tocacco plant Native American Tobaccoo flower, leaves, and buds

tocacco Tobacco is an annual or bi-annual growing 1-3 meters tall with large sticky leaves that contain nicotine. Native to the Americas, tobacco has a long history of use as a shamanic inebriant and stimulant. It is extremely popular and well-known for its addictive potential.

tocacco nicotina Nicotiana tabacum

tocacco Nicotiana rustica leaves. Nicotiana rustica leaves have a nicotine content as high as 9%, whereas Nicotiana tabacum (common tobacco) leaves contain about 1 to 3%

tocacco cigar A cigar is a tightly rolled bundle of dried and fermented tobacco which is ignited so that its smoke may be drawn into the mouth. Cigar tobacco is grown in significant quantities in Brazil, Cameroon, Cuba, Dominican Republic, Honduras, Indonesia, Mexico, Nicaragua, Sumatra, Philippines, and the Eastern United States.

tocacco Tobacco is an agricultural product processed from the fresh leaves of plants in the genus Nicotiana. It can be consumed, used as an organic pesticide, and in the form of nicotine tartrate it is used in some medicines. In consumption it may be in the form of cigarettes smoking, snuffing, chewing, dipping tobacco, or snus.

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Philip Morris International Inc. Reports 2009 Results

Philip Morris International Inc. (PMI) is the leading international tobacco company, with seven of the world’s top 15 brands, includingPhilip Morris International Marlboro, the number one cigarette brand worldwide. PMI has approximately 77,300 employees and its products are sold in approximately 160 countries. In 2009, the company held an estimated 15.4% share of the total international cigarette market outside of the U.S., or 26.0% excluding the People’s Republic of China and the U.S.

Philip Morris International Inc. announced its 2009 fourth-quarter and full-year results, provided its forecast for 2010 full-year reported diluted earnings per share and announced a new $12 billion, three-year share repurchase program.

“Our robust fourth-quarter and annual results bear striking witness to the resiliency of our strong, broad and evolving brand portfolio and the diverse geographic scope of our business. Our judicious pricing actions, widespread market share growth and productivity initiatives, largely offset the significant market contractions and consumer down-trading that we witnessed in those countries that suffered the most from the global economic downturn,” said Louis C. Camilleri, Chairman and Chief Executive Officer.

“The fragility of the economic recovery, particularly with regard to employment levels and currency volatility, naturally warrants a cautious outlook for 2010. However, we enjoy solid momentum and remain confident that we will again post strong financial results this year. Our new $12 billion, three-year share repurchase program underscores our optimism going forward.”

Acquisitions and Agreements

In July 2009, PMI announced an agreement to purchase the Colombian cigarette manufacturer, Productora Tabacalera de Colombia, Protabaco Ltda. for $452 million. The transaction is subject to competition authority approval and final confirmatory due diligence and is expected to close in the first half of 2010, when it is projected to be immediately marginally accretive to PMI’s earnings per share.

In September 2009, PMI acquired Swedish Match South Africa (Proprietary) Limited (SMSA), for a final purchase price of ZAR 1.93 billion (approximately $256 million), including acquired cash. SMSA’s results were incorporated into the Eastern Europe, Middle East and Africa (EEMA) business segment as of September 14, 2009. While these results were not material to PMI’s operating results for the full-year 2009, the acquisition is anticipated to be marginally accretive to PMI’s earnings per share in 2010.

2010 Full-Year Forecast

PMI forecasts 2010 full-year reported diluted earnings per share to be in a range of $3.75 to $3.85, at prevailing exchange rates, versus $3.24 in 2009. Excluding currency, reported diluted earnings per share are projected to increase by approximately 12%-15%. This guidance excludes the impact of any potential future acquisitions, asset impairment and exit cost charges, and any unusual events.

The factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to this projection.

2009 FULL-YEAR AND FOURTH-QUARTER CONSOLIDATED RESULTS

Management reviews operating companies income (OCI), which is defined as operating income before corporate expenses and amortization of intangibles, to evaluate segment performance and to allocate resources. In the following discussion, the term “net revenues” refers to net revenues, excluding excise taxes, unless otherwise stated. Management also reviews OCI, operating margins and EPS on an adjusted basis (which may exclude the impact of currency and other items such as acquisitions or asset impairment and exit charges), EBITDA and net debt. Management believes it is appropriate to disclose these measures to help investors analyze business performance and trends. For a reconciliation of operating companies income to operating income, see the Condensed Statements of Earnings contained in this release. Reconciliations of adjusted measures to corresponding GAAP measures are also provided in this release. References to total international cigarette market, total cigarette market, total market and market shares are PMI estimates based on latest available data from a number of sources. Comparisons are to the same prior-year period unless otherwise stated.

Net revenues of $25.0 billion were down by 2.6% for the full-year 2009, due to unfavorable currency of $2.6 billion. Excluding currency, net revenues increased by 7.5% for the full year, driven by favorable pricing of $2.0 billion across all business segments, and the favorable impact of the 2008 Rothmans Inc., Canada acquisition, partly offset by unfavorable volume/mix of $620 million, primarily in the EU and EEMA Regions. Excluding currency and acquisitions, net revenues increased by 5.3%.

In the fourth-quarter 2009, net revenues of $6.7 billion were up by 9.7%, including favorable currency of $111 million. Excluding currency, net revenues increased by 7.9%, primarily driven by favorable pricing of $487 million across all business segments that more than offset unfavorable volume/mix of $48 million, mainly in the EU Region. Excluding currency and acquisitions, net revenues increased by 7.2%.

Operating income declined by 2.0% to $10.0 billion for the full-year 2009 as shown on Schedule 5. Reported operating companies income declined by 1.6% to $10.3 billion, mainly due to unfavorable currency of $1.4 billion. Excluding currency, operating companies income was up by 11.8%, driven primarily by higher pricing, partly offset by unfavorable volume/mix. Excluding currency and the favorable impact of acquisitions of 2.5 percentage points of growth, operating companies income was up by 9.3%. Adjusted operating companies income declined by 1.9% as shown in the table below and detailed on Schedule 15.

Fourth-quarter 2009 operating income increased by 9.7% to $2.4 billion as shown on Schedule 1. Reported operating companies income increased by 8.9% to $2.5 billion, including favorable currency of $11 million. Excluding currency, operating companies income was up by 8.4%, driven primarily by higher pricing, partly offset by unfavorable volume/mix. Excluding currency and the favorable impact of acquisitions of 0.7 percentage points of growth, operating companies income was up by 7.7%. Adjusted operating companies income grew by 10.0% as shown in the table below and detailed on Schedule 11.

2009 Full-Year Results

PMI’s cigarette shipment volume of 864.0 billion units was down by 0.7% in 2009, as gains in Asia, primarily driven by Indonesia and double-digit growth in Korea, and in Latin America & Canada, from the acquisition of Rothmans Inc., Canada, were more than offset by declines in the EU and EEMA, mainly due to the impact of the economic crisis, primarily in the Baltic States, Spain and Ukraine. On an organic basis, which excludes acquisitions, PMI’s cigarette shipment volume was down by 1.5%.

Despite strong growth of 4.3% in Asia, total cigarette shipments of Marlboro of 302.0 billion units were down by 2.8%, primarily due to market declines in the EU and EEMA, largely due to the effects of the economic crisis in Spain and a softening of the premium segment in Russia and Ukraine. Total cigarette shipments of L&M of 90.8 billion units were down by 1.7%, with growth of 8.6% in the EU offset primarily by a decline in Russia. Driven by a decrease in shipments in Spain, Russia and Ukraine, total cigarette shipments of Chesterfield declined 7.5%. Total cigarette shipments of Parliament were down by 0.3%, led by declines in EEMA and the EU, partly offset by growth in Asia of 5.4%. Total cigarette shipments of Virginia Slims declined by 3.6%, reflecting a decline in Russia. Total cigarette shipments of Lark increased by 15.5%, fueled by strong growth in Turkey, and Bond Street increased by 7.1%, primarily in Russia.

Total shipment volume of other tobacco products (OTP), in cigarette equivalent units, grew by 33.2%, primarily fueled by the acquisition of Swedish Match South Africa (Proprietary) Limited. Excluding acquisitions, shipment volume of OTP was down by 8.1%, primarily due to lower cigarillo volumes in Germany, where the segment has declined, and the impact in Poland of the excise tax alignment of pipe tobacco to roll-your-own products in the first quarter of 2009. Total shipment volume for cigarettes and OTP was essentially flat in 2009 and down by 1.6%, excluding acquisitions.

PMI’s market share performance registered a stable or growing trend in a number of markets, including Algeria, Argentina, Australia, Austria, Belgium, Brazil, Bulgaria, Canada, the Canary Islands, the Dominican Republic, Egypt, Finland, Greece, Hungary, Japan, Korea, Mexico, the Netherlands, the Philippines, Portugal, Romania, Russia, Spain, Turkey, Ukraine and PMI Duty Free.

2009 Fourth-Quarter Results

PMI’s cigarette shipment volume of 218.2 billion units was up by 0.5% in the fourth quarter of 2009, reflecting gains: in EEMA, primarily in Algeria, driven by a higher total market and share gains, Egypt, fueled by market share gains, and Turkey, led by the growth of Lark; and in Asia, fueled by double-digit growth in both Indonesia, reflecting the expected timing of shipments related to the religious holiday of Ramadan, and Korea, driven by market share gains. The volume gain was partially offset by declines in the EU, mainly due to the economic downturn in the Baltic States and Spain, combined with the impact of tax-driven price increases, and in Latin America & Canada. On an organic basis, which excludes acquisitions, PMI’s cigarette shipment volume was up by 0.4%, favorably impacted by the timing of shipments in Indonesia.

Total cigarette shipments of Marlboro of 75.8 billion units were down by 3.4%, primarily due to market declines in the EU, primarily reflecting the impact of the economic crisis in Spain; in EEMA, due to a softening of the premium segment in Russia; in Asia, mainly due to a lower total market and an unfavorable comparison with the fourth-quarter 2008 related to the change in sourcing from the U.S. in Japan, more than offsetting growth in Indonesia, Korea and the Philippines; and in Latin America & Canada, primarily due to lower total markets in Brazil and Mexico. Total cigarette shipments of L&M of 22.8 billion units were up by 3.5%, with double-digit growth in the EU and essentially flat volumes in EEMA. Driven by a decrease in shipments in Spain and Ukraine, total cigarette shipments of Chesterfield declined 3.9%. Total cigarette shipments of Parliament were down by 3.4%, primarily in Russia reflecting a decline in the premium segment, partly offset by growth in Asia. Total cigarette shipments of Virginia Slims increased by 2.9%, reflecting growth in all regions except EEMA. Total cigarette shipments of Lark surged by 31.5%, driven by double-digit growth in EEMA and Asia, and Bond Street increased by 11.9%, primarily in Russia.

Total shipment volume of other tobacco products (OTP), in cigarette equivalent units, grew by 63.9%, primarily fueled by the acquisition of Swedish Match South Africa (Proprietary) Limited. Excluding acquisitions, shipment volume of OTP was down by 19.4%, primarily due to lower volume in Poland, reflecting the impact of the excise tax alignment of pipe tobacco to roll-your-own in the first quarter of 2009. Total shipment volume for cigarettes and OTP was up by 1.6%, and up by 0.1% excluding acquisitions.

PMI’s market share performance registered a stable or growing trend in a number of markets, including Algeria, Argentina, Australia, Austria, Brazil, Bulgaria, Canada, the Canary Islands, the Czech Republic, Egypt, Finland, Greece, Hungary, Italy, Japan, Korea, Mexico, the Netherlands, the Philippines, Poland, Portugal, Russia, the Slovak Republic, Turkey, Ukraine and PMI Duty Free.

EUROPEAN UNION (EU)

2009 Full-Year Results

In the EU, net revenues declined by 6.7% to $9.0 billion, mainly due to unfavorable currency of $856 million. Excluding the impact of currency, net revenues increased by 2.2%, primarily reflecting higher pricing of $520 million across most markets, which more than offset unfavorable volume/mix of $372 million largely due to total market declines and to adverse product mix. Excluding the impact of currency and acquisitions, net revenues increased by 1.5%.

Operating companies income declined by 4.9% to $4.5 billion, primarily due to unfavorable currency of $481 million. Excluding the impact of currency, operating companies income increased by 5.3%, primarily reflecting favorable pricing that more than offset unfavorable volume/mix. Excluding the impact of currency and acquisitions, operating companies income grew by 4.4%. Adjusted operating companies income declined by 5.6%, as shown in the table below and detailed on Schedule 15.

The total cigarette market in the EU declined by 2.5%. Adjusted for the favorable impact of the trade inventory distortion in the Czech Republic in anticipation of the January 2008 excise tax increase, the total cigarette market declined by 3.6%. The decline primarily reflects the impact of unfavorable economic conditions, mainly in the Baltic States and Spain, which were compounded by significant tax-driven price increases.

PMI’s cigarette shipment volume in the EU decreased by 3.3%, primarily reflecting the impact of a lower total market as described above.

PMI’s market share in the EU was down by 0.3 share points to 38.8%. Adjusted for the trade inventory movements in the Czech Republic, PMI’s market share was down by 0.2 share points, as gains, primarily in Austria, Belgium and the Netherlands, were offset by share declines in Germany, Italy, and Poland. Despite the impact on consumption in the Baltic States and Spain arising from the economic crisis, and significant tax-driven price increases in 2009, Marlboro’s share in the EU was resilient, declining by 0.4 share points, or by just 0.2 share points when adjusted for the Czech Republic. L&M continued to grow share in the EU, with market share up by 0.5 points to 5.5%, primarily driven by gains in Germany, the Slovak Republic and Spain where, in each market, it was the fastest-growing cigarette brand in 2009.

2009 Fourth-Quarter Results

In the EU, net revenues increased by 11.2% to $2.4 billion, including favorable currency of $152 million. Excluding the impact of currency, net revenues increased by 4.1%, primarily reflecting higher pricing of $133 million across most markets, which more than offset unfavorable volume/mix of $57 million, largely due to total market declines, predominantly in the Baltic States and Spain. Excluding the impact of currency and acquisitions, net revenues increased by 3.6%.

Operating companies income grew by 15.6% to $1.1 billion, including favorable currency of $91 million. Excluding the impact of currency, operating companies income grew by 6.2%, primarily reflecting favorable pricing that more than offset unfavorable volume/mix. Excluding the impact of currency and acquisitions, operating companies income grew by 5.7%. Adjusted operating companies income grew by 18.4% as shown in the table below and detailed on Schedule 11.

The total cigarette market in the EU declined by 1.7%. Adjusted for the favorable impact of the trade inventory distortion in the Czech Republic in anticipation of the January 2008 excise tax increase, the total cigarette market declined by 2.0%. The decline primarily reflects the impact of unfavorable economic conditions, primarily in the Baltic States and Spain, and significant tax-driven price increases during 2009, partly offset by a higher total market in Poland and the Czech Republic.

PMI’s cigarette shipment volume in the EU declined by 1.9%, primarily reflecting the impact of a lower total market as described above, partially offset by favorable distributor inventory movements, mainly in Spain.

PMI’s market share in the EU was down by 0.8 share points to 38.4% as gains, primarily in Greece, the Netherlands, the Nordics, Poland and the Slovak Republic, were offset by a share decline in Germany due to the extended availability of certain competitor products at old retail prices and in the 17 cigarettes per pack format, and trade inventory movements in the third quarter of 2009. Marlboro’s share in the EU was down by 0.6 share points, reflecting a lower share in France, Germany and Spain, partially offset by a higher share in Greece, Italy, the Netherlands, Poland and Portugal. During the quarter, the continuing roll-out of Marlboro brand initiatives included the Marlboro Red pack upgrade in Portugal, the nationwide launch of Marlboro Gold Original in the Czech Republic, Finland, Hungary and Slovakia, and Marlboro Gold Advance in Germany and Sweden. L&M’s market share in the EU grew by 0.7 points to 5.7%, primarily driven by gains in Germany, the Slovak Republic, Spain and Sweden.

EASTERN EUROPE, MIDDLE EAST & AFRICA (EEMA)

2009 Full-Year Results

In EEMA, net revenues decreased by 9.4% to $6.8 billion, due to unfavorable currency of $1.4 billion. Excluding the impact of currency, net revenues increased by 8.8%, driven by favorable pricing of $820 million, primarily in Russia, Turkey and Ukraine, which more than offset unfavorable volume/mix of $197 million. Excluding the impact of currency and acquisitions, net revenues grew by 8.3%.

Operating companies income decreased by 14.6% to $2.7 billion, due to unfavorable currency of $893 million. Excluding the impact of currency, operating companies income increased by a robust 14.0%, primarily reflecting favorable pricing that more than offset unfavorable volume/mix. Excluding the impact of currency and acquisitions, operating companies income was up by 13.4%. Adjusted operating companies income declined by 14.6% as shown in the table below and detailed on Schedule 15.

PMI’s cigarette shipment volume decreased by 1.5%, principally due to: Ukraine, which suffered from the unfavorable impact of a series of tax-driven price increases that raised PMI’s prices by between 38% and over 100% during the year, and worsening economic conditions; and PMI Duty Free, primarily reflecting the unfavorable impact of the global economy on travel. This decline was partially offset by strong cigarette shipment volume growth in Algeria, Egypt and Turkey.

2009 Fourth-Quarter Results

In EEMA, net revenues increased by 4.1% to $1.9 billion, despite unfavorable currency of $175 million. Excluding the impact of currency, net revenues grew by 13.8%, driven by favorable pricing of $216 million, primarily in Russia, Turkey and Ukraine. Excluding the impact of currency and acquisitions, net revenues grew by 11.9%.

Operating companies income was stable at $681 million, despite unfavorable currency of $135 million. Excluding the impact of currency, operating companies income was up strongly by 20.0%, primarily reflecting favorable pricing that more than offset unfavorable volume/mix. Excluding the impact of currency and acquisitions, operating companies income was up by 18.4%. Adjusted operating companies income was essentially flat, as shown in the table below and detailed on Schedule 11.

PMI’s cigarette shipment volume increased by 1.4%, principally due to: Algeria, driven by market share gains for Marlboro and L&M Egypt, fueled by market share gains; and Turkey, led by the growth of Lark; more than offsetting a decline in Ukraine.

ASIA

2009 Full-Year Results

In Asia, net revenues increased by 5.5% to $6.5 billion. Excluding the impact of unfavorable currency of $41 million, net revenues grew by 6.2%, driven by favorable pricing and volume/mix of $368 million and $16 million, respectively.

Operating companies income grew by 18.4% to reach $2.4 billion, primarily fueled by higher pricing in Australia, Indonesia and the Philippines. Excluding the impact of currency, operating companies income grew by 11.3%. Adjusted operating companies income grew by 17.6% as shown in the table below and detailed on Schedule 15.

PMI’s cigarette shipment volume increased by 1.1%, mainly due to gains in Indonesia and double-digit growth in Korea. Shipment volume of Marlboro grew by 4.3%, reflecting a strong market share performance across the region, particularly in Indonesia, Japan, Korea and the Philippines.

2009 Fourth-Quarter Results

In Asia, net revenues increased by 16.8% to $1.7 billion. Excluding the impact of favorable currency of $154 million, net revenues grew by 6.3%, driven by favorable pricing and volume/mix of $68 million and $24 million, respectively.

Operating companies income grew by 18.1% to reach $503 million, primarily fueled by higher pricing and favorable currency. Excluding the favorable impact of currency, driven by the Japanese Yen, operating companies income decreased by 0.5%, reflecting higher costs, including the impact of additional investment in marketing, trade and selling activities, primarily in Australia, Indonesia, Japan and Korea. Adjusted operating companies income increased by 18.1% as shown in the table below and detailed on Schedule 11.

PMI’s cigarette shipment volume increased by 2.9%, mainly due to gains in Indonesia, reflecting the timing of shipments following the Ramadan holiday in the third quarter of 2009, and double-digit growth in Korea. Shipment volume of Marlboro declined by 2.4%, reflecting the timing of shipments in Japan, partly offset by growth in Indonesia, Korea and the Philippines.

LATIN AMERICA & CANADA

2009 Full-Year Results

In Latin America & Canada, net revenues increased by 14.7% to $2.7 billion. Excluding the impact of unfavorable currency of $328 million, net revenues increased by 28.8%, primarily driven by the 2008 Rothmans Inc., Canada, acquisition and higher pricing of $276 million, which more than offset unfavorable volume/mix of $67 million. Excluding the impact of currency and acquisitions, net revenues increased by 9.0%.

Operating companies income increased by 28.1% to $666 million, despite unfavorable currency of $162 million. Excluding the impact of currency, operating companies income increased by 59.2%, primarily reflecting higher pricing, the favorable impact of the Canadian acquisition and a favorable comparison to 2008 of $61 million, attributable to a one-time, pre-tax charge related to a previous distribution agreement in Canada. Excluding the impact of currency and acquisitions, operating companies income grew by 20.4%. Adjusted operating companies income grew by 23.8% as shown in the table below and detailed on Schedule 15.

Cigarette shipment volume of 103.8 billion units increased by 4.4%, reflecting the Canadian acquisition. Excluding acquisition volume, shipments decreased by 2.6%.

2009 Fourth-Quarter Results

In Latin America & Canada, net revenues increased by 5.1% to $764 million, despite unfavorable currency of $20 million. Excluding the impact of currency, net revenues increased by 7.8%, reflecting favorable pricing that more than offset unfavorable volume/mix.

Operating companies income declined by 10.1% to $214 million. Excluding the unfavorable impact of currency of $24 million, operating companies income was flat, primarily reflecting higher pricing offset by unfavorable volume/mix and the impact of additional investment in marketing, trade and selling activities, primarily in Colombia and Mexico. Adjusted operating companies income declined by 10.1% as shown in the table below and detailed on Schedule 11.

Cigarette shipment volume of 28.2 billion units decreased by 1.8%, primarily due to declines in Brazil, Colombia and the Dominican Republic, partly offset by growth in Canada.

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