Philip Morris International Inc. — 2013 Form 10-K
Reporting period: Fiscal year ended December 31, 2013. PMI manufactures and sells tobacco products outside the United States across more than 180 markets. The filing incorporates key financial statements and management discussion from the 2013 Annual Report; the supplied text does not include the underlying statements or a clear value for several financial metrics.
Operating and financial highlights
- Total cigarette shipments fell 5.1% to 880.2 billion units. PMI estimated the international cigarette market declined 1.4% to approximately 5.6 trillion units.
- Estimated international market share was 15.7% in 2013, versus 16.3% in 2012 and 16.2% in 2011. Excluding China, share was 28.2%, versus 28.8% and 28.3%, respectively.
- Marlboro shipments declined 3.5%; the brand represented approximately 9.2% of the international market excluding China, compared with 9.4% in 2012 and 9.3% in 2011.
- 2013 operating companies income by segment: Asia 33.6% of the total, EU 30.8%, EEMA 27.4%, and Latin America & Canada 8.2%. Asia’s share declined from 36.7% in 2012, while EU, EEMA, and Latin America & Canada shares increased.
- PMI repurchased 17.2 million shares during the fourth quarter at an average price of $87.39. Approximately $9.15 billion remained under its $18 billion, three-year repurchase authorization at quarter-end.
- The filing text does not provide clear consolidated revenue, net income, EPS, cash flow, margins, debt, or liquidity figures; those financial statements are incorporated by reference from the 2013 Annual Report.
Material changes and unusual items
- PMI recorded a fourth-quarter 2013 charge of approximately $0.10 per diluted share for discontinuing existing contractual arrangements as it restructured its Egypt business.
- PMI acquired a 20% interest in its Russian distributor Megapolis for $750 million, with up to an additional $100 million contingent on future operating performance.
- PMI acquired a 49% interest in UAE-based AITA for approximately $625 million, giving it an indirect economic interest in an Algerian tobacco joint venture.
- PMI purchased Grupo Carso’s remaining 20% interest in its Mexican tobacco business for $703 million, bringing its ownership to 100%; the price may be adjusted based on future performance.
- PMI and Altria established a framework for exclusive commercialization of specified e-cigarette and reduced-risk products in their respective markets.
Outlook, risks, and contingencies
- The filing excerpt provides no clear near-term earnings or revenue guidance. PMI described reduced-risk products as a strategic priority and was working toward commercialization in 2016–2017. In January 2014, it announced an investment of up to €500 million in an EU manufacturing facility and pilot plant near Bologna, with expected combined annual capacity of up to 30 billion units once fully operational.
- Key risks include declining cigarette consumption, higher taxes, tighter regulation, plain-packaging measures, down-trading, illicit trade and counterfeiting, intense competition, foreign-exchange volatility, political and economic disruption, and supply and agricultural commodity risks.
- PMI reported pending tobacco-related litigation, including cases seeking substantial damages. Management said it had not concluded that a loss was probable in any pending tobacco-related case and could not estimate a possible loss or range; no loss estimate was accrued. An adverse outcome could materially affect results, cash flows, or financial position in a particular period.
- Management stated that other ordinary-course litigation was not expected to have a material adverse effect. Disclosure controls were assessed as effective, with no material quarterly change in internal control over financial reporting reported.
Important facts for investors to verify
- Consult the incorporated Annual Report statements and MD&A for 2013 and comparative revenue, earnings, EPS, cash flow, margins, debt, liquidity, and segment results.
- Review the drivers of lower shipments and market share, including pricing, product mix, foreign exchange, and conditions in Asia and other regions.
- Assess the financial effects of the Egypt restructuring, acquisitions, share repurchases, and planned reduced-risk product investment.
- Track developments in major litigation, government investigations, tobacco regulation, taxation, and illicit trade.