What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-27 compared with 2022-07-29 · 528 added, 504 removed, 1414 unchanged (42% of the section changed)

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Segment Reporting .

In the fourth quarter of 2021, we announced that we will be relocating our PMI corporate headquarters, including our AMCS headquarters, from New York, New York, to Stamford, Connecticut.

This move is expected to be completed in November 2022.

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

As of September 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.

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

Our net revenues and operating income are affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange rates and the mix of products we sell.

Our net revenues and operating income are affected by various factors, including the volume of products we sell, the price of our products, changes in currency exchange

rates and the mix of products we sell.

Mix is a term used to refer to the proportionate value of premium-price brands to mid-price or low-price brands in any given market (product mix).

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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 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;

(ii) providing critical aid to employees who cannot leave or who decide to remain in Ukraine;

and (iii) providing those who have left the country with logistical, medical, financial, and other practical support in neighboring countries.

The company has helped 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;

provided critical aid to employees who cannot leave or who decide to remain in Ukraine;

and provided those who have left the country with a range of support in neighboring countries.

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 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'.

In addition, we have contributed approximately $10 million in funds and donated essential items across the country.

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

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 subsequently 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, as well as through contract manufacturing by a third party.

We are applying increased security and safety measures for personnel.

Production at our factory in Kharkiv remains suspended.

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 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:

• the discontinuation of a number of cigarette products offered in the market (representing approximately one-quarter of the company's domestic cigarette SKUs, including Marlboro and Parliament SKUs) and the reduction of our manufacturing activities accordingly;

• the suspension of our marketing activities in the country;

• the cancellation of all product launches planned for 2022 in the market, including the launch of its flagship heated tobacco product IQOS ILUMA , originally planned for March 2022;

• 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.

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.

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

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.

We will continue to make decisions with their safety and security as a priority.

We will continue to make decisions with employee safety and security as a priority.

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

the discontinuation of a number of cigarette products;

the suspension of our marketing activities;

the cancellation of all product launches planned for 2022, including ILUMA ;

and the cancellation of our plans to manufacture heated tobacco units for ILUMA in Russia.

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.

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

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.

As of September 30, 2022, our Russian operations had approximately $2.6 billion in total assets, excluding intercompany balances.

We recorded pre-tax charges related to the war in Ukraine of approximately $6 million in the third quarter of 2022 and approximately $128 million in the September year-to-date period.

This includes charges in Russia related to the cancellation of the planned launch of ILUMA and the planned production of related 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.

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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.

Agreement with Altria Group, Inc.

regarding Commercialization of IQOS in the U.S.

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc.

to end the companies' commercial relationship covering IQOS in the U.S.

as of April 30, 2024.

Thereafter, PMI will have the full rights to commercialize IQOS in the U.S.

As part of the agreement, PMI will pay a total cash consideration of $2.7 billion, of which $1.0 billion was paid at the inception of the agreement using available cash.

The remaining $1.7 billion, plus interest, at a per annum rate equal to six percent (6%), will be paid by July 2023 at the latest.

PMI is currently evaluating the impact of this agreement on its consolidated financial statements.

For further details, see Note 19.

Subsequent Event to our condensed consolidated financial statements.

Swedish Match Offer

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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.

On October 20, 2022, PMHH announced an increase in the price in its recommended public offer to the shareholders of Swedish Match to SEK 116 in cash per share.

On October 25, 2022, PMHH announced that the European Commission has approved, under the EU Merger Regulation, the proposed acquisition of Swedish Match, subject to PMHH’s divestiture of Swedish Match’s subsidiary SMD Logistics AB following the completion of the offer.

PMHH does not believe that Swedish Match’s earnings and operations will be materially affected by the divestiture and the continued operation of SMD Logistics AB by a third-party outside of the Swedish Match Group.

Accordingly, the condition to PMHH’s offer that all necessary regulatory, governmental or similar clearances, approvals, decisions and other actions be obtained on terms which, in PMHH’s opinion, are acceptable, has been satisfied.

PMI expects the transaction to close in the fourth quarter of this year, subject to the terms and conditions of the offer being fulfilled or waived as further set out in the offer document.

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.

Consolidated Operating Results for the Nine Months Ended September 30, 2022

• Net Revenues - Net revenues of $23.6 billion for the nine months ended September 30, 2022 increased by $0.3 billion, or 1.3%, 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;

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 8.1%, mainly reflecting:

favorable volume/mix, primarily driven by higher heated tobacco units ("HTU") volume and device volume, partly offset by unfavorable device mix, cigarette mix and HTU mix;

a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by lower device pricing and lower HTU (net) 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:

For the nine months ended September 30, 2022, Russia and Ukraine accounted for around 8% of PMI's total net revenues.

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

• Diluted Earnings Per Share - The changes in our reported diluted earnings per share (“diluted EPS”) for the nine months ended September 30, 2022, from the comparable 2021 amounts, were as follows:

Diluted EPS % Change

For the six months ended June 30, 2021 $ 2.93

For the nine months ended September 30, 2021 $ 4.48

2021 Asset impairment and exit costs 0.09

2021 Saudi Arabia customs assessments 0.14

2021 Amortization of intangibles 0.02

2021 Asset acquisition cost 0.03

2021 Equity investee ownership dilution (0.02)

2021 Amortization and impairment of intangibles 0.03

2021 Tax items —

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2022 Fair value adjustment for equity security investments (0.03)

2022 Amortization of intangibles (0.04)

2022 Amortization and impairment of intangibles (0.12)

2022 Costs associated with Swedish Match AB offer (0.13)

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Operations 0.36

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 the nine months ended September 30, 2022 $ 4.27 (4.7) %

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

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.

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.

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

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

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

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

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

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

For further details, see Note 2.

Acquisitions .

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

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

was reduced from approximately 32% at December 31, 2020 to approximately 25% as of September 30, 2021.

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

For further details, see Note 10.

Contingencies .

Amortization and impairment of intangibles – During the nine months ended September 30, 2022 and 2021, we recorded amortization and impairment of intangibles of $213 million (representing $182 million net of income tax or $0.12 per share decrease in diluted EPS) and $55 million (representing $45 million net of income tax or $0.03 per share decrease in diluted EPS), respectively.

The pre-tax amortization and impairment of intangibles amount in 2022 consisted of amortization expense of $101 million primarily due to increased acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021 and an impairment charge of $112 million reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment.

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.

Charges related to the war in Ukraine – During the nine months ended September 30, 2022, we recorded a pre-tax charge of $128 million, representing $109 million net of income tax and a diluted EPS charge of $0.07 per share, related to circumstances driven by the war, 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 – 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).

Fair Value adjustment for equity security investments – During the nine months ended September 30, 2022, we recorded an unfavorable fair value adjustment for our equity security investments in India and Sri Lanka ($0.03 per share decrease in diluted EPS).

For further details, see Note 14.

Related Parties - Equity Investments and Other .

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.

Costs associated with Swedish Match AB offer – During the nine months ended September 30, 2022, we incurred pre-tax costs associated with the Swedish Match offer of $266 million (representing $203 million net of income tax and a diluted EPS charge of $0.13 per share) primarily related to financing costs, derivative financials instruments and certain transaction related costs.

These pre-tax costs of $266 million were recorded in marketing, administration and research costs ($269 million expense) and interest expense, net ($3 million gain) on our condensed consolidated statement of earnings for the nine months ended September 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.

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Currency – The unfavorable impact of $0.58 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, partially offset by the Russian ruble.

dollar, especially against the Euro, Hungarian forint, Japanese yen and Polish zloty, partially offset by the Russian ruble and Swiss franc.

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

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

• Eastern Europe:

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

• South & Southeast Asia:

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

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

• Eastern Europe:

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

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

Primarily reflecting investments in research and development, and expenses related to employee retention programs in 2022;

Higher manufacturing costs and higher marketing, administration and research costs, partly offset by favorable pricing.

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

• Net Revenues - Net revenues of $8.0 billion for the three months ended September 30, 2022 decreased by $90 million, or 1.1%, 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 6.7%, 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.

favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable device mix;

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

During the quarter, Russia and Ukraine accounted for around 10% 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:

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

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

Diluted EPS % Change

For the three months ended June 30, 2021 $ 1.39

For the three months ended September 30, 2021 $ 1.55

2021 Asset impairment and exit costs 0.02

2021 Saudi Arabia customs assessments 0.14

2021 Amortization of intangibles 0.01

2021 Asset acquisition cost 0.03

2021 Equity investee ownership dilution (0.02)

2021 Amortization and impairment of intangibles 0.01

2021 Tax items —

Subtotal of 2021 items 0.04

2022 Charges related to the war in Ukraine

2022 Amortization of intangibles (0.02)

2022 Amortization and impairment of intangibles (0.08)

2022 Costs associated with Swedish Match AB offer (0.11)

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Operations 0.12

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 the three months ended September 30, 2022 $ 1.34 (13.5) %

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

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.

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

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

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

For further details, see Note 2.

Acquisitions .

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

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

was reduced from approximately 32% at June 30, 2021 to approximately 25% as of September 30, 2021.

For further details, see 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.

Amortization and impairment of intangibles – During the third quarter of 2022 and 2021, we recorded amortization and impairment of intangibles of $139 million (representing $119 million net of income tax or $0.08 per share decrease in diluted EPS) and $18 million (representing $12 million net of income tax or $0.01 per share decrease in diluted EPS), respectively.

The pre-tax amortization and impairment of intangibles amount in 2022 consisted of amortization expense of $27 million primarily due to increased acquired intangible assets recorded as a result of our acquisitions in the third quarter of 2021 and an impairment charge of $112 million reflecting the impact of general economic and market conditions resulting in a reduction in future estimated cash flows on certain products within the Wellness and Healthcare segment.

For further details, see Note 2.

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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.

Costs associated with Swedish Match AB offer – During the third quarter of 2022, we incurred pre-tax costs associated with the Swedish Match offer of $227 million (representing $173 million net of income tax and a diluted EPS charge of $0.11 per share)

primarily related to financing costs, derivative financial instruments and certain transaction related costs.

These pre-tax costs of $227 million were recorded in marketing, administration and research costs ($217 million expense) and interest expense, net ($10 million expense) on our condensed consolidated statement of earnings for the three months ended September 30, 2022.

Currency – The unfavorable impact of $0.19 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.

dollar, especially against the Euro, Hungarian forint 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 $0.12 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;

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

• South & Southeast Asia:

Favorable pricing and lower marketing, administration and research costs;

• Middle East & Africa:

Favorable volume/mix and favorable pricing, partly offset by higher manufacturing costs;

• Eastern Europe:

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

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

• Wellness and Healthcare:

Investments in research and development.

Primarily reflecting investments in research and development in 2022;

Higher marketing, administration and research costs and higher manufacturing costs, partly offset by favorable pricing.

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

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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.

For information on our critical accounting estimates, 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 105 - 116 for a discussion of our " Cautionary Factors That May Affect Future Results ." Our net revenues and operating income by segment are shown in the table below:

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

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

2022 2021 2022 2021

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PMI Net Revenues by Product Category

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

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

2022 2021 Change 2022 2021 Change

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• 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.

War in Ukraine for details of the $128 million and $6 million pre-tax charges in the Eastern Europe segment for the nine months and three months ended September 30, 2022, respectively.

• Impairment of intangibles - See Note 6.

Goodwill and Other Intangible Assets, net for the details of the $112 million pre-tax impairment charge included in the Wellness and Healthcare segment within the operating income table above for the nine months and three months ended September 30, 2022.

• 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.

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

• Asset 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.

Asset Impairment and Exit Costs for details of the $170 million and $43 million pre-tax charges and a breakdown of these costs by segment for the nine months and three months ended September 30, 2021, respectively.

• Asset acquisition cost - See Note 2.

Acquisitions for the details of the $51 million pre-tax charge associated with the 2021 asset acquisition of OtiTopic, Inc.

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

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

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marketing, administration and research costs (including asset impairment and exit costs);

and amortization of intangibles.

and amortization of and impairment of intangibles.

“Cost/Other” also includes the currency-neutral net revenue variance, unrelated to volume/mix and price components, attributable to:

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PMI Shipment Volume (Million Units)

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

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

2022 2021 Change 2022 2021 Change

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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.

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

For Japan, total estimated industry sales volume also includes cigarillos.

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

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

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

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

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(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,

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

For the Three Months Ended September 30,

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

25 unchanged sentences

(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 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.

Consolidated Operating Results for the Nine Months Ended September 30, 2022

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

Our total shipment volume increased by 1.7%, driven by increases of 10.9% and 0.3% for HTUs and cigarettes, respectively.

Excluding Russia and Ukraine, our total shipment volume increased by 3.4%, reflecting increases of 15.8% and 1.8% for HTUs and cigarettes, respectively.

On the same basis, our total shipment volume in the Eastern Europe Region increased by 2.5%.

For additional detail on PMI's shipment volume performance by Region, please refer to the "Total Market, PMI Shipment & Market Share Commentaries" sections for PMI's regional operating segments.

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 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.

The net unfavorable impact of estimated distributor inventory movements was immaterial in the period, with PMI’s total in-market sales increasing by 1.8%, or by 3.4% excluding Russia and Ukraine -- both essentially in-line with the respective shipment volumes.

Our total HTU in-market sales volume in the nine months year-to-date was 78.5 billion units, or 63.3 billion units excluding Russia and Ukraine, representing growth of 14.0% and 19.2%, 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

Nine Months Year-to-Date

2022 2021 Change

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Philip Morris 30,325 31,881 (4.9) %

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 109,262 119,741 (8.8) %

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Total Cigarettes and Heated Tobacco Units 545,030 536,072 1.7 %

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%.

Shipment volume for our HTU brands increased, primarily driven by the EU and Middle East & Africa Regions, partly offset by the East Asia & Australia Region.

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.

• Marlboro, mainly driven by the Eastern Europe, Middle East & Africa and Americas Regions, partly offset by the EU Region;

• Chesterfield , primarily driven by the Eastern Europe and South & Southeast Asia Regions;

• Parliament , mainly driven by the Middle East & Africa Region.

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.

• L&M , primarily due to the EU, Eastern Europe and South & Southeast Asia Regions, partly offset by the Americas Region;

• Philip Morris , mainly due to the Eastern Europe Region, partly offset by the East Asia & Australia Region.

The cigarette shipment volume decline for "Others" was mainly due to:

Bond Street (primarily Eastern Europe) and Lark (mainly Japan and Turkey), partly offset by Dji Sam Soe (Indonesia) and Sampoerna A (Indonesia).

Excluding Russia and Ukraine, our cigarette shipment volume increased by 3.3% for Marlboro , 6.8% for Chesterfield , 9.4% for Parliament and 12.3% for Philip Morris , and decreased by 1.1% for L&M .

International Share of Market (Excluding China and the United States, as well as Russia and Ukraine)

Nine Months Year-to-Date

2022 2021 Change (pp)

Total International Market Share (1)

27.2 % 26.6 % 0.6

Cigarettes 23.7 % 23.6 % 0.1

HTU 3.6 % 3.0 % 0.6

Cigarette over Cigarette Market Share (2)

24.8 % 24.6 % 0.2

Excludes Russia and Ukraine

(1) Defined as PMI's cigarette and heated tobacco unit in-market sales volume as a percentage of total industry cigarette and heated tobacco unit sales volume, excluding China and the U.S., including cigarillos in Japan

(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan

Financial Summary

Financial Summary -

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

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(6,097) (6,050) (0.8) % (3.1) % (47) 247 (106) — — (188)

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

Operating Income $ 9,322 $ 10,028 (7.0) % 4.6 % $ (706) $ (1,092) $ (74) $ 466 $ 375 $ (381)

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Contingencies .

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

(2) C ost/Other variance includes charges in 2022 of $112 million related to an impairment charge of intangible assets and $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.

War in Ukraine and Note 6.

Goodwill and Other Intangible Assets, net .

(3) Cost/Other variance includes charges in 2022 of $82 million related to the war in Ukraine and $269 million in 2022 related to costs associated with the Swedish Match AB offer, partly offset by charges in 2021 of $170 million related to asset impairment and exit costs and $51 million in 2021 associated with the asset acquisition cost of OtiTopic, Inc.

For more details, see Note 2.

Acquisitions , 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;

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 8.1%, mainly reflecting:

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

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

For the nine months ended September 30, 2022, 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, Philippine peso, Polish zloty and Turkish lira, partly offset by the Russian ruble.

Net revenues include $7.0 billion in 2022 and $6.7 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 7.0%.

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;

Operating income, excluding currency and acquisitions, increased by 4.6%, which included:

favorable comparisons versus the prior year period related to the 2021 Saudi Arabia customs assessments of $246 million (as noted above for net revenues), 2021 asset impairment and exit costs of $170 million and 2021 asset acquisition cost of $51 million, partly offset by the impact of 2022 costs associated with the Swedish Match AB offer of $269 million, higher

amortization and impairment of intangibles (primarily $112 million related to impairment charges in 2022), and 2022 charges related to the war in Ukraine of $128 million.

In addition to these items, operating income was impacted by:

a favorable pricing variance;

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

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

and higher marketing, administration and research costs.

As reduced risk products grow as a proportion of our business, notably for IQOS ILUMA where unit costs of devices and both the unit costs and weight of consumables are not yet fully optimized, a temporary dilutive margin impact is likely to continue in the coming quarters.

Like many other global companies, we are facing significant inflationary forces in the world economy.

Inflationary pressures are growing as we renew pricing arrangements, notably for certain direct materials, wages, energy, and transportation costs.

These inflationary pressures, including temporary margin pressure from inflation as well as the cost of capital, could continue to grow in the upcoming quarters.

Interest expense, net, of $418 million decreased by $64 million (13.3%) primarily driven by the repayment of long-term debt.

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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.

Basic EPS of $4.28 and diluted EPS of $4.27 both decreased by 4.7%.

Excluding an unfavorable currency impact of $0.58, diluted EPS increased by 8.3%.

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.

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

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

During the quarter, our total shipment volume increased by 0.6%, driven by a 17.1% increase in HTU shipments, partly offset by a 1.7% decline in cigarette shipments.

Excluding Russia and Ukraine, our total shipment volume increased by 2.3%, reflecting a 21.9% increase for HTUs, partly offset by a 0.2% decrease for cigarettes.

On the same basis, our total shipment volume in the Eastern Europe Region increased by 6.8%.

For additional detail on our shipment volume performance by Region, please refer to the "Total Market, PMI Shipment & Market Share Commentaries" sections for PMI's regional operating segments.

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%.

Our total heated tobacco unit in-market sales volume in the quarter was 25.7 billion units, or 21.1 billion units excluding Russia and Ukraine, representing growth of 12.1% and 19.9%, respectively.

The net unfavorable impact of estimated distributor inventory movements was immaterial in the quarter, with PMI’s total in-market sales increasing by 0.8%, or by 2.5% excluding Russia and Ukraine -- both essentially in-line with the respective shipment volumes.

Our total HTU in-market sales volume in the quarter was 27.9 billion units, or 22.7 billion units excluding Russia and Ukraine, representing growth of 13.5% and 18.2%, 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)

Second-Quarter

Third-Quarter

2022 2021 Change

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Philip Morris 10,255 11,107 (7.7) %

Sampoerna A 9,786 9,186 6.5 %

Dji Sam Soe 5,928 5,422 9.3 %

Lark 2,866 3,882 (26.2) %

Next 2,394 2,300 4.1 %

Others 37,374 39,483 (5.3) %

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Total Cigarettes and Heated Tobacco Units 189,474 188,332 0.6 %

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 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%.

Shipment volume for PMI's HTU brands increased, primarily driven by the EU, Eastern Europe and Middle East & Africa Regions.

Our cigarette shipment volume of the following brands increased:

• 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 ;

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

• Next , primarily driven by Russia.

• Chesterfield , mainly driven by the Eastern Europe and South & Southeast Asia Regions, partly offset by the Middle East & Africa Region;

• Parliament , primarily driven by the Middle East & Africa Region.

Our cigarette shipment volume of the following brands decreased:

• 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 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 23.5%, 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.

• Marlboro, mainly due to the EU and Eastern Europe Regions, partly offset by the Americas Region;

• L&M , primarily due to the Eastern Europe Region;

• Philip Morris , mainly due to the Eastern Europe Region, partly offset by the East Asia & Australia Region.

The cigarette shipment volume decline for "Others" was mainly due to:

Bond Street (primarily Eastern Europe) and Lark (mainly Japan and Turkey), partly offset by Dji Sam Soe (Indonesia).

Excluding Russia and Ukraine, our cigarette shipment volume increased by 1.5% for Chesterfield , 7.9% for Parliament and 6.1% for Philip Morris , and decreased by 0.4% for Marlboro and 0.5% for L&M .

International Share of Market (Excluding China and the United States, as well as Russia and Ukraine)

Third-Quarter

2022 2021 Change (pp)

Total International Market Share (1)

27.7 % 27.2 % 0.5

Cigarettes 24.1 % 24.1 % —

HTU 3.7 % 3.1 % 0.6

Cigarette over Cigarette Market Share (2)

25.3 % 25.1 % 0.2

Excludes Russia and Ukraine

(2) Defined as PMI's cigarette in-market sales volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan

Financial Summary

Financial Summary -

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

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Net Revenues $ 8,032 $ 8,122 (1.1) % 6.7 % $ (90) $ (687) $ 50 $ 216 $ 316 $ 15

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

Cost of Sales (1)

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(2,129) (2,071) (2.8) % (8.2) % (58) 111 — — — (169)

Amortization of Intangibles (36) (19) (89.5) % 5.3 % (17) — (18) — — 1

Operating Income $ 2,968 $ 3,455 (14.1) % (2.5) % $ (487) $ (378) $ (24) $ 216 $ 128 $ (429)

(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) Cost/Other variance includes charges in 2022 of $112 million related to an impairment charge of intangible assets.

For more details, see Note 6.

War in Ukraine .

(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.

Goodwill and Other Intangible Assets, net .

(2) Cost/Other variance includes charges in 2022 of $6 million related to the war in Ukraine and $217 million related to costs associated with the Swedish Match AB offer, partly offset by charges in 2021 of $43 million related to asset impairment and exit costs and $51 million in 2021 associated with the asset acquisition cost of OtiTopic, Inc.

For more details, see Note 2.

Acquisitions , Note 3.

War in Ukraine, and Note 17.

1 unchanged sentence

During the quarter, net revenues, excluding currency and acquisitions, increased by 6.7%, 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 "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.

favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable device mix;

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

During the quarter, Russia and Ukraine accounted for nearly 10% of PMI's total net revenues.

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.

Net revenues include $2.4 billion in 2022 and $2.3 billion in 2021 related to the sale of RRPs.

Operating income decreased by 14.1%.

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.

Operating income, excluding currency and acquisitions, decreased by 2.5%, primarily reflecting:

the impact of 2022 costs associated with the Swedish Match AB offer of $217 million, higher amortization and impairment of intangibles (primarily $112 million related to an impairment charge of intangible assets in 2022), partly offset by a favorable comparison versus the prior year period related to the 2021 asset acquisition cost of $51 million and 2021 asset impairment and exit costs of $43 million.

In addition to these items, operating income was impacted by:

a favorable pricing variance;

and favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable HTU mix and unfavorable cigarette mix;

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

and higher marketing, administration and research costs.

Interest expense, net, of $138 million decreased by $16 million (10.4)%.

2 unchanged sentences

Income Taxes .

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%.

Net earnings attributable to PMI of $2.1 billion decreased by $339 million or 14.0%.

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

Basic EPS and diluted EPS of $1.34 decreased by 13.5%.

Excluding an unfavorable currency impact of $0.19, diluted EPS decreased by 1.3%.

Operating Results by Business Segment

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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.

The reports were noted by CoP 9 and related substantive discussions and decisions were

deferred to CoP 10, currently scheduled for 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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EU Tobacco Products Directive:

In April 2014, the EU adopted a significantly revised EU Tobacco Products Directive (the “TPD”), which entered into force in May 2016.

In April 2014, the EU adopted a significantly revised TPD, which entered into force in May 2016.

All member states have adopted laws transposing the TPD.

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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.

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.

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While we cannot predict the impact of this initiative on our business at this time, we are monitoring developments in this area.

In some countries, including in the EU, cigarettes are subject to testing, disclosure and mandatory emissions limits for tar, nicotine, carbon monoxide and other smoke constituents.

In the Netherlands, several public health organizations have requested that the Dutch enforcement body enforce the requirements for maximum tar, nicotine, and carbon monoxide ("TNCO") emissions levels for cigarettes using a test method other than the method currently set forth in the EU TPD and transposed into national legislation.

This request fo llowed publication of a report by the Dutch State Institute for Public Health & Environment, which found that all cigarette brands sold in the Netherlands exceeded the maximum TNCO levels when measured under an alternative method.

While the Dutch enforcement body declined the request, the applicants have challenged that decision in pending legal proceedings in the Netherlands.

While we are not parties to the proceeding and cannot predict the outcome, a decision to enforce the existing TNCO ceilings in the Netherlands using an alternative test method could impact a significant portion of the manufactured cigarettes available on the market in the Netherlands and could lead to similar actions in other EU countries.

Illicit Trade:

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In May 2016, PMI launched PMI IMPACT, a global initiative that supports third-party projects dedicated to fighting illegal trade and related crimes such as corruption, organized criminal networks and money laundering.

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

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.

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

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.

Recently, we developed a new e-liquid 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 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.

We have begun commercializing an improved version of the BIDI® Stick under the brand VEEBA in Canada.

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

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Nicotine pouches are inherently smoke-free as they are consumed orally, and no combustion process occurs during use.

Our nicotine pouches do not contain tobacco.

Instead, they contain primarily nicotine, flavors, and a cellulose substrate.

They contain primarily nicotine, flavors, and a cellulose substrate.

The nicotine used in the pouches is of pharmaceutical-grade like the nicotine used in medicinal products, such as gums and inhalers, while the flavors are approved for use in food in accordance with the product quality standards for nicotine pouches developed by the Swedish Institute for Standards.

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Commercialization of RRPs:

We are building a new product category and tailor our commercialization strategy to the characteristics of each specific market.

We are developing a multicategory product approach and tailoring our commercialization strategy to the characteristics of each specific market.

We focus our commercialization efforts on consumer retail experience, guided consumer trials and customer care, and increasingly, digital communication programs and e-commerce.

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

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

As of September 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.

Since then, we have continuously expanded our commercialization activities.

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

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

We have integrated the production of our heated tobacco units into a number of our existing manufacturing facilities, are progressing with our plans to build manufacturing capacity for our other RRP platforms and continue to optimize our manufacturing infrastructure.

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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 and the supply chain disruptions caused by the armed conflict between Russia and Ukraine;

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

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

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

and Altria Client Services, LLC, which went into effect at the end of the 60-day Presidential review period on November 28, 2021.

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On March 15, 2022, the Consolidated Appropriations Act, 2022 amended the definition of “tobacco product” contained in the Federal Food, Drug and Cosmetic Act ("FD&C Act") to “any product made or derived from tobacco, or containing nicotine from any source, that is intended for human consumption.” Under this definition, products containing synthetic nicotine, e.g., e-cigarettes, are subject to the FDA’s tobacco regulatory authority.

According to this new provision, effective April 14, 2022, manufacturers of tobacco products containing nicotine not derived from tobacco will be required to submit a PMTA to the FDA and obtain authorization from the Agency to market their product under the FD&C Act or they will be subject to FDA enforcement actions.

According to this new provision, effective April 14, 2022,

manufacturers of tobacco products containing nicotine not derived from tobacco will be required to submit a PMTA to the FDA and obtain authorization from the Agency to market their product under the FD&C Act or they will be subject to FDA enforcement actions.

This new provision does not have any impact on tobacco products developed by PMI and intended for commercialization in the U.S.

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

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

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

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

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To date, we have filed a comprehensive dossier summarizing our scientific assessment of our Platform 1 product in over 20 member states.

On September 12, 2022, Norway rejected a submission for authorization of HEETS as a novel tobacco product.

Norway partially transposed the EU Tobacco Products Directive (the “TPD”) under the European Free Trade Association ("EFTA") agreement and introduced an authorization system for novel tobacco products following article 19 of TPD.

So far Norway has not granted authorization of any novel tobacco product.

E-cigarettes and tobacco free nicotine pouches have not be granted access either.

In addition, in Italy, in April 2018, we submitted an application for HEETS , used with the IQOS device, requesting regulatory recognition of the reduction of toxic substances and potential risk reduction resulting from switching to this product compared to continued cigarette smoking.

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(“PM USA”), began commercialization of a version of our Platform 1 product in the U.S.

Under the agreement, PM USA must achieve certain milestones to maintain its exclusive distribution right and additional milestones to extend the agreement after the initial 5-year term.

PMI and Altria are currently discussing these milestones, the contractual obligations, and the impact of the United States International Trade Commission (“ITC”) Orders (For more details please refer to Note 10 .

Contingencies ).

Under the agreement, PM USA was required to achieve certain milestones in order to maintain its exclusive distribution right and additional milestones to extend the agreement after the initial 5-year term.

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc.

to end the companies' commercial relationship covering IQOS in the U.S.

as of April 30, 2024.

Thereafter, PMI will have the full rights to commercialize IQOS in the U.S.

(For more details, please refer to Note 10.

Contingencies , and Note 19.

Subsequent Event ).

In January 2020, we announced an agreement with KT&G, a leading tobacco and nicotine company in South Korea, for the commercialization of KT&G’s smoke-free products outside of South Korea on an exclusive basis.

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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.

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.

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 October 5, 2022.

The next trial hearing is scheduled for December 2, 2022.

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

Vectura Fertin Pharma

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.

This may impact the related products development and market strategies, may have an adverse impact on the value of technology and goodwill acquired in PMI’s 2021 purchase of Vectura Group plc, and may result in impairment charges.

Asset Impairment and Exit Costs

We discuss asset impairment and exit costs in Note 17.

We discuss asset impairment and exit costs related to restructuring activities in Note 17.

Asset Impairment and Exit Costs to our condensed consolidated financial statements.

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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.

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

Climate Change Laws and Regulations

While, to date, the effect of climate-related laws and regulations on PMI has not been material to our business, results of operations or financial conditions, consideration of environmental and climate-related laws and regulations is an integral aspect of PMI’s climate-related risk assessment process.

To this end, we actively monitor the existing and potential impact on PMI of significant pending or existing climate change-related legislation, regulations, international accords, reporting frameworks, standards, principles, and other forms of guidance.

Examples include, but are not limited to, the EU Emissions Trading System, the 2015 Paris Climate Agreement, recommendations of the Task Force on Climate-related Financial Disclosures, the SEC’s proposed rules regarding climate-related disclosures, the Taskforce on Nature-related Financial Disclosures, European Commission proposal for a Corporate Sustainability Reporting Directive, and the International Sustainability Standards Board proposed standards.

Acquisitions and Other Business Arrangements

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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.

On October 20, 2022, PMHH announced an increase in the price in its recommended public offer to the shareholders of Swedish Match to SEK 116 in cash per share.

The price in the revised offer represents a premium of 52.5% compared to the undisturbed Swedish Match closing share price of SEK 76.06 on May 9, 2022, and the offer price will not be further increased by PMHH.

In accordance with the Takeover Rules for Nasdaq Stockholm, PMHH cannot increase the price in the revised offer any further.

The revised offer remains subject to the 90% acceptance condition, which PMI believes to be critical to capture the full potential of the combination.

The price in the revised offer primarily reflects the higher net value to PMI related to the portion of Swedish Match’s cash flows generated in U.S.

dollars, given currency movements since the initial offer was announced in May.

PMI believes that the

deterioration in the global economic outlook, equity markets and the interest rate environment since the time of the initial offer strengthens yet further the attractiveness of the revised offer to Swedish Match shareholders.

PMI expects the transaction to close in the fourth quarter of this year, subject to the terms and conditions of the offer being fulfilled or waived as further set out in the offer document.

Should the offer fail, PMI will continue with its strategic alternatives to the Swedish Match combination, including its well-advanced plans for the U.S.

commercialization of IQOS -- upon regaining full control after April 30, 2024 -- as well as its broader smoke-free portfolio.

Global Collaboration Agreement with KT&G

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Related Parties - Equity Investments and Other to our condensed consolidated financial statements.

We are subject to various trade restrictions imposed by the U.S.

and countries in which we do business (“Trade Sanctions”), including the trade and economic sanctions administered by the U.S.

We are subject to various trade restrictions imposed by the U.S., EU, and other jurisdictions in which we do business (“Trade Sanctions”), including the trade and economic sanctions administered by the U.S.

Department of the Treasury's Office of Foreign Assets Control and the U.S.

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It is our policy to comply fully with these Trade Sanctions.

Tobacco products are agricultural products under U.S.

law and are not technological or strategic in nature.

From time to time, we make sales in countries subject to Trade Sanctions, either where such sanctions do not apply to our business or pursuant to exemptions or licenses.

On March 11, 2022, the U.S.

introduced a ban on export, re-export, sale, or supply, directly or indirectly, from the U.S., or by a U.S.

person, wherever located, of certain tobacco and manufactured tobacco substitutes to Russia and Belarus.

From time to time, a subsidiary sells products to distributors that, in turn, sell those products to duty free customers that supply U.N.

peacekeeping forces around the world, including those in the U.N.

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 have no employees, operations or assets in Sudan.

We do not sell products in Iran, North Korea and Syria.

From time to time, we explore opportunities to sell our products in one or more of these countries, as permitted by law.

We sell cigarettes in Cuba under a distribution agreement.

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Certain states within the U.S.

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.

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, 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.

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

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

We comply fully with these Trade Sanctions.

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In 2021, the U.S., the EU, the U.K., Switzerland and several other jurisdictions supplemented their respective sanctions lists by including additional Belarusian sanctions targets.

Following the start of the conflict in Ukraine on February 24, 2022, the U.S., the EU, the UK, Switzerland, Canada, Australia, New Zealand, Singapore, South Korea, Japan and other countries introduced extensive economic sanctions and export controls against Russia.

While the introduced sanctions slightly vary from jurisdiction to jurisdiction, they are largely aligned.

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On April 27, 2022, Switzerland introduced similar restrictions.

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

In addition, the EU, the UK, Switzerland, Canada, Australia and New Zealand 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, repatriation of dividends and transactions with securities and real estate involving companies from “hostile” countries (i.e., those which introduced sanctions regarding Russia).

Countermeasures include restrictions 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.

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.

Segment Operating Results – Three Months and Nine Months Ended September 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 nine months ended September 30, 2022, with the three months and nine months ended September 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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Financial Summary -

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 1,395 $ 1,680 (17.0) % 2.0 % $ (285) $ (318) $ — $ (8) $ 246 $ (205)

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.

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 10.8%, reflecting:

favorable volume/mix, mainly driven by higher HTU volume and device volume, partly offset by lower cigarette volume, unfavorable HTU mix and unfavorable cigarette mix.

Pricing variance was slightly unfavorable, primarily reflecting lower device pricing and lower HTU (net) pricing, partly offset by higher combustible pricing.

Operating income, excluding currency and acquisitions, increased by 2.0%, primarily reflecting:

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).

favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable HTU mix, unfavorable cigarette mix and the unfavorable impact on profitability of higher device volume;

partially offset by higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $96 million);

and higher manufacturing costs.

Financial Summary -

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 4,441 $ 4,811 (7.7) % 7.1 % $ (370) $ (708) $ (2) $ (38) $ 675 $ (297)

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.

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 10.5%, reflecting:

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

partially offset by an unfavorable pricing variance, mainly due to lower device pricing and lower HTU (net) pricing, partly offset by higher combustible pricing.

Operating income, excluding currency and acquisitions, increased by 7.1%, 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);

favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume, unfavorable cigarette mix, unfavorable HTU mix and the unfavorable impact on profitability of higher device volume;

partially offset by higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $119 million, partly offset by a favorable comparison versus the prior year period related to asset impairment and exit costs of $56 million);

higher manufacturing costs;

and an unfavorable pricing variance.

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

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

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

Change Change

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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 18.5%, 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;

In the third quarter, the estimated total market in the EU increased by 0.6% to 133.0 billion units, primarily driven by:

• Poland, up by 10.0%, primarily reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to the easing of pandemic-related measures);

• Romania, up by 8.4%, mainly reflecting a lower estimated prevalence of illicit trade, as well as higher border sales (largely due to the easing of pandemic-related measures);

partly offset by

• the U.K., down by 15.0%, 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;

For the nine months year-to-date, the estimated total market in the EU increased by 2.2% to 369.0 billion units, primarily driven by:

• Italy, up by 3.9%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures (particularly in the first half of the year);

• Poland, up by 15.3%, primarily reflecting the same factors as in the quarter;

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

• Romania, up by 9.7%, mainly reflecting the same factors as in the quarter;

partly offset by

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• the U.K., down by 12.5%, 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:

In the third quarter, our total shipment volume increased by 3.9% to 51.0 billion units, mainly driven by:

• Italy, up by 6.7%, mainly reflecting a higher market share driven by HTUs, as well as a higher total market;

• Poland, up by 17.1%, primarily reflecting the higher total market and a higher market share driven by HTUs;

• Romania, up by 51.4%.

Excluding the net favorable impact of estimated distributor inventory movements, total in-market sales volume increased by 26.8%, mainly reflecting a higher market share driven by HTUs, as well as the higher total market.

For the nine months year-to-date, our total shipment volume increased by 4.2% to 146.6 billion units, primarily driven by:

• Italy, up by 6.1%, primarily reflecting the same factors as in the quarter;

• Poland, up by 19.1%, mainly reflecting the same factors as in the quarter;

• Romania, up by 42.6%.

Excluding the net favorable impact of estimated distributor inventory movements, total in-market sales volume increased by 31.6%, mainly reflecting the same factors as in the quarter.

Eastern Europe:

Financial Summary -

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 425 $ 338 25.7 % 3.8 % $ 87 $ 74 $ — $ 119 $ (52) $ (54)

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.

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 9.5%, reflecting:

a favorable pricing variance, primarily driven by higher combustible pricing;

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

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

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;

Operating income, excluding currency and acquisitions, increased by 3.8%, mainly reflecting:

a favorable pricing variance;

and lower marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $23 million);

partly offset by 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

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

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Operating Income $ 860 $ 913 (5.8) % (13.5) % $ (53) $ 70 $ — $ 244 $ (147) $ (220)

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;

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 2.9%, reflecting:

a favorable pricing variance, primarily driven by higher combustible pricing;

partly offset by unfavorable volume/mix, mainly due to lower cigarette volume and unfavorable cigarette mix.

For the nine months ended September 30, 2022, Russia and Ukraine accounted for around 69% of PMI's total net revenues in the Region.

Operating income, excluding currency and acquisitions, decreased by 13.5%, primarily reflecting 2022 charges related to the war in Ukraine ($128 million) and costs associated with the Swedish Match AB offer of $29 million, as well as unfavorable volume/mix, mainly due to the same factors as for net revenues;

and higher manufacturing costs;

partly offset by a favorable pricing variance.

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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

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

• Kazakhstan, up by 5.5%.

Excluding the net unfavorable impact of estimated trade inventory movements, total in-market sales volume decreased by 0.9%;

• Southeast Europe, up by 2.8%, 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

For the nine months year-to-date, the estimated total market in Eastern Europe, excluding Russia and Ukraine, increased, mainly driven by:

• Southeast Europe, up by 7.5%, mainly reflecting the same factors as in the quarter;

partly offset by

• Central Asia, down by 11.0%, primarily reflecting a higher estimated prevalence of illicit trade following excise tax-driven price increases in July 2021.

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

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.

In the third quarter, our total shipment volume decreased by 6.8% to 29.0 billion units, primarily due to:

• Russia, down by 5.6%, due to cigarettes;

• Ukraine, down by 37.0%, due to cigarettes and HTUs;

partly offset by

• Kazakhstan, up by 19.7%, or by 11.0% excluding the net favorable impact of estimated distributor inventory movements, primarily driven by a higher market share for cigarettes and HTUs, as well as the higher total market.

During the third quarter of 2022, Russia and Ukraine accounted for around 70% of PMI's total shipment volume in the Region.

Excluding Russia and Ukraine, total shipment volume increased by 6.8%.

For the nine months year-to-date, our total shipment volume decreased by 7.4% to 80.0 billion units, primarily due to:

• Russia, down by 6.5%, due to cigarettes and HTUs;

• Ukraine, down by 29.6%, due to cigarettes and HTUs.

During the first nine months 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 increased by 2.5%.

Middle East & Africa:

Financial Summary -

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 432 $ 388 11.3 % 11.9 % $ 44 $ (2) $ — $ 22 $ 46 $ (22)

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;

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 9.7%, primarily reflecting:

favorable volume/mix, mainly driven by higher HTU volume and favorable cigarette volume/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;

Operating income, excluding currency and acquisitions, increased by 11.9%, primarily reflecting:

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

and a favorable pricing variance;

partly offset by the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $24 million.

Financial Summary -

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 1,451 $ 739 96.3 % +100% $ 712 $ (121) $ — $ 205 $ 353 $ 275

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;

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 40.0%, 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 HTU volume and favorable cigarette mix;

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

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a favorable pricing variance;

and lower marketing, administration and research costs;

and lower marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $30 million);

partly offset by higher manufacturing costs.

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

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

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

• Egypt, down by 4.5%, primarily reflecting a higher estimated prevalence of illicit trade and the impact of price increases in the first half of 2022;

• Turkey, down by 13.1%, mainly reflecting a higher estimated prevalence of illicit trade, partly offset by the impact of increased in-bound tourism;

partly offset by

• International Duty Free, up by 41.6%, 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;

For the nine months year-to-date, the estimated total market in the Middle East & Africa decreased, mainly due to:

• Algeria, down by 11.5%, primarily reflecting industry supply chain disruptions, as well as the impact of excise tax-driven price increases in the first quarter of 2021;

• Turkey, down by 5.7%, 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;

partly offset by

• 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 42.1%, reflecting the same factors as in the quarter.

In the third quarter, our total shipment volume decreased by 1.1% to 35.4 billion units, mainly due to:

• Turkey, down by 6.9%, primarily reflecting the total market, partially offset by a higher market share, driven by cigarettes;

partly offset by

• 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 30.6%, or by 42.2% excluding the net unfavorable impact of estimated distributor inventory movements, reflecting the higher total market and a higher market share.

Excluding the net unfavorable impact of estimated distributor inventory movements, our total in-market sales volume increased by 3.5%.

For the nine months year-to-date, our total shipment volume increased by 7.2% to 101.4 billion units, mainly driven by:

• PMI Duty Free, up by 94.4%, or by 47.6% 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:

Financial Summary -

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 384 $ 348 10.3 % 19.3 % $ 36 $ (31) $ — $ 68 $ (5) $ 4

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.

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 13.9%, reflecting:

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

and a favorable pricing variance, driven by combustible pricing.

Operating income, excluding currency and acquisitions, increased by 19.3%, primarily reflecting:

a favorable pricing variance and lower marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $24 million).

Financial Summary -

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 1,135 $ 1,208 (6.0) % 0.4 % $ (73) $ (78) $ — $ (60) $ 46 $ 19

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

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 5.1%, 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;

and lower marketing, administration and research costs.

Operating income, excluding currency and acquisitions, increased by 0.4%, primarily reflecting:

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

and lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $17 million, partly offset by the impact of 2022 costs associated with the Swedish Match AB offer of $29 million).

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

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

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

• India, up by 21.3%, primarily reflecting a favorable comparison versus the prior year period, during which pandemic-related restrictions impacted the movement of certain products, including tobacco;

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partly offset by

• 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:

• Bangladesh, down by 9.6%, primarily reflecting the impact of second-quarter 2022 excise tax-driven price increases;

• the Philippines, down by 9.7%, mainly reflecting the impact of first-quarter 2022 excise tax-driven price increases.

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

• India, up by 17.5%, primarily reflecting the same factor as in the quarter;

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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;

• Bangladesh, down by 13.0%, primarily reflecting the impact of pandemic-related restrictions on mobility during February 2022, as well as the impact of second-quarter 2022 excise tax-driven price increases.

In the third quarter, our total shipment volume increased by 4.6% to 37.3 billion units, mainly driven by:

• Indonesia, up by 12.1%, primarily reflecting the higher total market and a higher market share (mainly driven by share growth for PMI's premium and hand-rolled portfolio, partly offset by adult smoker down-trading to the 'below tier one' segment as a result of significantly lower retail prices;

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:

• the Philippines, down by 12.8%, primarily reflecting the lower total market and a lower market share for cigarettes.

For the nine months year-to-date, our total shipment volume increased by 3.6% to 109.7 billion units, mainly driven by:

• India, up by 78.4%, 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);

• Indonesia, up by 7.9%, mainly reflecting the higher total market;

partly offset by

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

• the Philippines, down by 4.5%, primarily reflecting the same factors as in the quarter.

East Asia & Australia:

Financial Summary -

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 398 $ 631 (36.9) % (20.3) % $ (233) $ (105) $ — $ (26) $ (110) $ 8

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.

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, decreased by 10.6%, reflecting:

unfavorable volume/mix, mainly due to unfavorable device mix (primarily due to ILUMA ONE ), lower cigarette volume (largely due to an unfavorable comparison versus the third quarter of 2021 related to the October 2021 excise tax-driven price increases) and lower device volume (mainly due to an unfavorable comparison versus the third quarter of 2021 associated with the initial launch of ILUMA );

and an unfavorable pricing variance.

Operating income, excluding currency and acquisitions, decreased by 20.3%, mainly reflecting:

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 a favorable pricing variance;

and lower marketing, administration and research costs.

unfavorable volume/mix, primarily due to lower cigarette volume and unfavorable HTU mix;

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

and an unfavorable pricing variance;

partly offset by lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $21 million, partly offset by the unfavorable impact of the 2022 costs associated with the Swedish Match AB offer of $39 million.

Financial Summary -

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 1,315 $ 2,041 (35.6) % (22.8) % $ (726) $ (261) $ — $ 31 $ (547) $ 51

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.

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, decreased by 7.1%, reflecting:

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

Pricing variance in the period was favorable.

Operating income, excluding currency and acquisitions, decreased by 22.8%, 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.

unfavorable volume/mix, primarily due to lower HTU volume, unfavorable mix for cigarettes, devices and HTUs, and lower cigarette volume;

and higher manufacturing costs;

partly offset by lower marketing, administration and research costs (including a favorable comparison versus the prior year period related to asset impairment and exit costs of $67 million, partially offset by the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $49 million);

and a favorable pricing variance.

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

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

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

• Japan, down by 10.4%, primarily reflecting the impact of the October 2021 excise tax-driven price increase.

• 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:

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

• Japan, down by 5.4%, 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:

• South Korea, up by 1.7%, primarily reflecting a favorable comparison versus the prior year period due to the easing of pandemic-related measures.

In the third quarter, our total shipment volume decreased by 2.5% to 20.0 billion units, mainly due to:

• Japan, down by 3.2%, primarily reflecting the lower total market, partly offset by a higher market share (driven by HTUs).

For the nine months year-to-date, our total shipment volume decreased by 4.0% to 59.5 billion units, mainly due to:

• Japan, down by 5.1%.

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%.

Excluding the net unfavorable impact of estimated distributor inventory movements (primarily due to HTUs), total in-market sales volume decreased by 0.1%, reflecting the lower total market, essentially offset by a higher market share.

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

Financial Summary -

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 85 $ 121 (29.8) % (31.4) % $ (36) $ 2 $ — $ 30 $ 3 $ (71)

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

For the three months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 5.5%, 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 unfavorable, mainly reflecting unfavorable cigarette mix and lower device volume, largely offset by higher cigarette volume.

Operating income, excluding currency and acquisitions, decreased by 31.4%, mainly reflecting:

higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $11 million;

and higher manufacturing costs;

partly offset by a favorable pricing variance.

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

Financial Summary -

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income $ 336 $ 367 (8.4) % (9.5) % $ (31) $ 4 $ — $ 73 $ (5) $ (103)

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

For the nine months ended September 30, 2022, net revenues, excluding currency and acquisitions, increased by 4.8%, 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.

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

Operating income, excluding currency and acquisitions, decreased by 9.5%, mainly reflecting:

higher manufacturing costs;

and higher marketing, administration and research costs (including the unfavorable impact of 2022 costs associated with the Swedish Match AB offer of $13 million);

partly offset by a favorable pricing variance.

Volume/mix was slightly unfavorable, mainly due to unfavorable cigarette mix, largely offset by higher cigarette volume.

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

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;

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

• Argentina, up by 5.4%, mainly reflecting a favorable comparison due to the impact on adult smoker average daily consumption of strict pandemic-related measures implemented during 2021;

• Brazil, up by 5.8%, primarily reflecting a lower estimated prevalence of illicit trade;

• Mexico, up by 4.3%, mainly reflecting the impact on adult smoker average daily consumption of the easing of pandemic-related measures, coupled with the impact of increased in-bound tourism;

partly offset by

• Canada, down by 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:

• Canada, down by 10.1%, notably reflecting the impact of price increases and out-switching from cigarettes to e-vapor products.

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

• Argentina, up by 4.9% mainly reflecting the same factor as in the quarter;

1 unchanged sentence

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;

• Canada, down by 13.4%, notably reflecting the same factors as in the quarter.

In the third quarter, our total shipment volume increased by 3.6% to 16.8 billion units, mainly driven by:

• Brazil, up by 17.5%, 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:

• Mexico, up by 4.8%, primarily reflecting the higher total market.

For the nine months year-to-date, our total shipment volume increased by 2.8% to 47.9 billion units, mainly driven by:

• Brazil, up by 13.7%, primarily reflecting the same factors as in the quarter;

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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.

• Argentina, down by 1.2%, primarily reflecting a lower market share due to adult smokers downtrading to ultra-low-price brands produced by local manufacturers.

Wellness and Healthcare:

5 unchanged sentences

Financial Summary -

Quarters Ended

June 30, Change

Quarters Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income / (Loss) $ (151) $ (51) -(100)% -(100)% $ (100) $ 2 $ (24) $ 11 $ — $ (89)

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.

For the three months ended September 30, 2022, we recorded net revenues of $57 million in the Wellness and Healthcare segment, with an operating loss of $151 million, primarily reflecting a $112 million impairment on acquired intangibles, and investments in research and development, partly offset by a favorable comparison versus the prior year period related to asset acquisition cost of $51 million.

Financial Summary -

Six Months Ended

June 30, Change

Nine Months Ended September 30, Change

Fav./(Unfav.) Variance

5 unchanged sentences

Operating Income / (Loss) $ (216) $ (51) -(100)% -(100)% $ (165) $ 2 $ (72) $ 11 $ — $ (106)

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.

For the nine months ended September 30, 2022, we recorded net revenues of $199 million in the Wellness and Healthcare segment, with an operating loss of $216 million, primarily reflecting a $112 million impairment on acquired intangibles (as noted above for the quarter) and investments in research and development, as well as expenses related to employee retention, partly offset by a favorable comparison versus the prior year period related to asset acquisition cost of $51 million.

Financial Review

Cash Flow Highlights

For the Six Months Ended June 30,

For the Nine Months Ended September 30,

(in millions) 2022 2021

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Net Cash Provided by Operating Activities

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.

During the first nine months of 2022, net cash provided by operating activities decreased by $0.2 billion compared with the first nine months of 2021.

Excluding unfavorable currency movements of $0.7 billion, net cash provided by operating activities increased by $0.5 billion, due primarily to higher currency-neutral net earnings of $0.5 billion and lower pension plan contributions, net of refunds, of $0.3 billion, partially offset by higher working capital requirements of $0.4 billion and other movements.

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.

The higher working capital requirements in the first nine months of 2022 as compared with the first nine months of 2021 were primarily due to more cash used for accounts receivable in 2022 mainly reflecting the timing of sales and cash collections, and less cash provided by inventory mainly reflecting unfavorable comparison with 2021 primarily due to depletion of COVID-19 pandemic related build-up of inventory levels across our supply chain in 2020, partially offset by more cash provided by accrued liabilities and other current assets mainly reflecting the timing of excise tax-paid inventory movements and excise tax payments, as well as less cash used in accounts payable mainly reflecting higher IQOS device purchases.

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.

During the first nine months of 2022, net cash used in investing activities decreased by $1.9 billion as compared with the first nine months of 2021.

This decrease was due primarily to the $1.9 billion of cash used in 2021 for our acquisitions, net of acquired cash and favorable movements of $356 million in cash collateral received from financial institutions primarily 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, 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.

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Financial Instruments.

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.

Capital expenditures of $730 million during the first nine months of 2022 increased by $271 million as compared with the first nine months of 2021.

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

We expect total capital expenditures in 2022 to be approximately $1.0 billion.

total capital expenditures in 2022 to be approximately $1.0 billion.

Net Cash Used in Financing Activities

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.

During the first nine months of 2022, net cash used in financing activities decreased by $2.1 billion compared to the first nine months of 2021.

The lower cash usage primarily reflected proceeds from short-term borrowings in 2022 (primarily commercial paper of $2.6 billion), partially offset by higher dividend payments and the purchase of the remaining stakes in our Turkish affiliates in the first quarter of 2022.

For further details on the purchase of the remaining stakes in our Turkish affiliates, see Note 2.

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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 six months ended June 30, 2022 and the full-year 2021, the activities for such reverse repurchase agreements were not material.

For the nine months ended September 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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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:

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

Short-term Long-term Outlook

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Revolving Credit Facilities

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

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

(in billions)

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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 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.

(3) On September 20, 2022, we entered into an agreement, effective September 29, 2022, to amend and extend the term of our $2.5 billion multi-year revolving credit facility, for an additional year covering the period September 30, 2026 to September 29, 2027, in the amount of $2.3 billion.

At September 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 a further extension of the terms of our 364-day 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 revolving credit facilities have an investment-grade long-term credit rating from the credit rating agencies.

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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.

These credit arrangements, which amounted to approximately $2.0 billion at September 30, 2022 and $2.3 billion at December 31, 2021, are for the sole use of our subsidiaries.

Borrowings under these arrangements and other bank loans amounted to $229 million at September 30, 2022, and $225 million at December 31, 2021.

Financing of the Swedish Match Offer

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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.

As of September 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.

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and in Europe having an aggregate issuance capacity of $8.0 billion.

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

At September 30, 2022, we had $2.6 billion of commercial paper outstanding.

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

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

The average commercial paper balance outstanding during the first nine months of 2022 was $3.3 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 June 30, 2022, and June 30, 2021 were $656 million and $701 million, respectively.

The trade receivables sold that remained outstanding under these arrangements as of September 30, 2022, and September 30, 2021 were $512 million and $652 million, respectively.

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

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Sale of Accounts Receivable to our condensed consolidated financial statements.

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

Debt – Our total debt was $27.2 billion at September 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 June 30, 2022, we have guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products.

Guarantees – At September 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 June 30, 2022 in Note 4.

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

Stock Plans to our condensed consolidated financial statements.

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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.

Dividends paid in the first nine months of 2022 were $5.8 billion.

During the third quarter of 2022, our Board of Directors approved a 1.6% increase in the quarterly dividend to $1.27 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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There may be periods of accelerated growth and periods of slower growth for these products, the timing and drivers of which may be more difficult for us to predict versus our mature cigarette business.

The impact of this lower predictability on our projected results for a specific period may be significant, particularly during the early stages of this new product category, during the COVID-19 pandemic as a result of unpredictability due to shortage of key components in our supply chain or due to geopolitical or macroeconomic events that negatively impact RRP availability or adoption.

a result of unpredictability due to shortage of key components in our supply chain or due to geopolitical or macroeconomic events that negatively impact RRP availability or adoption.

We may be unsuccessful in our efforts to differentiate reduced-risk products and cigarettes with respect to taxation.

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

• restrictions in terms of importing or exporting our products impacting our logistics activities and ability to ship our products;

• encouraging litigation against tobacco companies;

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Our business, results of operations, cash flows and financial position may be adversely impacted by the continuation and consequences of the war in Ukraine.

As previously disclosed in this Form 10-Q, in 2021, Russia accounted for around 10% of our total cigarette and heated tobacco unit shipment volume, and around 6% of our total net revenues.

In 2021, Russia accounted for around 10% of our total cigarette and heated tobacco unit shipment volume, and around 6% of our total net revenues.

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

Historically, we also produced finished goods in Ukraine for export and manufacture products in Russia.

Historically, we also produced finished goods in Ukraine for export and manufactured 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.

We have also scaled 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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There can be no assurance that our exit from the Russian market will be successful, orderly, or represent a fair value for our Russian assets and operations.

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.

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 cash reserves held in Russia and intangible assets such as trademarks, is impossible to predict.

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.

In Ukraine, there is no way to know when and to what extent we will be able to fully normalize our operations or to what extent our workforce, facilities, inventory, and other assets will remain intact.

These developments 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.

The conflict also elevates the likelihood of supply chain disruptions, both in the region and globally, and may inhibit our ability to timely source materials and services needed to make and sell our products.

For example, we source certain finished goods, production materials and components from both Russia and Ukraine, including printed materials and filters, and the invasion has, and may continue to, disrupt the availability of and impact our supply chain for these materials.

For example, historically we sourced certain finished goods, production materials and components from both Russia and Ukraine, including printed materials and filters, and the invasion has, and may continue to, disrupt the availability of and impact our supply chain for these materials.

These disruptions, to the extent we are unable to find alternative sources or otherwise address these supply constraints, may impact the availability and cost of our products in other markets, which would adversely impact our business, results of operations, cash flows and financial position, and may result in impairment charges.

Furthermore, the imposition of various restrictions on transactions with parties from certain jurisdictions and the ban on exports of various products and other economic and financial restrictions may adversely affect certain third parties with which we do business in Russia, such as customers, suppliers, intermediaries, service providers and banks.

The broader consequences of the invasion are also impossible to predict, but could include reputational consequences, further sanctions, financial or currency restrictions, punitive tax law changes, embargoes, regional instability, and geopolitical shifts as well as adverse effects on macroeconomic conditions, security conditions, currency exchange rates, and financial markets.

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Use of third-party resources may negatively impact quality and availability of our products and services, and we may be required to replace third-party contract manufacturers or service providers with our own resources.

We increasingly rely on third-party resources and their subcontractors/suppliers to manufacture some of our products and product parts (particularly, the electronic devices and accessories), and to provide services, including to support our finance, commercialization and information technology processes.

We increasingly rely on third-party resources and their subcontractors/suppliers, sometimes concentrated in a specific geographic areas, to manufacture some of our products and product parts (particularly, the electronic devices and accessories),

and to provide services, including to support our finance, commercialization and information technology processes.

While many of these arrangements improve efficiencies and decrease our operating costs, they also diminish our direct control.

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dollar fluctuations against various currencies may have disproportionate negative impact on net revenues as compared to our gross profit and operating income margins.

A sustained period of elevated inflation across the markets in which we operate could result in higher operating and financing costs and lead to reduced demand for our products.

Increasing inflationary pressures may result in significant increases to our expenses, including direct materials, wages, energy, and transportation costs.

While we take actions, wherever possible, to reduce the impact of the effects of inflation;

in cases of sustained and elevated inflation across several of our major markets it may be difficult to effectively control the increases to our costs.

Increased inflation also has and may continue to lead to interest rate increases, thereby increasing our interest expense.

Increasing inflationary pressures may also negatively impact consumer purchasing power, which could result in reduced demand for our products.

If we are unable to increase our prices or take other actions to mitigate the effect of increasing inflationary pressures, our profitability and financial position could be negatively impacted.

Risks Related to Legal Challenges and Investigations

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It is possible that our consolidated results of operations, cash flows or financial position could be materially adversely affected in a particular fiscal quarter or fiscal year by an unfavorable outcome or settlement of certain pending litigation.

We face various administrative and legal challenges related to certain RRP activities, including allegations concerning product classification, advertising restrictions, corporate communications, product coach activities, scientific substantiation, product liability, and unfair competition.

While we design our programs to comply with relevant regulations, we expect these or similar challenges to continue as we expand our efforts to commercialize RRPs and to communicate publicly.

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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, novel products which given their taste characteristics may be more commercially successful, 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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One element of our growth strategy is to expand our brand portfolio and market positions through selective acquisitions and the development of strategic business relationships.

Acquisition and strategic business development opportunities are limited and present risks of failing to achieve efficient and effective integration, strategic objectives and/or anticipated revenue improvements and cost savings.

Acquisition and strategic business development opportunities are limited and

present risks of failing to achieve efficient and effective integration, strategic objectives and/or anticipated revenue improvements and cost savings.

There is no assurance that we will be able to acquire attractive businesses or enter into strategic business relationships on favorable terms ahead of our competitors, or that such acquisitions or strategic business development relationships will be accretive to earnings or improve our competitive position.

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In addition, messaging about the potential negative impacts of the use of our products on COVID-19 risks may lead to increasingly restrictive regulatory measures on the sale and use of our products, negatively impact demand for our products and the willingness of adult consumers to switch to our RRPs, and adversely impact our efforts to advocate for the development of science-based regulatory frameworks for the development and commercialization of RRPs.

All of the aforementioned impacts of the ongoing COVID-19 pandemic could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

All of the aforementioned impacts

of the ongoing COVID-19 pandemic could have a material adverse effect on our business, operations, results of operations, revenues, cash flow and profitability.

The impact of these risks also depends on factors beyond our knowledge or control, including the duration and severity of the COVID-19 pandemic in general and specifically in the jurisdictions in which we operate, its recurrence in our key markets, actions taken to contain its spread and to mitigate its public health effects, and the ultimate economic consequences thereof.

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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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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.

Further, regulators and regulatory requirements 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.

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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 consummated, the success of the Swedish Match acquisition will depend on, among other things, our ability to integrate and 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.

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We have accounted for the completion of the Acquisitions using the acquisition method of accounting.

Differences between preliminary estimates and the final acquisition accounting may occur, and these differences could have a material impact on the consolidated financial statements and our future results of operations and financial position in combination with the businesses acquired.

Furthermore, given the nature of the assets being acquired in the Acquisitions, we may not be able to avoid future impairments of those assets, which may also have a material impact on our future results of operation and financial position.

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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