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Item 2. Management’s Discussion and Analysis

2021-10-27 compared with 2021-07-27 · 579 added, 499 removed, 1158 unchanged (48% of the section changed)

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We are a leading international tobacco company engaged in the manufacture and sale of cigarettes, as well as smoke-free products, associated electronic devices and accessories, and other nicotine-containing products in markets outside the United States.

In addition, we ship versions of our Platform 1 device and consumables to Altria Group, Inc.

for sale under license in the United States, where these products have received marketing authorizations from the U.S.

In addition, versions of our Platform 1 device and consumables have received marketing authorizations from the U.S.

Food and Drug Administration ("FDA") under the premarket tobacco product application ("PMTA") pathway;

the FDA has also authorized the marketing of a version of our Platform 1 device and its consumables as a Modified Risk Tobacco Product ("MRTP"), finding that an exposure modification order for these products is appropriate to promote the public health.

We ar e building a future on a new category of smoke-free products that, while not risk-free, are a much better choice than continuing to smoke.

We are building a future on a new category of smoke-free products that, while not risk-free, are a much better choice than continuing to smoke.

We describe the PMTA and MRTP orders in more detail in the "Business Environment" section of this Item 2.

Through multidisciplinary capabilities in product development, state-of-the-art facilities and scientific substantiation, we aim to ensure that our smoke-free products meet adult consumer preferences and rigorous regulatory requirements.

Our smoke-free product portfolio includes heat-not-burn and nicotine-containing vapor products.

We manage our business in six operating segments:

Our smoke-free product portfolio includes heat-not-burn products, nicotine-containing vapor products and oral nicotine products.

In the third quarter of 2021, our former Latin America & Canada segment was renamed as the Americas segment.

We currently manage our business in six geographical segments and an Other category:

• European Union ("EU");

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• East Asia & Australia ("EA&A");

• Latin America & Canada ("LA&C"), which includes transactions under license with Altria Group, Inc.

for the distribution of our Platform 1 product in the United States.

In July 2021, our Latin America & Canada operating segment was renamed as the Americas operating segment.

• Americas ("AMCS");

• Other, which includes our third quarter 2021 acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

For further details, see Note 7.

Segment Reporting and Note 17.

Acquisitions .

Our cigarettes are sold in more than 175 markets, and in many of these markets they hold the number one or number two market share position.

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RRPs is the term we use to refer to products that present, are likely to present, or have the potential to present less risk of harm to smokers who switch to these products versus continuing smoking.

IQOS is the leading brand in our smoke-free product portfolio.

As of September 30, 2021, our smoke-free products are available for sale in 70 markets in key cities or nationwide.

We use the term net revenues to refer to our operating revenues from the sale of our products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

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The following executive summary provides the business update and significant highlights from the " Discussion and Analysis " that follows.

Consolidated Operating Results for the Six Months Ended June 30, 2021

• Net Revenues - Net revenues of $15.2 billion for the six months ended June 30, 2021 increased by $1.4 billion, or 10.0%, from the comparable 2020 amount.

Consolidated Operating Results for the Nine Months Ended September 30, 2021

• Net Revenues - Net revenues of $23.3 billion for the nine months ended September 30, 2021 increased by $2.1 billion, or 9.7%, from the comparable 2020 amount.

The change in our net revenues from the comparable 2020 amount was driven by the following (variances not to scale with year-to-date results):

For the six months ended June 30, 2021, net revenues, excluding favorable currency, increased by 5.3%, reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume (notably in the EU, particularly Germany, Italy and Poland, as well as Japan, Russia and Ukraine), partly offset by lower cigarette volume (mainly in the EU Region, notably Germany, as well as Japan, Kuwait, North Africa, the Philippines and PMI Duty Free, partially offset by Indonesia and Turkey);

and a favorable pricing variance (notably driven by Germany, Japan, North Africa, the Philippines, Russia and Turkey, partly offset by Indonesia and Poland);

partially offset by the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Other" and further described in the following " Diluted Earnings Per Share " discussion.

This net revenue growth reflects both the recovery of the combustible business in many markets compared to the disrupted second quarter of 2020 due to the effects of the COVID-19 pandemic, and the continued strength of IQOS , which resulted in growth of our RRP net revenues.

Net revenues by product category for the six months ended June 30, 2021 and 2020 are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted earnings per share (“diluted EPS”) for the six months ended June 30, 2021, from the comparable 2020 amounts, were as follows:

For the nine months ended September 30, 2021, net revenues, excluding favorable currency, increased by 6.1%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume (notably in the EU, particularly Germany, Hungary, Italy and Poland, as well as Japan and Russia), partly offset by lower cigarette volume (mainly in the EU Region, notably the Czech Republic, France and Germany, as well as Japan, Kuwait, North Africa, the Philippines, Russia and Ukraine, partially offset by Indonesia, PMI Duty Free, and Turkey);

and a favorable pricing variance (notably driven by the Czech Republic, Germany, Japan, Kazakhstan, North Africa, the Philippines, Russia and Turkey, partly offset by Indonesia, Poland and Ukraine);

partially offset by the unfavorable impact of the Saudi Arabia customs assessments of $246 million, included in "Other" and further described in the following " Diluted Earnings Per Share " discussion.

This net revenue growth reflects the continued strength of IQOS , and the recovery of the combustible business in many markets from the low base in 2020 due to the impact of COVID-19.

Net revenues by product category for the nine months ended September 30, 2021 and 2020 are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted earnings per share (“diluted EPS”) for the nine months ended September 30, 2021, from the comparable 2020 amounts, were as follows:

Diluted EPS % Growth

For the six months ended June 30, 2020 $ 2.42

For the nine months ended September 30, 2020 $ 3.90

2020 Asset impairment and exit costs 0.04

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2021 Saudi Arabia customs assessments (0.14)

2021 Asset acquisition cost (0.03)

2021 Equity investee ownership dilution 0.02

2021 Tax items —

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Operations 0.56

For the six months ended June 30, 2021 $ 2.93 21.1 %

Asset impairment and exit costs – During the six months ended June 30, 2021, we recorded pre-tax asset impairment and exit costs of $127 million, representing $105 million net of income tax and a diluted EPS charge of $0.07 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea.

During the six months ended June 30, 2020, we recorded pre-tax asset impairment and exit costs of $71 million, representing $57 million net of income tax and a diluted EPS charge of $0.04, related to the organizational design optimization plan, primarily in Switzerland.

For the nine months ended September 30, 2021 $ 4.48 14.9 %

Asset impairment and exit costs – During the nine months ended September 30, 2021, we recorded pre-tax asset impairment and exit costs of $170 million, representing $143 million net of income tax and a diluted EPS charge of $0.09 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea.

During the nine months ended September 30, 2020, we recorded pre-tax asset impairment and exit costs of $71 million, representing $57 million net of income tax and a diluted EPS charge of $0.04, related to the organizational design optimization plan, primarily in Switzerland.

The total pre-tax charges were included in marketing, administration and research costs on the condensed consolidated statements of earnings.

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Asset Impairment and Exit Costs .

Fair Value adjustment for equity security investments – During the six months ended June 30, 2020, we recorded an unfavorable fair value adjustment for our equity security investments of $62 million after tax (or $0.04 per share decrease in diluted EPS).

The fair value adjustment for our equity security investments was included in equity investments and securities (income)/loss, net ($78 million loss) and provision for income taxes ($16 million benefit) on the condensed consolidated statements of earnings.

Fair Value adjustment for equity security investments – During the nine months ended September 30, 2020, we recorded an unfavorable fair value adjustment for our equity security investments of $62 million after tax (or $0.04 per share decrease in diluted EPS).

The fair value adjustment for our equity security investments was included in equity investments and securities

(income)/loss, net ($78 million loss) and provision for income taxes ($16 million benefit) on the condensed consolidated statements of earnings.

Income taxes – The 2020 Tax items that increased our 2020 diluted EPS by $0.06 per share in the table above were due to final U.S.

tax regulations under the Global Intangible Low-Taxed Income ("GILTI") provisions of the Internal Revenue Code for years 2018 and 2019 ($93 million).

The change in the tax rate that increased our diluted EPS by $0.07 per share in the table above was primarily due to the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021), as well as changes in earnings mix by taxing jurisdiction.

Saudi Arabia customs assessment s – In June 2021, the Customs Appeal Committee in Riyadh notified our distributors in Saudi Arabia of its decisions to largely reject their challenges of the Saudi Arabia Customs General Authority assessments as described in Note 8.

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On the basis of these decisions and in line with arrangements with the distributors, we recorded a pre-tax charge of $246 million in the second quarter of 2021 (representing $215 million net of income tax and a diluted EPS charge of $0.14 per share) .

The pre-tax charge was recorded as a reduction of net revenues on the condensed consolidated statement of earnings and was included in the Middle East & Africa segment results.

Currency – The favorable impact of $0.15 per share during the reporting period results from the fluctuations of the U.S.

dollar, especially against the Euro and Japanese yen.

The pre-tax charge was recorded as a reduction of net revenues on the condensed consolidated statement of earnings for the nine months ended September 30, 2021 and was included in the Middle East & Africa segment results.

Asset acquisition cost – In August 2021, we acquired 100% of OtiTopic, Inc., a U.S.

respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction.

We accounted for this transaction as an asset acquisition since the acquired in-process research and development ("IPR&D") of the dry powder inhalation aspirin treatment represented substantially all of the fair value of the gross assets acquired.

At the date of acquisition, we determined that the acquired IPR&D had no alternative future use.

As a result, we recorded a pre-tax charge of $51 million (representing a $0.03 charge to diluted EPS) to research and development costs within marketing, administration and research costs in the condensed consolidated statements of earnings for the nine months ended September 30, 2021.

For further details, see Note 17.

Acquisitions .

Equity investee ownership dilution – In July 2021, our equity method investee, Medicago Inc, initiated an additional round of equity funding in which we did not participate.

As a result, our share of holdings in Medicago Inc.

was reduced to approximately 25% as of September 30, 2021.

The ownership dilution resulted in a $0.02 favorable impact to diluted EPS and income of $38 million to Equity investments and securities (income)/loss, net in the condensed consolidated statements of earnings for the nine months ended September 30, 2021.

For further details, see Note 8.

Contingencies .

Currency – The favorable impact of $0.18 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the Euro.

This favorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Income taxes – The change in the tax rate that increased our diluted EPS by $0.03 per share in the table above was primarily due to the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021), as well as changes in earnings mix by taxing jurisdiction.

Operations – The increase in diluted EPS of $0.56 from our operations in the table above was due primarily to the following segments:

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• Eastern Europe:

Favorable volume/mix, lower manufacturing costs, favorable pricing and lower marketing, administration and research costs;

Favorable volume/mix, lower manufacturing costs, and favorable pricing;

• Middle East & Africa:

Favorable pricing and lower manufacturing costs, partially offset by unfavorable volume/mix;

• Latin America & Canada:

Lower marketing, administration and research costs and favorable pricing;

Favorable pricing, favorable volume/mix and lower manufacturing costs, partially offset by lower fees for certain distribution rights and higher marketing, administration and research costs;

Favorable pricing and lower marketing, administration and research costs, partially offset by higher manufacturing costs;

partially offset by

• South & Southeast Asia:

Unfavorable volume/mix and unfavorable pricing.

Consolidated Operating Results for the Three Months Ended June 30, 2021

• Net Revenues - Net revenues of $7.6 billion for the three months ended June 30, 2021 increased by $0.9 billion, or 14.2%, from the comparable 2020 amount.

Unfavorable volume/mix and higher marketing, administration and research costs.

Consolidated Operating Results for the Three Months Ended September 30, 2021

• Net Revenues - Net revenues of $8.1 billion for the three months ended September 30, 2021 increased by $0.7 billion, or 9.1%, from the comparable 2020 amount.

The change in our net revenues from the comparable 2020 amount was driven by the following (variances not to scale with quarterly results):

During the quarter, net revenues, excluding favorable currency, increased by 7.6%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume (notably in the EU, particularly Italy and Poland, as well as Japan, Russia and Ukraine) and higher cigarette volume (mainly in Indonesia, Italy, PMI Duty Free and Spain, partly offset by the GCC, Germany, Japan and the Philippines);

and a favorable pricing variance (notably driven by Germany, Japan,

the Philippines, Russia and Turkey, partly offset by Indonesia);

partly offset by the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Other".

Net revenues by product category for the three months ended June 30, 2021 and 2020, are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted EPS for the three months ended June 30, 2021, from the comparable 2020 amounts, were as follows:

favorable volume/mix, primarily driven by higher heated tobacco unit volume (notably in the EU, particularly Germany, Italy and Poland, as well as Japan, PMI Duty Free and Russia) and higher device volume (primarily in Japan, driven by the launch of IQOS ILUMA ), partly offset by lower cigarette volume (mainly in Australia, France, Germany, Italy and the Philippines, partly offset by Indonesia, Japan, PMI Duty Free and Turkey) and unfavorable cigarette mix (mainly in Germany, Japan and Russia);

and a favorable pricing variance (notably driven by Japan, the Philippines, Russia and Turkey, partly offset by Indonesia, Poland and Ukraine).

This net revenue growth reflects the continued strength of IQOS , and the recovery of the combustible business in many markets from the low base in 2020 due to the impact of COVID-19.

Net revenues by product category for the three months ended September 30, 2021 and 2020, are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted EPS for the three months ended September 30, 2021, from the comparable 2020 amounts, were as follows:

Diluted EPS % Growth

For the three months ended June 30, 2020 $ 1.25

For the three months ended September 30, 2020 $ 1.48

2020 Asset impairment and exit costs —

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2021 Asset impairment and exit costs (0.02)

2021 Saudi Arabia customs assessments (0.14)

2021 Asset acquisition cost (0.03)

2021 Equity investee ownership dilution 0.02

2021 Tax items —

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Currency 0.04

Interest 0.01

Change in tax rate 0.04

Operations 0.07

For the three months ended June 30, 2021 $ 1.39 11.2 %

Asset impairment and exit costs – In the second quarter of 2021, we recorded pre-tax asset impairment and exit costs of $79 million, representing $67 million net of income tax and a diluted EPS charge of $0.04 per share, related to the organizational design optimization plan, primarily in Switzerland.

In the second quarter of 2020, we recorded pre-tax asset impairment and exit costs of $71 million, representing $57 million net of income tax and a diluted EPS charge of $0.04 per share, related to the organizational design optimization plan, primarily in Switzerland.

The total pre-tax charge was included in marketing,

administration and research costs on the condensed consolidated statements of earnings.

For the three months ended September 30, 2021 $ 1.55 4.7 %

Income Taxes – The 2020 Tax items that increased our 2020 diluted EPS by $0.06 per share in the table above were due to final U.S.

tax regulations under the GILTI provisions of the Internal Revenue Code for years 2018 and 2019 ($93 million).

The change in the tax rate that increased our diluted EPS by $0.04 per share in the table above was primarily due to the corporate income tax rate reduction in the Philippines (enacted in the first quarter of 2021), as well as changes in earnings mix by taxing jurisdiction.

Asset impairment and exit costs – In the third quarter of 2021, we recorded pre-tax asset impairment and exit costs of $43 million, representing $38 million net of income tax and a diluted EPS charge of $0.02 per share, related to the organizational design optimization plan, primarily in Switzerland, and the product distribution restructuring in South Korea.

The total pre-tax charge was included in marketing, administration and research costs on the condensed consolidated statements of earnings.

For further details, see Note 16.

Asset Impairment and Exit Costs .

Asset acquisition cost – In August 2021, we acquired 100% of OtiTopic, Inc., a U.S.

respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction.

At the date of acquisition, we determined that the acquired IPR&D had no alternative future use.

For further details, see Note 17.

Acquisitions .

Equity investee ownership dilution – In July 2021, our equity method investee, Medicago Inc, initiated an additional round of equity funding in which we did not participate.

As a result, our share of holdings in Medicago Inc.

was reduced to approximately 25% as of September 30, 2021.

For further details, see Note 8.

Contingencies .

The pre-tax charge was recorded as a reduction of net revenues on the condensed consolidated statement of earnings and was included in the Middle East & Africa segment results.

Currency – The favorable impact of $0.05 per share during the reporting period results from the fluctuations of the U.S.

Currency – The favorable impact of $0.04 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the Euro.

This favorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.

Income Taxes – The change in the tax rate that decreased our diluted EPS by $0.01 per share in the table above was primarily due to the corporate income tax rate reduction in Indonesia (enacted in the second quarter of 2020).

Operations – The increase in diluted EPS of $0.07 from our operations in the table above was due primarily to the following segments:

• European Union:

Favorable volume/mix, lower manufacturing costs and favorable pricing, partially offset by higher marketing, administration and research costs;

• Middle East & Africa:

Favorable volume/mix, favorable pricing and lower manufacturing costs, partially offset by lower fees for certain distribution rights and higher marketing, administration and research costs;

• Eastern Europe:

Favorable volume/mix, favorable pricing and lower manufacturing costs;

• Middle East & Africa:

Favorable volume/mix and favorable pricing, partially offset by lower fees for certain distribution rights and higher marketing, administration and research costs;

• East Asia & Australia:

Favorable pricing and lower manufacturing costs, partially offset by higher marketing, administration and research costs and unfavorable volume/mix;

Favorable pricing, favorable volume/mix and lower manufacturing costs, partially offset by higher marketing, administration and research costs;

• European Union:

Favorable volume/mix and lower manufacturing costs, partially offset by higher marketing, administration and research costs;

Favorable pricing, partially offset by higher manufacturing costs and higher marketing, administration and research costs;

partially offset by

• South & Southeast Asia:

Favorable volume/mix and favorable pricing, partially offset by higher marketing, administration and research costs;

• Latin America & Canada:

Favorable pricing and favorable volume/mix.

Unfavorable volume/mix and higher manufacturing costs, partially offset by favorable pricing.

For further details, see the “Consolidated Operating Results” and “Operating Results by Business Segment” sections of the following “Discussion and Analysis.”

COVID-19 Impact on Our Business

Business Continuity Update

Since the onset of the COVID-19 pandemic, PMI has undertaken a number of business continuity measures to mitigate potential disruption to its operations and route-to-market in order to preserve the availability of products to its customers and adult consumers.

• PMI has sufficient access to the inputs for its products and is not facing any significant business continuity issues with respect to key suppliers;

• All of PMI's cigarette and heated tobacco unit manufacturing facilities globally are operational;

• COVID-related restrictions do not have a significant impact on the availability of PMI's products to its customers and adult consumers;

• PMI has sufficient liquidity resources through cash on hand, the ongoing cash generation of its business, and its access to the commercial paper and debt markets.

Nonetheless, significant uncertainty remains as the spread of the disease is increasing in a number of markets, resulting in additional restrictions and increasing risk of disruptions.

IQOS Device Supply

The current global semiconductor shortage is resulting in a tightness in IQOS device supply.

This is affecting the availability and assortment of IQOS devices in certain markets, which is hampering the company’s ability to operate at full commercial and competitive capacity to fully meet demand.

This has been reflected in lower IQOS user growth rates in the third quarter of 2021.

At this stage, supply forecasting remains volatile.

PMI therefore assumes that the tight supply situation will persist into the first half of 2022 and, where necessary, the company will prioritize device replacements for existing IQOS users over device sales targeting user acquisition.

PMI is also adjusting its launch timeline for IQOS ILUMA outside Japan, with additional major launches now assumed for the second half of 2022.

PMI views this as a temporary phenomenon and expects IQOS user growth to re-accelerate once shortages ease, as consumer demand remains.

During the third quarter of 2021, PMI acquired the following companies:

• Fertin Pharma A/S, a Danish company that is a leading developer and manufacturer of innovative pharmaceutical and well-being products based on oral and intra-oral delivery systems;

• Vectura Group plc, an inhaled therapeutics company based in the United Kingdom;

• OtiTopic, Inc., a U.S.

respiratory drug development company with a late-stage dry powder inhalation aspirin treatment for acute myocardial infarction.

For further details on these acquisitions, see Note 17.

Acquisitions .

Discussion and Analysis

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See pages 95-104 for a discussion of our " Cautionary Factors That May Affect Future Results ." Our net revenues and operating income by segment are shown in the table below:

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 2020 2021 2020

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East Asia & Australia 4,509 4,045 1,523 1,358

Latin America & Canada 864 816 430 368

Americas 1,320 1,216 456 400

Net revenues $ 23,301 $ 21,250 $ 8,122 $ 7,446

Operating income:

Operating income (loss):

European Union $ 4,811 $ 3,924 $ 1,680 $ 1,588

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East Asia & Australia 2,041 1,792 631 637

Latin America & Canada 246 218 112 92

Americas 367 328 121 110

10,079 8,763 3,506 3,243

Other (51) — (51) —

Operating income $ 10,028 $ 8,763 $ 3,455 $ 3,243

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PMI Net Revenues by Product Category

(in millions) For the Six Months Ended June 30, For the Three Months Ended June 30,

(in millions) For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 2020 Change 2021 2020 Change

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East Asia & Australia 1,850 1,876 (1.4) % 591 605 (2.2) %

Latin America & Canada 840 803 4.6 % 418 363 15.3 %

Americas 1,278 1,196 6.9 % 438 393 11.4 %

Total Combustible Products $ 16,577 $ 16,360 1.3 % $ 5,796 $ 5,716 1.4 %

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East Asia & Australia 2,659 2,169 22.6 % 932 753 23.7 %

Latin America & Canada 24 13 79.5 % 12 5 +100%

Americas 42 20 +100% 18 7 +100%

Total Reduced-Risk Products $ 6,724 $ 4,890 37.5 % $ 2,326 $ 1,730 34.5 %

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• Asset impairment and exit costs – See Note 16.

Asset Impairment and Exit Costs for a breakdown of these costs by segment for the six months and three months ended June 30, 2021 and 2020.

Asset Impairment and Exit Costs for a breakdown of these costs by segment for the nine months and three months ended September 30, 2021 and 2020.

• Saudi Arabia customs assessments – See Note 8.

Contingencies for the details of the $246 million reduction in net revenues of combustible products included in the Middle East & Africa segment for the six months and three months ended June 30, 2021.

Contingencies for the details of the $246 million reduction in net revenues of combustible products included in the Middle East & Africa segment for the nine months ended September 30, 2021.

• Asset acquisition cost - See Note 17.

Acquisitions for the details of the $51 million pre-tax charge associated with the asset acquisition of OtiTopic, Inc.

included in Other within the operating income table above for the nine months and three months ended September 30, 2021.

Net revenues related to combustible products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

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Net revenues related to reduced-risk products refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes.

These net revenue amounts consist of the sale of our heated tobacco units, heat-not-burn devices and related accessories, and other nicotine-containing products, which primarily include our e-vapor products.

PMI's heat-not-burn products include licensed KT&G heat-not-burn products.

Revenues from shipments of Platform 1 devices, heated tobacco units and accessories to Altria Group, Inc., commencing in the third quarter of 2019, for sale under license in the United States, are included in Net Revenues of the Latin America & Canada segment.

References to "Cost/Other" in the Consolidated Financial Summary table of total PMI and the six operating segments throughout this "Discussion and Analysis" reflects the currency-neutral variances of:

References to "Cost/Other" in the Consolidated Financial Summary table of total PMI and the six geographical segments throughout this "Discussion and Analysis" reflects the currency-neutral variances of:

cost of sales (excluding the volume/mix cost component);

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PMI Shipment Volume (Million Units)

For the Six Months Ended June 30, For the Three Months Ended June 30,

For the Nine Months Ended September 30, For the Three Months Ended September 30,

2021 2020 Change 2021 2020 Change

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East Asia & Australia 33,450 35,154 (4.8) % 11,120 10,784 3.1 %

Latin America & Canada 30,098 29,843 0.9 % 15,213 14,780 2.9 %

Americas 46,092 45,542 1.2 % 15,994 15,699 1.9 %

Total Cigarettes 466,493 473,841 (1.6) % 164,843 165,464 (0.4) %

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East Asia & Australia 28,478 24,799 14.8 % 9,435 8,601 9.7 %

Latin America & Canada 245 202 21.3 % 140 94 48.9 %

Americas 466 316 47.5 % 221 114 93.9 %

Total Heated Tobacco Units 69,579 54,402 27.9 % 23,489 18,967 23.8 %

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East Asia & Australia 61,928 59,953 3.3 % 20,555 19,385 6.0 %

Latin America & Canada 30,343 30,045 1.0 % 15,353 14,874 3.2 %

Americas 46,558 45,858 1.5 % 16,215 15,813 2.5 %

Total Cigarettes and Heated Tobacco Units 536,072 528,243 1.5 % 188,332 184,431 2.1 %

Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables, which include our HEETS , HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO (defined collectively as HEETS ), Marlboro Dimensions, Marlboro HeatSticks and Parliament HeatSticks, as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea).

Heated tobacco units ("HTU") is the term we use to refer to heated tobacco consumables, which include our HEETS , HEETS Creations, HEETS Dimensions, HEETS Marlboro and HEETS FROM MARLBORO (defined collectively as HEETS ), Marlboro Dimensions, Marlboro HeatSticks, Parliament HeatSticks and TEREA, as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea).

Market share for HTUs is defined as the total sales volume for HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs.

Shipment volume of heated tobacco units to the United States is included in the heated tobacco unit shipment volume of the Latin America & Canada segment.

Shipment volume of heated tobacco units to the United States is included in the heated tobacco unit shipment volume of the Americas segment.

References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States, total industry, total market and market shares throughout this "Discussion and Analysis" are our estimates for tax-paid products based on the latest available data from a number of internal and external sources and may, in defined instances, exclude the People's Republic of China and/or our duty free business.

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The Gulf Cooperation Council ("GCC") is defined as Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates (UAE).

Southeast Europe is defined as Albania, Bosnia & Herzegovina, Kosovo, Montenegro, North Macedonia and Serbia.

References to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units, unless otherwise stated.

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Key market data regarding total market size, our shipments and market share are shown in the tables below:

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

PMI Shipments (billion units) PMI Market Share (%) (1)

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South Korea 54.1 54.8 10.7 11.3 7.2 7.8 3.5 3.5 19.7 20.7 6.4 6.4

Latin America & Canada

Argentina 26.1 24.3 14.6 14.9 14.6 14.9 — — 55.8 61.5 — —

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"-" indicates volume below 50 million units and market share below 0.1%

For the Three Months Ended June 30,

For the Three Months Ended September 30,

PMI Shipments (billion units) PMI Market Share (%) (1)

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South Korea 19.2 20.2 3.7 3.9 2.5 2.7 1.2 1.2 19.2 19.5 6.1 6.0

Latin America & Canada

Argentina 8.4 8.6 4.8 4.9 4.8 4.9 — — 56.6 56.8 — —

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"-" indicates volume below 50 million units and market share below 0.1%

Consolidated Operating Results for the Six Months Ended June 30, 2021

The following discussion compares our consolidated operating results for the six months ended June 30, 2021, with the six months ended June 30, 2020.

Consolidated Operating Results for the Nine Months Ended September 30, 2021

The following discussion compares our consolidated operating results for the nine months ended September 30, 2021, with the nine months ended September 30, 2020.

Our total shipment volume increased by 1.5%, driven by:

• the EU, reflecting higher heated tobacco unit shipment volume across the Region, particularly in Italy and Poland, partly offset by lower cigarette shipment volume, notably in the Czech Republic, France and Germany, partly offset by Italy and Spain;

• Eastern Europe, reflecting higher heated tobacco unit shipment volume, notably in Russia and Ukraine, partly offset by lower cigarette shipment volume, mainly in Russia and Ukraine;

• Middle East & Africa, reflecting higher cigarette shipment volume (primarily in Turkey, partly offset by the GCC, North Africa and PMI Duty Free), as well as higher heated tobacco unit shipment volume (driven notably by the GCC and Lebanon, partly offset by PMI Duty Free);

• the EU, reflecting higher heated tobacco unit shipment volume across the Region, particularly in Germany, Hungary, Italy and Poland, partly offset by lower cigarette shipment volume, notably in the Czech Republic, France, Germany and Hungary;

• Eastern Europe, reflecting higher heated tobacco unit shipment volume, primarily in Russia and Ukraine, partly offset by lower cigarette shipment volume, mainly in Russia and Ukraine;

• Middle East & Africa, reflecting higher cigarette shipment volume (primarily in PMI Duty Free and Turkey, partly offset by North Africa), as well as higher heated tobacco unit shipment volume across the Region;

• East Asia & Australia, reflecting higher heated tobacco unit shipment volume driven by Japan, partly offset by lower cigarette shipment volume, predominantly in Japan and South Korea;

• Latin America & Canada, reflecting higher cigarette shipment volume, primarily in Brazil and Mexico, partially offset by Argentina;

• Americas, mainly reflecting higher cigarette shipment volume, primarily in Brazil and Mexico, partially offset by Argentina;

partly offset by

• South & Southeast Asia, reflecting lower cigarette shipment volume, primarily in the Philippines, partially offset by Indonesia, Pakistan and Thailand.

• South & Southeast Asia, primarily reflecting lower cigarette shipment volume, mainly in the Philippines, partially offset by Indonesia and Pakistan.

Impact of Inventory Movements

The net impact of estimated distributor inventory movements for the first half of the year was immaterial to our total shipment volume performance.

Our total in-market sales volume increased by 0.5%.

Excluding the net favorable impact of estimated distributor inventory movements of approximately 5.0 billion units, our total in-market sales increased by 0.5%, driven by a 23.3% increase in heated tobacco units, partly offset by a 2.1% decrease in cigarettes.

The net favorable impact of approximately 5.0 billion units reflected:

• A net favorable impact of 2.8 billion cigarettes, mainly driven by 2020 movements in Japan, PMI Duty Free and Russia;

• A net favorable impact of 2.2 billion heated tobacco units, primarily driven by 2020 movements in Japan.

Our total heated tobacco unit in-market sales volume in the nine months year-to-date was 68.8 billion units.

Our cigarette shipment volume by brand and heated tobacco units shipment volume are shown in the table below:

PMI Shipment Volume by Brand (Million Units)

Six Months Year-to-Date

Nine Months Year-to-Date

2021 2020 Change

8 unchanged sentences

Lark 11,851 12,059 (1.7) %

Sampoerna Hijau 4,228 3,043 38.9 %

Next 6,556 6,703 (2.2) %

Others 44,889 49,928 (10.1) %

2 unchanged sentences

Total Cigarettes and Heated Tobacco Units 536,072 528,243 1.5 %

Sampoerna A includes Sampoerna ;

Lark includes Lark Harmony ;

Next includes Next Dubliss ;

Philip Morris includes Philip Morris/Dubliss ;

and Lark includes Lark Harmony .

and Sampoerna A includes Sampoerna .

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Italy), Eastern Europe (notably Russia and Ukraine) and Japan.

Our cigarette shipment volume of the following brands increased:

• Chesterfield , mainly due to Brazil, the Philippines and Russia, partly offset by Saudi Arabia;

• Parliament , primarily due to Russia, Saudi Arabia and Turkey, partly offset by Japan;

• Sampoerna A in Indonesia, mainly due to premium A Mild;

• Sampoerna Hijau in Indonesia.

• Marlboro, mainly driven by Mexico, PMI Duty Free, Russia and Turkey, partly offset by France, the GCC, Japan and the Philippines;

• Chesterfield , primarily driven by Brazil, the Philippines and Russia, partly offset by Saudi Arabia;

• Parliament , mainly driven by Russia, Saudi Arabia and Turkey, partly offset by Japan and South Korea;

• Sampoerna A in Indonesia, primarily driven by premium A Mild .

Our cigarette shipment volume of the following brands decreased:

• Marlboro, mainly due to France, Japan, Kuwait, the Philippines and PMI Duty Free, partly offset by Mexico and Turkey;

• L&M , notably due to Egypt, Germany, Poland and Turkey, partly offset by Spain and Thailand;

• L&M , mainly due to Egypt, Germany, Poland, Russia and Turkey;

• Philip Morris , primarily due to Indonesia, Italy and Russia, partly offset by Japan;

• Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild ;

• Bond Street , mainly due to Russia and Ukraine;

• Lark , primarily due to Japan;

• Bond Street , primarily due to Kazakhstan, Russia and Ukraine;

• Lark , mainly due to Japan;

• Next , primarily due to Canada and Ukraine, partly offset by Russia;

• "Others," notably due to:

mid-price Fortune (Philippines), Hope (Philippines) and Sampoerna U (Indonesia);

and low-price Jackpot (Philippines);

partly offset by low-price Diana (Italy) and Morven (Pakistan).

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Italy), Eastern Europe (notably Russia and Ukraine) and Japan.

mid-price Fortune (Philippines) and Sampoerna U (Indonesia);

and low-price Jackpot (Philippines) and More (Philippines);

partly offset by mid-price Sampoerna Hijau (Indonesia) and low-price Morven (Pakistan).

International Share of Market (excluding China and the United States)

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• Total international market share for heated tobacco units of 3.5%, up by 0.6 points.

Our total international cigarette sales volume as a percentage of total industry cigarette sales volume was down by 1.2 points to 24.6%, mainly reflecting lower cigarette market share and/or an unfavorable geographic mix impact, notably in Japan, the Philippines and Russia, partly offset by Turkey.

Our total international cigarette sales volume as a percentage of total industry cigarette sales volume was down by 0.9 points to 24.9%, mainly reflecting lower cigarette market share and/or an unfavorable geographic mix impact, notably in Japan, the Philippines, Russia and Ukraine, partly offset by Indonesia and Turkey.

Financial Summary

Financial Summary -

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

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(2) Cost/Other variance includes charges in 2021 and 2020 of $170 million and $71 million, respectively, for asset impairment and exit costs.

For the six months ended June 30, 2021, net revenues, excluding favorable currency, increased by 5.3%, mainly reflecting:

and a favorable pricing variance (notably driven by Germany, Japan, North Africa, the Philippines, Russia and Turkey, partly offset by Indonesia and Poland);

Cost/Other variance in 2021 also includes the pre-tax charge of $51 million associated with the asset acquisition cost of OtiTopic, Inc.

For more details, see Note 16.

Asset Impairment and Exit Costs and Note 17.

Acquisitions .

For the nine months ended September 30, 2021, net revenues, excluding favorable currency, increased by 6.1%, mainly reflecting:

and a favorable pricing variance (notably driven by the

Czech Republic, Germany, Japan, Kazakhstan, North Africa, the Philippines, Russia and Turkey, partly offset by Indonesia, Poland and Ukraine);

partially offset by the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Cost/Other".

Excluding the unfavorable impact of the Saudi Arabia customs assessments of $246 million, net revenues increased by 10.8%, or 7.3% excluding favorable currency of $752 million.

The favorable currency in net revenues was due primarily to the Euro, Indonesian rupiah, Japanese yen and Philippine peso, partially offset by the Russian ruble and Turkish lira.

The favorable currency in net revenues was due primarily to the Euro, Indonesian rupiah, Japanese yen, Mexican peso and Philippine peso, partially offset by the Russian ruble and Turkish lira.

Net revenues include $6.7 billion in 2021 and $4.9 billion in 2020 related to the sale of RRPs.

IQOS devices accounted for approximately 5% of RRP net revenues for the six months ended June 30, 2021, reflecting longer replacement times and fewer second device purchases for existing users due to improving battery lives, functionality and reliability;

and lower device prices in certain markets as we prepare for the launch of the new IQOS ILUMA device.

For the nine months ended September 30, 2021, IQOS devices accounted for over 6% of RRP net revenues, with a step-up in the third quarter reflecting the IQOS ILUMA launch.

Operating income, excluding favorable currency, increased by 10.1%, primarily reflecting:

a favorable pricing variance;

favorable volume/mix, mainly driven by the same factors as for net revenues noted above;

a favorable pricing variance;

and lower manufacturing costs (driven by productivity gains related to reduced-risk and combustible products);

partly offset by the unfavorable impact of the Saudi Arabia customs assessments (as noted above for net revenues);

and higher marketing, administration and research costs, including higher asset impairment and exit costs (mainly related to organizational design optimization, as well as product distribution restructuring in South Korea).

Interest expense, net, of $482 million increased by $28 million (6.2%).

Our effective tax rate was flat at 21.7%.

Our effective tax rate increased by 0.6 percentage points to 22.0%.

We estimate that our full-year 2021 effective tax rate will be around 22%, excluding discrete tax events.

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Net earnings attributable to PMI of $7.0 billion increased by $936 million or 15.4%.

This increase was due primarily to higher operating income as discussed above.

This increase was due primarily to higher operating income as discussed above, partially offset by a higher effective income tax rate.

Basic EPS of $4.49 increased by 15.1%.

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Excluding a favorable currency impact of $0.18, diluted EPS increased by 10.3%.

Consolidated Operating Results for the Three Months Ended June 30, 2021

The following discussion compares our consolidated operating results for the three months ended June 30, 2021, with the three months ended June 30, 2020.

Consolidated Operating Results for the Three Months Ended September 30, 2021

The following discussion compares our consolidated operating results for the three months ended September 30, 2021, with the three months ended September 30, 2020.

Our total shipment volume increased by 2.1%, driven by:

• the EU, reflecting higher heated tobacco unit shipment volume across the Region, notably in Italy, and higher cigarette shipment volume, notably in Italy and Spain, partly offset by Germany;

• Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, primarily in Russia and Ukraine, partly offset by lower cigarette shipment volume, notably in Russia;

• Middle East & Africa, mainly reflecting higher cigarette shipment volume, primarily in North Africa (particularly Egypt), PMI Duty Free and Turkey, partly offset by the GCC (predominantly Saudi Arabia);

• South & Southeast Asia, primarily reflecting higher cigarette shipment volume, mainly in Indonesia and Thailand, partly offset by the Philippines;

• Latin America & Canada, mainly reflecting higher cigarette shipment volume, notably in Mexico, partly offset by Argentina;

• Eastern Europe, reflecting higher heated tobacco unit shipment volume across the Region, primarily in Russia and Ukraine, partly offset by lower cigarette shipment volume, mainly in Russia and Ukraine;

• Middle East & Africa, mainly reflecting higher cigarette shipment volume, primarily in PMI Duty Free and Turkey, partly offset by North Africa (particularly Egypt);

• East Asia & Australia, reflecting higher heated tobacco unit shipment volume, primarily in Japan, and higher cigarette shipment volume, mainly in Japan, partly offset by Australia and South Korea;

• Americas, mainly reflecting higher cigarette shipment volume, notably in Mexico;

partly offset by

• East Asia & Australia, reflecting lower cigarette shipment volume, mainly in Japan, partly offset by higher heated tobacco unit shipment volume, primarily in Japan.

Our cigarette shipment volume increase in the quarter includes a favorable comparison versus the second quarter of 2020, when pandemic-related disruption across many key markets was at its peak.

• the EU, reflecting lower cigarette shipment volume, mainly in France, Italy and Spain, partly offset by higher heated tobacco unit shipment volume across the Region, notably in Italy;

• South & Southeast Asia, primarily reflecting lower cigarette shipment volume, mainly in the Philippines, partly offset by Indonesia.

Impact of Inventory Movements

Excluding the net favorable impact of estimated distributor inventory movements of approximately 3.2 billion units, our total in-market sales increased by 4.2%, driven by a 27.6% increase in heated tobacco units and a 1.5% increase in cigarettes.

Excluding the net favorable impact of estimated distributor inventory movements of approximately 2.8 billion units, our total in-market sales increased by 0.6%, driven by a 20.2% increase in heated tobacco units, partly offset by a 1.8% decrease in cigarettes.

The net favorable impact of approximately 2.8 billion units reflected:

• A net favorable impact of 2.5 billion cigarettes, mainly driven by inventory movements in the second quarter of 2020 related to lower shipments to distributors due to the pandemic;

• A net favorable impact of 0.7 billion heated tobacco units, primarily reflecting the need to maintain inventory durations for the growing category.

Our total heated tobacco unit in-market sales volume in the quarter was 23.0 billion units, reflecting sequential growth of 8.0% compared to the first quarter of 2021.

The company believes that the current level of heated tobacco unit inventory is appropriate based on anticipated sales.

• A net favorable impact of 2.4 billion cigarettes, mainly driven by 2020 movements in Japan and PMI Duty Free;

• A net favorable impact of 0.4 billion heated tobacco units, notably reflecting 2020 movements in PMI Duty Free.

Our total heated tobacco unit in-market sales volume in the quarter was 24.6 billion units, reflecting sequential growth of 7.2% compared to the second quarter of 2021.

Our cigarette shipment volume by brand and heated tobacco units shipment volume are shown in the table below:

PMI Shipment Volume by Brand (Million Units)

Second-Quarter

Third-Quarter

2021 2020 Change

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Lark 4,070 3,846 5.8 %

Sampoerna Hijau 2,029 1,566 29.5 %

Next 2,388 2,327 2.7 %

Others 14,748 17,147 (14.0) %

2 unchanged sentences

Total Cigarettes and Heated Tobacco Units 188,332 184,431 2.1 %

Sampoerna A includes Sampoerna ;

Lark includes Lark Harmony ;

Next includes Next Dubliss ;

Philip Morris includes Philip Morris/Dubliss ;

and Lark includes Lark Harmony

and Sampoerna A includes Sampoerna .

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Italy), Eastern Europe (notably Russia) and Japan.

Our cigarette shipment volume of the following brands increased:

• Marlboro, mainly driven by Italy, PMI Duty Free, Spain and Turkey, partly offset by the GCC and Japan;

• Chesterfield , primarily driven by Russia, partly offset by Saudi Arabia;

• Marlboro, mainly driven by PMI Duty Free, Russia and Turkey, partly offset by Italy and the Philippines;

• Chesterfield , primarily driven by Russia;

• Parliament , mainly driven by Saudi Arabia and Turkey;

• Sampoerna A in Indonesia, primarily driven by premium A Mild ;

• Sampoerna Hijau in Indonesia.

• Lark , mainly driven by Japan;

• Next , primarily driven by Russia.

Our cigarette shipment volume of the following brands decreased:

• L&M , notably due to Germany, Saudi Arabia and Turkey, partly offset by North Africa, Spain and Thailand;

• Philip Morris , primarily due to Russia;

• Dji Sam Soe in Indonesia, mainly due to Dji Sam Soe Magnum Mild ;

• Bond Street , primarily due to Russia;

• Lark , mainly due to Japan;

• L&M , primarily due to Egypt, Poland, Russia, Spain, Thailand and Turkey;

• Philip Morris , mainly due to Russia, partly offset by Japan;

• Dji Sam Soe in Indonesia, primarily due to Dji Sam Soe Magnum Mild ;

• Bond Street , mainly due to Russia;

• "Others," primarily due to:

mid-price Fortune (Philippines) and Sampoerna U (Indonesia).

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Italy), Eastern Europe (notably Russia and Ukraine) and Japan.

International Share of Market (excluding China and the United States)

Our total international market share (excluding China and the United States) decreased by 0.8 points to 27.3%, reflecting:

• Total international market share for cigarettes of 23.8%, down by 1.3 points;

Our total international market share (excluding China and the United States) was flat at 28.0%, reflecting:

• Total international market share for heated tobacco units of 3.6%, up by 0.6 points;

Our total international cigarette sales volume as a percentage of total industry cigarette sales volume was down by 1.1 points to 24.9%, mainly reflecting:

lower cigarette market share and/or an unfavorable geographic mix impact, notably in France, Germany, Japan, the Philippines and Russia, partly offset by Indonesia, PMI Duty Free and Turkey.

• Total international market share for cigarettes of 24.4%, down by 0.6 points.

Our total international cigarette sales volume as a percentage of total industry cigarette sales volume was down by 0.4 points to 25.6%, mainly reflecting lower cigarette market share and/or an unfavorable geographic mix impact, notably in Egypt, France, Japan, the Philippines, Russia and Ukraine, partly offset by Indonesia, PMI Duty-Free and Turkey.

Financial Summary

Financial Summary -

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 8,122 $ 7,446 9.1 % 7.6 % $ 676 $ 107 $ 2 $ 158 $ 439 $ (30)

$ 7,594 $ 6,651 14.2 % 7.9 % $ 943 $ 420 $ 226 $ 575 $ (278)

Cost of Sales (2,596) (2,416) (7.5) % (5.8) % (180) (40) (1) — (211) 72

3 unchanged sentences

Operating Income $ 3,455 $ 3,243 6.5 % 4.5 % $ 212 $ 65 $ — $ 158 $ 228 $ (239)

(1) Cost/Other variance includes a $246 million reduction in net revenues in 2021 related to the Saudi Arabia customs assessments.

(1) Cost/Other variance includes charges in 2021 of $43 million for asset impairment and exit costs.

Cost/Other variance in 2021 also includes the pre-tax charge of $51 million associated with the asset acquisition cost of OtiTopic, Inc.

For more details, see Note 16.

Contingencies .

(2) Cost/Other variance includes charges in 2021 and 2020 of $79 million and $71 million, respectively, for asset impairment and exit costs.

Asset Impairment and Exit Costs and Note 17.

Acquisitions .

During the quarter, net revenues, excluding favorable currency, increased by 7.6%, mainly reflecting:

and a favorable pricing variance (notably driven by Germany, Japan, the Philippines, Russia and Turkey, partly offset by Indonesia);

partly offset by the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Cost/Other".

Excluding the unfavorable impact of the Saudi Arabia customs assessments of $246 million, net revenues increased by 17.9%, or 11.6% excluding favorable currency of $420 million.

The favorable currency in net revenues was due primarily to the Euro, Indonesian rupiah and Mexican pesos, partially offset by the Turkish lira.

and a favorable pricing variance (notably driven by Japan, the Philippines, Russia and Turkey, partly offset by Indonesia, Poland and Ukraine).

The favorable currency in net revenues was due primarily to the Euro and Mexican pesos, partially offset by the Japanese yen and Turkish lira.

Net revenues include $2.3 billion in 2021 and $1.7 billion in 2020 related to the sale of RRPs.

Operating income, excluding favorable currency, increased by 4.5%, primarily reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume (reflecting the same geographies as for net revenues noted above);

favorable volume/mix, primarily driven by higher heated tobacco unit volume, partly offset by lower cigarette volume and unfavorable cigarette mix (each mainly reflecting the same geographies as for net revenues noted above);

a favorable pricing variance;

and lower manufacturing costs (driven by productivity gains related to reduced-risk and combustible products);

partly offset by the unfavorable impact of the Saudi Arabia customs assessments (as noted above for net revenues);

and higher marketing, administration and research costs.

Interest expense, net, of $161 million was essentially flat.

and lower manufacturing costs (driven by productivity gains related to reduced-risk products);

partly offset by higher marketing, administration and research costs (due mainly to investments behind reduced-risk products, asset acquisition costs related to OtiTopic, Inc.

and higher asset impairment and exit costs due to organizational design optimization and product distribution restructuring in South Korea).

Interest expense, net, of $154 million decreased by $9 million (5.5)%.

Our effective tax rate increased by 1.5 percentage points to 22.4%.

The effective tax rate for the three months ended June 30, 2020 was favorably impacted by the corporate income tax rate reduction in Indonesia (enacted in the second quarter of 2020).

The effective tax rate for the three months ended September 30, 2020 was favorably impacted by a reduction of estimated U.S.

federal and state income tax liabilities for years 2018 and 2019 mostly due to final regulations under the GILTI provisions of the Internal Revenue Code ($93 million), partially offset by

a decrease in deductions related to foreign-derived intangible income for the years 2018 and 2019.

For further details, see Note 9.

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The Report also recommends governments both to rely on independent research and data on the public health impact of use of heated tobacco products, and to analyze tobacco industry funded data.

It is not possible to predict whether or to what extent measures recommended by the WHO study group will be implemented as the Report is not binding to the WHO Member States.

In August 2021, the WHO FCTC Secretariat published two reports on novel and emerging tobacco products to the ninth session of the CoP of the FCTC, one on the research and evidence on novel and emerging tobacco products, and the other on their recommended classification.

According to the provisional agenda, these reports should be presented for information and that related substantive discussions should be deferred to COP10, in 2023.

It is not possible to predict whether or to what extent measures recommended by the WHO's reports will be implemented as the reports are not binding to the WHO Member States.

We believe that when better alternatives to cigarettes exist, the discussion should not be whether these alternatives should be made available to the more than one billion people who smoke today, but how fast, and within what regulatory framework to maximize their adoption while minimizing unintended use.

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To date, plain packaging laws have been adopted in certain markets in all of our operating segments, including the key markets of Australia, France, Saudi Arabia and Turkey.

Some countries, such as Canada, New Zealand, Israel and Denmark, adopted plain packaging regulations that apply to all tobacco products, including RRPs.

Some countries, such as Canada, Denmark, Israel and New Zealand, adopted plain packaging regulations that apply to all tobacco products, including RRPs.

Other countries are also considering plain packaging legislation.

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Turkey banned menthol as of May 2020.

Broader ingredient bans have been adopted by Canada and Brazil.

Broader ingredient bans have been adopted by Brazil and Canada.

Bans on Display of Tobacco Products at Retail:

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The EU Single-Use Plastics Directive, which will require tobacco manufacturers and importers to cover the costs of public collection systems for tobacco product filters, under Extended Producer Responsibility ("EPR") schemes, entered into force on July 2, 2019.

To date, only a few member states transposed the Directive into national legislation.

To date, some member states transposed the Directive into national legislation.

We expect remaining member states to transpose the EU Single-Use Plastics Directive into national legislation including EPR schemes by January 2023.

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A number of jurisdictions are considering actions to prevent illicit trade.

In November 2012, the FCTC adopted the Protocol to Eliminate Illicit Trade in Tobacco Products (the “Protocol”), which includes supply chain control measures, such as licensing

of manufacturers and distributors, enforcement of these control measures in free trade zones, controls on duty free and Internet channels and the implementation of tracking and tracing technologies.

In November 2012, the FCTC adopted the Protocol to Eliminate Illicit Trade in Tobacco Products (the “Protocol”), which includes supply chain control measures, such as licensing of manufacturers and distributors, enforcement of these control measures in free trade zones, controls on duty free and Internet channels and the implementation of tracking and tracing technologies.

To date, 63 Parties, including the European Union, have ratified it.

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As a result of the combustion process, the smoker inhales various toxic substances.

In contrast, RRPs do not burn tobacco and produce an aerosol that contains significantly lower levels of harmful and potentially harmful constituents ("HPHCs") than found in cigarette smoke.

In contrast, RRPs do not burn tobacco and therefore contain significantly lower levels of harmful and potentially harmful constituents ("HPHCs") than found in cigarette smoke.

For adult smokers who would otherwise continue to smoke, we believe that RRPs, while not risk-free, offer a much better consumer choice.

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We aim to maintain our competitive position in the cigarette market through selective investment.

As a leading international cigarette manufacturer, we will continue to accelerate this transformation by using our regulatory and commercial expertise and extensive commercial and distribution infrastructure as an effective platform for the commercialization of our RRPs and communication with adult smokers and trade partners about the benefits of switching to our RRPs.

As a leading international cigarette manufacturer, we will continue to accelerate this

transformation by using our regulatory and commercial expertise and extensive commercial and distribution infrastructure as an effective platform for the commercialization of our RRPs and communication with adult smokers and trade partners about the benefits of switching to our RRPs.

While seeking to remain competitive in the cigarette market, we are judiciously reallocating resources from cigarettes to RRPs and are streamlining our cigarette portfolio.

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We conduct rigorous scientific assessments of our RRP platforms to substantiate that they reduce exposure to HPHCs and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking.

We draw upon a team of expert scientists and engineers from a broad spectrum of scientific

disciplines and our extensive learnings of adult consumer preferences to develop and assess our RRPs.

We draw upon a team of expert scientists and engineers from a broad spectrum of scientific disciplines and our extensive learnings of adult consumer preferences to develop and assess our RRPs.

Our efforts are guided by the following key objectives:

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Our RRP Platforms:

Our product development is based on the elimination of combustion via tobacco heating and other innovative systems for aerosol generation, which we believe is the most promising path to providing a better consumer choice for those who would otherwise continue to smoke.

Our product development is based on the elimination of combustion via tobacco heating and other innovative systems, which we believe are the most promising path to providing a better consumer choice for those who would otherwise continue to smoke.

We recognize that no single product will appeal to all adult smokers.

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We shared the results with the FDA in August 2018.

In addition to the original version of Platform 1 which relies on a heating technology using a blade, a new version of Platform 1 is now available using induction.

All studies referenced above were conducted with the blade version of Platform 1.

There is full comparability between the versions, therefore the data from these studies remain valid.

Platform 2 uses a pressed carbon heat source which, when ignited, generates a nicotine-containing aerosol by heating tobacco.

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In February 2020, we completed a one-month product use and adaptation study in adult smokers for the product variant without electronics.

The results of the study indicated that while during the study period, the adult smokers did not fully switch from smoking cigarettes to this Platform 3 product, on average, they used this product on a daily basis and significantly reduced their daily consumption of cigarettes.

The results of the study indicated that while during the study period,

the adult smokers did not fully switch from smoking cigarettes to this Platform 3 product, on average, they used this product on a daily basis and significantly reduced their daily consumption of cigarettes.

We are working on product modifications to enable switching by those adult smokers who are looking for better alternatives to cigarettes.

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In March 2019, a six-month pre-clinical study in mice evaluating the impact of e-cigarette vapor on the risks of pulmonary and cardiovascular disease compared to cigarette smoke was completed;

this study did

not pertain to a specific product.

this study did not pertain to a specific product.

The study demonstrated that e-cigarette vapors induce significantly lower biological responses associated with cardiovascular and pulmonary diseases compared with cigarette smoke.

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During the COVID-19 pandemic, we accelerated our investments in, and pivot to, digital consumer engagement.

As of September 30, 2021, PMI's smoke-free products are available for sale in 70 markets in key cities or nationwide.

In 2014, we introduced our Platform 1 product in pilot city launches in Nagoya, Japan, and in Milan, Italy.

Since then, we have continuously expanded our commercialization activities.

As of June 30, 2021, PMI's smoke-free products are available for sale in 67 markets in key cities or nationwide.

We believe that only a very small percentage of adult smokers who convert to our Platform 1 product switch back to cigarettes.

1 unchanged sentence

An adequate supply chain for our RRP portfolio, including the supply of electronic devices, is important to our business.

We work with three electronics manufacturing service providers for the supply of our Platform 1 and Platform 4 devices and a small number of other providers for other products in our RRP portfolio and related accessories.

We work with four electronics manufacturing service providers for the supply of our Platform 1 and Platform 4 devices and a small number of other providers for other products in our RRP portfolio and related accessories.

Due to the COVID-19 pandemic, the operations of our two main electronic manufacturing service providers were temporarily suspended at different times.

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For details on the impact of COVID-19 on our production and supply chain, see the " Executive Summary " section of this MD&A.

In addition, we are also exposed to a world-wide shortage of semiconductors, which shortage continues to put constraints on our device supplies for RRPs.

While the overall impact of this shortage remains manageable, we have adjusted our device assortments to limit the effect on consumer availability of our RRPs.

In addition, we are also exposed to a world-wide shortage of semiconductors, which continues to put constraints on our device supplies for RRPs.

The overall impact of this shortage remains manageable, and we have adjusted our device assortments to limit the effect on consumer availability of our RRPs.

We discuss product warranties in more detail in Note 14.

2 unchanged sentences

Product quality may affect consumer acceptance of our RRPs.

Our commercialization efforts for the other RRP platforms are as follows:

• We started commercializing an improved version of our IQOS MESH product in New Zealand, Italy, Finland and the Czech Republic under the IQOS VEEV or VEEV brand names.

Our commercialization efforts for the other PMI-developed RRP platforms are as follows:

• We started commercializing an improved version of our IQOS MESH product in New Zealand, Italy, Finland, the Czech Republic, Croatia and Canada under the IQOS VEEV or VEEV brand names.

We currently plan to launch this product in additional markets.

• With respect to TEEPS , our Platform 2 product, we are finalizing our improvements to this product and plan to conduct a consumer test in 2021.

• With respect to TEEPS , our Platform 2 product, we finalized our improvements to this product and will conduct a consumer test in the last quarter of 2021.

• Following the consumer test conducted in 2020 and the results of the product use and adaptation study described above, we are incorporating our learnings into our plans to improve our Platform 3 product.

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On March 18, 2021, we submitted to the FDA a supplemental MRTPA ("sMRTPA") for IQOS 3 requesting authorization to market this version of the device as a Modified Risk Tobacco Product with reduced exposure information like IQOS 2.4.

In June 2021, the FDA formally accepted and filed our sMRTPA for substantive scientific review and, already in May 2021, the

FDA opened the period for the public to provide comments on our application.

The public comment period will be closed on August 2, 2021.

In June 2021, the FDA formally accepted and filed our sMRTPA for substantive scientific review and, already in May 2021, the FDA opened the period for the public to provide comments on our application.

The public comment period, which was initially scheduled to be closed on August 2, 2021, was extended on July 20, 2021 to provide time for the public to review application materials that were not previously posted by FDA.

At this time there is no deadline for public comments.

There are two types of MRTP orders the FDA may issue:

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In March 2020, we requested a clarification from the FDA regarding the applicability of its new health warning requirements to our heated tobacco units sold in the United States.

In June 2021, the FDA responded to our letter and requested additional information regarding the applicability of the cigarette health warnings rule to the IQOS System and HeatSticks .

Philip Morris Products S.A.

is committed to providing adult consumers of tobacco products with complete, accurate and non-misleading information regarding the health risks associated with the use of the IQOS System and HeatSticks .

We are currently working on a submission to share our views on the applicability of new health warnings to our products.

In the U.S., tobacco and nicotine-containing products that were not commercially marketed as of February 15, 2007 are subject to review and authorization by the FDA.

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The FDA announced on September 9, 2020 that it will prioritize enforcement against any tobacco and nicotine-containing product sold without a PMTA.

On October 5, 2021, FDA published its final PMTA rule in the Federal Register, which is effective November 4, 2021.

All future applications will have to comply with the requirements in the PMTA rule, which is substantially similar to the version of the final PMTA rule which was posted on Advanced Federal Register on January 19, 2021.

FDA actions may influence the regulatory approach of other governments.

On September 29, 2021, the International Trade Commission ("ITC") issued its Final Determination ("FD"), Limited Exclusion Order ("LEO") and Cease and Desist Order ("CDO").

The ITC upheld the finding of infringement in the ID and found a subsequent violation.

The ITC issued a LEO prohibiting the importation of infringing tobacco heating articles and components thereof and cease and desist orders against Philip Morris USA, Inc.

and Altria Client Services, LLC.

The case now moves to a 60-day Presidential review period.

We will appeal the patent issues at the appropriate time.

Furthermore, lawsuits based on the

same patent families have been repeatedly and universally rejected in European courts and the European Patent Office.

The decision has no bearing outside the United States.

Until recently, there were no countries with specific product standards for heat-not-burn products.

Currently, national standards setting minimum quality and safety requirements for such products have been adopted in several countries with technical heat-not-burn specifications and/or methods for demonstrating the absence of combustion.

They are mandatory in Egypt, Jordan, Saudi Arabia, Tunisia, the UAE and Uzbekistan, and voluntary in the U.K., Russia, Ukraine, Kazakhstan, Kyrgyzstan, Tajikistan, Vietnam, Indonesia and Costa Rica.

They are mandatory in Egypt, Jordan, Saudi Arabia, Tunisia, the UAE and Uzbekistan, and voluntary in the Armenia, Costa Rica, Indonesia, Kazakhstan, Kyrgyzstan, Russia, Tajikistan, Vietnam, the U.K.

In Japan, a voluntary standard sets minimum safety requirements for tobacco heating devices.

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(“Altria”) setting out terms on how the parties would collaborate to develop and commercialize e-vapor products and commercialize two of our RRPs in the U.S.

In late 2018, Altria announced that it will participate in the e-vapor category only through another e-vapor company in which Altria acquired a minority interest.

In late 2018, Altria announced that it will participate in the e-vapor category only

through another e-vapor company in which Altria acquired a minority interest.

In September 2019, Altria's subsidiary, Philip Morris USA Inc.

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From time to time, we are subject to governmental investigations on a range of matters, including tax, customs, antitrust, advertising, and labor practices.

We describe certain matters pending in Thailand, Russia and South Korea in Note 8.

We describe certain matters pending in South Korea and Thailand in Note 8.

Contingencies .

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The WTO panel decision, which was upheld by the WTO Appellate Body, concluded that Thailand had no basis to find that PM Thailand's declared customs values and taxes paid were too low, as alleged by the Department of Special Investigations of the government of Thailand ("DSI") in 2009.

also created obligations for Thailand to revise its laws, regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports.

The decision also created obligations for Thailand to revise its laws, regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports.

Thailand agreed in September 2011 to fully comply with the decision by October 2012.

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The Public Prosecutor alleges that the individuals involved promised certain personal favors to government officials from January to July of 2018 in exchange for favorable treatment for PM Italia, and that PM Italia lacked appropriate organizational controls to prevent the alleged actions by the individuals.

In September 2020, the Public Prosecutor referred the matter to trial.

On May 11, 2021, a preliminary hearing judge referred all charges to trial set to begin September 22, 2021.

At the first trial hearing held on September 22, 2021, BAT filed a civil claim against PM Italia claiming vicarious liability for any wrongdoing of its former or current employees.

BAT claims EUR 50 million in damages.

The court admitted the claim as a matter of course and issued summons for PM Italia to appear as civil party in the case.

The next trial hearing is scheduled for December 15, 2021.

PM Italia believes the charges brought against it by the Public Prosecutor are without merit and will defend them vigorously.

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Acquisitions to our condensed consolidated financial statements.

On July 9, 2021, PMI announced that it agreed with the board of Vectura Group plc (“Vectura”) on the terms of an all-cash, recommended offer to acquire Vectura, a U.K.based company, for an enterprise value of GBP 852 million (approximately $1.2 billion, at the then-prevailing exchange rate).

Under the terms of the acquisition, Vectura shareholders would be entitled to receive 150 pence per share, a 46% premium to the ex-dividend closing price per Vectura share of 103 pence on May 25, 2021.

Vectura is a provider of innovative inhaled drug delivery solutions that enable partners to bring their medicines to patients.

The company has thirteen key inhaled and eleven non-inhaled products marketed by major global pharmaceutical partners, as well as a diverse portfolio of partnerships for drugs in clinical development.

Upon the completion of the acquisition, Vectura will become a wholly owned subsidiary of PMI.

PMI will fund the transaction with existing cash and expects it to close in the second half of 2021, subject to a shareholder vote and approval by the appropriate regulatory authorities.

PMI expects the impact of the acquisition on its full-year 2021 results of operations to be immaterial.

Fertin Pharma

On July 1, 2021, PMI announced that it entered into an agreement to acquire Fertin Pharma A/S (“Fertin Pharma”), a leading developer and manufacturer of innovative pharmaceutical and well-being products based on oral and intra-oral delivery systems, for an enterprise value of DKK 5.1 billion (approximately $820 million, at the then-prevailing exchange rate).

Fertin Pharma, a Danish based company, is privately held with more than 850 employees and operations in Denmark, Canada, and India.

Fertin Pharma is currently owned by the global investment organization EQT and Bagger-Sørensen & Co.

Upon the completion of the acquisition, Fertin Pharma will become a wholly owned subsidiary of PMI.

PMI will fund the transaction with existing cash and expects it to close in the fourth quarter of 2021, subject to approval by the appropriate regulatory authorities.

PMI expects the impact of the acquisition on its full-year 2021 results of operations to be immaterial.

In January 2020, PMI announced a global collaboration agreement with the leading tobacco and nicotine company in South Korea, KT&G, to commercialize KT&G’s smoke-free products outside of the country.

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PMI is also subject to various Trade Sanctions imposed by the EU and other jurisdictions ("Trade Sanctions").

We comply fully with these Trade Sanctions.

fully with these Trade Sanctions.

The EU imposed new sanctions regarding the Republic of Belarus ("Belarus") on June 21, 2021, including the designation of additional EU sanctions targets (individuals and legal entities) in Belarus.

On June 24, 2021, the EU council introduced new sectoral economic sanctions aimed at specific sectors of the Belarus economy, including restrictions of trade in goods used for the production or manufacturing of tobacco products.

Subsequent to the EU’s sanctions concerning Belarus, six non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Montenegro, and Albania) also announced that they have “aligned themselves” with the EU individual sanctions of June 21 with immediate effect.

On July 6, 2021, Switzerland amended its ordinance to expand its sanctions against Belarusian individuals and legal entities starting from July 7, 2021, in a scope similar to the EU individual sanctions of June 21, 2021.

On June 24, 2021, the EU council introduced additional sectoral economic sanctions aimed at specific sectors of the Belarus economy, including restrictions on the trade of goods used for the production or manufacture of tobacco products.

Subsequently, six non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Montenegro, and Albania) announced that they “aligned themselves” with the EU sanctions of June 21.

On July 6, 2021, Switzerland imposed sanctions on Belarusian individuals and legal entities effective July 7, 2021.

The Swiss sanctions are similar in scope to the EU sanctions of June 21, 2021.

Further, on August 9, 2021, the U.K.

introduced sectoral economic sanctions similar in scope to the EU sectoral sanctions of June 24, 2021.

Also on August 9, 2021, the U.S.

imposed blocking sanctions on certain individuals and entities pursuant to an Executive Order adding them to OFAC’s List of Specially Designated Nationals and Blocked Persons (the "SDN List").

The Executive Order expanded the bases for the imposition of sanctions, including, among others, by authorizing the imposition by OFAC of blocking sanctions on persons operating in the tobacco sector of the Belarus economy, as well as for providing material support or assistance to any SDN.

PMI complies with all applicable laws and regulations, including sanctions, in the markets where it operates.

We have taken appropriate actions in response to the latest sanctions to ensure full compliance with the relevant restrictions.

Operating Results – Three Months and Six Months Ended June 30, 2021

The following discussion compares operating results within each of our operating segments for the three months and six months ended June 30, 2021, with the three months and six months ended June 30, 2020.

Operating Results – Three Months and Nine Months Ended September 30, 2021

The following discussion compares operating results within each of our geographical segments and Other category for the three months and nine months ended September 30, 2021, with the three months and nine months ended September 30, 2020.

Unless otherwise stated, references to total industry, total market, our shipment volume and our market share performance reflect cigarettes and heated tobacco units.

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Financial Summary -

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

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2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

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Operating Income $ 1,680 $ 1,588 5.8 % 0.8 % $ 92 $ 79 $ — $ (5) $ 102 $ (84)

For the three months ended June 30, 2021, net revenues, excluding favorable currency, increased by 15.6%, reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume (notably in Italy and Poland), partly offset by unfavorable cigarette volume/mix (notably unfavorable volume/mix in Germany, partly offset by higher volume in Italy and Spain);

and a favorable pricing variance (driven by higher combustible pricing, particularly in Germany).

For the three months ended September 30, 2021, net revenues, excluding favorable currency, increased by 3.9%, reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume (notably in Germany, Hungary, Italy and Poland), partly offset by lower cigarette volume (notably in France, Germany and Italy) and unfavorable cigarette mix (primarily in Germany).

Pricing variance was slightly unfavorable, reflecting lower pricing for reduced-risk products (notably for heated tobacco units in Poland and devices in Germany and Italy), partly offset by higher combustible pricing (notably in Germany, partially offset by Poland).

Operating income, excluding favorable currency, increased by 0.8%, primarily reflecting:

favorable volume/mix, driven by the same factors as for net revenues noted above;

lower manufacturing costs (driven mainly by combustible products);

and a favorable pricing variance;

and lower manufacturing costs;

partly offset by higher marketing, administration and research costs.

Financial Summary -

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

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2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

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Operating Income $ 4,811 $ 3,924 22.6 % 12.1 % $ 887 $ 413 $ — $ 67 $ 507 $ (100)

For the six months ended June 30, 2021, net revenues, excluding favorable currency, increased by 10.5%, reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume (notably in Germany, Italy and Poland), partly offset by lower cigarette volume (notably in the Czech Republic, France and Germany) and unfavorable cigarette mix (particularly in Germany);

and a favorable pricing variance (driven by higher combustible pricing, primarily in Germany, partly offset by Poland).

For the nine months ended September 30, 2021, net revenues, excluding favorable currency, increased by 8.0%, reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume (notably in Germany, Hungary, Italy and Poland), partly offset by lower cigarette volume (notably in the Czech Republic, France and Germany) and unfavorable cigarette mix (primarily in Germany and Poland);

and a favorable pricing variance, driven by higher combustible pricing (mainly in Germany and Portugal, partly offset by France and Poland) and higher heated tobacco unit pricing (notably in the Czech Republic, partially offset by Poland), partly offset by lower device pricing (notably in Germany and Italy).

Operating income, excluding favorable currency, increased by 12.1%, primarily reflecting:

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and a favorable pricing variance;

partly offset by higher marketing, administration and research costs.

partly offset by higher marketing, administration and research costs (including higher asset impairment and exit costs, mainly related to organizational design optimization).

European Union - Total Market, PMI Shipment Volume and Market Share Commentaries

Total market and market share performance are shown in the table below:

European Union Key Data Second-Quarter Six Months Year-to-Date

European Union Key Data Third-Quarter Nine Months Year-to-Date

Change Change

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HEETS includes HEETS Dimensions .

In the second quarter, the estimated total market in the EU increased by 4.8% to 121.6 billion units, mainly driven by:

• Denmark, up by +100%.

Excluding the net favorable impact of estimated trade inventory movements, the total estimated market was down by 16.9%, primarily reflecting the impact of excise tax-driven price increases;

• Italy, up by 9.3%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures;

• Poland, up by 17.6%, primarily reflecting the impact on adult smoker average daily consumption and border sales of the easing of pandemic-related measures, as well as a lower prevalence of illicit trade;

• Spain, up by 8.9%, or by 5.2% excluding the net favorable impact of estimated trade inventory movements, mainly reflecting the impact on in-bound tourism and border sales of the easing of pandemic-related measures;

In the third quarter, the estimated total market in the EU decreased by 0.1% to 132.4 billion units, mainly due to:

• Czech Republic, down by 9.0%, primarily reflecting the impact of excise tax-driven price increases;

• France, down by 8.0%, mainly reflecting the impact of excise tax-driven price increases and higher cross-border (non-domestic) purchases due to the easing of pandemic-related measures;

partly offset by

• Germany, down by 7.2%, or by 1.9% excluding the net unfavorable impact of estimated trade inventory movements, primarily due to the impact of price increases.

For the six months year-to-date, the estimated total market in the EU increased by 1.1% to 228.1 billion units, primarily driven by:

• Italy, up by 5.4%, mainly reflecting the same factor as in the quarter;

• Poland, up by 8.3%, primarily reflecting the same factors as in the quarter;

• Poland, up by 3.4%, primarily reflecting the impact on adult smoker average daily consumption and border sales of the easing of pandemic-related measures;

• Romania, up by 7.1%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures, as well as increased in-bound travel.

For the nine months year-to-date, the estimated total market in the EU increased by 0.7% to 360.5 billion units, primarily driven by:

• Italy, up by 4.2%, notably reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures;

• Poland, up by 6.4%, primarily reflecting the impact on adult smoker average daily consumption and border sales of the easing of pandemic-related measures, as well as a lower prevalence of illicit trade;

partly offset by

• Czech Republic, down by 10.8%, mainly reflecting the impact, in the first quarter of 2021, of lower border sales due to pandemic-related lockdown measures;

• France, down by 5.1%, primarily reflecting the impact of excise tax-driven price increases and higher cross-border (non-domestic) purchases due to the easing of pandemic-related measures.

In the second quarter, our total shipment volume increased by 8.7% to 48.4 billion units, primarily driven by:

• Italy, up by 25.8%, or by 11.4% excluding the net favorable impact of estimated distributor inventory movements, mainly reflecting the higher total market and a higher market share driven by heated tobacco units;

• Spain, up by 51.5%, or by 8.3% excluding the net favorable impact of estimated distributor inventory movements, mainly reflecting the higher total market;

• Czech Republic, down by 10.1%, mainly reflecting the impact of excise tax-driven price increases and the impact, in the first quarter of 2021, of lower border sales due to pandemic-related lockdown measures;

• France, down by 6.1%, primarily reflecting the same factors as in the quarter.

In the third quarter, our total shipment volume decreased by 2.7% to 49.0 billion units, primarily due to:

• Czech Republic, down by 9.5%, mainly reflecting the lower total market;

• France, down by 10.8%, primarily reflecting the lower total market and a lower market share of cigarettes;

• Italy, down by 3.1%.

Excluding the net unfavorable impact of estimated distributor inventory movements, total in-market sales volume increased by 3.6%, reflecting a higher total market and a higher market share driven by heated tobacco units;

• Spain, down by 9.1%.

Excluding the net unfavorable impact of estimated distributor inventory movements, total in-market sales volume increased by 3.0%, mainly reflecting a higher total market;

partly offset by

• Germany, down by 7.4%, mainly reflecting the lower total market.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 3.2%.

For the six months year-to-date, our total shipment volume increased by 2.0% to 91.6 billion units, primarily driven by:

• Italy, up by 14.4%, or by 7.3% excluding the net favorable impact of estimated distributor inventory movements, mainly reflecting the same factors as in the quarter;

• Spain, up by 7.0%, or by 0.5% excluding the net favorable impact of estimated distributor inventory movements, primarily reflecting the same factor as in the quarter;

• Poland, up by 3.8%, mainly reflecting the higher total market.

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume decreased by 0.5%.

For the nine months year-to-date, our total shipment volume increased by 0.3% to 140.6 billion units, primarily driven by:

• Italy, up by 8.1%, mainly reflecting the higher total market and a higher market share driven by heated tobacco units;

partly offset by

• Czech Republic, down by 13.8%, mainly reflecting the lower total market and a lower market share (due to cigarettes, partly offset by heated tobacco units);

• France, down by 7.1%, mainly reflecting the lower total market and a lower market share of cigarettes.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 0.2%.

• Czech Republic, down by 12.2%, mainly reflecting the same factor as in the quarter;

• France, down by 8.3%, mainly reflecting the same factors as in the quarter.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume was essentially stable.

Eastern Europe:

Financial Summary -

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

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2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

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Operating Income $ 338 $ 245 38.0 % 25.7 % $ 93 $ 30 $ — $ 22 $ 27 $ 14

For the three months ended June 30, 2021, net revenues, excluding favorable currency, increased by 12.5%, reflecting:

For the three months ended September 30, 2021, net revenues, excluding unfavorable currency, increased by 6.1%, reflecting:

favorable volume/mix, driven by higher heated tobacco unit volume (primarily in Russia and Ukraine), partly offset by unfavorable cigarette volume/mix (primarily in Russia);

and a favorable pricing variance, mainly driven by higher combustible pricing (primarily in Kazakhstan, Russia and Ukraine).

Operating income, excluding unfavorable currency, increased by 32.7%, primarily reflecting:

and a favorable pricing variance, mainly driven by higher combustible pricing (notably in Russia), partly offset by lower heated tobacco unit pricing (primarily in Ukraine, partly offset by Russia).

Operating income, excluding favorable currency, increased by 25.7%, primarily reflecting:

favorable volume/mix, driven by the same factors as for net revenues noted above;

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Financial Summary -

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

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Operating Income $ 913 $ 610 49.7 % 50.0 % $ 303 $ (2) $ — $ 68 $ 140 $ 97

For the six months ended June 30, 2021, net revenues, excluding unfavorable currency, increased by 11.5%, reflecting:

favorable volume/mix, driven by higher heated tobacco unit volume (mainly in Russia and Ukraine), partly offset by unfavorable cigarette volume (primarily in Russia and Ukraine);

and a favorable pricing variance, mainly driven by higher combustible pricing (primarily in Kazakhstan, Russia and Ukraine).

For the nine months ended September 30, 2021, net revenues, excluding unfavorable currency, increased by 9.6%, reflecting:

favorable volume/mix, driven by higher heated tobacco unit volume (mainly in Russia and Ukraine), partly offset by unfavorable cigarette volume (primarily in Russia and Ukraine) and unfavorable cigarette mix (mainly in Russia);

and a favorable pricing variance, mainly driven by higher combustible pricing (primarily in Kazakhstan, Russia and Ukraine), partially offset by lower device pricing (mainly in Russia) and lower heated tobacco unit pricing (primarily in Ukraine, partly offset by Russia).

Operating income, excluding unfavorable currency, increased by 50.0%, primarily reflecting:

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lower manufacturing costs (mainly related to reduced-risk products, primarily in Russia);

a favorable pricing variance and lower marketing, administration and research costs.

and a favorable pricing variance.

Eastern Europe - Total Market, PMI Shipment Volume and Market Share Commentaries

In the second quarter, the estimated total market in Eastern Europe decreased, mainly due to:

• Russia, down by 2.7%, primarily reflecting the impact of excise tax-driven price increases, partly offset by the impact on adult smoker average daily consumption of the easing of pandemic-related measures;

• Ukraine, down by 3.7%, mainly reflecting the impact of excise tax-driven price increases and a higher prevalence of illicit trade, partly offset by the impact on adult smoker average daily consumption of the easing of pandemic-related measures.

For the six months year-to-date, the estimated total market in Eastern Europe decreased, notably due to:

• Ukraine, down by 9.5%, mainly reflecting the same factors as in the quarter;

partly offset by

In the third quarter, the estimated total market in Eastern Europe decreased, mainly due to:

• Russia, down by 0.9%, or by 2.5% excluding the net favorable impact of estimated trade inventory movements, primarily reflecting the impact of excise tax-driven price increases and a higher prevalence of illicit trade;

• Ukraine, down by 9.6%, mainly reflecting the impact of excise tax-driven price increases and a higher prevalence of illicit trade.

For the nine months year-to-date, the estimated total market in Eastern Europe decreased, primarily due to:

• Ukraine, down by 9.6%, mainly reflecting the impact of excise tax-driven price increases and a higher prevalence of illicit trade.

In the third quarter, our total shipment volume increased by 2.0% to 31.1 billion units, notably driven by:

• Russia, up by 0.7%.

Excluding the net favorable impact of estimated trade inventory movements, the total estimated market was down by 1.0%, primarily reflecting:

the impact of excise tax-driven price increases, partly offset by the impact on adult smoker average daily consumption of the easing of pandemic-related measures, as well as a lower estimated prevalence of illicit trade.

In the second quarter, our total shipment volume increased by 2.9% to 29.6 billion units, notably driven by:

• Ukraine, up by 8.8%, or by 5.0% excluding the net favorable impact of estimated distributor inventory movements, mainly reflecting a higher market share driven by heated tobacco units, partially offset by the lower total market;

Excluding the net favorable impact of estimated distributor inventory movements, our in-market sales decreased by 0.3%, reflecting the lower total market, partly offset by a higher market share driven by heated tobacco units;

• Southeast Europe, up by 15.5%, primarily reflecting a higher total market and a higher market share, driven by heated tobacco units and cigarettes,

partly offset by

• Russia, down by 1.7%.

Excluding the net favorable impact of estimated distributor inventory movements (primarily due to cigarettes), our in-market sales decreased by 6.0%, mainly reflecting a lower market share due to cigarettes and the lower total market.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume decreased by 0.8%.

For the six months year-to-date, our total shipment volume increased by 1.2% to 55.2 billion units, mainly driven by:

• Ukraine, down by 3.2%, mainly reflecting the lower total market, partly offset by a higher market share driven by heated tobacco units.

For the nine months year-to-date, our total shipment volume increased by 1.5% to 86.4 billion units, notably driven by:

• Russia, up by 0.9%.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume was down by 3.1%, primarily reflecting a lower market share due to cigarettes.

Excluding the net favorable impact of estimated distributor inventory movements, PMI’s total in-market sales volume was down by 2.1%, mainly reflecting a lower market share (due to cigarettes, partly offset by heated tobacco units);

• Southeast Europe, up by 8.0%, primarily reflecting a higher market share (driven by heated tobacco units and cigarettes) and a higher total market;

partly offset by

• Ukraine, down by 2.0%, mainly reflecting the lower total market, partly offset by a higher market share driven by heated tobacco units.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume decreased by 0.5%.

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Financial Summary -

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

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Operating Income $ 388 $ 261 48.7 % 59.8 % $ 127 $ (29) $ 64 $ 135 $ (43)

For the three months ended June 30, 2021, net revenues decreased by 20.5%, predominantly due to the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Cost/Other".

Excluding the unfavorable impact of the Saudi Arabia customs assessments and unfavorable currency, net revenues increased by 16.8%, primarily reflecting:

volume/mix, mainly driven by higher cigarette volume (primarily in PMI Duty Free, South Africa and Turkey, partly offset by the GCC), as well as higher heated tobacco unit volume (mainly in PMI Duty Free);

For the three months ended September 30, 2021, net revenues, excluding unfavorable currency, increased by 26.6%, primarily reflecting:

favorable volume/mix, mainly driven by higher cigarette volume (primarily in PMI Duty Free and Turkey, partly offset by North Africa), higher heated tobacco unit volume (mainly in PMI Duty Free) and favorable cigarette mix (notably in PMI Duty Free);

and a favorable pricing variance, driven by combustible pricing (mainly in Turkey);

partly offset by lower fees for certain distribution rights billed to customers in certain markets, shown in "Cost/Other".

Operating income decreased by 93.2%, predominantly due to the unfavorable impact of the Saudi Arabia customs assessments, as noted above for net revenues.

Excluding the unfavorable impact of the Saudi Arabia customs assessments and unfavorable currency, operating income increased by 22.8%, mainly reflecting:

favorable volume/mix, due to the same factors as for net revenues noted above;

and a favorable pricing variance;

partly offset by higher marketing, administration and research costs;

and lower fees for certain distribution rights, as noted above for net revenues.

Operating income, excluding unfavorable currency, increased by 59.8%, mainly reflecting:

favorable volume/mix, mainly driven by the same factors as for net revenues noted above;

a favorable pricing variance;

and lower manufacturing costs;

partly offset by lower fees for certain distribution rights, as noted above for net revenues;

and higher marketing, administration and research costs.

Financial Summary -

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

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2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

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Operating Income $ 739 $ 819 (9.8) % (0.7) % $ (80) $ (74) $ — $ 191 $ 70 $ (267)

For the six months ended June 30, 2021, net revenues decreased by 13.9%, predominantly due to the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Cost/Other".

For the nine months ended September 30, 2021, net revenues, excluding unfavorable currency, increased by 1.0%, despite the unfavorable impact of the Saudi Arabia customs assessments of $246 million, shown in "Cost/Other".

Excluding the unfavorable impact of the Saudi Arabia customs assessments and unfavorable currency, net revenues increased by 11.5%, primarily reflecting:

a favorable pricing variance, driven by combustible pricing (mainly in Egypt and Turkey);

partly offset by unfavorable volume/mix, mainly due to lower cigarette volume (primarily in Kuwait, North Africa and PMI Duty Free, partially offset by South Africa and Turkey), partly offset by favorable cigarette mix (primarily in PMI Duty Free, Saudi Arabia and Turkey).

Operating income decreased by 37.1%, predominantly due to the unfavorable impact of the Saudi Arabia customs assessments, as noted above for net revenues.

a favorable pricing variance, mainly driven by combustible pricing (mainly in Egypt and Turkey);

and favorable volume/mix, primarily driven by favorable cigarette mix (mainly in PMI Duty Free, Saudi Arabia and Turkey), higher heated tobacco unit volume (mainly in Egypt, Jordan and PMI Duty Free) and higher cigarette volume (primarily in PMI Duty Free and Turkey, partly offset by Kuwait and North Africa);

partially offset by lower fees for certain distribution rights billed to customers in certain markets, shown in "Cost/Other".

Operating income, excluding unfavorable currency, decreased by 0.7%, predominantly due to the unfavorable impact of the Saudi Arabia customs assessments, as noted above for net revenues.

Excluding the unfavorable impact of the Saudi Arabia customs assessments and unfavorable currency, operating income increased by 29.5%, mainly reflecting:

a favorable pricing variance;

and lower manufacturing costs;

partly offset by unfavorable volume/mix, due to the same factors as for net revenues noted above.

favorable volume/mix, driven by the same factors as for net revenues noted above;

and lower manufacturing costs (primarily related to combustible products);

partly offset by lower fees for certain distribution rights, as noted above for net revenues;

and higher marketing, administration and research costs.

Middle East & Africa - Total Market, PMI Shipment Volume and Market Share Commentaries

In the second quarter, the estimated total market in the Middle East & Africa increased, mainly driven by:

• Egypt, up by 43.9%, or by 35.6% excluding the net favorable impact of estimated trade inventory movements, primarily reflecting:

a favorable comparison due to pandemic-related supply-chain shortages involving competitors' products in the second quarter of 2020 and in-switching to cigarettes from other combustible tobacco products;

In the third quarter, the estimated total market in the Middle East & Africa increased, mainly driven by:

• International Duty Free, up by 15.4%, reflecting the impact of reduced government travel restrictions and increased passenger traffic in certain geographies;

• South Africa, reflecting a favorable comparison versus the second quarter of 2020, in which the total market was fully impacted by the pandemic-related ban on all tobacco sales from March 27, 2020, through August 17, 2020;

• Turkey, up by 7.7%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures.

For the six months year-to-date, the estimated total market in the Middle East & Africa increased, mainly driven by:

• Egypt, up by 22.9%, or by 17.8% excluding the net favorable impact of estimated trade inventory movements, primarily reflecting the same factors as in the quarter;

• South Africa, up by 45.6%, primarily reflecting a favorable comparison versus the second quarter of 2020, in which the total market was fully impacted by the pandemic-related ban on all tobacco sales from March 27, 2020, through August 17, 2020, partly offset by a higher estimated prevalence of illicit trade stemming from the aforementioned ban;

• Turkey, up by 2.8%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures, as well as a lower estimated prevalence of illicit trade related to cut tobacco (particularly in the first quarter of 2021);

• Turkey, up by 12.5%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures, coupled with increased in-bound tourism (particularly by Turkish expatriates);

partly offset by

• Tunisia, down by 30.1%, primarily reflecting an increased estimated prevalence of illicit trade (mainly due to market disruptions impacting product availability and the impact of price increases in July 2021).

For the nine months year-to-date, the estimated total market in the Middle East & Africa increased, mainly driven by:

• Egypt, up by 14.3%, primarily reflecting a favorable comparison due to pandemic-related supply chain shortages for competitors' products in 2020, as well as the favorable impact of adult smoker in-switching to cigarettes (mainly in the low-tax tier) from other combustible tobacco products;

• South Africa, up by 26.9%, mainly reflecting a favorable comparison versus the second and third quarters of 2020, in which the total market was impacted by the pandemic-related ban on all tobacco sales from March 27th through August 17th, partly offset by a higher estimated prevalence of illicit trade stemming from the ban;

• Turkey, up by 6.6%, primarily reflecting the same factors as for the quarter, partly offset by a higher estimated prevalence of illicit trade;

partly offset by

• International Duty Free, down by 17.2%, primarily reflecting the impact of government travel restrictions and reduced passenger traffic since the start of the pandemic in March 2020.

In the second quarter, our total shipment volume increased by 12.7% to 30.9 billion units, notably driven by:

• Egypt, up by 13.3%, primarily reflecting the higher total market, partly offset by a lower market share (due to an unfavorable comparison following pandemic-related supply-chain shortages involving competitors' products during the second quarter of 2020);

• PMI Duty Free, up by +100%, or by 89.3% excluding the net favorable impact of estimated distributor inventory movements, mainly reflecting the higher total market and a higher market share;

• Turkey, up by 16.1%, primarily reflecting a higher market share, driven by the growth of Marlboro and Parliament , as well as the higher total market;

In the third quarter, our total shipment volume increased by 15.0% to 35.7 billion units, notably driven by:

• PMI Duty Free, up by +100%, or by 43.8% excluding the net favorable impact of estimated distributor inventory movements, reflecting a higher market share and the higher total market;

• Turkey, up by 18.4%, primarily reflecting the higher total market and a higher market share, driven by adult smoker up-trading (mainly benefiting Marlboro and Parliament) ;

partly offset by

• Saudi Arabia, down by 27.1%, or by 5.7% excluding the net unfavorable impact of estimated distributor inventory movements, mainly reflecting a lower total market, partly offset by a higher market share of cigarettes (driven by Parliament ) and heated tobacco units.

For the six months year-to-date, our total shipment volume increased by 1.8% to 58.9 billion units, notably driven by:

• Turkey, up by 12.2%, mainly reflecting a higher market share (driven by Marlboro and Parliament ) and the higher total market;

• Egypt, down by 12.4%, primarily reflecting a lower market share mainly due to adult smoker down-trading to products in the low-tax tier.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 8.5%.

For the nine months year-to-date, our total shipment volume increased by 6.4% to 94.6 billion units, notably driven by:

• PMI Duty Free, up by 25.1%.

Excluding the net favorable impact of estimated distributor inventory movements (principally due to cigarettes), our in-market sales volume was down by 3.6%, primarily reflecting the lower total market, partly offset by a higher market share driven by Marlboro ;

• Turkey, up by 14.6%, mainly reflecting the same factors as in the quarter;

partly offset by

• PMI Duty Free, down by 30.3%, or by 23.9% excluding the net unfavorable impact of estimated distributor inventory movements (principally due to cigarettes), mainly reflecting the lower total market, partly offset by a higher market share.

• Egypt, down by 6.5%, mainly reflecting a lower market share (due primarily to the same factor as in the quarter), partly offset by the higher total market.

South & Southeast Asia:

Financial Summary -

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

1 unchanged sentence

Operating Income $ 348 $ 402 (13.4) % (14.4) % $ (54) $ 4 $ — $ 14 $ (42) $ (30)

For the three months ended June 30, 2021, net revenues, excluding favorable currency, increased by 10.0%, reflecting:

favorable volume/mix, due to higher cigarette volume (primarily in Indonesia, partly offset by the Philippines);

and a favorable pricing variance (driven by combustible pricing mainly in the Philippines, partly offset by Indonesia).

Operating income, excluding favorable currency, increased by 8.0%, primarily reflecting:

favorable volume/mix, due to the same factors as for net revenues noted above;

and a favorable pricing variance;

partly offset by higher marketing, administration and research costs (mainly related to combustible products in Indonesia and the Philippines).

For the three months ended September 30, 2021, net revenues, excluding favorable currency, decreased by 1.1%, reflecting:

unfavorable volume/mix, due to lower cigarette volume (primarily in the Philippines, partly offset by Indonesia);

partially offset by a favorable pricing variance, driven by combustible pricing (mainly in the Philippines, partly offset by Indonesia).

Operating income, excluding favorable currency, decreased by 14.4%, primarily reflecting:

unfavorable volume/mix, due to the same factors as for net revenues noted above;

and higher manufacturing costs;

partly offset by a favorable pricing variance.

Financial Summary -

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

1 unchanged sentence

Operating Income $ 1,208 $ 1,290 (6.4) % (9.1) % $ (82) $ 36 $ — $ (4) $ (81) $ (33)

For the six months ended June 30, 2021, net revenues, excluding favorable currency, decreased by 0.8%, reflecting:

an unfavorable pricing variance, due to Indonesia, partially offset by the Philippines.

Volume/mix was essentially stable, notably reflecting favorable cigarette mix (primarily in Indonesia and the Philippines), partly offset by lower cigarette volume (mainly in the Philippines, partially offset by Indonesia).

For the nine months ended September 30, 2021, net revenues, excluding favorable currency, decreased by 0.9%, reflecting:

unfavorable volume/mix, mainly due to lower cigarette volume (primarily the Philippines, partly offset by India and Indonesia), partially offset by favorable cigarette mix (mainly in Indonesia and the Philippines).

Pricing variance was slightly unfavorable, reflecting lower pricing for combustible products (notably in Indonesia, largely offset by the Philippines).

Operating income, excluding favorable currency, decreased by 9.1%, primarily reflecting:

unfavorable volume/mix, due mainly to lower cigarette volume (primarily in the Philippines, partially offset by Indonesia), partly offset by favorable cigarette mix (mainly in Indonesia and the Philippines);

and an unfavorable pricing variance.

unfavorable volume/mix, due to the same factors as for net revenues noted above;

and higher marketing, administration and research costs.

South & Southeast Asia - Total Market, PMI Shipment Volume and Market Share Commentaries

In the second quarter, the estimated total market in South & Southeast Asia increased, notably driven by:

• Bangladesh, up by 30.9%, primarily reflecting a favorable comparison versus the second quarter of 2020, during which pandemic-related restrictions impacted tobacco product availability;

• India, up by 35.7%, mainly reflecting a favorable comparison versus the second quarter of 2020, during which pandemic-related restrictions impacted the movement of certain products, including tobacco;

• Indonesia, up by 12.4%, mainly reflecting the growth of the tax-advantaged 'below tier one' segment and the impact on adult smoker average daily consumption of the easing of pandemic-related measures.

For the six months year-to-date, the estimated total market in South & Southeast Asia increased, mainly driven by:

In the third quarter, the estimated total market in South & Southeast Asia increased, mainly driven by:

• Bangladesh, up by 29.9%, primarily reflecting a favorable comparison versus the third quarter of 2020, during which pandemic-related restrictions impacted tobacco product availability;

• India, up by 8.3%, mainly reflecting a favorable comparison versus the third quarter of 2020, during which pandemic-related restrictions impacted the movement of certain products, including tobacco;

• Indonesia, up by 6.0%, primarily reflecting the growth of the tax-advantaged 'below tier one' segment and the impact on adult smoker consumption of the easing of pandemic-related measures compared to the prior year period;

• Pakistan, up by 29.3%, or by 14.1% excluding the net favorable impact of estimated trade inventory movements, notably reflecting a lower prevalence of illicit trade (partly due to pandemic-related supply disruptions for illicit products);

partly offset by:

• the Philippines, down by 17.7%, or by 8.7% excluding the net unfavorable impact of estimated trade inventory movements, primarily reflecting the impact of industry-wide price increases in the fourth quarter of 2020.

For the nine months year-to-date, the estimated total market in South & Southeast Asia increased, mainly driven by:

• Bangladesh, up by 13.6%, primarily reflecting the same factor as in the quarter;

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• Indonesia, up by 7.9%, primarily reflecting the same factors as in the quarter;

• Pakistan, up by 14.6%, or by 9.3% excluding the net favorable impact of estimated trade inventory movements, notably reflecting a lower prevalence of illicit trade (partly due to pandemic-related supply disruptions for illicit products);

• Pakistan, up by 18.9%, notably reflecting the same factor as in the quarter;

• Vietnam, up by 7.2%, mainly reflecting a lower prevalence of illicit trade due to pandemic-related supply disruptions for illicit products;

partly offset by:

• the Philippines, down by 9.0%, primarily reflecting the impact of industry-wide price increases in the fourth quarter of 2020.

In the second quarter, our total shipment volume increased by 6.0% to 35.4 billion units, notably driven by:

• Indonesia, up by 11.5%, primarily reflecting the higher total market, partly offset by a lower market share (mainly due to adult smoker down-trading to the 'below tier one' segment as a result of significantly lower retail prices, partly offset by share growth for our premium and hand-rolled kretek portfolio);

• Thailand, up by 28.0%, or by 12.6% excluding the net favorable impact of estimated distributor inventory movements, primarily due to a higher total market and a higher market share (driven by L&M 7.1 );

• the Philippines, down by 12.3%, primarily reflecting the same factor as in the quarter.

In the third quarter, our total shipment volume decreased by 4.3% to 35.7 billion units, mainly due to:

• the Philippines, down by 23.8%, primarily reflecting the lower total market and a lower market share (mainly due to mid-price Fortune, reflecting the impact of price increases in the fourth quarter of 2020, partly offset by Marlboro );

partly offset by:

• the Philippines, down by 12.0%, mainly reflecting a lower market share (primarily due to mid-price Fortune , reflecting the impact of price increases in the fourth quarter of 2020, partly offset by Marlboro ), as well as a lower total market.

For the six months year-to-date, our total shipment volume decreased by 0.9% to 70.3 billion units, notably due to:

• Indonesia, up by 5.1%, primarily reflecting the higher total market.

For the nine months year-to-date, our total shipment volume decreased by 2.1% to 105.9 billion units, notably due to:

• the Philippines, down by 20.3%, mainly reflecting the same factors as in the quarter;

partly offset by:

• Indonesia, up by 3.9%, primarily reflecting the same factors as in the quarter;

• Pakistan, up by 12.8%, mainly reflecting the higher total market;

• Thailand, up by 9.1%, primarily reflecting the same factors as in the quarter.

• Indonesia, up by 4.3%, primarily reflecting the higher total market, partly offset by a lower market share (mainly due to adult smoker down-trading to the 'below tier one' segment as a result of significantly lower retail prices, partly offset by share growth for PMI's premium and hand-rolled portfolio);

• Pakistan, up by 14.2%, mainly reflecting the higher total market, partly offset by a lower market share.

East Asia & Australia:

Financial Summary -

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

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Operating Income $ 631 $ 637 (0.9) % 2.7 % $ (6) $ (23) $ — $ 47 $ 3 $ (33)

For the three months ended June 30, 2021, net revenues, excluding favorable currency, increased by 3.1%, reflecting:

a favorable pricing variance, primarily driven by higher heated tobacco and combustible pricing in Japan;

and unfavorable volume/mix, mainly due to lower cigarette volume (primarily in Japan), partly offset by higher heated tobacco unit volume (predominantly in Japan).

For the three months ended September 30, 2021, net revenues, excluding unfavorable currency, increased by 12.7%, reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume and favorable device volume/mix (predominantly in Japan, driven by the launch of IQOS ILUMA ), partly offset by unfavorable cigarette mix (primarily in Japan) and lower cigarette volume (particularly in Australia, partly offset by Japan);

and a favorable pricing variance, primarily driven by higher heated tobacco, combustible and device pricing in Japan.

Operating income, excluding unfavorable currency, increased by 2.7%, mainly reflecting:

1 unchanged sentence

and lower manufacturing costs (primarily related to reduced-risk products in Japan);

partly offset by higher marketing, administration and research costs;

and unfavorable volume/mix, due to the same factors as for net revenues noted above.

partly offset by higher marketing, administration and research costs (notably due to the launch of IQOS ILUMA in Japan and higher asset impairment and exit costs, mainly related to product distribution restructuring in South Korea).

Volume/mix was slightly favorable, notably reflecting higher heated tobacco unit and cigarette volume in Japan, largely offset by lower cigarette volume in Australia and unfavorable cigarette mix in Japan.

Financial Summary -

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

1 unchanged sentence

Operating Income $ 2,041 $ 1,792 13.9 % 14.2 % $ 249 $ (6) $ — $ 240 $ 21 $ (6)

For the six months ended June 30, 2021, net revenues, excluding favorable currency, increased by 7.1%, mainly reflecting:

a favorable pricing variance, primarily driven by higher heated tobacco and combustible pricing in Japan.

Volume/mix was essentially stable, mainly reflecting:

lower cigarette volume (primarily in Japan and South Korea), unfavorable cigarette mix (mainly in Australia and Japan), lower device volume (primarily in Japan) and unfavorable heated tobacco unit mix in Japan, partly offset by higher heated tobacco unit volume in Japan.

Operating income, excluding favorable currency, increased by 20.6%, mainly reflecting:

For the nine months ended September 30, 2021, net revenues, excluding favorable currency, increased by 9.0%, mainly reflecting:

a favorable pricing variance, primarily driven by higher heated tobacco and combustible pricing in Japan, partly offset by lower combustible pricing in Australia;

and favorable volume/mix, mainly driven by higher heated tobacco unit volume and favorable device volume/mix in Japan (driven by the launch of IQOS ILUMA ), partly offset by lower cigarette volume (primarily in Australia, Japan and South Korea) and unfavorable cigarette mix (mainly in Australia and Japan).

Operating income, excluding unfavorable currency, increased by 14.2%, mainly reflecting:

a favorable pricing variance;

lower manufacturing costs (primarily related to reduced-risk products in Japan);

and favorable volume/mix, driven by higher heated tobacco unit volume in Japan, partly offset by lower cigarette volume (mainly in Japan and South Korea), unfavorable cigarette mix (primarily in Australia and Japan) and unfavorable heated tobacco unit mix in Japan;

partially offset by higher marketing, administration and research costs (mainly due to higher asset impairment and exit costs, primarily associated with product distribution restructuring in South Korea).

and favorable volume/mix, driven by higher heated tobacco unit volume in Japan, partly offset by lower cigarette volume (primarily in Australia, Japan and South Korea), unfavorable cigarette mix (mainly in Australia and Japan) and unfavorable heated tobacco unit mix in Japan;

partially offset by higher marketing, administration and research costs (notably reflecting the same factors as in the quarter).

East Asia & Australia - Total Market, PMI Shipment Volume and Market Share Commentaries

In the second quarter, the estimated total market in East Asia & Australia, excluding China, decreased, primarily due to:

• Australia, down by 7.8%, or by 12.5% excluding the net favorable impact of estimated trade inventory movements, mainly reflecting the impact of the ending of the pandemic-related wage subsidy by the government;

• South Korea, down by 1.6%, mainly reflecting the structural market trend.

For the six months year-to-date, the estimated total market in East Asia & Australia, excluding China, decreased, mainly due to:

• Japan, down by 4.2%, primarily reflecting the impact of excise tax-driven price increases.

In the second quarter, our total shipment volume decreased by 1.3% to 20.9 billion units, primarily due to:

• South Korea, down by 5.9%, mainly reflecting a lower market share (primarily due to the unfavorable impact of the growth of the cigarette new taste dimension segment, in which PMI has a relatively low share) and the lower total market.

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume was essentially stable.

For the six months year-to-date, our total shipment volume increased by 2.0% to 41.4 billion units, notably driven by:

• Japan, up by 3.9%, mainly reflecting a higher market share driven by heated tobacco units, partially offset by the lower total market;

In the third quarter, the estimated total market in East Asia & Australia, excluding China, decreased, primarily due to:

• Australia, down by 28.0%, or by 18.3% excluding the net unfavorable impact of estimated trade inventory movements, mainly reflecting the impact of the ending of the pandemic-related wage subsidy by the government, coupled with the impact of pandemic-related restrictions in the quarter;

• Japan, down by 2.8%, primarily reflecting the impact of the October 2020 excise tax-driven price increases;

• South Korea, down by 5.2%, or by 0.9% excluding the net unfavorable impact of estimated trade inventory movements, mainly reflecting the structural market trend;

• Taiwan, down by 10.8%, primarily reflecting impact of pandemic-related restrictions in the quarter.

For the nine months year-to-date, the estimated total market in East Asia & Australia, excluding China, decreased, mainly due to:

• Australia, down by 14.5%, primarily reflecting the same factors as in the quarter;

• Japan, down by 3.7%, mainly reflecting the same factor as in the quarter;

• South Korea, down by 1.4%, primarily reflecting the same factor as in the quarter, partly offset by the impact of pandemic-related subsidies on adult smoker average daily consumption.

In the third quarter, our total shipment volume increased by 6.0% to 20.6 billion units, mainly driven by:

• Japan, up by 14.6%, or by 1.0% excluding the net favorable impact of estimated distributor inventory movements, primarily reflecting a higher market share (driven by heated tobacco units), partly offset by the lower total market;

partly offset by

• South Korea, down by 5.0%, primarily reflecting a lower market share (due to the same factor as in the quarter).

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume was stable.

Latin America & Canada:

• South Korea, down by 5.9%, mainly reflecting the lower total market and a lower market share (due to cigarettes).

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume declined by 1.7%.

For the nine months year-to-date, our total shipment volume increased by 3.3% to 61.9 billion units, mainly driven by:

• Japan, up by 7.2%, or by 1.3% excluding the net favorable impact of estimated distributor inventory movements, primarily reflecting the same factors as in the quarter;

partly offset by

• South Korea, down by 5.3%, mainly reflecting the same factors as in the quarter.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume declined by 0.6%.

Financial Summary -

Quarters Ended June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

1 unchanged sentence

Operating Income $ 121 $ 110 10.0 % 6.4 % $ 11 $ 4 $ — $ 16 $ 3 $ (12)

For the three months ended June 30, 2021, net revenues, excluding favorable currency, increased by 9.0%, reflecting:

favorable volume/mix, mainly driven by higher cigarette volume (primarily in Mexico);

and a favorable pricing variance (driven by combustible products).

For the three months ended September 30, 2021, net revenues, excluding favorable currency, increased by 9.0%, reflecting:

favorable volume/mix, mainly driven by higher cigarette volume (primarily in Colombia and Mexico) and higher device volume (notably in Canada);

and a favorable pricing variance driven by combustible products (notably in Argentina and Mexico).

Operating income, excluding favorable currency, increased by 6.4%, primarily reflecting:

a favorable pricing variance;

and favorable volume/mix, due to the same factor as for net revenues noted above.

partly offset by higher manufacturing costs;

and higher marketing, administration and research costs.

Financial Summary -

Six Months Ended June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

1 unchanged sentence

2021 2020 Total Excl.

rency Price Vol/

rency Acqui-sitions Price Vol/

(in millions)

1 unchanged sentence

Operating Income $ 367 $ 328 11.9 % 8.2 % $ 39 $ 12 $ — $ 28 $ (3) $ 2

For the six months ended June 30, 2021, net revenues, excluding favorable currency, increased by 3.7%, mainly reflecting:

favorable volume/mix, primarily driven by higher cigarette volume (mainly in Brazil and Mexico);

For the nine months ended September 30, 2021, net revenues, excluding favorable currency, increased by 5.4%, mainly reflecting:

favorable volume/mix, primarily driven by higher cigarette volume (mainly in Brazil and Mexico) and higher device volume (notably in Canada);

and a favorable pricing variance, driven by higher combustible pricing (notably in Argentina and Colombia).

Operating income, excluding favorable currency, increased by 8.2%, primarily reflecting:

lower marketing, administration and research costs;

and a favorable pricing variance.

Latin America & Canada - Total Market, PMI Shipment Volume and Market Share Commentaries

In the second quarter, the estimated total market in Latin America & Canada increased, mainly driven by:

• Argentina, up by 5.1%, or by 12.2% excluding the net unfavorable impact of estimated trade inventory movements, primarily reflecting a lower estimated prevalence of illicit trade and a favorable comparison related to retail out-of-stock in the second quarter of 2020 (due to temporary factory shutdowns related to the pandemic), partly offset by the impact of price increases;

a favorable pricing variance;

and lower marketing, administration and research costs;

partly offset by higher manufacturing costs.

Americas - Total Market, PMI Shipment Volume and Market Share Commentaries

In the third quarter, the estimated total market in Americas decreased, notably due to:

• Argentina, down by 2.1%, primarily reflecting the impact of price increases;

• Canada, down by 12.7%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products;

partly offset by

• Colombia, up by 13.4%, primarily reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures.

For the nine months year-to-date, the estimated total market in Americas increased, notably driven by:

• Argentina, up by 7.5%, primarily reflecting a lower estimated prevalence of illicit trade and a favorable comparison related to retail out-of-stock in the second quarter of 2020 (due to temporary factory shutdowns related to the pandemic), partly offset by the impact of price increases;

• Brazil, up by 5.4%, mainly reflecting a lower estimated prevalence of illicit trade due to:

reduced price gaps with legal products and the impact of border restrictions imposed as a result of the pandemic;

• Mexico, up by 6.3%, primarily reflecting the impact on adult smoker consumption patterns of the easing of pandemic-related measures;

partly offset by

• Canada, down by 11.8%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products.

For the six months year-to-date, the estimated total market in Latin America & Canada increased, notably driven by:

• Argentina, up by 11.5%, primarily reflecting the same factors as in the quarter;

• Brazil, up by 8.5%, mainly reflecting the same factors as in the quarter;

• Mexico, up by 4.2%, primarily reflecting the same factors as in the quarter;

• Mexico, up by 3.0%, primarily reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures coupled with the impact of increased in-bound tourism;

partly offset by

• Canada, down by 8.5%, mainly reflecting the same factors as in the quarter.

In the second quarter, our total shipment volume increased by 3.2% to 15.4 billion units, mainly driven by:

• Brazil, up by 7.3%, primarily reflecting the higher total market;

• Mexico, up by 7.9%, mainly reflecting the higher total market and a higher market share (driven by Marlboro );

In the third quarter, our total shipment volume increased by 2.5% to 16.2 billion units, notably driven by:

• Colombia, up by 11.0%, primarily reflecting the higher total market;

• Mexico, up by 3.9%, mainly reflecting a higher market share driven by Marlboro .

partly offset by

• Argentina, down by 4.8%, mainly reflecting a lower market share (primarily due to adult smoker down-trading to ultra-low-price brands produced by local manufacturers).

For the six months year-to-date, our total shipment volume increased by 1.0% to 30.3 billion units, primarily driven by:

• Brazil, up by 8.5%, mainly reflecting the higher total market;

• Mexico, up by 3.9%, primarily reflecting the higher total market;

• Argentina, down by 2.5%, primarily reflecting the lower total market.

For the nine months year-to-date, our total shipment volume increased by 1.5% to 46.6 billion units, primarily driven by:

• Brazil, up by 6.4%, mainly reflecting the higher total market and a higher market share driven by Chesterfield ;

• Mexico, up by 3.9%, primarily reflecting the higher total market and a higher market share driven by Marlboro ;

partly offset by

• Argentina, down by 2.4%, mainly reflecting a lower market share (primarily due to the same factor as in the quarter).

• Argentina, down by 2.4%, mainly reflecting a lower market share (primarily due to adult smoker down-trading to ultra-low-price brands produced by local manufacturers).

As previously discussed in the Description of Our Company section of this MD&A, Other includes our third quarter 2021 acquisitions of Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

Business operations for the Other category are evaluated separately from the geographical segments.

Due to the timing of the Fertin Pharma and Vectura acquisitions, we did not record the immaterial results of operations from these two acquisitions in our condensed consolidated statements of earnings from the acquisition date through September 30, 2021.

For the three months and nine months ended September 30, 2021, we accounted for the OtiTopic, Inc.

transaction as an asset acquisition.

As a result, PMI recorded a pre-tax charge of $51 million to research and development costs within marketing, administration and research costs of the Other category.

For further details, see Note 7.

Segment Reporting and Note 17.

Acquisitions .

Financial Review

Cash Flow Highlights

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in millions) 2021 2020

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Net Cash Provided by Operating Activities

During the first six months of 2021, net cash provided by operating activities increased by $1.0 billion compared with the first six months of 2020.

During the first nine months of 2021, net cash provided by operating activities increased by $1.3 billion compared with the first nine months of 2020.

Excluding favorable currency movements of $0.8 billion, net cash provided by operating activities increased by $0.5 billion, due primarily to higher net earnings, partially offset by higher working capital requirements of $0.2 billion and higher pension plan contributions.

While the impact of the 2021 Saudi Arabia customs assessments reduced net earnings by $0.2 billion, there was no net impact on operating cash flows for the six months, as the change in the accrued liability offset the net earnings impact.

Excluding this impact, the higher working capital requirements in the first six months of 2021 as compared with the first six months of 2020 were primarily due to the timing of excise tax-paid inventory movements and excise tax payments, as well as lower usage of our factoring arrangements to sell trade receivables, partially offset by more cash provided by inventories primarily due to COVID-19 pandemic related build-up of inventory levels across our supply chain in 2020.

The higher working capital requirements in the first nine months of 2021 as compared with the first nine months of 2020 were primarily due to the timing of excise tax-paid inventory movements and excise tax payments, as well as lower usage of our factoring arrangements to sell trade receivables, partially offset by more cash provided by inventories primarily due to COVID-19 pandemic related build-up of inventory levels across our supply chain in 2020.

For further details on our factoring arrangements to sell trade receivables, see Note 13.

1 unchanged sentence

Net Cash Used in Investing Activities

During the first six months of 2021, net cash used in investing activities was essentially flat as compared to the first six months of 2020.

In May 2021, PMI acquired 100% of AG Snus Aktieselskab ("AG Snus"), a Danish based company, and its Swedish subsidiary Tobacco House of Sweden AB fully owned by AG Snus, which operates in the oral tobacco (i.e.

Snus) and modern oral (i.e.

Nicotine Pouches) product categories.

The purchase price was $27 million in cash, net of cash acquired.

For further details, see Note 17.

Acquisitions .

Capital expenditures during the first six months of 2021 was essentially flat as compared with the first six months of 2020.

During the first nine months of 2021, net cash used in investing activities increased by $1.5 billion as compared to the first nine months of 2020.

This increase was due to $1.9 billion of cash used in 2021 for our acquisitions, net of acquired cash, partially offset by favorable movements of $0.4 billion in cash collateral exchanged with financial institutions to secure derivatives designated as net investment hedges of Euro assets principally related to changes in exchange rates between the Euro and the U.S.

For further detail on our 2021 acquisitions and derivatives designated as net investment hedges, see Note 17.

Acquisitions and Note 5.

Financial Instruments.

Capital expenditures of $0.5 billion during the first nine months of 2021 were essentially flat as compared with the first nine months of 2020.

The 2021 capital expenditures were primarily related to our ongoing investments in RRPs.

1 unchanged sentence

Net Cash Used in Financing Activities

During the first six months of 2021, net cash used in financing activities increased by $0.6 billion compared to the first six months of 2020.

The change was due to the proceeds we received in 2020 from long-term U.S.

dollar debt issuances ($2.2 billion), partially offset by lower long-term debt repayments of $1.6 billion ($2.0 billion in 2021 compared with $3.6 billion in 2020).

During the first nine months of 2021, net cash used in financing activities increased by $0.1 billion compared to the first nine months of 2020.

Higher cash usage primarily reflected a dividend increase in the third quarter of 2020, share purchases under the new share repurchase program and net movements in debt, partially offset by other items.

Debt and Liquidity

4 unchanged sentences

Such agreements are collateralized with government or corporate securities held by a custodial bank and, at maturity, cash is paid back to PMI, and the collateral is returned to the bank.

For the six months ended June 30, 2021 and the full-year 2020, the activities for such reverse repurchase agreements were not material.

As previously disclosed in the “ Acquisitions and Other Business Arrangements ” section of this MD&A, on July 9, 2021, PMI announced that it agreed with the board of Vectura Group plc (“Vectura”) on the terms of an all-cash, recommended offer to acquire Vectura, a U.K.

based company, for an enterprise value of GBP 852 million (approximately $1.2 billion, at the then-prevailing exchange rate).

PMI will fund the transaction with existing cash.

In July 2021, in anticipation of this acquisition, PMI deposited $1.5 billion of existing cash (including a reserve for foreign exchange volatility) to a designated account operated solely for the purpose of funding this transaction.

This restricted cash of $1.5 billion will be included in other current assets in our consolidated balance sheets starting in July 2021 until the closing.

For the nine months ended September 30, 2021 and the full-year 2020, the activities for such reverse repurchase agreements were not material.

We utilize long-term and short-term debt financing, including a commercial paper program that is regularly used to finance ongoing liquidity requirements, as part of our overall cash management strategy.

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We expect that the combination of our long-term and short-term debt financing, the commercial paper program and the committed credit facilities, coupled with our operating cash flows, will enable us to meet our liquidity requirements.

In August 2021, we published a business transformation-linked financing framework (“Framework”), which integrates the company’s smoke-free transformation into its financing strategy.

The Framework outlines the guidelines that we will follow in issuing business transformation-linked financing instruments in the debt capital and loan markets, which may include public notes offerings, private placements, loans, and other relevant financing instruments.

Credit Ratings – The cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings.

At June 30, 2021, our credit ratings and outlook by major credit rating agencies were as follows:

At September 30, 2021, our credit ratings and outlook by major credit rating agencies were as follows:

Short-term Long-term Outlook

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Credit Facilities – On January 29, 2021, we entered into an agreement to amend and extend the term of our 364-day revolving credit facility from February 2, 2021, to February 1, 2022 in the amount of $1.8 billion.

At June 30, 2021, our committed credit facilities were as follows:

On January 29, 2021, we entered into an agreement, effective February 10, 2021, to amend and extend the term of its $2.0 billion multi-year revolving credit facility, for an additional year covering the period February 11, 2025 to February 10, 2026.

On September 29, 2021, we entered into a new $2.5 billion multi-year revolving credit facility, expiring on September 29, 2026.

This credit facility is our first financing instrument following the issuance of our Framework, and contains business transformation-linked pricing adjustments that may result in the reduction or increase in both the interest rate and commitment fee under the credit agreement if PMI achieves, or fails to achieve, certain specified targets based on its business transformation goals.

The new credit facility replaced the $3.5 billion multi-year revolving credit facility, which was terminated effective September 29, 2021.

We had no borrowings outstanding under the terminated facility, which was due to expire on October 1, 2022.

At September 30, 2021, our committed credit facilities were as follows:

(in billions)

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364-day revolving credit, expiring February 1, 2022

Multi-year revolving credit, expiring October 1, 2022 3.50

Multi-year revolving credit, expiring February 10, 2025 (a)

Multi-year revolving credit, expiring February 10, 2026 2.0

Multi-year revolving credit, expiring September 29, 2026 2.5

Total facilities

(a) On January 29, 2021, we entered into an agreement, effective February 10, 2021, to amend and extend the term of our multi-year revolving credit facility, for an additional year covering the period February 11, 2025 to February 10, 2026, in the amount of $1.86 billion.

Effective July 2, 2021, the total facility amount for this additional year is $1.95 billion.

At June 30, 2021, there were no borrowings under the committed credit facilities, and the entire committed amounts were available for borrowing.

At September 30, 2021, there were no borrowings under the committed credit facilities, and the entire committed amounts were available for borrowing.

Subject to market conditions, PMI currently expects to request a further extension of the terms of its 364-day revolving credit facility and its $2.0 billion multi-year revolving credit facility for an additional one-year period, in accordance with and subject to the terms and conditions of the relevant revolving credit facility agreement.

All banks participating in our committed credit facilities have an investment-grade long-term credit rating from the credit rating agencies.

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These facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral.

The $3.5 billion multi-year revolving credit facility in the table above requires us to maintain a ratio of consolidated earnings before interest, taxes, depreciation and amortization (“consolidated EBITDA”) to consolidated interest expense of not less than 3.5 to 1.0 on a rolling four-quarter basis.

At June 30, 2021, our ratio calculated in accordance with the agreement was 14.3 to 1.0.

We expect to continue to meet our covenants.

The terms “consolidated EBITDA” and “consolidated interest expense,” both of which include certain adjustments, are defined in the facility agreement previously filed with the U.S.

Securities and Exchange Commission.

In addition to the committed credit facilities discussed above, certain of our subsidiaries maintain short-term credit arrangements to meet their respective working capital needs.

These credit arrangements, which amounted to approximately $2.4 billion at June 30, 2021 and $2.7 billion at December 31, 2020, are for the sole use of our subsidiaries.

Borrowings under these arrangements and other bank loans amounted to $136 million at June 30, 2021, and $244 million at December 31, 2020.

These credit arrangements, which amounted to approximately $2.4 billion at September 30, 2021 and $2.7 billion at December 31, 2020, are for the sole use of our subsidiaries.

Borrowings under these arrangements and other bank loans amounted to $223 million at September 30, 2021, and $244 million at December 31, 2020.

Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S.

and in Europe having an aggregate issuance capacity of $8.0 billion.

At June 30, 2021 and December 31, 2020, we had no commercial paper outstanding.

The average commercial paper balance outstanding during the first six months of 2021 was $1.1 billion.

At September 30, 2021 and December 31, 2020, we had no commercial paper outstanding.

The average commercial paper balance outstanding during the first nine months of 2021 was $1.1 billion.

The average commercial paper balance outstanding during 2020 was $1.2 billion.

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Our operating cash flows were positively impacted by the amount of the trade receivables sold and derecognized from the condensed consolidated balance sheets, which remained outstanding with the unaffiliated financial institutions.

The trade receivables sold that remained outstanding under these arrangements as of June 30, 2021, and June 30, 2020 were $0.7 billion and $0.6 billion, respectively.

The trade receivables sold that remained outstanding under these arrangements as of September 30, 2021, and September 30, 2020 were $0.7 billion and $0.6 billion, respectively.

The net proceeds received are included in cash provided by operating activities in the condensed consolidated statements of cash flows.

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Sale of Accounts Receivable to our condensed consolidated financial statements.

Debt – Our total debt was $29.2 billion at June 30, 2021 and $31.5 billion at December 31, 2020.

Debt – Our total debt was $29.1 billion at September 30, 2021 and $31.5 billion at December 31, 2020.

On February 11, 2020, we filed a shelf registration statement with the U.S.

Securities and Exchange Commission, under which we may from time to time sell debt securities and/or warrants to purchase debt securities over a three-year period.

Guarantees – At June 30, 2021, we were contingently liable for guarantees of our own performance, of which $0.3 billion were related to our obligations under indemnity agreements to enable appeals of customs assessments against our distributors.

In July 2021, our obligations under those indemnity agreements were reduced to $0.1 billion.

Guarantees – At September 30, 2021, we have guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products.

There is no liability in the condensed consolidated financial statements associated with these guarantees.

These guarantees have not had, and are not expected to have, a significant impact on PMI’s liquidity.

In October 2020, we guaranteed an obligation for an equity method investee.

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Contingencies to our condensed consolidated financial statements.”

Additionally, we have other guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products.

There is no liability in the condensed consolidated financial statements associated with these guarantees.

These guarantees have not had, and are not expected to have, a significant impact on PMI’s liquidity.

Equity and Dividends

We discuss our stock awards as of June 30, 2021 in Note 2.

We discuss our stock awards as of September 30, 2021 in Note 2.

Stock Plans to our condensed consolidated financial statements.

During 2020 and the first six months of 2021, we did not repurchase any shares under a share repurchase program.

On June 11, 2021, our Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period that will commence in the third quarter of 2021.

Dividends paid in the first six months of 2021 were $3.8 billion.

On June 11, 2021, our Board of Directors authorized a new share repurchase program of up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period.

On July 22, 2021, we began repurchasing shares under this new share repurchase program.

From July 22, 2021 through September 30, 2021, we repurchased 0.9 million shares of our common stock at a cost of $94 million.

Dividends paid in the first nine months of 2021 were $5.6 billion.

During the third quarter of 2021, our Board of Directors approved a 4.2% increase in the quarterly dividend to $1.25 per common share.

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Consumption of tax-paid cigarettes continues to decline in many of our markets.

This decline is due to multiple factors, including increased taxes and pricing, governmental actions, the diminishing social acceptance of smoking and health concerns, continuing economic and geopolitical uncertainty, and the continuing prevalence of illicit products.

This decline is due to multiple factors, including increased taxes and pricing, governmental actions, the diminishing social acceptance of smoking and health concerns, competition, continuing economic and geopolitical uncertainty, and the continuing prevalence of illicit products.

These factors and their potential consequences are discussed more fully below and in the "Business Environment" section.

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subsidiaries.

Certain countries in which we operate have adopted or could institute currency exchange controls and other regulations that limit or prohibit our local subsidiaries' ability to convert local currency into U.S.

Certain countries in which we operate have adopted or could institute currency exchange controls and other regulations that

limit or prohibit our local subsidiaries' ability to convert local currency into U.S.

dollars or to make payments outside the country.

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In others, nationalization, terrorism, conflict and the threat of war may have a significant impact on the business environment.

Natural disasters, pandemics, economic, political, regulatory or other developments could disrupt our supply chain, manufacturing capabilities or distribution capabilities.

Natural disasters, pandemics, economic, political, regulatory or other developments could disrupt our supply chain, manufacturing capabilities or distribution capabilities, and our business continuity plans and other safeguards might not always be effective to fully mitigate their impact.

In addition, such developments could increase costs of our materials and operations and lead to loss of property or equipment that are critical to our business in certain markets and difficulty in staffing and managing our operations, all of which could reduce our volumes, revenues and net earnings.

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Our intellectual property rights are valuable assets, and their protection is important to our business.

If the steps we take to protect our intellectual property rights globally, including through a combination of trademark, design, patent and other intellectual property rights, are inadequate, or if others infringe or misappropriate our intellectual property rights, notwithstanding legal protection, our business could be adversely impacted.

If the steps we take to protect our intellectual property rights globally, including through a combination of trademark, design, patent, trade secrets and other intellectual property rights, are inadequate, or if others infringe or misappropriate our intellectual property rights, notwithstanding legal protection, our business could be adversely impacted.

Moreover, failing to manage our existing and/or future intellectual property may place us at a competitive disadvantage.

Intellectual property rights of third parties may limit our ability to commercialize our products or improve product quality in one or more markets.

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• anticipate and respond to new adult consumer trends;

• ensure that our products meet our quality standards;

• develop new products and markets and broaden brand portfolios;

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There is no assurance that we will be able to acquire attractive businesses or enter into strategic business relationships on favorable terms ahead of our competitors, or that such acquisitions or strategic business development relationships will be accretive to earnings or improve our competitive position.

In addition, we may not have a controlling

position in certain strategic investments or relationships, which could impact the extent to which the intended financial growth and other benefits from these investments or relationships may ultimately materialize.

In addition, we may not have a controlling position in certain strategic investments or relationships, which could impact the extent to which the intended financial growth and other benefits from these investments or relationships may ultimately materialize.

Our ability to achieve our strategic goals may be impaired if we fail to attract, motivate and retain the best global talent and effectively align our organizational design with the goals of our transformation.

To be successful, we must continue transforming our culture and ways of working, align our talent and organizational design with our increasingly complex business needs, and innovate and transform to a consumer-centric business.

We compete for talent, including in areas that are new to us, such as digital and technical solutions, with companies in the consumer products, technology and other sectors that enjoy greater societal acceptance.

We compete for talent, including in areas that are new to us, such as digital, information technology, life science and pharmaceutical, with companies in the consumer products, technology and other sectors that enjoy greater societal acceptance.

As a result, we may be unable to attract, motivate and retain the best global talent with the right degree of diversity, experience and skills to achieve our strategic goals.

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Risks Related to Sourcing of Materials, Products and Services

Use of third-party resources may negatively impact quality of our products and services, and we may be required to replace third-party contract manufacturers or service providers with our own resources.

We increasingly rely on third-party resources to manufacture some of our products and product parts (particularly, the electronic devices and accessories) and to provide services, including to support our finance and information technology processes.

Use of third-party resources may negatively impact quality and availability of our products and services, and we may be required to replace third-party contract manufacturers or service providers with our own resources.

We increasingly rely on third-party resources and their subcontractors/ suppliers to manufacture some of our products and product parts (particularly, the electronic devices and accessories) and to provide services, including to support our finance, commercialization and information technology processes.

While many of these arrangements improve efficiencies and decrease our operating costs, they also diminish our direct control.

Such diminished control may have an adverse effect on the quality of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult consumer preferences, all of which may place us at a competitive disadvantage.

Such diminished control may have an adverse effect on the quality and availability of products or services, our supply chain, and the speed and flexibility in our response to changing market conditions and adult consumer preferences, all of which may place us at a competitive disadvantage.

In addition, we may be unable to renew these agreements on satisfactory terms for numerous reasons, including government regulations, and our costs may increase significantly if we must replace such third parties with our own resources.

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There may be periods of accelerated growth and periods of slower growth for these products, the timing and drivers of which may be more difficult for us to predict versus our mature cigarette business.

The impact of this lower predictability on our projected results for a specific period may be significant, particularly during the early stages of this new product category and during the COVID-19 pandemic.

The impact of this lower predictability on our projected results for a specific period may be significant, particularly during the early stages of this new product category, during the COVID-19 pandemic and as a result of unpredictability due to shortage of key components in our supply chain.

We may be unsuccessful in our attempts to introduce reduced-risk products, and regulators may not permit the commercialization of these products or the communication of scientifically substantiated information and claims.

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• conduct rigorous scientific studies to substantiate that they reduce exposure to harmful and potentially harmful constituents in smoke and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to them versus continued smoking;

• effectively advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to make better consumer choices.

• effectively advocate for a timely development of science-based regulatory frameworks for the development and commercialization of RRPs, including communication of scientifically substantiated information to enable adult smokers to make better consumer choices.

We might not succeed in our efforts.

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The report concludes by making a number of policy recommendations on HTPs and ENDS that, if implemented, could restrict both the availability of these products, and the access to accurate information about them.

In August 2021, the WHO FCTC Secretariat published two reports to the ninth session of the CoP of the FCTC, which are not materially different from the WHO study group report.

In August 2021, the WHO Framework Convention on Tobacco Control ("WHO FCTC") published two reports related to HTPs ahead of the ninth Conference of the Party (COP9) meeting in November 2021.

The reports respond to a COP8 decision (“FCTC/COP8(22”)), which requested the WHO to work with scientists, experts, and national authorities to prepare a comprehensive overview of the research and evidence on HTPs, and the FCTC Secretariat to examine the challenges posed by classification of HTPs.

The first report (“FCTC/COP/9/9”) summarizes TobReg’s eighth report on the scientific basis of tobacco product regulation from May 2021, for HTPs in particular, and the second report (FCTC/COP/9/10) focuses on

challenges posed by classification of HTPs.

Based on the FCTC Secretariat’s postulated definitions and terminology of smoke, and the interpretation of the TobReg report, the reports conclude that all FCTC provisions are applicable for HTPs and that HTPs should be classified for regulatory and taxation purposes in the same way as cigarettes, which, if implemented by the Parties, could significantly impact the commercialization of HTPs.

Additionally, any claims, regardless of merit, challenging our research and clinical data available to date, may impact the development of science-based regulatory frameworks for the commercialization of the RRP category and the commercialization of the RRP category in general.

Our RRPs and commercial activities for these products are designed for, and directed toward, current adult smokers and users of nicotine-containing products, and not for non-smokers or youth.

We put significant effort in place to restrict access of our products to non-smokers or youth.

Nevertheless, technological, regulatory and/or commercial setbacks might prevent us in succeeding the delivery of the necessary infrastructure required to fulfill our commitment of having 100% of our RRP device portfolio equipped with “Age Verification”-technology and device activation features by 2023.

If nonetheless there is a significant usage of our products or competitive products among youth or non-smokers, even in situations over which we have no control, our credibility may suffer, and our efforts to advocate for the development of science-based regulatory frameworks for the commercialization of RRPs may be significantly impacted.

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If we cease to be successful in these efforts, RRP unit margins may be adversely affected.

Nevertheless, it is unpredictable whether regulators will be issuing new regulations where RRP will be equally taxed in line with other tobacco products such as ordinary cigarettes.

Risks Related to Illicit Trade

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Risks Related to Cybersecurity and Data Governance

The failure of our information systems to function as intended or their penetration with the intent to corrupt them or our failure to adhere to strict data governance and cybersecurity protocols and to comply with privacy laws and regulations could result in business disruption, loss of reputation, litigation and regulatory action, and loss of revenue, assets or personal or other confidential data.

We use information systems to help manage business processes, collect and interpret data and communicate internally and externally with employees, suppliers, consumers, customers and others.

The failure of our information systems and systems owned and operated by our business partners to function as intended or their penetration with the intent to corrupt them or our and our business partners failure to adhere to strict data governance and cybersecurity protocols and to comply with privacy laws and regulations could result in business disruption, loss of reputation, litigation and regulatory action, and loss of revenue, assets or personal or other confidential data.

We as well as our business partners use information systems to help manage business processes, collect and interpret data and communicate internally and externally with employees, suppliers, consumers, customers and others.

Some of these information systems are managed by third-party service providers.

We are continuously evolving our approach to business continuity planning and backups to provide appropriate business resilience, particularly in light of the increasing cyber threat landscape.

Nevertheless, failure of these systems to function as intended, or penetration of these systems by parties intent on extracting or corrupting information or otherwise disrupting business processes, could place us at a competitive disadvantage, result in a loss of revenue, assets or personal or other sensitive data, litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs.

Failure to protect personal data, respect the rights of data subjects, and adhere to strict data governance and cybersecurity protocols could subject us to substantial fines and other legal challenges under regulations such as the EU General Data Protection Regulation.

Nevertheless, failure of these systems to function as intended, or penetration of these systems and systems owned and operated by our business partners by parties intent on extracting or corrupting information or otherwise disrupting business processes, could place us at a competitive disadvantage, result in a loss of revenue, assets, including our intellectual property, personal or other sensitive data, result in litigation and regulatory action, cause damage to our reputation and that of our brands and result in significant remediation and other costs.

Failure to protect personal data, respect the rights of data subjects, and adhere to strict

data governance and cybersecurity protocols could subject us to substantial fines and other legal challenges under regulations such as the EU General Data Protection Regulation.

As we are increasingly relying on digital platforms in our business, and as privacy laws in the jurisdictions in which we do business become more stringent, the magnitude of these risks is likely to increase.

Risks Related to the Pending Acquisitions of Fertin Pharma and Vectura

The proposed acquisitions of Fertin Pharma and Vectura may not be completed on the anticipated terms and there are uncertainties and risks to consummating these acquisitions.

As previously disclosed in this Form 10-Q, we are acquiring Fertin Pharma and Vectura (with the Fertin Pharma acquisition and the Vectura acquisition being collectively referred to in these Risk Factors as the “Acquisitions”).

Our obligations to consummate these Acquisitions are subject to satisfaction or waiver, to the extent permitted under applicable law, of a number of conditions.

For example, each Acquisition is subject to antitrust and other regulatory approvals in certain jurisdictions.

We cannot provide any assurance that all required antitrust clearances and other regulatory approvals will be obtained, the cost, scope or impact of the actions that may be required to obtain antitrust and other regulatory approvals, which could have the effect of delaying or preventing completion of the proposed Acquisitions, respectively.

In addition, the Vectura acquisition is subject to shareholder approval by the Vectura shareholders.

There can be no assurance that the number of shareholders required to vote in favor of our proposed offer will do so to enable us to effect the Vectura acquisition.

Failure to complete the Acquisitions could impact our future business and financial results.

If the proposed Acquisitions are not completed, we may experience negative reactions from our investors and the financial markets.

We also may be subject to litigation related to any failure to complete either of these proposed Acquisitions or to enforcement proceedings commenced against us to perform our obligations under either acquisition agreement.

If the respective Acquisitions are not completed, these risks may materialize, and may adversely affect our business, financial results and financial condition, as well as the price of our common stock.

Risks Related to the Acquisitions of Fertin Pharma and Vectura

As previously disclosed in this Form 10-Q, we have acquired Fertin Pharma and Vectura (with the Fertin Pharma acquisition and the Vectura acquisition being collectively referred to in these Risk Factors as the “Acquisitions”).

We may be unable to successfully integrate the businesses that we acquire and unable to realize the anticipated benefits from such Acquisitions.

If the Acquisitions are completed, the successful integration of the acquired businesses and their operations into those of our own, and our ability to realize the benefits of the Acquisitions, are subject to a number of risks and uncertainties, many of which are outside of our control.

The successful integration of the acquired businesses and their operations into those of our own and our ability to realize the benefits of the Acquisitions, are subject to a number of risks and uncertainties, many of which are not in our control.

The risks and uncertainties relating to integrating the businesses acquired include, among other things:

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(ii) the possibility that we are unable to gain access to differentiated proprietary technology and pharmaceutical development expertise as anticipated by these Acquisitions, and thus fail to realize our desired entry into additional smoke-free and beyond nicotine platforms;

and (iii) the challenge of integrating the cultures and business practices of each of Fertin Pharma and Vectura to our culture and business practices, which if not managed correctly, could lead to difficulties in retaining key management and other key employees.

In addition, even if we are able to successfully integrate, the anticipated benefits of the proposed Acquisitions may not be realized fully, or at all, or may take longer to realize than expected.

(iii) the challenge of integrating the cultures and business practices of each of Fertin Pharma and Vectura to our culture and business practices, which if not managed correctly, could lead to difficulties in retaining key management and other key employees;

and (iv) the challenge of achieving a successful integration as a result of PMI's affiliation to its combustible product portfolio.

In addition, even if we are able to successfully integrate, the anticipated benefits of the Acquisitions may not be realized fully, or at all, or may take longer to realize than expected.

Furthermore, the success of the Acquisition also depends on the success of the research and development efforts of Fertin Pharma and Vectura, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products developed by them.

Moreover, PMI's affiliation to its combustible product portfolio may stand in the way of introducing and growing new product categories, and may prevent PMI in being successful in developing a long-term sustainable ecosystem of products in the "Beyond Nicotine" categories.

The businesses that we acquire in the Acquisitions may have liabilities that are not known to us.

The businesses that we acquire in the Acquisitions may have liabilities that we were unable to identify, or were unable to discover, in the course of performing our due diligence investigations thereof.

The businesses that we have acquired in the Acquisitions may have liabilities that we were unable to identify, or were unable to discover, in the course of performing our due diligence investigations during the Acquisitions thereof.

We cannot assure you that the indemnification available to us under the respective acquisition agreements that we have negotiated or will negotiate, as applicable, will be sufficient in amount, scope or duration to fully offset the possible liabilities associated with the respective business or property that we will assume upon consummation of each acquisition.

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Acquisition accounting adjustments related to the Acquisitions could adversely affect our financial results.

We will account for the completion of the Acquisitions using the acquisition method of accounting.

We have accounted for the completion of the Acquisitions using the acquisition method of accounting.

Differences between preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the consolidated financial statements and our future results of operations and financial position in combination with the businesses acquired.

Furthermore, given the nature of the assets being acquired in the Acquisitions, we may not be able to avoid future impairments of those assets, which may also have a material impact on our future results of operation and financial position.

While the Acquisitions are pending, PMI, Fertin Pharma and Vectura will be subject to business uncertainties that could adversely affect our respective businesses, and adversely affect the financial results of our combined businesses after the consummation of the Acquisitions.

PMI, Fertin Pharma and Vectura may be subject to business uncertainties that could adversely affect our respective businesses, and adversely affect the financial results of our combined businesses.

Our success following these Acquisitions will depend in part upon our ability, and the ability of Fertin Pharma and Vectura, respectively, to maintain respective business relationships.

Uncertainty about the effect of the Fertin Pharma Acquisition and the Vectura acquisition on customers, suppliers, employees and other constituencies of each of Fertin Pharma and Vectura, may have a material adverse effect on us and/or the businesses that we will acquire with the proposed Acquisitions.

Customers, suppliers and others who do business with Fertin Pharma or Vectura may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions as a result of our proposed acquisitions of Fertin Pharma and Vectura, respectively, which could negatively affect the revenues, earnings and cash flows of our company or the businesses we acquire upon the respective consummation of the Acquisitions.

If we are unable to maintain these business and operational relationships after the consummation of each Acquisition, our financial position, results of operations or cash flows upon combining with these companies could be adversely affected.

Customers, suppliers and others who do business with Fertin Pharma or Vectura may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions as a result of our acquisitions of Fertin Pharma and Vectura, respectively, which could negatively affect the revenues, earnings and cash flows of our company or the businesses that we have acquired with these Acquisitions.

If we are unable to maintain the business and operational relationships of Fertin Pharma

and/or Vectura, our financial position, results of operations or cash flows upon combining with these companies could be adversely affected.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis