EX-99.1 2 earningsreleasepm-ex991xq2.htm EXHIBIT 99.1 Exhibit


Exhibit 99.1

PRESS RELEASE
 
pmilogoera01a01a01a10.jpg
 
 
 
 
 
Investor Relations:
 
Media:
 
 
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Email: Media@pmi.com
 
 
Email: InvestorRelations@pmi.com
 
 
 
 

PHILIP MORRIS INTERNATIONAL INC. (PMI) REPORTS 2017 SECOND-QUARTER RESULTS;
REVISES 2017 FULL-YEAR REPORTED DILUTED EPS FORECAST FOR CURRENCY ONLY,
REFLECTING CURRENCY-NEUTRAL GROWTH OF APPROXIMATELY 9% TO 12%
VS. 2016 ADJUSTED DILUTED EPS OF $4.48

2017 Second-Quarter
•
Reported diluted earnings per share of $1.14, down by $0.01 or 0.9% versus $1.15 in 2016
•
Excluding unfavorable currency of $0.11, reported diluted earnings per share up by $0.10 or 8.7% versus $1.15 in 2016 as detailed in the attached Schedule 13
•
Adjusted diluted earnings per share of $1.14, down by $0.01 or 0.9% versus $1.15 in 2016
•
Excluding unfavorable currency of $0.11, adjusted diluted earnings per share up by $0.10 or 8.7% versus $1.15 in 2016 as detailed in the attached Schedule 13
•
Total cigarette and heated tobacco unit shipment volume of 199.9 billion, down by 5.0%
•Cigarette shipment volume of 193.5 billion units, down by 7.5%
•Heated tobacco unit shipment volume of 6.4 billion units, up from 1.2 billion units in 2016
•
Reported net revenues of $19.3 billion, up by 1.5%
•
Net revenues, excluding excise taxes, of $6.9 billion, up by 4.0%
•
Excluding unfavorable currency of $195 million, net revenues, excluding excise taxes, up by 7.0% as detailed in the attached Schedule 10
•
Reported operating income of $2.7 billion, down by 1.2%
•
Operating companies income of $2.8 billion, down by 1.1%
•
Excluding unfavorable currency of $199 million, operating companies income up by 5.9% as detailed in the attached Schedule 10
•
Adjusted operating companies income, reflecting the items detailed in the attached Schedule 12, of $2.8 billion, down by 1.1%
•
Excluding unfavorable currency of $199 million, adjusted operating companies income up by 5.9% as detailed in the attached Schedule 12

2017 Six Months Year-to-Date
•
Reported diluted earnings per share of $2.17, up by $0.04 or 1.9% versus $2.13 in 2016
•
Excluding unfavorable currency of $0.11, reported diluted earnings per share up by $0.15 or 7.0% versus $2.13 in 2016 as detailed in the attached Schedule 17
•
Adjusted diluted earnings per share of $2.13 were flat versus 2016
•
Excluding unfavorable currency of $0.11, adjusted diluted earnings per share up by $0.11 or 5.2% versus $2.13 in 2016 as detailed in the attached Schedule 17
•
Total cigarette and heated tobacco unit shipment volume of 377.9 billion, down by 7.1%
•Cigarette shipment volume of 367.1 billion units, down by 9.4%




•Heated tobacco unit shipment volume of 10.8 billion units, up from 1.6 billion units in 2016
•
Reported net revenues of $35.9 billion, up by 0.1%
•
Net revenues, excluding excise taxes, of $13.0 billion, up by 2.0%
•
Excluding unfavorable currency of $315 million, net revenues, excluding excise taxes, up by 4.4% as detailed in the attached Schedule 14
•
Reported operating income of $5.1 billion, down by 2.1%
•
Operating companies income of $5.3 billion, down by 1.6%
•
Excluding unfavorable currency of $211 million, operating companies income up by 2.3% as detailed in the attached Schedule 14
•
Adjusted operating companies income, reflecting the items detailed in the attached Schedule 16, of $5.3 billion, down by 1.6%
•
Excluding unfavorable currency of $211 million, adjusted operating companies income up by 2.3% as detailed in the attached Schedule 16

2017 Full-Year Forecast
•
PMI revises, for currency only, its 2017 full-year reported diluted earnings per share to a range of $4.78 to $4.93, at prevailing exchange rates, versus $4.48 in 2016. Excluding an unfavorable currency impact, at prevailing exchange rates, of approximately $0.14 for the full-year 2017, as well as the favorable tax item of $0.04 recorded in the first quarter of 2017, the forecast range represents a projected increase of approximately 9% to 12% versus adjusted diluted earnings per share of $4.48 in 2016 as detailed in the attached Schedule 20
•
This forecast anticipates net revenue growth, excluding excise taxes, of over 7%, excluding currency and acquisitions
•
This forecast does not include any share repurchases in 2017
•
This forecast excludes the impact of any future acquisitions, unanticipated asset impairment and exit cost charges, future changes in currency exchange rates, and any unusual events. Factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections

NEW YORK, July 20, 2017 – Philip Morris International Inc. (NYSE / Euronext Paris: PM) today announced its 2017 second-quarter results.

"Our quarterly results were robust with, as expected, sequential improvement in our volume performance, as well as strong currency-neutral net revenue growth of 7% versus last year," said André Calantzopoulos, Chief Executive Officer.
    
"IQOS, our flagship smoke-free alternative, continues to perform exceptionally well, supported by further recent successful market launches, notably in Korea. In the quarter, shipments of Marlboro HeatSticks represented over 40% of our total shipments in Japan, where we recorded a national share of 10%. To date, more than 2.9 million adult consumers have already stopped smoking and switched to IQOS."
    
    


- -2 -


Conference Call
A conference call, hosted by Jacek Olczak, Chief Financial Officer, with members of the investor community and news media, will be webcast at 9:00 a.m., Eastern Time, on July 20, 2017. Access is at www.pmi.com/2017Q2earnings. 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.

Dividends
During the quarter, PMI declared a regular quarterly dividend of $1.04, representing an annualized rate of $4.16 per common share.

2017 SECOND-QUARTER CONSOLIDATED RESULTS

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 volume and PMI market share performance reflect cigarettes and PMI’s heated tobacco units for those markets that have commercial sales of IQOS.
•
References to total international market, defined as worldwide cigarette and PMI heated tobacco unit volume excluding the United States, total industry, total market and market shares are PMI tax-paid estimates 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.
•
"Combustible products" is the term PMI uses to refer to cigarettes and OTP, combined.
•
"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.
•
"Total shipment volume" is defined as the combined total of cigarette shipment volume and heated tobacco unit shipment volume.
•
"EEMA" is defined as Eastern Europe, Middle East and Africa and includes PMI's international duty free business.
•
"North Africa" is defined as Algeria, Egypt, Libya, Morocco and Tunisia.

Financial

•
Net revenues, excluding excise taxes, related to combustible products refer to the operating revenues generated from the sale of these products, net of sales and promotion incentives.
•
"Operating Companies Income," or "OCI," is defined as operating income, excluding general corporate expenses and the amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. Management evaluates business segment performance and allocates resources based on OCI.
•
“Adjusted EBITDA” is defined as earnings before interest, taxes, depreciation and amortization, excluding asset impairment and exit costs, and unusual items.
•
"Net debt" is defined as total debt, less cash and cash equivalents.
•
Management reviews OCI, OCI 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.


- -3 -

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 far lower quantities of harmful and potentially harmful compounds than found in cigarette smoke.
•
"Heated tobacco units" is the term PMI uses to refer to heated tobacco consumables, which include HEETS, HEETS Marlboro and HEETS FROM MARLBORO, defined collectively as HEETS, as well as Marlboro HeatSticks and Parliament HeatSticks.
•
Net revenues, excluding excise taxes, related to RRPs represent the sale of heated tobacco units, IQOS devices and related accessories, and other nicotine-containing products, primarily e-vapor products, net of sales and promotion incentives.
 
SHIPMENT VOLUME

PMI Shipment Volume by Region
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

 
 
 
 
 
 
 
 
 
 
Cigarettes
 
 
 
 
 
 
 
 
 
European Union
49,758

 
50,399

(1.3
)%
 
92,298

 
96,392

(4.2
)%
EEMA
64,414

 
68,332

(5.7
)%
 
120,988

 
131,458

(8.0
)%
Asia
57,815

 
69,299

(16.6
)%
 
112,957

 
134,521

(16.0
)%
Latin America & Canada
21,553

 
21,259

1.4
 %
 
40,849

 
42,959

(4.9
)%
Total PMI
193,540

 
209,289

(7.5
)%
 
367,092

 
405,330

(9.4
)%
 
 
 
 
 
 
 
 
 
 
Heated Tobacco Units
 
 
 
 
 
 
 
 
 
European Union
392

 
31

+100.0%

 
576

 
47

+100.0%

EEMA
229

 
8

+100.0%

 
334

 
10

+100.0%

Asia
5,726

 
1,118

+100.0%

 
9,871

 
1,553

+100.0%

Latin America & Canada
3

 
—

—
 %
 
4

 
—

—
 %
Total PMI
6,350

 
1,157

+100.0%

 
10,785

 
1,610

+100.0%

 
 
 
 
 
 
 
 
 
 
Cigarettes and Heated Tobacco Units
 
 
 
 
 
 
 
 
 
European Union
50,150

 
50,430

(0.6
)%
 
92,874

 
96,439

(3.7
)%
EEMA
64,643

 
68,340

(5.4
)%
 
121,322

 
131,468

(7.7
)%
Asia
63,541

 
70,417

(9.8
)%
 
122,828

 
136,074

(9.7
)%
Latin America & Canada
21,556

 
21,259

1.4
 %
 
40,853

 
42,959

(4.9
)%
Total PMI
199,890

 
210,446

(5.0
)%
 
377,877

 
406,940

(7.1
)%

In the quarter, PMI's total shipment volume of cigarettes and heated tobacco units decreased by 5.0%, principally due to: Asia, notably Indonesia, as well Pakistan and the Philippines, reflecting ongoing declines of primarily low-margin cigarette volumes; and EEMA. The net impact of inventory movements in the quarter was immaterial.
PMI's cigarette volume decreased by 7.5% due to: the EU, principally Germany and Spain, partly offset by France; EEMA, mainly Russia, Saudi Arabia, mainly reflecting the implementation of a new excise tax, Turkey and Ukraine, partly offset by North Africa; and Asia, principally Indonesia, Japan, Pakistan and the Philippines. The decline was partly offset by growth in Latin America & Canada, principally Mexico.
The decline in PMI's cigarette shipment volume was partly offset by higher heated tobacco unit shipment volume of 6.4 billion units, up from 1.2 billion units in the second quarter of 2016, driven by Japan.

- -4 -



Year-to-date, PMI's total shipment volume of cigarettes and heated tobacco units decreased by 7.1%, or by 6.3% excluding net estimated inventory movements, principally due to: Asia, notably Indonesia, as well as Pakistan and the Philippines, reflecting ongoing declines of primarily low-margin cigarette volumes; and EEMA.
PMI's cigarette volume decreased by 9.4% due to: the EU, principally Italy and Spain, partly offset by Poland; EEMA, reflecting declines across the Region, notably Russia and Ukraine; Asia, principally Indonesia, Japan, Pakistan and the Philippines; and Latin America & Canada, principally Argentina, Brazil and Canada.
The decline in PMI's cigarette shipment volume was partly offset by higher heated tobacco unit shipment volume of 10.8 billion units, up from 1.6 billion units in the first six months of 2016, driven by Japan.

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

PMI Shipment Volume by Brand
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

Cigarettes
 
 
 
 
 
 
 
 
 
Marlboro
68,830

 
70,103

(1.8
)%
 
131,230

 
138,088

(5.0
)%
L&M
23,369

 
24,554

(4.8
)%
 
45,282

 
48,244

(6.1
)%
Chesterfield
13,652

 
11,602

17.7
 %
 
25,195

 
21,778

15.7
 %
Parliament
11,169

 
11,910

(6.2
)%
 
20,368

 
22,047

(7.6
)%
Bond Street
10,278

 
11,361

(9.5
)%
 
18,763

 
21,083

(11.0
)%
Philip Morris
12,688

 
8,910

42.4
 %
 
23,296

 
18,119

28.6
 %
Lark
5,688

 
7,535

(24.5
)%
 
12,214

 
14,037

(13.0
)%
Others
47,866

 
63,314

(24.4
)%
 
90,744

 
121,934

(25.6
)%
Total Cigarettes
193,540

 
209,289

(7.5
)%
 
367,092

 
405,330

(9.4
)%
Heated Tobacco Units
6,350

 
1,157

+100.0%

 
10,785

 
1,610

+100.0%

Total PMI
199,890

 
210,446

(5.0
)%
 
377,877

 
406,940

(7.1
)%

In the quarter, cigarette shipment volume of Marlboro decreased in: the EU, mainly due to Germany and Spain, partly offset by Italy; EEMA, mainly due to Saudi Arabia, partly offset by North Africa; Asia, mainly due to Japan, principally reflecting out-switching to Marlboro HeatSticks, partly offset by the Philippines. The decline was partly offset by growth in Latin America & Canada, driven by Mexico.
Cigarette shipment volume of L&M decreased, mainly due to North Africa, Russia, Saudi Arabia and Turkey, partly offset by Kazakhstan and Taiwan. Cigarette shipment volume of Chesterfield increased, mainly driven by Argentina and Turkey, partly offset by Russia. Cigarette shipment volume of Parliament decreased, mainly due to Japan, Russia, Saudi Arabia and Turkey, partly offset by Kazakhstan and Korea. Cigarette shipment volume of Bond Street decreased, mainly due to Kazakhstan and Ukraine. Cigarette shipment volume of Philip Morris increased, driven by Russia and Ukraine, partly offset by Argentina. Cigarette shipment volume of Lark decreased, principally due to Japan and Turkey. Cigarette shipment volume of "Others" decreased, mainly due to: Indonesia; local, low-margin brands in Pakistan and the Philippines; and the successful morphing of local, low-margin brands into international brands in Russia and Ukraine.
 
Year-to-date, cigarette shipment volume of Marlboro decreased in: the EU, mainly due to Italy and Spain; EEMA, mainly due to Saudi Arabia, partly offset by North Africa; Asia, mainly due to Japan, principally reflecting out-switching to Marlboro HeatSticks, partly offset by the Philippines; and Latin America & Canada, mainly due to Argentina and Brazil, partly offset by Mexico.

- -5 -


Cigarette shipment volume of L&M decreased, mainly due to North Africa, Russia, Turkey and Ukraine, partly offset by Argentina, Kazakhstan and Taiwan. Cigarette shipment volume of Chesterfield increased, mainly driven by Argentina and Turkey, partly offset by Italy and Russia. Cigarette shipment volume of Parliament decreased, mainly due to Russia and Turkey. Cigarette shipment volume of Bond Street decreased, mainly due to Kazakhstan, Russia and Ukraine. Cigarette shipment volume of Philip Morris increased, driven by Russia and Ukraine, partly offset by Argentina and Italy. Cigarette shipment volume of Lark decreased, mainly due to Japan and Turkey, partly offset by Korea. Cigarette shipment volume of "Others" decreased, mainly due to: Indonesia; local, low-margin brands in Pakistan and the Philippines; and the successful morphing of local, low-margin brands into international brands in Russia and Ukraine.

NET REVENUES (Excluding Excise Taxes)

PMI Net Revenues (Excluding Excise Taxes)
Second-Quarter
 
Six Months Year-to-Date
(in millions)
 
 
 
 
Excl.

 
 
 
 
 
Excl.

 
2017

 
2016

Change

Curr.

 
2017

 
2016

Change

Curr.

Combustible Products
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Union
$
2,060

 
$
2,143

(3.8
)%
0.3
 %
 
$
3,770

 
$
3,998

(5.7
)%
(2.1
)%
EEMA
1,659

 
1,664

(0.3
)%
3.4
 %
 
3,129

 
3,267

(4.2
)%
0.7
 %
Asia
1,835

 
2,022

(9.2
)%
(8.3
)%
 
3,680

 
3,942

(6.7
)%
(7.2
)%
Latin America & Canada
748

 
697

7.3
 %
10.2
 %
 
1,353

 
1,347

0.5
 %
3.6
 %
Total PMI
$
6,302

 
$
6,526

(3.4
)%
(0.5
)%
 
$
11,931

 
$
12,554

(5.0
)%
(2.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
RRPs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Union
$
50

 
$
11

+100%

+100%

 
$
81

 
$
19

+100%

+100%

EEMA
16

 
—

+100%

+100%

 
23

 
—

+100%

+100%

Asia
549

 
111

+100%

+100%

 
945

 
158

+100%

+100%

Latin America & Canada
1

 
—

+100%

+100%

 
1

 
0

91.2
 %
90.1
 %
Total PMI
$
615

 
$
123

+100%

+100%

 
$
1,050

 
$
178

+100%

+100%

 
 
 
 
 
 
 
 
 
 
 
 
Combustible Products and RRPs
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
European Union
$
2,110

 
$
2,155

(2.1
)%
2.2
 %
 
$
3,850

 
$
4,018

(4.2
)%
(0.5
)%
EEMA
1,675

 
1,664

0.7
 %
4.4
 %
 
3,152

 
3,266

(3.5
)%
1.4
 %
Asia
2,384

 
2,133

11.8
 %
12.8
 %
 
4,625

 
4,101

12.8
 %
11.9
 %
Latin America & Canada
748

 
697

7.3
 %
10.2
 %
 
1,354

 
1,347

0.5
 %
3.6
 %
Total PMI
$
6,917

 
$
6,649

4.0
 %
7.0
 %
 
$
12,981

 
$
12,732

2.0
 %
4.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
Note: Sum of product categories or Regions might not foot to total PMI due to rounding.
In the quarter, net revenues, excluding excise taxes, of $6.9 billion increased by 4.0%, as detailed above and in the attached Schedule 10. Excluding unfavorable currency of $195 million, net revenues, excluding excise taxes, increased by 7.0%, driven by a favorable pricing variance of $367 million from across all Regions and favorable volume/mix of $96 million.     


- -6 -


OPERATING COMPANIES INCOME

PMI OCI
Second-Quarter
 
Six Months Year-to-Date
(in millions)
 
 
 
 
Excl.

 
 
 
 
 
Excl.

 
2017

 
2016

Change

Curr.

 
2017

 
2016

Change

Curr.

European Union
$
969

 
$
1,070

(9.4
)%
(3.7
)%
 
$
1,741

 
$
1,976

(11.9
)%
(7.4
)%
EEMA
733

 
794

(7.7
)%
3.3
 %
 
1,423

 
1,427

(0.3
)%
6.7
 %
Asia
836

 
749

11.6
 %
15.0
 %
 
1,688

 
1,527

10.5
 %
8.6
 %
Latin America & Canada
268

 
224

19.6
 %
31.3
 %
 
445

 
453

(1.8
)%
9.7
 %
Total PMI
$
2,806

 
$
2,837

(1.1
)%
5.9
 %
 
$
5,297

 
$
5,383

(1.6
)%
2.3
 %
In the quarter, operating companies income of $2.8 billion decreased by 1.1%. Excluding unfavorable currency of $199 million, operating companies income increased by 5.9%, mainly driven by a favorable pricing variance across all Regions, notably EEMA and Asia, partly offset by unfavorable volume/mix of $89 million, as well as an unfavorable cost comparison, largely reflecting increased support behind reduced-risk products, notably in the EU.

Adjusted operating companies income and margin are shown in the table below and detailed in Schedule 12. Adjusted operating companies income, excluding unfavorable currency, increased by 5.9%. Adjusted operating companies income margin, excluding unfavorable currency, decreased by 0.4 points to 42.3%, reflecting the factors mentioned above, as detailed on Schedule 12.
 
PMI OCI
Second-Quarter
 
Six Months Year-to-Date
(in millions)
 
 
 
 
Excl.

 
 
 
 
 
Excl.

 
2017

 
2016

Change

Curr.

 
2017

 
2016

Change

Curr.

OCI
$
2,806

 
$
2,837

(1.1
)%
5.9
%
 
$
5,297

 
$
5,383

(1.6
)%
2.3
%
Asset impairment & exit costs
—

 
—

 
 
 
—

 
—

 
 
Adjusted OCI
$
2,806

 
$
2,837

(1.1
)%
5.9
%
 
$
5,297

 
$
5,383

(1.6
)%
2.3
%
Adjusted OCI Margin*
40.6
%
 
42.7
%
(2.1
)
(0.4
)
 
40.8
%
 
42.3
%
(1.5
)
(0.9
)
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.
EUROPEAN UNION REGION (EU)

2017 Second-Quarter
Net revenues, excluding excise taxes, of $2.1 billion, decreased by 2.1%.  Excluding unfavorable currency of $92 million, net revenues, excluding excise taxes, increased by 2.2%, principally reflecting a favorable pricing variance of $38 million, driven mainly by Germany and the United Kingdom, partly offset by France and Italy, as well as a favorable volume/mix of $9 million, mainly driven by Italy, notably reflecting the performance of reduced-risk products, partly offset by Germany, primarily reflecting the lower total market, lower market share and impact of price increases.
 
Operating companies income of $969 million decreased by 9.4%. Excluding unfavorable currency of $61 million, operating companies income decreased by 3.7%, mainly due to: unfavorable volume/mix of $23 million, mainly in Germany and Spain, partly offset by Italy; and increased investment behind reduced-risk products across the Region, notably in Germany; partly offset by favorable pricing.

Adjusted operating companies income and margin are shown in the table below and detailed on Schedule 12. Adjusted operating companies income, excluding unfavorable currency, decreased by 3.7%. Adjusted operating

- -7 -


companies income margin, excluding unfavorable currency, decreased by 2.9 points to 46.8%, reflecting the factors mentioned above, as detailed on Schedule 12.

EU OCI
Second-Quarter
 
Six Months Year-to-Date
(in millions)
 
 
 
 
Excl.

 
 
 
 
 
Excl.

 
2017

 
2016

Change

Curr.

 
2017

 
2016

Change

Curr.

OCI
$
969

 
$
1,070

(9.4
)%
(3.7
)%
 
$
1,741

 
$
1,976

(11.9
)%
(7.4
)%
Asset impairment & exit costs
—

 
—

 
 
 
—

 
—

 
 
Adjusted OCI
$
969

 
$
1,070

(9.4
)%
(3.7
)%
 
$
1,741

 
$
1,976

(11.9
)%
(7.4
)%
Adjusted OCI Margin*
45.9
%
 
49.7
%
(3.8
)
(2.9
)
 
45.2
%
 
49.2
%
(4.0
)
(3.4
)
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.

EU Total Market, PMI Shipment & Market Share Commentaries

In the quarter, the estimated total market in the EU decreased by 1.0% to 127.9 billion units, partly reflecting a lower prevalence of illicit trade, notably in Poland. The net impact of inventory movements on the estimated total market was immaterial.

Year-to-date, the estimated total market in the EU decreased by 1.8% to 240.1 billion units, partly reflecting the same dynamic as described for the quarter. The net impact of inventory movements on the estimated total market was immaterial.
    
EU PMI Shipment Volume
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

 
 
 
 
 
 
 
 
 
 
Cigarettes
49,758

 
50,399

(1.3
)%
 
92,298

 
96,392

(4.2
)%
Heated Tobacco Units
392

 
31

+100.0%

 
576

 
47

+100.0%

Total EU
50,150

 
50,430

(0.6
)%
 
92,874

 
96,439

(3.7
)%

EU PMI Shipment Volume by Brand
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

Cigarettes
 
 
 
 
 
 
 
 
 
Marlboro
24,600

 
24,939

(1.4
)%
 
45,525

 
47,639

(4.4
)%
L&M
9,069

 
8,986

0.9
 %
 
17,002

 
17,174

(1.0
)%
Chesterfield
7,772

 
7,907

(1.7
)%
 
14,268

 
15,055

(5.2
)%
Philip Morris
4,161

 
4,238

(1.8
)%
 
7,857

 
8,292

(5.2
)%
Others
4,156

 
4,329

(4.0
)%
 
7,646

 
8,232

(7.1
)%
Total Cigarettes
49,758

 
50,399

(1.3
)%
 
92,298

 
96,392

(4.2
)%
Heated Tobacco Units
392

 
31

+100.0%

 
576

 
47

+100.0%

Total EU
50,150

 
50,430

(0.6
)%
 
92,874

 
96,439

(3.7
)%


- -8 -


EU Market Shares by Brand
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
Change

 
2017

 
2016

 
p.p.

 
2017

 
2016

p.p.

Marlboro
18.8
%
 
19.1
%
 
(0.3
)
 
18.8
%
 
19.1
%
(0.3
)
L&M
7.0
%
 
6.9
%
 
0.1

 
7.0
%
 
6.9
%
0.1

Chesterfield
5.9
%
 
6.0
%
 
(0.1
)
 
6.0
%
 
6.0
%
—

Philip Morris
3.1
%
 
3.3
%
 
(0.2
)
 
3.1
%
 
3.3
%
(0.2
)
Others*
3.4
%
 
3.1
%
 
0.3

 
3.4
%
 
3.2
%
0.2

Total EU
38.2
%
 
38.4
%
 
(0.2
)
 
38.3
%
 
38.5
%
(0.2
)
*Includes heated tobacco units.
 
 
 
 

2017 Second-Quarter and Six Months Year-to-Date
In the quarter, PMI's total shipment volume decreased by 0.6% to 50.2 billion units, mainly due to Germany, Greece and Spain, partly offset by Italy, France and Poland. Excluding estimated inventory movements, principally associated with distributor cigarette inventory movements in Italy, PMI's total shipment volume decreased by 1.6%. The decrease in cigarette shipment volume of Marlboro was mainly due to Germany and Spain, partly offset by Italy. The increase in cigarette shipment volume of L&M was mainly driven by France and Poland, partly offset by Germany. The decrease in cigarette shipment volume of Chesterfield was mainly due to Portugal and Spain, partly offset by Italy and Poland. The decrease in cigarette shipment volume of Philip Morris was mainly due to Italy, partly offset by France. The decrease in cigarette shipment volume of "Others" was mainly due to Muratti in Italy and RGD in Poland.
In the quarter, PMI's total market share decreased by 0.2 points to 38.2%, with declines, mainly in Germany, Italy and Spain, partly offset by gains, notably in France and Poland.

Year-to-date, PMI's total shipment volume decreased by 3.7% to 92.9 billion units, mainly due to cigarette volume declines in Italy and Spain, partly offset by Poland. Excluding estimated inventory movements, principally associated with distributor cigarette inventory movements, mainly in Italy and Spain, PMI's total shipment volume decreased by 2.2%. The decrease in cigarette shipment volume of Marlboro was mainly due to Italy and Spain. The decrease in cigarette shipment volume of L&M was mainly due to Germany and Spain, partly offset by Poland. The decrease in cigarette shipment volume of Chesterfield was mainly due to Italy and Spain, partly offset by Poland and the United Kingdom. The decrease in cigarette shipment volume of Philip Morris was mainly due to Italy. The decrease in cigarette shipment volume of "Others" was mainly due to Merit and Muratti in Italy.
Year-to-date, PMI's total market share decreased by 0.2 points to 38.3%, with declines, mainly in Germany, Italy and Spain, partly offset by gains, notably in France and Poland.

- -9 -



EU Key Market Commentaries

In France, estimated industry size, PMI shipment volume and market share performance, shown in the table below, include cigarettes and PMI's heated tobacco units.

France Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Market (billion units)
11.8

 
11.7

 
0.5
%
 
22.6

 
22.4

 
1.0
%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
5,150

 
5,057

 
1.8
%
 
9,876

 
9,835

 
0.4
%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
26.8
%
 
26.2
%
 
0.6

 
26.7
%
 
26.1
%
 
0.6

Philip Morris
10.2
%
 
10.0
%
 
0.2

 
10.2
%
 
10.1
%
 
0.1

Chesterfield
3.1
%
 
3.2
%
 
(0.1
)
 
3.1
%
 
3.1
%
 
—

Others*
2.9
%
 
2.7
%
 
0.2

 
2.9
%
 
2.8
%
 
0.1

Total
43.0
%
 
42.1
%
 
0.9

 
42.9
%
 
42.1
%
 
0.8

*Includes heated tobacco units.
 
 
 
 
 

In the quarter, the estimated total market increased by 0.5%. Excluding the net impact of estimated trade inventory movements, primarily associated with the implementation of the Tobacco Products Directive (TPD) in 2016, the estimated total market declined by 1.2%. The increase in PMI's shipment volume was mainly driven by higher market share, principally Marlboro, partly reflecting in-switching.

Year-to-date, the estimated total market increased by 1.0%. The increase in PMI's shipment volume was mainly driven by higher market share, principally Marlboro, reflecting the same dynamic as in the quarter.

In Germany, estimated industry size, PMI shipment volume and market share performance, shown in the table below, include cigarettes and PMI's heated tobacco units.

Germany Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Market (billion units)
19.8

 
20.1

 
(1.7
)%
 
37.3

 
38.0

 
(1.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
7,270

 
7,608

 
(4.4
)%
 
13,932

 
14,375

 
(3.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
22.1
%
 
22.7
%
 
(0.6
)
 
22.7
%
 
22.8
%
 
(0.1
)
L&M
11.5
%
 
11.9
%
 
(0.4
)
 
11.6
%
 
11.9
%
 
(0.3
)
Chesterfield
1.6
%
 
1.7
%
 
(0.1
)
 
1.6
%
 
1.7
%
 
(0.1
)
Others*
1.5
%
 
1.5
%
 
—

 
1.5
%
 
1.4
%
 
0.1

Total
36.7
%
 
37.8
%
 
(1.1
)
 
37.4
%
 
37.8
%
 
(0.4
)
*Includes heated tobacco units.
 
 
 
 
 


- -10 -


In the quarter, the estimated total market decreased by 1.7%, partly reflecting the lapsed contribution of favorable factors in 2016, including a lower prevalence of illicit trade, which contributed to a growth of the total market in the second quarter of 2016 of 1.3%, as well as the impact of price increases in March 2017. The decrease in PMI's shipment volume was mainly due to the lower total market and market share, mainly Marlboro, reflecting the impact of its price increase from the round €6.00 per pack price point to €6.30, combined with the later timing of competitors' price increases.

Year-to-date, the estimated total market decreased by 1.9%, partly reflecting the lapsed contribution of favorable factors in 2016, as well as the impact of price increases in March 2017. The decrease in PMI's shipment volume was mainly due to the lower total market.

In Italy, estimated industry size, PMI shipment volume and market share performance, shown in the table below, include cigarettes and PMI's heated tobacco units.

Italy Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Market (billion units)
18.2

 
18.7

 
(2.7
)%
 
34.4

 
35.8

 
(3.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
10,244

 
10,093

 
1.5
 %
 
18,044

 
19,947

 
(9.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
23.9
%
 
24.4
%
 
(0.5
)
 
23.7
%
 
24.6
%
 
(0.9
)
Chesterfield
11.2
%
 
11.5
%
 
(0.3
)
 
11.3
%
 
11.5
%
 
(0.2
)
Philip Morris
7.8
%
 
8.5
%
 
(0.7
)
 
7.9
%
 
8.7
%
 
(0.8
)
HEETS
0.6
%
 
—
%
 
0.6

 
0.6
%
 
—
%
 
0.6

Others
8.5
%
 
8.0
%
 
0.5

 
8.4
%
 
8.1
%
 
0.3

Total
52.0
%
 
52.4
%
 
(0.4
)
 
51.9
%
 
52.9
%
 
(1.0
)

In the quarter, the estimated total market decreased by 2.7%, partly reflecting the implementation of elements of the TPD, notably the ban on pack sizes of ten cigarettes, which fueled growth in cheaper alternatives, including fine cut and cigarillos. The decline of PMI's shipments, down by 3.4% excluding the net impact of distributor inventory movements, mainly reflected the lower total market. PMI's lower market share was mainly due to: Marlboro, as a result of its price increase in the second quarter of 2016, the ban on pack sizes of ten cigarettes, and out-switching to HEETS; and low-price Philip Morris, impacted by the growth of the super-low price segment.

Year-to-date, the estimated total market decreased by 3.9%, mainly reflecting the same dynamics as in the quarter. The decline of the total market also reflected a challenging comparison with the first six months of 2016, which grew by 1.3%. The decline of PMI's shipments, down by 5.6% excluding the net impact of distributor inventory movements, mainly reflected the lower total market, as well as lower cigarette market share, principally due to the same factors as in the quarter.
 

- -11 -


In Poland, estimated industry size, PMI shipment volume and market share performance, shown in the table below, include cigarettes and PMI's heated tobacco units.

Poland Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Market (billion units)
10.9

 
10.7

 
1.3
%
 
21.1

 
20.8

 
1.4
%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
4,573

 
4,505

 
1.5
%
 
8,876

 
8,651

 
2.6
%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
11.0
%
 
11.5
%
 
(0.5
)
 
10.6
%
 
11.3
%
 
(0.7
)
L&M
18.3
%
 
18.1
%
 
0.2

 
18.5
%
 
18.3
%
 
0.2

Chesterfield
10.0
%
 
9.2
%
 
0.8

 
9.9
%
 
8.9
%
 
1.0

Others*
2.8
%
 
3.2
%
 
(0.4
)
 
3.1
%
 
3.1
%
 
—

Total
42.1
%
 
42.0
%
 
0.1

 
42.1
%
 
41.6
%
 
0.5

*Includes heated tobacco units.
 
 
 
 
 

In the quarter, the estimated total market increased by 1.3%, mainly driven by a lower prevalence of illicit trade. The increase in PMI's shipment volume primarily reflected the higher total market. The slight increase in PMI's market share reflected higher share of Chesterfield, driven by brand support, partly offset by Marlboro.

Year-to-date, the estimated total market increased by 1.4%, reflecting the same dynamics as in the quarter. The increase in PMI's shipment volume was primarily driven by the higher total market, as well as higher market share, mainly reflecting higher share of Chesterfield, driven by brand support, partly offset by Marlboro.

In Spain, estimated industry size, PMI shipment volume and market share performance, shown in the table below, include cigarettes and PMI's heated tobacco units.

Spain Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change
 
2017

 
2016

 
% / p.p.
 
2017
 
2016
 
% / p.p.
Total Market (billion units)
11.8

 
11.9

 
(0.8
)%
 
21.7

 
22.3

 
(2.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
4,099

 
4,344

 
(5.6
)%
 
7,284

 
8,366

 
(12.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
16.4
%
 
17.9
%
 
(1.5
)
 
16.3
%
 
17.8
%
 
(1.5
)
L&M
5.4
%
 
5.4
%
 
—

 
5.4
%
 
5.5
%
 
(0.1
)
Chesterfield
8.5
%
 
8.4
%
 
0.1

 
8.6
%
 
8.7
%
 
(0.1
)
Others*
1.7
%
 
2.1
%
 
(0.4
)
 
1.8
%
 
2.0
%
 
(0.2
)
Total
32.0
%
 
33.8
%
 
(1.8
)
 
32.1
%
 
34.0
%
 
(1.9
)
*Includes heated tobacco units.
 
 
 
 
 

In the quarter, the estimated total market decreased by 0.8%, or by 3.2% excluding the net impact of estimated trade inventory movements associated with the second quarter of 2016. The decline of PMI's shipments was mainly due to lower market share, principally due to Marlboro, reflecting the impact of price increases, particularly

- -12 -


above the round €5.00 per pack price point in the vending channel, as well as a challenging comparison with the second quarter of 2016 in which the market share of Marlboro grew by 1.1 points.

Year-to-date, the estimated total market decreased by 2.6%. The decline of PMI's shipments, down by 7.1% excluding the net impact of distributor inventory movements associated with the first six months of 2016, was mainly due to the lower total market and lower market share, principally due to Marlboro, reflecting the same dynamics as in the quarter, as well as a challenging comparison with the first six months of 2016 in which the market share of Marlboro grew by 1.4 points.
    
EASTERN EUROPE, MIDDLE EAST & AFRICA REGION (EEMA)

2017 Second-Quarter
Net revenues, excluding excise taxes, of $1.7 billion increased by 0.7%. Excluding unfavorable currency of $62 million, net revenues, excluding excise taxes, increased by 4.4%, principally reflecting a favorable pricing variance of $127 million, driven mainly by North Africa, notably Egypt, Turkey and Ukraine. The favorable pricing variance was partly offset by unfavorable volume/mix of $54 million, mainly due to lower total markets in Russia, Saudi Arabia, mainly resulting from the implementation of a new excise tax, and Turkey, partly offset by North Africa.
        
Operating companies income of $733 million decreased by 7.7%. Excluding unfavorable currency of $87 million, operating companies income increased by 3.3%, principally reflecting a favorable pricing variance, partly offset by unfavorable volume/mix of $43 million, mainly in Russia, Saudi Arabia and Turkey, partly offset by North Africa, and higher costs, primarily reflecting a challenging cost comparison to the second quarter of 2016 in which costs were favorable.
 
Adjusted operating companies income and margin are shown in the table below and detailed on Schedule 12. Adjusted operating companies income, excluding unfavorable currency, increased by 3.3%. Adjusted operating companies income margin, excluding unfavorable currency, decreased by 0.5 points to 47.2%, reflecting the factors mentioned above, as detailed on Schedule 12.
 
EEMA OCI
Second-Quarter
 
Six Months Year-to-Date
(in millions)
 
 
 
 
Excl.

 
 
 
 
 
Excl.

 
2017

 
2016

Change

Curr.

 
2017

 
2016

Change

Curr.

OCI
$
733

 
$
794

(7.7
)%
3.3
%
 
$
1,423

 
$
1,427

(0.3
)%
6.7
%
Asset impairment & exit costs
—

 
—

 
 
 
—

 
—

 
 
Adjusted OCI
$
733

 
$
794

(7.7
)%
3.3
%
 
$
1,423

 
$
1,427

(0.3
)%
6.7
%
Adjusted OCI Margin*
43.8
%
 
47.7
%
(3.9
)
(0.5
)
 
45.1
%
 
43.7
%
1.4

2.2

*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.

EEMA PMI Shipment Commentaries    

EEMA PMI Shipment Volume
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

 
 
 
 
 
 
 
 
 
 
Cigarettes
64,414

 
68,332

(5.7
)%
 
120,988

 
131,458

(8.0
)%
Heated Tobacco Units
229

 
8

+100.0%

 
334

 
10

+100.0%

Total EEMA
64,643

 
68,340

(5.4
)%
 
121,322

 
131,468

(7.7
)%


- -13 -


EEMA PMI Shipment Volume by Brand
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

Cigarettes
 
 
 
 
 
 
 
 
 
Marlboro
17,037

 
17,391

(2.0
)%
 
33,153

 
34,923

(5.1
)%
L&M
11,791

 
13,160

(10.4
)%
 
23,280

 
26,025

(10.5
)%
Bond Street
9,844

 
10,901

(9.7
)%
 
17,976

 
20,151

(10.8
)%
Parliament
8,273

 
8,938

(7.4
)%
 
14,815

 
16,239

(8.8
)%
Others
17,469

 
17,942

(2.6
)%
 
31,764

 
34,120

(6.9
)%
Total Cigarettes
64,414

 
68,332

(5.7
)%
 
120,988

 
131,458

(8.0
)%
Heated Tobacco Units
229

 
8

+100.0%

 
334

 
10

+100.0%

Total EEMA
64,643

 
68,340

(5.4
)%
 
121,322

 
131,468

(7.7
)%

2017 Second-Quarter and Six Months Year-to-Date
In the quarter, PMI's total shipment volume decreased by 5.4% to 64.6 billion units, mainly due to cigarette volume declines in: Russia; Saudi Arabia, notably reflecting the implementation of a new excise tax in June 2017 resulting in a doubling of retail prices, from SAR 12 to SAR 24 per pack in the case of Marlboro; Turkey and Ukraine, partly offset by North Africa. The decrease in cigarette shipment volume of Marlboro was mainly due to Saudi Arabia, partly offset by North Africa. The decrease in cigarette shipment volume of L&M was mainly due to North Africa, Russia, Saudi Arabia and Turkey, partly offset by Kazakhstan. The decrease in cigarette shipment volume of Bond Street was mainly due to Kazakhstan and Ukraine. The decrease in cigarette shipment volume of Parliament was mainly due to Russia, Saudi Arabia and Turkey, partly offset by Kazakhstan. The decrease in cigarette shipment volume of "Others" was mainly due to low-price Next/Dubliss in Russia, due to the competitive environment, while largely local, lower-margin brands in Russia and Ukraine were successfully morphed into Philip Morris.

Year-to-date, PMI's total shipment volume decreased by 7.7% to 121.3 billion units, mainly reflecting cigarette volume declines in Russia, Saudi Arabia, Turkey and Ukraine. The decrease in cigarette shipment volume of Marlboro was mainly due to Saudi Arabia, partly offset by North Africa. The decrease in cigarette shipment volume of L&M was mainly due to North Africa, Russia, Turkey and Ukraine, partly offset by Kazakhstan. The decrease in cigarette shipment volume of Bond Street was mainly due to Kazakhstan, Russia and Ukraine. The decrease in cigarette shipment volume of Parliament was mainly due to Russia, Saudi Arabia and Turkey. The decrease in cigarette shipment volume of "Others" was mainly due to the same dynamics as in the quarter.


- -14 -


EEMA Key Market Commentaries
In North Africa, estimated cigarette industry size, PMI cigarette shipment volume and cigarette market share performance are shown in the table below.

North Africa Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Cigarette Market (billion units)
34.2

 
34.2

 
0.1
%
 
67.8

 
68.5

 
(1.0
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Shipments (million units)
7,616

 
7,184

 
6.0
%
 
16,395

 
17,414

 
(5.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
8.9
%
 
6.9
%
 
2.0

 
8.5
%
 
7.1
%
 
1.4

L&M
11.1
%
 
11.9
%
 
(0.8
)
 
11.5
%
 
13.0
%
 
(1.5
)
Others
2.6
%
 
3.1
%
 
(0.5
)
 
2.7
%
 
3.1
%
 
(0.4
)
Total
22.6
%
 
21.9
%
 
0.7

 
22.7
%
 
23.2
%
 
(0.5
)

In the quarter, the estimated total cigarette market was essentially flat. The increase in PMI's cigarette shipment volume, up by 3.3% excluding estimated distributor inventory movements, mainly reflected higher cigarette market share, notably driven by the recovery of Marlboro in Algeria following product changes to address the lower-than-anticipated acceptance of Architecture 2.0 in 2016, partly offset by L&M in Egypt as a result of widening price gaps with competitors' brands.

Year-to-date, the estimated total cigarette market decreased by 1.0%, mainly due to Algeria. The decrease in PMI's cigarette shipment volume, down by 3.1% excluding estimated distributor inventory movements, was mainly due to the lower total cigarette market, as well as lower cigarette market share, notably of L&M in Egypt as a result of widening price gaps with competitors' brands, partly offset by the recovery of Marlboro in Algeria, reflecting the same dynamic as in the quarter.

In Russia, estimated industry size and PMI shipment volume, shown in the table below, include cigarettes and PMI's heated tobacco units. May quarter-to-date and year-to-date market share performance, as measured by Nielsen and shown in the table below, reflects that of cigarettes.

Russia Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Market (billion units)
68.6

 
73.1

 
(6.2
)%
 
124.4

 
132.5

 
(6.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
19,584

 
20,543

 
(4.7
)%
 
34,423

 
38,354

 
(10.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
1.4
%
 
1.4
%
 
—

 
1.4
%
 
1.4
%
 
—

Parliament
3.5
%
 
3.9
%
 
(0.4
)
 
3.6
%
 
3.9
%
 
(0.3
)
Bond Street
8.9
%
 
8.0
%
 
0.9

 
9.1
%
 
8.2
%
 
0.9

Others
13.3
%
 
13.7
%
 
(0.4
)
 
13.1
%
 
13.9
%
 
(0.8
)
Total
27.1
%
 
27.0
%
 
0.1

 
27.2
%
 
27.4
%
 
(0.2
)


- -15 -


In the quarter, the estimated total market decreased by 6.2%, reflecting the impact of excise tax-driven price increases. The decline of PMI's shipment volume was mainly due to the lower total market. The slight increase in PMI's market share was driven by Bond Street and the growth of recently-launched Philip Morris in "Others," reflecting the successful morphing of super-low price Optima and Apollo Soyuz, partly offset by Parliament, reflecting the impact of price increases.

Year-to-date, the estimated total market decreased by 6.1%, reflecting the same dynamic as in the quarter. Excluding the net impact of estimated distributor inventory movements, mainly associated with 2016, PMI's shipment volume decreased by 5.9%, in line with the lower total market. The decrease of PMI's cigarette market share was mainly due to: Parliament, reflecting the impact of price increases; Chesterfield, L&M and Next in "Others," primarily reflecting slower-than-anticipated retail price penetration of competitors' brands, partly offset by Bond Street; and the growth of recently-launched Philip Morris in "Others," reflecting the successful morphing of super-low price Optima and Apollo Soyuz.

In Turkey, estimated cigarette industry size, PMI cigarette shipment volume and May quarter-to-date and year-to-date cigarette market share performance, as measured by Nielsen, are shown in the table below.

Turkey Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Cigarette Market (billion units)
26.0

 
27.8

 
(6.5
)%
 
48.0

 
50.2

 
(4.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Shipments (million units)
12,135

 
13,164

 
(7.8
)%
 
21,965

 
23,509

 
(6.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
10.1
%
 
10.1
%
 
—

 
10.0
%
 
10.0
%
 
—

Parliament
11.6
%
 
11.6
%
 
—

 
11.4
%
 
11.6
%
 
(0.2
)
Lark
7.0
%
 
7.6
%
 
(0.6
)
 
6.9
%
 
7.7
%
 
(0.8
)
Others
14.7
%
 
14.9
%
 
(0.2
)
 
14.9
%
 
14.7
%
 
0.2

Total
43.4
%
 
44.2
%
 
(0.8
)
 
43.2
%
 
44.0
%
 
(0.8
)

In the quarter, the estimated total cigarette market decreased by 6.5%, mainly reflecting a higher prevalence of illicit trade. The decrease in PMI's shipments was mainly due to the lower total cigarette market and lower cigarette market share, mainly driven by low-price Lark reflecting competitive pressure from super-low price alternatives.
   
Year-to-date, the estimated total cigarette market decreased by 4.4%. Excluding the net impact of estimated trade inventory movements associated with the timing of anticipated price increases, the estimated total cigarette market declined by 6.8%, mainly reflecting a higher prevalence of illicit trade resulting from the impact of price increases. The decrease in PMI's shipments was mainly due to the lower total cigarette market and lower cigarette market share, mainly reflecting the same dynamics as in the quarter.


- -16 -


In Ukraine, estimated industry size and PMI cigarette shipment volume, shown in the table below, include cigarettes and PMI's heated tobacco units. May quarter-to-date and year-to-date market share performance, as measured by Nielsen and shown in the table below, reflects that of cigarettes.

Ukraine Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Market (billion units)
17.5

 
19.4

 
(9.3
)%
 
32.4

 
36.7

 
(11.6
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
5,296

 
5,952

 
(11.0
)%
 
9,406

 
11,600

 
(18.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
3.2
%
 
3.1
%
 
0.1

 
3.1
%
 
3.2
%
 
(0.1
)
Parliament
3.4
%
 
2.9
%
 
0.5

 
3.2
%
 
2.8
%
 
0.4

Bond Street
9.0
%
 
10.5
%
 
(1.5
)
 
9.0
%
 
10.4
%
 
(1.4
)
Others
12.6
%
 
14.4
%
 
(1.8
)
 
12.3
%
 
13.9
%
 
(1.6
)
Total
28.2
%
 
30.9
%
 
(2.7
)
 
27.6
%
 
30.3
%
 
(2.7
)

In the quarter, the estimated total market decreased by 9.3%, mainly due to the impact of price increases and a challenging comparison with the second quarter of 2016, which grew by 2.7%. The decrease in PMI's shipment volume was primarily due to the lower total market, as well as lower cigarette market share, primarily of low-price Bond Street, and in "Others," Chesterfield, largely reflecting the impact of price increases and President, following its morphing into Philip Morris.

Year-to-date, the estimated total market decreased by 11.6%, mainly due to the impact of price increases and a challenging comparison with the first six months of 2016, which grew by 9.1%. The decrease in PMI's shipment volume was primarily due to the lower total market, as well as lower cigarette market share, primarily of low-price Bond Street, and in "Others," Chesterfield, largely reflecting the impact of price increases and President, following its morphing into Philip Morris, partly offset by L&M.

ASIA REGION

2017 Second-Quarter
Net revenues, excluding excise taxes, of $2.4 billion increased by 11.8%. Excluding unfavorable currency of $21 million, net revenues, excluding excise taxes, increased by 12.8%, reflecting a favorable pricing variance of $128 million, driven principally by Australia, Indonesia and the Philippines. The favorable pricing variance was supported by favorable volume/mix of $144 million, predominantly driven by heated tobacco unit volume in Japan, partly offset by unfavorable volume due mainly to lower total markets in Australia, Indonesia, Pakistan and the Philippines.

Operating companies income of $836 million increased by 11.6%. Excluding unfavorable currency of $25 million, operating companies income increased by 15.0%, mainly driven by a favorable pricing variance, partly offset by unfavorable volume/mix of $19 million, mainly due to unfavorable volume/mix in Indonesia and unfavorable volume in Australia, Pakistan and the Philippines, partly offset by favorable volume in Japan, driven by heated tobacco units.


- -17 -


Adjusted operating companies income and margin are shown in the table below and detailed on Schedule 12. Adjusted operating companies income, excluding unfavorable currency, increased by 15.0%. Adjusted operating companies income margin, excluding unfavorable currency, increased by 0.7 points to 35.8%, reflecting the factors mentioned above, as detailed on Schedule 12.

Asia OCI
Second-Quarter
 
Six Months Year-to-Date
(in millions)
 
 
 
 
Excl.

 
 
 
 
 
Excl.

 
2017

 
2016

Change

Curr.

 
2017

 
2016

Change

Curr.

OCI
$
836

 
$
749

11.6
%
15.0
%
 
$
1,688

 
$
1,527

10.5
%
8.6
%
Asset impairment & exit costs
—

 
—

 
 
 
—

 
—

 
 
Adjusted OCI
$
836

 
$
749

11.6
%
15.0
%
 
$
1,688

 
$
1,527

10.5
%
8.6
%
Adjusted OCI Margin*
35.1
%
 
35.1
%
—

0.7

 
36.5
%
 
37.2
%
(0.7
)
(1.1
)
*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.

Asia PMI Shipment Commentaries    

Asia PMI Shipment Volume
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

 
 
 
 
 
 
 
 
 
 
Cigarettes
57,815

 
69,299

(16.6
)%
 
112,957

 
134,521

(16.0
)%
Heated Tobacco Units
5,726

 
1,118

+100.0%

 
9,871

 
1,553

+100.0%

Total Asia
63,541

 
70,417

(9.8
)%
 
122,828

 
136,074

(9.7
)%

Asia PMI Shipment Volume by Brand
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

Cigarettes
 
 
 
 
 
 
 
 
 
Marlboro
18,294

 
19,437

(5.9
)%
 
36,028

 
38,310

(6.0
)%
Lark
3,291

 
4,845

(32.1
)%
 
7,857

 
9,147

(14.1
)%
Parliament
2,532

 
2,580

(1.8
)%
 
4,858

 
4,990

(2.6
)%
Others
33,698

 
42,437

(20.6
)%
 
64,214

 
82,074

(21.8
)%
Total Cigarettes
57,815

 
69,299

(16.6
)%
 
112,957

 
134,521

(16.0
)%
Heated Tobacco Units
5,726

 
1,118

+100.0%

 
9,871

 
1,553

+100.0%

Total Asia
63,541

 
70,417

(9.8
)%
 
122,828

 
136,074

(9.7
)%

2017 Second-Quarter and Six Months Year-to-Date
In the quarter, PMI's total shipment volume decreased by 9.8% to 63.5 billion units, mainly due to cigarette volume declines in: Indonesia; Japan; Pakistan, reflecting the impact of excise tax-driven price increases and an increase in the prevalence of illicit trade; and the Philippines; partly offset by higher heated tobacco unit volume in Japan. The decrease in cigarette shipment volume of Marlboro was mainly due to Japan, primarily reflecting out-switching to Marlboro HeatSticks, partly offset by the Philippines. The decrease in cigarette shipment volume of Lark was driven by Japan. The decrease in cigarette shipment volume of Parliament was mainly due to Japan, partly offset by Korea. The decrease in cigarette shipment volume of "Others" was mainly due to Indonesia and to local, low-margin brands in Pakistan and the Philippines.


- -18 -


Year-to-date, PMI's total shipment volume decreased by 9.7% to 122.8 billion units, mainly due to the same dynamics as in the quarter. The decrease in cigarette shipment volume of Marlboro was mainly due to Japan, primarily reflecting out-switching to Marlboro HeatSticks, partly offset by the Philippines. The decrease in cigarette shipment volume of Lark was driven by Japan. The decrease in cigarette shipment volume of Parliament was mainly due to Japan, partly offset by Korea. The decrease in cigarette shipment volume of "Others" was mainly due to Indonesia and to local, low-margin brands in Pakistan and the Philippines.

Asia Key Market Commentaries

In Indonesia, estimated cigarette industry size, PMI cigarette shipment volume, cigarette market share and segmentation performance are shown in the tables below.

Indonesia Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Cigarette Market (billion units)
75.7

 
85.6

 
(11.6
)%
 
146.6

 
160.8

 
(8.8
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Shipments (million units)
24,811

 
28,566

 
(13.1
)%
 
48,210

 
53,708

 
(10.2
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Market Share
 
 
 
 
 
 
 
 
 
 
 
Sampoerna A
14.0
%
 
13.9
%
 
0.1

 
13.9
%
 
14.1
%
 
(0.2
)
Dji Sam Soe
6.4
%
 
6.4
%
 
—

 
6.3
%
 
6.5
%
 
(0.2
)
Sampoerna U
4.7
%
 
5.2
%
 
(0.5
)
 
4.8
%
 
4.9
%
 
(0.1
)
Others
7.7
%
 
7.9
%
 
(0.2
)
 
7.9
%
 
7.9
%
 
—

Total
32.8
%
 
33.4
%
 
(0.6
)
 
32.9
%
 
33.4
%
 
(0.5
)

Indonesia Segmentation Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
p.p.

 
2017

 
2016

 
p.p.

Segment % of Total Market
 
 
 
 
 
 
 
 
 
 
 
Hand-Rolled Kretek (SKT)
17.4
%
 
18.3
%
 
(0.9
)
 
17.8
%
 
18.6
%
 
(0.8
)
Machine-Made Kretek (SKM)
77.1
%
 
75.4
%
 
1.7

 
76.7
%
 
75.3
%
 
1.4

Whites (SPM)
5.5
%
 
6.3
%
 
(0.8
)
 
5.5
%
 
6.1
%
 
(0.6
)
Total
100.0
%
 
100.0
%
 
—

 
100.0
%
 
100.0
%
 
—

 
 
 
 
 
 
 
 
 
 
 
 
PMI % Share of Segment
 
 
 
 
 
 
 
 
 
 
 
Hand-Rolled Kretek (SKT)
36.2
%
 
36.5
%
 
(0.3
)
 
37.1
%
 
37.3
%
 
(0.2
)
Machine-Made Kretek (SKM)
29.1
%
 
28.7
%
 
0.4

 
28.9
%
 
28.6
%
 
0.3

Whites (SPM)
73.4
%
 
80.7
%
 
(7.3
)
 
75.0
%
 
81.0
%
 
(6.0
)

In the quarter, the estimated total cigarette market decreased by 11.6%, unfavorably impacted by net estimated trade inventory movements mainly associated with the timing of Ramadan. The decline primarily reflected the impact of above-inflation tax-driven price increases and the impact of higher utility prices on consumer spending. The decrease in PMI's cigarette shipments was mainly due to the lower estimated total cigarette market. The decline of PMI's cigarette market share mainly reflected the decline of PMI's share of the SPM segment and the soft performance of PMI's SKT portfolio.


- -19 -


Year-to-date, the estimated total cigarette market decreased by 8.8%, unfavorably impacted by net estimated trade inventory movements mainly associated with the timing of Ramadan, primarily reflecting the same dynamics as in the quarter. The decrease in PMI's cigarette shipments and share primarily reflected the same dynamics as in the quarter.

In Japan, estimated industry size, PMI shipment volume and market share performance, shown in the table below, include cigarettes and PMI's heated tobacco units.

Japan Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Market (billion units)
43.4

 
43.7

 
(0.8
)%
 
84.0

 
87.6

 
(4.1
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
 
 
 
 
 
 
 
 
 
 
 
Cigarettes
8,274

 
11,042

 
(25.1
)%
 
18,975

 
22,593

 
(16.0
)%
Heated Tobacco Units
5,687

 
1,118

 
+100%

 
9,832

 
1,553

 
+100%

Total
13,961

 
12,160

 
14.8
 %
 
28,807

 
24,146

 
19.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
9.6
%
 
10.9
%
 
(1.3
)
 
9.8
%
 
10.7
%
 
(0.9
)
Marlboro HeatSticks
10.0
%
 
2.2
%
 
7.8

 
8.6
%
 
1.5
%
 
7.1

Parliament
2.1
%
 
2.4
%
 
(0.3
)
 
2.1
%
 
2.4
%
 
(0.3
)
Lark
8.9
%
 
10.2
%
 
(1.3
)
 
9.0
%
 
9.7
%
 
(0.7
)
Others
1.4
%
 
1.8
%
 
(0.4
)
 
1.5
%
 
1.7
%
 
(0.2
)
Total
32.0
%
 
27.5
%
 
4.5

 
31.0
%
 
26.0
%
 
5.0


In the quarter, the estimated total market decreased by 0.8%, or by 3.2% excluding the net impact of estimated trade inventory movements mainly associated with PMI's principal competitor's products in the second quarter of 2016 after its retail price increases. The increase in PMI's shipment volume mainly reflected higher share, driven by Marlboro HeatSticks.

Year-to-date, the estimated total market decreased by 4.1%, or by 3.8% excluding the net impact of estimated trade inventory movements. PMI's shipment volume increased by 13.4%, excluding the net impact of distributor inventory movements primarily associated with the timing of Marlboro HeatSticks in transit to Japan, mainly reflecting higher share, driven by Marlboro HeatSticks.
   

- -20 -


In Korea, estimated industry size, PMI shipment volume and market share performance, shown in the table below, include cigarettes and PMI's heated tobacco units.

Korea Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change
 
2017

 
2016

 
% / p.p.
 
2017
 
2016
 
% / p.p.
Total Market (billion units)
18.2

 
18.8

 
(2.8
)%
 
34.4

 
35.8

 
(3.9
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
3,696

 
3,902

 
(5.3
)%
 
6,745

 
7,445

 
(9.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
9.1
%
 
9.4
%
 
(0.3
)
 
8.9
%
 
9.4
%
 
(0.5
)
Parliament
8.4
%
 
7.6
%
 
0.8

 
8.2
%
 
7.6
%
 
0.6

Virginia S.
2.1
%
 
3.2
%
 
(1.1
)
 
2.0
%
 
3.3
%
 
(1.3
)
Others*
0.7
%
 
0.6
%
 
0.1

 
0.6
%
 
0.6
%
 
—

Total
20.3
%
 
20.8
%
 
(0.5
)
 
19.7
%
 
20.9
%
 
(1.2
)
*Includes heated tobacco units.
 
 
 
 
 

In the quarter, the estimated total market decreased by 2.8%, primarily reflecting a challenging comparison with the second quarter of 2016 which increased by 7.0%. The decrease in PMI's shipment volume was due to the lower total market, as well as lower market share, reflecting the impact of new brand launches by PMI's principal competitor. The decline in market share of Virginia S. reflected the morphing of its super slims variants to Parliament during the first nine months of 2016.

Year-to-date, the estimated total market decreased by 3.9%, primarily reflecting a challenging comparison with the first six months of 2016, which increased by 20.9%. The decrease in PMI's shipment volume was due to the lower total market, as well as lower market share, mainly due to the same dynamics as in the quarter.

In the Philippines, estimated cigarette industry size, PMI cigarette shipment volume and cigarette market share performance are shown in the table below.

Philippines Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Cigarette Market (billion units)
19.2

 
20.3

 
(5.7
)%
 
35.8

 
39.9

 
(10.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Shipments (million units)
12,671

 
14,807

 
(14.4
)%
 
23,626

 
29,281

 
(19.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
31.6
%
 
27.8
%
 
3.8

 
31.9
%
 
27.7
%
 
4.2

Fortune
17.9
%
 
24.7
%
 
(6.8
)
 
17.6
%
 
24.8
%
 
(7.2
)
Jackpot
6.4
%
 
8.5
%
 
(2.1
)
 
6.2
%
 
8.7
%
 
(2.5
)
Others
10.2
%
 
11.9
%
 
(1.7
)
 
10.3
%
 
12.1
%
 
(1.8
)
Total
66.1
%
 
72.9
%
 
(6.8
)
 
66.0
%
 
73.3
%
 
(7.3
)
    
In the quarter, the estimated total cigarette market decreased by 5.7%, mainly due to the impact of excise tax-driven price increases, including those on PMI's full brand portfolio in the fourth quarter of 2016. The decline in PMI's cigarette shipment volume was due to the lower total cigarette market, as well as lower cigarette market

- -21 -


share, particularly of PMI's low and super-low price brands as a result of the timing of competitors' price increases, which initially widened the price gaps to PMI's principal competitor's discounted brands, partly offset by Marlboro, which benefited from in-switching from lower-priced brands.

Year-to-date, the decline of the estimated total cigarette market, PMI's cigarette shipment volume and cigarette market share all reflected the same dynamics as in the quarter.

LATIN AMERICA & CANADA REGION

2017 Second-Quarter
Net revenues, excluding excise taxes, of $748 million increased by 7.3%. Excluding unfavorable currency of $20 million, net revenues, excluding excise taxes, increased by 10.2%, primarily reflecting a favorable pricing variance of $74 million, driven principally by Argentina, Canada and Mexico, partly offset by unfavorable volume/mix of $3 million, mainly due to Brazil and Canada, partly offset by Mexico.
  
Operating companies income of $268 million increased by 19.6%. Excluding unfavorable currency of $26 million, operating companies income increased by 31.3%, primarily driven by a favorable pricing variance, partly offset by unfavorable volume/mix of $4 million, mainly due to Brazil and Canada, partly offset by Mexico.
 
Adjusted operating companies income and margin are shown in the table below and detailed on Schedule 12. Adjusted operating companies income, excluding unfavorable currency, increased by 31.3%. Adjusted operating companies income margin, excluding unfavorable currency, increased by 6.2 points to 38.3%, principally driven by the factors mentioned above, as detailed on Schedule 12.

Latin America & Canada OCI
Second-Quarter
 
Six Months Year-to-Date
(in millions)
 
 
 
 
Excl.

 
 
 
 
 
Excl.

 
2017

 
2016

Change

Curr.

 
2017

 
2016

Change

Curr.

OCI
$
268

 
$
224

19.6
%
31.3
%
 
$
445

 
$
453

(1.8
)%
9.7
%
Asset impairment & exit costs
—

 
—

 
 
 
—

 
—

 
 
Adjusted OCI
$
268

 
$
224

19.6
%
31.3
%
 
$
445

 
$
453

(1.8
)%
9.7
%
Adjusted OCI Margin*
35.8
%
 
32.1
%
3.7

6.2

 
32.9
%
 
33.6
%
(0.7
)
2.0

*Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.

- -22 -



Latin America & Canada PMI Shipment Commentaries    

Latin America & Canada PMI Shipment Volume
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

 
 
 
 
 
 
 
 
 
 
Cigarettes
21,553

 
21,259

1.4
%
 
40,849

 
42,959

(4.9
)%
Heated Tobacco Units
3

 
—

—
%
 
4

 
—

—
 %
Total Latin America & Canada
21,556

 
21,259

1.4
%
 
40,853

 
42,959

(4.9
)%

Latin America & Canada PMI Shipment Volume by Brand
Second-Quarter
 
Six Months Year-to-Date
(million units)
 
 
 
 
 
 
 
 
 
 
2017

 
2016

Change

 
2017

 
2016

Change

Cigarettes
 
 
 
 
 
 
 
 
 
Marlboro
8,899

 
8,336

6.7
 %
 
16,523

 
17,216

(4.0
)%
Philip Morris
3,210

 
4,126

(22.2
)%
 
6,649

 
8,757

(24.1
)%
Chesterfield
2,111

 
223

+100.0%

 
3,998

 
394

+100.0%

Others
7,333

 
8,574

(14.5
)%
 
13,679

 
16,592

(17.6
)%
Total Cigarettes
21,553

 
21,259

1.4
 %
 
40,849

 
42,959

(4.9
)%
Heated Tobacco Units
3

 
—

—
 %
 
4

 
—

—
 %
Total Latin America & Canada
21,556

 
21,259

1.4
 %
 
40,853

 
42,959

(4.9
)%

2017 Second-Quarter and Six Months Year-to-Date
In the quarter, PMI's total shipment volume increased by 1.4% to 21.6 billion units, driven by Mexico, partly offset by Brazil, Canada and Colombia. The increase in cigarette shipment volume of Marlboro was mainly driven by Mexico, partly offset by Argentina and Brazil. The decrease in cigarette shipment volume of Philip Morris was mainly due to Argentina. The increase in cigarette shipment volume of Chesterfield was driven by Argentina, Colombia and Venezuela. The decrease in cigarette shipment volume of "Others" was mainly due to principally local, lower-margin brands in Argentina, Brazil and Colombia.

Year-to-date, PMI's total shipment volume decreased by 4.9% to 40.9 billion units, mainly due to cigarette volume declines in Argentina, Brazil, Canada and Colombia. The decrease in cigarette shipment volume of Marlboro was mainly due to Argentina and Brazil, partly offset by Mexico. The decrease in cigarette shipment volume of Philip Morris was mainly due to Argentina. The increase in cigarette shipment volume of Chesterfield was driven by Argentina, Colombia and Venezuela. The decrease in cigarette shipment volume of "Others" was mainly due to principally local, lower-margin brands in Argentina, Brazil, Colombia and Venezuela.


- -23 -


Latin America & Canada Key Market Commentaries

In Argentina, estimated cigarette industry size, PMI cigarette shipment volume and cigarette market share performance are shown in the table below.

Argentina Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Cigarette Market (billion units)
8.8

 
8.4

 
4.6
%
 
18.1

 
18.1

 
(0.4
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Shipments (million units)
6,511

 
6,445

 
1.0
%
 
13,459

 
13,971

 
(3.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
19.9
%
 
22.7
%
 
(2.8
)
 
20.1
%
 
23.4
%
 
(3.3
)
Chesterfield
15.7
%
 
2.5
%
 
13.2

 
15.1
%
 
2.0
%
 
13.1

Philip Morris
32.8
%
 
44.8
%
 
(12.0
)
 
33.4
%
 
44.7
%
 
(11.3
)
Others
5.8
%
 
6.8
%
 
(1.0
)
 
5.9
%
 
6.9
%
 
(1.0
)
Total
74.2
%
 
76.8
%
 
(2.6
)
 
74.5
%
 
77.0
%
 
(2.5
)

In the quarter, the estimated total cigarette market increased by 4.6%, primarily reflecting a favorable comparison to the second quarter of 2016, which declined by 12.5%, mainly due to the impact of excise tax-driven price increases. The increase in PMI's cigarette shipment volume was mainly due to the higher total market, partly offset by lower cigarette market share. The lower cigarette market share principally reflected the growth of the ultra-low price segment, where local manufacturers are exempt from paying minimum excise tax, resulting in widened price gaps with premium Marlboro and mid-price Philip Morris, partly offset by low-price Chesterfield that also benefited from its successful morphing from Next.

Year-to-date, the estimated total cigarette market decreased by 0.4%. The decrease in PMI's cigarette shipment volume was mainly due to lower cigarette market share, reflecting the same dynamics as in the quarter.

In Canada, estimated industry size, PMI shipment volume and market share performance, shown in the table below, include cigarettes and PMI's heated tobacco units.

Canada Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Market (billion units)
6.6

 
7.0

 
(6.3
)%
 
11.4

 
12.6

 
(9.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Shipments (million units)
2,452

 
2,607

 
(5.9
)%
 
4,228

 
4,790

 
(11.7
)%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Market Share
 
 
 
 
 
 
 
 
 
 
 
Belmont
3.9
%
 
3.5
%
 
0.4

 
3.8
%
 
3.6
%
 
0.2

Canadian Classics
9.5
%
 
9.7
%
 
(0.2
)
 
9.3
%
 
10.2
%
 
(0.9
)
Next
11.5
%
 
10.8
%
 
0.7

 
11.3
%
 
11.2
%
 
0.1

Others*
12.4
%
 
13.0
%
 
(0.6
)
 
12.0
%
 
13.0
%
 
(1.0
)
Total
37.3
%
 
37.0
%
 
0.3

 
36.4
%
 
38.0
%
 
(1.6
)
*Includes heated tobacco units.
 
 
 
 
 


- -24 -


In the quarter, the estimated total market decreased by 6.3%, mainly reflecting the impact of retail price increases. The decrease in PMI's shipment volume was mainly due to the lower total market.

Year-to-date, the estimated total market decreased by 9.3%, or by 7.6% excluding the net impact of estimated trade inventory movements, reflecting the impact of price increases. The decrease in PMI's shipment volume was mainly due to the lower total market, as well as lower cigarette market share that largely reflected the unfavorable impact of estimated trade inventory movements.

In Mexico, estimated cigarette industry size, PMI cigarette shipment volume and cigarette market share performance are shown in the table below.

Mexico Key Market Data
Second-Quarter
 
Six Months Year-to-Date
 
 
 
 
 
Change

 
 
 
 
 
Change

 
2017

 
2016

 
% / p.p.

 
2017

 
2016

 
% / p.p.

Total Cigarette Market (billion units)
9.8

 
8.8

 
11.7
%
 
17.6

 
17.6

 
0.3
%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Shipments (million units)
6,903

 
5,976

 
15.5
%
 
11,963

 
11,958

 
—
%
 
 
 
 
 
 
 
 
 
 
 
 
PMI Cigarette Market Share
 
 
 
 
 
 
 
 
 
 
 
Marlboro
51.2
%
 
47.4
%
 
3.8

 
48.9
%
 
47.6
%
 
1.3

Delicados
8.6
%
 
9.7
%
 
(1.1
)
 
8.4
%
 
9.9
%
 
(1.5
)
Benson & Hedges
5.3
%
 
4.9
%
 
0.4

 
5.1
%
 
4.6
%
 
0.5

Others
5.4
%
 
6.2
%
 
(0.8
)
 
5.4
%
 
5.9
%
 
(0.5
)
Total
70.5
%
 
68.2
%
 
2.3

 
67.8
%
 
68.0
%
 
(0.2
)

In the quarter, the estimated total cigarette market increased by 11.7%. Excluding the impact of estimated trade inventory movements, the estimated total cigarette market increased by 1.2%. The increase in PMI's cigarette shipment volume mainly reflected the higher total cigarette market. The increase of PMI's cigarette market share largely reflected the favorable impact of the estimated trade inventory movements.
 
Year-to-date, the estimated total cigarette market increased by 0.3%, or by 1.7% excluding the impact of estimated inventory movements. PMI's flat cigarette shipment volume mainly reflected the essentially flat total cigarette market.



- -25 -



About Philip Morris International Inc. (“PMI”)
PMI is the world’s leading international tobacco company, with six of the world's top 15 international brands and products sold in more than 180 markets.  In addition to the manufacture and sale of cigarettes, including Marlboro, the number one global cigarette brand, and other tobacco products, PMI is engaged in the development and commercialization of reduced-risk products (“RRPs”).  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.  Through multidisciplinary capabilities in product development, state-of-the-art facilities, and industry-leading scientific substantiation, PMI aims to provide an RRP portfolio that meets a broad spectrum of adult smoker preferences and rigorous regulatory requirements.  For more information, see 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. 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, customs classifications or excise 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.
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 March 31, 2017. 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 -


 
 
 
Schedule 1

PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Condensed Statements of Earnings
For the Quarters Ended June 30,
($ in millions, except per share data)
(Unaudited)
 
 
 
 
 
2017
2016
% Change
Net Revenues
$
19,319

$
19,041

1.5
 %
Cost of sales
2,519

2,364

6.6
 %
Excise Taxes on products (1)
12,402

12,392

0.1
 %
Gross profit
4,398

4,285

2.6
 %
Marketing, administration and research costs
1,655

1,513

 
Asset impairment and exit costs
—

—

 
Amortization of intangibles
22

19

 
Operating Income (2)
2,721

2,753

(1.2
)%
Interest expense, net
213

223

 
Earnings before income taxes
2,508

2,530

(0.9
)%
Provision for income taxes
689

716

(3.8
)%
Equity (income)/loss in unconsolidated subsidiaries, net
(23
)
(28
)
 
Net Earnings
1,842

1,842

—
 %
Net Earnings attributable to noncontrolling interests
61

54

 
Net Earnings attributable to PMI
$
1,781

$
1,788

(0.4
)%
 
 
 
 
Per share data (3):
 
 
 
  Basic Earnings Per Share
$
1.14

$
1.15

(0.9
)%
  Diluted Earnings Per Share
$
1.14

$
1.15

(0.9
)%
 
 
 
 

 
 
 
 
(1) The segment detail of Excise Taxes on products sold for the quarters ended June 30, 2017 and 2016 is shown on Schedule 2.
 
(2) PMI's management evaluates segment performance and allocates resources based on operating companies income, which PMI defines as operating income, excluding general corporate expenses and amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. The reconciliation from operating income to operating companies income is as follows:
 
 
 
 
 
2017
2016
% Change
Operating Income
$
2,721

$
2,753

(1.2
)%
Excluding:
 
 
 
- Amortization of intangibles
22

19

 
- General corporate expenses (included in marketing, administration and research costs above)
40

37

 
Plus: Equity (income)/loss in unconsolidated subsidiaries, net
(23
)
(28
)
 
Operating Companies Income
$
2,806

$
2,837

(1.1
)%
 
 
 
 
(3) Net Earnings and weighted-average shares used in the basic and diluted earnings per share computations for the quarters ended June 30, 2017 and 2016 are shown on Schedule 4, Footnote 1.
 
 
 
 
 
 
 
 
 





 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 2

PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Selected Financial Data by Business Segment
For the Quarters Ended June 30,
($ in millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Revenues excluding Excise Taxes
 
 
 
European Union
EEMA
Asia
Latin America & Canada
 
Total
 
 
 
 
 
 
 
 
 
2017
Net Revenues (1)
 
$
6,921

$
4,492

$
5,367

$
2,539

 
$
19,319

 
Excise Taxes on products
 
(4,811
)
(2,817
)
(2,983
)
(1,791
)
 
(12,402
)
 
Net Revenues excluding Excise Taxes
 
2,110

1,675

2,384

748

 
6,917

 
 
 
 
 
 
 
 
 
2016
Net Revenues
 
$
7,134

$
4,531

$
5,212

$
2,164

 
$
19,041

 
Excise Taxes on products
 
(4,979
)
(2,867
)
(3,079
)
(1,467
)
 
(12,392
)
 
Net Revenues excluding Excise Taxes
 
2,155

1,664

2,133

697

 
6,649

 
 
 
 
 
 
 
 
 
Variance
Currency
 
(92
)
(62
)
(21
)
(20
)
 
(195
)
 
Acquisitions
 
—

—

—

—

 
—

 
Operations
 
47

73

272

71

 
463

 
Variance Total
 
(45
)
11

251

51

 
268

 
Variance Total (%)
 
(2.1
)%
0.7
%
11.8
%
7.3
%
 
4.0
%
 
 
 
 
 
 
 
 
 
 
Variance excluding Currency
 
47

73

272

71

 
463

 
Variance excluding Currency (%)
 
2.2
 %
4.4
%
12.8
%
10.2
%
 
7.0
%
 
 
 
 
 
 
 
 
 
 
Variance excluding Currency & Acquisitions
 
47

73

272

71

 
463

 
Variance excluding Currency & Acquisitions (%)
2.2
 %
4.4
%
12.8
%
10.2
%
 
7.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 2017 Currency decreased Net Revenues as follows:
 
 
 
 
 
 
European Union
 
$
(304
)
 
 
 
 
 
 
EEMA
 
(483
)
 
 
 
 
 
 
Asia
 
(33
)
 
 
 
 
 
 
Latin America & Canada
 
(76
)
 
 
 
 
 
 
 
 
$
(896
)
 
 
 
 
 





 
 
 
 
 
 
 
Schedule 3
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Selected Financial Data by Business Segment
For the Quarters Ended June 30,
($ in millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
Operating Companies Income
 
 
 
European Union
EEMA
Asia
Latin America & Canada
Total
 
2017
 
$
969

$
733

$
836

$
268

$
2,806

 
2016
 
1,070

794

749

224

2,837

 
% Change
 
(9.4
)%
(7.7
)%
11.6
%
19.6
%
(1.1
)%
 
 
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
 
For the quarter ended June 30, 2016
 
$
1,070

$
794

$
749

$
224

$
2,837

 
 
 
 
 
 
 
 
 
2016 Asset impairment and exit costs
 
—

—

—

—

—

 
2017 Asset impairment and exit costs
 
—

—

—

—

—

 
 
 
 
 
 
 
 
 
Acquisitions
 
—

—

—

—

—

 
Currency
 
(61
)
(87
)
(25
)
(26
)
(199
)
 
Operations
 
(40
)
26

112

70

168

 
For the quarter ended June 30, 2017
 
$
969

$
733

$
836

$
268

$
2,806

 
 
 
 
 
 
 
 
 





 
 
 
Schedule 4
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Diluted Earnings Per Share
For the Quarters Ended June 30,
($ in millions, except per share data)
(Unaudited)
 
 
 
 
 
 
 
 
Diluted
 
 
 
 
E.P.S.
 
 
 
 
 
 
2017 Diluted Earnings Per Share
 
 
$
1.14

(1) 
2016 Diluted Earnings Per Share
 
 
$
1.15

(1) 
Change
 
 
$
(0.01
)
 
% Change
 
 
(0.9
)%
 
 
 
 
 
 
Reconciliation:
 
 
 
 
2016 Diluted Earnings Per Share
 
 
$
1.15

(1) 
 
 
 
 
 
Special Items:
 
 
 
 
2016 Asset impairment and exit costs
 
 
—

 
2016 Tax items
 
 
—

 
2017 Asset impairment and exit costs
 
 
—

 
2017 Tax items
 
 
—

 
 
 
 
 
 
Currency
 
 
(0.11
)
 
Interest
 
 
0.01

 
Change in tax rate
 
 
0.01

 
Operations
 
 
0.08

(2) 
2017 Diluted Earnings Per Share
 
 
$
1.14

(1) 
 
 
 
 
 
 
 
 
 
 
(1) Basic and diluted EPS were calculated using the following (in millions):
 
 
 
 
 
 
 
Q2
2017
 
Q2
2016
 
 
 
 
 
 
Net Earnings attributable to PMI
$
1,781

 
$
1,788

 
Less distributed and undistributed earnings attributable
 
 
 
 
to share-based payment awards
5

 
5

 
Net Earnings for basic and diluted EPS
$
1,776

 
$
1,783

 
 
 
 
 
 
Weighted-average shares for basic EPS
1,553

 
1,551

 
Plus Contingently Issuable Performance Stock Units (PSUs)
1

 
—

 
Weighted-average shares for diluted EPS
1,554

 
1,551

 
 
 
 
 
 
(2) Includes the impact of shares outstanding and share-based payments
 
 
 
 
 
 





 
 
 
 
Schedule 5

 
PHILIP MORRIS INTERNATIONAL INC.
 
and Subsidiaries
 
Condensed Statements of Earnings
 
For the Six Months Ended June 30,
 
($ in millions, except per share data)
 
(Unaudited)
 
 
 
 
 
 
 
2017
2016
% Change

 
Net Revenues
$
35,875

$
35,829

0.1
 %
 
Cost of sales
4,696

4,460

5.3
 %
 
Excise Taxes on products (1)
22,894

23,097

(0.9
)%
 
Gross profit
8,285

8,272

0.2
 %
 
Marketing, administration and research costs
3,124

3,009

 
 
Asset impairment and exit costs
—

—

 
 
Amortization of intangibles
44

37

 
 
Operating Income (2)
5,117

5,226

(2.1
)%
 
Interest expense, net
432

470

 
 
Earnings before income taxes
4,685

4,756

(1.5
)%
 
Provision for income taxes
1,230

1,346

(8.6
)%
 
Equity (income)/loss in unconsolidated subsidiaries, net
(45
)
(37
)
 
 
Net Earnings
3,500

3,447

1.5
 %
 
Net Earnings attributable to noncontrolling interests
129

129

 
 
Net Earnings attributable to PMI
$
3,371

$
3,318

1.6
 %
 
 
 
 
 
 
Per share data (3):
 
 
 
 
  Basic Earnings Per Share
$
2.17

$
2.13

1.9
 %
 
  Diluted Earnings Per Share
$
2.17

$
2.13

1.9
 %
 
 
 
 
 
 

 
 
 
 
 
 
(1) The segment detail of Excise Taxes on products sold for the six months ended June 30, 2017 and 2016 is shown on Schedule 6.
 
 
 
(2) PMI's management evaluates segment performance and allocates resources based on operating companies income, which PMI defines as operating income, excluding general corporate expenses and amortization of intangibles, plus equity (income)/loss in unconsolidated subsidiaries, net. The reconciliation from operating income to operating companies income is as follows:
 
 
 
 
 
 
 
2017
2016
% Change
 
Operating Income
$
5,117

$
5,226

(2.1
)%
 
Excluding:
 
 
 
 
- Amortization of intangibles
44

37

 
 
- General corporate expenses (included in marketing, administration and research costs above)
91

83

 
 
Plus: Equity (income)/loss in unconsolidated subsidiaries, net
(45
)
(37
)
 
 
Operating Companies Income
$
5,297

$
5,383

(1.6
)%
 
 
 
 
 
 
(3) Net Earnings and weighted-average shares used in the basic and diluted Earnings Per Share computations for the six months ended June 30, 2017 and 2016 are shown on Schedule 8, Footnote 1.





 
 
 
 
 
 
 
 
Schedule 6

PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Selected Financial Data by Business Segment
For the Six Months Ended June 30,
($ in millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net Revenues excluding Excise Taxes
 
 
 
European Union
EEMA
Asia
Latin America & Canada
 
Total
 
 
 
 
 
 
 
 
 
2017
Net Revenues (1)
 
$
12,810

$
8,187

$
10,205

$
4,673

 
$
35,875

 
Excise Taxes on products
 
(8,960
)
(5,035
)
(5,580
)
(3,319
)
 
(22,894
)
 
Net Revenues excluding Excise Taxes
 
3,850

3,152

4,625

1,354

 
12,981

 
 
 
 
 
 
 
 
 
2016
Net Revenues
 
$
13,277

$
8,528

$
9,901

$
4,123

 
$
35,829

 
Excise Taxes on products
 
(9,259
)
(5,262
)
(5,800
)
(2,776
)
 
(23,097
)
 
Net Revenues excluding Excise Taxes
 
4,018

3,266

4,101

1,347

 
12,732

 
 
 
 
 
 
 
 
 
Variance
Currency
 
(147
)
(161
)
35

(42
)
 
(315
)
 
Acquisitions
 
—

—

—

—

 
—

 
Operations
 
(21
)
47

489

49

 
564

 
Variance Total
 
(168
)
(114
)
524

7

 
249

 
Variance Total (%)
 
(4.2
)%
(3.5
)%
12.8
%
0.5
%
 
2.0
%
 
 
 
 
 
 
 
 
 
 
Variance excluding Currency
 
(21
)
47

489

49

 
564

 
Variance excluding Currency (%)
 
(0.5
)%
1.4
 %
11.9
%
3.6
%
 
4.4
%
 
 
 
 
 
 
 
 
 
 
Variance excluding Currency & Acquisitions
 
(21
)
47

489

49

 
564

 
Variance excluding Currency & Acquisitions (%)
(0.5
)%
1.4
 %
11.9
%
3.6
%
 
4.4
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) 2017 Currency increased / (decreased) Net Revenues as follows:
 
 
 
 
 
European Union
 
$
(507
)
 
 
 
 
 
 
EEMA
 
(1,024
)
 
 
 
 
 
 
Asia
 
63

 
 
 
 
 
 
Latin America & Canada
 
(214
)
 
 
 
 
 
 
 
 
$
(1,682
)
 
 
 
 
 





 
 
 
 
 
 
Schedule 7
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Selected Financial Data by Business Segment
For the Six Months Ended June 30,
($ in millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Operating Companies Income
 
 
European Union
EEMA
Asia
Latin America & Canada
Total
2017
 
$
1,741

$
1,423

$
1,688

$
445

$
5,297

2016
 
1,976

1,427

1,527

453

5,383

% Change
 
(11.9
)%
(0.3
)%
10.5
%
(1.8
)%
(1.6
)%
 
 
 
 
 
 
 
Reconciliation:
 
 
 
 
 
 
For the six months ended June 30, 2016
 
$
1,976

$
1,427

$
1,527

$
453

$
5,383

 
 
 
 
 
 
 
2016 Asset impairment and exit costs
 
—

—

—

—

—

2017 Asset impairment and exit costs
 
—

—

—

—

—

 
 
 
 
 
 
 
Acquisitions
 
—

—

—

—

—

Currency
 
(89
)
(99
)
29

(52
)
(211
)
Operations
 
(146
)
95

132

44

125

For the six months ended June 30, 2017
 
$
1,741

$
1,423

$
1,688

$
445

$
5,297

 
 
 
 
 
 
 





 
 
 
Schedule 8
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Diluted Earnings Per Share
For the Six Months Ended June 30,
($ in millions, except per share data)
(Unaudited)
 
 
 
 
 
 
 
 
Diluted
 
 
 
 
E.P.S.
 
 
 
 
 
 
2017 Diluted Earnings Per Share
 
 
$
2.17

(1) 
2016 Diluted Earnings Per Share
 
 
$
2.13

(1) 
Change
 
 
$
0.04

 
% Change
 
 
1.9
%
 
 
 
 
 
 
Reconciliation:
 
 
 
 
2016 Diluted Earnings Per Share
 
 
$
2.13

(1) 
 
 
 
 
 
Special Items:
 
 
 
 
2016 Asset impairment and exit costs
 
 
—

 
2016 Tax items
 
 
—

 
2017 Asset impairment and exit costs
 
 
—

 
2017 Tax items
 
 
0.04

 
 
 
 
 
 
Currency
 
 
(0.11
)
 
Interest
 
 
0.02

 
Change in tax rate
 
 
0.02

 
Operations
 
 
0.07

(2) 
2017 Diluted Earnings Per Share
 
 
$
2.17

(1) 
 
 
 
 
 
 
 
 
 
 
(1) Basic and diluted EPS were calculated using the following (in millions):
 
 
 
 
 
 
 
YTD June
2017
 
YTD June
2016
 
 
 
 
 
 
Net Earnings attributable to PMI
$
3,371

 
$
3,318

 
Less distributed and undistributed earnings attributable
 
 
 
 
to share-based payment awards
8

 
9

 
Net Earnings for basic and diluted EPS
$
3,363

 
$
3,309

 
 
 
 
 
 
Weighted-average shares for basic EPS
1,552

 
1,551

 
Plus Contingently Issuable Performance Stock Units (PSUs)
1

 
—

 
Weighted-average shares for diluted EPS
1,553

 
1,551

 
 
 
 
 
 
(2) Includes the impact of shares outstanding and share-based payments
 





 
 
 
 
 
Schedule 9
PHILIP MORRIS INTERNATIONAL INC.
 
and Subsidiaries
 
Condensed Balance Sheets
 
($ in millions, except ratios)
 
(Unaudited)
 
 
 
 
 
 
 
June 30,
 
December 31,
 
 
2017
 
2016
 
Assets
 
 
 
 
Cash and cash equivalents
$
6,197

 
$
4,239

 
All other current assets
12,235

 
13,369

 
Property, plant and equipment, net
6,629

 
6,064

 
Goodwill
7,614

 
7,324

 
Other intangible assets, net
2,527

 
2,470

 
Investments in unconsolidated subsidiaries
1,072

 
1,011

 
Other assets
2,386

 
2,374

 
      Total assets
$
38,660

 
$
36,851

 
 
 
 
 
 
Liabilities and Stockholders' (Deficit) Equity
 
 
 
 
Short-term borrowings
$
898

 
$
643

 
Current portion of long-term debt
4,254

 
2,573

 
All other current liabilities
12,091

 
13,251

 
Long-term debt
26,595

 
25,851

 
Deferred income taxes
1,362

 
1,897

 
Other long-term liabilities
3,737

 
3,536

 
      Total liabilities
48,937

 
47,751

 
 
 
 
 
 
Total PMI stockholders' deficit
(12,008
)
 
(12,688
)
 
Noncontrolling interests
1,731

 
1,788

 
      Total stockholders' deficit
(10,277
)
 
(10,900
)
 
      Total liabilities and stockholders' (deficit) equity
$
38,660

 
$
36,851

 
 
 
 
 
 
Total debt
$
31,747

 
$
29,067

 
Total debt to Adjusted EBITDA
2.76

(1) 
2.51

(1) 
Net debt to Adjusted EBITDA
2.22

(1) 
2.15

(1) 
 
 
 
 
 
(1) For the calculation of Total Debt to Adjusted EBITDA and Net Debt to Adjusted EBITDA ratios, refer to Schedule 18.





 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 10
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP Measures
Adjustments for the Impact of Currency and Acquisitions
For the Quarters Ended June 30,
($ in millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in Net Revenues
excluding Excise Taxes
Net
Revenues
 
Less
Excise
Taxes
 
Net Revenues excluding Excise Taxes
 
Less
Currency
 
Net Revenues excluding Excise Taxes & Currency
 
Less
Acquisitions
 
Net Revenues excluding Excise Taxes, Currency & Acquisitions
 
 
 
Net Revenues
 
Less
Excise
Taxes
 
Net Revenues excluding Excise Taxes
 

Total

Excluding Currency

Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
6,921

 
$
4,811

 
$
2,110

 
$
(92
)
 
$
2,202

 
$
—

 
$
2,202

 
European Union
 
$
7,134

 
$
4,979

 
$
2,155

 
(2.1
)%
2.2
 %
2.2
 %
4,492

 
2,817

 
1,675

 
(62
)
 
1,737

 
—

 
1,737

 
EEMA
 
4,531

 
2,867

 
1,664

 
0.7
 %
4.4
 %
4.4
 %
5,367

 
2,983

 
2,384

 
(21
)
 
2,405

 
—

 
2,405

 
Asia
 
5,212

 
3,079

 
2,133

 
11.8
 %
12.8
 %
12.8
 %
2,539

 
1,791

 
748

 
(20
)
 
768

 
—

 
768

 
Latin America & Canada
 
2,164

 
1,467

 
697

 
7.3
 %
10.2
 %
10.2
 %
$
19,319

 
$
12,402

 
$
6,917

 
$
(195
)
 
$
7,112

 
$
—

 
$
7,112

 
PMI Total
 
$
19,041

 
$
12,392

 
$
6,649

 
4.0
 %
7.0
 %
7.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in
Operating Companies Income
Operating Companies Income
 
 
 
 
 
Less
Currency
 
Operating Companies Income excluding Currency
 
Less
Acquisitions
 
Operating Companies Income excluding Currency & Acquisitions
 
 
 
 
 
 
 
Operating Companies Income
 

Total
Excluding Currency
Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
969

 
 
 
 
 
$
(61
)
 
$
1,030

 
$
—

 
$
1,030

 
European Union
 
 
 
 
 
$
1,070

 
(9.4
)%
(3.7
)%
(3.7
)%
733

 
 
 
 
 
(87
)
 
820

 
—

 
820

 
EEMA
 
 
 
 
 
794

 
(7.7
)%
3.3
 %
3.3
 %
836

 
 
 
 
 
(25
)
 
861

 
—

 
861

 
Asia
 
 
 
 
 
749

 
11.6
 %
15.0
 %
15.0
 %
268

 
 
 
 
 
(26
)
 
294

 
—

 
294

 
Latin America & Canada
 
 
 
 
 
224

 
19.6
 %
31.3
 %
31.3
 %
$
2,806

 
 
 
 
 
$
(199
)
 
$
3,005

 
$
—

 
$
3,005

 
PMI Total
 
 
 
 
 
$
2,837

 
(1.1
)%
5.9
 %
5.9
 %




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 11
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Selected Financial Data by Product Category
For the Quarters Ended June 30,
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in Combustible Products Net Revenues excluding Excise Taxes
Net Revenues (1)
 
Less
Excise
Taxes (3)
 
Net Revenues excluding Excise Taxes
 
Less
Currency
 
Net Revenues excluding Excise Taxes & Currency
 
Less
Acquisitions
 
Net Revenues excluding Excise Taxes, Currency & Acquisitions
 
Combustible Products
 
Net Revenues (1)
 
Less
Excise
Taxes (3)
 
Net Revenues excluding Excise Taxes
 

Total

Excluding Currency

Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
6,862

 
$
4,802

 
$
2,060

 
$
(89
)
 
$
2,150

 
$
—

 
$
2,150

 
European Union
 
$
7,122

 
$
4,979

 
$
2,143

 
(3.8
)%
0.3
 %
0.3
 %
4,474

 
2,815

 
1,659

 
(61
)
 
1,720

 
—

 
1,720

 
EEMA
 
4,531

 
2,867

 
1,664

 
(0.3
)%
3.4
 %
3.4
 %
4,816

 
2,981

 
1,835

 
(19
)
 
1,854

 
—

 
1,854

 
Asia
 
5,100

 
3,079

 
2,022

 
(9.2
)%
(8.3
)%
(8.3
)%
2,538

 
1,790

 
748

 
(21
)
 
768

 
—

 
768

 
Latin America & Canada
 
2,164

 
1,467

 
697

 
7.3
 %
10.2
 %
10.2
 %
$
18,691

 
$
12,388

 
$
6,302

 
$
(190
)
 
$
6,493

 
$
—

 
$
6,493

 
Total Combustible Products
 
$
18,917

 
$
12,391

 
$
6,526

 
(3.4
)%
(0.5
)%
(0.5
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in Reduced-Risk Products Net Revenues excluding Excise Taxes
Net Revenues (2)
 
Less
Excise
Taxes (3)
 
Net Revenues excluding Excise Taxes
 
Less
Currency
 
Net Revenues excluding Excise Taxes & Currency
 
Less
Acquisitions
 
Net Revenues excluding Excise Taxes, Currency & Acquisitions
 
Reduced-Risk Products
 
Net Revenues (2)
 
Less
Excise
Taxes (3)
 
Net Revenues excluding Excise Taxes
 

Total

Excluding Currency

Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
59

 
$
9

 
$
50

 
$
(2
)
 
$
52

 
$
—

 
$
52

 
European Union
 
$
12

 
1

 
$
11

 
+100%

+100%

+100%

18

 
2

 
16

 
—

 
16

 
—

 
16

 
EEMA
 
—

 
—

 
—

 
+100%

+100%

+100%

551

 
2

 
549

 
(2
)
 
551

 
—

 
551

 
Asia
 
111

 
—

 
111

 
+100%

+100%

+100%

1
 
0

 
1

 
—

 
1
 
—

 
1
 
Latin America & Canada
 
1

 
0

 
0
 
+100%

+100%

+100%

$
628

 
$
13

 
$
615

 
$
(4
)
 
$
620

 
$
—

 
$
620

 
Total Reduced-Risk Products
 
$
124

 
$
1

 
$
123

 
+100%

+100%

+100%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
19,319

 
$
12,402

 
$
6,917

 
$
(195
)
 
$
7,112

 
$
—

 
$
7,112

 
PMI Total
 
$
19,041

 
$
12,392

 
$
6,649

 
4.0
 %
7.0
 %
7.0
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Net revenue amounts for our combustible products refer to the operating revenues generated from the sale of these products, net of sales and promotion incentives. These net revenue amounts consist of the sale of our cigarettes and other tobacco products combined. Other tobacco products primarily include tobacco for roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include reduced-risk products.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) Net revenue amounts for our reduced-risk products refer to the operating revenues generated from the sale of these products, net of sales and promotion incentives. These net revenue amounts consist of the sale of our heated tobacco units, our IQOS devices and related accessories, and other nicotine-containing products, which primarily include our e-vapor products. Reduced-risk products is the term we use 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. We have a range of reduced-risk products in various stages of development, scientific assessment and commercialization. Because our reduced-risk products do not burn tobacco, they produce far lower quantities of harmful and potentially harmful compounds than found in cigarette smoke.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) PMI often collects excise taxes from its customers and then remits them to governments, and, in those circumstances, PMI includes the excise taxes in its net revenues and in excise taxes on products.  In some jurisdictions, including Japan, PMI is not responsible for collecting excise taxes.
Note: Sum of product categories or Regions might not foot to PMI total due to rounding.




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 12
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP Measures
Reconciliation of Operating Companies Income to Adjusted Operating Companies Income &
Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions
For the Quarters Ended June 30,
($ in millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in Adjusted
Operating Companies Income
Operating Companies Income
 
Less
Asset Impairment & Exit Costs
 
Adjusted Operating Companies Income
 
Less
Currency
 
Adjusted Operating Companies Income excluding Currency
 
Less
Acquisitions
 
Adjusted Operating Companies Income excluding Currency & Acquisitions
 
 
 
Operating Companies Income
 
Less
Asset Impairment & Exit Costs
 
Adjusted Operating Companies Income
 

Adjusted
Adjusted excluding Currency
Adjusted excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
969

 
$
—

 
$
969

 
$
(61
)
 
$
1,030

 
$
—

 
$
1,030

 
European Union
 
$
1,070

 
$
—

 
$
1,070

 
(9.4
)%
(3.7
)%
(3.7
)%
733

 
—

 
733

 
(87
)
 
820

 
—

 
820

 
EEMA
 
794

 
—

 
794

 
(7.7
)%
3.3
 %
3.3
 %
836

 
—

 
836

 
(25
)
 
861

 
—

 
861

 
Asia
 
749

 
—

 
749

 
11.6
 %
15.0
 %
15.0
 %
268

 
—

 
268


(26
)
 
294

 
—

 
294

 
Latin America & Canada
 
224

 
—

 
224

 
19.6
 %
31.3
 %
31.3
 %
$
2,806

 
$
—

 
$
2,806

 
$
(199
)
 
$
3,005

 
$
—

 
$
3,005

 
PMI Total
 
$
2,837

 
$
—

 
$
2,837

 
(1.1
)%
5.9
 %
5.9
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
 

Adjusted Operating Companies Income excluding Currency
 
Net Revenues excluding Excise Taxes & Currency(1)
 
Adjusted Operating Companies Income Margin excluding Currency
 
 
 
Adjusted Operating Companies Income excluding Currency & Acquisitions
 
Net Revenues excluding Excise Taxes, Currency & Acquisitions(1)
 
Adjusted Operating Companies Income Margin excluding Currency & Acquisitions
 
 
 
Adjusted Operating Companies Income
 
Net Revenues excluding Excise Taxes(1)
 
Adjusted Operating Companies Income Margin
 
 
Adjusted Operating Companies Income Margin excluding Currency
Adjusted Operating Companies Income Margin excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,030

 
$
2,202

 
46.8
%
 
 
 
$
1,030

 
$
2,202

 
46.8
%
 
European Union
 
$
1,070

 
$
2,155

 
49.7
%
 
 
(2.9
)
(2.9
)
820

 
1,737

 
47.2
%
 
 
 
820

 
1,737

 
47.2
%
 
EEMA
 
794

 
1,664

 
47.7
%
 
 
(0.5
)
(0.5
)
861

 
2,405

 
35.8
%
 
 
 
861

 
2,405

 
35.8
%
 
Asia
 
749

 
2,133

 
35.1
%
 
 
0.7

0.7

294

 
768

 
38.3
%
 
 
 
294

 
768

 
38.3
%
 
Latin America & Canada
 
224

 
697

 
32.1
%
 
 
6.2

6.2

$
3,005

 
$
7,112

 
42.3
%
 
 
 
$
3,005

 
$
7,112

 
42.3
%
 
PMI Total
 
$
2,837

 
$
6,649

 
42.7
%
 
 
(0.4
)
(0.4
)

(1) For the calculation of Net Revenues excluding Excise Taxes, currency and acquisitions, refer to Schedule 10.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 13
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 and Adjusted Diluted EPS, excluding Currency
For the Quarters Ended June 30,
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
% Change
 
 
 
 
 
 
 
 
 
Reported Diluted EPS
 
$
1.14

 
$
1.15

 
(0.9
)%
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
Currency impact
 
(0.11
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported Diluted EPS, excluding Currency
$
1.25

 
$
1.15

 
8.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
% Change
 
 
 
 
 
 
 
 
 
Reported Diluted EPS
 
$
1.14

 
$
1.15

 
(0.9
)%
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
Asset impairment and exit costs
—

 
—

 
 
 
Tax items
 
—

 
—

 
 
 
 
 
 
 
 
 
 
 
Adjusted Diluted EPS
 
$
1.14

 
$
1.15

 
(0.9
)%
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
Currency impact
 
(0.11
)
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Diluted EPS, excluding Currency
$
1.25

 
$
1.15

 
8.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 14
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP Measures
Adjustments for the Impact of Currency and Acquisitions
For the Six Months Ended June 30,
($ in millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in Net Revenues
excluding Excise Taxes
Net
Revenues
 
Less
Excise
Taxes
 
Net Revenues excluding Excise Taxes
 
Less
Currency
 
Net Revenues excluding Excise Taxes & Currency
 
Less
Acquisitions
 
Net Revenues excluding Excise Taxes, Currency & Acquisitions
 
 
 
Net Revenues
 
Less
Excise
Taxes
 
Net Revenues excluding Excise Taxes
 

Total

Excluding Currency

Excluding Currency & Acquisitions
$
12,810

 
$
8,960

 
$
3,850

 
$
(147
)
 
$
3,997

 
$
—

 
$
3,997

 
European Union
 
$
13,277

 
$
9,259

 
$
4,018

 
(4.2
)%
(0.5
)%
(0.5
)%
8,187

 
5,035

 
3,152

 
(161
)
 
3,313

 
—

 
3,313

 
EEMA
 
8,528

 
5,262

 
3,266

 
(3.5
)%
1.4
 %
1.4
 %
10,205

 
5,580

 
4,625

 
35

 
4,590

 
—

 
4,590

 
Asia
 
9,901

 
5,800

 
4,101

 
12.8
 %
11.9
 %
11.9
 %
4,673

 
3,319

 
1,354

 
(42
)
 
1,396

 
—

 
1,396

 
Latin America & Canada
 
4,123

 
2,776

 
1,347

 
0.5
 %
3.6
 %
3.6
 %
$
35,875

 
$
22,894

 
$
12,981

 
$
(315
)
 
$
13,296

 
$
—

 
$
13,296

 
PMI Total
 
$
35,829

 
$
23,097

 
$
12,732

 
2.0
 %
4.4
 %
4.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in
Operating Companies Income
Operating Companies Income
 
 
 
 
 
Less
Currency
 
Operating Companies Income excluding Currency
 
Less
Acquisitions
 
Operating Companies Income excluding Currency & Acquisitions
 
 
 
 
 
 
 
Operating Companies Income
 

Total
Excluding Currency
Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,741

 
 
 
 
 
$
(89
)
 
$
1,830

 
$
—

 
$
1,830

 
European Union
 
 
 
 
 
$
1,976

 
(11.9
)%
(7.4
)%
(7.4
)%
1,423

 
 
 
 
 
(99
)
 
1,522

 
—

 
1,522

 
EEMA
 
 
 
 
 
1,427

 
(0.3
)%
6.7
 %
6.7
 %
1,688

 
 
 
 
 
29

 
1,659

 
—

 
1,659

 
Asia
 
 
 
 
 
1,527

 
10.5
 %
8.6
 %
8.6
 %
445

 
 
 
 
 
(52
)
 
497

 
—

 
497

 
Latin America & Canada
 
 
 
 
 
453

 
(1.8
)%
9.7
 %
9.7
 %
$
5,297

 
 
 
 
 
$
(211
)
 
$
5,508

 
$
—

 
$
5,508

 
PMI Total
 
 
 
 
 
$
5,383

 
(1.6
)%
2.3
 %
2.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 15
PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries
Reconciliation of Non-GAAP Measures
Selected Financial Data by Product Category
For the Six Months Ended June 30,
($ in millions) / (Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in Combustible Products Net Revenues excluding Excise Taxes
Net Revenues (1)
 
Less
Excise
Taxes (3)
 
Net Revenues excluding Excise Taxes
 
Less
Currency
 
Net Revenues excluding Excise Taxes & Currency
 
Less
Acquisitions
 
Net Revenues excluding Excise Taxes, Currency & Acquisitions
 
Combustible Products
 
Net Revenues (1)
 
Less
Excise
Taxes (3)
 
Net Revenues excluding Excise Taxes
 

Total

Excluding Currency

Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
12,715

 
$
8,945

 
$
3,770

 
$
(144
)
 
$
3,914

 
$
—

 
$
3,914

 
European Union
 
$
13,256

 
$
9,258

 
$
3,998

 
(5.7
)%
(2.1
)%
(2.1
)%
8,162

 
5,033

 
3,129

 
(161
)
 
3,290

 
—

 
3,290

 
EEMA
 
8,529

 
5,262

 
3,267

 
(4.2
)%
0.7
 %
0.7
 %
9,258

 
5,578

 
3,680

 
20

 
3,660

 
—

 
3,660

 
Asia
 
9,743

 
5,800

 
3,942

 
(6.7
)%
(7.2
)%
(7.2
)%
4,672

 
3,319

 
1,353

 
(42
)
 
1,395

 
—

 
1,395

 
Latin America & Canada
 
4,122

 
2,775

 
1,347

 
0.5
 %
3.6
 %
3.6
 %
$
34,806

 
$
22,875

 
$
11,931

 
$
(328
)
 
$
12,259

 
$
—

 
$
12,259

 
Total Combustible Products
 
$
35,649

 
$
23,095

 
$
12,554

 
(5.0
)%
(2.3
)%
(2.3
)%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in Reduced-Risk Products Net Revenues excluding Excise Taxes
Net Revenues (2)
 
Less
Excise
Taxes (3)
 
Net Revenues excluding Excise Taxes
 
Less
Currency
 
Net Revenues excluding Excise Taxes & Currency
 
Less
Acquisitions
 
Net Revenues excluding Excise Taxes, Currency & Acquisitions
 
Reduced-Risk Products
 
Net Revenues (2)
 
Less
Excise
Taxes (3)
 
Net Revenues excluding Excise Taxes
 

Total

Excluding Currency

Excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
95

 
$
14

 
$
81

 
$
(4
)
 
$
85

 
$
—

 
$
85

 
European Union
 
$
21

 
1

 
$
19

 
+100%

+100%

+100%

26

 
2

 
23

 
0

 
23

 
—

 
23

 
EEMA
 
—

 
—

 
—

 
+100%

+100%

+100%

947

 
2

 
945

 
16

 
929

 
—

 
929

 
Asia
 
158

 
—

 
158

 
+100%

+100%

+100%

1
 
0

 
1

 
0
 
1
 
—

 
1
 
Latin America & Canada
 
1

 
1

 
0
 
91.2
 %
90.1
 %
90.1
 %
$
1,069

 
$
19

 
$
1,050

 
$
12

 
$
1,038

 
$
—

 
$
1,038

 
Total Reduced-Risk Products
 
$
180

 
$
2

 
$
178

 
+100%

+100%

+100%

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
35,875

 
$
22,894

 
$
12,981

 
$
(315
)
 
$
13,296

 
$
—

 
$
13,296

 
PMI Total
 
$
35,829

 
$
23,097

 
$
12,732

 
2.0
 %
4.4
 %
4.4
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Net revenue amounts for our combustible products refer to the operating revenues generated from the sale of these products, net of sales and promotion incentives. These net revenue amounts consist of the sale of our cigarettes and other tobacco products combined. Other tobacco products primarily include tobacco for roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include reduced-risk products.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(2) Net revenue amounts for our reduced-risk products refer to the operating revenues generated from the sale of these products, net of sales and promotion incentives. These net revenue amounts consist of the sale of our heated tobacco units, our IQOS devices and related accessories, and other nicotine-containing products, which primarily include our e-vapor products. Reduced-risk products is the term we use 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. We have a range of reduced-risk products in various stages of development, scientific assessment and commercialization. Because our reduced-risk products do not burn tobacco, they produce far lower quantities of harmful and potentially harmful compounds than found in cigarette smoke.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
(3) PMI often collects excise taxes from its customers and then remits them to governments, and, in those circumstances, PMI includes the excise taxes in its net revenues and in excise taxes on products.  In some jurisdictions, including Japan, PMI is not responsible for collecting excise taxes.
Note: Sum of product categories or Regions might not foot to PMI total due to rounding.




 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 16
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP Measures
Reconciliation of Operating Companies Income to Adjusted Operating Companies Income &
Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions
For the Six Months Ended June 30,
($ in millions)
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
% Change in Adjusted
Operating Companies Income
Operating Companies Income
 
Less
Asset Impairment & Exit Costs
 
Adjusted Operating Companies Income
 
Less
Currency
 
Adjusted Operating Companies Income excluding Currency
 
Less
Acquisitions
 
Adjusted Operating Companies Income excluding Currency & Acquisitions
 
 
 
Operating Companies Income
 
Less
Asset Impairment & Exit Costs
 
Adjusted Operating Companies Income
 

Adjusted
Adjusted excluding Currency
Adjusted excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,741

 
$
—

 
$
1,741

 
$
(89
)
 
$
1,830

 
$
—

 
$
1,830

 
European Union
 
$
1,976

 
$
—

 
$
1,976

 
(11.9
)%
(7.4
)%
(7.4
)%
1,423

 
—

 
1,423

 
(99
)
 
1,522

 
—

 
1,522

 
EEMA
 
1,427

 
—

 
1,427

 
(0.3
)%
6.7
 %
6.7
 %
1,688

 
—

 
1,688

 
29

 
1,659

 
—

 
1,659

 
Asia
 
1,527

 
—

 
1,527

 
10.5
 %
8.6
 %
8.6
 %
445

 
—

 
445

 
(52
)

497

 
—

 
497

 
Latin America & Canada
 
453

 
—

 
453

 
(1.8
)%
9.7
 %
9.7
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
5,297

 
$
—

 
$
5,297

 
$
(211
)
 
$
5,508

 
$
—

 
$
5,508

 
PMI Total
 
$
5,383

 
$
—

 
$
5,383

 
(1.6
)%
2.3
 %
2.3
 %
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
 
 
2016
 
 

Adjusted Operating Companies Income excluding Currency
 
Net Revenues excluding Excise Taxes & Currency(1)
 
Adjusted Operating Companies Income Margin excluding Currency
 
 
 
Adjusted Operating Companies Income excluding Currency & Acquisitions
 
Net Revenues excluding Excise Taxes, Currency & Acquisitions(1)
 
Adjusted Operating Companies Income Margin excluding Currency & Acquisitions
 
 
 
Adjusted Operating Companies Income
 
Net Revenues excluding Excise Taxes(1)
 
Adjusted Operating Companies Income Margin
 
 
Adjusted Operating Companies Income Margin excluding Currency
Adjusted Operating Companies Income Margin excluding Currency & Acquisitions
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
1,830

 
$
3,997

 
45.8
%
 
 
 
$
1,830

 
$
3,997

 
45.8
%
 
European Union
 
$
1,976

 
$
4,018

 
49.2
%
 
 
(3.4
)
(3.4
)
1,522

 
3,313

 
45.9
%
 
 
 
1,522

 
3,313

 
45.9
%
 
EEMA
 
1,427

 
3,266

 
43.7
%
 
 
2.2

2.2

1,659

 
4,590

 
36.1
%
 
 
 
1,659

 
4,590

 
36.1
%
 
Asia
 
1,527

 
4,101

 
37.2
%
 
 
(1.1
)
(1.1
)
497

 
1,396

 
35.6
%
 
 
 
497

 
1,396

 
35.6
%
 
Latin America & Canada
 
453

 
1,347

 
33.6
%
 
 
2.0

2.0

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
$
5,508

 
$
13,296

 
41.4
%
 
 
 
$
5,508

 
$
13,296

 
41.4
%
 
PMI Total
 
$
5,383

 
$
12,732

 
42.3
%
 
 
(0.9
)
(0.9
)

(1) For the calculation of Net Revenues excluding Excise Taxes, currency and acquisitions, refer to Schedule 14.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 17
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 and Adjusted Diluted EPS, excluding Currency
For the Six Months Ended June 30,
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
% Change
 
 
 
 
 
 
 
 
 
 
 
Reported Diluted EPS
 
$
2.17

 
$
2.13

 
1.9
%
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
Currency impact
 
(0.11
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Reported Diluted EPS, excluding Currency
$
2.28

 
$
2.13

 
7.0
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2017
 
2016
 
% Change
 
 
 
 
 
 
 
 
 
 
 
Reported Diluted EPS
 
$
2.17

 
$
2.13

 
1.9
%
 
 
 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
 
 
 
Asset impairment and exit costs
—

 
—

 
 
 
 
Tax items
 
(0.04
)
 
—

 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Diluted EPS
 
$
2.13

 
$
2.13

 
—
%
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
Currency impact
 
(0.11
)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Adjusted Diluted EPS, excluding Currency
$
2.24

 
$
2.13

 
5.2
%
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 





 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Schedule 18

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)
 
 
 
 
 
 
 
 
 
 
 
For the Year Ended
 

 
 
June 30,
 
December 31,
 
 
 
 
2017
 
 
 
2016
 
 
July ~ December
 
January ~ June
 
12 months
 
 
 
 
2016
 
2017
 
rolling
 
 
 
 
 
 
 
 
 
 
 
Net Earnings
 
$
3,803

 
$
3,500

 
$
7,303

 
$
7,250

Equity (income)/loss in unconsolidated subsidiaries, net
 
(57
)
 
(45
)
 
(102
)
 
(94
)
Provision for Income Taxes
 
1,422

 
1,230

 
2,652

 
2,768

Interest expense, net
 
421

 
432

 
853

 
891

Depreciation and amortization
 
383

 
407

 
790

 
743

Asset impairment and exit costs
 
—

 
—

 
—

 
—

Adjusted EBITDA
 
$
5,972

 
$
5,524

 
$
11,496

 
$
11,558

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
June 30,
 
December 31,
 
 
 
 
 
 
2017
 
2016
 
 
 
 
 
 
 
 
 
Short-term borrowings
 
 
 
 
 
$
898

 
$
643

Current portion of long-term debt
 
 
 
 
4,254

 
2,573

Long-term debt
 
 
 
 
 
26,595

 
25,851

Total Debt
 
 
 
 
 
$
31,747

 
$
29,067

Less: Cash and cash equivalents
 
 
 
 
6,197

 
4,239

Net Debt
 
 
 
 
 
$
25,550

 
$
24,828

 
 
 
 
 
 
 
 
 
Ratios:
 
 
 
 
 
 
 
 
Total Debt to Adjusted EBITDA
 
 
 
 
 
2.76

 
2.51

Net Debt to Adjusted EBITDA
 
 
 
 
 
2.22

 
2.15

 
 
 
 
 
 
 
 
 

 
 
 
 
 
 
 
 
 





 
 
 
 
 
 
 
 
 
 
 
 
Schedule 19
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP Measures
Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency
For the Quarters and Six Months Ended June 30,
($ in millions)
(Unaudited)

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
For the Quarters Ended
 
 
 
For the Six Months Ended
 
 
 
 
June 30,
 
 
 
June 30,
 
 
 
 
2017
 
2016
 
% Change
 
2017
 
2016
 
% Change
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities (1)
 
$
3,228

 
$
2,374

 
36.0
%
 
$
4,071

 
$
2,836

 
43.5
%
 
 
 
 
 
 
 
 
 
 
 
 
 
Less:
 
 
 
 
 
 
 
 
 
 
 
 
Currency impact
 
429

 
 
 
 
 
311

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net cash provided by operating activities,
excluding currency
 
$
2,799

 
$
2,374

 
17.9
%
 
$
3,760

 
$
2,836

 
32.6
%
 
 
 
 
 
 
 
 
 
 
 
 
 
(1) Operating cash flow.
 
 
 
 
 
 
 
 
 
 
 
 




 
 
 
 
 
 
 
 
 
 
Schedule 20
 
 
 
 
 
 
 
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Reconciliation of Non-GAAP Measures
Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS
For the Year Ended December 31,
(Unaudited)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
2016
 
 
 
 
 
 
 
 
 
Reported Diluted EPS
 
$
4.48

 
 
 
 
 
 
 
 
 
Adjustments:
 
 
 
 
 
Asset impairment and exit costs
 
—

 
 
 
Tax items
 
—

 
 
 
 
 
 
 
 
 
Adjusted Diluted EPS
 
$
4.48