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Item 2. Management’s Discussion and Analysis

2022-07-29 compared with 2022-04-28 · 763 added, 289 removed, 1155 unchanged (48% of the section changed)

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

Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").

With a strong foundation and significant expertise in life sciences, in February 2021, we announced our ambition to expand into wellness and healthcare areas and deliver innovative products and solutions that aim to address unmet consumer and patient needs.

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

We currently manage our business in six geographical segments and a Wellness and Healthcare segment (formerly the Other category):

• European Union ("EU");

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• Americas ("AMCS");

• Other, which includes the operating results of our new Wellness and Healthcare business.

• Wellness and Healthcare ("W&H"), which includes the operating results of our new Wellness and Healthcare business, Vectura Fertin Pharma.

In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc.

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On March 31, 2022, we launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma.

The operating results of this new business is reported in this Other category.

The operating results of this new business are reported in the Wellness and Healthcare segment.

For further details, see Note 2.

Segment Reporting and Note 17.

Acquisitions .

Acquisitions and Note 9.

Segment Reporting .

Our cigarettes are sold in approximately 180 markets, and in many of these markets they hold the number one or number two market share position.

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

As of March 31, 2022, our smoke-free products were available for sale in 71 markets in key cities or nationwide.

As of June 30, 2022, excluding Russia and Ukraine, our smoke-free products were available for sale in 70 markets.

During 2021, we laid the foundation for our long-term growth ambitions beyond nicotine in wellness and healthcare, including the milestone acquisitions of Vectura Group plc and Fertin Pharma A/S, as noted above, which provide essential capabilities for future product development.

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Since the onset of the war in Ukraine, our main priority has been the safety and security of our more than 1,300 employees and their families in the country.

We have taken action to achieve three critical missions:

We have taken three critical steps in this regard:

(i) helping to evacuate more than 1,000 people from Ukraine and relocate over 2,700 others from conflict zones to locations in the country away from the heaviest fighting;

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We are continuing to pay salaries to all our Ukrainian employees and are also providing substantial in-kind support to them and their families.

In addition, we have already contributed around $10 million in funds and donated essential items across the country, directly to humanitarian organizations and through our own employee-led initiative, Projects With a Heart.

In addition, we have already contributed approximately $10 million in funds and donated essential items across the country, directly to humanitarian organizations and through our own employee-led initiative, 'Projects With a Heart'.

On February 25, 2022, we announced the temporary suspension of our operations in Ukraine, including at our factory in Kharkiv.

While activities in the east of Ukraine remain the most heavily impacted, we have seen some resumption of retail activities where safety allows, as we seek to provide product availability and service to adult consumers, using existing finished goods inventories on hand.

We are also working on future supply from other production centers, although this may involve higher costs.

During the second quarter, we resumed some retail activities where safety allowed, in order to provide product availability and service to adult consumers, and began to supply the market from production centers outside Ukraine.

Production at our factory in Kharkiv remains suspended.

We are applying increased security and safety measures for personnel.

In 2021, Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume and under 2% of our total net revenues.

As of March 31, 2022, our Ukrainian operations had approximately $0.4 billion in total assets, excluding intercompany balances.

On March 24, 2022, we announced concrete steps we had taken to suspend planned investments and scale down our manufacturing operations in Russia.

As of June 30, 2022, our Ukrainian operations had approximately $0.5 billion in total assets, excluding intercompany balances.

On March 24, 2022, we announced the concrete steps we had taken to suspend planned investments and scale down our manufacturing operations in Russia.

This included:

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• the cancellation of our plans to manufacture TEREA heated tobacco units for IQOS ILUMA in Russia (with an eventual annualized capacity of more than 20 billion units) and the related ongoing investment of $150 million.

Further, we announced that our Board of Directors and senior executives are working on options to exit the Russian market in an orderly manner, in the context of an increasingly complex and rapidly changing regulatory and operating environment.

As previously announced, we intend to exit the Russian market in an orderly manner, as the complexities of continuing to operate in Russia increase, such as supply chain challenges and financial and banking sector restrictions.

Our Board of Directors and senior executives continue to actively work on options for doing so, in the context of an increasingly complex and rapidly changing regulatory and operating environment, including the requirement to obtain certain governmental approvals for any transaction.

We employ more than 3,200 people in Russia and will continue to support our employees there, including paying their salaries, while continuing to fulfill our legal obligations.

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In 2021, Russia made up almost 10% of total shipment volumes and around 6% of our total net revenues.

As of March 31, 2022, our Russian operations had approximately $1.4 billion in total assets, excluding intercompany balances.

As of June 30, 2022, our Russian operations had approximately $2.5 billion in total assets, excluding intercompany balances.

We recorded charges related to the war in Ukraine of approximately $80 million in the second quarter of 2022 and approximately $122 million in the first half of 2022.

This includes charges in Russia related to the cancellation of the planned launch of IQOS ILUMA and the planned production of TEREA heated tobacco units.

These developments above have and will continue to have a material adverse impact on our business, results of operations, cash flows and financial position, and may result in impairment charges.

For further details, see Note 3.

War in Ukraine to our condensed consolidated financial statements and the " Cautionary Factors That May Affect Future Results" section of this MD&A.

Consolidated Operating Results for the Three Months Ended March 31, 2022

• Net Revenues - Net revenues of $7.7 billion for the three months ended March 31, 2022 increased by $161 million, or 2.1%, from the comparable 2021 amount.

The change in our net revenues from the comparable 2021 amount was driven by the following (variances not to scale with quarterly results):

During the quarter, net revenues, excluding currency and acquisitions, increased by 9.0%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume (predominantly in the EU, particularly Germany, Italy and Poland), higher cigarette volume (mainly in Indonesia, PMI Duty Free and the Philippines, partly offset by Germany and Russia) and higher device volume (driven by the EU and Japan), partially offset by unfavorable cigarette mix (mainly in Japan);

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

During the quarter, Russia and Ukraine accounted for around 6% of PMI's total net revenues.

Net revenues by product category for the three months ended March 31, 2022 and 2021, are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted earnings per share ("diluted EPS") for the three months ended March 31, 2022, from the comparable 2021 amounts, were as follows:

War in Ukraine to our condensed consolidated financial statements as well as the " Trade Policy " and " Cautionary Factors That May Affect Future Results" sections of this MD&A.

Swedish Match Offer

On May 11, 2022, Philip Morris Holland Holdings B.V.

("PMHH"), an affiliate of PMI, announced a recommended public offer to the shareholders of Swedish Match AB ("Swedish Match") to tender all shares in Swedish Match (excluding treasury shares) to PMHH at a price of SEK 106 in cash per share.

On June 28, 2022, the offer document regarding PMHH's recommended offer was made public, following approval and registration by the Swedish Financial Supervisory Authority.

PMI expects the transaction to close in the fourth quarter of this year, subject to Swedish Match shareholder acceptance and all necessary regulatory and other approvals.

For further details, see the " Acquisitions and Other Business Arrangements" section of this MD&A.

Consolidated Operating Results for the Six Months Ended June 30, 2022

• Net Revenues - Net revenues of $15.6 billion for the six months ended June 30, 2022 increased by $0.4 billion, or 2.6%, from the comparable 2021 amount.

The change in our net revenues from the comparable 2021 amount was driven by the following (variances not to scale with year-to-date results):

For the six months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 8.8%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume, device volume and cigarette volume, partly offset by unfavorable cigarette mix and device mix;

a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing;

and a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Other" and further described in the following " Diluted Earnings Per Share " discussion.

For the six months ended June 30, 2022, Russia and Ukraine accounted for around 7% of PMI's total net revenues.

Net revenues by product category for the six months ended June 30, 2022 and 2021 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, 2022, from the comparable 2021 amounts, were as follows:

Diluted EPS % Change

For the three months ended March 31, 2021 $ 1.55

For the six months ended June 30, 2021 $ 2.93

2021 Asset impairment and exit costs 0.07

2021 Saudi Arabia customs assessments 0.14

2021 Amortization of intangibles 0.02

2021 Tax items —

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2022 Fair value adjustment for equity security investments (0.03)

2022 Amortization of intangibles (0.04)

2022 Costs associated with Swedish Match AB offer (0.02)

2022 Tax items 0.03

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Operations 0.25

For the three months ended March 31, 2022 $ 1.50 (3.2) %

Asset impairment and exit costs – In the first quarter of 2021, we recorded pre-tax asset impairment and exit costs of $48 million, representing $38 million net of income tax and a diluted EPS charge of $0.02 per share, related to product distribution restructuring in South Korea and 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 six months ended June 30, 2022 $ 2.93 — %

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.

For further details, see Note 17.

Asset Impairment and Exit Costs .

Charges related to the war in Ukraine – In the first quarter of 2022, we recorded a pre-tax charge of $42 million, representing $39 million net of income tax and a diluted EPS charge of $0.03 per share, related to circumstances driven by the conflict, including inventory write downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts.

Of this total pre-tax charge, $26 million was recorded in cost of sales and $16 million was recorded in marketing, administration and research costs.

Saudi Arabia customs assessments – 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 10.

Contingencies .

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 for the six months ended June 30, 2021 and was included in the Middle East & Africa segment results.

Amortization of intangibles – During the six months ended June 30, 2022 and 2021, we recorded amortization of intangibles of $74 million (representing $63 million net of income tax or $0.04 per share decrease in diluted EPS) and $37 million (representing $33 million net of income tax or $0.02 per share decrease in diluted EPS), respectively.

The higher amortization amount in 2022 was primarily due to increased acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021.

For further details, see Note 2.

Acquisitions and Note 6.

Goodwill and Other Intangible Assets, net.

Charges related to the war in Ukraine – During the six months ended June 30, 2022, we recorded a pre-tax charge of $122 million, representing $105 million net of income tax and a diluted EPS charge of $0.07 per share, related to circumstances driven by the conflict, including machinery and inventory write-downs, additional allowances for receivables and the cost of PMI’s humanitarian efforts.

For further details, see Note 3.

War in Ukraine .

Fair value adjustment for equity security investments – In the first quarter of 2022, we recorded an unfavorable fair value adjustment for our equity security investments in India and Sri Lanka of $47 million after tax (or $0.03 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 ($60 million loss) and provision for income taxes ($13 million benefit) on the condensed consolidated statements of earnings for the three months ended March 31, 2022.

Fair Value adjustment for equity security investments – During the six months ended June 30, 2022, we recorded an unfavorable fair value adjustment for our equity security investments in India and Sri Lanka of $47 million after tax (or $0.03 per share decrease in diluted EPS).

For further details, see Note 14.

Related Parties - Equity Investments and Other .

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 changes in earnings mix by taxing jurisdiction.

Costs associated with Swedish Match AB offer – During the second quarter of 2022, we incurred pre-tax costs associated with the Swedish Match offer of $39 million (representing $30 million net of income tax and a diluted EPS charge of $0.02 per share) primarily related to financing and certain transaction related costs.

These pre-tax costs of $39 million were recorded in

marketing, administration and research costs ($52 million expense) and interest expense, net ($13 million gain) on our condensed consolidated statement of earnings for the six months ended June 30, 2022.

Income taxes – The 2022 Tax items that increased our 2022 diluted EPS by $0.03 per share in the table above were due to a reduction in deferred tax liabilities related to pension plan assets of $40 million.

The change in the tax rate that increased our diluted EPS by $0.02 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction.

Currency – The unfavorable impact of $0.39 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the Euro, Japanese yen and Turkish lira.

dollar, especially against the Euro, Japanese yen and Turkish lira, partially offset by the Russian ruble.

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

Interest – The favorable impact of $0.02 per share from interest in the table above was primarily driven by the repayment of long-term debt.

Operations – The increase in diluted EPS of $0.25 from our operations in the table above was due primarily to the following segments:

• Middle East & Africa:

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

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

• European Union:

Favorable volume/mix, partially offset by higher manufacturing costs;

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

partially offset by

• East Asia & Australia:

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

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

• South & Southeast Asia:

Unfavorable pricing, partially offset by favorable volume/mix;

Unfavorable pricing, partly offset by favorable volume/mix and lower marketing, administration and research costs;

• Eastern Europe:

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

Higher manufacturing costs and unfavorable volume/mix, partially offset by favorable pricing;

Primarily reflecting the amortization of intangibles related to the acquisitions, investments in research and development, and expenses related to employee retention programs.

Unfavorable volume/mix, higher manufacturing costs and higher marketing, administration and research costs, partly offset by favorable pricing;

• Wellness and Healthcare:

Investments in research and development, and expenses related to employee retention programs.

Consolidated Operating Results for the Three Months Ended June 30, 2022

• Net Revenues - Net revenues of $7.8 billion for the three months ended June 30, 2022 increased by $238 million, or 3.1%, from the comparable 2021 amount.

The change in our net revenues from the comparable 2021 amount was driven by the following (variances not to scale with quarterly results):

During the quarter, net revenues, excluding currency and acquisitions, increased by 8.7%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume, device volume and cigarette volume, partly offset by unfavorable device mix and cigarette mix;

a favorable comparison related to the Saudi Arabia customs assessments of $246

million in 2021, shown in "Other";

and a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing.

During the quarter, Russia and Ukraine accounted for around 8% of PMI's total net revenues.

Net revenues by product category for the three months ended June 30, 2022 and 2021, are shown below:

• Diluted Earnings Per Share - The changes in our reported diluted EPS for the three months ended June 30, 2022, from the comparable 2021 amounts, were as follows:

Diluted EPS % Change

For the three months ended June 30, 2021 $ 1.39

2021 Asset impairment and exit costs 0.04

2021 Saudi Arabia customs assessments 0.14

2021 Amortization of intangibles 0.01

2021 Tax items —

Subtotal of 2021 items 0.19

2022 Charges related to the war in Ukraine

2022 Amortization of intangibles (0.02)

2022 Costs associated with Swedish Match AB offer (0.02)

2022 Tax items 0.03

Subtotal of 2022 items (0.05)

Currency (0.16)

Interest 0.01

Change in tax rate (0.01)

Operations 0.06

For the three months ended June 30, 2022 $ 1.43 2.9 %

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.

For further details, see Note 17.

Asset Impairment and Exit Costs .

Saudi Arabia customs assessments – 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 10.

Contingencies .

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

Amortization of intangibles – During the second quarter of 2022 and 2021, we recorded amortization of intangibles of $36 million (representing $31 million net of income tax or $0.02 per share decrease in diluted EPS) and $19 million (representing $17 million net of income tax or $0.01 per share decrease in diluted EPS), respectively.

The higher amortization amount in 2022 was primarily due to increased acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021.

For further details, see Note 2.

Acquisitions and Note 6.

Goodwill and Other Intangible Assets, net.

Charges related to the war in Ukraine – In the second quarter of 2022, we recorded a pre-tax charge of $80 million, representing $66 million net of income tax and a diluted EPS charge of $0.04 per share, related to circumstances driven by the conflict, including machinery and inventory write-downs and salary continuation.

For further details, see Note 3.

War in Ukraine .

These pre-tax costs of $39 million were recorded in marketing, administration and research costs ($52 million expense) and interest expense, net ($13 million gain) on our condensed consolidated statement of earnings for the three months ended June 30, 2022.

Income Taxes – The 2022 Tax items that increased our 2022 diluted EPS by $0.03 per share in the table above were due to a reduction in deferred tax liabilities related to pension plan assets of $40 million.

The change in the tax rate that decreased our diluted EPS by $0.01 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction.

Currency – The unfavorable impact of $0.16 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the Euro and Japanese yen, partially offset by the Russian ruble.

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

Operations – The increase in diluted EPS of $0.06 from our operations in the table above was due primarily to the following segments:

• Middle East & Africa:

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

• European Union:

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

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

partially offset by

• East Asia & Australia:

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

• South & Southeast Asia:

Unfavorable volume/mix, partly offset by favorable pricing and lower marketing, administration and research costs;

• Wellness and Healthcare:

Investments in research and development.

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

Discussion and Analysis

Critical Accounting Estimates

For information on critical accounting policies, see " Critical Accounting Estimates " in the MD&A included in Item 7 of the Annual Report on Form 10-K for the fiscal year ended December 31, 2021.

Consolidated Operating Results

See pages 103 - 113 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 Three Months Ended March 31,

2022 2021 Change

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

2022 2021 2022 2021

Net revenues:

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Americas 893 864 469 430

Other 66 — — %

Wellness and Healthcare 142 — 76 —

Net revenues $ 15,578 $ 15,179 $ 7,832 $ 7,594

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Americas 251 246 130 112

Other (31) — — %

Wellness and Healthcare (65) — (34) —

Operating income $ 6,354 $ 6,573 $ 3,056 $ 3,129

Items affecting the comparability of results from operations were as follows:

• Asset impairment and exit costs – See Note 16.

Asset Impairment and Exit Costs for details of the $48 million pre-tax charge and a breakdown of these costs by segment for the three months ended March 31, 2021.

• Charges related to the war in Ukraine – See Note 18.

War in Ukraine for details of the $42 million pre-tax charges in the Eastern Europe segment for the three months ended March 31, 2022.

Our net revenues by product category are shown in the table below:

PMI Net Revenues by Product Category

(in millions) For the Three Months Ended March 31,

2022 2021 Change

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

2022 2021 Change 2022 2021 Change

Combustible Products

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Total reduced-risk products $ 4,617 $ 4,398 5.0 % $ 2,267 $ 2,276 (0.4) %

Other 66 — — %

Wellness and Healthcare

Wellness and Healthcare 142 — — % 76 — — %

Total PMI net revenues $ 15,578 $ 15,179 2.6 % $ 7,832 $ 7,594 3.1 %

Sum of product categories or Regions might not foot to total PMI due to roundings.

Items affecting the comparability of results from operations were as follows:

• Charges related to the war in Ukraine – See Note 3.

War in Ukraine for details of the $122 million and $80 million pre-tax charges in the Eastern Europe segment for the six months and three months ended June 30, 2022, respectively.

• Saudi Arabia customs assessments - See Note 10.

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.

• Asset impairment and exit costs – See Note 17.

Asset Impairment and Exit Costs for details of the $127 million and $79 million pre-tax charge and a breakdown of these costs by segment for the six months and three months ended June 30, 2021, respectively.

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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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 and oral nicotine products.

Net revenues in the Other category primarily consist of operating revenues generated from the sale of inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of our new Wellness and Healthcare business, Vectura Fertin Pharma.

Net revenues related to wellness and healthcare products primarily consist of operating revenues generated from the sale of inhaled therapeutics, and oral and intra-oral delivery systems that are included in the operating results of our new Wellness and Healthcare business, Vectura Fertin Pharma.

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

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PMI Shipment Volume (Million Units)

For the Three Months Ended March 31,

2022 2021 Change

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

2022 2021 Change 2022 2021 Change

European Union 77,720 78,273 (0.7) % 41,276 41,504 (0.5) %

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Total Cigarettes and Heated Tobacco Units 355,556 347,740 2.2 % 182,499 180,494 1.1 %

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, Parliament HeatSticks and TEREA, as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea).

Following the deconsolidation of our Canadian subsidiary in 2019, we continue to report the volume of brands sold by RBH for which other PMI subsidiaries are the trademark owners.

These include HEETS , Next , Philip Morris and Rooftop .

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 , SENTIA 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.

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2021 and 2022 estimates for total industry volume and market share in certain geographies reflect limitations on the availability and accuracy of industry data during pandemic-related restrictions.

First-quarter 2022 estimates for total industry volume and market share in the Philippines reflect limitations on the availability and accuracy of industry data.

In-market sales ("IMS") is defined as sales to the retail channel, depending on the market and distribution model.

Central Asia is defined as Kyrgyzstan, Mongolia, Tajikistan and Uzbekistan.

North Africa is defined as Algeria, Egypt, Libya, Morocco and Tunisia.

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

For the Three Months Ended March 31,

For the Six Months Ended June 30,

PMI Shipments (billion units) PMI Market Share (%) (2)

Market Total Market

(billion units) Total Cigarette Heated Tobacco Unit Total Heated Tobacco Unit

2022 2021 2022 2021 2022 2021 2022 2021 2022 2021 2022 2021

Total (1) (3) 1,162.2 1,143.4 355.6 347.7 305.9 301.7 49.6 46.1 26.9 26.3 3.5 3.0

European Union

France 16.3 17.3 7.3 7.9 7.2 7.8 0.1 0.1 43.8 43.6 0.7 0.6

Germany 34.0 36.0 13.8 14.3 12.4 13.2 1.4 1.1 40.5 39.8 4.1 3.1

Italy 35.6 33.8 20.7 19.5 14.9 15.1 5.7 4.4 54.1 52.9 14.6 11.2

Poland 27.6 23.2 10.4 8.6 8.3 7.3 2.1 1.4 37.7 37.1 7.5 5.9

Spain 21.5 20.1 7.0 6.8 6.6 6.6 0.4 0.2 30.3 31.1 1.6 1.2

Eastern Europe

Russia n/a 104.5 30.9 33.3 23.6 25.4 7.3 7.9 n/a 31.3 n/a 7.5

Middle East & Africa

Egypt 46.0 46.3 10.2 10.0 9.9 10.0 0.3 — 22.5 21.2 0.8 —

Turkey 55.3 56.0 25.5 24.5 25.5 24.5 — — 46.2 43.7 — —

South & Southeast Asia

Indonesia 152.0 143.1 42.3 40.0 42.3 40.0 — — 27.8 28.0 — —

Philippines 26.9 26.8 16.7 16.7 16.6 16.7 0.1 0.1 62.0 62.3 0.3 0.3

East Asia & Australia

Australia 4.5 4.8 1.5 1.5 1.5 1.5 — — 32.9 31.8 — —

71.8 73.7 26.3 28.0 11.2 11.4 15.1 16.5 37.3 35.7 23.0 21.2

South Korea 35.6 34.9 6.8 7.0 4.6 4.7 2.2 2.3 19.3 20.0 6.2 6.6

Argentina 15.2 14.5 9.6 9.8 9.6 9.8 — — 63.4 67.5 — —

Mexico 14.5 14.7 9.2 9.1 9.2 9.1 0.1 — 63.9 61.7 0.4 0.3

(1) Total market and market share estimates excludes Russia & Ukraine

(2) Market share estimates are calculated using IMS data

(3) Total market and market share includes cigarillos in Japan

For the Three Months Ended June 30,

PMI Shipments (billion units) PMI Market Share (%) (2)

Market Total Market (billion units) Total Cigarette Heated Tobacco Unit Total Heated Tobacco Unit

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Middle East & Africa

Saudi Arabia 5.2 5.5 2.1 2.2 2.1 2.2 — — 41.1 42.3 0.8 0.8

Egypt 22.5 22.8 4.9 5.1 4.7 5.1 0.2 — 23.1 22.4 0.8 —

Turkey 31.5 30.7 14.5 13.5 14.5 13.5 — — 46.2 44.1 — —

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(2) Market share estimates are calculated using IMS data

(3) Total market and market share estimates include cigarillos

Consolidated Operating Results for the Three Months Ended March 31, 2022

The following discussion compares our consolidated operating results for the three months ended March 31, 2022, with the three months ended March 31, 2021.

During the first quarter, our total shipment volume increased by 3.5%, driven by:

• the EU, reflecting higher heated tobacco unit shipment volume across the Region (primarily in Germany, Italy and Poland), partly offset by lower cigarette shipment volume (mainly in Germany and Italy, partially offset by Poland and Spain);

• Middle East & Africa, mainly reflecting higher cigarette shipment volume, primarily in Egypt and PMI Duty Free, partly offset by Algeria;

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

• East Asia & Australia, reflecting higher cigarette and heated tobacco unit shipment volume, primarily in Japan;

(3) Total market and market share estimates include cigarillos in Japan

Consolidated Operating Results for the Six Months Ended June 30, 2022

The following discussion compares our consolidated operating results for the six months ended June 30, 2022, with the six months ended June 30, 2021.

Our total shipment volume increased by 2.2%, 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 France and Germany, partially offset by Poland);

• Middle East & Africa, reflecting higher cigarette shipment volume (primarily in PMI Duty Free and Turkey), as well as higher heated tobacco unit shipment volume (mainly in Egypt, Lebanon and PMI Duty Free);

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

• Americas, mainly reflecting higher cigarette shipment volume, primarily in Brazil;

partly offset by

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

• Americas, primarily reflecting lower cigarette shipment volume, mainly in Argentina, partly offset by Brazil.

Excluding Russia and Ukraine, our total shipment volume increased by 4.9%, reflecting an increase of 4.5% in the Eastern Europe Region.

First-Quarter Impact of Inventory Movements

Excluding the net favorable impact of estimated distributor inventory movements of approximately 1.7 billion units, our total in-market sales increased by 2.5%, driven by a 16.7% increase in heated tobacco units and a 0.4% increase in cigarettes.

The net favorable impact of approximately 1.7 billion units reflected:

• A net favorable impact of 2.1 billion cigarettes, mainly driven by Japan, PMI Duty Free and Spain;

• Eastern Europe, reflecting lower cigarette and heated tobacco unit shipment volume (mainly in Russia and Ukraine);

• East Asia & Australia, reflecting lower heated tobacco unit shipment volume (primarily in Japan), as well as lower cigarette shipment volume (notably in Japan).

Excluding Russia and Ukraine, our total shipment volume increased by 4.0%, with an increase of 0.2% in the Eastern Europe Region.

Impact of Inventory Movements

Excluding the net unfavorable impact of estimated distributor inventory movements of approximately 0.3 billion units, PMI’s total in-market sales increased by 2.4%.

The net unfavorable impact of approximately 0.3 billion units reflected:

• A net unfavorable impact of 2.8 billion heated tobacco units, primarily due to Japan (reflecting the delayed timing of shipments, as the company manages the cancellation of planned heated tobacco unit manufacturing in Russia and disruptions in global supply chains generally);

partly offset by

• A net unfavorable impact of 0.5 billion heated tobacco units, primarily due to Russia.

• A net favorable impact of 2.5 billion cigarettes, mainly driven by PMI Duty Free (reflecting the replenishment of distributor inventories to account for increased passenger traffic in certain geographies).

Excluding Russia and Ukraine, our total in-market sales increased by 4.0%, in line with the increase in total shipment volume.

Our total heated tobacco unit in-market sales volume was 50.6 billion units, or 40.6 billion units excluding Russia and Ukraine, representing growth of 14.3% and 19.7%, respectively.

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

2022 2021 Change

Marlboro 119,936 112,148 6.9 %

L&M 41,220 42,464 (2.9) %

Chesterfield 32,691 27,027 21.0 %

Parliament 20,111 18,980 6.0 %

Philip Morris 20,070 20,774 (3.4) %

Sampoerna A 19,505 17,884 9.1 %

Dji Sam Soe 11,700 11,126 5.2 %

Lark 6,318 7,781 (18.8) %

Next 4,336 4,168 4.0 %

Others 30,029 39,298 (23.6) %

Total Cigarettes 305,916 301,650 1.4 %

Heated Tobacco Units 49,640 46,090 7.7 %

Total Cigarettes and Heated Tobacco Units 355,556 347,740 2.2 %

Lark includes Lark Harmony ;

Next includes Next Dubliss ;

Philip Morris includes Philip Morris/Dubliss ;

and Sampoerna A includes Sampoerna .

The increase in PMI's heated tobacco unit shipment volume was mainly driven by the EU (notably Italy and Poland) and Middle East & Africa (primarily Egypt, Lebanon and PMI Duty Free), partly offset by Japan and Eastern Europe (mainly Russia and Ukraine).

Excluding Russia and Ukraine, our heated tobacco unit shipment volume increased by 12.6%.

Our cigarette shipment volume of the following brands increased:

• Marlboro, mainly driven by PMI Duty Free, Russia and Turkey, partly offset by Japan;

• Chesterfield , primarily driven by Brazil, the Philippines, Poland and Russia;

• Parliament , mainly driven by PMI Duty Free and Turkey, partly offset by Russia, Saudi Arabia and Ukraine;

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

• Dji Sam Soe in Indonesia, mainly driven by Dji Sam Soe Magnum Mild ;

• Next , primarily driven by Russia.

Our cigarette shipment volume of the following brands decreased:

• L&M , mainly due to Germany, Thailand, Turkey and Ukraine, partly offset by PMI Duty Free;

• Philip Morris , primarily due to Russia and Ukraine, partly offset by Japan and Kazakhstan;

• Lark , mainly due to Japan and Turkey;

• "Others," notably due to:

mid-price Sampoerna U (Indonesia);

and low-price Bond Street (primarily due to Kazakhstan, Russia and Ukraine), Fortune (Philippines) and More (Philippines).

Excluding Russia and Ukraine, our cigarette shipment volume increased by 5.4% for Marlboro , 9.6% for Chesterfield , 10.4% for Parliament, 15.6% for Philip Morris and 0.1% for Next , and decreased by 1.5% for L&M .

International Share of Market

Our total international market share (excluding China and the United States, as well as Russia and Ukraine), defined as our cigarette and heated tobacco unit sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, increased by 0.6 points to 26.9%, reflecting:

• Market share for heated tobacco units of 3.5%, up by 0.5 points;

• Market share for cigarettes of 23.4%, flat.

Excluding China and the United States, as well as Russia and Ukraine, our total international cigarette sales volume as a percentage of total industry cigarette sales volume increased by 0.3 points to 24.6%, mainly reflecting higher cigarette market share and/or a favorable geographic mix impact, notably in Indonesia, PMI Duty Free, Poland and Turkey, partly offset by Germany and Thailand.

Financial Summary

Financial Summary -

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues (1)

$ 15,578 $ 15,179 2.6 % 8.8 % $ 399 $ (1,091) $ 149 $ 250 $ 827 $ 264

Cost of Sales (2)

(5,256) (4,627) (13.6) % (16.8) % (629) 241 (93) — (580) (197)

Marketing, Administration and Research Costs (3)

(3,894) (3,942) 1.2 % (0.5) % 48 136 (69) — — (19)

Amortization of Intangibles (74) (37) -(100)% — % (37) — (37) — — —

Operating Income $ 6,354 $ 6,573 (3.3) % 8.3 % $ (219) $ (714) $ (50) $ 250 $ 247 $ 48

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

For more details, see Note 10.

Contingencies .

(2) Cost/Other variance includes charges in 2022 of $46 million related to the war in Ukraine.

For more details, see Note 3.

War in Ukraine .

(3) Cost/Other variance includes charges in 2022 of $76 million related to the war in Ukraine, $52 million in 2022 related to costs associated with the Swedish Match AB offer and charges in 2021 of $127 million related to asset impairment and exit costs.

For more details, see Note 3.

War in Ukraine and Note 17.

Asset Impairment and Exit Costs.

For the six months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 8.8%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco unit volume, device volume and cigarette volume, partly offset by unfavorable cigarette mix and device mix;

a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing;

and a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/Other".

For the six months ended June 30, 2022, Russia and Ukraine accounted for around 7% of PMI's total net revenues.

The unfavorable currency in net revenues was due primarily to the Euro, Japanese yen, Philippine peso, Polish zloty and Turkish lira, partly offset by the Russian ruble.

Net revenues include $4.6 billion in 2022 and $4.4 billion in 2021 related to the sale of RRPs.

For the six months ended June 30, 2022, IQOS devices accounted for approximately 5% of RRP net revenues, reflecting higher device volumes at a lower average price than last year, as we expand our device portfolio with LIL and ILUMA ONE and price-ladder our blade device portfolio in preparation for the launch of premium-positioned ILUMA .

Operating income decreased by 3.3%.

Operating income, excluding currency and acquisitions, increased by 8.3%, notably reflecting the following items:

a favorable comparison versus the prior year period related to the Saudi Arabia customs assessments of $246 million (as noted above for net revenues) and asset impairment and exit costs of $127 million, partly offset by 2022 charges related to the war in Ukraine of $122 million and 2022 costs associated with the Swedish Match AB offer of $52 million.

In addition to these items, the increase was also driven by a favorable pricing variance;

and favorable volume/mix, primarily driven by higher heated tobacco unit volume and cigarette volume, partly offset by unfavorable cigarette mix, heated tobacco unit mix and device mix, as well as the unfavorable impact on profitability of higher device volume;

partially offset by higher manufacturing costs (primarily due to higher logistics costs and other inflationary impacts, partly offset by productivity).

Interest expense, net, of $280 million decreased by $48 million (14.6%) primarily driven by the repayment of long-term debt.

Our effective tax rate decreased by 1.7 percentage points to 20.0%.

We estimate that our full-year 2022 effective tax rate will be 21% to 22%, excluding discrete tax events.

For further details, see Note 11.

Income Taxes .

Net earnings attributable to PMI of $4.6 billion decreased by $26 million or 0.6%.

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

Basic EPS of $2.94 and diluted EPS of $2.93 was flat versus the prior year comparative period.

Excluding an unfavorable currency impact of $0.39, diluted EPS increased by 13.3%.

Consolidated Operating Results for the Three Months Ended June 30, 2022

The following discussion compares our consolidated operating results for the three months ended June 30, 2022, with the three months ended June 30, 2021.

During the quarter, our total shipment volume increased by 1.1%, driven by:

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

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

• Americas, primarily reflecting higher cigarette shipment volume, mainly in Argentina and Brazil;

partly offset by

• Eastern Europe, reflecting lower cigarette and heated tobacco unit shipment volume (primarily in Russia and Ukraine);

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

• East Asia & Australia, reflecting lower cigarette and heated tobacco unit shipment volume, primarily in Japan.

Excluding Russia and Ukraine, our total shipment volume increased by 3.0%, with a decrease of 3.4% in the Eastern Europe Region.

Impact of Inventory Movements

Excluding the net unfavorable impact of estimated distributor inventory movements of approximately 1.9 billion units, our total in-market sales increased by 2.2%.

The net unfavorable impact of approximately 1.9 billion units reflected:

• A net unfavorable impact of 2.3 billion heated tobacco units, essentially due to Japan (reflecting the delayed timing of shipments, as the company manages the cancellation of planned heated tobacco unit manufacturing in Russia and disruptions in global supply chains generally);

partly offset by

• A net favorable impact of 0.4 billion cigarettes, mainly driven by PMI Duty Free (reflecting the replenishment of distributor inventories to account for increased passenger traffic in certain geographies), partially offset by Spain (mainly reflecting inventory movements in the second quarter of 2021).

Excluding Russia and Ukraine, our total in-market sales increased by 4.2%.

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PMI Shipment Volume by Brand (Million Units)

First-Quarter

Second-Quarter

2022 2021 Change

2 unchanged sentences

Chesterfield 17,086 14,269 19.7 %

Parliament 10,960 10,023 9.3 %

Philip Morris 10,317 10,590 (2.6) %

Sampoerna A 9,786 9,186 6.5 %

Parliament 9,152 8,957 2.2 %

Dji Sam Soe 5,928 5,422 9.3 %

Lark 2,866 3,882 (26.2) %

Next 2,394 2,300 4.1 %

Others 14,648 19,904 (26.4) %

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Lark includes Lark Harmony ;

Next includes Next Dubliss;

Philip Morris includes Philip Morris/Dubliss ;

and Sampoerna A includes Sampoerna .

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Germany, Italy and Poland), Japan and the Middle East & Africa (notably Egypt).

The increase in our heated tobacco unit shipment volume was mainly driven by the EU (notably Italy and Poland) and Middle East & Africa (primarily Egypt, Lebanon and PMI Duty Free), partly offset by Japan and Eastern Europe (mainly Russia and Ukraine).

Excluding Russia and Ukraine, our heated tobacco unit shipment volume increased by 7.4%.

Our cigarette shipment volume of the following brands increased:

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

• Chesterfield , primarily driven by the Philippines and Russia;

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

• Chesterfield , primarily driven by Brazil, the Philippines and Russia;

• Parliament , mainly driven by Turkey and PMI Duty Free, partly offset by Ukraine;

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

• Parliament , mainly driven by Turkey, partly offset by Saudi Arabia;

• Dji Sam Soe in Indonesia, primarily driven by Dji Sam Soe Magnum Mild .

• Dji Sam Soe in Indonesia, mainly driven by Dji Sam Soe Magnum Mild ;

• Next , primarily driven by Russia.

Our cigarette shipment volume of the following brands decreased:

• L&M , primarily due to Germany and Turkey, partly offset by Egypt and the GCC;

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

• L&M , primarily due to Egypt, Spain, Thailand, Turkey and Ukraine, partly offset by PMI Duty Free;

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

• Lark , primarily due to Japan and Turkey;

• "Others," mainly due to:

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

and low-price Bond Street (primarily due to Russia).

Excluding Russia and Ukraine, our cigarette shipment volume increased by:

5.1% for Marlboro , 0.1% for L&M , 10.8% for Chesterfield , 13.3% for Philip Morris and 4.9% for Parliament .

First-Quarter International Share of Market

mid-price Sampoerna U (Indonesia);

and low-price Bond Street (primarily due to Kazakhstan, Russia and Ukraine), Fortune (Philippines), More (Philippines) and Morven (Pakistan).

Excluding Russia and Ukraine, our cigarette shipment volume increased by 5.6% for Marlboro , 8.6% for Chesterfield , 15.3% for Parliament and 18.0% for Philip Morris, and decreased by 2.9% for L&M and 5.2% for Next .

International Share of Market

Our total international market share (excluding China and the United States, as well as Russia and Ukraine), increased by 0.4 points to 27.0%, reflecting:

• Market share for heated tobacco units of 3.5%, up by 0.5 points;

• Market share for cigarettes of 23.3%, up by 0.2 points.

Excluding China and the United States, as well as Russia and Ukraine, our total international cigarette sales volume as a percentage of total industry cigarette sales volume increased by 0.4 points to 24.4%, mainly reflecting higher cigarette market share and/or a favorable geographic mix impact, notably in Indonesia, PMI Duty Free and the Philippines, partly offset by Algeria and Germany.

• Market share for cigarettes of 23.5%, down by 0.1 point.

Excluding China and the United States, as well as Russia and Ukraine, our total international cigarette sales volume as a percentage of total industry cigarette sales volume increased by 0.1 point to 24.7%, mainly reflecting a higher cigarette market share and/or favorable geographic mix impact, notably in Brazil, Indonesia, PMI Duty Free, Poland and Turkey, partly offset by France and the Philippines.

Financial Summary

1 unchanged sentence

Quarters Ended

March 31, Change

June 30, Change

Fav./(Unfav.) Variance

4 unchanged sentences

Net Revenues (1)

$ 7,832 $ 7,594 3.1 % 8.7 % $ 238 $ (501) $ 79 $ 142 $ 265 $ 253

Cost of Sales (2)

4 unchanged sentences

Operating Income $ 3,056 $ 3,129 (2.3) % 8.0 % $ (73) $ (299) $ (24) $ 142 $ (17) $ 125

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

For more details, see Note 10.

Contingencies .

(2) Cost/Other variance includes charges in 2022 of $20 million related to the war in Ukraine.

1 unchanged sentence

War in Ukraine .

(2) Cost/Other variance includes charges in 2022 of $16 million related to the war in Ukraine and charges in 2021 of $48 million related to asset impairment and exit costs.

(3) Cost/Other variance includes charges in 2022 of $60 million related to the war in Ukraine, $52 million in 2022 related to costs associated with the Swedish Match AB offer and charges in 2021 of $79 million related to asset impairment and exit costs.

For more details, see Note 3.

Asset Impairment and Exit Costs and Note 18.

War in Ukraine.

War in Ukraine and Note 17.

Asset Impairment and Exit Costs.

During the quarter, net revenues, excluding currency and acquisitions, increased by 8.7%, mainly reflecting:

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

favorable volume/mix, primarily driven by higher heated tobacco unit volume, device volume and cigarette volume, partly offset by unfavorable device mix and cigarette mix;

a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/Other";

and a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing.

During the quarter, Russia and Ukraine accounted for around 8% of PMI's total net revenues.

The unfavorable currency in net revenues was due primarily to the Euro, Japanese yen, Russian ruble and Turkish lira.

Net revenues include $2.3 billion in 2022 and $2.1 billion in 2021 related to the sale of RRPs.

IQOS devices accounted for approximately 5% of RRP net revenues in the first quarter of 2022, reflecting higher year-over year device volumes as supply constraints ease and ILUMA 's positive performance.

Operating income, excluding currency and acquisitions, increased by 8.6%, primarily reflecting:

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

and a favorable pricing variance;

partly offset by higher manufacturing costs (primarily due to higher logistics costs and other inflationary impacts, partially offset by productivity).

The unfavorable currency in net revenues was due primarily to the Euro, Japanese yen, Philippine peso and Polish zloty, partly offset by the Russian ruble.

Net revenues include $2.3 billion in both 2022 and 2021 related to the sale of RRPs.

Operating income decreased by 2.3%.

Operating income, excluding currency and acquisitions, increased by 8.0%, notably reflecting the following items:

a favorable comparison versus the prior year period related to the Saudi Arabia customs assessments of $246 million (as noted above for net revenues) and asset impairment and exit costs of $79 million, partly offset by 2022 charges related to the war in Ukraine of $80 million and 2022 costs associated with the Swedish Match AB offer of $52 million.

In addition to these items, the increase was also driven by a favorable pricing variance, partly offset by higher manufacturing costs (mainly due to higher logistics costs and other inflationary impacts, partially offset by productivity).

Volume/mix was slightly unfavorable, reflecting unfavorable cigarette mix, heated tobacco unit mix and device mix, as well as the unfavorable impact on profitability of higher device volume, partly offset by higher heated tobacco unit volume and cigarette volume.

Interest expense, net, of $126 million decreased by $35 million (21.7)%.

Our effective tax rate decreased by 1.7 percentage points to 20.3%.

We estimate that our full-year 2022 effective tax rate will be 21% to 22%, excluding discrete tax events.

For further details, see Note 11.

Income Taxes .

Net earnings attributable to PMI of $2.3 billion decreased by $87 million or 3.6%.

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

Diluted and basic EPS of $1.50 decreased by 3.2%.

Net earnings attributable to PMI of $2.2 billion increased by $61 million or 2.8%.

This increase was due primarily to a lower effective tax rate and lower interest expense, net, partly offset by lower operating income as discussed above.

Basic EPS of $1.44 increased by 3.6%.

Diluted EPS of $1.43 increased by 2.9%.

Excluding an unfavorable currency impact of $0.16, diluted EPS increased by 14.4%.

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These challenges, which are discussed below and in “ Cautionary Factors That May Affect Future Results ,” include:

• regulatory restrictions on our products, including restrictions on the packaging, marketing, and sale of tobacco or other nicotine-containing products that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or even ban certain of our products;

• regulatory restrictions on our products, including restrictions on the packaging, marketing, and sale of tobacco or other nicotine-containing products or related devices that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or even ban certain of our products;

• fiscal challenges, such as excessive excise tax increases and discriminatory tax structures;

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Other tobacco products, including heated tobacco products, are currently exempted from this characterizing flavor ban.

However, the European Union Commission has issued a draft delegated directive that would end this exemption.

While the timing and final form of the directive is not yet known, if adopted it would likely ban the use of characterizing flavors from heated tobacco products in the European Union, impacting a significant proportion of our RRP products currently sold in the European Union.

However, the European Union Commission adopted a proposal for a delegated directive that would end this exemption.

If the European Parliament and the Council of the European Union do not object, the Commission's proposal will be published and will enter into force.

If fully enacted, it would likely take effect in the second half of 2023 and ban the use of characterizing flavors in heated tobacco products in the European Union, impacting a significant proportion of our RRP products currently sold in the European Union.

Other countries may follow the EU’s approach toward tobacco product ingredients.

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These include regulations intended to reduce the number of retailers selling tobacco products by, for example, reducing the overall number of tobacco retail licenses available or banning the sale of tobacco products within specified distances of certain public facilities.

Other regulators are also considering generation sales bans, under which the sale of certain tobacco or nicotine products to people born after a certain year would be prohibited.

In addition, South Africa banned the sale of tobacco products, e-cigarettes, and electronic devices that heat tobacco for several months during the COVID-19 pandemic.

The ban, which was lifted on August 17, 2020, resulted in a significant increase of illicit trade of tobacco products.

In Mexico, a presidential decree was adopted on May 31, 2022, prohibiting the "circulation and commercialization of electronic nicotine delivery systems, electronic non-nicotine delivery systems, alternative nicotine consumption systems, e-cigarettes and vaporizer devices with similar uses, as well as the solutions and mixtures used in said systems."

In a limited number of markets, most notably Japan, we are dependent on governmental approvals that may limit our pricing flexibility.

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The centerpiece of PMI IMPACT is a council of external independent experts in the fields of law, anti-corruption and law enforcement.

The experts are

responsible for evaluating and approving funding proposals for PMI IMPACT grants.

The experts are responsible for evaluating and approving funding proposals for PMI IMPACT grants.

PMI has pledged $100 million to fund projects within PMI IMPACT over three funding rounds.

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Platform 1 uses a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially designed and proprietary tobacco unit is inserted and heated to generate an aerosol.

We have conducted a series of

clinical studies for this platform, the results of which were included in our submission to the U.S.

We have conducted a series of clinical studies for this platform, the results of which were included in our submission to the U.S.

Food and Drug Administration (“FDA”) described below.

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Recently, we designed a new consumable for our e-vapor mesh technology to deliver real tobacco taste satisfaction in an E-Vapor product liquid-using patented technology, where flavors and nicotine are extracted directly from the tobacco leaves and captured in a liquid solution, without having to add flavoring ingredients.

We also entered into a licensing agreement with Kaival Brands International, LLC in June 2022 to manufacture and distribute an e-vapor product, known in the U.S.

as the BIDI® Stick.

The agreement grants PMI certain intellectual property rights relating to the premium e-vapor device and, potentially, other newly developed devices, to permit PMI to manufacture, promote, sell, and distribute the e-vapor device and, to the extent included, other newly developed devices in international markets outside of the U.S.

Platform 5 covers Modern Oral Nicotine Pouches, which consist of white pre-portioned pouches containing nicotine derived from tobacco.

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In order to accelerate switching to our Platform 1 products, our initial market introductions typically entail one-to-one consumer engagement (in person or by digital means) and device discounts.

These initial commercialization efforts require substantial investment, which we believe

will moderate over time and further benefit from the increased use of digital engagement capabilities.

These initial commercialization efforts require substantial investment, which we believe will moderate over time and further benefit from the increased use of digital engagement capabilities.

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

As of March 31, 2022, PMI's smoke-free products are available for sale in 71 markets in key cities or nationwide.

As of June 30, 2022, excluding Russia and Ukraine, PMI's smoke-free products are available for sale in 70 markets.

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

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

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.

We work with five 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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However, some components and materials necessary for the production of our RRPs, including those for the electronic devices, are obtained from single or limited sources, and can be subject to industry-wide shortages and price fluctuations.

While we were successful in maintaining adequate supply of such components and materials so far, we may not be able to secure such supply going forward, particularly during the COVID-19 pandemic;

While we were successful in maintaining adequate supply of such components and materials

so far, we may not be able to secure such supply going forward, particularly during the COVID-19 pandemic and the supply chain disruptions caused by the armed conflict between Russia and Ukraine;

this could negatively impact the commercialization of our RRPs.

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

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

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

We currently plan to launch this product in additional markets.

• 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.

• We launched a Platform 5 product in Sweden in January 2022, that is a reformulated version of the already commercialized nicotine pouches bearing the Shiro brand by our newly acquired affiliate AG Snus.

• We launched a Platform 5 product in Sweden in January 2022, and have since launched it in nine additional markets, that is a reformulated version of the already commercialized nicotine pouches bearing the Shiro brand by our newly acquired affiliate AG Snus.

Due to the COVID-19 pandemic and the armed conflict between Russia and Ukraine, certain of these commercialization efforts could be delayed.

1 unchanged sentence

RRPs contain nicotine and are not risk-free.

these products versus continued smoking and should recognize a continuum of risk for tobacco and other nicotine-containing products.

As we describe in more detail above, we support science-based regulation and taxation of RRPs, and believe that regulation and taxation should differentiate between cigarettes and products that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products versus continued smoking and should recognize a continuum of risk for tobacco and other nicotine-containing products.

Regulation, as well as industry practices, should reflect the fact that youth should not consume nicotine in any form.

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We submitted to the FDA a Modified Risk Tobacco Product Application (“MRTPA”) for our Platform 1 product in December 2016, and a Premarket Tobacco Product Application (“PMTA”) for our Platform 1 product in March 2017.

On April 30, 2019, the FDA determined that a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, is appropriate for the protection of public health and authorized it for sale in the United States.

On April 30, 2019, the FDA determined that a version of our Platform 1 product, namely, IQOS 2.4 and three related consumables, is appropriate for the protection of public health ("APPH") and authorized it for sale in the United States.

The FDA’s decision followed its comprehensive assessment of our PMTA.

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We requested (and received) an exposure modification order for IQOS 3.

On April 29, 2022, we submitted the Annual Report for the IQOS Tobacco Heating System ("THS") to the US Food and Drug Administration.

The report included a systematic review of the literature covering publications related to the IQOS THS between March 1, 2021 and February 28, 2022.

226 publications were identified, of which 132 were in English and contained original research or data on Heated Tobacco Products (27 from PMI or other tobacco manufacturers and 105 from independent researchers).

The report concludes that, although the scientific evidence continues to develop and evolve, the extensive data reviewed confirms that while HTPs are not risk-free, the risks of HTPs are significantly reduced for both users and non-users against the well-proven risks of continued smoking, and therefore continue to support the APPH status of IQOS THS.

We look forward to working with the FDA to provide any additional information they may require in order to market this product with reduced risk claims.

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In January 2019, scientific media published the results of the study of the China National Tobacco Quality Supervision and Test Centre (“CNTQST”) comparing the aerosol generated by our Platform 1 product with cigarette smoke.

The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower

temperature of heating tobacco in our Platform 1 product contributed to the difference.

The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating tobacco in our Platform 1 product contributed to the difference.

The CNTQST stated that the reduction in emissions of harmful constituents cannot be interpreted as a harm/risk reduction for smokers in the same proportion.

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However, in light of the uncertainty of such products’ short and long-term impacts, the toxic effects of the dual use with cigarettes, and the existence of approved smoking cessation tools, the SHC recommended that current regulations for cigarettes should apply to heat-not-burn products.

In June 2022, the SHC published new advice on e-cigarettes in which they confirm that e-cigarettes are substantially less harmful than smoking cigarettes and therefore a better alternative for smokers.

The SHC underlines that the vast majority of the risks of tobacco smoking are not caused by nicotine, but by the harmful substances that are released by the combustion of tobacco.

Based on the cited science they call for legislation that makes a clear distinction between cigarettes and e-cigarettes, by focusing on better-informing smokers about the benefits of the lower-risk (but not risk-free) alternative, as well as on protecting non-smokers and young people.

The foregoing scientific findings of government agencies may not be indicative of the measures that the relevant government authorities could take in regulating our products.

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The Foundation is an independent body and is governed by its independent Board of Directors.

The Foundation’s role, as set out in its corporate charter, includes funding research in the field of tobacco harm

reduction, encouraging measures that reduce the harm caused by smoking, and assessing the effect of reduced cigarette consumption on the industry value chain.

The Foundation’s role, as set out in its corporate charter, includes funding research in the field of tobacco harm reduction, encouraging measures that reduce the harm caused by smoking, and assessing the effect of reduced cigarette consumption on the industry value chain.

Governmental Investigations

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Contingencies .

In November 2010, a World Trade Organization ("WTO") panel issued its decision in a dispute relating to facts that arose from August 2006, between the Philippines and Thailand, concerning a series of Thai customs and tax measures affecting cigarettes imported by PM Thailand into Thailand (see Note 8.

In November 2010, a World Trade Organization ("WTO") panel issued its decision in a dispute between the Philippines and Thailand, concerning a series of Thai customs and tax measures affecting cigarettes imported by PM Thailand into Thailand (see Note 10.

Contingencies for additional information).

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.

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.

The Philippines asserts that to date Thailand has not fully complied with the WTO panel decision and commenced challenges at the WTO Appellate Body.

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

Thailand agreed to fully comply with the decision, but the Philippines asserts that to date Thailand has not fully complied with the WTO panel decision and commenced challenges at the WTO Appellate Body.

The WTO Appellate Body is not operational, and the appeals by Thailand are suspended indefinitely.

In December 2020, the Philippines and Thailand agreed to pursue facilitator-assisted discussions aimed at progressing and resolving outstanding issues.

It is not possible to predict any future developments in these proceedings or the outcome of these discussions.

In December 2020, the Philippines and Thailand agreed to pursue facilitator-assisted discussions aimed at progressing and resolving outstanding issues and the countries have since agreed to seek the establishment of a bilateral consultative mechanism, with the goal of reaching a comprehensive settlement of their dispute, consistent with their rights and obligations under the WTO Agreement, as well as the recommendations and rulings of the WTO Dispute Settlement Body.

The Public Prosecutor’s office of Rome, Italy, notified our Italian subsidiary, Philip Morris Italia S.r.l.

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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.

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.

BAT has filed a civil claim against PM Italia claiming vicarious liability for any wrongdoing of its former or current employees and seeking 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 June 1, 2022.

The next trial hearing is scheduled for October 5, 2022.

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

Vectura Fertin Pharma

Subsequent to the end of the first quarter, on April 5, 2022, the European Commission issued a proposal for a regulation on fluorinated greenhouse gases.

On April 5, 2022, the European Commission issued a proposal for a regulation on fluorinated greenhouse gases.

If accepted, the proposal also establishes quantitative limits on usage of certain propellant gases which are components of certain products sold by our Vectura Fertin Pharma business.

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dollar as the functional currency of the affiliates, effective April 1, 2022.

The impact of this accounting change was not material to our condensed consolidated financial statements for the six months and three months ended June 30, 2022.

Acquisitions and Other Business Arrangements

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Acquisitions to our condensed consolidated financial statements.

Swedish Match Offer

On May 11, 2022, Philip Morris Holland Holdings B.V.

("PMHH"), an affiliate of PMI, announced a recommended public offer to the shareholders of Swedish Match AB ("Swedish Match") to tender all shares in Swedish Match to PMHH at a price of SEK 106 in cash per share.

The total value of the Swedish Match offer amounts to approximately SEK 161.2 billion, or approximately $16.0 billion, using the exchange rate at the time of the Swedish Match offer.

On June 28, 2022, the offer document regarding PMHH's recommended offer was made public, following approval and registration by the Swedish Financial Supervisory Authority.

We expect the transaction to close in the fourth quarter of this year, subject to Swedish Match shareholder acceptance and all necessary regulatory and other approvals.

Global Collaboration Agreement with KT&G

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peacekeeping mission located in Abyei, a special administrative territory in Sudan.

We do not believe that these sales, which are not subject to Trade Sanctions, and are de minimis in volume and value, present a material risk to our shareholders, our reputation or the value of our shares.

We do not believe that these sales, which are not subject to Trade Sanctions, and are de

minimis in volume and value, present a material risk to our shareholders, our reputation or the value of our shares.

We have no employees, operations or assets in Sudan.

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have enacted legislation permitting or requiring state pension funds to divest or abstain from future investment in stocks of companies that do business with certain countries that are sanctioned by the U.S.

Because we do business in certain of these countries, these state pension funds may have divested of our stock or may not invest in our stock.

Because we do business in certain of these countries, consistent with our policy to fully comply with Trade Sanctions and as described above, these state pension funds may have divested of our stock or may not invest in our stock.

We do not believe such legislation has had a material effect on the price of our shares.

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We comply fully with these Trade Sanctions.

On June 24, 2021, the EU introduced sanctions regarding the Republic of Belarus ("Belarus") aimed at specific sectors of the Belarus economy, including the tobacco sector.

On June 24, 2021, the EU introduced sanctions regarding Belarus aimed at specific sectors of the Belarus economy, including the tobacco sector.

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

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The restrictions are primarily targeted at the Russian financial, banking, oil, military, aviation and marine sectors.

has also introduced a prohibition on new investment in the Russian Federation by a U.S.

person, wherever located.

Among sanctions targets are Russian political figures and military personnel, certain oligarchs and journalists, and companies operating in the above-mentioned sectors.

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Ukraine imposed its own sanctions against Russia, and certain targeted Russian entities and individuals.

On April 8, 2022, the EU introduced additional trade restrictions banning, among many other goods, the export of certain non-tobacco materials used to produce cigarettes and heated tobacco consumables in Russia.

On April 27, 2022, Switzerland introduced similar restrictions.

In addition, the EU, the UK, Switzerland, Canada and Australia sanctioned Mr.

Igor Kesaev, a non-majority shareholder of Megapolis Distribution B.V.

Russia introduced certain countermeasures aimed at reducing the effect of Western sanctions.

Countermeasures include the ban on export of certain goods from Russia, including tobacco-related production equipment, restrictions on lending to foreign borrowers and transactions with securities and real estate involving companies from “hostile” countries (i.e., those which introduced sanctions regarding Russia).

Countermeasures include the ban on export of certain goods from Russia, including tobacco-related production equipment, restrictions on lending to foreign borrowers, repatriation of dividends and transactions with securities and real estate involving companies from “hostile” countries (i.e., those which introduced sanctions regarding Russia).

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 Ended March 31, 2022

The following discussion compares operating results within each of our geographical segments and Other category for the three months ended March 31, 2022, with the three months ended March 31, 2021.

Segment Operating Results – Three Months and Six Months Ended June 30, 2022

The following discussion compares operating results within each of our geographical segments and the Wellness and Healthcare segment for the three months and six months ended June 30, 2022, with the three months and six months ended June 30, 2021.

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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Quarters Ended

March 31, Change

June 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 1,519 $ 1,641 (7.4) % 7.5 % $ (122) $ (245) $ — $ (35) $ 221 $ (63)

During the quarter, net revenues, excluding currency and acquisitions, increased by 10.5%, reflecting:

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

Pricing variance was slightly

favorable, primarily reflecting higher combustible pricing (driven by Germany), largely offset by lower pricing for devices (notably in Italy).

For the three months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 10.1%, reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume and device volume, partly offset by lower cigarette volume;

partially offset by an unfavorable pricing variance, primarily reflecting lower device pricing, partly offset by higher combustible pricing.

Operating income, excluding currency and acquisitions, increased by 7.5%, primarily reflecting:

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

partially offset by higher manufacturing costs (primarily due to inflationary impacts).

favorable volume/mix, mainly driven by higher heated tobacco unit volume, partly offset by lower cigarette volume;

partially offset by higher marketing, administration and research costs;

an unfavorable pricing variance;

and higher manufacturing costs (primarily due to inflationary impacts).

Financial Summary -

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 6,155 $ 6,058 1.6 % 10.3 % $ 97 $ (533) $ 7 $ (30) $ 653 $ —

Operating Income $ 3,046 $ 3,131 (2.7) % 9.8 % $ (85) $ (390) $ (2) $ (30) $ 429 $ (92)

For the six months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 10.3%, reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume and device volume, partly offset by lower cigarette volume, unfavorable cigarette mix and unfavorable heated tobacco unit mix;

partially offset by an unfavorable pricing variance, mainly due to lower device pricing and heated tobacco unit pricing, partly offset by higher combustible pricing.

Operating income, excluding currency and acquisitions, increased by 9.8%, primarily reflecting:

favorable volume/mix, mainly driven by higher heated tobacco unit volume, partly offset by lower cigarette volume, unfavorable cigarette mix and unfavorable heated tobacco unit mix;

partially offset by higher marketing, administration and research costs;

higher manufacturing costs (primarily due to inflationary impacts);

and an unfavorable pricing variance.

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 First-Quarter

2022 2021 % / pp

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

Change Change

2022 2021 % / pp 2022 2021 % / pp

Total Market (billion units) 126.4 122.2 3.4 % 235.9 228.7 3.2 %

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Total European Union 39.1 % 38.4 % 0.7 39.6 % 38.8 % 0.8

In the quarter, the estimated total market in the EU increased by 3.0% to 109.6 billion units, primarily driven by:

Sum may not foot due to roundings.

In the second quarter, the estimated total market in the EU increased by 3.4% to 126.4 billion units, primarily driven by:

• Italy, up by 5.5%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures;

• Poland, up by 18.7%, primarily reflecting a lower estimated prevalence of illicit trade and higher border sales due to the easing of pandemic-related measures;

• Poland, up by 18.5%, primarily reflecting a lower estimated prevalence of illicit trade, as well as higher border sales due to the easing of pandemic-related measures;

• Spain, up by 9.2%, mainly reflecting the impact of increased in-bound tourism, coupled with higher border sales due to the easing of pandemic-related measures;

partly offset by

• the U.K., down by 17.6%, notably reflecting the impact of increased out-bound tourism compared to the pandemic-affected prior year period.

For the six months year-to-date, the estimated total market in the EU increased by 3.2% to 235.9 billion units, primarily driven by:

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

• Poland, up by 18.6%, primarily reflecting the same factors as in the quarter;

• Spain, up by 7.0%, mainly reflecting the same factors as in the quarter;

partly offset by

• Germany, down by 5.4%, 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;

Our total shipment volume increased by 4.2% to 45.0 billion units, mainly driven by:

• Poland, up by 20.7%, mainly reflecting the higher total market, as well as a higher market share driven by heated tobacco units;

• Spain, up by 23.1%, or by 1.7% excluding the net favorable impact of estimated distributor inventory movements, reflecting a higher total market, partly offset by a lower market share due to cigarettes.

Excluding the net unfavorable impact of estimated distributor inventory movements (notably in Italy, partly offset by Spain), our total in-market sales volume increased by 5.2%.

• the U.K., down by 11.2%, primarily reflecting the same factor as in the quarter.

In the second quarter, our total shipment volume increased by 4.6% to 50.6 billion units, mainly driven by:

• Italy, up by 10.6%, primarily reflecting the higher total market and a higher market share driven by heated tobacco units;

• Poland, up by 20.1%, mainly reflecting the higher total market and a higher market share driven by heated tobacco units.

For the six months year-to-date, our total shipment volume increased by 4.4% to 95.6 billion units, primarily driven by:

• Italy, up by 5.9%, primarily reflecting the same factors as in the quarter;

• Poland, up by 20.4%, mainly reflecting the same factors as in the quarter.

Eastern Europe:

Financial Summary -

Quarters Ended March 31, Change

Quarters Ended

June 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 291 $ 314 (7.3) % (25.2) % $ (23) $ 56 $ — $ 89 $ (69) $ (99)

During the quarter, net revenues, excluding currency and acquisitions, increased by 0.3%, reflecting:

a favorable pricing variance, mainly driven by higher combustible pricing (primarily in Russia);

largely offset by unfavorable volume/mix, mainly due to unfavorable cigarette volume (mainly in Russia).

For the three months ended June 30, 2022, net revenues, excluding currency and acquisitions, decreased by 1.7%, reflecting:

unfavorable volume/mix, mainly due to lower cigarette volume and heated tobacco unit volume;

partly offset by a favorable pricing variance, primarily driven by higher combustible pricing.

During the quarter, Russia and Ukraine accounted for around 68% of PMI's total net revenues in the Region.

Operating income, excluding currency and acquisitions, decreased by 21.8%, notably reflecting pre-tax charges in the first quarter of 2022 related to the war in Ukraine ($42 million), as well as unfavorable volume/mix, mainly due to unfavorable cigarette volume/mix (primarily in Russia);

Operating income, excluding currency and acquisitions, decreased by 25.2%, primarily reflecting 2022 charges related to the war in Ukraine ($80 million), as well as unfavorable volume/mix, primarily due to the same factors as for net revenues;

and higher manufacturing costs;

partly offset by a favorable pricing variance.

Financial Summary -

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,624 $ 1,691 (4.0) % (0.8) % $ (67) $ (54) $ — $ 125 $ (138) $ —

Operating Income $ 435 $ 575 (24.3) % (23.7) % $ (140) $ (4) $ — $ 125 $ (95) $ (166)

For the six months ended June 30, 2022, net revenues, excluding currency and acquisitions, decreased by 0.8%, reflecting:

unfavorable volume/mix, mainly due to lower cigarette volume, lower heated tobacco unit volume and unfavorable cigarette mix;

largely offset by a favorable pricing variance, primarily driven by higher combustible pricing.

For the six months ended June 30, 2022, Russia and Ukraine accounted for around 67% of PMI's total net revenues in the Region.

Operating income, excluding currency and acquisitions, decreased by 23.7%, primarily reflecting 2022 charges related to the war in Ukraine ($122 million), as well as unfavorable volume/mix, mainly due to the same factors as for net revenues;

higher manufacturing costs;

and higher marketing, administration and research costs;

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

Given the company's intention to exit the Russian market and the impact of the war in Ukraine on business operations in the country, PMI is providing a total market estimate for the Eastern Europe Region excluding Russia and Ukraine.

In the quarter, the estimated total market in Eastern Europe, excluding Russia and Ukraine, increased, mainly driven by:

• Kazakhstan, up by 6.2%, primarily reflecting a favorable comparison versus the prior year period due to the temporary supply chain impact of the introduction, in January 2021, of certain mandatory requirements related to the sale of tobacco products;

• Southeast Europe, up by 10.0%, mainly reflecting increased in-bound travel and the impact on adult smoker average daily consumption of the easing of pandemic-related measures.

Given the company's intention to exit the Russian market and the impact of the war in Ukraine on business operations in the country, PMI's references to the total market estimate for the Eastern Europe Region exclude Russia and Ukraine.

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

• Kazakhstan, down by 4.7%.

Excluding the net unfavorable impact of estimated trade inventory movements, total in-market sales volume increased by 2.7%, notably reflecting the impact of population inflow;

partly offset by

• Southeast Europe, up by 11.0%, mainly reflecting increased in-bound travel, the impact on adult smoker average daily consumption of the easing of pandemic-related measures and a lower estimated prevalence of illicit trade.

For the six months year-to-date, the estimated total market in Eastern Europe, excluding Russia and Ukraine, decreased, mainly due to:

• Central Asia, down by 10.9%, primarily reflecting a higher estimated prevalence of illicit trade following excise tax-driven price increases in July 2021;

partly offset by

• Southeast Europe, up by 10.6%, mainly reflecting the same factors as in the quarter.

The company's reported shipment volume, presented below, includes Russia and Ukraine.

Our total shipment volume decreased by 4.8% to 24.4 billion units, primarily due to:

• Russia, down by 9.9%.

During the quarter, Russia and Ukraine accounted for around 73% of PMI's total shipment volume in the Region.

In the second quarter, our total shipment volume decreased by 10.4% to 26.6 billion units, primarily due to:

• Russia, down by 4.5%, due to cigarettes and heated tobacco units;

• Ukraine, down by 48.3%, due to cigarettes and heated tobacco units.

During the quarter of 2022, Russia and Ukraine accounted for around 71% of PMI's total shipment volume in the Region.

Excluding Russia and Ukraine, total shipment volume decreased by 3.4%.

For the six months year-to-date, our total shipment volume decreased by 7.8% to 50.9 billion units, primarily due to:

• Russia, down by 7.1%, due to cigarettes and heated tobacco units;

• Ukraine, down by 25.5%, due to cigarettes and heated tobacco units.

For the six months year-to-date of 2022, Russia and Ukraine accounted for around 72% of PMI's total shipment volume in the Region.

Excluding Russia and Ukraine, total shipment volume increased by 0.2%.

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Quarters Ended

March 31, Change

June 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 498 $ 16 +100% +100% $ 482 $ (4) $ — $ 20 $ 182 $ 284

During the quarter, net revenues, excluding currency and acquisitions, increased by 42.3%, primarily reflecting:

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

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

Operating income, excluding currency and acquisitions, increased by 89.9%, mainly reflecting:

For the three months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 87.7%, notably reflecting a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/Other", favorable volume/mix, mainly driven by higher cigarette volume, higher heated tobacco unit volume and favorable

cigarette mix;

and a favorable pricing variance, driven by combustible pricing.

Operating income, excluding currency and acquisitions, increased by +100%, notably reflecting a favorable comparison related to the Saudi Arabia customs assessments in 2021 (as noted above for net revenues), favorable volume/mix, mainly driven by the same factors as for net revenues;

lower marketing, administration and research costs;

and a favorable pricing variance.

Financial Summary -

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 1,997 $ 1,361 46.7 % 61.0 % $ 636 $ (194) $ — $ 183 $ 386 $ 261

Operating Income $ 1,019 $ 351 +100% +100% $ 668 $ (119) $ — $ 183 $ 307 $ 297

For the six months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 61.0%, notably reflecting a favorable comparison related to the Saudi Arabia customs assessments of $246 million in 2021, shown in "Cost/Other", favorable volume/mix, primarily driven by higher cigarette volume, higher heated tobacco unit volume and favorable cigarette mix;

and a favorable pricing variance, mainly driven by combustible pricing.

Operating income, excluding currency and acquisitions, increased by +100%, notably reflecting a favorable comparison related to the Saudi Arabia customs assessments in 2021 (as noted above for net revenues), favorable volume/mix, primarily driven by the same factors as for net revenues;

a favorable pricing variance;

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

and lower marketing, administration and research costs;

partly offset by higher manufacturing costs (primarily due to inflationary impacts).

partly offset by higher manufacturing costs.

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

In the quarter, the estimated total market in the Middle East & Africa decreased, mainly due to:

• Algeria, down by 37.5%, or by 8.2% excluding the net unfavorable impact of estimated trade inventory movements, primarily reflecting industry supply chain disruptions;

• Turkey, down by 6.8%, mainly reflecting a higher estimated prevalence of illicit trade, partly offset by the impact on adult smoker average daily consumption of the easing of pandemic-related measures, coupled with increased in-bound tourism;

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

• International Duty Free, up by 60.1%, primarily reflecting the impact of reduced government travel restrictions and increased passenger traffic in certain geographies;

• Turkey, up by 2.4%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures, coupled with increased in-bound tourism, partly offset by a higher estimated prevalence of illicit trade;

partly offset by

• International Duty Free, up by 40.2%, reflecting the impact of reduced government travel restrictions and increased passenger traffic in certain geographies.

Our total shipment volume increased by 8.3% to 30.4 billion units, notably driven by:

• PMI Duty Free, up by +100%, or by 50.8% excluding the net favorable impact of estimated distributor inventory movements, reflecting the higher total market and a higher market share;

• Egypt, up by 10.7%, primarily reflecting a higher market share, driven by cigarettes and heated tobacco units;

• South Africa, down by 20.9%, primarily reflecting a higher estimated prevalence of illicit trade.

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

• International Duty Free, up by 45.9%, reflecting the same factors as in the quarter;

partly offset by

• Algeria, down by 27.5%, mainly reflecting the lower total market, partly offset by a higher market share driven by cigarettes.

• Algeria, down by 17.7%, or by 8.4% excluding the net unfavorable impact of estimated trade inventory movements, primarily reflecting industry supply chain disruptions.

In the second quarter, our total shipment volume increased by 15.7% to 35.7 billion units, mainly driven by:

• PMI Duty Free, up by +100%, or by 66.9% excluding the net favorable impact of estimated distributor inventory movements (primarily due to cigarettes), reflecting the higher total market and a higher market share;

• Turkey, up by 7.4%, primarily reflecting a higher market share, driven by cigarettes, and the higher total market.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 10.9%.

For the six months year-to-date, our total shipment volume increased by 12.2% to 66.1 billion units, mainly driven by:

• PMI Duty Free, up by +100%, or by 55.2% excluding the net favorable impact of estimated distributor inventory movements (primarily due to cigarettes), reflecting the same factors as in the quarter;

• Turkey, up by 4.3%, primarily reflecting a higher market share driven by cigarettes.

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 7.6%.

South & Southeast Asia:

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Quarters Ended

March 31, Change

June 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 306 $ 331 (7.6) % (0.9) % $ (25) $ (22) $ — $ 17 $ (36) $ 16

During the quarter, net revenues, excluding currency and acquisitions, decreased by 0.5%, reflecting:

an unfavorable pricing variance, due to combustible pricing (mainly in Indonesia and the Philippines);

largely offset by favorable volume/mix, primarily driven by higher cigarette volume (mainly in Indonesia and the Philippines) and favorable cigarette mix (primarily in Indonesia, partly offset by the Philippines).

For the three months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 2.6%, reflecting:

a favorable pricing variance, driven by combustible pricing;

and favorable volume/mix, primarily driven by favorable cigarette mix, partly offset by lower cigarette volume.

Operating income, excluding currency and acquisitions, decreased by 0.9%, primarily reflecting:

unfavorable volume/mix, mainly due to lower cigarette volume;

partly offset by a favorable pricing variance;

and lower marketing, administration and research costs.

Financial Summary -

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 2,157 $ 2,219 (2.8) % 0.9 % $ (62) $ (83) $ — $ (128) $ 149 $ —

Operating Income $ 751 $ 860 (12.7) % (7.2) % $ (109) $ (47) $ — $ (128) $ 51 $ 15

For the six months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 0.9%, reflecting:

favorable volume/mix, primarily driven by higher cigarette volume and favorable cigarette mix;

partly offset by an unfavorable pricing variance, mainly due to combustible pricing.

Operating income, excluding currency and acquisitions, decreased by 7.2%, primarily reflecting:

an unfavorable pricing variance;

partly offset by favorable volume/mix, mainly driven by higher cigarette volume (primarily in Indonesia and the Philippines).

partly offset by favorable volume/mix, mainly driven by higher cigarette volume;

and lower marketing, administration and research costs.

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

In the quarter, the estimated total market in South & Southeast Asia increased, mainly due to:

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

• India, up by 25.0%, primarily reflecting a favorable comparison versus the prior year period, during which pandemic-related restrictions impacted the movement of certain products, including tobacco;

• Indonesia, up by 5.8%, mainly reflecting impact on adult smoker consumption of the easing of pandemic-related measures, which drove growth in the tax-advantaged 'below tier one' segment;

• the Philippines, up by 19.2%, primarily reflecting the net favorable impact of estimated trade inventory movements related to first-quarter 2022 price increases;

• Indonesia, up by 6.6%, mainly reflecting the impact on adult smoker consumption of the easing of pandemic-related measures, which drove growth in the tax-advantaged 'below tier one' segment;

partly offset by

• Bangladesh, down by 12.9%, mainly reflecting the impact of pandemic-related restrictions on mobility during February 2022;

• Thailand, down by 13.3%, primarily reflecting the impact of excise tax-driven price increases.

Our total shipment volume increased by 7.5% to 37.6 billion units, mainly driven by:

• Indonesia, up by 5.2%, 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 portfolio);

• the Philippines, up by 18.4%, primarily reflecting the higher total market.

• the Philippines, down by 16.5%, primarily reflecting the impact of first-quarter 2022 excise tax-driven price increases and related trade inventory movements.

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

• India, up by 15.6%, primarily reflecting the same factor as in the quarter;

• Indonesia, up by 6.2%, mainly reflecting the same factor as in the quarter;

partly offset by

• Bangladesh, down by 10.1%, primarily reflecting the impact of pandemic-related restrictions on mobility during February 2022;

• Thailand, down by 13.0%, mainly reflecting the impact of excise tax-driven price increases.

In the second quarter, our total shipment volume decreased by 1.4% to 34.9 billion units, mainly due to:

• the Philippines, down by 17.7%, primarily reflecting the lower total market and a lower market share for cigarettes;

partly offset by

• Indonesia, up by 6.2%, 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).

For the six months year-to-date, our total shipment volume increased by 3.0% to 72.4 billion units, mainly driven by:

• India, up by 78.0%, primarily reflecting a higher market share (driven by geographic expansion) and the higher total market;

• Indonesia, up by 5.7%, mainly reflecting the higher total market, partly offset by a lower market share (mainly due to the same factors as in the quarter);

partly offset by

• Thailand, down by 9.5%, primarily reflecting the lower total market, partly offset by a higher market share for cigarettes.

East Asia & Australia:

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Quarters Ended

March 31, Change

June 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 346 $ 715 (51.6) % (39.3) % $ (369) $ (88) $ — $ 27 $ (316) $ 8

During the quarter, net revenues, excluding currency and acquisitions, increased by 2.6%, reflecting:

a favorable pricing variance, primarily driven by higher combustible pricing (predominantly in Japan).

Volume/mix was slightly favorable, mainly reflecting higher device and heated tobacco unit volume in Japan, largely offset by unfavorable cigarette mix (primarily in Japan) and unfavorable device mix in Japan.

For the three months ended June 30, 2022, net revenues, excluding currency and acquisitions, decreased by 12.9%, reflecting:

unfavorable volume/mix, mainly due to lower heated tobacco unit volume (primarily in Japan, as the company manages temporary production and supply chain impacts), as well as lower cigarette volume, unfavorable cigarette mix and unfavorable device mix, partly offset by higher device volume;

partially offset by a favorable pricing variance, primarily driven by higher combustible pricing, partly offset by lower heated tobacco unit pricing and device pricing.

Operating income, excluding currency and acquisitions, decreased by 39.3%, mainly reflecting:

unfavorable volume/mix, primarily due to unfavorable mix for cigarettes and devices in Japan;

unfavorable volume/mix, primarily due to lower heated tobacco unit volume, as well as lower cigarette volume, the unfavorable impact on profitability of higher device volume, and unfavorable mix for cigarettes, heated tobacco units and devices;

and higher manufacturing costs (mainly due to higher logistics costs);

partly offset by lower marketing, administration and research costs (notably driven by a favorable comparison related to 2021 asset impairment and exit costs of $31 million);

and a favorable pricing variance.

partly offset by a favorable pricing variance;

and lower marketing, administration and research costs.

Financial Summary -

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 2,610 $ 2,986 (12.6) % (5.3) % $ (376) $ (218) $ — $ 57 $ (215) $ —

Operating Income $ 917 $ 1,410 (35.0) % (23.9) % $ (493) $ (156) $ — $ 57 $ (437) $ 43

For the six months ended June 30, 2022, net revenues, excluding currency and acquisitions, decreased by 5.3%, reflecting:

unfavorable volume/mix, mainly due to lower heated tobacco unit volume (primarily in Japan, reflecting the same factors as in the quarter), as well as lower cigarette volume, unfavorable cigarette mix and unfavorable device mix, partly offset by higher device volume;

partially offset by a favorable pricing variance, primarily driven by higher combustible pricing, partly offset by lower device pricing.

Operating income, excluding currency and acquisitions, decreased by 23.9%, mainly reflecting:

and higher manufacturing costs (mainly due to higher logistics costs);

partly offset by a favorable pricing variance;

and lower marketing, administration and research costs.

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

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

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

• Japan, down by 1.7%, primarily reflecting the impact of the October 2021 excise tax-driven price increase;

Our total shipment volume increased by 1.7% to 20.8 billion units, mainly driven by:

• Japan, up by 3.2%.

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

Excluding the net favorable impact of estimated distributor inventory movements, our total in-market sales volume decreased by 1.0%.

• Taiwan, down by 4.7%, or by 2.3% excluding the net unfavorable impact of estimated trade inventory movements, mainly reflecting the impact of pandemic-related measures;

partly offset by

• South Korea, up by 3.5%, primarily 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 East Asia & Australia, excluding China, decreased, mainly due to:

• Japan, down by 2.5%, primarily reflecting the same factor as in the quarter;

• Taiwan, down by 6.4%, or by 2.4% excluding the net unfavorable impact of estimated trade inventory movements, mainly reflecting the same factor as in the quarter;

partly offset by

• South Korea, up by 1.9%, primarily reflecting the same factor as in the quarter.

In the second quarter, our total shipment volume decreased by 11.0% to 18.6 billion units, mainly due to:

• Japan, down by 15.0%.

Excluding the net unfavorable impact of estimated distributor inventory movements (primarily due to heated tobacco units) total in-market sales volume increased by 4.1%, reflecting a higher market share (driven by heated tobacco units), partly offset by the lower total market.

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 2.2%.

For the six months year-to-date, our total shipment volume decreased by 4.7% to 39.4 billion units, mainly due to:

• Japan, down by 6.0%.

Excluding the net unfavorable impact of estimated distributor inventory movements (primarily due to heated tobacco units) total in-market sales volume increased by 2.1%, primarily reflecting the same factor as in the quarter.

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 0.7%.

Financial Summary -

Quarters Ended

March 31, Change

June 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 130 $ 112 16.1 % 12.5 % $ 18 $ 4 $ — $ 24 $ 1 $ (11)

During the quarter, net revenues, excluding currency and acquisitions, increased by 0.7%, reflecting:

a favorable pricing variance, driven by combustible products (mainly in Argentina, Brazil and Mexico);

partly offset by unfavorable volume/mix, mainly due to lower cigarette volume (primarily in Argentina) and unfavorable cigarette mix (primarily in Brazil).

Operating income, excluding currency and acquisitions, decreased by 8.2%, mainly reflecting:

higher manufacturing costs (primarily due to inflationary impacts);

and unfavorable volume/mix (mainly due to the same factors and geographies as for net revenues noted above);

partly offset by a favorable pricing variance.

For the three months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 8.1%, primarily reflecting:

a favorable pricing variance, driven by combustible pricing;

and favorable volume/mix, driven by higher cigarette volume, partly offset by unfavorable cigarette mix.

Operating income, excluding currency and acquisitions, increased by 12.5%, mainly reflecting:

a favorable pricing variance;

partly offset by higher manufacturing costs (primarily due to inflationary impacts);

and higher marketing, administration and research costs.

Volume/mix was slightly favorable, reflecting higher cigarette volume, largely offset by unfavorable cigarette mix.

Financial Summary -

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 893 $ 864 3.4 % 4.4 % $ 29 $ (9) $ — $ 43 $ (8) $ 3

Operating Income $ 251 $ 246 2.0 % 1.2 % $ 5 $ 2 $ — $ 43 $ (8) $ (32)

For the six months ended June 30, 2022, net revenues, excluding currency and acquisitions, increased by 4.4%, primarily reflecting:

a favorable pricing variance, driven by combustible pricing;

partly offset by unfavorable volume/mix, mainly due to unfavorable cigarette mix, partially offset by higher cigarette volume.

Operating income, excluding currency and acquisitions, increased by 1.2%, mainly reflecting:

a favorable pricing variance;

largely offset by higher manufacturing costs (primarily due to inflationary impacts);

higher marketing, administration and research costs;

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

Americas - Total Market, PMI Shipment Volume and Market Share Commentaries

In the quarter, the estimated total market in Americas, excluding the U.S., decreased, primarily due to:

• Canada, down by 14.3%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products;

• Mexico, down by 3.8%.

Excluding the net unfavorable impact of estimated trade inventory movements, the total market increased by 1.4%, mainly driven by 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

In the second quarter, the estimated total market in Americas, excluding the U.S., increased, primarily driven by:

• Argentina, up by 10.2%, mainly reflecting a favorable comparison due to the impact on adult smoker average daily consumption of strict pandemic-related measures implemented during the second quarter of 2021;

• Brazil, up by 12.8%, primarily reflecting a lower estimated prevalence of illicit trade;

Our total shipment volume decreased by 0.6% to 14.9 billion units, mainly due to:

• Argentina, down by 7.1%, primarily reflecting a lower market share due to adult smoker down-trading to ultra-low-price brands produced by local manufacturers;

partly offset by

• Canada, down by 19.6%, notably reflecting out-switching from cigarettes to e-vapor products.

For the six months year-to-date, the estimated total market in Americas, excluding the U.S., increased, primarily driven by:

• Argentina, up by 4.6% mainly reflecting the same factor as in the quarter;

• Brazil, up by 8.4%, primarily reflecting the same factor as in the quarter;

partly offset by

• Canada, down by 15.9%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products.

In the second quarter, our total shipment volume increased by 5.4% to 16.2 billion units, mainly driven by:

• Argentina, up by 4.3%, primarily reflecting the higher total market, partly offset by a lower market share due to adult smoker down-trading to ultra-low-price brands produced by local manufacturers;

• Brazil, up by 18.4%, mainly reflecting the higher total market and a higher market share driven by Chesterfield .

For the six months year-to-date, our total shipment volume increased by 2.5% to 31.1 billion units, mainly driven by:

• Brazil, up by 11.7%, primarily reflecting the same factors as in the quarter;

• Mexico, up by 1.6%, mainly reflecting a higher market share for cigarettes;

partly offset by

• Argentina, down by 1.8%, primarily reflecting a lower market share due to adult smoker down-trading to ultra-low-price brands produced by local manufacturers.

Wellness and Healthcare:

In the third quarter of 2021, we acquired Fertin Pharma A/S, Vectura Group plc.

and OtiTopic, Inc.

On March 31, 2022, we launched a new Wellness and Healthcare business consolidating these entities, Vectura Fertin Pharma.

The operating results of this new business are reported in the Other category.

The business operations of our Wellness and Healthcare business are managed and evaluated separately from the geographical segments.

On March 31, 2022, we launched a new Wellness and Healthcare business, Vectura Fertin Pharma, consolidating these entities.

The operating results of this business are reported in the Wellness and Healthcare segment (formerly the Other category).

The business operations of our Wellness and Healthcare segment are managed and evaluated separately from the geographical segments.

Financial Summary -

Quarters Ended

March 31, Change

June 30, Change

Fav./(Unfav.) Variance

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Operating Income / (Loss) $ (34) $ — — % — % $ (34) $ — $ (24) $ — $ — $ (10)

During the quarter, we recorded net revenues of $66 million, as well as an operating loss of $31 million, primarily reflecting the amortization of intangibles related to the acquisitions, investments in research and development, and expenses related to employee retention programs.

For the three months ended June 30, 2022, we recorded net revenues of $76 million in the Wellness and Healthcare segment, with an operating loss of $34 million, primarily reflecting the amortization of intangibles related to the acquisitions, as well as investments in research and development.

Financial Summary -

Six Months Ended

June 30, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2022 2021 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 142 $ — — % — % $ 142 $ — $ 142 $ — $ — $ —

Operating Income / (Loss) $ (65) $ — — % — % $ (65) $ — $ (48) $ — $ — $ (17)

For the six months ended June 30, 2022, we recorded net revenues of $142 million in the Wellness and Healthcare segment, with an operating loss of $65 million, primarily reflecting the amortization of intangibles related to the acquisitions, investments in research and development, and expenses related to employee retention programs.

Financial Review

Cash Flow Highlights

For the Three Months Ended March 31,

For the Six Months Ended June 30,

(in millions) 2022 2021

Net cash provided by operating activities $ 4,642 $ 4,065

Net cash provided by (used in) investing activities (196) 55

Net cash used in investing activities (55) (128)

Net cash used in financing activities (3,800) (6,123)

Net Cash Provided by Operating Activities

During the first quarter of 2022, net cash provided by operating activities increased by $0.7 billion compared with the first quarter of 2021.

Excluding unfavorable currency movements of $0.4 billion, net cash provided by operating activities increased by $1.1 billion, due primarily to higher currency-neutral net earnings and lower working capital requirements of $0.7 billion.

The lower working capital requirements in the first quarter of 2022 as compared with the first quarter of 2021 were primarily due to the timing of excise tax-paid inventory movements and excise tax payments, including the 2021 settlement of excise tax liabilities driven by the COVID-19 pandemic-related build-up of inventory.

Net Cash Provided by (Used in) Investing Activities

During the first quarter of 2022, net cash used in investing activities was $196 million as compared to $55 million of net cash provided by investing activities in the first quarter of 2021.

This change was due primarily to unfavorable movements of $78 million 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.

dollar, higher capital expenditures and other investments.

For further detail on our derivatives designated as net investment hedges and other investments, see Note 5.

During the first six months of 2022, net cash provided by operating activities increased by $0.6 billion compared with the first six months of 2021.

Excluding unfavorable currency movements of $0.5 billion, net cash provided by operating activities increased by $1.1 billion, due primarily to higher currency-neutral net earnings of $0.5 billion and lower working capital requirements of $0.2 billion, as well as lower pension plan contributions, net of refunds, of $0.3 billion.

For details on our pension contributions, net of refunds, see Note 5.

Benefit Plans .

The lower working capital requirements in the first six months of 2022 as compared with the first six months of 2021 were primarily due to less cash used in accounts payable mainly reflecting higher IQOS device purchases as well as the timing of excise tax-paid inventory movements and excise tax payments.

Net Cash Used in Investing Activities

During the first six months of 2022, net cash used in investing activities decreased by $73 million as compared with the first six months of 2021.

This decrease was due primarily to favorable movements of $367 million in cash collateral received from financial institutions to secure derivatives designated as net investment hedges of Euro assets and was principally related to changes in exchange rates between the Euro and the U.S.

dollar, as well as the 2021 acquisition of AG Snus Aktieselskab, partly offset by higher capital expenditures and other investments.

For further detail on our acquisitions and derivatives designated as net investment hedges and other investments, see Note 2.

Acquisitions and Note 7.

Financial Instruments.

Capital expenditures of $229 million during the first quarter of 2022 increased slightly as compared with the first quarter of 2021.

Capital expenditures of $478 million during the first six months of 2022 increased by $171 million as compared with the first six months of 2021.

The 2022 capital expenditures were primarily related to our ongoing investments in RRPs.

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Net Cash Used in Financing Activities

During the first quarter of 2022, net cash used in financing activities decreased by $2.9 billion compared to the first quarter of 2021.

During the first six months of 2022, net cash used in financing activities decreased by $2.3 billion compared to the first six months of 2021.

The lower cash usage primarily reflected proceeds from short-term borrowings in 2022 (primarily commercial paper of $1.4 billion) and lower long-term debt repayments ($0.5 billion in 2022 compared with $2.0 billion in 2021), partially offset by share repurchases in the first quarter of 2022 under our share repurchase program and the purchase of the remaining stakes in our Turkish affiliates in the first quarter of 2022.

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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 three months ended March 31, 2022 and the full-year 2021, the activities for such reverse repurchase agreements were not material.

For the six months ended June 30, 2022 and the full-year 2021, 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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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 March 31, 2022, our credit ratings and outlook by major credit rating agencies were as follows:

Following the announcement of the Swedish Match Offer on May 11, 2022, Moody's, Standard & Poor's and Fitch revised their respective credit rating outlooks.

Accordingly, at June 30, 2022, our credit ratings and outlook by major credit rating agencies were as follows:

Short-term Long-term Outlook

Moody’s P-1 A2 Stable

Standard & Poor’s A-1 A Stable

Fitch F1 A Stable

Credit Facilities

At March 31, 2022, our committed credit facilities were as follows:

Moody’s P-1 A2 Rating(s) Under Review

Standard & Poor’s A-1 A CreditWatch Negative

Fitch F1 A Rating Watch Negative

For further details of the Swedish Match offer, see the Acquisitions and Other Business Arrangements section of this MD&A.

Revolving Credit Facilities

At June 30, 2022, our committed revolving credit facilities were as follows:

(in billions)

Type Committed

Revolving Credit

364-day revolving credit, expiring January 31, 2023

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(2) Includes 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.

At March 31, 2022, there were no borrowings under the committed credit facilities, and the entire committed amounts were available for borrowing.

At June 30, 2022, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing.

Subject to market conditions, we currently expect to request an extension of the terms of our $2.5 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.

All banks participating in our committed revolving credit facilities have an investment-grade long-term credit rating from the credit rating agencies.

We continuously monitor the credit quality of our banking group, and at this time we are not aware of any potential non-performing credit provider.

These facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral.

These committed revolving credit facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral.

We expect to continue to meet our covenants.

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 $2.3 billion at March 31, 2022 and December 31, 2021, are for the sole use of our subsidiaries.

Borrowings under these arrangements and other bank loans amounted to $208 million at March 31, 2022, and $225 million at December 31, 2021.

In addition to the committed revolving 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 $2.3 billion at June 30, 2022 and December 31, 2021, are for the sole use of our subsidiaries.

Borrowings under these arrangements and other bank loans amounted to $177 million at June 30, 2022, and $225 million at December 31, 2021.

Financing of the Swedish Match Offer

In connection with the Swedish Match offer, PMI entered into a credit agreement relating to a 364-day senior unsecured bridge facility.

The facility provided for borrowings up to an aggregate principal amount of $17 billion, expiring 364 days after the occurrence of certain events unless extended.

On June 23, 2022, PMI entered into a new €5.5 billion (approximately $5.8 billion at the date of signing) senior unsecured term loan credit agreement consisting of a €3.0 billion (approximately $3.2 billion at the date of signing) tranche expiring three years after the occurrence of certain events and a €2.5 billion (approximately $2.6 billion at the date of signing) tranche expiring on June 23, 2027.

In connection with the term loan facility, the aggregate principal amount of commitments under the 364-day senior unsecured bridge facility was reduced from $17 billion to $11 billion.

As of June 30, 2022, there were no borrowings under these two facilities.

If drawn upon, the proceeds under the bridge facility and the term loan facility will be used, directly or indirectly, to finance the Swedish Match offer, including, the payment of related fees and expenses.

For further details of the Swedish Match offer, see the Acquisitions and Other Business Arrangements section of this MD&A.

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 March 31, 2022, we had $2.2 billion of commercial paper outstanding.

At June 30, 2022, we had $1.4 billion of commercial paper outstanding.

At December 31, 2021, we had no commercial paper outstanding.

The average commercial paper balance outstanding during the first three months of 2022 was $3.7 billion.

The average commercial paper balance outstanding during the first six months of 2022 was $3.5 billion.

The average commercial paper balance outstanding during 2021 was $1.1 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 March 31, 2022, and March 31, 2021 were $598 million and $625 million, respectively.

The trade receivables sold that remained outstanding under these arrangements as of June 30, 2022, and June 30, 2021 were $656 million and $701 million, respectively.

The net proceeds received are included in cash provided by operating activities in the condensed consolidated statements of cash flows.

1 unchanged sentence

Sale of Accounts Receivable to our condensed consolidated financial statements.

Debt – Our total debt was $29.4 billion at March 31, 2022 and $27.8 billion at December 31, 2021.

Debt – Our total debt was $28.1 billion at June 30, 2022 and $27.8 billion at December 31, 2021.

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 March 31, 2022, we have guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products.

Guarantees – At June 30, 2022, 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.

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Equity and Dividends

We discuss our stock awards as of March 31, 2022 in Note 2.

We discuss our stock awards as of June 30, 2022 in Note 4.

Stock Plans to our condensed consolidated financial statements.

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From July 22, 2021 through March 31, 2022, we repurchased 10.5 million shares of our common stock at a cost of approximately $1.0 billion.

During the first quarter of 2022, we repurchased 2.0 million shares of our common stock at a cost of $199 million.

Dividends paid in the first quarter of 2022 were $2.0 billion.

During the first three months of 2022, we repurchased 2.0 million shares of our common stock at a cost of $199 million.

On May 11, 2022, we announced the suspension of our three-year share repurchase program following the recommended public offer to acquire the outstanding shares of Swedish Match from its shareholders.

Prior to the suspension of the program, we made no share repurchases during the second quarter of 2022.

For further details on the offer, see the Acquisitions and Other Business Arrangements section of this MD&A.

Dividends paid in the first six months of 2022 were $3.9 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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Consequently, we use certain financial instruments to manage our foreign currency and interest rate exposure.

We use derivative financial instruments principally to reduce our exposure to market risks resulting from fluctuations in foreign exchange and interest rates by creating offsetting exposures.

We use derivative financial instruments principally to reduce our exposure to

market risks resulting from fluctuations in foreign exchange and interest rates by creating offsetting exposures.

We are not a party to leveraged derivatives and, by policy, do not use derivative financial instruments for speculative purposes.

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In addition, actions of some market entrants, such as the inappropriate marketing of e-vapor products to youth, as well as alleged health consequences associated with the use of certain e-vapor products, may unfavorably impact public opinion and/or mischaracterize all e-vapor products or other RRPs to consumers, regulators and policy makers without regard to the totality of scientific evidence available for specific products.

This may impede our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs.

This may impede our efforts to advocate for

the development of science-based regulatory frameworks for the development and commercialization of RRPs.

We cannot predict whether regulators will permit the sale and/or marketing of RRPs with scientifically substantiated information and claims.

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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 Conference of the Parties ("CoP") of the FCTC, which are not materially different from the WHO study group report.

Prior to CoP 9 that took place in November 2021, the WHO and the WHO FCTC Secretariat published two reports on novel and emerging tobacco products.

The reports were noted by CoP 9 and related substantive discussions and decisions were deferred to CoP 10, currently scheduled for 2023.

In August 2021, the WHO FCTC Secretariat published two reports on novel and emerging tobacco products to the ninth session of the Conference of the Parties ("CoP") of the FCTC, which are not materially different from the WHO study group report.

Substantive decisions based on these reports were deferred to CoP 10, currently scheduled to take place in the fourth quarter of 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.

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• restrictions or bans on the display of tobacco product packaging at the point of sale and restrictions or bans on vending machines;

• generation sales bans, under which the sale of certain tobacco or nicotine products to people born after a certain year would be prohibited;

• requirements regarding testing, disclosure and performance standards for tar, nicotine, carbon monoxide and other smoke constituents;

1 unchanged sentence

• increased restrictions on smoking and use of tobacco and nicotine-containing products in public and work places and, in some instances, in private places and outdoors;

• restrictions or prohibitions of novel tobacco or nicotine-containing products;

• restrictions or prohibitions of novel tobacco or nicotine-containing products or related devices;

• elimination of duty free sales and duty free allowances for travelers;

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If implemented, such changes, as well as changes in taxing jurisdictions’ administrative interpretations, decisions, policies, or positions, could also have a material adverse impact on our effective tax rate thereby reducing our net earnings.

In future periods, our ability to recover deferred tax assets could be subject to additional uncertainty

as a result of such developments.

In future periods, our ability to recover deferred tax assets could be subject to additional uncertainty as a result of such developments.

Furthermore, changes in the earnings mix or applicable foreign tax laws may result in significant variability in our effective tax rates.

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Ukraine accounted for around 2% of our total cigarette and heated tobacco unit shipment volume, and under 2% of our total net revenues.

We also produce finished goods in Ukraine for export and manufacture products in Russia.

As a result of Russia’s invasion of Ukraine, we have suspended planned investments in Russia, including all new product launches and commercial, innovation, and manufacturing investments.

We have also initiated plans to scale down our Russian manufacturing operations and are working on options to exit the Russian market in an orderly manner.

Historically, we also produced finished goods in Ukraine for export and manufacture products in Russia.

As a result of Russia’s invasion of Ukraine, we have stopped both planned and any new investments in Russia, including all new product launches and commercial, innovation, and manufacturing investments.

We have also initiated plans to scale down our Russian manufacturing operations and continue to work on options to exit the Russian market in an orderly manner.

In Ukraine, we have temporarily reduced operations, including closing our factory in the country.

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The likelihood of retaliatory action by the Russian government against companies, including us, as a result of actions and statements made in response to the Russian invasion, including the possibility of legal action against us or our employees or nationalization of foreign businesses or assets, including intangible assets such as trademarks, is impossible to predict.

Further, if we are able to divest our Russian assets in an orderly manner, the nature of our divestiture may adversely impact the value we receive for those assets.

Further, if we are able to divest our Russian assets in an orderly manner, the circumstances of our divestiture may adversely impact the value we receive for those assets or, due to financial or legal restrictions, our ability to access the proceeds of the sale.

In Ukraine, there is no way to know when and to what extent we will be able to normalize our operations or to what extent our workforce, facilities, inventory, and other assets will remain intact.

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Such risks include, but are not limited to, the achievement of our strategic priorities, including achievement of our RRP growth targets;

the availability of third-party

manufacturing resources;

the availability of third-party manufacturing resources;

the availability of attractive acquisition and strategic business opportunities and our ability to fully realize the benefits of these transactions;

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dollar reducing our net revenues, operating income and EPS.

Our primary local currency

cost bases may be different from our primary currency revenue markets, and U.S.

Our primary local currency cost bases may be different from our primary currency revenue markets, and U.S.

dollar fluctuations against various currencies may have disproportionate negative impact on net revenues as compared to our gross profit and operating income margins.

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We compete primarily on the basis of product quality, brand recognition, brand loyalty, taste, R&D, innovation, packaging, customer service, marketing, advertising and retail price and, increasingly, adult smoker willingness to convert to our RRPs.

The competitive environment and our competitive

position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price products or innovative products, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs.

The competitive environment and our competitive position can be significantly influenced by weak economic conditions, erosion of consumer confidence, competitors' introduction of lower-price products or innovative products, higher tobacco product taxes, higher absolute prices and larger gaps between retail price categories, and product regulation that diminishes the ability to differentiate tobacco products and restricts adult consumer access to truthful and non-misleading information about our RRPs.

Competitors in our industry include three large international tobacco companies, new market entrants, particularly with respect to innovative products, several regional and local tobacco companies and, in some instances, state-owned tobacco enterprises, principally in Algeria, Egypt, the PRC, Taiwan, Thailand and Vietnam.

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In addition, our revenues are reduced by contraband, legal cross-border purchases, "illicit whites" and non-tax-paid volume produced by local manufacturers.

Our revenues and consumer satisfaction with our Platform 1 device and heated tobacco units may be adversely affected by counterfeit products that do not meet our product quality standards and scientific validation procedures.

Our revenues and consumer satisfaction with our Platform 1 device and heated tobacco units

may be adversely affected by counterfeit products that do not meet our product quality standards and scientific validation procedures.

Risks Related to Cybersecurity and Data Governance

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As we are increasingly relying on digital platforms in our business, and as privacy, data and cyber laws in the jurisdictions in which we do business are introduced or become more stringent, the magnitude of these risks is likely to increase.

Risks related to the proposed acquisition of Swedish Match AB (“Swedish Match”)

The proposed acquisition of all the issued and outstanding shares of Swedish Match may not be timely completed, or completed at all, and may not achieve the intended benefits.

Consummation of our proposed acquisition of Swedish Match is conditioned on, among other things, the acceptance of the offer by Swedish Match shareholders and obtaining necessary governmental and regulatory approvals.

If any of the conditions to the acquisition are not satisfied, it could delay or prevent the proposed acquisition from occurring, which could negatively impact our stock price, future business or financial results.

Further, regulators may impose requirements, limitations or costs or require divestitures or place restrictions on the conduct of our business after the closing.

These requirements, limitations, costs, divestitures or restrictions could jeopardize or delay the consummation of the acquisition or may reduce the anticipated benefits of the transaction.

Moreover, the occurrence of any other event, change or other circumstance that could give rise to the termination of the offer could negatively impact our stock price, future business or financial results.

We may fail to realize the anticipated benefits of the Swedish Match acquisition.

If consummated, the success of the Swedish Match acquisition will depend on, among other things, our ability to combine our business and the business of Swedish Match in a manner that facilitates our strategic and financial goals.

If we are not able to successfully achieve these objectives, the anticipated benefits of the Swedish Match acquisition may not be realized fully or at all or may take longer to realize than expected.

The integration may be complex and time consuming and involve delays or additional and unforeseen expenses.

Any failure to successfully or cost-effectively integrate Swedish Match following the acquisition could have a material adverse effect on our business and financial results and cause reputational harm.

We expect to incur a substantial amount of debt in connection with the acquisition.

To fund the cash consideration for the acquisition and pay related fees and expenses, we expect to incur substantial acquisition-related debt.

Following completion of the acquisition, our increased indebtedness and higher debt-to-equity ratio may have the effect, among other things, of reducing our flexibility to respond to changing business and economic conditions, may increase our borrowing costs, and could adversely affect our business, financial condition or results of operations.

Risks Related to the Acquisitions of OtiTopic, Inc.

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Furthermore, the success of the Acquisition also depends on the success of the research and development efforts of Vectura Fertin Pharma, including the ability to obtain regulatory approval for new products, and the ability to commercialize or license these new products developed by them.

Moreover, our affiliation to its combustible product portfolio may stand in the way of introducing and growing new product categories, and

may prevent us in being successful in developing a long-term sustainable ecosystem of products in the wellness, therapeutic and healthcare categories.

Moreover, our affiliation to its combustible product portfolio may stand in the way of introducing and growing new product categories, and may prevent us in being successful in developing a long-term sustainable ecosystem of products in the wellness, therapeutic and healthcare categories.

The businesses that we acquire in the Acquisitions may have liabilities that are not known to us.

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Customers, suppliers and others who do business with Vectura Fertin Pharma may delay or defer business decisions, decide to terminate, modify or renegotiate their relationships, or take other actions as a result of the Acquisitions, which could negatively affect the revenues, earnings and cash flows of our company or the businesses that we have acquired with these Acquisitions.

Regulatory changes may have an impact on the development and/or commercialization of products which originate from the Vectura Fertin Pharma value chain, as well as our revenues, earnings and cash flow.

If we are unable to maintain the business and operational relationships of Vectura Fertin Pharma, 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