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Philip Morris International Inc.

INTERNATIONAL TOBACCO

Philip Morris International Inc. (PMI) delivered strong results in 2006, as it benefited from pricing and acquisitions.

Cigarette shipment volume increased 3.4% to 831.4 billion units, and was up 0.4% when adjusted for acquisitions and the one-time inventory benefit in Italy in 2005. PMI’s total tobacco volume, which included 8.3 billion cigarette equivalent units of other tobacco products (OTPs), increased 3.5% to 839.7 billion units, and increased 0.6% when adjusted for acquisitions and the 2005 inventory benefit in Italy.

Operating companies income increased 8.1% to $8.5 billion, due primarily to pricing, a $488 million gain on the reorganization of its business in the Dominican Republic and a $232 million benefit from acquisitions. These were partially offset by negative currency of $183 million, a $61 million charge in the first quarter of 2006 related to an Italian antitrust action and higher asset impairment and exit costs.

Share performance for Marlboro was strong, notably in France, Greece, Hong Kong, Italy, Japan, Korea, Kuwait, Mexico, Poland, Romania, Russia, Saudi Arabia, Singapore, Spain, Thailand and Ukraine. However, total Marlboro cigarette shipments of 316.0 billion units were down 1.9%, due mainly to adverse inventory movements and to declines in Argentina, Germany, Japan and Spain.

In the European Union (EU) region, PMI cigarette shipments were down 2.8%. Adjusted for the 2005 one-time distribution change in Italy of 3.0 billion units, EU volume declined a more moderate 1.7% in 2006. Declines in Czech Republic, Germany, Portugal and Spain were partially offset by gains in France, Hungary and Poland. PMI cigarette market share in the EU region was essentially unchanged at 39.4% and share of total tobacco consumption (cigarettes and OTPs) in the EU was up 0.2 share points to 35.3%.

In France, the total market grew 1.8% and PMI shipments were up 7.0%, driven by price stability, moderate price gaps and favorable timing of shipments. Market share continued to grow, rising 1.0 point to a record 42.7% behind the solid performance of Marlboro and the Philip Morris brand.

In Germany, total tobacco consumption was down 5.9% in 2006, reflecting the decline and ultimate exit of tobacco portions from the market. PMI’s total tobacco in-market sales declined 0.2%, while its share of total tobacco consumption increased 1.7 points to 30.4%. The total cigarette market declined 3.9%, due to lower consumption as a result of tax-driven price increases. PMI’s in-market cigarette volume declined 3.4%. However, its cigarette market share rose 0.2 points to 36.8%, driven by the price repositioning of L&M. Cigarette share for Marlboro declined 1.6 points in 2006 to 28.0%.

Marlboro Filter Plus

Launched successfully in Korea in late 2006 and scheduled for introduction in additional markets in 2007, Marlboro Filter Plus is a real innovation in terms of cigarette and filter construction, as well as packaging. True to the brand’s heritage, Marlboro Filter Plus delivers outstanding taste in a one-milligram product.

In Italy, the total cigarette market rose 1.1%. PMI shipment volume decreased 3.9%, but adjusted for the 2005 one-time distribution change, volume rose 1.9%. Market share advanced 1.3 points to 53.8%, driven by Marlboro, Diana and Chesterfield.

In Spain, the total cigarette market declined 2.8%, due to tax-driven price increases. PMI cigarette shipments were down 12.8% and market share declined 2.4 points to 32.2%, mainly reflecting Chesterfield and L&M, which suffered from consumers switching to the lowest-price segment and to competitors’ brands that were repositioned from premium to lower-price segments. Share for Marlboro advanced 0.1 point to 17.1% in 2006 versus 2005, underscoring the brand’s resilience in a highly competitive environment.

In Eastern Europe, the Middle East & Africa, PMI shipments were up 1.7%, with gains in Egypt, Russia and Ukraine partially offset by declines in Romania and Turkey. In Russia, shipments rose 3.4%, driven by Marlboro, Muratti, Parliament and Chesterfield. Market share, however, declined 0.4 points to 26.6%. This primarily reflected declines of low-price brands and L&M. Combined market share in Russia for higher-margin brands, Marlboro and Parliament, was up 0.4 share points versus 2005. In Ukraine, shipments increased and share advanced 0.8 points to 33.0%, as consumers continued to trade up to higher-priced Marlboro and Chesterfield. In Turkey, shipments declined 3.5%, reflecting the continued decline of low-price Bond Street. However, PMI market share rose 1.4 points to 42.5%, as consumers traded up to its higher-margin brands, Parliament and Muratti.

In Asia, volume was up 12.3%, due primarily to gains in Indonesia, partially offset by lower volume in Japan and Thailand. PMI shipment volume rose 69.6% in Indonesia, aided by the acquisition of Sampoerna in 2005. Market share grew 1.5 points to 27.7% on the strength of its brand portfolio, led by A Hijau and A Mild. In Japan, the total market declined 4.4%, or 12.5 billion units, due primarily to a tax-driven price increase in July 2006. PMI in-market sales were down 4.8%, and market share declined 0.1 point to 24.7%. Marlboro share rose 0.2 points to 9.9%. PMI’s shipment volume declined 5.4% in Japan, mainly reflecting lower in-market sales.

In Latin America, PMI shipments increased 10.8%, driven by strong gains in Argentina and Mexico, as well as higher volume in Colombia due to the 2005 acquisition of Coltabaco. In Argentina, the total market advanced approximately 7.5%, while PMI shipments grew 15.9% and share was up 4.9 points to a record 66.3%, due mainly to the Philip Morris brand. In Mexico, the total market was up approximately 2.0% and PMI shipments grew 6.0%. Market share rose 1.4 points to a record high of 63.5%, reflecting the continued strong performance of Marlboro, which rose 1.4 share points to 47.7%, and Benson & Hedges.