UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X) | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2010
OR
( ) | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES |
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 001-33708
Philip Morris International Inc.
(Exact name of registrant as specified in its charter)
Virginia | 13-3435103 | |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
120 Park Avenue New York, New York |
10017 | |
(Address of principal executive offices) | (Zip Code) |
Registrants telephone number, including area code |
(917) 663-2000 | |
|
Former name, former address and former fiscal year, if changed since last report
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes þ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer þ Accelerated filer ¨ Non-accelerated filer ¨ Smaller reporting company ¨
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No þ
At October 29, 2010, there were 1,814,393,563 shares outstanding of the registrants common stock, no par value per share.
PHILIP MORRIS INTERNATIONAL INC.
TABLE OF CONTENTS
Page No. | ||||||
PART I - |
FINANCIAL INFORMATION | |||||
Item 1. |
Financial Statements (Unaudited) | |||||
Condensed Consolidated Balance Sheets at |
3 4 | |||||
Condensed Consolidated Statements of Earnings for the |
5 | |||||
6 | ||||||
7 | ||||||
Condensed Consolidated Statements of Cash Flows for the |
8 9 | |||||
Notes to Condensed Consolidated Financial Statements | 10 40 | |||||
Item 2. |
Managements Discussion and Analysis of Financial |
41 77 | ||||
Item 4. |
Controls and Procedures | 78 | ||||
PART II - |
OTHER INFORMATION | |||||
Item 1. |
Legal Proceedings | 79 | ||||
Item 1A. |
Risk Factors | 79 | ||||
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 80 | ||||
Item 6. |
Exhibits | 81 | ||||
82 |
In this report, PMI, we, us and our refers to Philip Morris International Inc. and subsidiaries.
-2-
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in millions of dollars)
(Unaudited)
September 30, 2010 |
December 31, 2009 |
|||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ 3,507 | $ 1,540 | ||||||
Receivables (less allowances of |
3,022 | 3,098 | ||||||
Inventories: |
||||||||
Leaf tobacco |
4,419 | 4,183 | ||||||
Other raw materials |
1,351 | 1,275 | ||||||
Finished product |
2,478 | 3,749 | ||||||
8,248 | 9,207 | |||||||
Deferred income taxes |
282 | 305 | ||||||
Other current assets |
423 | 532 | ||||||
Total current assets |
15,482 | 14,682 | ||||||
Property, plant and equipment, at cost |
12,766 | 12,258 | ||||||
Less: accumulated depreciation |
6,179 | 5,868 | ||||||
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 |
See notes to condensed consolidated financial statements.
-3-
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Balance Sheets (Continued)
(in millions of dollars, except share data)
(Unaudited)
September 30, 2010 |
December 31, 2009 |
|||||||
LIABILITIES |
||||||||
Short-term borrowings |
$ 2,416 | $ 1,662 | ||||||
Current portion of long-term debt |
1,436 | 82 | ||||||
Accounts payable |
1,064 | 670 | ||||||
Accrued liabilities: |
||||||||
Marketing and selling |
423 | 441 | ||||||
Taxes, except income taxes |
4,812 | 4,824 | ||||||
Employment costs |
755 | 752 | ||||||
Dividends payable |
1,173 | 1,101 | ||||||
Other |
786 | 955 | ||||||
Income taxes |
709 | 500 | ||||||
Deferred income taxes |
139 | 191 | ||||||
Total current liabilities |
13,713 | 11,178 | ||||||
Long-term debt |
13,595 | 13,672 | ||||||
Deferred income taxes |
1,892 | 1,688 | ||||||
Employment costs |
1,060 | 1,260 | ||||||
Other liabilities |
497 | 609 | ||||||
Total liabilities |
30,757 | 28,407 | ||||||
Contingencies (Note 10) |
||||||||
Redeemable noncontrolling interests (Note 7) |
1,199 | |||||||
STOCKHOLDERS EQUITY |
||||||||
Common stock, no par value |
||||||||
Additional paid-in capital |
1,236 | 1,403 | ||||||
Earnings reinvested in the business |
17,539 | 15,358 | ||||||
Accumulated other comprehensive losses |
(520) | (817) | ||||||
18,255 | 15,944 | |||||||
Less: cost of repurchased stock |
13,723 | 10,228 | ||||||
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 |
See notes to condensed consolidated financial statements.
-4-
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)
For the Nine Months
Ended September 30, |
||||||||
2010 | 2009 | |||||||
Net revenues |
$ 49,906 | $ 45,072 | ||||||
Cost of sales |
7,212 | 6,476 | ||||||
Excise taxes on products |
29,735 | 26,754 | ||||||
Gross profit |
12,959 | 11,842 | ||||||
Marketing, administration and research costs |
4,417 | 4,186 | ||||||
Asset impairment and exit costs |
20 | 3 | ||||||
Amortization of intangibles |
65 | 54 | ||||||
Operating income |
8,457 | 7,599 | ||||||
Interest expense, net |
660 | 572 | ||||||
Earnings before income taxes |
7,797 | 7,027 | ||||||
Provision for income taxes |
2,109 | 2,059 | ||||||
Net earnings |
5,688 | 4,968 | ||||||
Net earnings attributable to noncontrolling interests |
181 | 148 | ||||||
Net earnings attributable to PMI |
$ 5,507 | $ 4,820 | ||||||
Per share data (Note 8): |
||||||||
Basic earnings per share |
$ 2.96 | $ 2.45 | ||||||
Diluted earnings per share |
$ 2.96 | $ 2.44 | ||||||
Dividends declared |
$ 1.80 | $ 1.66 |
See notes to condensed consolidated financial statements.
-5-
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Earnings
(in millions of dollars, except per share data)
(Unaudited)
For the Three Months Ended September 30, |
||||||||
2010 |
2009 | |||||||
Net revenues |
$ | 16,936 | $ | 16,573 | ||||
Cost of sales |
2,290 | 2,320 | ||||||
Excise taxes on products |
10,322 | 9,986 | ||||||
Gross profit |
4,324 | 4,267 | ||||||
Marketing, administration and research costs |
1,446 | 1,398 | ||||||
Asset impairment and exit costs |
20 | 1 | ||||||
Amortization of intangibles |
22 | 18 | ||||||
Operating income |
2,836 | 2,850 | ||||||
Interest expense, net |
214 | 221 | ||||||
Earnings before income taxes |
2,622 | 2,629 | ||||||
Provision for income taxes |
730 | 775 | ||||||
Net earnings |
1,892 | 1,854 | ||||||
Net earnings attributable to noncontrolling interests |
70 | 56 | ||||||
Net earnings attributable to PMI |
$ | 1,822 | $ | 1,798 | ||||
Per share data (Note 8): |
||||||||
Basic earnings per share |
$ | 0.99 | $ | 0.93 | ||||
Diluted earnings per share |
$ | 0.99 | $ | 0.93 | ||||
Dividends declared |
$ | 0.64 | $ | 0.58 | ||||
See notes to condensed consolidated financial statements.
-6-
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders Equity
for the Nine Months Ended September 30, 2010 and 2009
(in millions of dollars, except per share amounts)
(Unaudited)
PMI Stockholders Equity |
||||||||||||||||||||||||||||||||||||||||||||
Common Stock |
Additional Capital |
Earnings Reinvested in the Business |
Accumulated Other Earnings (Losses) |
Cost of Repurchased Stock |
Noncontrolling Interests |
Total | ||||||||||||||||||||||||||||||||||||||
Balances, January 1, 2009 |
$ - | $ 1,581 | $ 13,354 | $ (2,281) | $ (5,154) | $ 404 | $ 7,904 | |||||||||||||||||||||||||||||||||||||
Comprehensive earnings: |
||||||||||||||||||||||||||||||||||||||||||||
Net earnings |
4,820 | 148 | 4,968 | |||||||||||||||||||||||||||||||||||||||||
Other comprehensive earnings (losses), net of income taxes: |
||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments, net of income taxes of $36 |
1,189 | 5 | 1,194 | |||||||||||||||||||||||||||||||||||||||||
Change in net loss and prior service cost, net of income taxes of ($12) |
43 | 43 | ||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives accounted for as hedges, net of income taxes of ($2) |
22 | 22 | ||||||||||||||||||||||||||||||||||||||||||
Change in fair value of equity securities |
8 | 8 | ||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive earnings |
1,267 | |||||||||||||||||||||||||||||||||||||||||||
Total comprehensive earnings |
6,235 | |||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of other stock awards |
(126) | 332 | 206 | |||||||||||||||||||||||||||||||||||||||||
Dividends declared ($1.66 per share) |
(3,238) | (3,238) | ||||||||||||||||||||||||||||||||||||||||||
Purchase of subsidiary shares from noncontrolling interests |
(7) | (1) | (8) | |||||||||||||||||||||||||||||||||||||||||
Payments to noncontrolling interests |
(182) | (182) | ||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased |
(4,203) | (4,203) | ||||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2009 |
$ - | $ 1,448 | $ 14,936 | $ (1,019) | $ (9,025) | $ 374 | $ 6,714 | |||||||||||||||||||||||||||||||||||||
Balances, January 1, 2010 |
$ - | $ 1,403 | $ 15,358 | $ (817) | $(10,228) | $ 429 | $ 6,145 | |||||||||||||||||||||||||||||||||||||
Comprehensive earnings: |
||||||||||||||||||||||||||||||||||||||||||||
Net earnings |
5,507 | 152 (a) | 5,659 | (a) | ||||||||||||||||||||||||||||||||||||||||
Other comprehensive earnings (losses), net of income taxes: |
||||||||||||||||||||||||||||||||||||||||||||
Currency translation adjustments, net of income taxes of ($116) |
263 | 16 (a) | 279 | |||||||||||||||||||||||||||||||||||||||||
Change in net loss and prior service cost, net of income taxes of ($16) |
58 | 58 | ||||||||||||||||||||||||||||||||||||||||||
Change in fair value of derivatives accounted for as hedges, net of income taxes of $3 |
(13) | (13) | ||||||||||||||||||||||||||||||||||||||||||
Change in fair value of equity securities |
(11) | (11) | ||||||||||||||||||||||||||||||||||||||||||
Total other comprehensive earnings |
313 | |||||||||||||||||||||||||||||||||||||||||||
Total comprehensive earnings |
5,972 | |||||||||||||||||||||||||||||||||||||||||||
Exercise of stock options and issuance of other stock awards |
(167) | 444 | 277 | |||||||||||||||||||||||||||||||||||||||||
Dividends declared ($1.80 per share) |
(3,326) | (3,326) | ||||||||||||||||||||||||||||||||||||||||||
Payments to noncontrolling interests |
(206) | (206) | ||||||||||||||||||||||||||||||||||||||||||
Common stock repurchased |
(3,939) | (3,939) | ||||||||||||||||||||||||||||||||||||||||||
Balances, September 30, 2010 |
$ - | $ 1,236 | $ 17,539 | $ (520) | $ (13,723) | $ 391 | $ 4,923 |
(a) Net earnings attributable to noncontrolling interests exclude $29 million related to the redeemable noncontrolling interest which is reported outside of the equity section in the condensed consolidated balance sheet at September 30, 2010. Currency translation adjustments also exclude $16 million related to the redeemable noncontrolling interest at September 30, 2010.
Total comprehensive earnings were $2,689 million and $2,566 million for the quarters ended September 30, 2010 and 2009, respectively, including $86 million and $68 million related to noncontrolling interests, respectively. Total comprehensive earnings for the quarter ended September 30, 2010 exclude $37 million related to the redeemable noncontrolling interest.
See notes to condensed consolidated financial statements.
-7-
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in millions of dollars)
(Unaudited)
For the Nine Months Ended September 30, |
||||||||
2010 |
2009 | |||||||
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES |
||||||||
Net earnings |
$ | 5,688 | $ | 4,968 | ||||
Adjustments to reconcile net earnings to operating cash flows: |
||||||||
Depreciation and amortization |
677 | 607 | ||||||
Deferred income tax (benefit) provision |
(3 | ) | 121 | |||||
Colombian Investment and Cooperation Agreement charge |
135 | |||||||
Asset impairment and exit costs, net of cash paid |
(28 | ) | (46 | ) | ||||
Cash effects of changes, net of the effects from acquired and divested companies: |
||||||||
Receivables, net |
160 | (85 | ) | |||||
Inventories |
1,286 | 1,143 | ||||||
Accounts payable |
82 | 56 | ||||||
Income taxes |
157 | 39 | ||||||
Accrued liabilities and other current assets |
(21 | ) | (307 | ) | ||||
Pension plan contributions |
(184 | ) | (382 | ) | ||||
Other |
42 | 170 | ||||||
Net cash provided by operating activities |
7,856 | 6,419 | ||||||
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES |
||||||||
Capital expenditures |
(483 | ) | (483 | ) | ||||
Purchases of businesses, net of acquired cash |
(42 | ) | (435 | ) | ||||
Other |
79 | 150 | ||||||
Net cash used in investing activities |
(446 | ) | (768 | ) | ||||
See notes to condensed consolidated financial statements.
Continued
-8-
Philip Morris International Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows (Continued)
(in millions of dollars)
(Unaudited)
For the Nine Months Ended September 30, |
||||||||
2010 |
2009 | |||||||
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES |
||||||||
Net issuance (repayment) of short-term borrowings |
$ | 654 | $ | (1,106 | ) | |||
Long-term debt proceeds |
1,130 | 2,987 | ||||||
Long-term debt repaid |
(68 | ) | (1 | ) | ||||
Repurchases of common stock |
(3,863 | ) | (4,258 | ) | ||||
Issuance of common stock |
169 | 131 | ||||||
Dividends paid |
(3,254 | ) | (3,212 | ) | ||||
Other |
(275 | ) | (251 | ) | ||||
Net cash used in financing activities |
(5,507 | ) | (5,710 | ) | ||||
Effect of exchange rate changes on cash and cash equivalents |
64 | 130 | ||||||
Cash and cash equivalents: |
||||||||
Increase |
1,967 | 71 | ||||||
Balance at beginning of period |
1,540 | 1,531 | ||||||
Balance at end of period |
$ | 3,507 | $ | 1,602 | ||||
As discussed in Note 7. Acquisitions and Other Business Arrangements, PMIs business combination in the Philippines is a non-cash transaction.
See notes to condensed consolidated financial statements.
-9-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 1. Background and Basis of Presentation:
Background
Philip Morris International Inc. is a holding company incorporated in Virginia, U.S.A., whose subsidiaries and affiliates and their licensees are engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the U.S.A. Throughout these financial statements, the term PMI refers to Philip Morris International Inc. and its subsidiaries.
As discussed in Note 4. Transactions with Altria Group, Inc. of our 2009 audited consolidated financial statements and related notes, which are incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2009 (the 2009 Form 10-K), prior to March 28, 2008, PMI was a wholly-owned subsidiary of Altria Group, Inc. (Altria). On January 30, 2008, the Altria Board of Directors announced Altrias plans to spin off all of its interest in PMI to Altrias stockholders in a tax-free distribution pursuant to Section 355 of the U.S. Internal Revenue Code. The distribution of all of the PMI shares owned by Altria (the Spin-off) was made on March 28, 2008 (the Distribution Date) to stockholders of record as of the close of business on March 19, 2008 (the Record Date). Altria distributed one share of our common stock for each share of Altria common stock outstanding on the Record Date.
Basis of Presentation
The interim condensed consolidated financial statements of PMI are unaudited. These interim condensed consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting principles and such principles are applied on a consistent basis. It is the opinion of PMIs management that all adjustments necessary for a fair statement of the interim results presented have been reflected therein. All such adjustments were of a normal recurring nature. Net revenues and net earnings attributable to PMI for any interim period are not necessarily indicative of results that may be expected for the entire year.
These statements should be read in conjunction with the audited consolidated financial statements and related notes, which are incorporated by reference into PMIs 2009 Form 10-K.
Note 2. Asset Impairment and Exit Costs:
Asset impairment and exit costs were as follows (in millions):
For the Nine Months
Ended September 30, |
For the Three Months
Ended September 30, | |||||||
2010 | 2009 | 2010 | 2009 | |||||
Asset impairment and exit costs |
$ 20 | $ 3 | $ 20 | $ 1 |
Asset impairment and exit costs above are separation program charges primarily related to severance costs. These charges were reflected in the operating results of the European Union segment.
Cash payments related to exit costs at PMI were $48 million and $15 million for the nine months and three months ended September 30, 2010, respectively, and $49 million and $12 million for the nine months and three months ended September 30, 2009, respectively. Future cash payments for exit costs incurred to date are expected to be approximately $51 million, which is expected to be paid by 2012.
-10-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The movement in the exit cost liabilities for the nine months ended September 30, 2010 was as follows (in millions):
Liability balance, January 1, 2010 |
$ | 84 | ||
Charges |
20 | |||
Cash spent |
(48 | ) | ||
Currency/other |
(5 | ) | ||
Liability balance, September 30, 2010 |
$ | 51 | ||
Note 3. Stock Plans:
Under the Philip Morris International Inc. 2008 Performance Incentive Plan (the Plan), PMI may grant to certain eligible employees stock options, stock appreciation rights, restricted stock, restricted stock units, deferred stock and deferred stock units and other stock-based awards based on PMIs common stock, as well as performance-based incentive awards. Up to 70 million shares of PMIs common stock may be issued under the Plan. At September 30, 2010, 30,877,397 shares were available for grant under the Plan.
PMI has also adopted the Philip Morris International Inc. 2008 Stock Compensation Plan for Non-Employee Directors (the Non-Employee Directors Plan). A non-employee director is defined as each member of the PMI Board of Directors who is not a full-time employee of PMI or of any corporation in which PMI owns, directly or indirectly, stock possessing at least 50% of the total combined voting power of all classes of stock entitled to vote in the election of directors in such corporation. Up to 1,000,000 shares of PMI common stock may be awarded under the Non-Employee Directors Plan. As of September 30, 2010, 840,196 shares were available for grant under the plan.
During the nine months ended September 30, 2010, PMI granted 3.5 million shares of restricted and deferred stock awards to eligible employees at a weighted-average grant date fair value of $47.52. PMI recorded compensation expense for restricted stock and deferred stock awards of $96 million and $69 million during the nine months ended September 30, 2010 and 2009, respectively, and $33 million and $25 million during the three months ended September 30, 2010 and 2009, respectively. As of September 30, 2010, PMI had $203 million of total unrecognized compensation cost related to non-vested restricted and deferred stock awards. The cost is recognized over the original restriction period of the awards, which is typically three years from the date of the original grant.
During the nine months ended September 30, 2010, 1.8 million shares of PMI restricted stock and deferred stock awards vested. Of this amount, 1.3 million shares went to PMI employees and the remainder went to Altria employees who held PMI stock awards as a result of the Spin-off. The grant date fair value of all the vested shares was approximately $117 million. The total fair value of restricted stock and deferred stock awards that vested during the nine months ended September 30, 2010 was approximately the same as the grant date fair value. The grant price information for restricted stock and deferred stock awarded prior to January 30, 2008 reflects historical market prices of Altria stock at date of grant and is not adjusted to reflect the Spin-off.
For the nine months ended September 30, 2010, the total intrinsic value of the 7.8 million PMI stock options exercised was approximately $226 million.
Note 4. Benefit Plans:
PMI sponsors noncontributory defined benefit pension plans covering substantially all U.S. employees. Pension coverage for employees of PMIs non-U.S. subsidiaries is provided, to the extent deemed appropriate, through separate plans, many of which are governed by local statutory requirements. In addition, PMI provides health care and other benefits to substantially all U.S. retired employees and certain non-U.S. retired employees. In general, health care benefits for non-U.S. retired employees are covered through local government plans.
-11-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Pension Plans
Components of Net Periodic Benefit Cost
Net periodic pension cost consisted of the following (in millions):
U.S. Plans | Non-U.S. Plans | |||||||||||||||
For the Nine Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost |
$ 5 | $ 8 | $ 122 | $ 94 | ||||||||||||
Interest cost |
12 | 13 | 145 | 123 | ||||||||||||
Expected return on plan assets |
(12) | (10) | (218) | (158) | ||||||||||||
Amortization: |
||||||||||||||||
Net loss |
3 | 3 | 31 | 23 | ||||||||||||
Prior service cost |
1 | 1 | 7 | 4 | ||||||||||||
Other |
6 | (4) | ||||||||||||||
Net periodic pension cost |
$ 9 | $ 21 | $ 83 | $ 86 | ||||||||||||
U.S. Plans | Non-U.S. Plans | |||||||||||||||
For the Three
Months Ended September 30, |
For the Three Months Ended September 30, |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Service cost |
$ 2 | $ 2 | $ 40 | $ 32 | ||||||||||||
Interest cost |
4 | 4 | 49 | 41 | ||||||||||||
Expected return on plan assets |
(5) | (4) | (74) | (51) | ||||||||||||
Amortization: |
||||||||||||||||
Net loss |
1 | 1 | 10 | 7 | ||||||||||||
Prior service cost |
1 | 1 | 3 | 1 | ||||||||||||
Other |
2 | (4) | ||||||||||||||
Net periodic pension cost |
$ 3 | $ 6 | $ 24 | $ 30 |
Other above was primarily related to curtailment and settlement gains in 2010, and early retirement programs and special termination charges in 2009.
Employer Contributions
PMI presently makes, and plans to make, contributions, to the extent that they are tax deductible and to meet specific funding requirements of its funded U.S. and non-U.S. plans. Employer contributions of $184 million were made to the pension plans during the nine months ended September 30, 2010. Currently, PMI anticipates making additional contributions during the remainder of 2010 of approximately $117 million to its pension plans, based on current tax and benefit laws. However, this estimate is subject to change as a result of changes in tax and other benefit laws, as well as asset performance significantly above or below the assumed long-term rate of return on pension assets, or changes in interest rates.
-12-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 5. Goodwill and Other Intangible Assets, net:
Goodwill and other intangible assets, net, by segment were as follows (in millions):
Goodwill | Other Intangible Assets, net | |||||||||||||||
September 30, 2010 |
December 31, 2009 |
September 30, 2010 |
December 31, 2009 |
|||||||||||||
European Union |
$ 1,491 | $ 1,539 | $ 671 | $ 699 | ||||||||||||
Eastern Europe, Middle East & Africa |
700 | 743 | 252 | 253 | ||||||||||||
Asia |
4,996 | 3,926 | 1,677 | 1,346 | ||||||||||||
Latin America & Canada |
3,008 | 2,904 | 1,268 | 1,248 | ||||||||||||
Total |
$ 10,195 | $ 9,112 | $ 3,868 | $ 3,546 |
Goodwill is due primarily to PMIs acquisitions in Canada, Indonesia, Mexico, Greece, Serbia, Colombia and Pakistan, and a business combination in the Philippines in February 2010. The movement in goodwill from December 31, 2009, is as follows (in millions):
European Union |
Eastern Europe, Middle East & Africa |
Asia | Latin America & Canada |
Total | ||||||||||||||||
Balance at December 31, 2009 |
$ 1,539 | $ 743 | $ 3,926 | $ 2,904 | $ 9,112 | |||||||||||||||
Changes due to: |
||||||||||||||||||||
Philippines business combination |
813 | 813 | ||||||||||||||||||
Other business combinations |
21 | 21 | ||||||||||||||||||
Currency |
(48) | (43) | 257 | 83 | 249 | |||||||||||||||
Balance at September 30, 2010 |
$ 1,491 | $ 700 | $ 4,996 | $ 3,008 | $ 10,195 |
The increase in goodwill from other business combinations relates to our new leaf procurement business in Brazil. For further details on the Philippines and other business combinations, see Note 7. Acquisitions and Other Business Arrangements.
Additional details of other intangible assets were as follows (in millions):
September 30, 2010 | December 31, 2009 | |||||||||||
Gross Carrying |
Accumulated Amortization |
Gross Carrying Amount |
Accumulated Amortization | |||||||||
Non-amortizable intangible assets |
$ 2,173 | $ 2,080 | ||||||||||
Amortizable intangible assets |
1,955 | $ 260 | 1,663 | $ 197 | ||||||||
Total other intangible assets |
$ 4,128 | $ 260 | $ 3,743 | $ 197 |
-13-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Non-amortizable intangible assets substantially consist of trademarks from PMIs acquisitions in Indonesia in 2005 and Mexico in 2007. Amortizable intangible assets consist of certain trademarks, distribution networks and non-compete agreements associated with business combinations. The range of useful lives as well as the weighted-average remaining useful life of amortizable intangible assets at September 30, 2010 is as follows:
Description |
Estimated Useful Lives |
Weighted-Average Remaining Useful Life | ||
Trademarks |
2 - 40 years | 28 years | ||
Distribution networks |
20 - 30 years | 17 years | ||
Non-compete agreements |
3 - 10 years | 5 years |
Pre-tax amortization expense for intangible assets during the nine months ended September 30, 2010 and 2009 was $65 million and $54 million, respectively, and $22 million and $18 million for the three months ended September 30, 2010 and 2009, respectively. Amortization expense for each of the next five years is estimated to be $90 million or less, assuming no additional transactions occur that require the amortization of intangible assets.
The increase in other intangible assets from December 31, 2009 was due primarily to a business combination in the Philippines and currency movements. For further details, see Note 7. Acquisitions and Other Business Arrangements.
During the first quarter of 2010, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment, and no impairment charges were required as a result of this review.
Note 6. Financial Instruments:
Overview
PMI operates in markets outside of the United States, with manufacturing and sales facilities in various locations around the world. PMI utilizes certain financial instruments to manage foreign currency exposure. Derivative financial instruments are used by PMI principally to reduce exposures to market risks resulting from fluctuations in foreign exchange rates by creating offsetting exposures. PMI is not a party to leveraged derivatives and, by policy, does not use derivative financial instruments for speculative purposes. Financial instruments qualifying for hedge accounting must maintain a specified level of effectiveness between the hedging instrument and the item being hedged, both at inception and throughout the hedged period. PMI formally documents the nature and relationships between the hedging instruments and hedged items, as well as its risk-management objectives, strategies for undertaking the various hedge transactions and method of assessing hedge effectiveness. Additionally, for hedges of forecasted transactions, the significant characteristics and expected terms of the forecasted transaction must be specifically identified, and it must be probable that each forecasted transaction will occur. If it were deemed probable that the forecasted transaction would not occur, the gain or loss would be recognized in earnings. PMI reports its net transaction gains or losses in marketing, administration and research costs on the condensed consolidated statements of earnings.
PMI uses forward foreign exchange contracts, foreign currency swaps and foreign currency options, hereafter collectively referred to as foreign exchange contracts, to mitigate its exposure to changes in exchange rates from third-party and intercompany actual and forecasted transactions. The primary currencies to which PMI is exposed include the Euro, Indonesian rupiah, Japanese yen, Mexican peso, Russian ruble, Swiss franc and Turkish lira. At September 30, 2010, PMI had contracts with aggregate notional amounts of $10.6 billion. Of this amount, $3.2 billion related to cash flow hedges and $7.4 billion related to other derivatives that primarily offset currency exposures on intercompany financing.
-14-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The fair value of PMIs foreign exchange contracts included in the condensed consolidated balance sheet as of September 30, 2010 and December 31, 2009 were as follows (in millions):
Asset Derivatives |
Liability Derivatives |
|||||||||||||||||||
Balance Sheet |
Fair Value | Balance Sheet Classification |
Fair Value | |||||||||||||||||
At September 30, 2010 |
At December 31, 2009 |
At September 30, 2010 |
At December 31, 2009 |
|||||||||||||||||
Foreign exchange |
Other current assets |
$ 29 | $ 140 | Other accrued liabilities |
$ 19 | $ 27 | ||||||||||||||
Other assets |
10 | Other liabilities |
9 | |||||||||||||||||
Foreign exchange |
Other current assets |
127 | 71 | Other accrued liabilities |
24 | 107 | ||||||||||||||
Total Derivatives |
$ 166 | $ 211 | $ 52 | $ 134 |
Hedging activities, which represent movement in derivatives as well as the respective underlying transactions, had the following effect on PMIs condensed consolidated statements of earnings and other comprehensive earnings for the nine months and three months ended September 30, 2010 and 2009 (in millions):
For the Nine Months Ended September 30, 2010 | ||||||||||||||||||||||||
Gain (Loss) | Cash Flow Hedges |
Fair Value Hedges |
Net Investment Hedges |
Other Derivatives |
Income Taxes |
Total | ||||||||||||||||||
Statement of Earnings: |
||||||||||||||||||||||||
Net revenues |
$ 24 | $ - | $ - | $ 24 | ||||||||||||||||||||
Cost of sales |
(14) | (14) | ||||||||||||||||||||||
Marketing, administration and research costs |
3 | (2) | 1 | |||||||||||||||||||||
Operating income |
13 | (2) | 11 | |||||||||||||||||||||
Interest expense, net |
(38) | 2 | (36) | |||||||||||||||||||||
Earnings before income taxes |
(25) | - | (25) | |||||||||||||||||||||
Provision for income taxes |
2 | 1 | 3 | |||||||||||||||||||||
Net earnings attributable to PMI |
$ (23) | $ - | $ 1 | $ (22) | ||||||||||||||||||||
Other Comprehensive Earnings: |
||||||||||||||||||||||||
Losses transferred to earnings |
$ 25 | $ (2) | $ 23 | |||||||||||||||||||||
Recognized |
(41) | 5 | (36) | |||||||||||||||||||||
Net impact |
$ (16) | $ 3 | $ (13) | |||||||||||||||||||||
Cumulative translation adjustment |
$ (2) | $ 25 | $ (10) | $ 13 |
-15-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For the Nine Months Ended September 30, 2009 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gain (Loss) | Cash Flow Hedges |
Fair Value Hedges |
Net Investment Hedges |
Other Derivatives |
Income Taxes |
Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statement of Earnings: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenues |
$ | 61 | $ | - | $ | - | $ | 61 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of sales |
(1 | ) | (1 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketing, administration and research costs |
13 | (1 | ) | 12 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income |
73 | - | (1 | ) | 72 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net |
(65 | ) | 37 | (8 | ) | (36 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings before income taxes |
8 | 37 | (9 | ) | 36 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for income taxes |
(2 | ) | (3 | ) | 3 | (2 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings attributable to PMI |
$ | 6 | $ | 34 | $ | (6 | ) | $ | 34 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Earnings: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains transferred to earnings |
$ | (8 | ) | $ | 2 | $ | (6 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognized |
32 | (4 | ) | 28 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net impact |
$ | 24 | $ | (2 | ) | $ | 22 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative translation adjustment |
$ | (71 | ) | $ | 14 | $ | (57 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
For the Three Months Ended September 30, 2010 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gain (Loss) | Cash Flow Hedges |
Fair Value Hedges |
Net Investment Hedges |
Other Derivatives |
Income Taxes |
Total | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Statement of Earnings: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenues |
$ | - | $ | - | $ | - | $ | - | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cost of sales |
17 | 17 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Marketing, administration and research costs |
3 | (1 | ) | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income |
20 | (1 | ) | 19 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net |
(15 | ) | 3 | (12 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings before income taxes |
5 | 2 | 7 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Provision for income taxes |
1 | 1 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings attributable to PMI |
$ | 5 | $ | - | $ | 3 | $ | 8 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Other Comprehensive Earnings: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Gains transferred to earnings |
$ | (5 | ) | $ | - | $ | (5 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Recognized |
(61 | ) | 6 | (55 | ) | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net impact |
$ | (66 | ) | $ | 6 | $ | (60 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cumulative translation adjustment |
$ | 2 | $ | - | $ | - | $ | 2 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
-16-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For the Three Months Ended September 30, 2009 | ||||||||||||||||||||||
Gain (Loss) | Cash Flow Hedges |
Fair Value Hedges |
Net Investment Hedges |
Other Derivatives |
Income Taxes |
Total | ||||||||||||||||
Statement of Earnings: |
||||||||||||||||||||||
Net revenues |
$ 13 | $ - | $ - | $ 13 | ||||||||||||||||||
Cost of sales |
(1) | (1) | ||||||||||||||||||||
Marketing, administration and research costs |
|
|
| |||||||||||||||||||
Operating income |
12 | - | - | 12 | ||||||||||||||||||
Interest expense, net |
(24) | (24) | ||||||||||||||||||||
Earnings before income taxes |
(12) | - | - | (12) | ||||||||||||||||||
Provision for income taxes |
1 | 1 | ||||||||||||||||||||
Net earnings attributable to PMI |
$ (11) | $ - | $ - | $ (11) | ||||||||||||||||||
Other Comprehensive Earnings: |
||||||||||||||||||||||
Losses transferred to earnings |
$ 12 | $ (1 | ) | $ 11 | ||||||||||||||||||
Recognized |
(36) | 3 | (33) | |||||||||||||||||||
Net impact |
$ (24) | $ 2 | $ (22) | |||||||||||||||||||
Cumulative translation adjustment |
$ (52) | $ 4 | $ (48) |
Each type of hedging activity is described in greater detail below.
Cash Flow Hedges
PMI has entered into foreign exchange contracts to hedge foreign currency exchange risk related to certain forecasted transactions. The effective portion of unrealized gains and losses associated with qualifying cash flow hedge contracts is deferred as a component of accumulated other comprehensive earnings (losses) until the underlying hedged transactions are reported in PMIs condensed consolidated statements of earnings. During the nine months and three months ended September 30, 2010 and 2009, ineffectiveness related to cash flow hedges was not material. As of September 30, 2010, PMI has hedged forecasted transactions for periods not exceeding the next fifteen months. The impact of these hedges is included in operating cash flows on PMIs condensed consolidated statement of cash flows.
-17-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For the nine months and three months ended September 30, 2010 and 2009, foreign exchange contracts that were designated as cash flow hedging instruments impacted the condensed consolidated statements of earnings and other comprehensive earnings as follows (pre-tax, in millions):
For the Nine Months Ended September 30, |
||||||||||||||||||
Derivatives in Cash Flow Hedging Relationship |
Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings |
Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings |
Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivative |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||
Foreign exchange contracts |
$ (41) | $ 32 | ||||||||||||||||
Net revenues |
$ 24 | $ 61 | ||||||||||||||||
Cost of sales |
(14) | (1) | ||||||||||||||||
Marketing, administration and research costs |
3 | 13 | ||||||||||||||||
Interest expense, net |
(38) | (65) | ||||||||||||||||
Total |
$ (25) | $ 8 | $ (41) | $ 32 | ||||||||||||||
For the Three Months Ended September 30, |
||||||||||||||||||
Derivatives in Cash Flow Hedging Relationship |
Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings |
Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings |
Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivative |
|||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||
Foreign exchange contracts |
$(61) | $(36) | ||||||||||||||||
Net revenues |
$ - | $ 13 | ||||||||||||||||
Cost of sales |
17 | (1) | ||||||||||||||||
Marketing, administration and research costs |
3 | |||||||||||||||||
Interest expense, net |
(15) | (24) | ||||||||||||||||
Total |
$ 5 | $ (12) | $ (61) | $ (36) |
Fair Value Hedges
In 2009, PMI had entered into foreign exchange contracts to hedge the foreign currency exchange risk related to an intercompany loan between subsidiaries. For a derivative instrument that is designated and qualifies as a fair value hedge, the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged item attributable to the hedged risk, is recognized in current earnings. At June 30, 2009, all fair value hedges matured and were settled. Since June 30, 2009, there were no outstanding fair value hedges. For the nine months ended September 30, 2009,
-18-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
ineffectiveness related to fair value hedges was not material. Gains (losses) associated with qualifying fair value hedges were recorded in the condensed consolidated statements of earnings and were $42 million for the nine months ended September 30, 2009. The impact of fair value hedges is included in operating cash flows on PMIs condensed consolidated statement of cash flows.
For the nine months ended September 30, 2009, foreign exchange contracts that were designated as fair value hedging instruments impacted the condensed consolidated statement of earnings as follows (pre-tax, in millions):
For the Nine Months Ended September 30, |
||||||||||||
Derivative in Fair Value Hedging Relationship |
Statement of Earnings Classification of Gain/(Loss) on Derivative |
Amount of Gain/(Loss) Recognized in Earnings on Derivative |
Statement of Earnings Classification of Gain/(Loss) on Hedged Item |
Amount of
Gain/(Loss) Recognized in Earnings Attributable to the Risk Being Hedged |
||||||||
2009 | 2009 | |||||||||||
Foreign exchange contracts |
Marketing, administration and research costs |
$ 5 | Marketing, administration and research costs |
$ (5) | ||||||||
Interest expense, net |
37 | Interest expense, net |
||||||||||
Total |
$ 42 | $ (5) |
Hedges of Net Investments in Foreign Operations
PMI designates certain foreign currency denominated debt and forward exchange contracts as net investment hedges of its foreign operations. For the nine months ended September 30, 2010 and 2009, these hedges of net investments resulted in gains (losses), net of income taxes, of $212 million and ($97) million, respectively. For the three months ended September 30, 2010 and 2009, these hedges of net investments resulted in gains (losses), net of income taxes, of ($306) million and ($119) million, respectively. These gains (losses) were reported as a component of accumulated other comprehensive earnings (losses) within currency translation adjustments. For the nine and three months ended September 30, 2010 and 2009, ineffectiveness related to net investment hedges was not material. Settlement of net investment hedges is included in other investing cash flows on PMIs condensed consolidated statement of cash flows.
For the nine months and three months ended September 30, 2010 and 2009, foreign exchange contracts that were designated as net investment hedging instruments impacted the condensed consolidated statements of earnings and other comprehensive earnings as follows (pre-tax, in millions):
For the Nine Months Ended September 30, | ||||||||||
Derivatives in Net Investment Hedging Relationship |
Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings |
Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings |
Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivative | |||||||
2010 | 2009 | 2010 | 2009 | |||||||
Foreign exchange contracts |
Interest expense, net |
$ - | $ - | $ 25 | $ (71) |
-19-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
For the Three Months Ended September 30, | ||||||||||
Derivatives in Net Investment Hedging Relationship |
Statement of Earnings Classification of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings |
Amount of Gain/(Loss) Reclassified from Other Comprehensive Earnings into Earnings |
Amount of Gain/(Loss) Recognized in Other Comprehensive Earnings on Derivative | |||||||
2010 | 2009 | 2010 | 2009 | |||||||
Foreign exchange contracts |
Interest expense, net |
$ - | $ - | $ - | $ (52) |
Other Derivatives
PMI has entered into foreign exchange contracts to hedge the foreign currency exchange risks related to intercompany loans between certain subsidiaries, and third-party loans. While effective as economic hedges, no hedge accounting is applied for these contracts and, therefore, the unrealized gains (losses) relating to these contracts are reported in PMIs condensed consolidated statements of earnings. For the nine months ended September 30, 2010 and 2009, the gains from contracts for which PMI did not apply hedge accounting were $64 million and $278 million, respectively. For the three months ended September 30, 2010 and 2009, the gains (losses) from contracts for which PMI did not apply hedge accounting were $141 million and ($7) million, respectively. The gains (losses) from these contracts substantially offset the losses and gains generated by the underlying intercompany and third-party loans being hedged.
As a result, for the nine months and three months ended September 30, 2010 and 2009, these items affected the condensed consolidated statement of earnings as follows (pre-tax, in millions):
Derivatives not Designated as Hedging Instruments |
Statement of Earnings Classification of Gain/(Loss) |
Amount of Gain/(Loss) Recognized in Earnings |
||||||||||||||||
Nine Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||
Foreign exchange contracts |
Marketing, administration and research costs |
$ | (2 | ) | $ | (1 | ) | $ | (1 | ) | $ | - | ||||||
Interest expense, net |
2 | (8 | ) | 3 | ||||||||||||||
Total |
$ | - | $ | (9 | ) | $ | 2 | $ | - | |||||||||
-20-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Qualifying Hedging Activities Reported in Accumulated Other Comprehensive Earnings (Losses)
Derivative gains or losses reported in accumulated other comprehensive earnings (losses) are a result of qualifying hedging activity. Transfers of these gains or losses to earnings are offset by the corresponding gains or losses on the underlying hedged item. Hedging activity affected accumulated other comprehensive earnings (losses), net of income taxes, as follows (in millions):
For the Nine Months
Ended September 30, |
For the Three Months
Ended September 30, |
|||||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||
Gain (loss) at beginning of period |
$ | 19 | $ | (68 | ) | $ | 66 | $ | (24 | ) | ||||||||||||||||||||||||||||||||||
Derivative losses (gains) transferred to earnings |
23 | (6 | ) | (5 | ) | 11 | ||||||||||||||||||||||||||||||||||||||
Change in fair value |
(36 | ) | 28 | (55 | ) | (33 | ) | |||||||||||||||||||||||||||||||||||||
Gain (loss) as of September 30 |
$ | 6 | $ | (46 | ) | $ | 6 | $ | (46 | ) | ||||||||||||||||||||||||||||||||||
At September 30, 2010, PMI expects $31 million of derivative losses reported in accumulated other comprehensive earnings (losses) to be reclassified to the condensed consolidated statement of earnings within the next twelve months. These losses are expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.
Credit Exposure and Credit Risk
PMI is exposed to credit loss in the event of non-performance by counterparties. While PMI does not anticipate non-performance, its risk is limited to the fair value of the financial instruments. PMI actively monitors its exposure to credit risk through the use of credit approvals and credit limits, and by selecting a diverse group of major international banks and financial institutions as counterparties.
Contingent Features
PMIs derivative instruments do not contain contingent features.
Fair Value
See Note 13. Fair Value Measurements for disclosures related to the fair value of PMIs derivative financial instruments.
Note 7. Acquisitions and Other Business Arrangements:
Philippines Business Combination:
On February 25, 2010, PMIs affiliate, Philip Morris Philippines Manufacturing Inc. (PMPMI), and Fortune Tobacco Corporation (FTC) combined their respective business activities by transferring selected assets and liabilities of PMPMI and FTC to a new company called PMFTC Inc. (PMFTC). PMPMI and FTC hold equal economic interests in PMFTC, while PMI manages the day-to-day operations of PMFTC and has a majority of its Board of Directors. Consequently, PMI accounts for the contributed assets and liabilities of FTC as a business combination. The establishment of PMFTC permits both parties to benefit from their respective, complementary brand portfolios, as well as cost synergies from the resulting integration of manufacturing, distribution and procurement, and the further development and advancement of tobacco growing in the Philippines.
-21-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
As PMI has control of PMFTC, the contribution of PMPMIs net assets was recorded at book value, while the contribution of the FTC net assets to PMFTC was recorded at fair value. The difference between the two contributions resulted in an increase to PMIs additional paid-in capital of $475 million.
The fair value of the assets and liabilities contributed by FTC in this non-cash transaction has been determined to be $1.17 billion, and has been primarily allocated to goodwill ($813 million), inventories ($496 million), property, plant and equipment ($306 million) and brands ($240 million), partially offset by long-term debt ($486 million, of which $77 million was shown as current portion of long-term debt), deferred taxes ($149 million, net of $7 million of current deferred tax assets) and other current liabilities.
FTC also holds the right to sell its interest in PMFTC to PMI, except in certain circumstances, during the period from February 25, 2015 through February 24, 2018, at an agreed-upon value of $1.17 billion, which is recorded on PMIs condensed consolidated balance sheet as a redeemable noncontrolling interest at the date of the business combination. The amount of FTCs redeemable noncontrolling interest at the date of the business combination was determined as follows (in millions):
Noncontrolling interest in contributed net assets |
$ | 695 | ||
Accretion to redeemable value |
475 | |||
Redeemable noncontrolling interest at date of business combination |
$ | 1,170 | ||
PMI decided to immediately recognize the accretion to redeemable value rather than recognizing it over the term of the agreement with FTC. This accretion has been charged against additional paid-in capital and fully offsets the increase that resulted from the contributions of net assets to PMFTC, noted above.
With the consolidation of PMFTC, 50% of PMFTCs comprehensive income or loss is attributable to the redeemable noncontrolling interest, impacting carrying value. To the extent that the attribution of these amounts would cause the carrying value to fall below the redemption amount of $1.17 billion, the carrying amount would be adjusted back up to the redemption value through stockholders equity. The movement in redeemable noncontrolling interest after the business combination is as follows (in millions):
Redeemable noncontrolling interest at date of business combination |
$ | 1,170 | ||
50% of net earnings for the nine months ended September 30, 2010 |
29 | |||
Dividend payments |
(16 | ) | ||
Currency translation for the nine months ended September 30, 2010 |
16 | |||
Redeemable noncontrolling interest at September 30, 2010 |
$ | 1,199 | ||
In future periods, if the fair value of 50% of PMFTC were to drop below the redemption value of $1.17 billion, the difference would be treated as a special dividend to FTC and would reduce PMIs earnings per share. Reductions in earnings per share may be partially or fully reversed in subsequent periods if the fair value of the redeemable noncontrolling interest increases relative to the redemption value. Such increases in earnings per share would be limited to cumulative prior reductions.
Brazil:
In June 2010, PMI announced that its affiliate, Philip Morris Brasil Industria e Comercio Ltda. (PMB), will begin directly sourcing tobacco leaf from approximately 17,000 tobacco farmers in Southern Brazil. This initiative enhances PMIs direct involvement in the supply chain and is expected to provide approximately 10% of PMIs global leaf requirements. The vertically integrated structure was made possible following separate agreements with two current leaf suppliers in Brazil, Alliance One Brasil Exportadora de Tabacos Ltda. (AOB) and Universal Leaf Tabacos Ltda. (ULT), to each assign around 8,500 contracts with tobacco farmers to PMB. As a result, PMB will offer employment to more than 200 employees, most of them agronomy specialists, and will acquire related assets in Southern Brazil. The purchase price for the net assets and the contractual
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
relationships is approximately $83 million. PMI is accounting for these transactions as a business combination. As of September 30, 2010, payments of $41 million were made to AOB and ULT under the terms of the agreements. The preliminary allocation of the purchase price was primarily to goodwill ($21 million), inventories ($20 million) and other non-current assets ($18 million), partially offset by other current liabilities ($18 million, which consists primarily of the total amount of bank guarantees for tobacco farmers rural credit facilities). In the fourth quarter of 2010, additional payments of approximately $42 million will be made under the terms of the agreements. The purchase price allocation for these transactions will be finalized in the fourth quarter of 2010.
Colombia:
In July 2009, PMI entered into an agreement to purchase 100% of the shares of privately-owned Colombian cigarette manufacturer, Productora Tabacalera de Colombia, Protabaco Ltda., for $452 million. The transaction was subject to competition authority approval and final confirmatory due diligence. In October 2010, the Colombian competition authority issued its final decision pertaining to PMIs application for the acquisition. Approval to proceed with the acquisition has been granted subject to several significant conditions and constraints. PMI is thoroughly reviewing these conditions and will determine whether or not the strategic rationale and financial attractiveness of the originally envisaged transaction can still be safeguarded in the best interest of PMIs shareholders. PMI anticipates that it will be in a position to make a final determination on whether or not to proceed within the next three months.
Other:
In September 2009, PMI acquired Swedish Match South Africa (Proprietary) Limited, for ZAR 1.93 billion (approximately $256 million based on exchange rates prevailing at the time of the acquisition), including acquired cash. The final allocation of the purchase price was primarily to goodwill ($163 million), definite-lived trademarks ($40 million), acquired cash ($36 million) and the distribution network ($19 million).
In February 2009, PMI purchased the Petterøes tobacco business for $209 million. Assets purchased consisted primarily of definite-lived trademarks primarily sold in Norway and Sweden.
The effect of these other acquisitions presented above was not material to PMIs consolidated financial position, results of operations or operating cash flows in any of the periods presented.
Note 8. Earnings Per Share:
Basic and diluted EPS were calculated using the following (in millions):
For the Nine Months
Ended September 30, |
For the Three Months Ended September 30, |
|||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings attributable to PMI |
$ | 5,507 | $ | 4,820 | $ | 1,822 | $ | 1,798 | ||||||||||||||||||||||||||||||||||||||||||||
Less distributed and undistributed earnings attributable to share-based payment awards |
25 | 17 | 8 | 6 | ||||||||||||||||||||||||||||||||||||||||||||||||
Net earnings for basic and diluted EPS |
$ | 5,482 | $ | 4,803 | $ | 1,814 | $ | 1,792 | ||||||||||||||||||||||||||||||||||||||||||||
Weighted-average shares for basic EPS |
1,849 | 1,958 | 1,828 | 1,927 | ||||||||||||||||||||||||||||||||||||||||||||||||
Plus incremental shares from assumed conversions: |
||||||||||||||||||||||||||||||||||||||||||||||||||||
Stock options |
3 | 7 | 2 | 7 | ||||||||||||||||||||||||||||||||||||||||||||||||
Weighted-average shares for diluted EPS |
1,852 | 1,965 | 1,830 | 1,934 | ||||||||||||||||||||||||||||||||||||||||||||||||
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 9. Segment Reporting:
PMIs subsidiaries and affiliates are engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside of the United States of America. Reportable segments for PMI are organized and managed by geographic region. PMIs reportable segments are European Union; Eastern Europe, Middle East & Africa; Asia; and Latin America & Canada.
PMIs management evaluates segment performance and allocates resources based on operating companies income, which PMI defines as operating income before general corporate expenses and amortization of intangibles. Interest expense, net, and provision for income taxes are centrally managed and, accordingly, such items are not presented by segment since they are excluded from the measure of segment profitability reviewed by management.
Segment data were as follows (in millions):
For the Nine Months Ended September 30, |
For the Three Months Ended September 30, |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenues: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union |
$ | 21,053 | $ | 20,988 | $ | 7,045 | $ | 7,783 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe, Middle East & Africa |
11,665 | 9,953 | 4,184 | 3,722 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia |
11,094 | 8,974 | 3,629 | 3,170 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada |
6,094 | 5,157 | 2,078 | 1,898 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenues |
$ | 49,906 | $ | 45,072 | $ | 16,936 | $ | 16,573 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings before income taxes: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating companies income: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union |
$ | 3,280 | $ | 3,397 | $ | 1,113 | $ | 1,267 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe, Middle East & Africa |
2,412 | 1,982 | 856 | 761 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia |
2,259 | 1,933 | 690 | 653 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada |
699 | 452 | 244 | 226 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Amortization of intangibles |
(65 | ) | (54 | ) | (22 | ) | (18 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
General corporate expenses |
(128 | ) | (111 | ) | (45 | ) | (39 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income |
8,457 | 7,599 | 2,836 | 2,850 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Interest expense, net |
(660 | ) | (572 | ) | (214 | ) | (221 | ) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Earnings before income taxes |
$ | 7,797 | $ | 7,027 | $ | 2,622 | $ | 2,629 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Items affecting the comparability of results from operations were as follows:
| Asset Impairment and Exit Costs See Note 2. Asset Impairment and Exit Costs for a breakdown of asset impairment and exit costs by segment. |
| Colombian Investment and Cooperation Agreement charge During the second quarter of 2009, PMI recorded a pre-tax charge of $135 million related to the Investment and Cooperation Agreement in Colombia. The charge was recorded in the operating companies income of the Latin America & Canada segment for the nine months ended September 30, 2009. See Note 15. Colombian Investment and Cooperation Agreement for additional information. |
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 10. Contingencies:
Litigation - General
Legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. Our indemnitees include distributors, licensees, and others that have been named as parties in certain cases and that we have agreed to defend, as well as pay costs and some or all of judgments, if any, that may be entered against them. Altria Group, Inc. and PM USA are also indemnitees, in certain cases, pursuant to the terms of the Distribution Agreement between Altria Group, Inc. and PMI. Various types of claims are raised in these proceedings, including, among others, product liability, consumer protection, antitrust, employment and tax.
It is possible that there could be adverse developments in pending cases against us and our subsidiaries. An unfavorable outcome or settlement of pending tobacco-related litigation could encourage the commencement of additional litigation.
Damages claimed in some of the tobacco-related litigation are significant and, in certain cases in Brazil, Israel, Nigeria and Canada, range into the billions of dollars. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. Much of the tobacco-related litigation is in its early stages and litigation is subject to uncertainty. However, as discussed below, we have to date been largely successful in defending tobacco-related litigation.
We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated. At the present time, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for unfavorable outcomes in these cases, if any. Legal defense costs are expensed as incurred.
It is possible that our consolidated results of operations, cash flows or financial position could be materially affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation. Nevertheless, although litigation is subject to uncertainty, we and each of our subsidiaries named as a defendant believe, and each has been so advised by counsel handling the respective cases, that we have valid defenses to the litigation pending against us, as well as valid bases for appeal of adverse verdicts, if any. All such cases are, and will continue to be, vigorously defended. However, we and our subsidiaries may enter into settlement discussions in particular cases if we believe it is in our best interests to do so.
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Tobacco-Related Litigation
The table below lists the number of tobacco-related cases pending against us and/or our subsidiaries or indemnitees as of November 1, 2010, 2009 and 2008:
Type of Case |
Number of Cases Pending as of November 1, 2010 |
Number of Cases Pending as of November 1, 2009 |
Number of Cases Pending as of November 1, 2008 |
|||||||||
Individual Smoking and Health Cases |
111 | 120 | 124 | |||||||||
Smoking and Health Class Actions |
11 | 9 | 5 | |||||||||
Health Care Cost Recovery Actions |
10 | 11 | 9 | |||||||||
Lights Class Actions |
2 | 3 | 3 | |||||||||
Individual Lights Cases (small claims court) (1) |
10 | 1,979 | 2,010 | |||||||||
Public Civil Actions |
8 | 11 | 10 |
(1) | During 2010, 1,952 individual lights cases filed in small claims courts in Italy by one plaintiffs attorney were dismissed following an investigation by the public prosecutor into the conduct of that plaintiffs attorney. Because these were fraudulent cases not authorized by the purported plaintiffs, the courts dismissed all such cases. We will no longer include these cases in our pending case count and are not including them in our dismissed case count. |
Since 1995, when the first tobacco-related litigation was filed against a PMI entity, 322(2) Smoking and Health and Lights, Health Care Cost Recovery cases and Public Civil Actions in which we and/or one of our subsidiaries and/or indemnitees were a defendant have been terminated in our favor. Nine cases have had decisions in favor of plaintiffs. Five of these cases have subsequently reached final resolution in our favor, one has been annulled and returned to the trial court for further proceedings, and three remain on appeal. To date, we have paid total judgments including costs of approximately six thousand Euros. These payments were made in order to appeal three Italian small claims cases, two of which were subsequently reversed on appeal and one of which remains on appeal. To date, no tobacco-related case has been finally resolved in favor of a plaintiff against us, our subsidiaries or indemnitees.
(2) | Does not include the 1,952 Italian small claims courts cases discussed in footnote 1 and does not include 66 cases filed by this same plaintiffs attorney that were previously included in the above dismissed case count because they had been individually dismissed by the small claims courts. Following this quarter, the cases filed by this plaintiffs attorney will no longer be reported in the dismissed or pending case counts. |
-26-
Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
The table below lists the verdicts and post-trial developments in the three pending cases (excluding an individual case on appeal from an Italian small claims court) in which verdicts were returned in favor of plaintiffs:
Date |
Location of Court/Name of Plaintiff |
Type of Case |
Verdict |
Post-Trial Developments | ||||
September 2009 | Brazil/Bernhardt | Individual Smoking and Health |
The Civil Court of Rio de Janeiro found for plaintiff and ordered Philip Morris Brasil to pay R$13,000 (approximately $7,700) in moral damages. | Philip Morris Brasil filed its appeal against the decision on the merits with the Court of Appeals in November 2009. In February 2010, without addressing the merits, the Court of Appeals annulled the trial courts decision remanding the case to the trial court to issue a new ruling, which must address certain compensatory damage claims made by the plaintiff that the trial court did not address in its original ruling. In July 2010, the trial court reinstated its original decision, while specifically rejecting the compensatory damages claim. Philip Morris Brasil has appealed this decision. |
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Date |
Location of Court/Name of Plaintiff |
Type of Case |
Verdict |
Post-Trial Developments | ||||
February 2004 | Brazil/The Smoker Health Defense Association (ADESF) | Class Action |
The Civil Court of São Paulo found defendants liable without hearing evidence. The court did not assess moral or actual damages, which were to be assessed in a second phase of the case. The size of the class was not defined in the ruling. | In April 2004, the court clarified its ruling, awarding moral damages of R$1,000 (approximately $600) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not award actual damages, which were to be assessed in the second phase of the case. The size of the class still has not been estimated. Defendants appealed to the São Paulo Court of Appeals. In November 2008, the São Paulo Court of Appeals annulled the ruling, finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that the plaintiff did not have standing to bring the lawsuit. This appeal is still pending. |
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Date |
Location of Court/Name of Plaintiff |
Type of Case |
Verdict |
Post-Trial Developments | ||||
October 2003 |
Brazil/Da Silva |
Individual Smoking and Health |
The Court of Appeal of Rio Grande do Sul reversed the trial court ruling in favor of Philip Morris Brasil and awarded plaintiffs R$768,000 (approximately $457,000). | In December 2004, a larger panel of the Court of Appeal of Rio Grande do Sul overturned the adverse decision. Plaintiffs filed two separate appeals against this decision. The appeal to the Superior Court of Justice was finally rejected in May 2010. The second one to the Supreme Federal Tribunal is still pending. |
Pending claims related to tobacco products generally fall within the following categories:
Smoking and Health Litigation: These cases primarily allege personal injury and are brought by individual plaintiffs or on behalf of a class of individual plaintiffs. Plaintiffs allegations of liability in these cases are based on various theories of recovery, including negligence, gross negligence, strict liability, fraud, misrepresentation, design defect, failure to warn, breach of express and implied warranties, violations of deceptive trade practice laws and consumer protection statutes. Plaintiffs in these cases seek various forms of relief, including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include licit activity, failure to state a claim, lack of defect, lack of proximate cause, assumption of the risk, contributory negligence, and statute of limitations.
As of November 1, 2010, there were a number of smoking and health cases pending against us, our subsidiaries or indemnitees, as follows:
| 111 cases brought by individual plaintiffs in Argentina (44), Brazil (43), Canada (2), Chile (7), Costa Rica (1), Finland (2), Greece (1), Italy (7), the Philippines (1), Scotland (1) and Turkey (2), compared with 120 such cases on November 1, 2009, and 124 cases on November 1, 2008; and |
| 11 cases brought on behalf of classes of individual plaintiffs in Brazil (2), Bulgaria (1) and Canada (8), compared with 9 such cases on November 1, 2009, and 5 such cases on November 1, 2008. |
In the individual cases in Finland, our indemnitees (our former licensees now known as Amer Sports Corporation and Amerintie 1 Oy) and another member of the industry are defendants. Plaintiffs allege personal injuries as a result of smoking. Three cases were tried together before the District Court of Helsinki. Trial began in March 2008 and concluded in May 2008. In October 2008, the District Court issued decisions in favor of defendants in all cases. Plaintiffs filed appeals. One of the plaintiffs has since withdrawn her appeal, making the District Courts decision in favor of the defendants final. The other plaintiffs continued to pursue their appeals. The appellate hearing, which was essentially a re-trial of these cases before the Appellate Court, concluded in December 2009. In May 2010, the Appellate Court rejected plaintiffs appeals in their entirety. In July 2010, both plaintiffs filed motions for leave to appeal this ruling to the Finland Supreme Court.
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In the first class action pending in Brazil, The Smoker Health Defense Association (ADESF) v. Souza Cruz, S.A. and Philip Morris Marketing, S.A., Nineteenth Lower Civil Court of the Central Courts of the Judiciary District of São Paulo, Brazil, filed July 25, 1995, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer organization, is seeking damages for smokers and former smokers, and injunctive relief. In February 2004, the trial court found defendants liable without hearing evidence. The court did not assess moral or actual damages, which were to be assessed in a second phase of the case. The size of the class was not defined in the ruling. In April 2004, the court clarified its ruling, awarding moral damages of R$1,000 (approximately $600) per smoker per full year of smoking plus interest at the rate of 1% per month, as of the date of the ruling. The court did not award actual damages, which were to be assessed in the second phase of the case. The size of the class still has not been estimated. Defendants appealed to the São Paulo Court of Appeals. In November 2008, the São Paulo Court of Appeals annulled the ruling finding that the trial court had inappropriately ruled without hearing evidence and returned the case to the trial court for further proceedings. In addition, the defendants filed a constitutional appeal to the Federal Supreme Tribunal on the basis that the plaintiff did not have standing to bring the lawsuit. This appeal is still pending.
In the second class action pending in Brazil, Public Prosecutor of São Paulo v. Philip Morris Brasil Industria e Comercio Ltda, Civil Court of the City of São Paulo, Brazil, filed August 6, 2007, our subsidiary is a defendant. The plaintiff, the Public Prosecutor of the State of São Paulo, is seeking (1) unspecified damages on behalf of all smokers nationwide, former smokers, and their relatives; (2) unspecified damages on behalf of people exposed to environmental tobacco smoke (ETS) nationwide, and their relatives; and (3) reimbursement of the health care costs allegedly incurred for the treatment of tobacco-related diseases by all Brazilian States and Municipalities, and the Federal District. In an interim ruling issued in December 2007, the trial court limited the scope of this claim to the State of São Paulo only. In December 2008, the Seventh Civil Court of São Paulo issued a decision declaring that it lacked jurisdiction because the case involved issues similar to the ADESF case discussed above and should be transferred to the Nineteenth Lower Civil Court in São Paulo where the ADESF case is pending. The court further stated that these cases should be consolidated for the purposes of judgment. Our subsidiary appealed this decision to the State of São Paulo Court of Appeals, which subsequently declared the case stayed pending the outcome of the appeal. In April 2010, the São Paulo Court of Appeals reversed the Seventh Civil Courts decision that consolidated the cases, finding that they are based on different legal claims and are progressing at different stages of proceedings. This case will now be returned to the Seventh Civil Court of São Paulo.
In the class action in Bulgaria, Yochkolovski v. Sofia BT AD, et al., Sofia City Court, Bulgaria, filed March 12, 2008, our subsidiaries and other members of the industry are defendants. The plaintiff brought a collective claim on behalf of classes of smokers who were allegedly misled by tar and nicotine yields printed on packages and on behalf of a class of minors who were allegedly misled by marketing. Plaintiff seeks damages for economic loss, pain and suffering, medical treatment, and withdrawal from the market of all cigarettes that allegedly do not comply with tar and nicotine labeling requirements. The trial court dismissed the youth marketing claims. This decision has been affirmed on appeal. The trial court also ordered plaintiff to provide additional evidence in support of the remaining claims as well as evidence of his capacity to represent the class and bear the costs of the proceedings. Our subsidiaries have not been served with the complaint.
In the first class action pending in Canada, Cecilia Letourneau v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and JTI Macdonald Corp., Quebec Superior Court, Canada, filed in September 1998, our subsidiary and other Canadian manufacturers are defendants. The plaintiff, an individual smoker, is seeking compensatory and unspecified punitive damages for each member of the class who is deemed addicted to smoking. The class was certified in 2005. Pre-trial discovery is ongoing. A trial date has been scheduled for October 2011.
In the second class action pending in Canada, Conseil Québécois Sur Le Tabac Et La Santé and Jean-Yves Blais v. Imperial Tobacco Ltd., Rothmans, Benson & Hedges Inc. and JTI Macdonald Corp., Quebec Superior Court, Canada, filed in November 1998, our subsidiary and other Canadian manufacturers are defendants. The plaintiffs, an
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
anti-smoking organization and an individual smoker, are seeking compensatory and unspecified punitive damages for each member of the class who allegedly suffers from certain smoking-related diseases. The class was certified in 2005. Pre-trial discovery is ongoing. A trial date has been scheduled for October 2011.
In the third class action pending in Canada, Kunta v. Canadian Tobacco Manufacturers Council, et al., The Queens Bench, Winnipeg, Canada, filed June 12, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic obstructive pulmonary disease (COPD), severe asthma, and mild reversible lung disease resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.
In the fourth class action pending in Canada, Adams v. Canadian Tobacco Manufacturers Council, et al., The Queens Bench, Saskatchewan, Canada, filed July 10, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and COPD resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who have smoked a minimum of 25,000 cigarettes and have suffered, or suffer, from COPD, emphysema, heart disease, or cancer, as well as restitution of profits. Preliminary motions are pending.
In the fifth class action pending in Canada, Semple v. Canadian Tobacco Manufacturers Council, et al., The Supreme Court (trial court), Nova Scotia, Canada, filed June 18, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and COPD resulting from the use of tobacco products. He is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, as well as restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products.
In the sixth class action pending in Canada, Dorion v. Canadian Tobacco Manufacturers Council, et al., The Queens Bench, Alberta, Canada, filed June 15, 2009, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges her own addiction to tobacco products and chronic bronchitis and severe sinus infections resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers, their estates, dependents and family members, restitution of profits, and reimbursement of government health care costs allegedly caused by tobacco products. To date, we, our subsidiaries, and our indemnitees have not been properly served with the complaint.
In the seventh class action pending in Canada, McDermid v. Imperial Tobacco Canada Limited, et al., Supreme Court, British Columbia, Canada, filed June 25, 2010, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, an individual smoker, alleges his own addiction to tobacco products and heart disease resulting from the use of tobacco products. He is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from heart disease caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954 to the date the claim was filed.
In the eighth class action pending in Canada, Bourassa v. Imperial Tobacco Canada Limited, et al., Supreme Court, British Columbia, Canada, filed June 25, 2010, we, our subsidiaries, and our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The plaintiff, the heir to a deceased smoker, alleges
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
that the decedent was addicted to tobacco products and suffered from emphysema resulting from the use of tobacco products. She is seeking compensatory and unspecified punitive damages on behalf of a proposed class comprised of all smokers who were alive on June 12, 2007, and who suffered from chronic respiratory diseases caused by smoking, their estates, dependents and family members, plus disgorgement of revenues earned by the defendants from January 1, 1954 to the date the claim was filed.
Health Care Cost Recovery Litigation: These cases, brought by governmental and non-governmental plaintiffs, seek reimbursement of health care cost expenditures allegedly caused by tobacco products. Plaintiffs allegations of liability in these cases are based on various theories of recovery including unjust enrichment, negligence, negligent design, strict liability, breach of express and implied warranties, violation of a voluntary undertaking or special duty, fraud, negligent misrepresentation, conspiracy, public nuisance, defective product, failure to warn, sale of cigarettes to minors, and claims under statutes governing competition and deceptive trade practices. Plaintiffs in these cases seek various forms of relief including compensatory and other damages, and injunctive and equitable relief. Defenses raised in these cases include lack of proximate cause, remoteness of injury, failure to state a claim, adequate remedy at law, unclean hands (namely, that plaintiffs cannot obtain equitable relief because they participated in, and benefited from, the sale of cigarettes), and statute of limitations.
As of November 1, 2010, there were 10 health care cost recovery cases pending against us, our subsidiaries or indemnitees in Canada (3), Israel (1), Nigeria (5) and Spain (1), compared with 11 such cases on November 1, 2009, and 9 such cases on November 1, 2008.
In the first health care cost recovery case pending in Canada, Her Majesty the Queen in Right of British Columbia v. Imperial Tobacco Limited, et al., Supreme Court, British Columbia, Vancouver Registry, Canada, filed January 24, 2001, we, our subsidiaries, our indemnitee (PM USA), and other members of the industry are defendants. The plaintiff, the government of the province of British Columbia, brought a claim based upon legislation enacted by the province authorizing the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, resulting from a tobacco related wrong. The Supreme Court has held that the statute is constitutional. We and certain other non-Canadian defendants challenged the jurisdiction of the court. The court rejected the jurisdictional challenge, and pre-trial discovery is ongoing. The trial court also has granted plaintiffs request that the target trial date of September 2011 be postponed indefinitely. Meanwhile, in December 2009, the British Columbia Court of Appeal ruled that the defendants could pursue a third-party claim against the government of Canada for negligently misrepresenting to defendants the efficacy of the low tar tobacco strain that the federal government developed and licensed to some of the defendants. In May 2010, the Supreme Court of Canada agreed to hear both the appeal of the Attorney General of Canada and the defendants cross-appeal from the British Columbia Court of Appeal decision. Oral arguments in that appeal are presently scheduled for February 2011.
In the second health care cost recovery case filed in Canada, Her Majesty the Queen in Right of New Brunswick v. Rothmans Inc., et al., Court of Queens Bench of New Brunswick, Trial Court, New Brunswick, Fredericton, Canada, filed March 13, 2008, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of New Brunswick based on legislation enacted in the province. This legislation is similar to the law introduced in British Columbia that authorizes the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a tobacco related wrong. Pre-trial discovery is ongoing.
In the third health care cost recovery case filed in Canada, Her Majesty the Queen in Right of Ontario v. Rothmans Inc., et al., Ontario Superior Court of Justice, Toronto, Canada, filed September 29, 2009, we, our subsidiaries, our indemnitees (PM USA and Altria Group, Inc.), and other members of the industry are defendants. The claim was filed by the government of the province of Ontario based on legislation enacted in the province. This legislation is similar to the laws introduced in British Columbia and New Brunswick that authorize the government to file a direct action against cigarette manufacturers to recover the health care costs it has incurred, and will incur, as a result of a
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
tobacco related wrong. Preliminary motions are pending.
In the case in Israel, Kupat Holim Clalit v. Philip Morris USA, et al., Jerusalem District Court, Israel, filed September 28, 1998, we, our subsidiary, and our indemnitee (PM USA), and other members of the industry are defendants. The plaintiff, a private health care provider, brought a claim seeking reimbursement of the cost of treating its members for alleged smoking-related illnesses for the years 1990 to 1998. Certain defendants filed a motion to dismiss the case. The motion was rejected, and those defendants filed a motion with the Israel Supreme Court for leave to appeal. The appeal was heard by the Supreme Court in March 2005, and the parties are awaiting the courts decision.
In the first case in Nigeria, The Attorney General of Lagos State v. British American Tobacco (Nigeria) Limited, et al., High Court of Lagos State, Lagos, Nigeria, filed April 30, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In February 2008, our subsidiary was served with a Notice of Discontinuance. The claim was formally dismissed in March 2008. However, the plaintiff has since refiled its claim. Our subsidiary is in the process of making challenges to service and the courts jurisdiction. Currently, the case is stayed in the trial court pending the appeals of certain co-defendants relating to service objections. We currently conduct no business in Nigeria.
In the second case in Nigeria, The Attorney General of Kano State v. British American Tobacco (Nigeria) Limited, et al., High Court of Kano State, Kano, Nigeria, filed May 9, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. Our subsidiary is in the process of making challenges to service and the courts jurisdiction.
In the third case in Nigeria, The Attorney General of Gombe State v. British American Tobacco (Nigeria) Limited, et al., High Court of Gombe State, Gombe, Nigeria, filed May 18, 2007, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. In July 2008, the court dismissed the case against all defendants based on the plaintiffs failure to comply with various procedural requirements when filing and serving the complaint. The plaintiff did not appeal the dismissal. However, in October 2008, the plaintiff refiled its claim. In June 2010, the court ordered the plaintiff to amend the claim to properly name Philip Morris International Inc. as a defendant. We are objecting to the attempted service of amended process.
In the fourth case in Nigeria, The Attorney General of Oyo State, et al., v. British American Tobacco (Nigeria) Limited, et al., High Court of Oyo State, Ibadan, Nigeria, filed May 25, 2007, our subsidiary and other members of the industry are defendants. Plaintiffs seek reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years, various forms of injunctive relief, plus punitive damages. Our subsidiary challenged service as improper. In June 2010, the court ruled that the plaintiff did not have leave to serve the writ of summons on the defendants and that plaintiff must re-serve the writ. Our subsidiary has not yet been re-served.
In the fifth case in Nigeria, The Attorney General of Ogun State v. British American Tobacco (Nigeria) Limited, et al., High Court of Ogun State, Abeokuta, Nigeria, filed February 26, 2008, our subsidiary and other members of the industry are defendants. Plaintiff seeks reimbursement for the cost of treating alleged smoking-related diseases for the past 20 years, payment of anticipated costs of treating alleged smoking-related diseases for the next 20 years,
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
various forms of injunctive relief, plus punitive damages. In May 2010, the trial court rejected our subsidiarys service objections. Our subsidiary is in the process of appealing that order.
In the series of proceedings in Spain, Junta de Andalucia, et al. v. Philip Morris Spain, et al., Court of First Instance, Madrid, Spain, the first of which was filed February 21, 2002, our subsidiary and other members of the industry were defendants. The plaintiffs sought reimbursement for the cost of treating certain of their citizens for various smoking-related illnesses. In May 2004, the first instance court dismissed the initial case, finding that the State was a necessary party to the claim, and thus, the claim must be filed in the Administrative Court. The plaintiffs appealed. In February 2006, the appellate court affirmed the lower courts dismissal. The plaintiffs then filed notice that they intended to pursue their claim in the Administrative Court against the State. Because they were defendants in the original proceeding, our subsidiary and other members of the industry filed notices with the Administrative Court that they are interested parties in the case. In September 2007, the plaintiffs filed their complaint in the Administrative Court. In November 2007, the Administrative Court dismissed the claim based on a procedural issue. The plaintiffs asked the Administrative Court to reconsider its decision dismissing the case, and that request was rejected in a ruling rendered in February 2008. Plaintiffs appealed to the Supreme Court. The Supreme Court rejected plaintiffs appeal in November 2009, resulting in the final dismissal of the claim. However, plaintiffs have filed a second claim in the Administrative Court against the Ministry of Economy. This second claim seeks the same relief as the original claim, but relies on a different procedural posture. The Administrative Court has recognized our subsidiary as a party in this proceeding.
Lights Cases: These cases, brought by individual plaintiffs, or on behalf of a class of individual plaintiffs, allege that the use of the term lights constitutes fraudulent and misleading conduct. Plaintiffs allegations of liability in these cases are based on various theories of recovery including misrepresentation, deception, and breach of consumer protection laws. Plaintiffs seek various forms of relief including restitution, injunctive relief, and compensatory and other damages. Defenses raised include lack of causation, lack of reliance, assumption of the risk, and statute of limitations.
As of November 1, 2010, there were a number of lights cases pending against our subsidiaries or indemnitees, as follows:
| 2 cases brought on behalf of various classes of individual plaintiffs (some overlapping) in Israel, compared with 3 such cases on November 1, 2009 and November 1, 2008; and |
| 10 cases brought by individuals in the equivalent of small claims courts in Italy, where the maximum damages are approximately one thousand Euros per case, compared with 1,979 such cases on November 1, 2009, and 2,010 such cases on November 1, 2008. |
In the first class action pending in Israel, El-Roy, et al. v. Philip Morris Incorporated, et al., District Court of Tel-Aviv/Jaffa, Israel, filed January 18, 2004, our subsidiary and our indemnitees (PM USA and our former importer Menache H. Eliachar Ltd.) are defendants. The plaintiffs filed a purported class action claiming that the class members were misled by the descriptor lights into believing that lights cigarettes are safer than full flavor cigarettes. The claim seeks recovery of the purchase price of lights cigarettes and compensation for distress for each class member. Hearings took place in November and December 2008 regarding whether the case meets the legal requirements necessary to allow it to proceed as a class action. The parties briefing on class certification is scheduled to be completed in December 2010.
The claims in a second class action pending in Israel, Navon, et al. v. Philip Morris Products USA, et al., District Court of Tel-Aviv/Jaffa, Israel, filed December 5, 2004, against our indemnitee (our distributor M.H. Eliashar Distribution Ltd.) and other members of the industry are similar to those in El-Roy, and the case is currently stayed pending a ruling on class certification in El-Roy.
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Public Civil Actions: Claims have been filed either by an individual, or a public or private entity, seeking to protect collective or individual rights, such as the right to health, the right to information or the right to safety. Plaintiffs allegations of liability in these cases are based on various theories of recovery including product defect, concealment, and misrepresentation. Plaintiffs in these cases seek various forms of relief including injunctive relief such as banning cigarettes, descriptors, smoking in certain places and advertising, as well as implementing communication campaigns and reimbursement of medical expenses incurred by public or private institutions.
As of November 1, 2010, there were 8 public civil actions pending against our subsidiaries in Argentina (1), Brazil (1), Colombia (5) and Venezuela (1), compared with 11 such cases on November 1, 2009, and 10 such cases on November 1, 2008.
In the public civil action in Argentina, Asociación Argentina de Derecho de Danos v. Massalin Particulares S.A., et al., Civil Court of Buenos Aires, Argentina, filed February 26, 2007, our subsidiary and another member of the industry are defendants. The plaintiff, a consumer association, seeks the establishment of a relief fund for reimbursement of medical costs associated with diseases allegedly caused by smoking. Our subsidiary filed its answer in September 2007. In March 2010, the case file was transferred to the Federal Court on Administrative Matters after the Civil Court granted the plaintiffs request to add the national government as a co-plaintiff in the case.
In the public civil action in Brazil, The Brazilian Association for the Defense of Consumer Health (SAUDECON) v. Philip Morris Brasil Industria e Comercio Ltda and Souza Cruz S.A., Civil Court of City of Porto Alegre, Brazil, filed November 3, 2008, our subsidiary is a defendant. The plaintiff, a consumer organization, is asking the court to establish a fund that will be used to provide treatment to smokers who claim to be addicted and who do not otherwise have access to smoking cessation treatment. Plaintiff requests that each defendants liability be determined according to its market share. In May 2009, the trial court dismissed the case on the merits. Plaintiff has appealed.
In the first public civil action in Colombia, Garrido v. Philip Morris Colombia S.A., Civil Court of Bogotá, Colombia, filed August 28, 2006, our subsidiary is a defendant. The plaintiff seeks various forms of injunctive relief, including the ban of the use of lights descriptors, and requests that defendant be ordered to finance a national campaign against smoking. In February 2010, the trial court dismissed the case. Plaintiff has appealed.
In the second public civil action in Colombia, Morales v. Philip Morris Colombia S.A. and Colombian Government, Administrative Court of Bogotá, Colombia, filed February 12, 2007, our subsidiary and a government entity are defendants. The plaintiff alleges violations of the collective right to a healthy environment, public health rights, and the rights of consumers, and that the government failed to protect those rights. Plaintiff seeks various monetary damages and other relief, including a ban on descriptors and a ban on cigarette advertising. In April 2010, the trial court dismissed the case. Plaintiff appealed, and the appeal was rejected in October 2010. Plaintiff may file a further appeal.
In the public civil action in Colombia, Morales, et al. v. Coltabaco (Morales II), Civil Court of Bogotá, Colombia, filed February 5, 2008, our subsidiary is a defendant. The plaintiffs alleged misleading advertising, product defect, failure to inform, and the targeting of minors in advertising and marketing. Plaintiffs sought various monetary relief including a percentage of the costs incurred by the state each year for treating tobacco-related illnesses to be paid to the Ministry of Social Protection (from the date of incorporation of Coltabaco). In addition, plaintiffs sought a fixed annual contribution to the government and requested that a statutory incentive award be paid to them for filing the claim. In July 2010, the trial court dismissed the case. Plaintiff did not appeal. This case is now terminated and is not included in the above case statistics. We will no longer report on this case.
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
In the third public civil action in Colombia, Morales, et al. v. Productora Tabacalera de Colombia S.A. (Protabaco), et al., (Morales III), Administrative Court of Bogotá, Colombia, filed December 19, 2007, our subsidiaries, other members of the industry, and various government entities are defendants. The plaintiffs claims are identical to those in Morales II, above. Our subsidiaries filed their answers in August 2008.
In the fourth public civil action in Colombia, Roche v. Philip Morris Colombia S.A., Civil Court of Bogotá, Colombia, filed November 14, 2008, our subsidiary is a defendant. Plaintiff alleges violations of the collective right to health because the defendant failed to include information about ingredients and their toxicity on cigarette packs. Plaintiff asks the court to order our subsidiary to immediately cease manufacture and/or distribution of cigarettes until information on ingredients and their toxicity is included on packs. In September 2010, the trial court dismissed the case. Plaintiff may appeal.
In the fifth public civil action in Colombia, Ibagué Public Prosecutor v. Republic of Colombia (Ministry of Social Protection), et al., Administrative Court of Ibagué, Colombia, filed August 11, 2009, our subsidiary is a defendant. Plaintiff alleges that the publics collective right to health, safety and enjoyment of a safe environment, has been violated. Plaintiff seeks (i) a ban on the sale of cigarettes; (ii) a ban on all cigarette advertising and promotion; (iii) the development of strategies to rehabilitate smoking addicts; and (iv) the implementation of a program designed to eradicate smoking in Colombia within a reasonable period of time. Our subsidiary has not yet been served with the complaint.
In the public civil action in Venezuela, Federation of Consumers and Users Associations (FEVACU), et al. v. National Assembly of Venezuela and the Venezuelan Ministry of Health, Constitutional Chamber of the Venezuelan Supreme Court, filed April 29, 2008, we were not named as a defendant, but the plaintiffs published a notice pursuant to court order, notifying all interested parties to appear in the case. In January 2009, our subsidiary appeared in the case in response to this notice. The plaintiffs purport to represent the right to health of the citizens of Venezuela and claim that the government failed to protect adequately its citizens right to health. The claim asks the court to order the government to enact stricter regulations on the manufacture and sale of tobacco products. In addition, the plaintiffs ask the court to order companies involved in the tobacco industry to allocate a percentage of their sales or benefits to establish a fund to pay for the health care costs of treating smoking-related diseases. In October 2008, the court ruled that plaintiffs have standing to file the claim and that the claim meets the threshold admissibility requirements.
Other Litigation
Other litigation includes an antitrust suit, a breach of contract action, and various tax and individual employment cases.
Antitrust: In the antitrust class action in Kansas, Smith v. Philip Morris Companies Inc., et al., District Court of Seward County, Kansas, filed February 7, 2000, we and other members of the industry are defendants. The plaintiff asserts that the defendant cigarette companies engaged in an international conspiracy to fix wholesale prices of cigarettes and sought certification of a class comprised of all persons in Kansas who were indirect purchasers of cigarettes from the defendants. The plaintiff claims unspecified economic damages resulting from the alleged price-fixing, trebling of those damages under the Kansas price-fixing statute and counsel fees. The trial court granted plaintiffs motion for class certification and refused to permit the defendants to appeal. The case is now in the discovery phase. A court-ordered mediation was held on October 18, 2010. We filed a summary judgment motion in advance of the mediation. No trial date has yet been set.
Breach of Contract: In the breach of contract action in Ontario, Canada, The Ontario Flue-Cured Tobacco Growers Marketing Board, et al. v. Rothmans, Benson & Hedges Inc., Superior Court of Justice, London, Ontario, Canada, filed November 5, 2009, our subsidiary is a defendant. Plaintiffs in this putative class action allege that our subsidiary breached contracts with the class members (Ontario tobacco growers and their related associations) concerning the sale and purchase of flue-cured tobacco from January 1, 1986 to December 31, 1996. Plaintiffs allege that our
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
subsidiary was required by the contracts to disclose to plaintiffs the quantity of tobacco included in cigarettes to be sold for duty free and export purposes (which it purchased at a lower price per pound than tobacco that was included in cigarettes to be sold in Canada), but failed to disclose that some of the cigarettes it designated as being for export and duty free purposes were ultimately sold in Canada. Our subsidiary has been served, but there is currently no deadline to respond to the statement of claim.
Tax: In Brazil, there are 105 tax cases involving Philip Morris Brasil S.A. relating to the payment of state tax on the sale and transfer of goods and services, federal social contributions, excise, social security and income tax, and other matters. Fifty of these cases are under administrative review by the relevant fiscal authorities and 55 are under judicial review by the courts.
Employment: Our subsidiaries, Philip Morris Brasil S.A. and Philip Morris Brasil Ltda, are defendants in various individual employment cases resulting, among other things, from the termination of employment in connection with the shut-down of one of our factories in Brazil.
Third-Party Guarantees
At September 30, 2010, PMIs third-party guarantees were $6 million, of which $2 million have no specific expiration dates. The remainder expires through 2014 with no guarantees expiring through September 30, 2011. PMI is required to perform under these guarantees in the event that a third party fails to make contractual payments. PMI does not have a liability on its condensed consolidated balance sheet at September 30, 2010, as the fair value of these guarantees is insignificant due to the fact that the probability of future payments under these guarantees is remote.
Under the terms of the Distribution Agreement between Altria and PMI, liabilities concerning tobacco products will be allocated based in substantial part on the manufacturer. PMI will indemnify Altria and PM USA for liabilities related to tobacco products manufactured by PMI or contract manufactured for PMI by PM USA, and PM USA will indemnify PMI for liabilities related to tobacco products manufactured by PM USA, excluding tobacco products contract manufactured for PMI. PMI does not have a liability recorded on its balance sheet at September 30, 2010, as the fair value of this indemnification is insignificant since the probability of future payments under this indemnification is remote.
Note 11. Income Taxes:
Income tax provisions for jurisdictions outside the United States, as well as state and local income tax provisions, were determined on a separate company basis and the related assets and liabilities were recorded in PMIs condensed consolidated balance sheets.
PMIs effective tax rates for the nine months and three months ended September 30, 2010 were 27.0% and 27.8%, respectively. PMIs effective tax rates for the nine months and three months ended September 30, 2009 were 29.3% and 29.5%, respectively. The effective tax rate for the nine months ended September 30, 2010 was favorably impacted by the reversal of tax reserves ($148 million) following the conclusion of the IRS examination of Altria Group, Inc.s consolidated tax returns for the years 2000 through 2003, partially offset by the negative impact of an enacted increase in corporate income tax rates in Greece ($21 million) and the net result of an audit in Italy ($6 million). The effective tax rates are based on PMIs full-year geographic earnings mix projections and cash repatriation plans. Changes in earnings mix or in cash repatriation plans could have an impact on the effective tax rates, which PMI monitors each quarter. Significant judgment is required in determining income tax provisions and in evaluating tax positions.
PMI is regularly examined by tax authorities around the world. Although PMI does not anticipate the closure of any significant tax audits in the next twelve months, examinations could result in a change in unrecognized tax benefits along with related interest and penalties.
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 12. Indebtedness:
Short-term Borrowings:
At September 30, 2010 and December 31, 2009, PMIs short-term borrowings, consisting of commercial paper and bank loans to certain PMI subsidiaries, had a carrying value of $2,416 million and $1,662 million, respectively. The fair value of PMIs short-term borrowings, based on current market interest rates, approximates carrying value.
Long-term Debt:
At September 30, 2010 and December 31, 2009, PMIs long-term debt consisted of the following (in millions):
September 30, 2010 | December 31, 2009 | |||||||
U.S. dollar notes, 4.50% to 6.875% (average interest rate 5.640%), due through 2038 |
$ 8,188 | $ 7,199 | ||||||
Foreign currency obligations: |
||||||||
Euro notes payable (average interest rate 5.240%), due through 2016 |
5,076 | 5,378 | ||||||
Swiss franc notes payable (average interest rate 3.625%), due through 2013 |
1,021 | 969 | ||||||
Other (average interest rate 3.969%), due through 2024 |
746 | 208 | ||||||
15,031 | 13,754 | |||||||
Less current portion of long-term debt |
1,436 | 82 | ||||||
$ 13,595 | $ 13,672 |
In March 2010, PMI issued $1.0 billion of 4.50% U.S. dollar notes due March 2020. Interest is payable semiannually beginning September 2010. The net proceeds from the sale of the securities ($983 million) were used to meet PMIs working capital requirements, repurchase PMIs common stock, refinance debt and for general corporate purposes.
Other foreign currency debt at September 30, 2010 includes long-term debt from our business combination in the Philippines. For further details on this business combination, see Note 7. Acquisitions and Other Business Arrangements. Other foreign currency debt also includes capital lease obligations and mortgage debt.
Credit Facilities:
On March 29, 2010, we entered into a new multi-year revolving credit facility in the amount of $2.5 billion, which expires on September 30, 2013. This revolving credit facility replaced our Euro 2.0 billion 5-year revolving credit facility, which was to expire on May 12, 2010, and our $1.0 billion 3-year revolving credit facility, which was to expire on December 4, 2010. At September 30, 2010, PMIs committed credit facilities were $5.2 billion, and there were no borrowings outstanding under these committed credit facilities.
Note 13. Fair Value Measurements:
The authoritative guidance defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. The guidance also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The guidance describes three levels of input that may be used to measure fair value, which are as follows:
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Level 1 - |
Quoted prices in active markets for identical assets or liabilities. | |
Level 2 - |
Observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
Level 3 - |
Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
Derivative Financial Instruments Foreign Exchange Contracts
PMI assesses the fair value of its derivative financial instruments, which consist of foreign exchange forward contracts, foreign currency swaps and foreign currency options, using internally developed models that use, as their basis, readily observable market inputs. The fair value of PMIs foreign exchange forward contracts is determined by using the prevailing foreign exchange spot rates and interest rate differentials, and the respective maturity dates of the instruments. The fair value of PMIs currency options is determined by using a Black-Scholes methodology based on foreign exchange spot rates and interest rate differentials, currency volatilities and maturity dates. PMIs derivative financial instruments have been classified within Level 2. See Note 6. Financial Instruments for additional discussion on derivative financial instruments.
Debt Long-Term Notes
The fair value of PMIs outstanding long-term notes, as calculated solely for disclosure purposes, is determined by utilizing quotes and market interest rates currently available to PMI for issuances of debt with similar terms and remaining maturities. The aggregate carrying value of PMIs debt, excluding short-term borrowings and $153 million of capital lease obligations, was $14,878 million at September 30, 2010. The fair values of PMIs outstanding long-term notes have been classified within Level 1 and Level 2.
The aggregate fair value of PMIs derivative financial instruments and long-term notes as of September 30, 2010, was as follows (in millions):
Fair Value At September 30, 2010 |
Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Unobservable Inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
Foreign exchange contracts |
$ 166 | $ | $ 166 | |||||||||||||
Total assets |
$ 166 | $ - | $ 166 | $ - | ||||||||||||
Liabilities: |
||||||||||||||||
Long-term notes |
$ 16,771 | $ 16,178 | $ 593 | $ - | ||||||||||||
Foreign exchange contracts |
52 | 52 | ||||||||||||||
Total liabilities |
$ 16,823 | $ 16,178 | $ 645 | $ - |
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Philip Morris International Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(Unaudited)
Note 14. Accumulated Other Comprehensive Earnings (Losses):
PMIs accumulated other comprehensive earnings (losses), net of taxes, consisted of the following (in millions):
At September 30, 2010 |
At December 31, 2009 |
At September 30, 2009 |
||||||||||
Currency translation adjustments |
$ 824 | $ 561 | $ 421 | |||||||||
Pension and other benefits |
(1,350) | (1,408) | (1,401) | |||||||||
Derivatives accounted for as hedges |
6 | 19 | (46) | |||||||||
Debt and equity securities |
- | 11 | 7 | |||||||||
Total accumulated other comprehensive losses |
$ (520) | $ (817) | $ (1,019) |
Note 15. Colombian Investment and Cooperation Agreement:
On June 19, 2009, PMI announced that it had signed an agreement with the Republic of Colombia, together with the Departments of Colombia and the Capital District of Bogota, to promote investment and cooperation with respect to the Colombian tobacco market and to fight counterfeit and contraband tobacco products. The Investment and Cooperation Agreement provides $200 million in funding to the Colombian governments over a 20-year period to address issues of mutual interest, such as combating the illegal cigarette trade, including the threat of counterfeit tobacco products, and increasing the quality and quantity of locally grown tobacco. As a result of the Investment and Cooperation Agreement, PMI recorded a pre-tax charge of $135 million in the operating results of the Latin America & Canada segment during the second quarter of 2009.
At September 30, 2010 and December 31, 2009, PMI had $81 million and $93 million, respectively, of discounted liabilities associated with the Colombian Investment and Cooperation Agreement. These discounted liabilities are primarily reflected in other long-term liabilities on the consolidated balance sheet.
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MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
Description of Our Company
We are a holding company whose subsidiaries and affiliates, and their licensees, are engaged in the manufacture and sale of cigarettes and other tobacco products in markets outside the United States of America. We manage our business in four segments:
| European Union; |
| Eastern Europe, Middle East & Africa (EEMA); |
| Asia; and |
| Latin America & Canada. |
Our products are sold in approximately 160 countries and, in many of these countries, they hold the number one or number two market share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio comprises international and local brands.
We use the term net revenues to refer to our operating revenues from the sale of our products, net of sales and promotion incentives. Our net revenues and operating income are affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange rates and the mix of products we sell. Mix is a term used to refer to the proportionate value of premium price brands to mid-price or low-price brands in any given market (product mix). Mix can also refer to the proportion of volume in more profitable markets versus volume in less profitable markets (geographic mix). We often collect excise taxes from our customers and then remit them to local governments, and, in those circumstances, we include excise taxes as a component of net revenues and as part of our cost of sales. Aside from excise taxes, our cost of sales consists principally of tobacco leaf, non-tobacco raw materials, labor and manufacturing costs.
Our marketing, administration and research costs include the costs of marketing our products, other costs generally not related to the manufacture of our products (including general corporate expenses), and costs incurred to develop new products. The most significant components of our marketing, administration and research costs are selling and marketing expenses, which relate to the cost of our sales force as well as to the advertising and promotion of our products.
We are a legal entity separate and distinct from our direct and indirect subsidiaries. Accordingly, our right, and thus the right of our creditors and stockholders, to participate in any distribution of the assets or earnings of any subsidiary is subject to the prior claims of creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be recognized. As a holding company, our principal sources of funds, including funds to make payment on our debt securities, are from the receipt of dividends and repayment of debt from our subsidiaries. Our principal wholly-owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions with respect to their common stock.
Separation from Altria Group, Inc.
As discussed in Note 4. Transactions with Altria Group, Inc. of our 2009 audited consolidated financial statements and related notes, which are incorporated by reference into our Annual Report on Form 10-K for the year ended December 31, 2009 (the 2009 Form 10-K), prior to March 28, 2008, we were a wholly-owned subsidiary of Altria Group, Inc. (Altria). On January 30, 2008, the Altria Board of Directors announced Altrias plans to spin off all of its interest in PMI to Altrias stockholders in a tax-free distribution pursuant to Section 355 of the U.S. Internal Revenue Code. The distribution of all of the PMI shares owned by Altria (the Spin-off) was made on March 28, 2008 (the Distribution Date) to stockholders of record as of the close of business on March 19, 2008 (the Record Date). Altria distributed one share of our common stock for each share of Altria common stock outstanding on the Record Date.
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Executive Summary
The following executive summary is intended to provide you with the significant highlights from the Discussion and Analysis that follows.
Consolidated Operating Results for the Nine Months Ended September 30, 2010 The changes in our reported net earnings attributable to PMI and diluted earnings per share (diluted EPS) for the nine months ended September 30, 2010, from the comparable 2009 amounts, were as follows (in millions, except per share data):
Net Earnings Attributable to PMI |
Diluted EPS | |||||||||||||||||||||||
For the nine months ended September 30, 2009 |
$ | 4,820 | $ | 2.44 | ||||||||||||||||||||
2010 Tax items |
121 | 0.07 | ||||||||||||||||||||||
2010 Asset impairment and exit costs |
(13 | ) | (0.01 | ) | ||||||||||||||||||||
Subtotal 2010 items |
108 | 0.06 | ||||||||||||||||||||||
2009 Asset impairment and exit costs |
2 | |||||||||||||||||||||||
2009 Colombian Investment and Cooperation Agreement charge |
93 | 0.04 | ||||||||||||||||||||||
Subtotal 2009 items |
95 | 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 | ||||||||||||||||||||||
For the nine months ended September 30, 2010 |
$ | 5,507 | $ | 2.96 | ||||||||||||||||||||
Asset Impairment and Exit Costs We recorded pre-tax asset impairment and exit costs primarily related to the streamlining of various administrative functions and our operations. During the nine months ended September 30, 2010, we recorded pre-tax asset impairment and exit costs of $20 million ($13 million after tax) related to factory restructuring charges in Greece and Portugal. During the nine months ended September 30, 2009, we recorded pre-tax asset impairment and exit costs of $3 million ($2 million after tax). For further details, see Note 2. Asset Impairment and Exit Costs to our condensed consolidated financial statements.
Income Taxes Our effective income tax rate for the nine months ended September 30, 2010 decreased 2.3 percentage points to 27.0%. The effective tax rate for the nine months ended September 30, 2010 was favorably impacted by the reversal of tax reserves ($148 million) following the conclusion of the IRS examination of Altria Group, Inc.s consolidated tax returns for the years 2000 through 2003, partially offset by the negative impact of an enacted increase in corporate income tax rates in Greece ($21 million) and the net result of an audit in Italy ($6 million).
Colombian Investment and Cooperation Agreement charge During the second quarter of 2009, we recorded a pre-tax charge of $135 million ($93 million after tax) related to the Investment and Cooperation Agreement in Colombia. The charge was recorded in the operating companies income of the Latin America & Canada segment. For further details, see Note 15. Colombian Investment and Cooperation Agreement to our condensed consolidated financial statements.
Currency The favorable currency impact during the reporting period was due primarily to the Australian dollar, Canadian dollar, Indonesian rupiah, Japanese yen, Korean won, Mexican peso, Russian ruble and Turkish lira, partially offset by the Euro and Swiss franc.
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Interest The unfavorable impact of interest was due primarily to higher average debt levels and lower interest income, partially offset by lower average interest rates on debt.
Lower Shares Outstanding and Share-Based Payments The favorable EPS impact was due to the repurchase of our common stock pursuant to our share repurchase programs.
Operations The increase in our operations reflected in the table above was due primarily to the following:
| Eastern Europe, Middle East & Africa: Higher pricing and the favorable impact of acquisitions, partially offset by lower volume/mix, higher manufacturing costs and higher marketing, administration and research costs; |
| Asia: Higher pricing and the favorable impact of the business combination in the Philippines, partially offset by higher marketing, administration and research costs, higher manufacturing costs and lower volume/mix; and |
| Latin America & Canada: Higher pricing, partially offset by higher manufacturing costs and higher marketing, administration and research costs; |
partially offset by:
| European Union: Lower volume/mix and higher marketing, administration and research costs, largely offset by higher pricing. |
Consolidated Operating Results for the Three Months Ended September 30, 2010 The changes in our reported net earnings attributable to PMI and diluted EPS for the three months ended September 30, 2010, from the comparable 2009 amounts, were as follows (in millions, except per share data):
Net Earnings Attributable to PMI |
Diluted EPS | |||||||||||||||||||||||||
For the three months ended September 30, 2009 |
$ | 1,798 | $ | 0.93 | ||||||||||||||||||||||
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 | ) | ||||||||||||||||||||||
For the three months ended September 30, 2010 |
$ | 1,822 | $ | 0.99 | ||||||||||||||||||||||
Asset Impairment and Exit Costs We recorded pre-tax asset impairment and exit costs primarily related to our operations. During the three months ended September 30, 2010, we recorded pre-tax asset impairment and exit costs of $20 million ($13 million after tax) related to factory restructuring charges in Greece and Portugal. During the three months ended September 30, 2009, we recorded pre-tax asset impairment and exit costs of $1 million ($0.5 million after tax). For further details, see Note 2. Asset Impairment and Exit Costs to our condensed consolidated financial statements.
Income Taxes Our effective income tax rate for the three months ended September 30, 2010 decreased 1.7 percentage points to 27.8%, primarily reflecting the mix of earnings for the quarter.
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Currency The favorable currency impact during the reporting period was due primarily to the Australian dollar, Canadian dollar, Indonesian rupiah, Japanese yen, Korean won, Mexican peso and Russian ruble, partially offset by the Euro and Swiss franc.
Lower Shares Outstanding and Share-Based Payments The favorable EPS impact was due primarily to the repurchase of our common stock pursuant to our share repurchase programs.
Operations The decrease in our operations reflected in the table above was due primarily to the following:
| Asia: Lower volume/mix (primarily reflecting the payback of distributor inventory in Japan built up in the second quarter of 2010) and higher marketing, administration and research costs, partially offset by higher pricing and the impact of the business combination in the Philippines; and |
| European Union: Lower volume/mix and higher marketing, administration and research costs, partially offset by higher pricing and lower manufacturing costs; |
partially offset by:
| Eastern Europe, Middle East & Africa: Higher pricing, partially offset by lower volume/mix and higher marketing, administration and research costs. |
For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following Discussion and Analysis.
2010 Forecasted Results On October 21, 2010, we increased and narrowed our forecast for 2010 full-year reported diluted EPS 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 at that date, 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 discussed 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 Cautionary Factors That May Affect Future Results section of the following Discussion and Analysis represent continuing risks to this forecast.
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Discussion and Analysis
Consolidated Operating Results
See pages 73-77 for a discussion of our Cautionary Factors That May Affect Future Results. Our cigarette volume, net revenues, excise taxes on products and operating companies income by segment were as follows (in millions):
For the Nine Months Ended September 30, |
For the Three Months Ended September 30, |
|||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cigarette volume: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union |
169,617 | 178,887 | 58,264 | 61,047 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe, Middle East & Africa |
217,265 | 222,097 | 75,228 | 77,769 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia |
211,588 | 169,231 | 70,188 | 54,484 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada |
76,436 | 75,603 | 25,532 | 25,978 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Total cigarette volume |
674,906 | 645,818 | 229,212 | 219,278 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenues: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union |
$ | 21,053 | $ | 20,988 | $ | 7,045 | $ | 7,783 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe, Middle East & Africa |
11,665 | 9,953 | 4,184 | 3,722 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia |
11,094 | 8,974 | 3,629 | 3,170 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada |
6,094 | 5,157 | 2,078 | 1,898 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Net revenues |
$ | 49,906 | $ | 45,072 | $ | 16,936 | $ | 16,573 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Excise taxes on products: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union |
$ | 14,435 | $ | 14,313 | $ | 4,906 | $ | 5,375 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Eastern Europe, Middle East & Africa |
6,134 | 5,031 | 2,288 | 1,892 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Asia |
5,265 | 4,160 | 1,796 | 1,519 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Latin America & Canada |
3,901 | 3,250 | 1,332 | 1,200 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Excise taxes on products |
$ | 29,735 | $ | 26,754 | $ | 10,322 | $ | 9,986 | ||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating income: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Operating companies income: |
||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
European Union |
$ | 3,280 | < |