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Philip Morris International Inc.

International Tobacco

Philip Morris International Inc. (PMI) achieved record financial results in 2005, aided by positive currency and income from acquisitions, and increased its share in numerous markets.

Cigarette shipment volume increased 5.7% to 804.5 billion units, with widespread gains in many markets, and acquisitions in Indonesia and Colombia, partially offset by lower shipments in the European Union. Total Marlboro cigarette shipments increased 2.0% to 322.1 billion units, with gains in Eastern Europe, the Middle East & Africa, as well as higher inventories in Japan following the expiration of the Marlboro license with Japan Tobacco in May and the one-time inventory sale to a new distributor in Italy, partially offset by declines in Germany and worldwide duty-free. Share gains for Marlboro were achieved in the top income markets of Egypt, France, Japan, Mexico, Portugal, Russia, Turkey, Ukraine and the United Kingdom.

Operating companies income rose 19.2% to $7.8 billion, due primarily to higher pricing, as well as the impact of acquisitions, positive currency, higher income following the expiration of the Marlboro license in Japan, the impact of the one-time inventory sale in Italy and a favorable comparison with 2004 when PMI recorded a $250 million charge for the E.C. agreement. These were partially offset by unfavorable volume/mix, higher R&D, manufacturing, distribution, trade and selling expenses, and higher asset impairment and exit costs.

In the EU region, cigarette volume was down 2.7%, primarily due to Germany, where tax-advantaged tobacco portions replaced a significant volume of cigarettes in the market. During the fourth quarter of 2005, the European Court of Justice issued a mandate that requires the German government to equalize the tax burden between cigarettes and tobacco portions. As a result, consumption of lower-priced portions is expected to decline once high stock levels are depleted. For the full year, PMI’s cigarette market share was down 0.2 share points to 36.6%, while its share of the tobacco portions market increased 9.1 share points to 16.9%.

In France, PMI’s volume and share performance in 2005 were robust, reflecting an improved pricing environment and moderate price gaps. Shipments rose 2.5%, and share grew from 39.8% to 41.7%, based on strong performances by Marlboro and the Philip Morris brand.

In Italy, PMI’s cigarette shipment volume increased 2.7%, due primarily to the one-time inventory sale to PMI’s new distributor. Excluding the one-time inventory sale of 3.0 billion units, shipment volume in Italy was down 3.2%, reflecting a decline in the total cigarette market of 6.1% in 2005, largely due to tax-driven pricing and the impact of indoor smoking restrictions in public places. PMI’s share improved to 52.6%, driven by Diana.

In Spain, PMI’s shipments were down 2.2%, reflecting increased consumer down-trading to the deep-discount segment, which expanded to 20% for the full year 2005, double its 2004 share, and surged to a 31.2% share in the fourth quarter. As a result of growing price gaps, PMI’s share declined 1.1 share points to 34.5% for the full year, and declined 3.4 share points to 31.5% in the fourth quarter. In January 2006, PMI reduced its cigarette prices to restore the competitiveness of its brands following an excise tax increase. In February 2006, PMI announced a return to previous price levels for its major brands, subsequent to the introduction of a minimum excise tax.

In Eastern Europe, the Middle East & Africa, volume was up 6.4%, due mainly to increases in Egypt, Russia, Turkey and Ukraine. Shipments in Russia were up 2.7%, and market share rose 0.7 share points to 27.0%, due to the continued success of Marlboro, Muratti, Parliament, Next and Chesterfield. In Turkey, volume was up 8.6%, and market share increased 4.4 share points to 41.4%, fueled by the growth of Marlboro, Parliament, Lark and Bond Street. Improved economic conditions and continued up-trading to Marlboro, Chesterfield, L&M and Bond Street drove the increase in Ukraine.

In Asia, volume increased 21.3%, primarily due to the acquisition of Sampoerna in Indonesia. Excluding Sampoerna, volume was essentially stable. PMI achieved a full-year 26.1% share in Indonesia, driven by A Mild, Dji Sam Soe and A Hijau. In Japan, PMI’s shipments were down slightly in a total market that declined 2.8%. Market share rose 0.3 share points to a record 24.8%, driven by Marlboro and Virginia Slims. In Korea, PMI’s shipments declined 11.8% in a total market that declined more than 20%. PMI’s market share in Korea grew 0.9 share points to 8.3%, driven by Marlboro and Parliament.

In Latin America, PMI’s volume increased 5.5%, reflecting the acquisition of Coltabaco in Colombia and higher shipments in Mexico, partially offset by declines in Argentina and Brazil. Excluding the impact of acquisitions, volume was down 3.8%. In Mexico, PMI’s shipments increased 1.0%, and its market share rose 1.9 share points to 62.1%, driven by Marlboro’s continued momentum, while the total cigarette industry declined 1.5%. In Argentina, PMI’s shipments were down 7.0% versus a total market decline of 1.4%. PMI’s share declined 3.7 share points to 61.4% in Argentina, due to a surge in the ultra-low-price segment.

PMI supports meaningful and effective tobacco regulation in every country where it does business. It is marketing its products responsibly and communicating with consumers regarding important tobacco issues. More information on PMI’s business and responsibility initiatives is available at www.philipmorrisinternational.com.