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Press release from Business Wire

Philip Morris International Inc. (PMI) Reports 2010 Third-Quarter Results; Increases 2010 EPS Guidance

Thursday, October 21, 2010

Philip Morris International Inc. (PMI) Reports 2010 Third-Quarter Results; Increases 2010 EPS Guidance06:58 EDT Thursday, October 21, 2010 NEW YORK (Business Wire) -- Regulatory News: Key Financial Highlights Increases and narrows 2010 reported diluted earnings per share forecast to a range of $3.90 to $3.95, up by approximately 20% to 22% compared to $3.24 in 2009 Increased its regular quarterly dividend during the quarter by 10.3% to an annualized rate of $2.56 per common share Announces acceleration of an additional $1.0 billion in share repurchases in 2010 to an approximate total of $5 billion, reflecting strong cash flow generation 2010 Third-Quarter Reported net revenues, excluding excise taxes, up by 0.4%, or by 2.5% excluding currency Reported operating companies income essentially flat, or down by 0.8% excluding currency Adjusted operating companies income, which reflects the items detailed in the attached Schedule 11, up by 0.5%, or down by 0.2% excluding currency Reported diluted earnings per share of $0.99, up by 6.5%, or by 4.3% excluding currency Adjusted diluted earnings per share of $1.00, up by 7.5%, or by 5.4% excluding currency Free cash flow up by 33.6% to $2.3 billion, or by 47.4% excluding currency Repurchased 20.7 million shares of its common stock for $1.1 billion 2010 September Year-to-Date Reported net revenues, excluding excise taxes, up by 10.1%, or by 6.1% excluding currency Reported operating companies income up by 11.4%, or by 7.2% excluding currency Adjusted operating companies income, which reflects the items detailed in the attached Schedule 15, up by 9.7%, or by 5.6% excluding currency Reported diluted earnings per share of $2.96, up by 21.3%, or by 16.8% excluding currency Adjusted diluted earnings per share of $2.90, up by 16.9%, or by 12.5% excluding currency Free cash flow up by 24.2% to $7.4 billion, or by 24.3% excluding currency Philip Morris International Inc. (NYSE / Euronext Paris: PM) today announced reported diluted earnings per share of $0.99 in the third quarter of 2010, up by 6.5% from $0.93 in the third quarter of 2009. Excluding currency, reported diluted earnings per share were up by 4.3% as detailed on Schedule 13. Adjusted diluted earnings per share of $1.00 were up by 7.5% from 2009 adjusted diluted earnings per share of $0.93, including the items detailed on the attached Schedule 12. Excluding currency, adjusted diluted earnings per share were up 5.4%. Free cash flow, defined as net cash provided by operating activities less capital expenditures, increased by 33.6% to $2.3 billion, as detailed on Schedule 19. “As anticipated, our third quarter results suffered from various timing issues affecting several markets, Japan in particular. In addition, the significant excise tax increases that were implemented in Greece and Turkey continued to weigh on our overall performance," said Louis Camilleri, Chairman and Chief Executive Officer. “The notable highlight of the quarter was our continued strong cash flow performance allowing us to accelerate the implementation of our share repurchase program. “I should also highlight that the headline quarterly numbers masked continued progress in our underlying performance on several fronts, and in particular on our widespread market share gains, such that we are now pleased to raise our full year earnings guidance to a range of $3.90 to $3.95, up by approximately 20% to 22% compared to $3.24 in 2009." Conference Call A conference call, hosted by Hermann Waldemer, Chief Financial Officer, with members of the investment community and news media, will be webcast at 9:00 a.m., Eastern Time, on October 21, 2010. Access is available at www.pmi.com. Dividends and Share Repurchase Program PMI increased its regular quarterly dividend during the quarter to $0.64, up 10.3% from $0.58, which represents an annualized rate of $2.56 per common share. Since its spin-off in March 2008, PMI has increased its regular quarterly dividend by 39.0% from the initial annualized dividend rate of $1.84 per common share. In April 2010, PMI completed its 2008-2010 share repurchase program of $13 billion and, in May 2010, initiated a new, three-year share repurchase program of $12 billion. During the quarter, PMI spent $1.1 billion to repurchase 20.7 million shares of its common stock, as shown in the table below. 2010 PMI Share Repurchases         Value  Shares($ Mio.)000$13 billion, two-year program, completed in April 2010 2,074 41,120 $12 billion, three-year program, May-June 2010 765 16,609 $12 billion, three-year program, July-September 20101,10020,725Total3,93978,454   PMI announces the acceleration of an additional $1.0 billion in share repurchases in 2010 to an approximate total of $5 billion. Since May 2008, when PMI began its first share repurchase program, the company has spent an aggregate total of $14.9 billion to repurchase 315 million shares. 2010 Full-Year Forecast PMI increases and narrows its forecast for 2010 full-year reported diluted earnings per share to a range of $3.90 to $3.95, up by approximately 20% to 22% compared to $3.24 in 2009, driven by favorable currency at prevailing rates, an improved business performance and a lower tax rate. Excluding currency, reported diluted earnings per share are projected to increase by approximately 16% to 18%. This guidance includes $0.07 per share for the previously announced reversal of tax provisions, largely due to the completion of U.S. tax audits, and $0.01 per share for asset impairment and exit costs related to restructuring charges in Greece and Portugal. This guidance excludes the impact of any potential future acquisitions, asset impairment and exit cost charges, and any unusual events. The factors described in the Forward-Looking and Cautionary Statements section of this release represent continuing risks to these projections. THIRD-QUARTER CONSOLIDATED RESULTSManagement reviews operating companies income (OCI), which is defined as operating income before corporate expenses and amortization of intangibles, to evaluate segment performance and to allocate resources. In the following discussion, the term “net revenues” refers to net revenues, excluding excise taxes, unless otherwise stated. Management also reviews OCI, operating margins and EPS on an adjusted basis (which may exclude the impact of currency and other items such as acquisitions or asset impairment and exit costs), EBITDA, free cash flow and net debt. Management believes it is appropriate to disclose these measures to help investors analyze business performance and trends. For a reconciliation of operating companies income to operating income, see the Condensed Statements of Earnings provided with this release. Reconciliations of adjusted measures to corresponding GAAP measures are also provided with this release. References to total international cigarette market, total cigarette market, total market and market shares are PMI estimates based on latest available data from a number of sources. Comparisons are to the same prior-year period unless otherwise stated.NET REVENUES   PMI Net Revenues ($ Millions)       Third-Quarter       Nine Months Year-to-Date        Excl.      Excl.20102009Change Curr.20102009Change Curr.European Union $2,139 $2,408 (11.2)% (1.8)% $6,618 $6,675 (0.9)% (0.8)% Eastern Europe, Middle East & Africa 1,896 1,830 3.6% 5.6% 5,531 4,922 12.4% 10.2% Asia 1,833 1,651 11.0% 5.0% 5,829 4,814 21.1% 11.0% Latin America & Canada746698 6.9% 3.2% 2,1931,907 15.0% 7.1% Total PMI$6,614$6,5870.4%2.5%$20,171$18,31810.1%6.1%   Net revenues of $6.6 billion were up by 0.4%, including unfavorable currency of $138 million due predominantly to the Euro. Excluding currency, net revenues increased by 2.5%, primarily driven by favorable pricing of $292 million across all business segments and acquisitions, partly offset by unfavorable volume/mix of $302 million. The favorable pricing variance was partly offset by the impact of a partial tax absorption in Egypt and Greece. Excluding currency and acquisitions, net revenues decreased by 0.2%, partly reflecting the payback of distributor inventory in Japan, built up in the second quarter of 2010 in anticipation of increased trade and consumer purchases ahead of the significant October 1, 2010, excise tax increase. On a year-to-date basis, net revenues of $20.2 billion were up by 10.1%, including favorable currency of $734 million. Excluding currency, net revenues increased by 6.1%, primarily driven by favorable pricing of $1.1 billion across all business segments and the impact of acquisitions, partly offset by unfavorable volume/mix of $423 million. OPERATING COMPANIES INCOME   PMI Operating Companies Income ($ Millions)       Third-Quarter       Nine Months Year-to-Date        Excl.      Excl.20102009Change Curr.20102009Change Curr.European Union $1,113 $1,267 (12.2)% (3.8)% $3,280 $3,397 (3.4)% (1.1)% Eastern Europe, Middle East & Africa 856 761 12.5% 8.3% 2,412 1,982 21.7% 18.0% Asia 690 653 5.7% (6.4)% 2,259 1,933 16.9% 3.3% Latin America & Canada244226 8.0% 1.3% 699452 54.6% 39.4% Total PMI$2,903$2,907(0.1)%(0.8)%$8,650$7,76411.4%7.2%   Operating income decreased in the quarter by 0.5% to $2.8 billion. Reported operating companies income in the quarter was essentially flat at $2.9 billion, including favorable currency of $20 million. Excluding currency, operating companies income was down by 0.8%, primarily due to unfavorable volume/mix, timing of costs, and the unfavorable impact of the aforementioned asset impairment and exit costs in Greece and Portugal related to factory restructuring, partly offset by higher pricing. Excluding currency and the favorable impact of acquisitions which contributed 1.5 percentage points of growth, operating companies income was down by 2.3%. Adjusted operating companies income in the quarter, which excludes $20 million of factory restructuring costs in Greece and Portugal, grew by 0.5%, as shown in the table below and detailed on Schedule 11. On a year-to-date basis, operating companies income, excluding currency, was up by 7.2%, primarily driven by higher pricing, partly offset by unfavorable volume/mix and higher costs. Excluding currency and the favorable impact of acquisitions which contributed approximately 1.2 percentage points of growth, operating companies income was up by 6.1%. Adjusted operating companies income on a year-to-date basis grew by 9.7% as shown in the table below and detailed on Schedule 15. PMI Operating Companies Income ($ Millions)       Third-Quarter     Nine Months Year-to-Date  2010     2009   Change  2010     2009   ChangeReported OCI $2,903 $2,907 (0.1 )% $8,650 $7,764 11.4 % Colombian investment & cooperation agreement charge 0 0 0 (135 ) Asset impairment & exit costs (20)(1)(20)(3)Adjusted OCI$2,923$2,9080.5%$8,670$7,9029.7%Adjusted OCI Margin* 44.2%   44.1%    0.1 p.p. 43.0%   43.1%    (0.1) p.p. *Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.   In the quarter, adjusted operating companies income margin, excluding the impact of currency, was down by 1.1 percentage points to 43.0%, as detailed on Schedule 11. Excluding currency and acquisitions, adjusted operating companies income margin was down by 0.6 percentage points to 43.5%. On a year-to-date basis, adjusted operating companies income margin, excluding the impact of currency, was down by 0.2 percentage points to 42.9%, as detailed on Schedule 15. Excluding currency and acquisitions, which includes our business combination with Fortune Tobacco Corporation in the Philippines, adjusted operating companies income margin was up by 0.4 percentage points to 43.5%. SHIPMENT VOLUME & MARKET SHARE   PMI Cigarette Shipment Volume by Segment (Million Units)       Third-Quarter     Nine Months Year-to-Date  2010     2009   Change  2010     2009   ChangeEuropean Union 58,264 61,047 (4.6)% 169,617 178,887 (5.2)% Eastern Europe, Middle East & Africa 75,228 77,769 (3.3)% 217,265 222,097 (2.2)% Asia 70,188 54,484 28.8% 211,588 169,231 25.0% Latin America & Canada25,53225,978 (1.7)% 76,43675,603 1.1% Total PMI229,212219,2784.5%674,906645,8184.5%   In the quarter, PMI's cigarette shipment volume of 229.2 billion units was up by 4.5%. In the EU, cigarette shipment volume decreased by 4.6%, predominantly due to lower total markets. In EEMA, cigarette shipment volume declined by 3.3%, primarily due to: Turkey, reflecting the continuing unfavorable impact of a significant excise tax increase in January 2010; and Ukraine, reflecting the unfavorable impact of inventory movements and tax-driven price increases in January and July, 2010; partly offset by increases in Russia and North Africa, mainly in Algeria. In Asia, PMI's cigarette shipment volume increased by 28.8%, primarily reflecting growth in Indonesia, Korea and Pakistan, as well as the favorable impact of the PMFTC Inc. business combination in the Philippines of 16.2 billion units. This was partially offset by the timing of shipments in Japan, reflecting the payback of the distributor inventory build-up in the second quarter of 2010 in anticipation of increased trade and consumer purchases ahead of the October 1, 2010, tax increase. In Latin America & Canada, cigarette shipment volume decreased by 1.7%, due mainly to unfavorable trade inventory movements in Colombia following the tax-driven price increase in July and a decline in the tax-paid market. On an organic basis, which excludes acquisitions, PMI's cigarette shipment volume was down by 2.9% in the quarter and by 1.6% year-to-date. Total cigarette shipments of Marlboro of 75.9 billion units were down by 1.2% in the quarter, or by a moderate 0.8% on a year-to-date basis, due primarily to a decrease in the EU, mainly reflecting: a share decline in Germany, lower share in Greece, driven by excise tax and VAT-driven price increases, and unfavorable distributor inventory movements in Italy; a slight decrease in EEMA of 0.2%, primarily due to Turkey, partially offset by robust growth in North Africa; an essentially flat performance in Asia, led by growth in Korea and the Philippines, offset by Japan; and growth in Latin America and Canada of 0.8%, driven by Argentina, Colombia and Mexico. Total cigarette shipments of L&M of 22.9 billion units were down by 2.0%, with shipment growth in the EU, primarily in Greece, and Asia, more than offset by EEMA, primarily due to declines in Russia, Turkey and Ukraine. Due mainly to double-digit declines in shipments in Spain and Ukraine, partially offset by growth in Germany, Poland and Russia, total cigarette shipments of Chesterfield of 9.3 billion units declined by 1.4%. Total cigarette shipments of Parliament of 9.1 billion units were down by 5.0%, due primarily to declines in Japan and Turkey, partially offset by growth in Korea and Russia. Total cigarette shipments of Lark of 6.7 billion units decreased by 10.2%, due primarily to declines in Japan, partially offset by growth in Turkey. Total cigarette shipments of Bond Street of 11.6 billion units increased by 2.5%, driven by double-digit growth in Russia, partly offset by Turkey and Ukraine. Total shipment volume of other tobacco products (OTP), in cigarette equivalent units, grew by 64.0%, benefiting from the acquisition of Swedish Match South Africa (Proprietary) Limited. Excluding acquisitions, shipment volume of OTP was down by 0.9%, 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 5.5%, or down by 2.8% excluding acquisitions. On a year-to-date basis, total shipment volume for cigarettes and OTP was up by 5.4% and down by 1.7% excluding acquisitions. PMI's market share performance in the quarter was stable, or registered growth, in a number of markets, including Argentina, Belgium, Egypt, France, Greece, Japan, Korea, Mexico, the Netherlands, the Philippines, Poland, Russia, Singapore, Spain, Switzerland and Ukraine. EUROPEAN UNION REGION (EU) In the EU, net revenues decreased by 11.2% to $2.1 billion, including unfavorable currency of $226 million. Excluding currency, net revenues declined by 1.8%, primarily reflecting higher pricing of $59 million, including the unfavorable impact in Greece due to a partial tax absorption, which was more than offset by $102 million of unfavorable volume/mix. The unfavorable volume/mix was primarily attributable to a lower total market and share in Germany, and lower total markets in the Czech Republic, Greece, Lithuania and Poland, partly offset by a higher total Regional market share and favorable distributor inventory movements. On a year-to-date basis, net revenues, excluding the impact of currency, declined by 0.8%. Operating companies income decreased by 12.2% to $1.1 billion, due predominantly to unfavorable volume/mix of $80 million, unfavorable currency of $106 million and asset impairment and exit costs, partially offset by favorable pricing. Excluding the impact of currency, operating companies income declined by 3.8%, primarily reflecting favorable pricing more than offset by unfavorable volume/mix and the partial excise tax absorption in Greece. Adjusted operating companies income decreased by 10.6%, as shown in the table below and detailed on Schedule 11. Adjusted operating companies income, excluding currency, declined by 2.3%. EU Operating Companies Income ($ Millions)       Third-Quarter     Nine Months Year-to-Date  2010       2009     Change  2010       2009     ChangeReported OCI $1,113 $1,267 (12.2 )% $3,280 $3,397 (3.4 )% Asset impairment & exit costs (20)(1)(20)(3)Adjusted OCI$1,133$1,268(10.6)%$3,300$3,400(2.9)%Adjusted OCI Margin* 53.0%   52.7%    0.3 p.p. 49.9%   50.9%    (1.0) p.p. *Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.   Excluding the impact of currency, adjusted operating companies income margin was down by 0.3 percentage points to 52.4%, as detailed on Schedule 11. On a year-to-date basis, excluding the impact of currency, adjusted operating companies income margin was up by 0.1 percentage points to 51.0%, as detailed on Schedule 15. The total cigarette market in the EU declined by 5.5%, mainly reflecting a lower total market in Greece, Poland and Spain, principally due to the unfavorable impact of tax-driven price increases, and the impact of continued adverse economic conditions, particularly in Greece and Spain. PMI's cigarette shipment volume in the EU declined by 4.6%, primarily reflecting the impact of the lower total market as described above, partly offset by favorable distributor inventory movements and higher share. Shipment volume of Marlboro decreased by 3.4%, mainly due to the lower total market and lower share in Germany and Greece. Shipment volume of L&M increased by 4.0%, driven by share growth primarily in Germany and Greece. PMI's market share in the EU was up by 0.2 share points to 39.1% as gains, primarily in Poland, the Netherlands and Spain, were partially offset by share declines, mainly in the Czech Republic and Portugal. Marlboro's share in the EU was up by 0.2 share points to 18.4%, its highest level since the second quarter of 2009, reflecting a higher share in Poland and Spain, partially offset by lower share in Germany and Greece. L&M's market share in the EU grew by 0.6 points to 6.3%, its highest quarterly performance since the company's spin-off in 2008, primarily driven by gains in Germany, Greece, where it was the fastest-growing brand, Poland and Slovakia. EU Key Market Commentaries In the Czech Republic, the total cigarette market was down by 5.1%, reflecting the impact of tax-driven price increases implemented in April 2010. On a year-to-date basis, the total cigarette market was down by 1.6%. PMI's shipments were down by 10.0% in the quarter. Market share was down by 2.7 points to 47.8%, mainly reflecting share declines for lower-margin local brands, partially offset by a higher share for Marlboro, up by 0.4 points to 7.0%, its highest level since the end of 2008, and for L&M, up by 0.3 points to 7.6%. In France, the total cigarette market was up by 1.2% in the quarter and down by a moderate 0.3% on a year-to-date basis. PMI's shipments were down by 1.9% in the quarter, reflecting the unfavorable impact of distributor inventory movements. Market share was essentially flat at 40.0%, and whilst Marlboro's share declined by 0.5 points to 25.7%, it was more than offset by a higher share for the premium Philip Morris brand, up by 0.8 points to 7.7%. In Germany, the total cigarette market was down by 2.5%, in line with its year-to-date performance. PMI's shipments were down by 3.4%, due primarily to the lower total market and a lower share of 34.9%, down by 0.4 share points. Marlboro's share decreased by 0.7 share points to 21.1%, reflecting the impact of continued price sensitivity among adult consumers. L&M, the fastest-growing brand in Germany on a year-to-date basis,continued its strong performance during the quarter, gaining 0.9 share points to reach 9.2%. In Italy, the total cigarette market was down by 1.2%. On a year-to-date basis, the total cigarette market was down by 2.2%. PMI's shipments were down by 5.2% in the quarter, unfavorably impacted by distributor inventory movements. Despite a market share decline of 0.4 points to 54.1%, share was unchanged compared to the full year 2009 and the first half of 2010. Assisted by the June 2010 launch of Marlboro Core Flavor, Marlboro'sshare increased by 0.1 pointto 23.2%. In Poland, the total cigarette market was down by 11.3%, reflecting the impact of tax-driven price increases in January 2010, as well as an unfavorable comparison with the same quarter last year which was impacted by trade inventory movements. On a year-to-date basis, the total cigarette market was down by 3.9%. Although PMI's shipments were down by 7.5% in the quarter, market share was up by 1.5 points to 37.6%, primarily reflecting higher Marlboro share, up by 1.5 share points to 11.0%, its highest quarterly level since the spin-off of PMI in March 2008. In Spain, the total cigarette market was down by 13.5%, largely due to the adverse economic environment, the impact of the price increase in January 2010 and a June 2010 VAT-driven price increase of €0.25 per pack. On a year-to-date basis, the total cigarette market was down by 10.9%. PMI's shipments were essentially flat in the quarter, reflecting favorable distributor inventory movements. PMI's market share was up by 0.6 points to 32.7%, mainly reflecting a higher Marlboro share, up by 1.0 share point to 16.3%. EASTERN EUROPE, MIDDLE EAST & AFRICA REGION (EEMA) In EEMA, net revenues increased by 3.6% to $1.9 billion, despite unfavorable currency of $37 million. Excluding the impact of currency, net revenues increased by 5.6%, primarily driven by favorable pricing of $111 million which more than offset unfavorable volume/mix of $37 million. Excluding the impact of currency and acquisitions, net revenues grew by 4.0%. On a year-to-date basis, net revenues, excluding the impact of currency and acquisitions, grew by 8.6%. Operating companies income increased by 12.5% to $856 million, including favorable currency of $32 million. Excluding the impact of currency, operating companies income increased by 8.3%, primarily reflecting favorable pricing that more than offset unfavorable volume/mix. Excluding the impact of currency and acquisitions, operating companies income was up by 7.1%. Adjusted operating companies income increased by 12.5% as shown in the table below and detailed on Schedule 11. EEMA Operating Companies Income ($ Millions)       Third-Quarter     Nine Months Year-to-Date  2010       2009     Change  2010       2009     ChangeReported OCI $856 $761 12.5% $2,412 $1,982 21.7% Asset impairment & exit costs 0000Adjusted OCI$856$76112.5%$2,412$1,98221.7%Adjusted OCI Margin* 45.1% 41.6% 3.5 p.p. 43.6% 40.3% 3.3 p.p. *Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.   Excluding the impact of currency, adjusted operating companies income margin was up by 1.0 percentage point to 42.6%, as detailed on Schedule 11. On a year-to-date basis, excluding the impact of currency, adjusted operating companies income margin was up by 2.8 percentage points to 43.1%, as detailed on Schedule 15. PMI's cigarette shipment volume decreased by 3.3%, principally due to Turkey, driven by the significant tax-driven price increase of January, 2010, and Ukraine, due to the unfavorable impacts of trade inventory movements and the excise tax-driven price increase on July 1, 2010, partly offset by growth in Russia and North Africa, principally Algeria. Shipment volume of Marlboro was down slightly by 0.2%, principally due to declines in Turkey and Ukraine, partly offset by strong growth in the Middle East and North Africa, notably Algeria. EEMA Key Market Commentaries In Russia, PMI's record quarterly shipment volume increased by 1.4%. On a year-to-date basis, PMI's shipment volume was up by 2.6%. Whilst shipment volume of PMI's premium portfolio was down by 2.8% in the quarter, primarily due to a decline in Marlboro of 6.4%, this represented the lowest rate of segment decline since the fourth quarter of 2008. In the mid-price segment, shipment volume of Chesterfield was up by 7.9%. In the low price segment, shipment volume of Bond Street, Next and Optima was up by 17.0%, 5.4% and 0.5%, respectively. PMI's market share of 25.6%, as measured by A.C. Nielsen, was flat. Market share for Parliament, in the above premium segment, was unchanged; Marlboro, in the premium segment, was down by 0.3 share points; Chesterfield in the mid-price segment was up by 0.2 share points; and Bond Street in the low price segment was up by 1.1 share points. PMI'syear-to-datemarket share was 25.6%, up by 0.3 share points. In Turkey, the total cigarette market declined by an estimated 6.0%, primarily due to the steep January 2010 excise tax increase. PMI's shipment volume declined by 7.5%. PMI's market share, as measured by A.C. Nielsen, declined by 1.4 points to 41.8%, due to Parliament, down by 1.2 share points, Marlboro, down by 1.6 share points, and L&M, down by 1.6 share points, partially offset by Lark, up by 3.1 share points. Compared to the first and second quarters of 2010, PMI's market share was up. In Ukraine, PMI's shipment volume decreased by 27.0%, reflecting unfavorable trade inventory movements and the impact of an excise tax-driven price increase on July 1, 2010. PMI's market share, as measured by A.C. Nielsen, was essentially flat at 35.3%, with share gains for premium Marlboro and mid-price Chesterfield,offset by lower share for mid-price L&M and brands in the low price segment. PMI'syear-to-datemarket share was 35.8%, up slightly by 0.1 share point. ASIA REGION In Asia, net revenues increased by 11.0% to $1.8 billion, including favorable currency of $99 million. Excluding the impact of currency, net revenues increased by 5.0%, reflecting the favorable impact of the new business combination in the Philippines, and pricing of $73 million, primarily in Australia and Indonesia, partly offset by unfavorable volume/mix of $136 million, mainly due to the inventory payback in Japan from the second quarter of 2010. Excluding the impact of currency and the favorable impact of the new business combination in the Philippines, net revenues decreased by 3.8%. On a year-to-date basis, net revenues, excluding the impact of currency and the new business combination, grew by 3.2%. Operating companies income grew by 5.7% to reach $690 million. Excluding the impact of currency, operating companies income decreased by 6.4%, mainly due to the aforementioned inventory payback in Japan and investment in marketing and infrastructure in the Region. Excluding the impact of currency and the favorable impact of the new business combination in the Philippines, operating companies income declined by 11.9% and, on a year-to-date basis, was flat. Adjusted operating companies income in the quarter increased by 5.7% as shown in the table below and detailed on Schedule 11. Asia Operating Companies Income ($ Millions)       Third-Quarter     Nine Months Year-to-Date  2010       2009     Change  2010       2009     ChangeReported OCI $690 $653 5.7% $2,259 $1,933 16.9% Asset impairment & exit costs 0000Adjusted OCI$690$6535.7%$2,259$1,93316.9%Adjusted OCI Margin* 37.6% 39.6% (2.0) p.p. 38.8% 40.2% (1.4) p.p. *Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.   Excluding the impact of currency, adjusted operating companies income margin declined by 4.4 percentage points to 35.2%, as detailed on Schedule 11. Excluding currency and the impact of the new business combination in the Philippines, adjusted operating companies income margin was down by 3.4 percentage points to 36.2%, as detailed on Schedule 11, mainly reflecting the impact of the aforementioned inventory payback in Japan. On a year-to-date basis, excluding the impact of currency and the impact of lower margin volume from the new business combination in the Philippines, adjusted operating companies income margin was down by 1.3 percentage points to 38.9%, as detailed on Schedule 15. PMI's cigarette shipment volume increased 28.8%, mainly due to: 16.2 billion units from the new business combination in the Philippines, and growth in Indonesia, Korea and Pakistan, partially offset by a decline in Japan, reflecting the payback of distributor inventory build-up in the second quarter of 2010 in anticipation of increased trade and consumer purchases ahead of the significant October 1, 2010, tax increase. Shipment volume of Marlboro was essentially flat, due to strong growth in Korea and the Philippines, offset by the aforementioned inventory payback in Japan. Asia Key Market Commentaries In Indonesia, the total cigarette market was up by an estimated 3.9%. PMI's shipment volume increased by 3.1%. Market share was down by 0.2 points to 29.0%, mainly due to temporary price sensitivity as premium priced A Mild transitioned through key retail price points, partially offset by growth from mid-price U Mild. In Japan, the total cigarette market increased by 27.3%, reflecting trade inventory movements in anticipation of consumer purchases ahead of the announced October 1, 2010, tax-driven price increase. PMI's shipment volume was down by 24.4%, due to the payback of distributor inventory build-up in the second quarter of 2010. PMI's market share of 24.0% was essentially flat. Marlboro's share increased to a record 11.0%, up by 0.4 points, supported by the February and July 2010 national roll-out of Marlboro Black Gold and Marlboro Ice Blast. Market share of Lark was down by 0.2 points to 6.4% and the Philip Morris brand was unchanged at 2.3%. In Korea, PMI's shipment volume increased by 9.7%, driven by market share increases. PMI's market share reached 17.0%, up by a strong 2.4 points, driven by Marlboro and Parliament, up by 0.9 and 1.2 share points, respectively, and Virginia Slims, up by 0.3 share points. On February 25, 2010, Philip Morris Philippines Manufacturing Inc. combined with Fortune Tobacco Corporation to form a new company called PMFTC Inc. As a result of this business combination, PMI's shipments were up by over 100% in the third quarter of 2010, and market share was an estimated 93.4%, up by 0.6 points compared to the prior quarter. Excluding the favorable impact of this new business combination of 16.2 billion units, cigarette shipments of PMI brands increased by 8.7%, fueled by the growth of Marlboro and the Philip Morris brand. LATIN AMERICA & CANADA REGION In Latin America & Canada, net revenues increased by 6.9% to $746 million, including favorable currency of $26 million. Excluding the impact of currency, net revenues increased by 3.2%, reflecting favorable pricing of $49 million, primarily in Argentina, Brazil and Canada, more than offsetting unfavorable volume/mix of $27 million. Operating companies income increased by 8.0% to $244 million. Excluding the impact of currency, operating companies income increased by 1.3%, primarily reflecting favorable pricing that offset unfavorable volume/mix. Excluding the impact of currency and acquisitions, operating companies income was up by 2.2%. Adjusted operating companies income grew by 8.0% as shown in the table below and detailed on Schedule 11. Latin America & Canada Operating Companies Income ($ Millions)       Third-Quarter     Nine Months Year-to-Date  2010       2009     Change  2010       2009     ChangeReported OCI $244 $226 8.0 % $699 $452 54.6 % Colombian investment & cooperation agreement charge 0 0 0 (135 ) Asset impairment & exit costs 0000Adjusted OCI$244$2268.0%$699$58719.1%Adjusted OCI Margin* 32.7 % 32.4 % 0.3 p.p. 31.9 % 30.8 % 1.1 p.p. *Margins are calculated as adjusted OCI, divided by net revenues, excluding excise taxes.   Excluding the impact of currency, adjusted operating companies income margin declined by 0.6 percentage points to 31.8%, as detailed on Schedule 11. Excluding currency and acquisitions, adjusted operating companies income margin was down by 0.3 percentage points to 32.1%, as detailed on Schedule 11. On a year-to-date basis, excluding the impact of currency and acquisitions, adjusted operating companies income margin was up by 0.2 percentage points to 31.0%, as detailed on Schedule 15. PMI's cigarette shipment volume declinedby 1.7%, driven mainly by declines in Brazil and Colombia, partly offset by growth in Argentina, Canada and Mexico. Shipment volume of Marlboro grew by 0.8%, mainly due to growth in Mexico. Latin America & Canada Key Market Commentaries In Argentina, the total cigarette market was slightly down by 0.3%. PMI's cigarette shipment volume increased by 2.0%, and market share increased by 1.8 points to a record 75.1%, fueled by Marlboro, up by 0.4 share points to 23.9%, and the Philip Morris brand, up by a robust 1.9 share points to 38.3%. In Canada, the total tax-paid cigarette market was up by 4.2%, mainly reflecting government enforcement measures to reduce contraband sales since mid-2009. Although PMI's cigarette shipment volume increased by 1.5%, market share declined by 0.9 points to 33.0%, with gains from premium price Belmont, up by 0.1 share point, and low price brands Next and Quebec Classique, up by 3.1 and 0.8 share points, respectively. These were offset by mid-price Number 7 and Canadian Classics, and low-price Accord, down by 1.2, 1.5 and 1.2 share points, respectively. In Mexico, the total cigarette market was down by 0.6%. PMI's cigarette shipment volume increased by 1.2%, and market share grew by 1.2 points to 70.6%, fueled by Marlboro, up by 1.3 share points to 49.7%. Philip Morris International Inc. Profile Philip Morris International Inc. (PMI) is the leading international tobacco company, with seven of the world's top 15 brands, including Marlboro, the number one cigarette brand worldwide. PMI's 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. For more information, see www.pmi.com. Forward-Looking and Cautionary Statements This press release contains projections of future results and other forward-looking statements that involve a number of risks and uncertainties and are made pursuant to the Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995. The following important factors could cause actual results and outcomes to differ materially from those contained in such forward-looking statements. Philip Morris International Inc. and its tobacco subsidiaries (PMI) are subject to intense price competition; changes in consumer preferences and demand for their products; fluctuations in levels of customer inventories; increases in raw material costs; the effects of foreign economies and local economic and market conditions; unfavorable currency movements and changes to income tax laws. Their results are dependent upon their continued ability to promote brand equity successfully; to anticipate and respond to new consumer trends; to develop new products and markets and to broaden brand portfolios in order to compete effectively; and to improve productivity. PMI is also subject to legislation and governmental regulation, including actual and potential excise tax increases; discriminatory excise tax structures; increasing marketing and regulatory restrictions; the effects of price increases related to excise tax increases on consumption rates and consumer preferences within price segments; health concerns relating to the use of tobacco products and exposure to environmental tobacco smoke; privately imposed smoking restrictions; and governmental investigations. PMI is subject to litigation, including risks associated with adverse jury and judicial determinations, and courts reaching conclusions at variance with the company's understanding of applicable law. 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 June 30, 2010. PMI cautions that the foregoing list of important factors is not complete and does not undertake to update any forward-looking statements that it may make, except in the normal course of its public disclosure obligations.     Schedule 1 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Condensed Statements of Earnings For the Quarters Ended September 30, ($ in millions, except per share data) (Unaudited)                      2010           2009          % ChangeNet revenues$     16,936$     16,5732.2% Cost of sales 2,290 2,320 (1.3 ) % Excise taxes on products (1)       10,322           9,986 3.4 % Gross profit 4,324 4,267 1.3 % Marketing, administration and research costs 1,401 1,359 Asset impairment and exit costs       20           1 Operating companies income2,9032,907(0.1)% Amortization of intangibles 22 18 General corporate expenses       45           39 Operating income2,8362,850(0.5)% Interest expense, net       214           221 Earnings before income taxes 2,622 2,629 (0.3 ) % Provision for income taxes       730           775 (5.8 ) % Net earnings 1,892 1,854 2.0 % Net earnings attributable to noncontrolling interests       70           56 Net earnings attributable to PMI$     1,822     $     1,7981.3%   Per share data:(2)Basic earnings per share$     0.99     $     0.936.5%Diluted earnings per share$     0.99     $     0.936.5%   (1) The segment detail of excise taxes on products sold for the quarters ended September 30, 2010 and 2009 is shown on Schedule 2.   (2)Net earnings and weighted-average shares used in the basic and diluted earnings per share computations for the quarters ended September 30, 2010 and 2009 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 September 30, ($ in millions) (Unaudited)   Net Revenues excluding Excise TaxesLatinEuropeanAmerica &Union   EEMA   Asia   Canada   Total   2010 Net Revenues (1) $   7,045 $   4,184 $   3,629 $   2,078 $ 16,936 Excise Taxes on Products     (4,906 )       (2,288 )       (1,796 )       (1,332 )     (10,322 ) Net Revenues excluding Excise Taxes2,1391,8961,8337466,614   2009 Net Revenues $ 7,783 $ 3,722 $ 3,170 $ 1,898 $ 16,573 Excise Taxes on Products     (5,375 )       (1,892 )       (1,519 )       (1,200 )     (9,986 ) Net Revenues excluding Excise Taxes2,4081,8301,6516986,587   Variance Currency (226 ) (37 ) 99 26 (138 ) Acquisitions - 29 146 - 175 Operations     (43 )       74         (63 )       22       (10 ) Variance Total(269)661824827 Variance Total (%) (11.2 )% 3.6 % 11.0 % 6.9 % 0.4 %   Variance excluding Currency (43 ) 103 83 22 165 Variance excluding Currency (%) (1.8 )% 5.6 % 5.0 % 3.2 % 2.5 %   Variance excluding Currency & Acquisitions (43 ) 74 (63 ) 22 (10 ) Variance excluding Currency & Acquisitions (%) (1.8 )% 4.0 % (3.8 )% 3.2 % (0.2 )%       (1) 2010 Currency increased (decreased) net revenues as follows: European Union $ (728 ) EEMA (116 ) Asia 219 Latin America & Canada     63   $   (562 )     Schedule 3 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Selected Financial Data by Business Segment For the Quarters Ended September 30, ($ in millions) (Unaudited)                 Operating Companies IncomeLatinEuropean America & Union   EEMA   Asia   Canada   Total 2010 $   1,113 $     856 $     690 $ 244 $   2,903 2009 1,267 761 653 226 2,907 % Change (12.2)%   12.5%   5.7%   8.0%     (0.1)%     Reconciliation:For the quarter ended September 30, 2009$1,267$761$653$226$2,907   Asset impairment and exit costs - 2010 (20 ) - - - (20 ) Asset impairment and exit costs - 2009 1 - - - 1   Acquired businesses - 9 36 (2 ) 43 Currency (106 ) 32 79 15 20 Operations     (29 )         54           (78 )     5         (48 ) For the quarter ended September 30, 2010$   1,113     $     856     $     690     $244     $   2,903                 Schedule 4 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Net Earnings Attributable to PMI and Diluted Earnings Per Share For the Quarters Ended September 30, ($ in millions, except per share data) (Unaudited)   Net EarningsAttributable toDilutedPMIE.P.S.   2010 Net Earnings Attributable to PMI $ 1,822 $           0.99 (1) 2009 Net Earnings Attributable to PMI $ 1,798 $ 0.93 (1) % Change 1.3 % 6.5 %   Reconciliation:2009 Net Earnings Attributable to PMI$1,798$0.93(1)   Special Items: 2010 Asset impairment and exit costs (13 ) (0.01 ) 2009 Asset impairment and exit costs 1 -   Currency 30 0.02 Interest 1 - Change in tax rate 41 0.02 Impact of lower shares outstanding and share-based payments 2 0.05 Operations   (38 )             (0.02 ) 2010 Net Earnings Attributable to PMI$1,822   $           0.99   (1)   (1) Basic and diluted EPS were calculated using the following (in millions):   Q32010Q32009   Net earnings attributable to PMI $ 1,822 $ 1,798 Less distributed and undistributed earnings attributable to share-based payment awards   8               6   Net earnings for basic and diluted EPS $ 1,814   $           1,792     Weighted-average shares for basic EPS 1,828 1,927 Plus incremental shares from assumed conversions: Stock Options   2               7   Weighted-average shares for diluted EPS   1,830               1,934       Schedule 5 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Condensed Statements of Earnings For the Nine Months Ended September 30, ($ in millions, except per share data) (Unaudited)             2010   2009     % ChangeNet revenues$   49,906$   45,07210.7% Cost of sales 7,212 6,476 11.4 % Excise taxes on products (1)     29,735       26,754 11.1 % Gross profit 12,959 11,842 9.4 % Marketing, administration and research costs 4,289 4,075 Asset impairment and exit costs     20       3 Operating companies income8,6507,76411.4% Amortization of intangibles 65 54 General corporate expenses     128       111 Operating income8,4577,59911.3% Interest expense, net     660       572 Earnings before income taxes 7,797 7,027 11.0 % Provision for income taxes     2,109       2,059 2.4 % Net earnings 5,688 4,968 14.5 % Net earnings attributable to noncontrolling interests     181       148 Net earnings attributable to PMI$   5,507   $   4,82014.3%   Per share data:(2)Basic earnings per share$   2.96   $   2.4520.8%Diluted earnings per share$   2.96   $   2.4421.3%   (1) The segment detail of excise taxes on products sold for the nine months ended September 30, 2010 and 2009 is shown on Schedule 6.   (2)Net earnings and weighted-average shares used in the basic and diluted earnings per share computations for the nine months ended September 30, 2010 and 2009 are shown on Schedule 8, Footnote 1.                 Schedule 6 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Selected Financial Data by Business Segment For the Nine Months Ended September 30, ($ in millions) (Unaudited)   Net Revenues excluding Excise TaxesLatinEuropeanAmerica &Union   EEMA   Asia   Canada   Total   2010 Net Revenues (1) $ 21,053 $ 11,665 $ 11,094 $ 6,094 $ 49,906 Excise Taxes on Products   (14,435 )     (6,134 )     (5,265 )     (3,901 )     (29,735 ) Net Revenues excluding Excise Taxes6,6185,5315,8292,19320,171   2009 Net Revenues $ 20,988 $ 9,953 $ 8,974 $ 5,157 $ 45,072 Excise Taxes on Products   (14,313 )     (5,031 )     (4,160 )     (3,250 )     (26,754 ) Net Revenues excluding Excise Taxes6,6754,9224,8141,90718,318   Variance Currency (6 ) 105 484 151 734 Acquisitions 3 80 377 - 460 Operations   (54 )     424       154       135       659   Variance Total(57)6091,0152861,853 Variance Total (%) (0.9 )% 12.4 % 21.1 % 15.0 % 10.1 %   Variance excluding Currency (51 ) 504 531 135 1,119 Variance excluding Currency (%) (0.8 )% 10.2 % 11.0 % 7.1 % 6.1 %   Variance excluding Currency & Acquisitions (54 ) 424 154 135 659 Variance excluding Currency & Acquisitions (%) (0.8 )% 8.6 % 3.2 % 7.1 % 3.6 %       (1) 2010 Currency increased net revenues as follows: European Union $ 28 EEMA 235 Asia 1,159 Latin America & Canada   374   $ 1,796                     Schedule 7 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Selected Financial Data by Business Segment For the Nine Months Ended September 30, ($ in millions) (Unaudited)     Operating Companies IncomeLatin  European  America & Union   EEMA   Asia   Canada   Total 2010 $   3,280 $   2,412 $   2,259 $   699 $ 8,650 2009 3,397 1,982 1,933 452 7,764 % Change (3.4 )% 21.7 % 16.9 % 54.6 % 11.4 %   Reconciliation:For the nine months ended September 30, 2009$3,397$1,982$1,933$452$7,764   Asset impairment and exit costs - 2010 (20 ) - - - (20 ) Asset impairment and exit costs - 2009 3 - - - 3 Colombian investment and cooperation agreement charge - 2009 - - - 135 135   Acquired businesses 2 28 63 (2 ) 91 Currency (81 ) 74 263 69 325 Operations     (21 )       328         -         45       352   For the nine months ended September 30, 2010$   3,280     $   2,412     $   2,259     $   699     $8,650                 Schedule 8 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Net Earnings Attributable to PMI and Diluted Earnings Per Share For the Nine Months Ended September 30, ($ in millions, except per share data) (Unaudited)   Net EarningsAttributable toDilutedPMIE.P.S.   2010 Net Earnings Attributable to PMI $ 5,507 $     2.96 (1) 2009 Net Earnings Attributable to PMI $ 4,820 $ 2.44 (1) % Change 14.3 % 21.3 %   Reconciliation:2009 Net Earnings Attributable to PMI$4,820$2.44(1)   Special Items: 2010 Asset impairment and exit costs (13 ) (0.01 ) 2010 Tax items 121 0.07 2009 Asset impairment and exit costs 2 - 2009 Colombian investment and cooperation agreement charge 93 0.04   Currency 217 0.11 Interest (59 ) (0.03 ) Change in tax rate 54 0.03 Impact of lower shares outstanding and share-based payments 8 0.18 Operations   264         0.13   2010 Net Earnings Attributable to PMI$5,507   $     2.96   (1)     (1) Basic and diluted EPS were calculated using the following (in millions):   YTD September2010YTD September2009   Net earnings attributable to PMI $ 5,507 $ 4,820 Less distributed and undistributed earnings attributable to share-based payment awards   25         17   Net earnings for basic and diluted EPS $ 5,482   $     4,803     Weighted-average shares for basic EPS 1,849 1,958 Plus incremental shares from assumed conversions: Stock Options   3         7   Weighted-average shares for diluted EPS   1,852         1,965       Schedule 9 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Condensed Balance Sheets ($ in millions, except ratios) (Unaudited)                September 30,   December 31,  20102009Assets Cash and cash equivalents $ 3,507 $ 1,540 All other current assets 11,975 13,142 Property, plant and equipment, net 6,587 6,390 Goodwill 10,195 9,112 Other intangible assets, net 3,868 3,546 Other assets   747   822 Total assets$36,879$34,552   Liabilities and Stockholders' Equity Short-term borrowings $ 2,416 $ 1,662 Current portion of long-term debt 1,436 82 All other current liabilities 9,861 9,434 Long-term debt 13,595 13,672 Deferred income taxes 1,892 1,688 Other long-term liabilities   1,557   1,869 Total liabilities 30,757 28,407   Redeemable noncontrolling interests 1,199 -   Total PMI stockholders' equity 4,532 5,716 Noncontrolling interests   391   429 Total stockholders' equity   4,923   6,145 Total liabilities and stockholders' equity$36,879$34,552   Total debt $ 17,447 $ 15,416 Total debt to EBITDA 1.48 (1) 1.42 (1) Net debt to EBITDA 1.18 (1) 1.27 (1)   (1) For the calculation of Total Debt to EBITDA and Net Debt to 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 September 30, ($ in millions) (Unaudited)   20102009% Change in Reported Net Revenuesexcluding Excise TaxesReported Net RevenuesLessExciseTaxesReported NetRevenuesexcludingExcise TaxesLessCurrencyReported NetRevenuesexcludingExciseTaxes &CurrencyLessAcquisi-tionsReported NetRevenuesexcludingExcise Taxes,Currency &AcquisitionsReportedNetRevenuesLessExciseTaxesReported NetRevenuesexcludingExcise TaxesReportedReportedexcludingCurrencyReportedexcludingCurrency &Acquisitions   $ 7,045 $ 4,906 $ 2,139 $ (226 ) $ 2,365 $ - $ 2,365 European Union $ 7,783 $ 5,375 $ 2,408 (11.2 )% (1.8 )% (1.8 )% 4,184 2,288 1,896 (37 ) 1,933 29 1,904 EEMA 3,722 1,892 1,830 3.6 % 5.6 % 4.0 % 3,629 1,796 1,833 99 1,734 146 (1) 1,588 Asia 3,170 1,519 1,651 11.0 % 5.0 % (3.8 )% 2,078 1,332 746 26 720 - 720 Latin America & Canada 1,898 1,200 698 6.9 % 3.2 % 3.2 %                       $16,936$10,322$6,614$(138)$6,752$175   $6,577PMI Total$16,573$9,986$6,5870.4%2.5%(0.2)%     20102009% Change in Reported Operating Companies IncomeReportedOperatingCompaniesIncomeLessCurrencyReportedOperatingCompaniesIncomeexcludingCurrencyLessAcquisi-tions   ReportedOperatingCompaniesIncomeexcludingCurrency &AcquisitionsReportedOperatingCompaniesIncomeReportedReportedexcludingCurrencyReportedexcludingCurrency &Acquisitions   $ 1,113 $ (106 ) $ 1,219 $ - $ 1,219 European Union $ 1,267 (12.2 )% (3.8 )% (3.8 )% 856 32 824 9 815 EEMA 761 12.5 % 8.3 % 7.1 % 690 79 611 36 (1) 575 Asia 653 5.7 % (6.4 )% (11.9 )% 244 15 229 (2 ) 231 Latin America & Canada 226 8.0 % 1.3 % 2.2 %               $2,903$20   $2,883$43   $2,840PMI Total$2,907(0.1)%(0.8)%(2.3)%   (1) Represents the business combination in the Philippines.                                   Schedule 11 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions For the Quarters Ended September 30, ($ in millions) (Unaudited)   20102009% Change in Adjusted OperatingCompanies IncomeReportedOperatingCompaniesIncomeLessAsset Impairment & Exit CostsAdjustedOperatingCompaniesIncomeLessCurrencyAdjustedOperatingCompaniesIncomeexcludingCurrencyLessAcquisi-tionsAdjustedOperatingCompaniesIncomeexcludingCurrency &AcquisitionsReportedOperatingCompaniesIncomeLessAssetImpairment& Exit CostsAdjustedOperatingCompaniesIncomeAdjustedAdjustedexcludingCurrencyAdjustedexcludingCurrency &Acquisitions   $ 1,113 $ (20 ) $ 1,133 $ (106 ) $ 1,239 $ - $ 1,239 European Union $ 1,267 $ (1 ) $ 1,268 (10.6 )% (2.3 )% (2.3 )% 856 - 856 32 824 9 815 EEMA 761 - 761 12.5 % 8.3 % 7.1 % 690 - 690 79 611 36 (1) 575 Asia 653 - 653 5.7 % (6.4 )% (11.9 )% 244 - 244 15 229 (2 ) 231 Latin America & Canada 226 - 226 8.0 % 1.3 % 2.2 %                       $2,903$(20)$2,923   $20   $2,903$43   $2,860   PMI Total$2,907$(1)$2,908   0.5%(0.2)%(1.7)%       20102009% Points ChangeAdjustedOperatingCompaniesIncomeexcludingCurrencyNet RevenuesexcludingExcise Taxes & Currency(2)AdjustedOperatingCompaniesIncome MarginexcludingCurrencyAdjustedOperatingCompaniesIncomeexcludingCurrency &AcquisitionsNet Revenuesexcluding Excise Taxes,Currency &Acquisitions(2) AdjustedOperatingCompaniesIncomeMarginexcludingCurrency &AcquisitionsAdjustedOperatingCompaniesIncomeNet RevenuesexcludingExciseTaxes(2) AdjustedOperatingCompaniesIncomeMarginAdjustedOperatingCompaniesIncomeMarginexcludingCurrencyAdjustedOperatingCompaniesIncomeMarginexcludingCurrency &Acquisitions   $ 1,239 $ 2,365 52.4 % $ 1,239 $ 2,365 52.4 % European Union $ 1,268 $ 2,408 52.7 % (0.3 ) (0.3 ) 824 1,933 42.6 % 815 1,904 42.8 % EEMA 761 1,830 41.6 % 1.0 1.2 611 1,734 35.2 % 575 1,588 36.2 % Asia 653 1,651 39.6 % (4.4 ) (3.4 ) 229 720 31.8 % 231 720 32.1 % Latin America & Canada 226 698 32.4 % (0.6 ) (0.3 )               $2,903$6,752   43.0%$2,860$6,577   43.5%PMI Total$2,908$6,587   44.1%(1.1)(0.6)   (1) Represents the business combination in the Philippines. (2) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to Schedule 10.     Schedule 12 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Quarters Ended September 30, (Unaudited)                2010 2009  % Change     Reported Diluted EPS$       0.99$       0.936.5%   Adjustments: Asset impairment and exit costs         0.01         -   Adjusted Diluted EPS$1.00$0.937.5%   Less: Currency Impact         0.02     Adjusted Diluted EPS, excluding Currency$       0.98$       0.935.4%                 Schedule 13 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Quarters Ended September 30, (Unaudited)   20102009% Change   Reported Diluted EPS$       0.99$       0.936.5%   Less: Currency Impact         0.02     Reported Diluted EPS, excluding Currency$       0.97$       0.934.3%                                   Schedule 14 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Adjustments for the Impact of Currency and Acquisitions For the Nine Months Ended September 30, ($ in millions) (Unaudited)   20102009% Change in Reported Net Revenuesexcluding Excise TaxesReported Net RevenuesLessExciseTaxesReported NetRevenuesexcludingExcise TaxesLessCurrencyReported NetRevenuesexcludingExciseTaxes & CurrencyLessAcquisi-tionsReported NetRevenuesexcludingExciseTaxes, Currency &AcquisitionsReportedNetRevenuesLessExciseTaxesReported NetRevenuesexcludingExcise Taxes   Reported   ReportedexcludingCurrency   ReportedexcludingCurrency &Acquisitions   $ 21,053 $ 14,435 $ 6,618 $ (6 ) $ 6,624 $ 3 $ 6,621 European Union $ 20,988 $ 14,313 $ 6,675 (0.9 )% (0.8 )% (0.8 )% 11,665 6,134 5,531 105 5,426 80 5,346 EEMA 9,953 5,031 4,922 12.4 % 10.2 % 8.6 % 11,094 5,265 5,829 484 5,345 377 (1) 4,968 Asia 8,974 4,160 4,814 21.1 % 11.0 % 3.2 % 6,094 3,901 2,193 151 2,042 - 2,042 Latin America & Canada 5,157 3,250 1,907 15.0 % 7.1 % 7.1 %                       $49,906$29,735$20,171$734   $19,437$460   $18,977PMI Total$45,072$26,754$18,31810.1%6.1%3.6%     20102009% Change in Reported Operating Companies IncomeReportedOperatingCompaniesIncomeLessCurrencyReportedOperatingCompaniesIncomeexcludingCurrencyLessAcquisi-tionsReportedOperatingCompaniesIncomeexcludingCurrency &AcquisitionsReportedOperatingCompaniesIncomeReported   ReportedexcludingCurrency   ReportedexcludingCurrency &Acquisitions   $ 3,280 $ (81 ) $ 3,361 $ 2 $ 3,359 European Union $ 3,397 (3.4 )% (1.1 )% (1.1 )% 2,412 74 2,338 28 2,310 EEMA 1,982 21.7 % 18.0 % 16.5 % 2,259 263 1,996 63 (1) 1,933 Asia 1,933 16.9 % 3.3 % - 699 69 630 (2 ) 632 Latin America & Canada 452 54.6 % 39.4 % 39.8 %               $8,650$325   $8,325$91   $8,234PMI Total$7,76411.4%7.2%6.1%   (1) Represents the business combination in the Philippines.                                   Schedule 15 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Operating Companies Income to Adjusted Operating Companies Income & Reconciliation of Adjusted Operating Companies Income Margin, excluding Currency and Acquisitions For the Nine Months Ended September 30, ($ in millions) (Unaudited)   20102009% Change in Adjusted OperatingCompanies IncomeReportedOperatingCompaniesIncomeLessAssetImpairment & Exit CostsAdjustedOperatingCompaniesIncomeLessCurrencyAdjustedOperatingCompaniesIncomeexcludingCurrencyLessAcquisi-tionsAdjustedOperatingCompaniesIncomeexcludingCurrency &AcquisitionsReportedOperatingCompaniesIncomeLessAssetImpairment /Exit Costs & OtherAdjustedOperatingCompaniesIncomeAdjusted   AdjustedexcludingCurrency   AdjustedexcludingCurrency &Acquisitions   $ 3,280 $ (20 ) $ 3,300 $ (81 ) $ 3,381 $ 2 $ 3,379 European Union $ 3,397 $ (3 ) $ 3,400 (2.9 )% (0.6 )% (0.6 )% 2,412 - 2,412 74 2,338 28 2,310 EEMA 1,982 - 1,982 21.7 % 18.0 % 16.5 % 2,259 - 2,259 263 1,996 63 (1) 1,933 Asia 1,933 - 1,933 16.9 % 3.3 % - 699 - 699 69 630 (2 ) 632 Latin America & Canada 452 (135 ) (2) 587 19.1 % 7.3 % 7.7 %                       $8,650$(20)$8,670   $325   $8,345$91   $8,254   PMI Total$7,764$(138)$7,902   9.7%5.6%4.5%       20102009% Points ChangeAdjustedOperatingCompaniesIncomeexcludingCurrencyNet RevenuesexcludingExcise Taxes & Currency(3) AdjustedOperatingCompaniesIncome MarginexcludingCurrencyAdjustedOperatingCompaniesIncomeexcludingCurrency &AcquisitionsNet Revenuesexcluding Excise Taxes,Currency &Acquisitions(3) AdjustedOperatingCompaniesIncomeMarginexcludingCurrency &AcquisitionsAdjustedOperatingCompaniesIncomeNet RevenuesexcludingExciseTaxes(3) AdjustedOperatingCompaniesIncomeMarginAdjustedOperatingCompaniesIncomeMarginexcludingCurrency   AdjustedOperatingCompaniesIncomeMarginexcludingCurrency &Acquisitions   $ 3,381 $ 6,624 51.0 % $ 3,379 $ 6,621 51.0 % European Union $ 3,400 $ 6,675 50.9 % 0.1 0.1 2,338 5,426 43.1 % 2,310 5,346 43.2 % EEMA 1,982 4,922 40.3 % 2.8 2.9 1,996 5,345 37.3 % 1,933 4,968 38.9 % Asia 1,933 4,814 40.2 % (2.9 ) (1.3 ) 630 2,042 30.9 % 632 2,042 31.0 % Latin America & Canada 587 1,907 30.8 % 0.1 0.2               $8,345$19,437   42.9%$8,254$18,977   43.5%PMI Total$7,902$18,318   43.1%(0.2)0.4   (1) Represents the business combination in the Philippines. (2) Represents the 2009 Colombian investment and cooperation agreement charge. (3) For the calculation of net revenues excluding excise taxes, currency and acquisitions, refer to Schedule 14.     Schedule 16 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Adjusted Diluted EPS and Adjusted Diluted EPS, excluding Currency For the Nine Months Ended September 30, (Unaudited)                2010 2009% Change   Reported Diluted EPS$     2.96$       2.4421.3%   Adjustments: Colombian investment and cooperation agreement charge - 0.04 Tax items (0.07 ) - Asset impairment and exit costs       0.01           -   Adjusted Diluted EPS$2.90$2.4816.9%   Less: Currency Impact       0.11       Adjusted Diluted EPS, excluding Currency$     2.79   $       2.4812.5%     Schedule 17 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Reported Diluted EPS to Reported Diluted EPS, excluding Currency For the Nine Months Ended September 30, (Unaudited)               2010 2009  % Change    Reported Diluted EPS$       2.96$       2.4421.3%   Less: Currency Impact         0.11     Reported Diluted EPS, excluding Currency$       2.85$       2.4416.8%     Schedule 18 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Calculation of Total Debt to EBITDA and Net Debt to EBITDA Ratios ($ in millions, except ratios) (Unaudited)               For the Year EndedSeptember 30,December 31,20102009 October ~ December January ~ September 12 months 2009   2010 rolling   Earnings before income taxes $     2,216 $ 7,797 $         10,013 $ 9,243 Interest expense, net 225 660 885 797 Depreciation and amortization       246   677           923   853 EBITDA$2,687$9,134$11,821$10,893   September 30,December 31,20102009   Short-term borrowings $ 2,416 $ 1,662 Current portion of long-term debt 1,436 82 Long-term debt           13,595   13,672 Total Debt$17,447$15,416 Less: Cash and cash equivalents           3,507   1,540 Net Debt$13,940$13,876   RatiosTotal Debt to EBITDA           1.48   1.42Net Debt to EBITDA           1.18   1.27                     Schedule 19 PHILIP MORRIS INTERNATIONAL INC. and Subsidiaries Reconciliation of Non-GAAP Measures Reconciliation of Operating Cash Flow to Free Cash Flow and Free Cash Flow, excluding Currency Reconciliation of Operating Cash Flow to Operating Cash Flow, excluding Currency For the Quarters and Nine Months Ended September 30, ($ in millions) (Unaudited)   For the Quarters EndedFor the Nine Months EndedSeptember 30,September 30,20102009% Change20102009% Change   Net cash provided by operating activities(a)$   2,417$   1,84630.9%$7,856$   6,41922.4%   Less: Capital expenditures     164       160   483       483   Free cash flow$2,253$1,68633.6%$7,373$5,93624.2%   Less: Currency impact     (232 )     (8 )     Free cash flow, excluding Currency$   2,485   $   1,68647.4%$7,381   $   5,93624.3%                                     For the Quarters EndedFor the Nine Months EndedSeptember 30,September 30,20102009% Change20102009% Change   Net cash provided by operating activities(a)$2,417$1,84630.9%$7,856$6,41922.4%   Less: Currency impact     (234 )     18       Net cash provided by operating activities,excluding Currency$   2,651   $   1,84643.6%$7,838   $   6,41922.1%   (a) Operating cash flow.