total PMI
 
$ 3,340
$ 8,294
40.3
%
 
(4.3
)
(3.7
)
(3.7
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2018
Years Ended
December 31,
2017
 
% Points Change
$ 4,105
$ 9,298
44.1
%
 
$ 3,797
$ 8,809
43.1
%
 
$ 3,797
$ 8,809
43.1
%
 
European Union
 
$ 3,691
$ 8,318
44.4
%
 
(0.3
)
(1.3
)
(1.3
)
902
2,921
30.9
%
 
1,003
3,039
33.0
%
 
1,003
3,039
33.0
%
 
Eastern Europe
 
887
2,711
32.7
%
 
(1.8
)
0.3

0.3

1,627
4,114
39.5
%
 
1,890
4,307
43.9
%
 
1,890
4,307
43.9
%
 
Middle East & Africa
 
1,884
3,988
47.2
%
 
(7.7
)
(3.3
)
(3.3
)
1,747
4,656
37.5
%
 
1,871
4,900
38.2
%
 
1,871
4,900
38.2
%
 
South & Southeast Asia
 
1,514
4,417
34.3
%
 
3.2

3.9

3.9

1,851
5,580
33.2
%
 
1,853
5,518
33.6
%
 
1,853
5,518
33.6
%
 
East Asia & Australia
 
2,608
6,373
40.9
%
 
(7.7
)
(7.3
)
(7.3
)
1,145
3,056
37.5
%
 
1,177
3,155
37.3
%
 
1,177
3,155
37.3
%
 
Latin America & Canada
 
997
2,941
33.9
%
 
3.6

3.4

3.4

$ 11,377
$ 29,625
38.4
%
 
$ 11,591
$ 29,728
39.0
%
 
$ 11,591
$ 29,728
39.0
%
 
Total PMI
 
$ 11,581
$ 28,748
40.3
%
 
(1.9
)
(1.3
)
(1.3
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) For the calculation of Adjusted Operating Income and Adjusted Operating Income excluding currency and acquisitions refer to Schedule 6
(2) For the calculation of Net Revenues excluding currency and acquisitions refer to Schedules 3 and 4





 
 
 
 
 
 
 
 
Schedule 8
 
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
 
Condensed Statements of Earnings
 
($ in millions, except per share data) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended December 31,
 
 
 
Years Ended December 31,
 
 
 
2018

2017

Change
Fav./(Unfav.)
 
 
 
2018

2017

Change
Fav./(Unfav.)
 
 
 
$ 19,858
$ 21,585
(8.0
)%
 
Revenues including Excise Taxes
 
$ 79,823
$ 78,098
2.2
 %
 
 
 
12,359

13,291

7.0
 %
 
Excise Taxes on products
 
50,198

49,350

(1.7
)%
 
 
 
7,499

8,294

(9.6
)%
 
Net Revenues
 
29,625

28,748

3.1
 %
 
 
 
2,781

3,001

7.3
 %
 
Cost of sales
 
10,758

10,432

(3.1
)%
 
 
 
4,718

5,293

(10.9
)%
 
Gross profit
 
18,867

18,316

3.0
 %
 
 
 
1,997

1,930

(3.5
)%
 
Marketing, administration and research costs
 
7,408

6,647

(11.4
)%
 
 
 
—

—


 
Asset impairment and exit costs
 
—

—


 
 
 
19

23


 
Amortization of intangibles
 
82

88


 
 
 
2,702

3,340

(19.1
)%
 
Operating Income
 
11,377

11,581

(1.8
)%
 
 
 
125

259

51.7
 %
 
Interest expense, net
 
665

914

27.2
 %
 
 
 
22

22

—
 %
 
Pension and other employee benefit costs
 
41

78

47.4
 %
 
 
 
2,555

3,059

(16.5
)%
 
Earnings before income taxes
 
10,671

10,589

0.8
 %
 
 
 
551

2,265

75.7
 %
 
Provision for income taxes
 
2,445

4,307

43.2
 %
 
 
 
1

(2
)


 
Equity investments and securities (income)/loss, net
 
(60
)
(59
)


 
 
 
2,003

796

+100%

 
Net Earnings
 
8,286

6,341

30.7
 %
 
 
 
93

102


 
Net Earnings attributable to noncontrolling interests
 
375

306


 
 
 
$ 1,910
$ 694
+100%

 
Net Earnings attributable to PMI
 
$ 7,911
$ 6,035
31.1
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Per share data (1):
 
 
 
 
 
 
 
$ 1.23
$ 0.44
+100%

 
  Basic Earnings Per Share
 
$ 5.08
$ 3.88
30.9
 %
 
 
 
$ 1.23
$ 0.44
+100%

 
  Diluted Earnings Per Share
 
$ 5.08
$ 3.88
30.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Net Earnings and weighted-average shares used in the basic and diluted Earnings Per Share computations for the quarters and for the year ended December 31, 2018 and 2017 are shown on Schedule 1, Footnote 1.




 
 
 
 
 
Schedule 9
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Condensed Balance Sheets
($ in millions, except ratios) / (Unaudited)
 
 
 
 
 
 
 
 
 
December 31,
 
December 31,
 
 
2018
 
2017
Assets
 
 
 
 
 
 
Cash and cash equivalents
 
 
$
6,593

 
 
$
8,447

All other current assets
 
 
12,849

 
 
13,147

Property, plant and equipment, net
 
 
7,201

 
 
7,271

Goodwill
 
 
7,189

 
 
7,666

Other intangible assets, net
 
 
2,278

 
 
2,432

Investments in unconsolidated subsidiaries and equity securities
 
 
1,269

 
 
1,074

Other assets
 
 
2,422

 
 
2,931

Total assets
 
 
$
39,801

 
 
$
42,968

 
 
 
 
 
 
 
Liabilities and Stockholders' (Deficit) Equity
 
 
 
 
 
 
Short-term borrowings
 
 
$
730

 
 
$
499

Current portion of long-term debt
 
 
4,054

 
 
2,506

All other current liabilities
 
 
12,407

 
 
12,957

Long-term debt
 
 
26,975

 
 
31,334

Deferred income taxes
 
 
898

 
 
799

Other long-term liabilities
 
 
5,476

 
 
5,103

Total liabilities
 
 
50,540

 
 
53,198

 
 
 
 
 
 
 
Total PMI stockholders' deficit
 
 
(12,459
)
 
 
(12,086
)
Noncontrolling interests
 
 
1,720

 
 
1,856

Total stockholders' (deficit) equity
 
 
(10,739
)
 
 
(10,230
)
Total liabilities and stockholders' (deficit) equity
 
 
$
39,801

 
 
$
42,968





 
 
 
 
 
 
 
Schedule 10
 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Calculation of Total Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA Ratios
($ in millions, except ratios) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Year Ended December 31,
2018
 
Year Ended December 31, 2017
 
 
 
 
 
 
 
 
 
 
Net Earnings
 
 
 
 
$
8,286

 
 
$
6,341

Equity (income)/loss in unconsolidated subsidiaries, net
 
 
 
 
(65
)
 
 
(59
)
Provision for income taxes
 
 
 
 
2,445

 
 
4,307

Interest expense, net
 
 
 
 
665

 
 
914

Depreciation and amortization
 
 
 
 
989

 
 
875

Asset impairment and exit costs
 
 
 
 
—

 
 
—

Adjusted EBITDA
 
 
 
 
$ 12,320
 
 
$
12,378

 
 
 
 
 
 
 
 
 
 
 
 
 
December 31,
 
December 31,
 
 
 
 
2018
 
2017
Short-term borrowings
 
 
 
 
$
730

 
 
$
499

Current portion of long-term debt
 
 
 
 
4,054

 
 
2,506

Long-term debt
 
 
 
 
26,975

 
 
31,334

Total Debt
 
 
 
 
$
31,759

 
 
$
34,339

Cash and cash equivalents
 
 
 
 
6,593

 
 
8,447

Net Debt
 
 
 
 
$
25,166

 
 
$
25,892

 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 
Total Debt to Adjusted EBITDA
 
 
 
 
2.58

 
 
2.77

Net Debt to Adjusted EBITDA
 
 
 
 
2.04

 
 
2.09





 
 
 
 
 
 
 
 
 
Schedule 11

 
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
 
Reconciliation of Non-GAAP Measures
 
Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency
 
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
Quarters Ended December 31,
 
 
 
Years Ended December 31,
 
 
2018

2017
% Change

 
 
 
2018

2017
% Change

 
 
$ 2,422
$ 2,921
(17.1
)%
 
Net cash provided by operating activities (1)
 
$ 9,478
$ 8,912
6.4
%
 
 
(361
)
 
 
 
Currency
 
(223
)
 
 
 
 
$ 2,783
$ 2,921
(4.7
)%
 
Net cash provided by operating activities,
excluding currency
 
$ 9,701
$ 8,912
8.9
%
 
 
 
 
 
 
 
 
 
 
 
 
(1) Operating cash flow