2011 Annual Report A A EHO EHO HAR LD HAR LD S ER S ER G V G V IN A IN A V L V L I U I U R E R E D D EHO EHO HAR LD HAR LD S ER S ER G V G V IN A IN A V L V L I U I U R E R E D D EHO EHO HAR LD HAR LD S ER S ER G V G V IN A IN A V L V L I U I U R E R E D % D AREHOL T 39.8otal SHAReHoLDeR AREHOL H D H D S ER S ER G V ReTuRN IN 2011 G V IN A IN A V L V L AREHOL I U AREHOL I U H D R E H D R E S ER S ER D D G V G V REHO REHO IN A IN A HA LD HA LD L L S E S E V V R R I U I U G G R R V V E E IN A IN A D D V L V L AREHOL I U AREHOL I U H D R H D R ,, S E S E E E R R D D G V G V AREHOL IN A AREHOL IN A H DE V L H DE V L In SeachR andI everyU aspect, S R I U R R G V E G V E IN A D IN A D V L V L I U I U R E R E ourD 2011 results ,, D AREHOL AREHOL H DE H DE S R S R G were simply superb.G V V IN A IN A V L V L REHO I U REHO I U A LD R 2011 TOTAL ASHAREHOLDERLD RETURN – US$* R SH E E SH E E R D R D G V G V EH EH N N AR OLD AR OLD I A I A SH E SH E V L V L R R I PHILIPI MORRIS INTERNATIONAL INC. 39.8% U U G G R R V V E E IN A IN A D D V L V L AREHOL I U AREHOL I U H D R H D R S ER S E ER E D D TOBACCO PEER GROUP G V 30.2% G V AREHOLD IN A AREHOL AREHOLD IN A AREHOL SH E V L H DE SH E V L H DE R I U S R I U S R R R R G E G G E G N V N V V V I A D IN I A A D IN A V L V L L L PMII PEER GROUP 14.0% V I V U I U U I U R R E R E E R E D D D D S&P 500 2.1% EHO INDEX EHO HAR LD HAR LD S ER S ER G V G V IN A IN A V L V L REHOL I U REHOL I U A D R E A D R E SH E SH E R D R D G G EHO EHO N V N V AR LD AR LD I A I A SH E SH E V L V L R R I I U U $ G V G V R R N N E E BILLI13.7oN ADjuSTeD I A I A D D V L V L REHO †† I U REHO I U A LD oCI, uP By 14.0% R A LD R 0 5 10 SH 15 E 20 25 30 35 SHE 40 E E R D R D G G H N V H N V B915.3ILLIoNA CIGARRE OLeDtteS I A REHO ARE OLD I A REHO L L SH E V L HA D SH E V L HA D R † I E $ R I E S S SHIPP eD, uP By 0.5% U R U R G R E G BILLI9.6oN FReeR E N V G N V V G V I A D N I A A D N A L I L I V V L CASH FLoW,*** L I U V I U V I U ††† I U R E R E R E uP By 5.3% R E D $ D BILLI31.1oN RePoRTeD D D NeT ReVeNueS,** $ †† 4.88ADjuSTeD uP By 9.2% DILuTeD ePS, ††† *The chart assumes an investment period of January 1, 2011, to December 31, 2011, and the reinvestment of dividends uP By on21.2% AREHOL a quarterly basis.A PeerRE HgroupsOL represent the weighted average* return of the group. The PMI Peer Group is defined on H DE H DE S R page [88]. The S Tobacco Peer GroupR is defined as Altria Group, Inc., British American Tobacco plc, Imperial Tobacco Group G V PLC, JapanG Tobacco Inc., Lorillard Inc. V and Reynolds American Inc. IN A IN A V L Source:V FactSet, compiled by Centerview.L I U I U R E R E D D Contents AREHOLD AREHOLD SH E SH E 1 Letter to Shareholders *TheR chart assumes an investment period of January 1, 2011, to December 31, 2011, and the reinvestment of R G G N dividendsV on a quarterly basis. Exchange rates are as of January 1, 2011 and December 31, 2011. PeerN groups V 4 Driving Shareholder Value I representA the market-weighted average returnR Eof HtheO group. The PMI Peer Group is defined on pageI 86. The A REHO V L HA LD V L HA LD I U S E I U S E 13 Charitable Giving Programs Tobacco Peer Group is defined as Altria Group, Inc., British American Tobacco plc, Imperial Tobacco Group PLC, R R R E R E Japan Tobacco Inc., Lorillard Inc. andG Reynolds American Inc. V G V 14 2011 Business Highlights D D IN A IN A Source: FactSet, compiled by Centerview. L L 16 Board of Directors and Company Management V V ** Excluding excise taxes ***DefinedI as net cash provided by operatingU activities less capital expenditures. I U † †† R ††† E R E 17 Financial Review Excluding acquisitions Excluding currency and acquisitions Excluding currency D D 84 Reconciliation of Non-GAAP Measures Note: References to organic volume in this Annual Report are to volume excluding acquisitions, which also include our 2010 business combination with Fortune Tobacco Corporation in the Philippines. Operating 86 Comparison of Cumulative Total Return Companies Income (OCI) is defined as operating income before corporate expenses and amortization of 87 Shareholder Information intangibles. EPS refers to earnings per share. EHO EHO HAR LD HAR LD S ER S ER G V G V IN A IN A V L V L I U I U R E R E D D Dear Shareholder, In each and every aspect, our 2011 2011 RESults AND BRAND and Spain. The disruptions caused by results were simply superb. While PERFORMANCE the Arab Spring also led to an erosion admittedly lifted by the disruption of Cigarette volume of 915.3 billion units in volume in Egypt, Libya, Syria, Tunisia our principal competitor’s supply chain rose by 1.7% versus 2010, or by 0.5% and our duty free business. following the March 2011 tragedy in on an organic basis. Our market share performance Japan, our organization’s collective The key organic volume growth was solid and improved as the year ability to seize the resulting opportunity markets in absolute terms versus the unfolded. Our total share of the inter- was nothing short of remarkable. Even prior year were Algeria, Argentina, national market, excluding the People's absent this phenomenon, our results Indonesia, Japan, Korea and Turkey. Republic of China and the u.S., grew would have met or surpassed each of Our solid volume performance was par- by 0.3 percentage points to 28.1%. our key performance measures. tially offset by the detrimental impact of Aggregate share in our top 30 income While not immune to the financial the imposition of severe austerity mea- markets grew by 1.2 points to 36.3%, crisis that lurches from one Western sures, resulting consumer hardships with a stable performance in non-OECD country to the next, we fared better than and high unemployment levels in sev- markets and growth in OECD markets. our tobacco peers and virtually all other eral southern countries of the European Marlboro, the world’s only truly global consumer products peers. union, particularly Greece, Portugal global premium cigarette brand, Louis C. Camilleri Chairman of the Board and Chief executive officer PMI operations Center, Lausanne, Switzerland 1 EHO EHO HAR LD HAR LD S ER S ER G V G V IN A IN A V L V L I U I U R E R E D D EHO EHO HAR LD HAR LD S ER S ER G V G V IN A IN A V L V L I U I U R E R E D D EHO EHO HAR LD HAR LD S ER S ER G V G V IN A IN A V L V L I U I U R E R E D D shareholders with a dividend increase in % 2011 of 20.3%, to an annualized level of DIVID67.4eND INCReASe $3.08 per share, and share repurchases SINCe SPIN-oFF of $5.4 billion. Since our Spin-off from $3.08 Altria Group, Inc. in March 2008, we +20.3% have increased the dividend by an impressive 67.4%.