Philip Morris International Inc. (PMI) Reports 2009 Third-Quarter Results
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NEW YORK--(BUSINESS WIRE)--
Regulatory News:
-- Reported diluted earnings per share of $0.93 versus $1.01 in 2008,
principally due to a $0.08 tax benefit recorded in 2008, as detailed on
Schedules 4 and 13
- Excluding currency, reported diluted earnings per share up 8.9%
-- Adjusted diluted earnings per share of $0.93 versus the same amount in
2008, including the items detailed on Schedule 12
- Excluding currency, adjusted diluted earnings per share up 18.3%
-- Increases its forecast for 2009 full-year reported diluted earnings per
share to a range of $3.20 to $3.25, from $3.10 to $3.20. Excluding
currency, diluted earnings per share are projected to increase by
approximately 12%-14%
-- Increased its regular quarterly dividend during the quarter to $0.58 per
common share, up by 7.4% from $0.54
-- Spent a total of $1.5 billion to repurchase 31.5 million shares of its
common stock in the quarter
-- Completed the purchase of the South African affiliate of Swedish Match
for ZAR 1.98 billion (approximately $262 million)
Philip Morris International Inc. (NYSE / Euronext Paris: PM) today announced reported diluted earnings per share of $0.93 in the third quarter of 2009, down by 7.9% from $1.01 in the third quarter of 2008, principally due to a $0.08 tax benefit recorded in 2008 as detailed on the attached Schedules 4 and 13. Excluding currency, reported diluted earnings per share were up by 8.9%. Adjusted diluted earnings per share in the third quarter of 2009 and 2008 were $0.93, including the items detailed on the attached Schedule 12. Excluding currency, adjusted diluted earnings per share were up by 18.3%.
"The third quarter underscored our proven ability to deliver excellent results and improve our operating margins, with net revenues, adjusted operating companies income and earnings per share up, on a constant currency basis, by a strong 6.9%, 13.7% and 18.3%, respectively," said Louis Camilleri, Chairman and Chief Executive Officer.
"While we experienced lower organic volume in the quarter, this was largely anticipated given our pricing actions and the on-going impact of the economic crisis on total consumption levels, notably in Spain and Ukraine. Our year-to-date volume decline of 2.1% better reflects our estimated full-year organic volume performance."
"Our strong operating cash flow of $6.4 billion year-to-date enabled us to reward shareholders with a 7.4% increase in the dividend and our robust share repurchase program has remained uninterrupted since its inception."
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 22, 2009. Access is available at www.pmintl.com.
2009 Full-Year Forecast
PMI increases its forecast for 2009 full-year reported diluted earnings per share to a range of $3.20 to $3.25, from $3.10 to $3.20, which includes, at current exchange rates, an unfavorable currency impact of approximately $0.52 per share. Excluding currency, diluted earnings per share are projected to increase by approximately 12%-14%. This guidance includes a pre-tax charge of $135 million ($93 million after-tax), equivalent to $0.04 per share, relating to the Colombian Investment and Cooperation Agreement announced during the second quarter of 2009, and 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.
Dividends and Share Repurchase Program
PMI increased its regular quarterly dividend during the quarter to $0.58, up 7.4% from $0.54, which represents an annualized rate of $2.32 per common share.
During the third quarter, PMI spent $1.5 billion to repurchase 31.5 million shares of its common stock. Since May 2008, when PMI began its previously-announced $13 billion, two-year share repurchase program, the company has spent a total of $9.6 billion to repurchase 209.6 million shares.
Acquisitions and Agreements
On September 14, 2009, PMI completed the purchase of Swedish Match South Africa (Proprietary) Limited (SMSA) for ZAR 1.98 billion (approximately $262 million), including acquired cash and working capital. While this acquisition did not impact third quarter results, it is anticipated to be immediately marginally accretive to PMI's earnings per share.
2009 THIRD-QUARTER CONSOLIDATED RESULTS
Management reviews operating companies income (OCI), which is defined as operating income before corporate expenses and amortization of intangibles, to evaluate segment performance and to allocate resources. In the following discussion, the term "net revenues" refers to net revenues, excluding excise taxes, unless otherwise stated. Management also reviews OCI, operating margins and EPS on an adjusted basis (which may exclude the impact of currency and other items such as acquisitions or asset impairment and exit charges), EBITDA and net debt. Management believes it is appropriate to disclose these measures to help investors analyze business performance and trends. For a reconciliation of operating companies income to operating income, see the Condensed Statements of Earnings contained in this release. Reconciliations of adjusted measures to corresponding GAAP measures are also provided in this release. References to total international cigarette market, total cigarette market, total market and market shares are PMI estimates based on a number of sources. Comparisons are to the same prior-year period unless otherwise stated.
NET REVENUES
PMI Net Revenues* ($ Millions)
Third Quarter
Excl.
2009 2008 Change Currency
European Union $2,408 $2,671 (9.8)% 1.5%
Eastern Europe, Middle East & Africa 1,830 2,109 (13.2)% 6.9%
Asia 1,651 1,610 2.5% 3.0%
Latin America & Canada 698 563 24.0% 43.5%
Total PMI $6,587 $6,953 (5.3)% 6.9%
* Net revenues, excluding excise taxes.
Net revenues of $6.6 billion were down by 5.3% due to unfavorable currency of $846 million. Excluding currency, net revenues increased by 6.9%, primarily driven by favorable pricing of $590 million across all business segments, and the favorable impact of the 2008 Rothmans Inc., Canada acquisition, partly offset by unfavorable volume/mix, primarily in the EU and EEMA Regions. Excluding currency and acquisitions, net revenues increased by 4.1%.
OPERATING COMPANIES INCOME
PMI Operating Companies Income ($ Millions)
Third Quarter
Excl.
2009 2008 Change Currency
European Union $1,267 $1,325 (4.4)% 6.7%
Eastern Europe, Middle East & Africa 761 946 (19.6)% 11.1%
Asia 653 558 17.0% 9.1%
Latin America & Canada 226 110 +100.0% +100.0%
Total PMI $2,907 $2,939 (1.1)% 14.2%
Operating income declined 1.4% to $2.9 billion as shown on Schedule 1. Reported operating companies income declined 1.1% to $2.9 billion, due to unfavorable currency of $449 million. Excluding currency and the favorable impact of acquisitions of 3.1 percentage points of growth, operating companies income was up by 11.1%, driven by higher pricing, partly offset by unfavorable volume/mix.
Adjusted operating companies income declined 1.5% as shown in the table below and detailed on Schedule 11.
PMI Operating Companies Income ($ Millions)
Third Quarter
2009 2008 Change
Reported Operating Companies Income $2,907 $2,939 (1.1)%
Asset impairment and exit costs 1 13
Adjusted Operating Companies Income $2,908 $2,952 (1.5)%
Adjusted OCI Margin* 44.1% 42.5% 1.6 p.p.
*Margins are calculated as adjusted operating companies income, divided by net revenues, excluding excise taxes.
Excluding the unfavorable impact of currency, adjusted operating companies income margin was up by 2.7 percentage points to 45.2% as detailed on Schedule 11.
SHIPMENT VOLUME & MARKET SHARE
PMI Cigarette Shipment Volume by Segment (Million Units)
Third Quarter
2009 2008 Change
European Union 61,047 64,063 (4.7)%
Eastern Europe, Middle East & Africa 77,769 81,405 (4.5)%
Asia 54,484 55,946 (2.6)%
Latin America & Canada 25,978 24,500 6.0%
Total PMI 219,278 225,914 (2.9)%
PMI's cigarette shipment volume of 219.3 billion units was down by 2.9%, reflecting: gains in Latin America & Canada, from the acquisition of Rothmans Inc., offset by declines in the EU and EEMA due to the impact of the economic crisis, primarily in Spain and Ukraine; unfavorable comparisons due to a strong third quarter in 2008, mainly in EEMA; and declines in Asia due to trade inventory movements in Pakistan subsequent to the excise tax increase of June 2009. On an organic basis, which excludes acquisitions, PMI's cigarette shipment volume was down by 4.0%. However, on a year-to-date basis through September 2009, organic volume was down by 2.1%, which is more in line with PMI's expectations for the full year 2009.
Despite strong growth in Asia, total cigarette shipments of Marlboro of 76.9 billion units were down by 4.3%, 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 23.4 billion units were down by 2.8%, with double-digit growth in the EU, offset primarily by a decline in Russia. Driven by a decrease in shipments in Russia and Ukraine, total cigarette shipments of Chesterfield declined 15.1%. Total cigarette shipments of Parliament were down by 4.1%, driven by declines in EEMA, partly offset by double-digit growth in Asia. Total cigarette shipments of Virginia Slims declined 5.5%, reflecting a decline in EEMA, partly offset by growth in all other regions. Total cigarette shipments of Lark increased by 9.1%, driven by strong growth in Turkey, and Bond Street increased by 4.3%, primarily in Russia.
Total shipment volume of other tobacco products (OTP), in cigarette equivalent units, grew by 4.7%, primarily fueled by Canada and the Nordics. Excluding acquisitions, shipment volume of OTP was down by 9.8%, 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 down by 2.8%, and down by 4.1% excluding acquisitions.
PMI's market share performance improved in a number of markets, including Algeria, Argentina, Belgium, Brazil, Bulgaria, Canada, the Dominican Republic, Egypt, Hungary, Korea, Mexico, Pakistan, the Philippines, Portugal, Russia, Slovakia, Switzerland, Turkey and Ukraine.
EUROPEAN UNION (EU)
2009 Third-Quarter Results
In the EU, net revenues declined by 9.8% to $2.4 billion, mainly due to unfavorable currency of $304 million. Excluding the impact of currency and acquisitions, net revenues increased by 1.1%, primarily reflecting higher pricing of $173 million across most markets, including a favorable comparison with 2008 in the Czech Republic, which more than offset unfavorable volume/mix of $144 million, largely due to total market declines and unfavorable distributor inventory movements.
Operating companies income declined by 4.4% to $1.3 billion, primarily due to unfavorable currency of $147 million. Excluding the impact of currency and acquisitions, operating companies income grew by 6.0%, primarily reflecting favorable pricing that more than offset unfavorable volume/mix.
Adjusted operating companies income declined by 5.0% as shown in the table below and detailed on Schedule 11.
EU Operating Companies Income ($ Millions)
Third Quarter
2009 2008 Change
Reported Operating Companies Income $1,267 $1,325 (4.4)%
Asset impairment and exit costs 1 10
Adjusted Operating Companies Income $1,268 $1,335 (5.0)%
Adjusted OCI Margin* 52.7% 50.0% 2.7 p.p.
*Margins are calculated as adjusted operating companies income, divided by net revenues, excluding excise taxes.
Excluding the unfavorable impact of currency, adjusted operating companies income margin was up by 2.2 percentage points to 52.2% as detailed on Schedule 11.
The total cigarette market in the EU declined by 1.6%. 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 2.3%. The decline primarily reflects the impact of worsening economic conditions in Spain that were compounded by tax-driven price increases in June 2009.
PMI's cigarette shipment volume in the EU declined by 4.7%, primarily reflecting a lower total market as described above, and unfavorable distributor inventory movements, mainly in Spain.
PMI's market share in the EU was down by 0.2 share points to 38.9%. Adjusted for the trade inventory movements in the Czech Republic, PMI's market share was flat, as gains, primarily in Austria, Belgium and the Czech Republic, were offset by share declines in France, Poland, Spain and the U.K. Marlboro's share in the EU was down by 0.4 share points, reflecting a lower share in France, Germany and Spain, partially offset by a higher share in Italy, Poland and Portugal. The continuing roll-out of brand initiatives included, during the quarter, the Marlboro Red pack upgrade in Austria, France and Italy, the nationwide launch of Marlboro Gold Original in Belgium and the Netherlands, Marlboro Gold Advance in Norway and Portugal and Marlboro Gold Touch in Hungary. L&M continued to perform well in the EU, with market share up by 0.9 points to 5.7%, primarily driven by gains in Germany, Slovakia and Spain.
In the Czech Republic, the total cigarette market was up 10.3%, reflecting a favorable comparison to 2008, which was adversely affected by trade inventory movements related to the January 2008 excise tax increase. Adjusted for this distortion, the total market is estimated to have declined by 10.8%, due mainly to tax-driven price increases in the third quarter of 2008 and industry price increases in 2009. PMI's shipments were flat and adjusted market share increased by an estimated 3.6 points to 50.5%.
In France, the total cigarette market was up by 4.7%, primarily due to reduced travel abroad as a result of the economic crisis. PMI's shipments were up by 2.9%. Market share decreased by 0.5 points to 40.1%, driven by a lower share for Marlboro, down by 0.9 points to 26.2%, reflecting an overall decline in the premium segment. However, PMI's share of the premium segment was stable due to a higher share for the Philip Morris brand, up by 0.5 market share points.
In Germany, the total cigarette market was down by 2.8%, primarily reflecting the impact of the June 2009 price increase. PMI's shipments were down by 3.1%, whilst market share was essentially flat at 35.3%, despite the extended availability of certain competitor products at old retail prices and in the 17 cigarettes per pack format. PMI's share performance reflected a higher share for L&M, up 1.4 share points, largely offset by a lower Marlboro share, down by 1.2 share points to 21.8%.
In Italy, the total cigarette market was down by 1.9%, mainly reflecting the impact of price increases in February 2009. Although PMI's shipments were down by 3.4%, mainly due to the total market decline and adverse distributor inventory movements, market share was flat at 54.5%, primarily reflecting a 0.5 share point growth by Marlboro to 23.1%, fueled by the recent successful launch of Marlboro Gold Touch, offset by a share decline for Diana.
In Poland, the total cigarette market was up by 8.3%, primarily reflecting the favorable impact of trade inventory movements following the depletion of old tax sticker inventories, during the second quarter of 2009, in compliance with anti-forestalling regulation. Although PMI's shipments were up by 5.5%, market share was down by 0.9 points to 36.1%, primarily reflecting lower share in the super low price segment, partly offset by higher Marlboro share, up by 1.7 share points to 9.5%.
In Spain, the total cigarette market was down by 10.2%, due primarily to the adverse economic environment, the price increases of January and June 2009 and a decline in tourism. PMI's shipments were down by 23.5%, reflecting the lower total market and the impact of unfavorable distributor inventory movements. Although PMI's market share was down by 0.2 points to 32.1%, share was up 0.3 points compared to the second quarter 2009. Marlboro share, whilst down by 1.5 points to 15.3%, was essentially flat compared to the second quarter 2009. Market share of L&M was up by 2.3 share points.
EASTERN EUROPE, MIDDLE EAST & AFRICA (EEMA)
2009 Third-Quarter Results
In EEMA, net revenues decreased by 13.2% to $1.8 billion, due to unfavorable currency of $425 million. Excluding the impact of currency and acquisitions, net revenues grew by 6.7%, driven by favorable pricing of $263 million, primarily in Russia, Turkey and Ukraine, which more than offset unfavorable volume/mix of $121 million.
Operating companies income decreased by 19.6% to $761 million, due to unfavorable currency of $290 million. Excluding the impact of currency and acquisitions, operating companies income was up by a robust 10.6%, driven by strong growth in profitability in Russia, Turkey and Ukraine, mainly due to higher pricing.
EEMA Operating Companies Income ($ Millions)
Third Quarter
2009 2008 Change
Reported Operating Companies Income $761 $946 (19.6)%
Asset impairment and exit costs 0 0
Adjusted Operating Companies Income $761 $946 (19.6)%
Adjusted OCI Margin* 41.6% 44.9% (3.3) p.p.
*Margins are calculated as adjusted operating companies income, divided by net revenues, excluding excise taxes.
Excluding the impact of unfavorable currency, adjusted operating companies income margin was up by 1.7 percentage points to 46.6% as detailed on Schedule 11.
PMI's cigarette shipment volume decreased by 4.5%, principally due to: Ukraine, which suffered from the unfavorable impact of a series of tax-driven price increases, the largest of which was implemented in May of this year that raised PMI's prices by 22% to 50%, and worsening economic conditions; Romania, reflecting a double-digit total cigarette market decline following tax-driven price increases in 2009; and Turkey, reflecting unfavorable trade inventory movements following price increases in 2009. This decline was partially offset by increased cigarette shipment volume in Algeria, Egypt and several markets in the Middle East.
In Russia, PMI's shipment volume decreased by 0.8%. Shipment volume of PMI's premium portfolio was down by 15.2%, primarily due to declines in Marlboro and Parliament of 20.8% and 8.0%, respectively, reflecting down-trading from the premium segment. In the mid-price segment, shipment volume of Chesterfield was down by 10.7%, partially offset by Muratti, up by 1.5%. In the low-price segment, shipment volume of Bond Street and Optima was up by 32.4% and 22.7%, respectively. According to a new retail audit panel implemented with AC Nielsen this year, which more accurately reflects the coverage of the market, PMI's market share of 25.6% was up by 0.6 points. Parliament, in the super-premium segment, was up by 0.1 share point and Marlboro, in the premium segment, was down 0.2 share points, but stable compared to the second quarter 2009.
In Turkey, PMI's shipment volume was down by 4.1%, driven by trade inventory movements following the price increase in early July 2009. Total PMI's market share of 43.2% grew by 1.6 points, driven by Parliament, up by 0.6 share points, and Lark Recess Blue, launched in the fourth-quarter of 2008, with a share of 4.2%.
In Ukraine, PMI's shipment volume declined 23.0%, broadly in line with the total market contraction, reflecting a worsening economy and the impact of significant tax-driven price increases. Total PMI's market share was up by 0.1 share point to 35.6%, with share gains for both premium Parliament and mid-price Chesterfield offset by lower Marlboro share.
ASIA
2009 Third-Quarter Results
In Asia, net revenues increased by 2.5% to $1.7 billion. Excluding the impact of unfavorable currency of $7 million, net revenues grew by 3.0%, driven by favorable pricing of $72 million, which more than offset unfavorable volume/mix of $24 million.
Operating companies income grew by 17.0% to reach $653 million, primarily fueled by higher pricing and favorable currency. Excluding the impact of currency, driven by the Japanese Yen, operating companies income grew by 9.1%.
Asia Operating Companies Income ($ Millions)
Third Quarter
2009 2008 Change
Reported Operating Companies Income $653 $558 17.0%
Asset impairment and exit costs 0 0
Adjusted Operating Companies Income $653 $558 17.0%
Adjusted OCI Margin* 39.6% 34.7% 4.9 p.p.
*Margins are calculated as adjusted operating companies income, divided by net revenues, excluding excise taxes.
Excluding the impact of favorable currency, adjusted operating companies income margin was up by 2.0 percentage points to 36.7% as detailed on Schedule 11.
PMI's cigarette shipment volume decreased by 2.6%, mainly due to declines in Indonesia, reflecting the timing of the Ramadan holiday, Japan, reflecting a lower total market, and Pakistan, resulting from a trade inventory correction subsequent to the June 2009 excise tax increase, partially offset by growth in Korea. Shipment volume of Marlboro grew by 5.9%, reflecting a strong performance across the region, particularly in Indonesia, Japan, Korea and the Philippines.
In Indonesia, PMI's shipment volume declined by 1.1%, reflecting the timing of the Ramadan holiday, partly offset by growth from Marlboro, up by 2.9%, benefiting from the launch of Marlboro Black Menthol in March, and A Mild, which has established itself as Indonesia's leading cigarette brand franchise in terms of market share with shipment volume up by 9.4%.
In Japan, the total cigarette market declined by 3.0%. Adjusting for various factors, including the impact of the nationwide implementation of vending machine age verification in July 2008 and trade inventory movements, the total market is estimated to have declined by approximately 3.9%. PMI's shipments were down by 3.2%, broadly in line with the total market decline. PMI's market share of 24.0% was flat and share of Marlboro increased by 0.4 points to 10.6%, driven by the August 2008 launch of Marlboro Black Menthol, the November 2008 launch of Marlboro Filter Plus One and the June 2009 launch of Marlboro Black Menthol One. Market share of Lark was flat at 6.6%, but up versus the second quarter 2009, benefiting from the March 2009 national roll-out of Lark Classic Milds, and the introduction of Lark Mint Splash which was launched nationally in September 2009.
In Korea, the total cigarette market was up by 1.9%. PMI's shipment volume surged 21.4%, driven by market share increases. PMI's market share reached 14.6%, up by 2.4 points, driven by strong performances from Marlboro, Parliament and Virginia Slims, up by 1.2, 0.9 and 0.3 share points, respectively.
LATIN AMERICA & CANADA
2009 Third-Quarter Results
In Latin America & Canada, despite unfavorable currency of $110 million, net revenues increased by 24.0% to reach $698 million, primarily driven by the 2008 Rothmans Inc., Canada acquisition and higher pricing of $82 million, which more than offset unfavorable volume/mix of $17 million. Excluding the impact of currency and the Canadian acquisition, net revenues increased by 11.5%.
Operating companies income increased by more than 100.0% to $226 million, driven by the favorable impact of the Canadian acquisition of $77 million, and a favorable comparison to 2008 attributable to the one-time, pre-tax charge of $61 million, related to a previous distribution agreement in Canada, partially offset by unfavorable currency of $56 million.
Adjusted operating companies income increased by 100.0% as shown in the table below and detailed on Schedule 11.
Latin America & Canada Operating Companies Income ($ Millions)
Third Quarter
2009 2008 Change
Reported Operating Companies Income $226 $110 +100.0%
Asset impairment and exit costs 0 3
Adjusted Operating Companies Income $226 $113 100.0%
Adjusted OCI Margin* 32.4% 20.1% 12.3 p.p.
*Margins are calculated as adjusted operating companies income, divided by net revenues, excluding excise taxes.
Excluding the impact of unfavorable currency, adjusted operating companies income margin was up by 14.8 percentage points to 34.9% as detailed on Schedule 11.
Cigarette shipment volume of 26.0 billion units increased by 6.0%, reflecting the Canadian acquisition. Excluding acquisition volume, shipments decreased by 3.8%.
In Argentina, PMI's cigarette shipment volume increased by 0.7% and July/August market share increased by 2.6 points to 73.4%, fueled by the Philip Morris brand, up by 2.5 share points. Marlboro's share was up by 0.1 share point.
In Canada, the total tax-paid cigarette market was up by 6.1%, primarily reflecting stronger government enforcement measures to reduce contraband sales. On a pro forma basis, PMI's cigarette shipment volume increased by 7.1% and market share grew by 0.3 points to 33.9%, led by premium price Belmont, up by 0.3 points, and value brands Next and Quebec Classique, up by 1.2 and 1.7 share points, respectively, partially offset by mid-price Number 7 and Canadian Classics, down by 1.3 and 0.9 share points, respectively.
In Mexico, the total cigarette market was down by 0.8%, primarily reflecting the impact of tax-driven price increases in January and December 2008. PMI's cigarette shipment volume increased by 0.5% and market share increased by 0.9 points to 69.4%, fueled by Delicados, up by 1.3 points, partially offset by Marlboro, down by 0.3 points.
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 has more than 75,000 employees and its products are sold in approximately 160 countries. In 2008, the company held an estimated 15.6% share of the total international cigarette market outside of the U.S. For more information, see www.pmintl.com.
Trademarks and service marks mentioned in this release are the property of, or licensed by, the subsidiaries of Philip Morris International Inc.
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-K for the year ended December 31, 2008 and the Form 10-Q for the quarter ended June 30, 2009. 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)
2009 2008 % Change
Net revenues $ 16,573 $ 17,365 (4.6) %
Cost of sales 2,320 2,481 (6.5) %
Excise taxes on products (1) 9,986 10,412 (4.1) %
Gross profit 4,267 4,472 (4.6) %
Marketing, administration and research 1,359 1,520
costs
Asset impairment and exit costs 1 13
Operating companies income 2,907 2,939 (1.1) %
Amortization of intangibles 18 13
General corporate expenses 39 36
Operating income 2,850 2,890 (1.4) %
Interest expense, net 221 69
Earnings before income taxes 2,629 2,821 (6.8) %
Provision for income taxes 775 667 16.2 %
Net earnings 1,854 2,154 (13.9) %
Net earnings attributable to noncontrolling 56 74
interests
Net earnings attributable to PMI $ 1,798 $ 2,080 (13.6) %
Per share data:(2)
Basic earnings per share $ 0.93 $ 1.01 (7.9) %
Diluted earnings per share $ 0.93 $ 1.01 (7.9) %
(1) The segment detail of excise taxes on products sold for the quarters ended September 30, 2009 and 2008 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, 2009 and 2008 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 Taxes
European Latin
Union EEMA Asia America Total
& Canada
2009 Net Revenues $ 7,783 $ 3,722 $ 3,170 $ 1,898 $ 16,573
(1)
Excise Taxes (5,375 ) (1,892 ) (1,519 ) (1,200 ) (9,986 )
on Products
Net Revenues
excluding 2,408 1,830 1,651 698 6,587
Excise Taxes
2008 Net Revenues $ 8,451 $ 4,163 $ 3,188 $ 1,563 $ 17,365
Excise Taxes (5,780 ) (2,054 ) (1,578 ) (1,000 ) (10,412 )
on Products
Net Revenues
excluding 2,671 2,109 1,610 563 6,953
Excise Taxes
Variance Currency (304 ) (425 ) (7 ) (110 ) (846 )
Acquisitions 12 4 - 180 196
Operations 29 142 48 65 284
Variance (263 ) (279 ) 41 135 (366 )
Total
Variance (9.8 )% (13.2 )% 2.5 % 24.0 % (5.3 )%
Total (%)
Variance
excluding 41 146 48 245 480
Currency
Variance
excluding 1.5 % 6.9 % 3.0 % 43.5 % 6.9 %
Currency (%)
Variance
excluding 29 142 48 65 284
Currency &
Acquisitions
Variance
excluding
Currency & 1.1 % 6.7 % 3.0 % 11.5 % 4.1 %
Acquisitions
(%)
(1) 2009 Currency
decreased net revenues
as follows:
European $ (1,100 )
Union
EEMA (948 )
Asia (189 )
Latin
America & (329 )
Canada
$ (2,566 )
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 Income
European Latin
Union EEMA Asia America & Total
Canada
2009 $ 1,267 $ 761 $ 653 $ 226 $ 2,907
2008 1,325 946 558 110 2,939
% Change (4.4 )% (19.6 )% 17.0 % 100+ % (1.1 )%
Reconciliation:
For the quarter
ended September $ 1,325 $ 946 $ 558 $ 110 $ 2,939
30, 2008
Asset impairment
and exit costs - (1 ) - - - (1 )
2009
Asset impairment
and exit costs - 10 - - 3 13
2008
Acquired 9 5 - 77 91
businesses
Currency (147 ) (290 ) 44 (56 ) (449 )
Operations 71 100 51 92 314
For the quarter
ended September $ 1,267 $ 761 $ 653 $ 226 $ 2,907
30, 2009
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 Earnings
Attributable to Diluted
PMI E.P.S.
2009 Net Earnings Attributable to PMI $ 1,798 $ 0.93 (1)
2008 Net Earnings Attributable to PMI $ 2,080 $ 1.01 (1)
% Change (13.6 ) % (7.9 ) %
Reconciliation:
2008 Net Earnings Attributable to PMI $ 2,080 $ 1.01
Special Items:
2009 Asset impairment and exit costs (1 ) -
2008 Asset impairment and exit costs 8 -
2008 Tax items (169 ) (0.08 )
Currency (351 ) (0.17 )
Interest (110 ) (0.05 )
Change in tax rate 6 -
Impact of lower shares outstanding and 0.06
share-based payments
Operations 335 0.16
2009 Net Earnings Attributable to PMI $ 1,798 $ 0.93 (1)
(1) Effective January 1, 2009, PMI adopted the provisions of amended FASB
authoritative guidance which requires that unvested share-based payment awards
that
contain nonforfeitable rights to dividends are participating securities and
therefore
shall be included in the earnings per share calculation pursuant to the
two-class method.
Basic and diluted EPS were calculated
using the following (in millions):
Q3 2009 Q3 2008
Net earnings attributable to PMI $ 1,798 $ 2,080
Less distributed and undistributed
earnings attributable
to share-based payment awards 6 5
Net earnings for basic and diluted EPS $ 1,792 $ 2,075
Weighted average shares for basic EPS 1,927 2,051
Plus incremental shares from assumed
conversions:
Stock Options 7 10
Weighted average shares for diluted EPS 1,934 2,061
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)
2009 2008(1) % Change
Net revenues $ 45,072 $ 48,422 (6.9 ) %
Cost of sales 6,476 7,124 (9.1 ) %
Excise taxes on products (2) 26,754 28,839 (7.2 ) %
Gross profit 11,842 12,459 (5.0 ) %
Marketing, administration and research 4,075 4,244
costs
Asset impairment and exit costs 3 84
Operating companies income 7,764 8,131 (4.5 ) %
Amortization of intangibles 54 29
General corporate expenses 111 80
Operating income 7,599 8,022 (5.3 ) %
Interest expense, net 572 205
Earnings before income taxes 7,027 7,817 (10.1 ) %
Provision for income taxes 2,059 2,182 (5.6 ) %
Net earnings 4,968 5,635 (11.8 ) %
Net earnings attributable to 148 190
noncontrolling interests
Net earnings attributable to PMI $ 4,820 $ 5,445 (11.5 ) %
Per share data:(3)
Basic earnings per share $ 2.45 $ 2.61 (6.1 ) %
Diluted earnings per share $ 2.44 $ 2.60 (6.2 ) %
(1) As discussed in Note 1. Background and Basis of Presentation of our 2008 consolidated financial statements which appears in our Annual Report on Form 10-K, prior to 2008, certain of our subsidiaries reported their results up to ten days before the end of December, rather than on December 31. During 2008, these subsidiaries moved to a December 31 closing date. As a result, certain amounts in the first quarter of 2008 were revised to reflect this change. (2) The segment detail of excise taxes on products sold for the nine months ended September 30, 2009 and 2008 is shown on Schedule 6. (3) Net earnings and weighted-average shares used in the basic and diluted earnings per share computations for the nine months ended September 30, 2009 and 2008 are shown on Schedule 8, Footnote 2.
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 Taxes
European Latin
Union EEMA Asia America Total
& Canada
2009 Net Revenues $ 20,988 $ 9,953 $ 8,974 $ 5,157 $ 45,072
(2)
Excise Taxes (14,313 ) (5,031 ) (4,160 ) (3,250 ) (26,754 )
on Products
Net Revenues
excluding 6,675 4,922 4,814 1,907 18,318
Excise Taxes
2008(1) Net Revenues $ 23,427 $ 11,248 $ 9,334 $ 4,413 $ 48,422
Excise Taxes (15,866 ) (5,544 ) (4,617 ) (2,812 ) (28,839 )
on Products
Net Revenues
excluding 7,561 5,704 4,717 1,601 19,583
Excise Taxes
Variance Currency (1,008 ) (1,198 ) (195 ) (308 ) (2,709 )
Acquisitions 50 7 - 462 519
Operations 72 409 292 152 925
Variance (886 ) (782 ) 97 306 (1,265 )
Total
Variance (11.7 )% (13.7 )% 2.1 % 19.1 % (6.5 )%
Total (%)
Variance
excluding 122 416 292 614 1,444
Currency
Variance
excluding 1.6 % 7.3 % 6.2 % 38.4 % 7.4 %
Currency (%)
Variance
excluding 72 409 292 152 925
Currency &
Acquisitions
Variance
excluding
Currency & 1.0 % 7.2 % 6.2 % 9.5 % 4.7 %
Acquisitions
(%)
(1) As discussed in Note 1. Background and Basis of Presentation of our 2008 consolidated
financial statements which appears in our Annual Report on Form 10-K, prior to 2008, certain
of
our subsidiaries reported their results up to ten days before the end of December, rather
than on
December 31. During 2008, these subsidiaries moved to a December 31 closing date. As a
result,
certain amounts in the first quarter of 2008 were revised to reflect this change.
(2) 2009 Currency decreased net revenues as follows:
European $ (3,403 )
Union
EEMA (2,664 )
Asia (1,031 )
Latin
America & (885 )
Canada
$ (7,983 )
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 Income
European Latin
Union EEMA Asia America & Total
Canada
2009 $ 3,397 $ 1,982 $ 1,933 $ 452 $ 7,764
2008(1) 3,779 2,439 1,631 282 8,131
% (10.1 )% (18.7 )% 18.5 % 60.3 % (4.5 )%
Change
Reconciliation:
For the nine
months ended $ 3,779 $ 2,439 $ 1,631 $ 282 $ 8,131
September 30,
2008(1)
Colombian
investment and
cooperation - - - (135 ) (135 )
agreement charge
- 2009
Asset impairment
and exit costs - (3 ) - - - (3 )
2009
Asset impairment
and exit costs - 66 1 14 3 84
2008
Equity loss from
RBH legal - - - 124 124
settlement -
2008
Acquired 36 7 - 202 245
businesses
Currency (572 ) (758 ) 67 (138 ) (1,401 )
Operations 91 293 221 114 719
For the nine
months ended $ 3,397 $ 1,982 $ 1,933 $ 452 $ 7,764
September 30,
2009
(1) As discussed in Note 1. Background and Basis of Presentation of our 2008 consolidated financial statements which appears in our Annual Report on Form 10-K, prior to 2008, certain of our subsidiaries reported their results up to ten days before the end of December, rather than on December 31. During 2008, these subsidiaries moved to a December 31 closing date. As a result, certain amounts in the first quarter of 2008 were revised to reflect this change.
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 Earnings
Attributable to Diluted
PMI E.P.S.
2009 Net Earnings Attributable to PMI $ 4,820 $ 2.44 (2)
2008 Net Earnings Attributable to PMI $ 5,445 (1) $ 2.60 (2)
% Change (11.5 ) % (6.2 ) %
Reconciliation:
2008 Net Earnings Attributable to PMI $ 5,445 (1) $ 2.60 (2)
Special Items:
2009 Colombian investment and (93 ) (0.04 )
cooperation agreement charge
2009 Asset impairment and exit costs (2 ) -
2008 Asset impairment and exit costs 54 0.02
2008 Equity loss from RBH legal 124 0.06
settlement
2008 Tax Items (169 ) (0.08 )
Currency (1,081 ) (0.52 )
Interest (267 ) (0.13 )
Change in tax rate 28 0.01
Impact of lower shares outstanding 0.15
and share-based payments
Operations 781 0.37
2009 Net Earnings Attributable to PMI $ 4,820 $ 2.44 (2)
(1)As discussed in Note 1. Background and Basis of Presentation of our 2008
consolidated
financial statements which appears in our Annual Report on Form 10-K, prior to
2008, certain
of our subsidiaries reported their results up to ten days before the end of
December, rather
than on December 31. During 2008, these subsidiaries moved to a December 31
closing date. As
a result, certain amounts in the first quarter of 2008 were revised to reflect
this change.
(2) Effective January 1, 2009, PMI adopted the provisions of amended FASB
authoritative
guidance which requires that unvested share-based payment awards that contain
nonforfeitable
rights to dividends are participating securities and therefore shall be included
in the
earnings per share calculation pursuant to the two-class method.
Basic and diluted EPS were calculated using the following (in millions):
2009 2008
Net earnings attributable to PMI $ 4,820 $ 5,445
Less distributed and undistributed
earnings attributable
to share-based payment awards 17 11
Net earnings for basic and diluted $ 4,803 $ 5,434
EPS
Weighted average shares for basic EPS 1,958 2,084
Plus incremental shares from assumed
conversions:
Stock Options 7 8
Weighted average shares for diluted 1,965 2,092
EPS
Schedule 9
PHILIP MORRIS INTERNATIONAL INC.
and Subsidiaries
Condensed Balance Sheets
(in millions, except ratios)
(Unaudited)
September 30, December 31,
2009 2008
Assets
Cash and cash equivalents $ 1,602 $ 1,531
All other current assets 12,675 13,408
Property, plant and equipment, net 6,358 6,348
Goodwill 8,992 8,015
Other intangible assets, net 3,494 3,084
Other assets 584 586
Total assets $ 33,705 $ 32,972
Liabilities and Stockholders' Equity
Short-term borrowings $ 313 $ 375
Current portion of long-term debt 197 209
All other current liabilities 9,328 9,560
Long-term debt 13,741 11,377
Deferred income taxes 1,513 1,401
Other long-term liabilities 1,899 2,146
Total liabilities 26,991 25,068
Total PMI stockholders' equity 6,340 7,500
Noncontrolling interests 374 404
Total stockholders' equity 6,714 7,904
Total liabilities and stockholders' $ 33,705 $ 32,972
equity
Total debt $ 14,251 $ 11,961
Total debt to EBITDA 1.34 (1) 1.08 (1)
Net debt to EBITDA 1.19 (1) 0.94 (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)
2009 2008 % Change in Reported Net Revenues
excluding Excise Taxes
Reported Reported Net
Reported Net Revenues Reported
Net Revenues excluding Net
Revenues excluding Excise Revenues Reported
Less excluding Excise Less Taxes, Reported Less excluding Reported excluding
Reported Excise Excise Less Taxes & Acquisi- Currency & Net Excise Excise excluding Currency &
Net
Revenues Taxes Taxes Currency Currency tions Acquisitions Revenues Taxes Taxes Reported Currency Acquisitions
$ 7,783 $ 5,375 $ 2,408 $ (304 ) $ 2,712 $ 12 $ 2,700 European $ 8,451 $ 5,780 $ 2,671 (9.8 )% 1.5 % 1.1 %
Union
3,722 1,892 1,830 (425 ) 2,255 4 2,251 EEMA 4,163 2,054 2,109 (13.2 )% 6.9 % 6.7 %
3,170 1,519 1,651 (7 ) 1,658 - 1,658 Asia 3,188 1,578 1,610 2.5 % 3.0 % 3.0 %
Latin
1,898 1,200 698 (110 ) 808 180 628 America 1,563 1,000 563 24.0 % 43.5 % 11.5 %
& Canada
$ 16,573 $ 9,986 $ 6,587 $ (846 ) $ 7,433 $ 196 $ 7,237 PMI $ 17,365 $ 10,412 $ 6,953 (5.3 )% 6.9 % 4.1 %
Total
2009 2008 % Change in Reported Operating
Companies Income
Reported
Reported Operating
Operating Companies
Reported Companies Income Reported Reported
Operating Income Less excluding Operating Reported excluding
Companies Less excluding Acquisi- Currency & Companies excluding Currency &
Income Currency Currency tions Acquisitions Income Reported Currency Acquisitions
$ 1,267 $ (147 ) $ 1,414 $ 9 $ 1,405 European $ 1,325 (4.4 )% 6.7 % 6.0 %
Union
761 (290 ) 1,051 5 1,046 EEMA 946 (19.6 )% 11.1 % 10.6 %
653 44 609 - 609 Asia 558 17.0 % 9.1 % 9.1 %
Latin
226 (56 ) 282 77 205 America 110 100+ % 100+ % 86.4 %
& Canada
$ 2,907 $ (449 ) $ 3,356 $ 91 $ 3,265 PMI $ 2,939 (1.1 )% 14.2 % 11.1 %
Total
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
For the Quarters Ended September 30,
(in millions)
(Unaudited)
2009 2008 % Change in Adjusted Operating
Companies Income
Adjusted
Adjusted Operating
Less Operating Companies Less
Reported Asset Adjusted Companies Income Reported Asset Adjusted Adjusted
Operating Impairment Operating Income Less excluding Operating Impairment Operating Adjusted excluding
Companies & Exit Companies Less excluding Acquisi- Currency & Companies & Exit Companies excluding Currency &
Income Costs Income Currency Currency tions Acquisitions Income Costs Income Adjusted Currency Acquisitions
$ 1,267 $ (1 ) $ 1,268 $ (147 ) $ 1,415 $ 9 $ 1,406 European $ 1,325 $ (10 ) $ 1,335 (5.0 )% 6.0 % 5.3 %
Union
761 - 761 (290 ) 1,051 5 1,046 EEMA 946 - 946 (19.6 )% 11.1 % 10.6 %
653 - 653 44 609 - 609 Asia 558 - 558 17.0 % 9.1 % 9.1 %
Latin
226 - 226 (56 ) 282 77 205 America 110 (3 ) 113 100.0 % 100+ % 81.4 %
& Canada
$ 2,907 $ (1 ) $ 2,908 $ (449 ) $ 3,357 $ 91 $ 3,266 PMI $ 2,939 $ (13 ) $ 2,952 (1.5 )% 13.7 % 10.6 %
Total
2009 2008 % Points Change
Adjusted
Adjusted Adjusted Operating
Operating Net Operating Net Adjusted Companies
Revenues
Companies excluding Companies Adjusted Revenues Operating Income
Income Excise Income Operating excluding Companies Margin
Taxes Margin
exc
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