Pensionsettlement charges recorded during the first six months of 2009 totaledapproximately $31 million

Pensionsettlement charges recorded during the first six months of 2009 totaledapproximately $31 million. In addition to the settlement charges reflected above, incremental SFAS No. 88pension settlement charges of $15 million to $34 million are included in thetotal GSCT program estimates based upon the current trends of employeewithdrawals, with $15 million to $20 million of this amount projected for 2009. The GSCT program charges recorded in 2007 and 2008 included pension settlementcharges of approximately $25 million as employees leaving the Company under theprogram have withdrawn lump sums from the defined benefit pension plans. The Company normally amortizes actuarialgains and losses over a period of about 13 years. 88″)requires pension settlement charges to be recorded if withdrawals from pensionplans in a calendar year exceed a certain level. Pension settlement charges are non-cash charges for the Company.

Such chargesaccelerate the recognition of pension expenses related to actuarial gains andlosses resulting from interest rate changes and differences in actual versusassumed returns on pension assets. 88, Employers` Accounting for Settlements and Curtailments of DefinedBenefit Pension Plans and for Termination Benefits (as amended) (“SFAS No. Total charges include project management and start-up costs ofapproximately $60 million. Appendix AFinancial Accounting Standards Board Statement of Financial Accounting StandardsNo. The GSCT program is expected to result in total pre-tax charges andnon-recurring project implementation costs of $640 million to $665 million,including possible non-cash pension settlement charges (see Appendix A) in 2009and 2010. Our first-half performance has given us the flexibility toincrease full-year brand-building advertising. We`ll also make furtherinvestments in category management and global go-to-market capabilities thatwill benefit the Company over the long term.

Considering our strong first-halfperformance, a good start to the third quarter, solid seasonal programming and,based on year-to-date price/volume elasticity trends, we now expect the increasein adjusted earnings per share-diluted for the full year to be slightly aboveour long-term objective of 6 to 8 percent,” West concluded. While there is not a developed futures market for dairy,over the remainder of the year we do not expect material price inflation fordairy products. “While our year-over-year commodity cost increase remains significant, it willbe less than our initial estimate of $175 million. We have visibility into mostof the cost structure, except costs for dairy products which remain lower thanour initial estimates.

This investment will benefit thebusiness in both the near term and next year. As a result, we expect full yearnet sales growth to be within our 3 to 5 percent long-term objective. Additionally, in the fourthquarter we begin to lap the August 2008 every day price increase. We intend tomake the necessary consumer investments to ensure that the category continues toperform well in the second half of the year and are closely monitoring consumerand competitor response to our pricing models. Therefore, we are planningadditional increases in advertising for the full year and expect advertisingexpense to increase 40 to 45 percent in 2009.

Excluding the impact of currency, net revenues grew6.7%, driven by favorable pricing of $118 million, which more than offsetunfavorable volume/mix of $10 million. Operating companies income grew 18.4% to reach $619 million, primarily fueled byhigher pricing. Excluding the impact of favorable currency, driven by theJapanese Yen, operating companies income grew 17.6%. Excluding the impact of favorable currency, adjusted operating companies incomemargin was up 3.3 percentage points to 35.9% as detailed on Schedule 11. Asia Operating Companies Income ($ Millions) Second Quarter20092008Change Reported Operating Companies Income$619$52318.4%Asset impairment and exit costs0 0Adjusted Operating Companies Income$619$52318.4%Adjusted OCI Margin* 39.4% 32.6% 6.8 pp*Margins are calculated as adjusted operating companies income, divided by netrevenues, excluding excise taxes.PMI`s cigarette shipment volume increased by 2.0%, mainly due to gains inIndonesia, Korea and Pakistan, the latter resulting from cigarette excisetax-driven trade inventory movements. Shipment volume of Marlboro grew by 4.1%,reflecting a strong performance across the region, particularly in Indonesia,Korea and the Philippines. In Indonesia, PMI`s shipment volume rose by 1.3%, reflecting growth fromMarlboro, up 5.4%, helped by the launch of Marlboro Black Menthol in March, andA Mild.