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Item 7. Management’s Discussion and Analysis

2026-02-06 compared with 2025-02-06 · 547 added, 744 removed, 803 unchanged (62% of the section changed)

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Description of Our Company

We are a leading international tobacco company, actively delivering a smoke-free future.

We are a leading international consumer goods company, actively delivering a smoke-free future.

We are evolving our portfolio for the long term to include products outside of the tobacco and nicotine sector.

Our current product portfolio primarily consists of cigarettes and smoke-free products.

Our current product portfolio primarily consists of cigarettes and smoke-free products, including heat-not-burn, nicotine pouch and e-vapor products.

Since 2008, we have invested over $16 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes.

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In November 2022, we acquired Swedish Match AB ("Swedish Match") – a leader in oral nicotine delivery – creating a global smoke-free combination led by the companies’ IQOS and ZYN brands.

As of April 30, 2024, we hold the full rights to commercialize IQOS in the U.S.

after reaching an agreement to end our U.S.

commercial relationship covering IQOS with Altria Group, Inc.

Following a robust science-based review, the U.S.

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We describe the MRTP orders in more detail in the "Business Environment" section of this Item 7.

Following the combination and the progress in 2023 toward the integration of the Swedish Match business into PMI's existing regional structure, PMI updated in January 2024 its segment reporting by including the former Swedish Match segment results into the four existing geographical segments.

Our four geographical segments are as follows:

• Europe Region;

Following the sale of Vectura Group Ltd.

on December 31, 2024, we updated our segment reporting in January 2025 by including the ongoing Wellness results (previously referred to as Wellness & Healthcare) in the Europe segment.

In addition, we renamed our “PMI Duty Free” business to “PMI Global Travel Retail” effective in the first quarter of 2025.

As a result of this change, our segment that includes our duty free business was renamed East Asia, Australia & PMI Global Travel Retail (“EA, AU & PMI GTR”).

As of December 31, 2025, our four geographical segments were as follows:

• Europe Region, including our Wellness business;

• South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region ("SSEA, CIS & MEA");

• East Asia, Australia, and PMI Duty Free Region ("EA, AU & PMI DF");

• East Asia, Australia, and PMI Global Travel Retail (“EA, AU & PMI GTR”);

• Americas Region.

Our Wellness and Healthcare segment ("W&H") remained unchanged in 2024.

Following the sale of Vectura Group Ltd.

on December 31, 2024, we will update our segment reporting by including the remaining Wellness & Healthcare results in the Europe segment.

In addition, we will be renaming our “PMI Duty Free” business to “PMI Global Travel Retail” effective in the first quarter of 2025.

As a result of this change, PMI's segment that includes our duty free business will be renamed East Asia, Australia & PMI Global Travel Retail (“EA, AU & PMI GTR”).

As communicated in the fourth quarter of 2025, with our smoke-free business now operating at scale across our regions, including substantial growth from our U.S.

business, we have implemented an evolved organizational model with two primary business units:

International and U.S.

The updated organizational structure is designed to enhance our agility and to support our journey to become a smoke-free company under the leadership of Jacek Olczak, Group CEO of PMI.

This change was implemented effective January 1, 2026, and as a result we realigned our reportable segments accordingly.

The four geographic segments have been replaced with three new reportable segments:

International Smoke-Free, International Combustibles, and U.S.

As of the first quarter of 2026, our reporting will reflect these changes.

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We have a wide range of premium, mid-price and low-price brands.

Our portfolio comprises both international and local brands.

Our portfolio is comprised of both international and local brands.

Smoke-Free Business ("SFB”) is the term PMI uses to refer to all of its smoke-free products.

SFB also includes wellness and healthcare products, as well as consumer accessories, such as lighters and matches.

SFB also includes wellness products, as well as consumer accessories, such as lighters and matches.

Smoke-free products (also referred to herein as "SFPs") is the term PMI uses to refer to all of its products that provide nicotine without combusting tobacco, such as heat-not-burn, e-vapor, and oral smokeless, and that therefore generate far lower levels of harmful chemicals.

As such, these products have the potential to present less risk of harm versus continued smoking.

IQOS and ZYN are the leading brands in our SFPs portfolio.

IQOS, ZYN and VEEV are the leading brands in our SFPs portfolio.

As of December 31, 2025, our smoke-free products were available for sale in 106 markets.

Our Wellness and Healthcare business strategy focuses on developing and commercializing oral and inhaled consumer health and wellness offerings and inhaled prescription products for therapy areas that include pain management and cardiovascular emergencies.

This includes medical and pharmaceutical cannabinoids, and non-recreational cannabinoid products (including CBD), in line with applicable regulatory requirements, though any revenue related to cannabinoids is expected to be negligible in the near to medium term.

In 2022, we acquired Swedish Match AB, a market leader in oral nicotine delivery with a significant presence in the United States market.

The Swedish Match acquisition was a key milestone in PMI’s transformation to becoming a smoke-free company.

The Swedish Match product portfolio is complementary to our portfolio, permitting us to bring together a leading oral nicotine product with the leading heat-not-burn product.

In 2022, we reached an agreement with Altria Group, Inc.

to end our commercial relationship in the U.S.

covering IQOS as of April 30, 2024.

PMI now holds the full rights to commercialize IQOS in the U.S.

For further details of our 2022 acquisition of Swedish Match, as well as the agreement with Altria Group, Inc.

discussed above, see Item 8, Note 3.

Acquisitions and Divestitures and the "Business Environment" section of this Item 7.

With a strong foundation and significant expertise in life sciences, PMI has a long-term ambition to expand into wellness areas.

The business strategy of our wellness unit, Aspeya, currently focuses on developing and commercializing primarily oral consumer wellness offerings.

This includes medical and non-recreational cannabinoid products (including CBD), in line with applicable regulatory requirements, though any revenue related to cannabinoids is expected to be negligible in the near to medium term.

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 and mix of products we sell, the price of our products and changes in currency exchange rates.

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).

"Mix" can also refer to the proportion of shipment volume in more profitable markets versus shipment volume in less profitable markets (geographic mix).

Our cost of sales consists principally of:

Our cost of sales consists primarily of:

tobacco leaf, non-tobacco raw materials, labor and manufacturing costs;

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The most significant components of our marketing, administration and research costs are marketing and sales expenses and general and administrative expenses.

Philip Morris International Inc.

is a legal entity separate and distinct from its direct and indirect subsidiaries.

Accordingly, our right, and thus the right of our creditors and stockholders, to participate in any distribution of the assets or earnings of any subsidiary is subject to the prior rights of creditors of such subsidiary, except to the extent that claims of our company itself as a creditor may be recognized.

As a holding company, our principal sources of funds, including funds to make payment on our debt securities, are from the receipt of dividends and repayment of debt from our subsidiaries.

Our principal wholly owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions that are otherwise compliant with law, including governmental capital and foreign currency exchange controls.

Executive Summary

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

Impairment Related to the Rothmans, Benson & Hedges Equity Investment

On October 17, 2024, the court-appointed mediator and monitor in the CCAA proceedings filed a proposed plan of compromise and arrangement (“Proposed Plan”) setting forth, among other things, certain terms of a proposed comprehensive resolution of Canadian tobacco claims and related litigation.

Under the resolution contemplated by the Proposed Plan, RBH, Imperial Tobacco Canada Limited ("ITL") and JTI Macdonald Corp ("JTIM") would pay an aggregate global settlement amount of CAD 32.5 billion (approximately $22.3 billion).

A significant determinative factor in the analysis of impairment indicators was the issue of allocation of CAD 32.5 billion aggregate settlement amount among RBH, ITL, and JTIM which remained unresolved at the time of filing.

On January 24, 2025, RBH filed an objection to approval of the Proposed Plan with the CCAA court (for further details, see Item 8, Note 18.

Contingencies ).

Developments, including the positions taken by RBH in this objection and the positions taken by other parties in related filings narrowed the range of possible outcomes with respect to the allocation of the aggregate settlement amount of CAD 32.5 billion among RBH, ITL, and JTIM, which was determined to be an indicator that PMI’s investment in RBH may be impaired.

Although there remains some uncertainty as to the final terms of the Proposed plan, PMI evaluated its investment in RBH for potential impairment and concluded that the estimated fair value of its investment in RBH was lower than its carrying value.

As a result, PMI performed a quantitative valuation of its investment in RBH as of December 31, 2024, and recorded a non-cash impairment charge of $2,316 million (representing a diluted EPS charge of $1.49 per share) in the consolidated statement of earnings for the year ended December 31, 2024, as a recognized subsequent event.

For further details, see Item 8, Note 6.

Related Parties - Equity Investments and Other .

Consolidated Operating Results

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Net revenues increased by 7.3%.

Net revenues, excluding currency and acquisitions, increased by 10.1%, mainly reflecting:

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

and favorable volume/mix, driven by higher smoke-free products volume, partly offset by unfavorable cigarette mix, as well as a favorable comparison to 2023 reflecting a charge in the first quarter of 2023 of $80 million following the termination of a distribution arrangement in the Middle East, shown in "Other." The termination of a distribution arrangement in the Middle East is further described in the following " Diluted Earnings Per Share " discussion.

Net revenues, excluding currency and acquisitions/divestitures, increased by 6.5%, mainly reflecting:

a favorable pricing variance due to higher combustible tobacco pricing;

and favorable volume/mix, driven by higher smoke-free products volume, notwithstanding unfavorable mix and lower volumes for cigarettes.

Net revenues by product category for the years ended December 31, 2025 and 2024, are shown below:

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For the year ended December 31, 2024 $ 4.52

2023 Charges related to the war in Ukraine 0.03

2024 Restructuring charges 0.10

2023 South Korea indirect tax charge 0.11

2023 Termination of agreement with Foundation for a Smoke-Free World 0.07

2024 Impairment of other intangibles 0.01

2024 Fair value adjustment for equity security investments (0.27)

2024 Impairment related to RBH equity investment 1.49

2024 Amortization of intangibles 0.40

2023 Impairment of goodwill and other intangibles 0.44

2023 Termination of distribution arrangement in the Middle East 0.04

2023 Swedish Match AB acquisition accounting related items 0.01

2024 Loss on sale of Vectura Group 0.13

2024 Egypt sales tax charge 0.03

2024 Megapolis localization tax impact 0.05

2024 Income tax impact associated with Swedish Match AB financing 0.14

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2025 Restructuring charges (0.14)

2024 Impairment of other intangibles (0.01)

2025 Impairment of goodwill (0.03)

2025 Fair value adjustment for equity security investments 0.18

2024 Impairment related to RBH equity investment (1.49)

2025 Amortization of intangibles (0.50)

2024 Loss on sale of Vectura Group (0.13)

2024 Egypt sales tax charge (0.03)

2024 Megapolis localization tax impact (0.05)

2025 Germany excise tax classification litigation charge (0.10)

2025 RBH (Canada) Plan implementation, including dividend income, net 0.10

2025 Impairment of Wellness business related equity investment (0.09)

2025 Loss on expected sale of consumer accessories and other businesses (0.06)

2025 Income tax impact associated with Swedish Match AB financing 0.25

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For the year ended December 31, 2025 $ 7.26 60.6 %

Charges related to the war in Ukraine – During 2023, we recorded a pre-tax charge of $53 million (representing $43 million net of income tax and a diluted EPS charge of $0.03 per share), related to circumstances driven by the war, including the cost of PMI’s humanitarian efforts, severance payments, as well as an impairment of certain long-lived assets.

For further details, see Item 8, Note 4.

War in Ukraine .

Restructuring charges – During 2023, we recorded pre-tax restructuring charges of $109 million (representing $96 million net of income tax and a diluted EPS charge of $0.06 per share), related to a project to fully outsource and restructure the manufacturing of e-vapor devices and consumables.

During 2024, we recorded pre-tax restructuring charges of $180 million (representing $150 million net of income tax and a diluted EPS charge of $0.10 per share), related to the restructuring of the sourcing of IQOS products to be commercialized in the U.S., and the cessation of our operations in Venezuela.

Restructuring charges – During 2024, we recorded pre-tax restructuring charges of $180 million (representing $150 million net of income tax and a diluted EPS charge of $0.10 per share), related to the restructuring of the sourcing of IQOS products to be commercialized in the U.S., and the cessation of our operations in Venezuela.

During 2025, we recorded pre-tax restructuring charges of $241 million (representing $222 million net o f income tax and a diluted EPS charge of $0.14 per share), related to the end of combustible tobacco production in two of our factories in Germany.

For further details, see Item 8, Note 18.

Restructuring Activities .

South Korea indirect tax charge – On July 13, 2023, our South Korean subsidiary, PM Korea, received an adverse ruling from the Supreme Court of South Korea related to cases alleging underpayment of excise taxes in connection with a 2015 excise tax increase and subsequent audit by the South Korean Board of Audit and Inspection.

The Supreme Court ruling reversed previous decisions that were in PM Korea’s favor at the trial and appellate levels.

As a result of the ruling, we concluded that an adverse outcome was probable.

Consequently, we recorded a non-cash pre-tax charge of $204 million (representing $174 million net of income tax or $0.11 per share decrease in diluted EPS) in the second quarter results of 2023, reflecting the full amount previously paid by PM Korea.

Termination of agreement with Foundation for a Smoke-Free World – On September 29, 2023, PMI and the Foundation for a Smoke-Free World (the "Foundation") entered into the Final Grant Agreement and Termination of the Second Amended and Restated Pledge Agreement ("Agreement").

Under the terms of the Agreement, PMI paid $140 million in the third quarter of 2023 in return for the termination of the pledge agreement between the parties.

As a result, in the third quarter of 2023, PMI recorded a pre-tax charge of $140 million (representing $111 million net of income tax or $0.07 per share decrease in diluted EPS) commensurate with the early termination of the pledge agreement.

The pre-tax charge was recorded in marketing, administration and research costs in the consolidated statements of earnings during the year ended December 31, 2023.

For further details, see "Other Developments" within the Business Environment section of this Item 7.

Fair value adjustment for equity security investments – During 2023, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka of $38 million after tax (or $0.02 per share increase in diluted EPS).

During 2024, we recorded a favorable fair value adjustment for our equity security investments in India and Sri Lanka of $418 million after tax (or $0.27 per share increase in diluted EPS).

Impairment of goodwill and other intangibles – During the first quarter of 2024, we recorded an impairment charge of $27 million (representing $20 million net of income tax or $0.01 per share decrease in diluted EPS), primarily reflecting the impairment of non-amortizable intangible assets related to an in-process research and development project in our Wellness business.

During the second quarter of 2025, after the completion of our annual review of goodwill, it was determined that the estimated fair value of a reporting unit included within the Europe segment was lower than its carrying value.

Consequently, PMI recorded a goodwill impairment charge of $41 million (representing a $0.03 per share decrease in diluted EPS).

For further details, see Item 8, Note 4.

Goodwill and Other Intangible Assets, net .

Fair value adjustment for equity security investments – During 2024 and 2025, we recorded fair value adjustments for our equity security investments in India and Sri Lanka of $418 million after tax gain (or $0.27 per share increase in diluted EPS) and $289 million after tax gain (or $0.18 per share increase in diluted EPS), respectively.

For further details, see Item 8, Note 5.

Related Parties - Equity Investments and Other .

Impairment related to the RBH equity investment – On October 17, 2024, the court-appointed mediator and monitor in the Companies' Creditors Arrangement Act ("CCAA") proceedings filed a proposed plan of compromise and arrangement (“Proposed Plan”) setting forth, among other things, certain terms of a proposed comprehensive resolution of Canadian tobacco claims and related litigation.

On January 24, 2025, RBH filed an objection to approval of the Proposed Plan with the CCAA court.

Although there remained some uncertainty as to the final terms of the Proposed plan, PMI evaluated its investment in RBH for potential impairment and concluded that the estimated fair value of its investment in RBH was lower than its carrying value.

For further details, see Item 8, Note 5.

Related Parties - Equity Investments and Other .

Amortization of intangibles – During 2024 and 2025, we recorded amortization of intangible expense of $835 million (representing $629 million net of income tax or $0.40 per share decrease in diluted EPS) and $1,003 million (representing $780 million net of income tax or $0.50 per share decrease in diluted EPS), respectively.

The higher amortization expense in 2025 included the reacquired rights recorded as other intangible assets, net following the reacquisition of IQOS commercialization rights in the U.S.

from Altria Group, Inc.

For further details, see Item 8, Note 5.

Goodwill and Other Intangible Assets, net .

Impairment of goodwill and other intangibles – During the second quarter of 2023, as a result of the completion of our annual review of goodwill and non-amortizable intangible assets for potential impairment, it was determined that the estimated fair value of the Wellness and Healthcare reporting unit was lower than its carrying value.

Consequently, we recorded a total non-cash impairment charge of $680 million (representing a $0.44 per share decrease in diluted EPS) consisting of a goodwill impairment charge of $665 million and a non-amortizable intangible asset pre-tax impairment charge of $15 million for an in-process research and development project related to one of our 2021 acquisitions.

The impairment charge was recorded in impairment of goodwill ($665 million) and marketing, administration and research costs ($15 million) in the consolidated statements of earnings during the year ended December 31, 2023 and was included in the Wellness and Healthcare segment results.

During the first quarter of 2024, we recorded an impairment charge of $27 million (representing $20 million net of income tax or $0.01 per share decrease in diluted EPS), primarily reflecting the impairment of non-amortizable intangible assets related to an in-process research and development project in the Wellness and Healthcare segment.

The impairment charge of $27 million was recorded in marketing, administration and research costs in the consolidated statements of earnings during the year ended December 31, 2024.

from Altria Group, Inc., effective in May 2024.

For further details, see Item 8, Note 4.

Goodwill and Other Intangible Assets, net .

Termination of distribution arrangement in the Middle East – Following the termination of a distribution arrangement in the Middle East, we recorded a pre-tax charge of $80 million in the first quarter of 2023 (representing $70 million net of income tax and a diluted EPS charge of $0.04 per share).

The pre-tax charge was recorded as a reduction of net revenues in the consolidated statements of earnings for the year ended December 31, 2023 and was included in the SSEA, CIS & MEA segment results.

Swedish Match AB acquisition accounting related items – During the first quarter of 2023, we recorded pre-tax purchase accounting adjustments of $18 million related to the sale of acquired inventories stepped up to fair value (representing $13 million net of income tax and a diluted EPS charge of $0.01 per share).

These pre-tax adjustments were recorded in cost of sales in the consolidated statements of earnings for the year ended December 31, 2023.

For further details, see Item 8, Note 3.

Acquisitions and Divestitures .

Loss on sale of Vectura Group – In September 2024, we announced the execution of a definitive agreement to sell Vectura to Molex Asia Holdings Ltd.

On December 31, 2024, we completed the sale.

The sale resulted in a pre-tax loss of $199 million (representing $206 million including the tax costs or a diluted EPS charge of $0.13 per share).

This pre-tax loss was recorded in marketing, administration and research costs in PMI’s consolidated statements of earnings for the year ended December 31, 2024,

and was included in the Wellness and Healthcare segment results.

The sale resulted in a pre-tax loss of $199 million (representing $206 million including income tax or a diluted EPS charge of $0.13 per share).

This pre-tax loss was recorded in marketing, administration and research costs in PMI’s consolidated statements of earnings for the year ended December 31, 2024, and was included in the Europe segment results.

For further details, see Item 8, Note 3.

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This pre-tax charge was recorded in marketing, administration and research costs in the consolidated statement of earnings for the year ended December 31, 2024, and was included in the SSEA, CIS & MEA segment results.

Megapolis localization tax impact – PMI holds a 23% equity interest in Megapolis Distribution B.V.

("MDBV"), which was the holding company of JSC TK Megapolis (formerly CJSC TK Megapolis), pursuant to Dutch law, PMI's distributor in Russia.

In June 2024, the Russian government included JSC TK Megapolis in the list of economically significant organizations that may be subject to forced localization under applicable Russian law, which refers to the mandatory removal of a foreign holding company from the shareholding structure.

On August 8, 2024, the Arbitrazh Court of the Moscow Region granted the forced localization of MDBV as requested by the Ministry of Industry and Trade on July 18, 2024.

As a result, MDBV’s shares in JSC TK Megapolis were transferred to JSC TK Megapolis and subsequently transferred to the Russian subsidiary of its indirect shareholders during the fourth quarter of 2024.

Megapolis localization tax impact – PMI holds a 23% equity interest in JSC TK Megapolis ("TKM"), PMI's distributor in Russia (SSEA, CIS & MEA segment).

In June 2024, the Russian government included TKM in the list of economically significant organizations that may be subject to forced localization under applicable Russian law, which referred to the mandatory removal of a foreign holding company from the shareholding structure.

On August 8, 2024, the Arbitrazh Court of the Moscow Region granted the forced localization of Megapolis Distribution B.V.

("MDBV") as requested by the Ministry of Industry and Trade on July 18, 2024.

As a result, MDBV’s shares in TKM were transferred to TKM and subsequently transferred to the Russian subsidiaries of its indirect shareholders during the fourth quarter of 2024.

As a result of the transfer of shares, PMI recorded a tax charge of $77 million (representing a diluted EPS charge of $0.05 per share).

This charge primarily reflected additional deferred withholding taxes related to the JSC TK Megapolis pre-localization earnings and other adjustments of accumulated earnings of the Russian subsidiary.

This charge primarily reflected additional deferred withholding taxes related to the TKM pre-localization earnings and other adjustments of accumulated earnings of the Russian subsidiary.

For further details, see Item 8, Note 5.

Related Parties - Equity Investments and Other .

Impairment related to the RBH equity investment – On October 17, 2024, the court-appointed mediator and monitor in the CCAA proceedings filed a proposed plan of compromise and arrangement (“Proposed Plan”) setting forth, among other things, certain terms of a proposed comprehensive resolution of Canadian tobacco claims and related litigation.

On January 24, 2025, RBH filed an objection to approval of the Proposed Plan with the CCAA court (for further details, see Item 8, Note 18.

Contingencies ).

Germany excise tax classification litigation charge – In August 2024, the German Main Custom Office (“MCO”) notified Philip Morris (Germany) GmbH (“PM Germany”) of its decision to classify TEREA consumables as a cigarette for excise tax purposes with the associated tax assessment totaling EUR 151 million (approximately $176 million) covering the period of February 15, 2023, through August 1, 2024.

In April 2025, PM Germany paid the outstanding amount, which was recorded in Other assets on the consolidated balance sheets, while it challenged the MCO’s decision in court.

On September 17, 2025, PM Germany filed a request to withdraw the proceedings.

As a result, the tax assessment amount of $176 million (representing $150 million net of income tax and a diluted EPS charge of $0.10 per share) was recorded as a pre-tax charge in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2025, and was included in the Europe segment results.

RBH (Canada) Plan implementation, including dividend income, net – On August 29, 2025, the plan of compromise and arrangement (the “Plan”) setting forth the terms of a resolution of Canadian tobacco claims and related litigation became effective.

In the third quarter of 2025, we recorded after-tax income of $156 million ($0.10 per share increase in diluted EPS) following the Plan implementation, including $303 million of dividend income net of the corresponding decrease in the carrying value of the RBH investment, $19 million of other income and the related income tax charge of $166 million.

For further details regarding the Plan, see Item 8, Note 5.

Related Parties - Equity Investments and Other, and Note 10.

Income Taxes .

Impairment of Wellness business related equity investment – In the third quarter of 2025, PMI recorded a non-cash after-tax charge of $146 million (representing a diluted EPS charge of $0.09 per share), primarily representing an other-than-temporary impairment of one equity method investment within the Wellness business following a reassessment of its estimated fair value triggered by the amendment of existing investment agreements in the third quarter of 2025.

The impairment charge was recorded in equity investments and securities (income)/loss, net in the consolidated statements of earnings for the year ended December 31, 2025.

For further details, see Item 8, Note 5.

Related Parties - Equity Investments and Other .

Income taxes – The Income tax impact associated with Swedish Match AB financing that increased our 2023 diluted EPS by $0.11 per share and decreased our 2024 diluted EPS by $0.14 per share in the table above was due to a deferred tax impact for unrealized foreign currency gains and losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity.

The 2023 tax items that decreased our 2023 diluted EPS by $0.11 per share in the table above were due to an increase in deferred tax liabilities related to the unremitted earnings of PMI's Russian subsidiaries due to the unilateral suspension of certain Russian double tax treaties by the Russian authorities on August 8, 2023, with respect to certain payments including dividends.

Loss on expected sale of consumer accessories and other businesses – During the fourth quarter of 2025, PMI completed the sale of one business and classified as held-for-sale net assets of certain other businesses (disposal group), primarily related to its consumer accessories products acquired as part of the Swedish Match AB acquisition in 2022.

As a result, PMI recorded a pre-tax loss of $94 million (representing a diluted EPS charge of $0.06 per share).

The loss on sale was recorded in marketing, administration and research costs in the Europe segment in PMI’s consolidated statement of earnings for the year ended December 31, 2025.

For further details, see Item 8, Note 3.

Acquisitions and Divestitures .

Income taxes – The Income tax impact associated with Swedish Match AB financing that decreased our 2024 diluted EPS by $0.14 per share and increased our 2025 diluted EPS by $0.25 per share in the table above was due to a deferred tax impact for unrealized foreign currency gains and losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity.

The 2024 tax items that increased our 2024 diluted EPS by $0.03 per share in the table above were due to a U.S.

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Tabacalera Nacional, a wholly owned foreign corporation incorporated in Venezuela.

The change in the tax rate that decreased our diluted EPS by $0.07 per share in the table above was primarily due to increases in U.S.

state tax expense, repatriation cost differences, and changes in earnings mix by taxing jurisdiction.

Currency – The unfavorable impact of $0.38 per share during the reporting period primarily results from the fluctuations of the U.S.

dollar, especially against the Egyptian pound, Euro, Japanese yen and Russian ruble.

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

Interest – The unfavorable impact of $0.03 per share from interest in the table above was due primarily to higher average debt levels and higher average interest rates on debt, partially offset by higher interest income.

The 2025 tax items that increased our 2025 diluted EPS by $0.11 per share in the table above were due to benefits related to an interest expense election primarily driven by a reduction in prior year tax costs associated with global intangible low-taxed income and refunds expected on amended tax returns filed in Germany;

partially offset by valuation allowances recorded on deferred tax assets related to U.S.

foreign tax credits and the recognition of current tax expense related to the potential disallowance of deductions for certain intercompany transactions in Indonesia.

For further details, see Item 8, Note 10.

Income Taxes.

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

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

dollar, especially against the Argentine peso, Egyptian pound, Euro, and Polish zloty, partly offset by the Russian ruble and Swiss franc.

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

Interest – The favorable impact of $0.09 per share from interest in the table above was primarily due to the impact of lower market interest rates on our variable-rate debt, as well as the favorable impact of derivative financial instruments.

Operations – The increase in diluted EPS of $0.85 per share from our operations in the table above was due primarily to the following segments:

• SSEA, CIS & MEA:

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

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

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

• EA, AU & PMI DF:

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

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

• EA, AU & PMI GTR:

Favorable volume/mix and a favorable pricing variance;

partly offset by

Higher marketing, administration and research costs, higher manufacturing costs and an unfavorable pricing variance, partly offset by favorable volume/mix.

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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PMI may utilize third-party valuation experts to assist in the fair value determination of certain assets acquired and liabilities assumed.

The determination of fair value requires management to make judgements and may involve the use of significant estimates, including assumptions with respect to estimated projected revenue growth, future cash flows, terminal growth rates, useful economic lives of intangible assets acquired, discount rates, royalty rates and other factors.

The determination of fair value requires management to make judgments and may involve the use of significant estimates, including assumptions with respect to estimated projected revenue growth, future cash flows, terminal growth rates, useful economic lives of intangible assets acquired, discount rates, royalty rates and other factors.

Certain acquired intangibles are expected to have indefinite lives based on their history and PMI’s intent to continue to support and build the intangible.

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Our primary performance obligation is the distribution and sales of cigarettes and smoke-free products, including heat-not-burn, e-vapor and oral nicotine products.

Our performance obligations are typically satisfied upon shipment or delivery to our customers.

performance obligations are typically satisfied upon shipment or delivery to our customers.

PMI estimates the cost of sales returns based on historical experience, and these estimates are immaterial.

Estimated costs associated with warranty programs for IQOS devices are generally provided for in cost of sales in the period the related revenues are recognized, based on a number of factors, including historical experience, product failure rates and warranty policies.

The transaction price is typically based on the amount billed to the customer and includes estimated variable consideration where applicable.

Such variable consideration is typically not constrained and is estimated based on the most likely amount that PMI expects to be entitled to under the terms of the contracts with customers, historical experience of discount or rebate redemption, where relevant, and the terms of any underlying discount or rebate programs, which may change from time to time as the business and product categories evolve.

Goodwill and Non-Amortizable Intangible Assets Valuation - We test goodwill and non-amortizable intangible assets for impairment annually or more frequently if events occur that would warrant such review, using either a qualitative or quantitative assessment for each of our reporting units.

Where a qualitative assessment is followed, we determine whether it is more likely than not that an impairment exists based on qualitative factors such as macroeconomic conditions, industry and competitive conditions, legal and regulatory environment, historical financial performance and significant changes within the reporting unit.

If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed.

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Management considers historical experience and all available information at the time the fair values are estimated, and we believe these assumptions are consistent with the assumptions a hypothetical marketplace participant would use.

During the second quarter of 2023, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment.

We performed a quantitative impairment assessment for all of our reporting units and non-amortizable intangible assets with the exception of the three reporting units and non-amortizable intangible asset related to the Swedish Match segment for which we have performed a qualitative assessment.

Based on this review, it was determined that the estimated fair value of the Wellness and Healthcare reporting unit was lower than its carrying value.

Consequently, PMI recorded a goodwill impairment charge of $665 million.

Additionally, as a result of the impairment test of non-amortizable intangible assets, PMI recorded a pre-tax impairment charge of $15 million.

There was no impairment charge of goodwill and non-amortizable intangible assets for our other reporting units.

For additional information, see Item 8, Note 5.

Goodwill and Other Intangible Assets, net .

During the second quarter of 2024, PMI completed its annual review of goodwill and non-amortizable intangible assets for potential impairment using a quantitative assessment for all of its reporting units and non-amortizable intangible assets.

As a result of this review, no impairment charges were required.

At December 31, 2024, the carrying value of our goodwill was $16.6 billion, which is related to eleven geographical reporting units, each consisting of a group of markets with similar operating and economic characteristics, and the Wellness and Healthcare business.

The estimated fair value of each of our twelve reporting units and non-amortizable intangible assets exceeded the carrying value as of December 31, 2024.

As discussed in Item 8, Note 4.

Goodwill and Other Intangible Assets, net , PMI recorded impairment losses related to goodwill and non-amortizable intangible assets during the second quarter of 2025 and 2023, where certain reporting units and non-amortizable intangible assets were written down to their respective fair values as of the date of the annual impairment review.

During 2024, PMI’s annual impairment review of goodwill and non-amortizable intangible assets resulted in no impairment charges.

At December 31, 2025, the carrying value of our goodwill was $17.3 billion.

The estimated fair value of each of our eleven reporting units, excluding the held-for-sale businesses, and non-amortizable intangible assets exceeded the carrying value as of December 31, 2025.

All assumptions used in the impairment assessments for goodwill and non-amortizable intangible assets are based on the best available market information and are consistent with PMI’s internal forecasts and operating plans.

A deterioration in these assumptions could adversely impact our results.

Investment in non-marketable equity securities – For further details, see Item 8, Note 5.

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Postretirement plans 5.56% 5.35%

We anticipate that assumption changes will increase 2025 pre-tax pension and postretirement expense to approximately $166 million as compared with approximately $158 million in 2024, excluding amounts related to employee severance and early retirement programs.

The anticipated increase is primarily due to higher amortization of unrecognized actuarial losses of $45 million, coupled with higher service cost of $17 million, partially offset by higher expected return on assets of $20 million, coupled with lower interest cost of $30 million and other movements of $4 million.

We anticipate that assumption changes will decrease 2026 pre-tax pension and postretirement expense to approximately $71 million as compared with approximately $172 million in 2025, excluding amounts related to employee severance and early retirement programs.

The anticipated decrease is primarily due to lower amortization of unrecognized actuarial losses of $62 million, coupled with higher expected return on assets of $45 million, lower service cost of $20 million, partially offset by higher interest cost of $24 million and other movements of $2 million.

Weighted-average expected rate of return and discount rate assumptions have a significant effect on the amount of expense reported for the employee benefit plans.

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The effective tax rates used for interim reporting are based on our full-year geographic earnings mix projections.

Changes in currency exchange rates, earnings mix by taxing jurisdiction or future regulatory developments may have an impact on the effective tax rates.

Changes in currency exchange rates, earnings mix by taxing jurisdiction, geopolitical conditions, or future regulatory developments may have an impact on the effective tax rates.

Significant judgment is required in determining income tax provisions and in evaluating tax positions.

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Hedging - As discussed below in “Market Risk,” we use derivative financial instruments principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange and interest rates by creating offsetting exposures.

For derivative contracts that are designated and qualify as fair value hedges the gain or loss on the derivative, as well as the offsetting gain or loss on the hedged items attributable to the hedged risk, is recognized in the consolidated statement of earnings.

For our other derivatives to which we have elected to apply hedge accounting, gains and losses on these derivatives are initially deferred in accumulated other

comprehensive losses on the consolidated balance sheet and recognized in the consolidated statement of earnings into the same line item as the impact of the underlying transaction and in the periods when the related hedged transactions are also recognized in operating results.

Gain (losses) related to derivatives contracts for which hedge accounting provisions have not been elected are recognized in the consolidated statement of earnings.

PMI records derivative contracts at their fair value in accordance with U.S.

GAAP and assesses their fair value using standard valuation models that rely on readily observable market inputs.

The fair value of PMI’s foreign exchange forward contracts, foreign currency swaps and interest rate derivatives is determined using prevailing spot and forward foreign exchange rates, spot and forward interest rates, and the instruments’ respective maturity dates.

The fair value of currency options is estimated using a Black‑Scholes valuation model that incorporates foreign exchange spot rates, interest rate differentials, currency volatilities, strike rates and maturity dates.

The fair value of PMI’s commodity contracts is determined using prevailing market spot and futures prices and the corresponding maturity dates.

The valuation of derivative contracts includes the market inputs and estimates listed above, which are subject to changes in business conditions.

Changes to the fair value of the derivative financial instruments could adversely impact PMI’s results.

Contingencies - As discussed in Item 8, Note 16.

Contingencies , to our consolidated financial statements, legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions.

We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an unfavorable outcome is probable and the amount of the loss can be reasonably estimated.

We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an

unfavorable outcome is probable and the amount of the loss can be reasonably estimated.

The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome.

Much of the tobacco-related litigation is in its early stages, and litigation is subject to uncertainty.

Litigation is subject to uncertainty.

At the present time, except as stated otherwise in Item 8, Note 16.

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Consolidated Operating Results

Net revenues, significant expenses, and operating income (loss) by segment were as follows:

(in millions) Europe SSEA, CIS & MEA EA, AU & PMI DF Americas Wellness & Healthcare Total

Net revenues, significant expenses, and operating income by segment were as follows:

(in millions) Europe SSEA, CIS & MEA EA, AU & PMI GTR Americas Total

For the Year Ended December 31, 2025

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Marketing, administration and research costs 5,404 2,765 1,545 2,635 12,349

Operating income (loss) $ 6,938 $ 3,429 $ 2,878 $ 548 $ (391) $ 13,402

Impairment of goodwill 41 — — — 41

Operating income $ 7,165 $ 4,096 $ 3,126 $ 505 $ 14,892

For the Year Ended December 31, 2024

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Marketing, administration and research costs 4,669 2,519 1,504 2,455 11,147

Impairment of goodwill — — — — 665 665

Operating income (loss) $ 6,169 $ 3,136 $ 2,539 $ 582 $ (870) $ 11,556

Operating income $ 6,547 $ 3,429 $ 2,878 $ 548 $ 13,402

For the Year Ended December 31, 2023

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Marketing, administration and research costs 4,252 2,384 1,684 1,740 10,060

Operating income (loss) $ 5,776 $ 3,864 $ 2,424 $ 440 $ (258) $ 12,246

Impairment of goodwill 665 — — — 665

Operating income $ 5,299 $ 3,136 $ 2,539 $ 582 $ 11,556

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

• Restructuring charges - See Item 8, Note 18.

Restructuring Activities for details of the $241 million, $180 million and $109 million pre-tax charges for the year ended December 31, 2025, 2024 and 2023, respectively, as well as a breakdown of these costs by segment.

• Impairment of goodwill and other intangibles – For the year ended December 31, 2025, PMI recorded a goodwill impairment charge of $41 million that was included in the Europe segment.

For the year ended December 31, 2023, PMI recorded $680 million of goodwill and non-amortizable intangible assets impairment charges that was included in the Europe segment.

For further details, see Item 8, Note 4.

Goodwill and Other Intangible Assets, net .

• Germany excise tax classification litigation charge – In August 2024, the German Main Custom Office (“MCO”) notified Philip Morris (Germany) GmbH (“PM Germany”) of its decision to classify TEREA consumables as a cigarette for excise tax purposes with the associated tax assessment totaling EUR 151 million (approximately $176 million) covering the period of February 15, 2023, through August 1, 2024.

In April 2025, PM Germany paid the outstanding amount, which was recorded in Other assets on the consolidated balance sheets, while it challenged the MCO’s decision in court.

On September 17, 2025, PM

Germany filed a request to withdraw the proceedings.

As a result, the tax assessment amount of $176 million was recorded in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2025, and was included in the Europe segment results.

• Loss on expected sale of consumer accessories and other businesses – See Item 8, Note 3.

Acquisitions and Divestitures for details of the pre-tax loss of $94 million recorded in the Europe segment for the year ended December 31, 2025.

• Egypt sales tax charge – In the third quarter of 2024, following a ruling issued by the Higher Administrative Court in Egypt and subsequent evaluation of available remedies, PMI concluded that an adverse outcome was probable and recorded a pre-tax charge of $45 million in relation to tax assessments for general sales tax deducted on imported cutfiller for the years 2014 to 2016.

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The sale resulted in a pre-tax loss of $199 million.

This pre-tax loss was recorded in marketing, administration and research costs in the consolidated statement of earnings for the year ended December 31, 2024, and was included in the Wellness and Healthcare segment results.

For further details, see Item 8, Note 3.

Acquisitions and Divestitures .

• Restructuring charges – See Item 8, Note 20.

Restructuring Activities for details of the $180 million and $109 million pre-tax charges for the year ended December 31, 2024 and 2023, respectively, as well as a breakdown of these costs by segment.

• Termination of distribution arrangement in the Middle East – In the first quarter of 2023, PMI recorded a pre-tax charge of $80 million following the termination of a distribution arrangement in the Middle East.

This pre-tax charge was recorded as a reduction of net revenues in the consolidated statements of earnings, and was included in the SSEA, CIS & MEA segment results for the year ended December 31, 2023.

• Impairment of goodwill and other intangibles – For the year ended December 31, 2023, PMI recorded $680 million of goodwill and non-amortizable intangible assets impairment charges that was included in the Wellness and Healthcare segment.

For the year ended December 31, 2022, PMI recorded an impairment charge related to definite-lived intangible assets of $112 million.

This charge was included in the Wellness and Healthcare segment.

For further details, see Item 8, Note 5.

Goodwill and Other Intangible Assets, net .

• South Korea indirect tax charge – On July 13, 2023, PMI's South Korean subsidiary, PM Korea, received an adverse ruling from the Supreme Court of South Korea related to cases alleging underpayment of excise taxes in connection with a 2015 excise tax increase and subsequent audit by the South Korean Board of Audit and Inspection.

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As a result of the ruling, we concluded that an adverse outcome was probable.

Consequently, we recorded a non-cash pre-tax charge of $204 million in marketing, administration and research costs in the consolidated statements of earning, reflecting the full amount previously paid by PM Korea, which was included in the EA, AU & PMI DF segment for the year ended December 31, 2023.

• Termination of agreement with Foundation for a Smoke-Free World – On September 29, 2023, PMI and the Foundation for a Smoke-Free World (the "Foundation") entered into the Final Grant Agreement and Termination of the Second Amended and Restated Pledge Agreement ("Agreement").

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SSEA, CIS & MEA ($41 million);

EA, AU & PMI DF ($24 million);

EA, AU & PMI GTR ($24 million);

and Americas ($15 million).

• Charges related to the war in Ukraine – See Item 8, Note 4.

War in Ukraine for details of the $53 million and $151 million pre-tax charges in the Europe segment for the years ended December 31, 2023 and 2022, respectively.

• Swedish Match AB acquisition accounting related items – See Item 8, Note 3.

Acquisitions and Divestitures for details of the $18 million and $125 million pre-tax purchase accounting adjustments related to the sale of acquired inventories stepped up to fair value.

These pre-tax purchase accounting adjustments were included in the Americas segment ($18 million in 2023 and $77 million in 2022) and the Europe segment ($48 million in 2022).

• Charges related to the war in Ukraine – For the year ended December 31, 2023, PMI recorded pre-tax charges of $53 million in the Europe segment related to the war in Ukraine.

Our net revenues by product category were as follows:

PMI Net Revenues by Product Category

(in millions) 2025 2024 2023

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10,233 9,848 9,321

EA, AU & PMI DF

EA, AU & PMI GTR

2,415 2,516 2,676

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Smoke-free products

Smoke-free excluding Wellness and Healthcare:

Europe 8,127 7,091 6,500

of which, Wellness 238 333 306

SSEA, CIS & MEA 1,818 1,413 1,308

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Americas 2,691 2,279 1,508

Total Smoke-free excluding Wellness and Healthcare 14,327 12,534 9,919

Wellness and Healthcare 333 306 271

Total Smoke-free 16,854 14,660 12,840

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Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include smoke-free products.

Net revenues related to smoke-free, excluding wellness and healthcare, 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, if applicable.

These net revenue amounts consist of the sale our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral products, as well as consumer accessories.

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

Net revenues related to smoke-free, excluding wellness, 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, if applicable.

These net revenue amounts consist of the sale of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral products, as well as consumer accessories.

Net revenues related to wellness refer to the operating revenues generated from the sale of product, primarily associated with oral and intra-oral delivery systems.

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

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

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

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

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and amortization and impairment of intangibles.

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

fees for certain distribution rights billed to customers in certain markets in the SSEA, CIS & MEA Region, the revenue adjustment for the termination of a distribution arrangement in the Middle East.

Our consolidated shipment volume is shown in the table below:

Consolidated Shipment Volume

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

fees for certain distribution rights billed to customers in certain markets in the SSEA, CIS & MEA Region.

Our shipment volume for cigarettes, HTUs and Oral SFP is shown in the table below:

Shipment Volume

Cigarettes and Heated Tobacco Units (million units) 2025 2024 2023

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(1) Excluding snuff, snuff leaf and U.S.

chewing tobacco

(2) Includes chew bags and tobacco bits

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

These include HEETS , Next , Philip Morris and Rooftop .

These include Next, TEREA and VEEV .

The volume and corresponding royalty revenues of these brands sold by RBH were not material to PMI for all periods presented.

Total shipment volume is defined as the combined total of cigarette, heated tobacco, oral smoke-free products (excluding snuff, snuff leaf and U.S.

chew) and e-vapor shipment volume in equivalent units, unless otherwise stated.

Heated tobacco units ("HTUs") is the term we use to refer to heated tobacco consumables, which include our BLENDS , DELIA , HEETS , HEETS Creations (defined collectively as HEETS ), SENTIA , TEREA, TEREA CRAFTED and TEREA Dimensions, as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea).

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chew and is measured in cans or, for the purposes of total shipment volumes, in pouches or pouch equivalents.

Oral smoke-free products conversion:

(i) nicotine pouches:

15 pouches per can in the U.S.

and approximately 20 pouches per can outside the U.S.;

(ii) snus products:

weighted average 21 pouches equivalent per can;

(iii) moist snuff products:

weighted average 17 pouches equivalent per can;

(iv) tobacco bits products:

weighted average 30 pouches equivalent per can;

(v) chew bags products:

weighted average 20 pouches per can.

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

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

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

Consumer offtake or offtake is the term PMI uses to refer to an approximation of purchases by consumers based on various market specific sources.

Total industry volume, PMI in-market sales volume and PMI market share for the following geographies include the cigarillo category in Japan:

the total international market, EA, AU & PMI DF Region, and Japanese domestic market.

the total international market, EA, AU & PMI GTR Region, and Japanese domestic market.

In-market sales ("IMS") is defined as sales to the trade channels, which serve the end legal age nicotine users.

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Adjusted market share for HTUs is defined as the total in-market sales volume for PMI HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs, excluding the impact of estimated distributor and wholesaler inventory movements.

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

References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States,

total industry (or total market) and market shares throughout this "Discussion and Analysis" are our estimates for tax-paid and Global Travel Retail products based on data from a number of internal and external sources and may, in defined instances, exclude China.

Past reported periods may be updated to ensure comparability and to incorporate the most current information for industry and market share reporting.

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In such instances, in addition to reviewing PMI shipment volumes, IMS, certain estimated total industry/market volumes and estimated market shares on a reported basis, management reviews these measures on an adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements.

Management also believes that disclosing PMI's shipment volumes, IMS, estimated total industry/market volumes and estimated market shares in such circumstances on a basis that excludes the impact of distributor and/or estimated trade inventory movements improves the comparability of performance and trends for these measures over different reporting periods.

Management also believes that disclosing PMI's shipment volumes, IMS, and estimated total industry/market volumes and estimated market shares in such circumstances on a basis that excludes the impact of distributor and/or estimated trade inventory movements improves the comparability of performance and trends for these measures over different reporting periods.

2025 compared with 2024

The following discussion compares our consolidated operating results for the year ended December 31, 2025, with the year ended December 31, 2024.

Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs increased by 1.5% to 2.6 trillion units.

Estimated industry volume (excluding China and the U.S.) for cigarettes and HTUs was broadly stable, with a 1.1% decrease for cigarettes, largely offset by 10.2% growth of HTUs.

For the full year 2026, we currently expect an estimated total international industry volume decline of around 2% for cigarettes and HTUs, excluding China and the U.S.

Shipment Volume

Our total cigarette and HTU shipment volume increased by 2.5% (HTU shipments increased by 11.6%, while cigarette shipments increased by 0.6%) with increases across all regions except the Americas.

Our total oral product shipment volume in cans increased by 27.8%, primarily reflecting growth in nicotine pouches.

For the full year 2025, we currently expect total cigarette and smoke-free product shipment volume growth for PMI of up to 2% driven by smoke-free products volume growth of 12% to 14%.

For the full year 2025, we also expect nicotine pouch shipment volume in the U.S.

of 780 to 820 million cans.

Total PMI SFP HTU Oral SFP E-vapor Cigarettes

Total Shipment Volume

(equivalent units in billions)

786.5 179.1 155.1 20.7 3.3 607.4

1.4% 12.8% 11.0% 18.5% +100% (1.5)%

Oral smoke-free products conversion:

(i) nicotine pouches (units):

15 pouches per can in the U.S.

and approximately 20 pouches per can outside the U.S.;

(ii) snus products:

weighted average 21 pouches equivalent per can;

(iii) moist snuff products:

weighted average 17 pouches equivalent per can;

(iv) tobacco bits products:

weighted average 30 pouches equivalent per can;

(v) chew bags products:

weighted average 20 pouches per can.

E-vapor products conversion:

one milliliter of e-vapor liquid equivalent to 10 units.

Our shipment volume, including cigarettes and smoke-free products (in equivalent units), increased by 1.4% with smoke-free volumes up by 12.8%.

All SFP categories grew, and cigarette volume declined by 1.5%.

For the full year 2026, we currently expect broadly stable total PMI cigarette and SFP shipment volume, with high-single digit SFP shipment volume growth, and a cigarette shipment volume decline of around 3%, including the impact of weaker industry volume in India and Mexico, and the ongoing recovery of our business in Turkey.

International Share of Market - Cigarette and HTUs (Excluding China and the United States)

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25.3 % 25.5 % (0.2)

(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

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

Sum of share of market by product categories might not foot to total due to rounding

Key Market Data

Key market data regarding total market size, our shipments and market share of cigarettes and heated tobacco units were as follows:

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

Market Total Market

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

Key market data regarding total industry size, our shipments and volume share of cigarettes and heated tobacco units (HTUs) were as follows:

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

Market Cigarette & HTU Industry Volume

(billion units) Cigarette & HTU Cigarette HTU Cigarette & HTU HTU

2025 2024 2025 2024 2025 2024 2025 2024 2025 2024 2025 2024

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Turkey 160.2 150.5 74.3 78.2 74.3 78.2 — — 46.4 52.0 — —

EA, AU & PMI DF

EA, AU & PMI GTR

Australia 2.8 5.1 1.0 1.8 1.0 1.8 — — 35.4 34.8 — —

Japan (2) (3)

150.6 151.1 67.8 64.8 15.9 16.5 52.0 48.3 43.0 41.4 32.1 29.9

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(1) Market share estimates are calculated using IMS data, unless otherwise stated.

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

Depending on the market and distribution model, IMS may represent an estimate.

Consequently, past reported periods may be updated to ensure comparability and to incorporate the most current information.

(2) Total industry and volume share estimates include cigarillos in Japan

(3) PMI market share reflects estimated adjusted IMS volume share;

Total Market is based on reported IMS

(4) 2024 includes 0.6 billion units of cigarettes shipment volume under an arrangement where PMI acts as brand management and fulfillment services agent

(4) 2025 includes 8.7 billion units and 2024 includes 0.6 billion units of cigarette shipment volume under an arrangement where PMI acts as brand management and fulfilment services agent

Financial Summary

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2025 2024 Total Excl.

rency Acqui-sitions Price Vol/

rency Acqui-sitions / Dives-titures Price Vol/

Mix Cost/Other

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Net Revenues $ 40,648 $ 37,878 7.3 % 6.5 % $ 2,770 $ 461 $ (170) $ 1,536 $ 920 $ 23

$ 37,878 $ 35,174 7.7 % 10.1 % $ 2,704 $ (841) $ — $ 2,203 $ 1,268 $ 74

Cost of Sales (13,366) (13,329) (0.3) % — % (37) (194) 155 — 164 (162)

(13,329) (12,893) (3.4) % (4.5) % (436) 101 47 — (504) (80)

Marketing, Administration and Research Costs (1)

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Operating Income $ 14,892 $ 13,402 11.1 % 9.3 % $ 1,490 $ 154 $ 87 $ 1,536 $ 1,084 $ (1,371)

(1) Cost/Other variance includes charges in 2023 of $80 million following the termination of a distribution arrangement in the Middle East.

(2) Cost/Other variance includes charges in 2024 of $51 million related to amortization of intangibles and in 2023 of $15 million related to the war in Ukraine, $58 million related to amortization of intangibles and $18 million related to the Swedish Match AB acquisition accounting related items.

(3) Cost/Other variance includes charges in 2024 of $180 million related to restructuring charges, $27 million related to impairment of other intangibles, $784 million related to amortization of intangibles, $199 million related to the loss on sale of Vectura Group, and $45 million related to the Egypt sales tax charge, partly offset by charges in 2023 of $109 million related to restructuring charges, $204 million related to the South Korea indirect tax charge, $140 million related to the termination of a pledge agreement with the Foundation for a Smoke-Free World, $439 million related to amortization of intangibles, $38 million related to the war in Ukraine and $15 million related to the impairment of other intangibles.

(1) Cost/Other variance includes charges in 2025 of $241 million related to restructuring charges, $176 million related to the Germany excise tax classification litigation charge, $94 million related to the loss on expected sale of consumer accessories and other businesses, and higher amortization of intangibles in 2025, partly offset by charges in 2024 of $180 million related to restructuring charges, $27 million related to the impairment of other intangibles, $199 million related to the loss on sale of Vectura Group and $45 million related to the Egypt sales tax charge.

For more details, see Item 8, Note 3.

Acquisitions and Divestitures , Note 4.

War in Ukraine , Note 5.

Goodwill and Other Intangible Assets, net ., Note 13.

Segment Reporting and Note 20.

Goodwill and Other Intangible Assets, net , Note 11, Segment Reporting and Note 18.

Restructuring Activities .

2 unchanged sentences

Net revenues increased by 7.3%.

Net revenues, excluding currency and acquisitions, increased by 10.1%, mainly reflecting:

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

favorable volume/mix, driven by higher smoke-free products volume, partly offset by unfavorable cigarette mix;

and a favorable comparison to 2023 reflecting a charge in the first quarter of 2023 of $80 million (recognized as a reduction of net revenues in 2023) following the termination of a distribution arrangement in the Middle East, shown in "Other."

The unfavorable currency impact in net revenues was due primarily to the Egyptian pound, Indonesian rupiah, Japanese yen and Russian ruble.

Net revenues, excluding currency and acquisitions/divestitures, increased by 6.5%, mainly reflecting:

a favorable pricing variance due to higher combustible tobacco pricing;

and favorable volume/mix, driven by higher smoke-free products volume, notwithstanding unfavorable mix and lower volumes for cigarettes.

The favorable currency impact in net revenues was due primarily to the Euro, Polish zloty and Russian ruble, partly offset by the Indonesian rupiah and Mexican peso.

Net revenues include $16.9 billion in 2025 and $14.7 billion in 2024 related to smoke-free.

Operating income increased by 11.1%.

Operating income, excluding currency and acquisitions, increased by 21.5%, mainly reflecting:

the same factors as for net revenues, as well as a favorable comparison to 2023 reflecting the impairment of goodwill of $665 million recorded in the second quarter of 2023, the South Korea indirect tax charge of $204 million in 2023, the termination of a pledge agreement with the Foundation for a Smoke-Free World of $140 million and $53 million related to the war in Ukraine.

The increase was partly offset by higher amortization of intangibles in 2024, higher restructuring charges in 2024, a charge of $199 million related to the loss on sale of Vectura Group and the Egypt sales tax charge of $45 million in 2024, as well as higher marketing, administration and research costs (primarily due to inflationary impacts, notably related to wages, and higher commercial investments), as well as higher manufacturing costs, notably related to tobacco leaf and the impact of the EU single-use plastics directive, partly offset by productivity.

Amortization expense on a pre-tax basis for each of the next five years is estimated to be approximately $1.0 billion or less, assuming no additional transactions occur that require the amortization of intangible assets.

This amount includes the reacquired rights recorded as other intangible assets, net, in May 2024 following the reacquisition of IQOS commercialization rights in the U.S.

from Altria Group, Inc.

(See Item 8, Note 3.

Acquisitions and Divestitures, Note 5.

Goodwill and Other Intangible Assets, net .

and the "Business Environment" section of this MD&A for details).

Interest expense, net, of $1.1 billion increased by $82 million (7.7%), primarily due to higher average debt levels and higher average interest rates on debt, partially offset by higher interest income.

Our effective tax rate increased by 2.3 percentage points to 24.7%.

We estimate that our 2025 effective tax rate will be approximately 22.5% to 23.5%, excluding discrete tax events.

Operating income, excluding currency and acquisitions/divestitures, increased by 9.3%, mainly reflecting:

the same factors as for net revenues, as well as a favorable comparison to 2024 reflecting a charge of $199 million related to the loss on sale of Vectura Group in 2024 and $45 million related to the Egypt sales tax charge in 2024.

The increases were partly offset by higher marketing, administration and research costs, higher manufacturing costs, higher restructuring charges in 2025, the impairment of goodwill charge in 2025, higher amortization of intangibles in 2025, the loss on expected sale of consumer accessories and other businesses of $94 million in 2025, and the 2025 Germany excise tax classification litigation charge of $176 million.

Interest expense, net, of $966 million decreased by $177 million or 15.5%, primarily due to the impact of lower market interest rates on our variable-rate debt, as well as the favorable impact of derivative financial instruments.

Our effective tax rate decreased by 5.0 percentage points to 19.7%.

We estimate that our 2026 effective tax rate will be around 21.5%, excluding discrete tax events.

For further details, see Item 8, Note 10.

2 unchanged sentences

For further details, see Item 8, Note 5.

Related Parties - Equity Investments and Other and Item 8, Note 18.

Contingencies.

Income from equity investments and securities, net, increased by $480 million or over 100%, primarily driven by a favorable fair value adjustment for our equity security investments in India and Sri Lanka.

Related Parties - Equity Investments and Other.

Income from equity investments and securities, net, increased by $68 million or 10.7%, primarily driven by a favorable fair value adjustment for our equity security investments in India and Sri Lanka.

For further details, see Item 8, Note 5.

Related Parties - Equity Investments and Other .

Net earnings attributable to PMI of $7.1 billion decreased by $756 million or 9.7%.

This decrease was due primarily to the impairment related to the RBH equity investment and a higher effective tax rate, partly offset by higher operating income and higher income from equity investments and securities.

Basic earnings per share of $4.53 decreased by 9.8%.

Diluted EPS of $4.52 decreased by 10.0%.

Excluding an unfavorable currency impact of $0.38, diluted EPS decreased by 2.4%.

Net earnings attributable to PMI of $11.3 billion increased by $4.3 billion or 60.8%.

This increase was primarily due to higher operating income, higher income from equity investments and securities, the favorable comparison to 2024 reflecting the impairment charge related to the RBH equity investment in 2024, a lower effective tax rate and lower interest expense, net.

Basic earnings per share of $7.27 increased by 60.5%.

Diluted EPS of $7.26 increased by 60.6%.

Excluding the favorable currency impact of $0.04, diluted EPS increased by 59.7%.

2024 compared with 2023

10 unchanged sentences

2025 2024 Total Excl.

rency Acqui-sitions Price Vol/

rency Acqui-sitions / Dives-titures Price Vol/

(in millions)

2 unchanged sentences

Net revenues increased by 9.1%.

Net revenues, excluding currency and acquisitions, increased by 7.1%, reflecting a favorable pricing variance, mainly driven by higher combustible tobacco pricing;

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

Net revenues, excluding currency and acquisitions/divestitures, increased by 6.8%, reflecting:

a favorable price variance, predominantly due to higher combustible tobacco pricing;

and favorable volume/mix, driven by higher SFP volume, notwithstanding lower volumes and unfavorable mix for cigarettes.

The pricing variance for 2024 and 2025 was negatively impacted by the supplemental tax surcharge on heated tobacco products ("HTPs") in Germany, which went into effect in 2022.

4 unchanged sentences

The negative impact will continue, at least until the appeal ruling on the legality of the surcharge is concluded.

PMI currently accounts for the surcharge as a reduction in net revenues, with amounts withdrawn before May 15, 2024, currently under a payment suspension.

PMI currently accounts for the surcharge as a reduction in net revenues.

The amounts withdrawn before May 15, 2024, were under a payment suspension.

Despite this payment suspension and, in order to avoid the future addition of interest, PMI elected, on January 14, 2025, to pay the amount outstanding of EUR 721 million (approximately $751 million), excluding accrued interest.

2 unchanged sentences

Operating income increased by 9.4%.

Operating income, excluding currency and acquisitions, increased by 12.4%, primarily reflecting:

the same factors as for net revenues, as well as a favorable comparison to 2023 reflecting the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $60 million, $53 million charge related to the war in Ukraine in 2023 and $47 million related to restructuring charges in 2023.

The positive impact of this favorable comparison was partly offset by higher marketing, administration and research costs.

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

The estimated total market for cigarettes and HTUs in the Region was broadly stable (541.9 billion units), reflecting a 1.4% decrease for cigarettes and continued HTU growth.

Notable decreases in the estimated total market in France (down by 12.5%), and the United Kingdom (down by 12.6%) were largely offset by Ukraine (up by 4.3%), Bulgaria (up by 7.3%), and Poland (up by 2.3%).

Europe Key Data

2024 2023 % / pp

PMI Market Share

Cigarettes 30.0 % 30.3 % (0.3)

Heated Tobacco Units 10.0 % 9.1 % 0.9

Total Europe 40.0 % 39.4 % 0.6

Sum may not foot due to rounding.

Our total cigarette and HTU shipment volume in the Region increased by 0.7% to 216.3 billion units.

Total cigarette and HTU shipment volume increased notably in Poland (up by 7.9%) and Ukraine (up by 9.4%), and decreased notably in France (down by 17.3%), as well as the Netherlands (down by 20.9%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 9.4%, reflecting continued growth momentum for IQOS , partly offset by the impact from the EU characterizing flavor ban.

HTU shipments increased by 8.9%.

Our HTU share of the total cigarette and HTU market in the Region increased by 0.9 pp on an adjusted basis.

Operating income, excluding currency and acquisitions/divestitures, increased by 3.4%, primarily reflecting:

the same factors as for net revenues and a favorable comparison to 2024 reflecting a charge of $199 million related to the loss on sale of Vectura Group in 2024;

partly offset by higher marketing, administration and research costs, as well as the 2025 loss on expected sale of consumer accessories and other businesses of $94 million, the 2025 Germany excise tax classification litigation charge of $176 million and the 2025 restructuring charges of $241 million.

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

The estimated industry volume for cigarettes and HTUs decreased by 3.5% to 524.0 billion units, with a 5.0% decrease for cigarettes and continued HTU growth.

The decrease in the estimated total market were notably in Poland (down by 12.1%) and the Ukraine (down by 10.6%), partly offset by Bulgaria (up by 6.0%).

Our shipment volume (in equivalent units) decreased by 1.0% with cigarettes down by 5.5% and SFP up by 10.9%.

Our cigarette and HTU shipment volume decreased by 1.5% to 213.1 billion, with decreases in Poland (down by 9.4%) and France (down by 7.9%), partly offset by Italy (up by 3.1%) and Spain (up by 4.9%).

Our HTU share of the total cigarette and HTU market increased by 1.2 points on an adjusted basis.

Other Oral SFP includes chew bags and tobacco bits

Sum may not foot due to rounding.

Our oral SFP shipments increased by 4.9%, driven by growth of nicotine pouches (up by 40.2%).

Our oral SFP shipments decreased by 6.9% to 268.8 million cans.

SSEA, CIS & MEA:

3 unchanged sentences

2025 2024 Total Excl.

rency Acqui-sitions Price Vol/

rency Acqui-sitions / Dives-titures Price Vol/

(in millions)

2 unchanged sentences

Net revenues increased by 7.0%.

Net revenues, excluding currency and acquisitions, increased by 11.7%, primarily reflecting:

a favorable pricing variance, predominantly driven by higher combustible tobacco pricing;

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

and a favorable comparison to 2023 due to the charge of $80 million following the termination of a distribution arrangement in the Middle East (recognized as a reduction of net revenues in 2023).

Net revenues, excluding currency and acquisitions/divestitures, increased by 6.4%, mainly reflecting:

a favorable price variance, predominantly driven by combustible tobacco pricing;

while unfavorable cigarette mix, due to the commercial model change in Indonesia, was largely offset by higher cigarette and SFP volume.

A change in our commercial model for the below tier-one cigarette segment in Indonesia in the fourth quarter of 2024 resulted in lower net revenue growth, with no meaningful impact on operating income.

Operating income increased by 19.5%.

Operating income, excluding currency and acquisitions, increased by 26.8%, primarily reflecting:

a favorable pricing variance, predominantly driven by higher combustible tobacco pricing;

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

a favorable comparison to 2023 reflecting a 2023 charge of $80 million following the termination of a distribution arrangement in the Middle East, a 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $41 million and $32 million related to restructuring charges in 2023.

These increases were partly offset by higher manufacturing costs (primarily due to higher cost of tobacco leaf), higher marketing, administration and research costs, and the Egypt sales tax charge of $45 million in 2024.

SSEA, CIS & MEA - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market for cigarettes and HTUs in the Region increased by 2.8% to 1,571.9 billion units.

The increase in the estimated total market was mainly due to Turkey (up by 9.5%), and Egypt (up by 11.3%), partly offset by Bangladesh (down by 5.0%), and Thailand (down by 13.7%).

Our Regional market share increased by 0.4 points to 23.8%.

Our total cigarette and HTU shipment volume in the Region increased by 4.2% to 373.4 billion units, mainly driven by Turkey (up by 13.4%), partly offset by Indonesia (down by 3.7%).

Our estimated HTU adjusted in-market sales volume increased by approximately 15.6%, with about 15% HTU shipment volume growth.

EA, AU & PMI DF:

Operating income, excluding currency and acquisitions/divestitures, increased by 20.3%, primarily reflecting:

a favorable price variance, as well as higher cigarette and SFP volume and a favorable comparison to 2024 reflecting a charge of $45 million related to the Egypt sales tax charge in 2024, partly offset by higher marketing, administration and research costs, as well as manufacturing costs (notably tobacco leaf).

SSEA, CIS & MEA - Total Industry, PMI Shipment Volume and Market Share Commentaries

The estimated industry volume for cigarettes and HTUs increased by 1.1% to 1,562.9 billion units.

The increase was mainly driven by India (up by 9.8%), Turkey (up by 6.4%) and Egypt (up by 5.5%), partly offset by Bangladesh (down by 10.7%) and Indonesia (down by 2.4%).

Our shipment volume (in equivalent units) increased by 1.7% with SFP up by 14.1% and cigarettes up by 0.7%.

Our cigarette and HTU shipment volume increased by 1.7% to 379.6 billion units, mainly driven by India (up by 39.2%), Egypt (up by 8.9%) and the Philippines (up by 4.3%), partly offset by Turkey (down by 4.9%) and Indonesia (down by 1.8%).

EA, AU & PMI GTR:

Financial Summary - Years Ended December 31, Change

2 unchanged sentences

2025 2024 Total Excl.

rency Acqui-sitions Price Vol/

rency Acqui-sitions / Dives-titures Price Vol/

(in millions)

2 unchanged sentences

Net revenues increased by 3.7%.

Net revenues, excluding currency and acquisitions, increased by 8.6%, reflecting:

a favorable pricing variance and favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume.

Net revenues, excluding currency and acquisitions/divestitures, increased by 4.6%, predominantly due to:

favorable volume/mix, driven by SFP volume;

coupled with favorable price variance, driven by higher combustible tobacco pricing.

Operating income increased by 8.6%.

Operating income, excluding currency and acquisitions, increased by 25.1%, mainly reflecting

a favorable pricing variance and favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume, while lower manufacturing costs were largely offset by higher marketing, administration and research costs, as well as a favorable comparison to 2023 reflecting the South Korea indirect tax charge of $204 million in 2023.

EA, AU & PMI DF - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market for cigarettes and HTUs in the Region, excluding China, was broadly stable (318.9 billion units), with a decrease in cigarettes, largely offset by HTU growth.

The decrease in the estimated total market in Australia (down by 28.5%) and Korea (down by 2.2%) was offset by International Duty Free (up by 11.3%) and Japan (up by 1.4%).

Our Regional market share increased by 1.3 points to 31.3%.

Our total cigarette and HTU shipment volume in the Region increased by 3.3% to 104.6 billion units, driven by Japan (up by 6.4%), partly offset by Australia (down by 28.5%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 14.5%.

HTU shipments increased by 12.6%.

Operating income, excluding currency and acquisitions/divestitures, increased by 11.7%, reflecting the same factors as for net revenues.

EA, AU & PMI GTR - Total Industry, PMI Shipment Volume and Market Share Commentaries

The estimated industry volume for cigarettes and HTUs, excluding China, decreased by 1.1% to 316.4 billion units, with HTU growth more than offset by decrease in cigarettes.

Notable decreases in South Korea (down by 3.5%) and Australia (down by 45.7%) were partly offset by Global Travel Retail (up by 6.7%).

Our shipment volume (in equivalent units) increased by 4.1% with SFP up by 11.0%, and cigarettes down by 4.1%.

Our cigarette and HTU shipment volume increased by 3.8% to 108.5 billion units, driven by Japan (up by 4.7%), partly offset by Australia (down by 45.2%).

Our HTU adjusted in-market sales volume increased by an estimated 9.3%.

Financial Summary - Years Ended December 31, Change

2 unchanged sentences

2025 2024 Total Excl.

rency Acqui-sitions Price Vol/

rency Acqui-sitions / Dives-titures Price Vol/

(in millions)

2 unchanged sentences

Net revenues increased by 7.1%.

Net revenues, excluding currency and acquisitions, increased by 19.3%, primarily reflecting:

favorable volume/mix, mainly due to growth of ZYN nicotine pouches in the U.S., partly offset by cigarette volume declines outside of the U.S.;

and favorable cigarette and ZYN pricing.

Net revenues, excluding currency and acquisitions/divestitures, increased by 8.8%, primarily reflecting favorable volume/mix, driven by SFP volume, partly offset by unfavorable pricing.

The unfavorable pricing was mainly due to the U.S.

(reflecting the increased impact of promotional activities in the second half of 2025, as a result of ZYN 's return to full availability, with promotional costs including retailer incentives taken in net revenues), partly offset by cigarette pricing outside of the U.S.

Operating income decreased by 7.8%.

Operating income, excluding currency and acquisitions, decreased by 41.1%, mainly reflecting:

higher marketing, administration and research costs (including incremental investment in the U.S.), higher restructuring charges of $169 million and higher amortization of intangibles of $355 million.

These decreases were partly offset by favorable volume/mix and a favorable price variance, mainly due to the same factors as for net revenues.

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

The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by 1.9% to 185.1 billion units, primarily reflecting a decline for cigarettes.

The decrease in the estimated total market was mainly due to Argentina (down by 8.4%) and Canada (down by 12.3%), partly offset by Brazil (up by 6.8%).

Our Regional market share, excluding the U.S., was flat at 33.7%.

Our total cigarette and HTU shipment volume in the Region decreased by 2.6% to 62.3 billion units, mainly due to Argentina (down by 8.1%), partly offset by Brazil (up by 8.5%).

Operating income, excluding currency and acquisitions/divestitures, decreased by 0.9%, mainly reflecting an unfavorable pricing variance (described above), higher amortization of intangibles, and higher marketing, administration and research costs, and manufacturing costs (both including further investments in our U.S.

capabilities and organization).

These decreases were partly offset by favorable volume/mix (described above) and a favorable comparison to 2024 reflecting the restructuring charges of $180 million in 2024.

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

The estimated industry volume for cigarettes and HTUs, excluding the U.S., decreased by 2.0% to 183.5 billion units due to a decrease in the cigarette market.

The decrease in the estimated total market was mainly due to Canada (down by 12.2%) and Mexico (down by 3.6%), partly offset by Argentina (up by 1.8%).

Our shipment volume (in equivalent units) increased by 3.1% with SFP up by 27.7% and cigarettes down by 1.7%.

Our total cigarette and HTU shipment volume decreased by 1.5% to 61.3 billion units, mainly due to Mexico (down by 4.8%), partly offset by Argentina (up by 4.1%).

(1) Excluding U.S.

Volumes of other oral SFP introduced in Q3 2024 are not material.

Sum may not foot due to rounding.

Oral products shipments increased by 37.6%, predominantly driven by ZYN nicotine pouches in the U.S.

Cigar shipment volume decreased by 11%, while gross profit grew mid-single digits.

Wellness and Healthcare:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2024 2023 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 333 $ 306 8.8 % 7.8 % $ 27 $ 3 $ — $ 26 $ — $ (2)

Operating Income / (Loss) $ (391) $ (870) 55.1 % 55.4 % $ 479 $ (3) $ — $ 26 $ — $ 456

Net revenues increased by 8.8%.

Net revenues, excluding currency and acquisitions, increased by 7.8%.

The operating loss of $391 million in 2024 was primarily due to a charge of $199 million related to the loss on sale of Vectura Group and amortization of acquired intangibles, as well as research and development, and administration costs.

The operating loss of $870 million in 2023 was primarily due to an impairment charge for goodwill and other intangibles of $680 million in the second quarter, as well as commercial investments and higher administration costs and the amortization of acquired intangibles.

For further details, see Item 8, Note 3.

Acquisitions and Divestitures and Note 5.

Goodwill and Other Intangible Assets, net.

travel retail volumes of approximately 11.9 million nicotine pouch cans were recorded in the Americas segment in 2025, while financial impacts were recorded in the EA, AU & PMI GTR segment.

There were no meaningful U.S.

travel retail volumes in prior year.

Oral SFP shipments increased by 29.4% to 930 million cans, predominantly driven by ZYN nicotine pouches in the U.S.

2024 compared with 2023

As previously disclosed in the Description of Our Company section of this Item 7, in January 2024, we updated our segment reporting by including the former Swedish Match segment results into the four existing geographical segments.

The following discussion compares operating results within each of our segments for 2023 with 2022 under this operating segment structure.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 14,231 $ 12,972 9.7 % 3.6 % $ 1,259 $ 249 $ 546 $ 535 $ (71) $ —

Operating Income $ 6,169 $ 5,776 6.8 % 2.3 % $ 393 $ 191 $ 67 $ 535 $ (87) $ (313)

Net revenues increased by 9.7%.

Net revenues, excluding currency and acquisitions, increased by 3.6%, reflecting:

a favorable pricing variance, mainly driven by higher combustible tobacco pricing;

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

Operating income increased by 6.8%.

Operating income, excluding currency and acquisitions, increased by 2.3%, primarily reflecting:

lower charges in 2023 related to the war in Ukraine ($98 million), a favorable comparison to 2022 related to costs associated with the Swedish Match AB offer ($53 million) and a favorable pricing variance.

The increase was partly offset by the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World ($60 million), the 2023 charges for restructuring charges ($47 million), higher marketing, administration and research costs (mainly due to inflationary impacts and lower commercial investments in the prior year period);

higher manufacturing costs (primarily due to inflationary impacts);

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

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

The estimated total market for cigarettes and HTUs in the Region decreased by 1.3% to 542.6 billion units, reflecting a 3.0% decline for cigarettes, partly offset by a 15.4% increase for HTUs.

The decrease in the estimated total market was predominantly due to the

United Kingdom (down by 15.4%), France (down by 8.1%), Germany (down by 1.8%) and Spain (down by 2.4%), partly offset by Poland (up by 1.8%).

Europe Key Data Full-Year

2023 2022 % / pp

PMI Market Share

Cigarettes 30.3 % 31.1 % (0.8)

Heated Tobacco Units 9.1 % 7.8 % 1.3

Total Europe 39.4 % 38.9 % 0.5

Sum may not foot due to rounding

Our total cigarette and HTU shipment volume in the Region decreased by 0.6% to 214.9 billion units, mainly due to Germany (down by 6.0%), Italy (down by 2.8%;

or up by 0.4% excluding the net unfavorable impact of estimated distributor inventory movements) and France (down by 7.3%), partly offset by Poland (up by 9.4%).

Our estimated HTU adjusted in-market sales volume in the Region increased by 17.8%, including growth in Germany and Italy of 29.7% and 16.8%, respectively.

Our HTU share of the total cigarette and HTU market in the Region increased by 1.3 points, or by 1.5 points on an adjusted basis.

In 2023, our oral SFP shipments reached 275.4 million cans in the Region.

SSEA, CIS & MEA:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 10,629 $ 10,467 1.5 % 11.7 % $ 162 $ (1,060) $ — $ 1,008 $ 400 $ (186)

Operating Income $ 3,136 $ 3,864 (18.8) % (2.0) % $ (728) $ (649) $ — $ 1,008 $ (237) $ (850)

Net revenues increased by 1.5%.

Net revenues, excluding currency and acquisitions, increased by 11.7%, primarily reflecting:

a favorable pricing variance, mainly driven by higher combustible tobacco pricing, with HTU pricing also higher;

and favorable volume/mix, primarily driven by favorable cigarette mix, as well as higher volume for HTUs, partly offset by an unfavorable cigarette volume impact.

This increase was partially offset by the 2023 termination of a distribution arrangement in the Middle East of $80 million and lower fees for certain distribution rights billed to customers in certain markets, both included in "Cost/Other" in the table above.

Operating income decreased by 18.8%.

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

higher marketing, administration and research costs;

higher manufacturing costs (primarily due to inflationary impacts);

unfavorable volume/mix, mainly due to an unfavorable cigarette volume impact and unfavorable cigarette mix, partly offset by higher HTU volume;

and the termination of a distribution arrangement, coupled with the impact of lower fees for certain distribution rights, as noted for net revenues;

as well as the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World of $41 million and the 2023 charges for restructuring charges of $32 million.

The decrease was partially offset by the favorable pricing variance and a favorable comparison to 2022 related to costs associated with the Swedish Match AB offer of $33 million.

SSEA, CIS & MEA - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market for cigarettes and HTUs in the Region decreased by approximately 2% to 1,528.6 billion units, due to a decline for cigarettes.

The decrease in the estimated total market was predominantly due to Egypt (down by 20.8%) and Pakistan (down by 35.1%), partly offset by Turkey (up by 17.7%).

Our Regional market share increased by 0.8 points to 23.4%.

Our total cigarette and HTU shipment volume in the Region increased by 1.3% to 358.2 billion units, mainly driven by Turkey (up by 23.0%), partly offset by the Philippines (down by 26.2%).

Our estimated HTU adjusted in-market sales volume increased by 8.2% including limited growth in Russia.

EA, AU & PMI DF:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 6,201 $ 5,936 4.5 % 11.2 % $ 265 $ (400) $ — $ 206 $ 459 $ —

Operating Income $ 2,539 $ 2,424 4.7 % 21.0 % $ 115 $ (394) $ — $ 206 $ 326 $ (23)

Net revenues increased by 4.5%.

Net revenues, excluding currency and acquisitions, increased by 11.2%, reflecting:

favorable volume/mix, mainly driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable smoke-free mix (for HTUs and devices);

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

Operating income increased by 4.7%.

Operating income, excluding currency and acquisitions, increased by 21.0%, mainly reflecting favorable volume/mix, primarily driven by higher HTU volume, partly offset by lower cigarette volume and unfavorable HTU mix;

the favorable pricing variance;

lower supply chain costs (primarily related to Japan);

and a favorable comparison to 2022 related to costs associated with the Swedish Match AB offer ($24 million).

The increase was partly offset by the 2023 charge related to the South Korea indirect tax ($204 million), the 2023 charge related to the termination of a pledge agreement with the Foundation for a Smoke-Free World ($24 million) and the 2023 charges for restructuring charges ($19 million).

EA, AU & PMI DF - Total Market, PMI Shipment Volume and Market Share Commentaries

The estimated total market for cigarettes and HTUs in the Region, excluding China, increased by 1% to 319.4 billion units, reflecting growth for HTUs, partly offset by a decline for cigarettes.

The increase in the estimated total market was mainly driven by International Duty Free (up by 34.4%), partly offset by Taiwan (down by 7.4%) and Australia (down by 19.4%).

Our Regional market share increased by 1.3 points to 30.0%.

Our total cigarette and HTU shipment volume in the Region increased by 6.7% to 101.2 billion units, mainly driven by Japan (up by 9.7%) and International Duty Free (up by 14.5%).

PMI's estimated HTU adjusted in-market sales volume in the Region increased by 15.8%, including growth in Japan of 14.5%.

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 3,807 $ 2,116 79.9 % 1.3 % $ 1,691 $ 96 $ 1,567 $ 158 $ (124) $ (6)

Operating Income $ 582 $ 440 32.3 % (61.4) % $ 142 $ (215) $ 627 $ 158 $ (93) $ (335)

Net revenues increased by 79.9%.

Net revenues, excluding currency and the impact of the Swedish Match acquisition, increased by 1.3%, primarily reflecting:

a favorable pricing variance, driven by higher combustible tobacco pricing, partly offset by unfavorable volume/mix was mainly due to lower cigarette volume and unfavorable cigarette mix outside of the U.S.

Operating income increased by 32.3%.

Operating income, excluding currency and the impact of the Swedish Match acquisition, decreased by 61.4%, mainly reflecting:

higher marketing, administration and research costs (including incremental investments in the U.S.

in preparation for smoke-free commercialization);

higher amortization of intangibles;

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

partly offset by the favorable pricing variance and a favorable comparison to 2022 related to the Swedish Match AB acquisition related items.

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

The estimated total market for cigarettes and HTUs in the Region, excluding the U.S., decreased by 1% to 188.8 billion units, driven by a decline for cigarettes.

The decrease in the estimated total market was mainly due to Mexico (down by 6.9%), Canada (down by 12.6%) and Argentina (down by 5.0%), partly offset by Brazil (up by 10.1%).

Our Regional market share, excluding the U.S., decreased by 1.2 points to 33.7%.

Our total cigarette and HTU shipment volume in the Region decreased by 3.9% to 63.9 billion units, mainly due to Mexico (down by 9.8%) and Argentina (down by 7.9%), partly offset by Brazil (up by 12.8%).

In 2023, our oral SFP shipments reached 522.5 million cans in the Region, driven by ZYN nicotine pouches in the U.S.

Wellness and Healthcare:

Financial Summary - Years Ended December 31, Change

Fav./(Unfav.) Variance

Fav./(Unfav.)

2023 2022 Total Excl.

rency Acqui-sitions Price Vol/

(in millions)

Net Revenues $ 306 $ 271 12.9 % 11.8 % $ 35 $ 3 $ — $ 33 $ — $ (1)

Operating Income / (Loss) $ (870) $ (258) -(100)% -(100)% $ (612) $ (6) $ — $ 33 $ — $ (639)

Net revenues increased by 12.9%.

Net revenues, excluding currency and acquisitions, increased by 11.8%, notably reflecting the higher net revenues for smoking cessation products and select inhalation products.

The operating loss of $258 million in 2022 included a charge for impairment of other intangible assets of $112 million and the amortization of acquired intangibles.

As previously disclosed in the Description of Our Company section of this Item 7, we updated our segment reporting in January 2025 by including the ongoing Wellness results in the Europe segment.

For a discussion comparing our consolidated operating results within each of our segments for the year ended December 31, 2024, with the year ended December 31, 2023, refer to Part II, Item 7.

Management's Discussion and Analysis of Financial Condition and Results of Operation - Operating Results by Business Segment in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the U.S.

Securities and Exchange Commission on February 6, 2025.

This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2025.

Business Environment

The tobacco industry and our company face a number of challenges that may adversely affect our business, product sales volume, results of operations, cash flows, and financial position.

The industries we operate in and our company face a number of challenges that may adversely affect our business, product sales volume, results of operations, cash flows, and financial position.

These challenges, which are discussed below and in Part II, Item 1A.

Risk Factors — Cautionary Factors That May Affect Future Results in this report, include:

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

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

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

• illicit trade in cigarettes and other tobacco and nicotine-containing products, including counterfeit, contraband and other non-compliant or otherwise illicit products;

• illicit trade in tobacco and nicotine-containing products, including counterfeit, contraband and other non-compliant or otherwise illicit products;

• intense competition, including unfair competition from non-tax paid volume by certain manufacturers;

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We recognize that smoking cigarettes causes serious diseases and that the best way to avoid the harm of smoking is to never start or to quit.

Nevertheless, according to WHO estimates, there are approximately 1 billion smokers globally.

Nevertheless, according to WHO estimates, there are approximately one billion smokers globally.

This number has not meaningfully changed in decades and, based on current trends, is not expected to significantly change in the near future.

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Our SFPs and commercial activities for these products are designed for, and directed toward, current adult smokers and adult users of nicotine-containing products.

We put in significant effort to restrict access to our products from non-smokers and youth.

We put in significant effort to restrict access to our products from underage persons.

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

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Therefore, we are developing and commercializing a portfolio of products intended to appeal to a variety of distinct adult consumer preferences and achieve population harm reduction, including:

• Heat-not-burn products, which use a precisely controlled heating device incorporating our IQOS HeatControl technology, into which a specially designed and proprietary tobacco unit is inserted in a holder and heated to generate an aerosol.

• Heat-not-burn products, which use a precisely controlled heating device incorporating our patented technologies, into which a specially designed and proprietary tobacco unit is inserted in a holder and heated to generate an aerosol.

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

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We believe that there is full comparability between the bladed versions of IQOS and the subsequent induction versions of IQOS , and that the data from the studies conducted with the blade version of IQOS remain valid and applicable to the newer and adjacent versions of IQOS .

In 2022, we also began the initial launch of a heat-not-burn product that utilizes external resistive heating technology and is commercialized under the BONDS by IQOS brand.

• Oral tobacco and nicotine products, which include snus and modern oral nicotine pouches.

We also produce a heat-not-burn product that utilizes external resistive heating technology, which is commercialized under the BONDS by IQOS brand, and has been launched in certain markets.

• Oral tobacco and nicotine products, which include snus and modern oral pouches.

Snus refers to (a) dried loose tobacco, or snuff, which is consumed by sniffing the product through the nose;

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and (c) snus pouches which contain ground tobacco, water, salt and flavors.

Modern oral nicotine pouches consist of white pre-conditioned pouches containing nicotine derived from tobacco, and they primarily contain nicotine, flavors, and cellulose substrate.

Modern oral pouches mainly refer to pre-portioned pouches containing nicotine, flavors, and cellulose substrate.

In some markets, modern oral pouches may also contain small amounts of tobacco.

Users place a pouch between the upper lip and gum and leave it there while the nicotine and flavor are being released.

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In 2022, we significantly expanded our oral smokeless products portfolio with the acquisition of Swedish Match.

Swedish Match's ZYN is the leading nicotine pouch brand in the U.S.

Swedish Match's ZYN is the leading smoke-free product brand in the U.S.

• e-Vapor products, which are battery-powered devices that produce an aerosol by vaporizing a tobacco-free liquid solution.

We have developed e-liquids for our e-Vapor products designed to deliver an authentic tobacco taste.

We have developed e-liquids for our e-Vapor products with different flavor profiles, including e-liquids designed to deliver an authentic tobacco taste.

Using patented technology, flavors and nicotine are extracted directly from the tobacco leaves and captured in a tobacco-free liquid solution, without having to add flavoring ingredients.

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

PMI has, and continues to, invest in digital consumer engagement.

PMI has invested, and continues to invest, in digital consumer engagement.

In 2014, we introduced IQOS in pilot city launches in Nagoya, Japan, and in Milan, Italy.

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Risk Factors—Cautionary Factors That May Affect Future Results in this report .

We discuss product warranties in more detail in Part II, Item 8, Financial Statements—Note 7.

Product Warranty in this report.

The significance of warranty claims depends on a number of factors, including device version mix, product failure rates, logistics and service delivery costs, and warranty policies, and may increase with the number of devices sold.

On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc., ("Altria") to end the companies' commercial relationship as of April 30, 2024, with respect to IQOS in the U.S.

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The Altria Agreement provides a clear path to expanding IQOS ’s international success in a market where over 30 million adults continue to smoke cigarettes.

On March 27, 2025, we began selling IQOS 3.0, the blade version of IQOS , in Austin, Texas.

We are pursuing a limited U.S.

roll-out of the IQOS device while waiting for authorization to market IQOS ILUMA , the induction version, in the United States.

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.

On January 30, 2023, we announced a renewal and extension of this arrangement.

On January 30, 2023, building on three years of collaboration, we announced a long-term collaboration with KT&G to continue to commercialize KT&G's innovative smoke-free devices and consumables on such an exclusive basis.

In November 2025, the parties reached an agreement that will facilitate the continuation of the collaboration with a new and revised volume commitment for the 2026-2028 period.

For more information, see Acquisitions, Divestitures and Other Business Arrangements below.

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

• In late 2022, we began commercializing our BONDS product in the Philippines and Colombia.

• Since 2022, we began commercializing BONDS devices and BLENDS consumables, and they are now available in 5 markets.

• Since August 2020, we have launched and expanded our portfolio of vaping products (branded VEEV ) in 47 markets.

• Following our acquisition of Swedish Match, we have access to a strong portfolio of Swedish Match brands in both the snus and nicotine pouch categories.

Nicotine pouches are currently available in 38 markets.

• Following our acquisition of Swedish Match, we have access to a strong portfolio of Swedish Match brands, and more specifically to ZYN .

Modern oral pouches are currently available in 56 markets.

Legislation, Regulation, Taxation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco and Other Nicotine-Containing Products

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In addition, in certain jurisdictions, some of our products are subject to tax structures that discriminate against premium-price products and manufactured cigarettes.

We believe that such tax policies undermine public health by encouraging consumers to turn to illicit trade, and ultimately undercut government revenue objectives, disrupt the competitive environment, and encourage criminal activity.

We believe that such tax policies undermine public health by encouraging consumers to turn to illicit trade or negatively impact the transition of adult smokers to SFPs, and ultimately undercut government revenue objectives, disrupt the competitive environment, and encourage criminal activity.

Other jurisdictions have imposed, or are seeking to impose, levies or other taxes specifically on tobacco companies, such as taxes on revenues and/or profits.

On March 14, 2024, the Court of Justice of the European Union (the "CJEU") ruled that the German fiscal regulation imposing an additional excise tax on HTPs does not contravene EU law.

Fiscal Court in Dusseldorf (the "FCD") had previously referred that question to the CJEU.

On May 21, 2024, the FCD delivered its judgement and dismissed our local affiliate's, f6 Cigarettenfabrik GmbH & Co.KG, ("PM Germany") claim.

On March 14, 2024, the Court of Justice of the European Union (the "CJEU") ruled that the German fiscal regulation imposing an additional excise tax on heated tobacco products ("HTPs") does not contravene EU law.

The Fiscal Court in Dusseldorf (the "FCD") had previously referred that question to the CJEU.

On May 21, 2024, the FCD delivered its judgment and dismissed the claim of our local affiliate, f6 Cigarettenfabrik GmbH & Co.KG, ("PM Germany").

PM Germany filed a notice of appeal to the Federal Fiscal Court on June 19, 2024.

To avoid further accumulation of interest, in January 2025, PM Germany provisionally paid the additional HTP excise tax relating to 2022, 2023 and 2024 (pending the outcome of the FCD decision).

An oral hearing is expected by the third quarter of 2026.

In March 2025, Japan adopted a multi-year tax plan that included changes to its excise tax structure and rates for tobacco products.

Under the plan, the excise tax for HTPs will be harmonized with cigarettes in two steps;

one on April 1, 2026, and the second on October 1, 2026.

The first increase in the harmonized HTP and cigarette excise tax will occur in April 2027, and the plan provides predictability on future excise rate increases for all tobacco product categories until April 2029.

Legislative and Regulatory Environment

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The well-known risks of smoking have led regulators to impose significant restrictions and high excise taxes on cigarettes.

The regulatory landscape for novel nicotine-containing products is inconsistent and evolving but is, in some instances, even more restrictive.

The regulatory landscape for novel nicotine-containing products is inconsistent and evolving but is, in some instances, even more restrictive compared to the regulatory environment for cigarettes.

Much of the regulation that shapes the business environment in which we operate is driven by the World Health Organization's (the "WHO") Framework Convention on Tobacco Control (the "FCTC"), which entered into force in 2005.

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The FCTC governing body, the Conference of the Parties (“CoP”), has also adopted non-binding guidelines and policy recommendations related to certain articles of the FCTC that go beyond the text of the treaty.

In October 2018, the CoP recognized the need for more scientific assessment and improved reporting to define policy on heated tobacco products.

Similar to its previous policy recommendations on e-cigarettes, the CoP invited countries to regulate, restrict or prohibit heated tobacco products, as appropriate under their national laws.

The WHO study group on tobacco product regulation published their ninth report on the scientific basis of tobacco product regulation in August 2023.

The report is based on a review of scientific evidence related to novel and emerging nicotine and tobacco products, such as electronic nicotine delivery systems ("ENDS"), electronic non-nicotine delivery systems and HTPs.

The report concludes by making a number of policy recommendations on HTPs and ENDS that, if implemented, could restrict both the availability of these products and the access to accurate information about them.

The Tenth Session of the CoP took place in February 2024.

No new decisions or policy recommendations on novel and emerging tobacco products were adopted.

Specific Guidelines were adopted to address cross-border Tobacco Advertising, Promotion, and Sponsorship (“TAPS”) and the depiction of tobacco in entertainment media.

The Eleventh session of the CoP is currently scheduled to take place in November 2025.

The WHO’s reports and other FCTC guidelines or recommendations are not binding on the WHO Member States or on parties to the FCTC.

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

In October 2018, the CoP recognized the need for more scientific assessment and improved reporting to define policy on HTPs.

Similar to its previous policy recommendations on e-cigarettes, the CoP invited countries to regulate, restrict or prohibit HTPs, as appropriate under their national laws.

The WHO study group on tobacco product regulation published their ninth and tenth reports on the scientific basis of tobacco product regulation in August 2023 and November 2025, respectively.

The reports are based on a review of scientific evidence related to novel and emerging nicotine and tobacco products, such as electronic nicotine delivery systems ("ENDS"), electronic non-nicotine delivery systems and HTPs.

The report concludes by making a number of policy recommendations on HTPs and ENDS that, if implemented, could restrict both the availability of these products and access to accurate information about them.

The Eleventh Session of the CoP ("CoP11") took place in November 2025.

No specific new decisions or policy recommendations on novel and emerging tobacco or nicotine products were adopted, though the parties were invited to "consider comprehensive regulatory options regarding tobacco and nicotine product components, and related external components that increase environmental harms, taking into consideration public health impacts." The WHO's reports and other FCTC guidelines or recommendations are not binding on the WHO Member States or on Parties to the FCTC.

CoP12 will take place in 2027.

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

Therefore, we advocate for regulatory frameworks that are based on a continuum of risk where non-combustible products fall below combustible cigarettes.

And we believe that regulation and taxation should differentiate between cigarettes and products that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products versus continued smoking.

Product regulation should include measures that encourage and accelerate switching to non-combustible products, for example, by allowing adult consumers who would otherwise continue smoking cigarettes to receive truthful and non-misleading information about such alternatives to enable them to make informed decisions and by applying uniform product standards to enable manufacturers to demonstrate the reduction in harmful and potentially harmful constituents, as well as the absence of combustion.

Product regulation should include measures that encourage and accelerate switching to non-combustible products, for example, by allowing adult consumers who would otherwise continue smoking cigarettes to receive truthful and non-misleading information about such alternatives to enable them to make informed decisions and by applying uniform product standards to enable manufacturers to demonstrate the absence of combustion, as well as the reduction in HPHCs.

Regulation should also include specific rules for ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-containing products.

Importantly, regulation must include measures designed to prevent initiation by youth and non-smokers.

Importantly, regulation must include measures designed to prevent initiation by youth and non-nicotine users.

We support mandated accurate and factual health warnings on packaging, minimum age laws, restrictions on advertising, and smoking restrictions in public spaces.

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Some governments have banned, are seeking to ban, or severely restrict emerging tobacco and nicotine-containing products, such as our SFPs, and communication of truthful and non-misleading information about such products.

Significant markets that have prohibited or severely restricted the sale of one or more category of SFP include Argentina, Brazil, Canada, India, Mexico, Turkey, Australia, Thailand, and Vietnam.

Significant markets that have prohibited or severely restricted the sale of one or more category of SFP include Argentina, Brazil, Canada, France, India, Mexico, Turkey, Australia, Thailand, and Vietnam.

In the U.S., some states and municipalities have introduced stringent restrictions on the sale of certain SFPs, including those authorized by the FDA.

These regulations might foreclose or unreasonably restrict adult consumer access to products that might be a better consumer choice than continuing to smoke cigarettes.

We oppose blanket bans and unreasonable restrictions of products that have the potential to present less risk of harm compared to continued cigarette smoking.

These regulations could also constitute, in effect, non-tariff barriers to trade.

We oppose blanket

bans and unreasonable restrictions of products that have the potential to present less risk of harm compared to continued cigarette smoking.

By contrast, we support regulation that sets clear standards for all SFP categories and propels innovation to benefit adult smokers who would otherwise continue to smoke cigarettes.

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In February 2024, the European Commission published an updated implementation roadmap to Europe's Beating Cancer Plan (the "Plan").

Further developments concerning a revision of TPD are expected during the mandate of the European Commission that took office in December 2024.

On December 16, 2025, the European Commission published the "EU Cardiovascular Health Plan — Safe Hearts Plan," where it announced its intention to propose a revision of the legislative framework on tobacco control (including TPD) in 2026.

In May 2024, the EU-wide systems of traceability and security features for tobacco products were extended to include tobacco products other than cigarettes and roll-your-own tobacco products.

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EU Tobacco Excise Directive ("TED") :

The EU Commission is preparing a legislative proposal for the revision of the 2011 EU Tobacco Excise Directive that may include definitions and tax treatment for novel tobacco and nicotine-containing products, including heated tobacco products, e-cigarettes and nicotine pouches.

The timeline for the revision has not been announced.

Any final amendments to TED require unanimous agreement by all EU Member States, followed by transposition of TED into national legislation.

In July 2025, the EU Commission published a legislative proposal for the revision of the 2011 EU Tobacco Excise Directive.

The proposal intends to review minimum excise tax rates for combustible tobacco products and expands the scope of the directive to include smoke-free products, such as heated tobacco, e-cigarettes, and nicotine pouches, providing differentiated tax treatment for novel tobacco and nicotine containing products.

This proposal marks the beginning of the formal legislative process which requires unanimous approval by all EU Member States and subsequent transposition of TED into national legislation in the EU 27 Member States.

The proposal contemplates an implementation date for this directive of January 1, 2028, and provides for an additional transitional period of four years for several categories, including heated tobacco and nicotine pouches.

Plain Packaging and Other Packaging Restrictions :

Plain packaging legislation bans the use of branding, logos and colors on packaging other than the brand name and variant that may be printed only in specified locations and in a uniform font.

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

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

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

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

Other countries are also considering plain packaging legislation.

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Restrictions and Bans on the Use of Ingredients :

The WHO and others in the public health community have recommended restrictions or total bans on the use of some or all ingredients in both combustible and SFPs, including menthol.

The WHO and others in the public health community have recommended restrictions or total bans on the use of some or all ingredients in both combustible products and SFPs, including menthol.

Broad restrictions and ingredient bans would require us to reformulate our American blend tobacco products, which could reduce our ability to differentiate these products in the market in the long term.

In many countries, menthol or flavor bans would eliminate entire product categories.

The EU banned cigarettes and roll-your-own tobacco products with characterizing flavors.

Other tobacco products are currently exempted under EU TPD from this characterizing flavor ban.

The EU banned cigarettes and roll-your-own tobacco products with characterizing flavors, while exempting other tobacco products under EU TPD from this characterizing flavor ban.

This was also the case for heated tobacco products until November 23, 2022, when the EU Commission published a delegated directive that eliminated this exemption.

All EU Member States were required to apply the delegated directive as of October 23, 2023, which bans the use of characterizing flavors in heated tobacco products, impacting a significant proportion of our SFP products currently sold in the EU.

Currently, all but six EU Member States have transposed this directive, withdrawing the heated tobacco product exemption from the characterizing flavor ban into national law.

Based on high consumer switching to non-flavored products in reaction to past bans on flavors in other categories and markets, we anticipated that, while short-term volatility would be possible, the ban’s impact on our shipment volumes in the EU would be relatively limited in the near term.

To date, our experience is consistent with this expectation.

There has been some short-term disruption in countries that have implemented the ban, but the impact has generally been limited in time and magnitude.

Nevertheless, it remains possible that the impact in countries that have yet to implement the ban could be more significant in duration or magnitude.

Currently, all EU Member States have transposed this directive into national law, withdrawing the heated tobacco product exemption from the characterizing flavor ban.

Based on high consumer switching to non-flavored products in reaction to past bans on flavors in other categories and markets, we anticipated that, while short-

term volatility would be possible, the ban’s impact on our shipment volumes in the EU would be relatively limited in the near term.

To date, our experience is generally consistent with this expectation.

There has been some short-term disruption in countries that have implemented the ban, most notably in Italy, but the impact has generally been limited in time and magnitude.

But our fundamental view remains that we do not expect a meaningful long-term change in the structural growth of the category.

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

Turkey banned menthol as of May 2020.

Broader ingredient bans have been adopted by Brazil and Canada.

In the U.S., certain states and localities have adopted flavor bans that apply to SFPs, including certain ZYN varieties.

Broader ingredient bans have been adopted by, among others, Brazil (pending a court decision), Thailand, Hong Kong (pending implementation date), and Canada.

Specific bans were introduced in countries such as Turkey, which banned menthol as of May 2020.

In the U.S., certain states and localities have adopted, or are considering adopting, flavor bans that apply to SFPs.

Bans on Display of Tobacco Products at Retail :

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The FCTC's non-binding guidelines recommend that governments prohibit all forms of communication with adult smokers.

In CoP10, Specific Guidelines were adopted to address cross-border Tobacco Advertising, Promotion, and Sponsorship (“TAPS”) and the depiction of tobacco in entertainment media.

These Specific Guidelines are non-binding on WHO Member States and FCTC Parties.

Product Standards and Restrictions on Product Design :

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.

Some members of the public health community are calling for the further standardization of tobacco products by requiring, for example, that cigarettes have a certain minimum diameter, which would result in a ban on slim cigarettes, or requiring the use of standardized filter and cigarette paper designs.

Some members of the public health community are calling for further standardization of tobacco products by requiring, for example, that cigarettes have a certain minimum diameter, which would result in a ban on slim cigarettes, or requiring the use of standardized filter and cigarette paper designs.

In the Netherlands, an anti-smoking organization has brought a lawsuit to force the government to require a different test method for measuring cigarette emissions than what is currently required under EU law, which, if allowed, could lead to a de facto ban on manufactured cigarettes in the Netherlands and, potentially, in other EU countries.

In addition, at its meeting in November 2016, the CoP adopted non-binding guidelines recommending that countries regulate product design features that increase the attractiveness of tobacco products, such as the diameter of cigarettes and the use of flavor capsules.

These standards are mandatory in Armenia, Bahrain, Egypt, Jordan, Lebanon, the Philippines, Saudi Arabia, Tajikistan, Tunisia, the UAE and Uzbekistan, and voluntary in Algeria, Azerbaijan, Colombia, Costa Rica, Dominican Republic, Indonesia, Kazakhstan, Kyrgyzstan, Morocco, Russia, South Africa, Vietnam, the U.K.

Currently, national standards in certain countries set minimum quality and safety requirements for heat-not-burn products with technical heat-not-burn specifications and/or methods for demonstrating the absence of combustion, including, for example, Algeria, Angola, Armenia, Bahrain, Colombia, Costa Rica, Dominican Republic, Egypt, Indonesia, Jordan, Kazakhstan, Kyrgyzstan, Lebanon, Morocco, the Philippines, Russia, Saudi Arabia, Tajikistan, Tunisia, the United Arab Emirates ("UAE"), the U.K., Ukraine, Uzbekistan and Vietnam.

These standards may be mandatory or voluntary, depending on the market.

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

For e-Vapor products, national standards setting minimum quality and safety requirements have been adopted in several markets.

These standards are mandatory in Armenia, Bahrain, China, Egypt, Jordan, New Zealand, the Philippines, Russia, United Arab Emirates, and Saudi Arabia and Tajikistan, and voluntary in Azerbaijan, Costa Rica, Dominican Republic, France, Indonesia, Kazakhstan, the Philippines, Russia, the U.K., and Ukraine.

Currently, industry standards setting minimum quality and safety requirements for modern oral nicotine pouches have been adopted in Armenia, Bahrain, Costa Rica, Pakistan, Sweden, the U.K., and Ukraine.

These standards are voluntary.

For e-Vapor products, national standards setting minimum quality and safety requirements have been adopted in several markets, including, for example, Armenia, Australia, Azerbaijan, Bahrain, China, Costa Rica, Egypt, France, Indonesia, Jordan, Morocco, New Zealand, the Philippines, Russia, Saudi Arabia, Tajikistan, the UAE, the U.K., and Ukraine.

These standards may be mandatory or voluntary, depending on the market.

Currently, national standards setting minimum quality and safety requirements for modern oral pouches have been adopted in several countries, including, for example, Angola, Armenia, Bahrain, Costa Rica, France, Malawi, Mexico, Moldova, Morocco, Pakistan, the Philippines, Sweden, UAE, the U.K., Ukraine and Zimbabwe.

These standards may be mandatory or voluntary, depending on the market.

We expect other governments to consider similar product standards for all novel tobacco and nicotine-containing products and encourage making them mandatory.

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Many countries around the world have adopted, or are likely to adopt, regulations that restrict or ban smoking and use of certain nicotine-containing products in public and/or workplaces, restaurants, bars and nightclubs.

Some public health groups have called for, and some countries, regional governments and municipalities have adopted or proposed, bans on smoking in outdoor places, as well as bans on smoking in cars (typically, when minors are present) and

private homes.

On December 3, 2024, the EU Council adopted its legally non-binding recommendation on smoke- and aerosol-free environments.

While the recommendations recognize scientifically proven differences between smoke-free and combustible products, they nevertheless encourage EU member states to restrict usage of both conventional and novel tobacco products in indoor public spaces and some outdoor areas.

On December 3, 2024, the EU Council adopted its legally non-binding recommendation on smoke- and aerosol-free

environments.

While the recommendations recognize scientifically proven differences between smoke-free and combustible products, they nevertheless encourage EU member states to restrict usage of both conventional tobacco products and inhalable smoke-free products in indoor public spaces and some outdoor areas.

Each member state is to decide whether or not to implement these recommendations.

Generation Bans :

Certain regulators are considering generation sales bans, which prohibit the sale of certain tobacco or nicotine products to people born after a certain year.

In December 2022, New Zealand adopted regulatory measures restricting the sale and supply of smoked tobacco products, including prohibiting the sale of smoked tobacco products to anyone born on or after January 1, 2009.

Certain jurisdictions are considering generation sales bans, which prohibit the sale of certain tobacco or nicotine products to people born after a particular year.

In December 2022, New Zealand adopted regulatory measures prohibiting the sale of smoked tobacco products to anyone born on or after January 1, 2009.

These measures were limited to smoked tobacco products and did not apply to heated tobacco products and e-cigarettes.

The New Zealand parliament repealed the measures in February 2024, before they were implemented.

On November 5, 2024, the UK government introduced a bill to the parliament, which if adopted, would ban the sale of tobacco products, including HTPs, herbal smoking products and cigarette papers to those born on or after January 1, 2009.

On November 5, 2024, the UK government introduced a bill to its Parliament, which if adopted, would ban the sale of tobacco products, including HTPs, herbal smoking products and cigarette papers to those born on or after January 1, 2009.

Other Regulatory Issues :

Some regulators are considering, or in some cases have adopted, regulatory measures designed to reduce the supply of tobacco products.

Some jurisdictions are considering, or in some cases have adopted, measures designed to reduce the supply of tobacco products.

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

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

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

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

As of December 31, 2025, the majority of EU Member States transposed the directive into national legislation and brought into force mandatory EPR schemes and related EPR costs for tobacco manufacturers and importers.

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Certain markets have instituted regulatory authorization processes that govern the commercialization of SFPs or the use of statements addressing SFP harm-reduction.

FDA Approval Process and Status of PMI SFPs :

In the United States, an established regulatory framework for assessing “Modified Risk Tobacco Products” ("MRTP") and “New Tobacco Products” exists under the jurisdiction of the FDA.

FDA Authorization Process and Status of PMI SFPs :

In the United States, an established regulatory framework for assessing tobacco products including “Modified Risk Tobacco Products” ("MRTP") exists under the jurisdiction of the FDA.

FDA actions may influence the regulatory approach of other governments and international regulatory agencies.

FDA Review of IQOS :

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

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

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

On December 7, 2020, the FDA reached the same determination for the IQOS 3 device and authorized that version of IQOS for sale in the United States.

On July 7, 2020, the FDA determined that the available scientific evidence demonstrates that the issuance of an exposure modification order would be appropriate for the promotion of public health and authorized the marketing of a version of IQOS , namely IQOS 2.4 and three related consumables, as an MRTP with reduced exposure claims.

We submitted to the FDA a Modified Risk Tobacco Product Application (“MRTPA”) for the IQOS Tobacco Heating System, which includes both the corresponding device and consumables, ("THS") in December 2016, and a Premarket Tobacco Product Application (“PMTA”) for IQOS in March 2017.

On April 30, 2019, following its comprehensive assessment of our PMTA, the FDA determined that marketing a version of IQOS , namely, IQOS 2.4 and three related consumables, is appropriate for the protection of public health and authorized those products for sale in the United States.

On December 7, 2020, the FDA reached the same determination for IQOS 3.0, authorizing that version of the device for sale in the United States.

On March 11, 2022, the FDA reached the same determination for the IQOS 3.0 device.

The FDA authorized the marketing of this product in the U.S.

with the following information:

The FDA authorized the marketing of these products in the U.S.

with the following claims:

"AVAILABLE EVIDENCE TO DATE:

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We also received an exposure modification order for IQOS 3.0 in March 2022.

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

The FDA’s PMTA and MRTP orders do not mean that the agency “approved” IQOS .

The FDA’s PMTA and MRTP orders do not mean that the agency has “approved” IQOS products.

These authorizations are subject to strict marketing, reporting, and other requirements, and are not a guarantee that the product will remain authorized, particularly if there is a significant uptake in youth or non-smoker initiation.

The FDA will monitor the marketing of the product.

The FDA monitors the marketing of the products.

On January 26, 2023, the FDA authorized the marketing of two new tobacco-flavored consumables ( Marlboro Sienna HeatSticks and Marlboro Bronze HeatSticks ) and a modified version of the authorized Marlboro Amber HeatSticks .

These products are line extensions and/or modified versions of the tobacco-flavored consumables for which the FDA had previously issued a marketing granted order.

In its assessment, the FDA determined that the three variants of HeatSticks were comparable to the previously authorized tobacco-flavored consumables.

On July 5, 2023, we submitted renewal applications to the FDA requesting re-authorization to continue to market those IQOS products that previously received an exposure modification order with a modified exposure claim in the United States.

These products are line extensions and/or modified versions of the three consumables for which the FDA had previously issued a marketing granted order.

In its assessment, the FDA determined that these three variants of HeatSticks were comparable to the previously authorized tobacco-flavored consumables.

On July 5, 2023, we submitted applications to the FDA requesting renewal of the MRTP authorizations previously granted to IQOS products in the United States.

These renewal requests were received by the FDA 360 days prior to the stated July 2024 expiration date of the original exposure modification orders, as requested by the FDA in the original orders.

On May 9, 2024, the FDA filed for scientific review of our MRTP renewal applications for IQOS products and posted materials from these applications.

As our applications proceed through the review process, we have responded to FDA requests for additional information.

The FDA may make further information requests or conduct subsequent inspections to verify the information we submitted.

The FDA referred our MRTP renewal to the Tobacco Product Scientific Advisory Committee (“TPSAC”).

TPSAC held a meeting on our renewal application on October 7, 2025.

The recommendations of TPSAC are not binding on the FDA.

By regulation, the FDA’s decision on our renewal application will take into account, in addition to the views of TPSAC, scientific evidence as well as comments, data and information submitted by interested persons.

The FDA did not issue a decision on our MRTP renewal applications prior to the stated July 7, 2024, expiration date of the original exposure modification orders.

The MRTP renewal applications were timely filed in accordance with FDA direction, and we believe that we should be permitted to continue to use the modified exposure claim with respect to those products that received exposure modification orders until the FDA decides on our MRTP renewal applications.

On October 20, 2023, we submitted bundled PMTAs for our IQOS ILUMA THS products together with MRTPAs requesting authorization of the exposure reduction marketing order previously granted for IQOS blade versions.

We submitted these applications at the same time in order for the FDA to evaluate the PMTAs and MRTPAs concurrently.

The MRTP renewal applications were timely filed in accordance with FDA direction, and we believe that we are permitted to continue to use the modified exposure claim with respect to those products that received exposure modification orders until the FDA decides on our MRTP renewal applications.

On October 20, 2023, we submitted bundled PMTAs for our IQOS ILUMA THS products together with MRTPAs requesting authorization of the modified exposure order previously granted for IQOS blade versions.

We submitted these applications at the same time for the FDA to evaluate the PMTAs and MRTPAs concurrently.

In March 2024, the FDA formally accepted our bundled PMTAs and MRTPAs.

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These submissions were made in November 2022 (for the three initial IQOS consumables) and February 2023 (for the two new IQOS consumables) to enable domestic manufacturing of IQOS consumables utilizing materials purchased from vendors operating in the United States.

On April 29, 2024, we submitted the Annual Report for the IQOS Tobacco Heating System ("THS") to the FDA.

On April 30, 2025, we submitted the Annual Report for the IQOS THS to the FDA.

The report included a systematic review of the literature covering publications related to the IQOS THS between March 1, 2024, and February 28, 2025.

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Overall, the review continues to support the finding that IQOS THS is "appropriate for the promotion of public health."

FDA Review of Swedish Match Products :

Premarket tobacco applications for 20 varieties of ZYN nicotine pouches were submitted in March 2020.

In the same month, these applications were filed for scientific review and in July 2020 the FDA issued a deficiency letter, which Swedish Match USA, Inc.

addressed in September 2020.

FDA Review of Oral Tobacco and Nicotine Products :

PMTAs for 20 varieties of ZYN nicotine pouches were submitted in March 2020.

On January 16, 2025, the FDA determined that all 20 ZYN nicotine pouch varieties currently marketed in the U.S.

met the applicable public health standard and were appropriate for the protection of public health and, therefore, authorized them for sale in the United States.

In their assessment, the FDA concluded that “among several key considerations, the agency’s evaluation showed that, due to substantially lower amounts of harmful constituents than cigarettes and most smokeless tobacco products, such as moist snuff and snus, the authorized products pose lower risk of cancer and other serious health conditions than such products.” Prior to the authorization these 20 varieties of ZYN pouches were marketed in the U.S.

consistent with the FDA's practice not to take enforcement action to prevent products with respect to which applications were filed

prior to a September 9, 2020 deadline from being marketed.

After the September 9, 2020 deadline, we also submitted additional applications for authorization to market other ZYN products.

We are unable to market these products until the FDA authorizes such applications.

In April 2024, we submitted MRTPAs for ZYN products currently marketed in the U.S.

and requested authorization of the modified risk claim.

As these applications proceed through the review process, the FDA may request additional information or conduct subsequent inspections to verify the submitted information.

In its assessment, the FDA concluded that “among several key considerations, the agency’s evaluation showed that, due to substantially lower amounts of harmful constituents than cigarettes and most smokeless tobacco products, such as moist snuff and snus, the authorized products pose lower risk of cancer and other serious health conditions than such products.”

On January 16, 2026, we submitted the first Annual Report for ZYN products to the FDA.

The report included a systematic review of the literature covering publications related to ZYN products between January 16, 2025, and October 31, 2025.

The report included publications in various scientific fields including observational studies on trends related to the potential health impact of the products, and behavioral studies analyzing the impact on former and never smokers, impact on cessation, product acceptance and the impact of

marketing approaches.

Our review of publications revealed no significant new findings.

Overall, the review continues to support the FDA's conclusion that marketing of these ZYN products is "appropriate for the protection of public health."

In April 2024, we submitted MRTPAs for ZYN products currently marketed in the United States and requested authorization of a modified risk claim.

In February 2025, the FDA formally accepted our MRTPAs and in June 2025, issued a filing letter for 20 ZYN nicotine pouch products.

This action initiated a scientific review of our MRTPAs which requested the following modified risk claim:

“Using ZYN instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis.” During the review, the FDA will determine whether our applications provide the necessary evidence for ZYN products to be marketed with the requested claim.

The FDA referred our MRTPAs to TPSAC, which met on January 22, 2026.

We have and will continue to make additional submissions to FDA to market other ZYN products in the United States.

In September 2025, the FDA launched a pilot program that aims to increase efficiency and streamline the review process for PMTAs for nicotine pouches.

We are aware that certain of our competitors have recently marketed, or stated their intention to market, products that had pending PMTAs and were not previously marketed in the United States.

We continue to evaluate the practices of the FDA and other regulators regarding products with respect to which regulatory submissions have been made and assess all potential pathways to market in the United States that might be available

On July 17, 2023, Swedish Match USA, Inc.

submitted a renewal application to the FDA requesting re-authorization to continue to market its eight snus smokeless tobacco products (sold under the General snus brand name) with a modified risk claim.

submitted an application to the FDA requesting re-authorization to continue to market its eight snus smokeless tobacco products (sold under the General snus brand name) with a modified risk claim.

General snus products received modified risk orders on October 22, 2019.

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The amendment particularly specifies that designated tobacco products (including heated tobacco products) that are not cigarettes, cut tobacco, cigars, snuff nor chewing tobacco, must undergo a health risk assessment as part of an authorization system.

We have filed an authorization request to commercialize IQOS in Taiwan pursuant to this Act, but this authorization is currently still pending authorization by the Ministry of Health of Taiwan.

In July 2023, we filed an authorization request to commercialize IQOS in Taiwan pursuant to this Act.

We have since received this authorization, which took effect on October 11, 2025.

On March 23, 2023, the Greek Ministry of Health authorized a claim for IQOS with HEETS AMBER to inform Greek IQOS users about reduction in emissions of toxicants when using such product compared to cigarette smoking.

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The best choice is to quit tobacco and nicotine use altogether.” With this authorization, Greece is the second country officially recognizing the reduction in level of toxicants in the IQOS aerosol compared to cigarette smoke.

In February of 2025, the Greek Ministry of Health authorized a substantially similar claim and disclaimer for IQOS ILUMA devices with seven TEREA variants (Amber, Bronze, Russet, Sienna, Silver, Teak and Yellow).

SFP Scientific Findings

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The dissemination of scientifically unsubstantiated information or studies with a strong confirmation bias by third parties may cause confusion among adult smokers and affect their decision to switch from continued smoking to better alternatives, such as our SFPs.

To date, we have been largely successful in demonstrating to regulators that our heated tobacco units are not cigarettes due to the absence of combustion, and as such, they are generally taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes.

Although we believe that this is sensible from the public health perspective, there is no guarantee regulators will continue this approach.

Further, there can be no assurance that we will succeed in our efforts to replace cigarettes with SFPs or that regulation will allow us to commercialize SFPs in all markets, to communicate about our SFPs, including making scientifically substantiated risk-reduction claims, or to treat SFPs differently from cigarettes.

To date, we have been largely successful in demonstrating to regulators that our SFPs are not cigarettes due to the absence of combustion, and as such, they are frequently taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes.

Although we believe that this is sensible from the public health perspective, some jurisdictions have considered or adopted taxation regimes with SFP taxation rates approaching or equal to cigarettes and there is no guarantee regulators will maintain current levels of differentiation.

Further, there can be no assurance that we will succeed in our

efforts to replace cigarettes with SFPs or that regulation will allow us to commercialize SFPs in all markets, to communicate about our SFPs, including making scientifically substantiated risk-reduction claims, or to treat SFPs differently from cigarettes.

To date, several governmental agencies have published their scientific findings that analyze the harm-reduction potential of certain SFPs versus continuing to smoke cigarettes, including:

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

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

Based on the cited

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

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

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The outcomes of these matters may affect our SFP commercialization and public communication activities and performance in one or more markets.

On June 11, 2024, Swedish Match North America LLC ("SMNA") received a subpoena from the office of the Attorney General of the District of Columbia (“D.C.”).

The subpoena requested, among other things, information concerning SMNA’s compliance with D.C.’s licensing regulations, age-verification requirements, and prohibition on the sale of flavored tobacco products, including with respect to ZYN nicotine pouches.

SMNA cooperated with this investigation, and on December 12, 2024, reached an agreement to resolve the D.C.

Attorney General’s investigation without admitting liability or wrongdoing.

Pursuant to the agreement, SMNA paid $1.2 million to D.C.

and agreed to conduct certain sales monitoring activities in D.C.

As part of a previously announced sales and supply chain review, SMNA has discontinued sales through the e-commerce shop associated with ZYN.com and direct sales to dedicated online retailers in the United States indefinitely.

e-commerce has represented a small fraction of sales of SMNA in the United States, and the current network of approximately 170,000 brick-and-mortar retailers will remain SMNA’s focus.

Illicit Trade

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

To date, 69 Parties, including the EU, have ratified it.

To date, 72 Parties, including the EU, have ratified the Protocol.

The Protocol came into force in September 2018.

Since then, implementation in national legislations has been ongoing.

In February 2024, the third Meeting of the Parties to the Protocol took place.

No additional restrictive measures were adopted, and a mandate to conduct further work will be considered at the next session, currently scheduled to take place in November 2025.

The fourth Meeting of the Parties ("MOP4") concluded in November 2025, with no restrictions decided with regard to duty-free tobacco sales, or as to whether the Protocol’s provisions cover electronic nicotine and non-nicotine delivery systems.

MOP5 will take place in 2027.

The tracking and tracing regulations for cigarettes and roll-your-own products manufactured or destined for the EU were extended to include tobacco products other than cigarettes, including some of our SFPs, as of May 20, 2024.

Other Developments

In September 2017, we announced our support of the Foundation for a Smoke-Free World (the "Foundation").

The Foundation is an independent, nonprofit organization dedicated to reducing the health impacts of smoking as set out in its Articles of Incorporation and its Bylaws.

In September 2020, our pledge agreement with the Foundation was amended.

We contributed $45 million in 2020, $40 million in 2021, $17.5 million in 2022, and had expected to contribute up to $35 million annually from 2023 through 2029, as specified in the amended pledge agreement.

In 2023, the Foundation and PMI agreed to terminate the existing pledge agreement and PMI has made final grant payments totaling $140 million, commensurate with the early termination of the pledge agreement.

Governmental Investigations

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Contingencies .

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

The decision concluded that Thailand had no basis to find that PM Thailand's declared customs values and taxes paid were too low, as alleged by the Thai government and created obligations for Thailand to revise its laws, regulations, or practices affecting the customs valuation and tax treatment of future cigarette imports.

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

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

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

PMI complies with all applicable trade restrictions and requirements, including sanctions, in the markets in which it operates.

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

We are subject to various trade restrictions imposed by the U.S., the EU, Switzerland, the U.K., 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 (“OFAC”) and the U.S.

Department of State.

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

Pursuant to specific exemptions or licenses, or where sanctions do not apply to our business, PMI may make sales in countries subject to Trade Sanctions.

We do not do business or sell products in Belarus, Iran, North Korea, Cuba and Syria.

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.

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.

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

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

The restrictions target, among others, the Russian financial, banking, oil, military, aviation and marine sectors.

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

person, wherever located, and authorized the imposition of blocking sanctions on anyone operating in the Russian manufacturing sector.

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

Export to Russia of certain luxury goods and goods and technology which might contribute to Russia’s technological enhancement was banned.

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

The U.S., the EU, Switzerland and Japan introduced additional trade restrictions banning, among many other goods, the export of certain non-tobacco materials used to produce cigarettes and heated tobacco consumables in Russia.

The EU, Switzerland and the U.K.

also prohibited technical assistance and other services related to restricted goods.

The EU, Switzerland and the U.K.

prohibited import into their territories of certain goods, including cigarettes, among others, which might generate significant revenues for Russia if they originate in Russia or are exported from Russia.

The EU and Switzerland prohibited transfer and licensing of intellectual property rights in relation to restricted goods.

PMI holds a 23% equity interest in JSC TK Megapolis ("TKM"), PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of December 31, 2025 had a carrying value of $303 million.

Previously, TKM was a subsidiary of Megapolis Distribution B.V.

("MDBV"), a Dutch holding company in which PMI held a 23% equity interest.

On August 8, 2024, the Arbitrazh Court of the Moscow Region granted the forced localization of MDBV as requested by the Ministry of Industry and Trade on July 18, 2024.

As a result, MDBV’s shares in TKM were transferred to TKM and subsequently transferred to the Russian subsidiaries of its indirect shareholders during the fourth quarter of 2024.

MDBV was dissolved in December of 2025.

Previously, Mr.

Igor Kesaev was a non-majority shareholder of MDBV.

The EU, the U.S., the U.K., Switzerland, Canada, Australia, New Zealand and Ukraine imposed sanctions on Mr.

The U.S., the U.K., Switzerland and the EU banned the export of electric accumulators, static converters and electronic cigarettes and similar personal electric vaporizing devices, including IQOS devices, to Russia.

Certain countries have also banned the delivery of services to Russia, such as information technology consultancy services, accounting and business and management consulting services, or require licenses to continue delivering these services to Russian persons or entities.

We are working to mitigate any potential impacts from these restrictions.

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

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 in relation to Russia).

has adopted new and increased tariffs on countries and specific goods, subject to evolving exemptions, with additional tariff increases proposed.

Those changes, along with retaliatory actions by some trading partners, non-tariff restrictions or requirements being considered in connection with trade dispute negotiations, and the likelihood of additional developments, have created a volatile environment for global trade.

We expect the global tariff environment to remain volatile throughout 2026.

PMI is actively monitoring developments, evaluating all changes, and adapting operations and compliance practices accordingly.

For further details, see the " Impact of Tariffs on Our Business " section of this MD&A.

PMI continues to monitor the development of new sanctions and other trade laws in order to ensure full compliance.

Impact of Inflation on Our Business

Like many other global companies, we have experienced inflationary pressures in 2022, 2023, 2024, including:

growing pressures on the cost of certain direct materials, wages, energy, transportation, and logistics as well as an increased cost of capital due to interest rate increases driven by the response to increased inflation.

In 2025, certain inflationary elements such as direct materials and utilities stabilized, with a moderate overall increase in inflationary pressures driven by tobacco leaf costs.

The impact of inflation on cost of sales during 2025 was not material to our consolidated financial statements.

Impact of Tariffs on Our Business

The current U.S.

and international political environment, including existing and potential changes to U.S.

policies related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy.

While the global tariff environment is volatile, as a global company with a broadly diversified production, a worldwide supplier network, including an established U.S.

manufacturing base for nicotine pouches, and existing supply chains that are largely self-contained within their respective trade regions, we currently believe we are well-positioned to mitigate potential supply chain challenges and that the changing tariff environment will not have a material impact on our business.

During 2025, the impact of new tariffs on our business was not material to our consolidated financial statements.

We expect the global tariff environment to remain volatile throughout 2026.

We are actively monitoring developments in the global tariff environment and will continue to evaluate the potential impact of the announced tariffs and related developments on our business and financial condition, as well as on our suppliers, and the actions we may take to mitigate any impact.

For our risk factors related to the impact of tariffs, see Item 1A.

Risk Factors .

War in Ukraine

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As of December 31, 2025, our Russian operations had approximately $4.8 billion in total assets, excluding intercompany balances, of which approximately $2.3 billion consisted of cash and cash equivalents held mostly in local currency (Russian rubles).

Additionally, we hold a 23% equity interest in Megapolis Distribution B.V., which was the holding company of JSC TK Megapolis (formerly CJSC TK Megapolis), pursuant to Dutch law, PMI's distributor in Russia.

On July 18, 2024, the Ministry of Industry and Trade filed a petition before the Arbitrazh Court of Moscow seeking the forced localization of JSC TK Megapolis.

On December 5, 2024, JSC TK Megapolis registered the transfer of this equity interest to PMI affiliate ZAO Philip Morris Izhora.

Additionally, PMI holds a 23% equity interest in JSC TK Megapolis, PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of December 31, 2025 had a carrying value of $303 million.

For further details, see Item 8, Note 5.

Related Parties – Equity Investments and Other and Item 8, Note 18.

Contingencies.

Related Parties – Equity Investments and Other.

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

For further details, see Item 1A.

Risk Factors , Item 8, Note 4.

War in Ukraine and the "Trade Policy " section of this Item 7.

Impact of Inflation on Our Business and Mitigation Efforts

Like many other global companies, we have experienced inflationary pressures in 2022, 2023 and 2024, including:

For the year ended December 31, 2023, the impact on cost of sales was approximately $580 million.

In 2024, the impact on cost of sales was approximately 30% of the 2023 level, benefiting from lower prices for direct materials and utilities, despite continued pressure on tobacco leaf costs.

In 2025, we expect certain inflationary elements such as direct materials and utilities to stabilize, with a moderate overall increase in inflationary pressures driven by tobacco leaf costs.

Inflationary impacts driven by higher wages have resulted from merit increases that reflect local inflation as we continuously evaluate our compensation and benefit offerings to be competitive with the current market.

Increased transportation costs resulted from increased shipping rates for all modes of transportation (air, ocean and inland) due to ocean and air capacity constraints.

cost of sales resulted from higher cost of direct materials due to the pass on of energy, transportation, labor and commodity price increases from suppliers as well as increases in utility costs, including gas and electricity prices, primarily in Europe resulting from the war in Ukraine.

Raw materials such as tobacco leaf have longer inventory durations which resulted in insignificant inflationary impacts to our cost of sales in 2022;

however tobacco leaf purchases in 2022, 2023 and 2024 were at higher prices due to inflationary impacts on fertilizer prices and labor costs, thus resulting in increases in the cost of inventory with corresponding impacts on our financial results in 2023, 2024 and 2025.

In addition, our cash flow from operating activities, particularly in 2023, was impacted by the net working capital investment related to the procurement of tobacco leaf inventory and higher cost of direct materials.

We have taken several actions to mitigate these inflationary pressures.

Mitigation efforts have included (i) indexation clauses related to commodity costs and energy pricing within contracts, (ii) tactical inventory purchases, (iii) identification of new suppliers in different geographical locations for incremental sourcing, (iv) increasing tobacco leaf inventory durations to secure additional volumes at favorable prices, (v) optimizing the mix of tobacco leaf origins and suppliers, (vi) continuous evaluation of shipping routes and methods of shipment, (vii) supplier negotiations, (viii) variable contract durations for energy costs, (ix) hedging strategies, and (x) other pricing, productivity and procurement initiatives.

Risk Factors and the "Trade Policy " section of this Item 7.

Research and Development Expense

The research and development expense for our smoke-free portfolio accounted for approximately 100% of our total research and development expense for the year ended December 31, 2024 and approximately 99% for each of the two years ended December 31, 2023 and 2022.

The research and development expense for our smoke-free portfolio accounted for approximately 100% of our total research and development expense for the years ended December 31, 2025 and 2024, and approximately 99% for the year ended December 31, 2023.

The research and development expense for the years ended December 31, 2025, 2024 and 2023, is set forth in Item 8, Note 13.

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This impact of currency fluctuations could negatively impact our financial condition and results of operations.

Following the categorization of Egypt by the International Practices Task Force of the Center for Audit Quality as a country with a three-year cumulative inflation rate greater than 100%, the country is considered highly inflationary in accordance with U.S.

Consequently, PMI has begun to account for the operations of its Egyptian subsidiaries as highly inflationary, and treat the U.S.

dollar as the functional currency of the subsidiaries, effective October 1, 2024.

For the years ended December 31, 2025, 2024 and 2023, we recognized exchange gains (losses) of $(26) million, $(46) million, and $(194) million, respectively, resulting from remeasurement adjustments related to highly inflationary accounting.

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 condition, 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, the work of the International Financial Reporting Standards Foundation, including the International Sustainability Standards Board proposed climate standard and the recommendations of the Task Force on Climate-related Financial Disclosures, the SEC’s rules regarding climate-related disclosures, the California Climate Corporate Accountability Act, the California Greenhouse Gases:

Climate-Related Financial Risk Act, the Task Force on Nature-related Financial Disclosures, the EU Corporate Sustainability Reporting Directive, the EU Taxonomy Regulation, the EU Deforestation Regulation, the EU Corporate Sustainability Due Diligence Directive, CDP, the GHG Protocol, and carbon tax programs in Europe and Canada.

Environmental and Social Laws and Regulations

While, to date, the effect of environmental and social laws and regulations on PMI has not been material to our business, results of operations or financial condition, consideration of these laws and regulations is an integral aspect of PMI’s risk management process.

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

Acquisitions, Divestitures and Other Business Arrangements

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On July 30, 2024, PMI announced a memorandum of understanding with KT&G.

This non-binding memorandum establishes the parties’ intent to collaborate on regulatory submissions for those new KT&G heat-not-burn products that PMI selects to commercialize in the U.S.

This non-binding memorandum establishes the parties’ intent to collaborate on regulatory submissions for those new KT&G heat-not-burn products that PMI selects to commercialize

KT&G’s new platform products are expected to be launched first outside the U.S.

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

PMI complies with all applicable trade restrictions and requirements, including sanctions, in the markets in which it operates.

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

Department of the Treasury's Office of Foreign Assets Control (“OFAC”) and the U.S.

Department of State.

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

Pursuant to specific exemptions or licenses, or where sanctions do not apply to our business, PMI may make sales in countries subject to Trade Sanctions.

We do not do business or sell products in Belarus, Iran, North Korea or Syria.

We sell cigarettes in Cuba under a distribution agreement.

These sales are permitted by U.S.

law under a License Exception for Agricultural Commodities, issued by the U.S.

Department of Commerce (Bureau of Industry and Security), and specifically granted to our distributor.

Certain states within the U.S.

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

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

The restrictions target, among others, the Russian financial, banking, oil, military, aviation and marine sectors.

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

person, wherever located, and authorized the imposition of blocking sanctions on anyone operating in the Russian manufacturing sector.

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

Export to Russia of certain luxury goods, and goods and technology which might contribute to Russia’s technological enhancement was banned.

The EU, Switzerland and the U.K.

also prohibited technical assistance and other services related to restricted goods.

The EU, Switzerland and the U.K.

The EU and Switzerland prohibited transfer and licensing of intellectual property rights in relation to restricted goods.

Additionally, the EU, the U.S., the U.K., Switzerland, Canada, Australia, New Zealand and Ukraine imposed sanctions on Mr.

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

We are working to mitigate any potential impacts from these restrictions.

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

PMI continues to monitor the development of new sanctions and ensure full compliance.

Financial Review

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2025 compared with 2024

• Net Cash Provided by Operating Activities

Net cash provided by operating activities of $12.2 billion for the year ended December 31, 2024 increased by $3.0 billion from the comparable 2023 period.

Excluding unfavorable currency movements of $0.4 billion, the favorable variance of $3.4 billion was due primarily to lower working capital requirements of $1.5 billion and higher currency-neutral net earnings, excluding non-cash depreciation and amortization expense, impairment charges of goodwill and other intangibles, the loss on the sale of Vectura Group and the impairment charge related to the RBH equity investment.

The unfavorable currency movements primarily related to the currency impact on net earnings and represented the fluctuations of the U.S.

dollar, especially against the Egyptian pound, Euro, Japanese yen and Russian ruble.

The lower working capital requirements in 2024 as compared with 2023 were primarily due to more cash provided by inventories, coupled with more cash provided by accrued liabilities and other current assets, mainly reflecting the timing of excise tax-paid inventory movements primarily related to excise tax increases and the timing of the corresponding excise tax payments and less cash used in accounts payable in 2024 primarily due to comparison with 2023 payment for higher IQOS ILUMA device purchases in the fourth quarter of 2022 to meet the needs of ILUMA launches.

The favorable 2024 working capital comparison to 2023 is also impacted by higher 2023 working capital requirements following the higher cost of tobacco leaf and other direct materials due to inflationary pressures (for further details, see “Impact of Inflation on Our Business and Mitigation Efforts” section of this MD&A), as well as tactical stock increases for certain direct materials.

These changes in the working capital requirements were partly offset by more cash used in accounts receivable mainly reflecting lower usage of our factoring arrangements to sell trade receivables, as well as the timing of sales and cash collections.

For further detail on our factoring arrangements, see Item 8, Note 19.

• Net Cash Provided by (Used in) Operating Activities

Net cash provided by operating activities of $12.2 billion in 2025 was essentially flat compared to 2024.

Excluding favorable currency movements, the unfavorable variance of $0.5 billion was due primarily to higher working capital requirements of $2.4 billion.

This was partly offset by higher currency-neutral net earnings, excluding non-cash depreciation and amortization expense, non-cash movements in deferred income tax benefit, the losses on the sales of businesses, the impairment charge related to the RBH equity investment and other non-cash movements reflected in Other.

Our net cash provided by operating activities also includes dividend income from our deconsolidated Canadian affiliate of $0.5 billion received in the third quarter of 2025 (for further details, see Item 8, Note 5.

Related Parties – Equity Investments and Other ).

The higher working capital requirements in 2025 as compared with 2024 were primarily due to more cash used in inventories, coupled with more cash used in accrued liabilities and other current assets, mainly reflecting the timing of excise tax-paid inventory movements primarily related to excise tax increases and the timing of the corresponding excise tax payments.

Excise tax payments included the disputed supplemental tax surcharge on heated tobacco products in Germany of approximately $0.8 billion as PMI elected to pay the supplemental tax surcharge in January 2025 to avoid the future addition of interest (for further details refer to the MD&A Europe segment section where we describe the case).

In addition, more cash used in income taxes primarily reflected the higher final 2017 U.S.

Tax Cuts and Jobs Act transition tax installment payment.

These unfavorable movements were partially offset by less cash used in accounts receivable mainly reflecting higher usage of our factoring arrangements to sell trade receivables, as well as the timing of sales and cash collections (for further details, see Item 8, Note 17.

Sale of Accounts Receivable ).

For the full year 2026, we currently expect net cash provided by operating activities of around $13.5 billion at prevailing exchange rates, subject to year-end working capital requirements.

This takes into account non-recurring payments relating to the German tax surcharge and the U.S.

Tax Cuts and Jobs Act, which amount to approximately $1 billion.

• Net Cash Used in Investing Activities

Net cash used in investing activities of $1.1 billion for the year ended December 31, 2024 decreased by $2.5 billion from the comparable 2023 period.

This decrease in net cash used was primarily due to the remaining cash payment (including interest) to Altria Group, Inc.

in July 2023 of $1.8 billion for PMI to reacquire the IQOS commercialization rights in the U.S., and higher cash collateral received for derivative instruments, partially offset by higher capital expenditures.

• Net Cash Provided by (Used) in Investing Activities

Net cash used in investing activities in 2025 was $4.0 billion as compared to $1.1 billion in 2024.

This increase in net cash used was primarily due to changes in the cash collateral posted for derivative instruments, reflecting the appreciation of the Euro and Swiss franc versus the U.S.

dollar, and higher capital expenditures.

Our capital expenditures were $1.6 billion in 2025 and $1.4 billion in 2024.

The 2024 expenditures were primarily related to our ongoing investments in smoke-free product manufacturing capacity.

We expect total capital expenditures in 2025 of approximately $1.5 billion, including further investments in ZYN capacity in the U.S.

The 2025 capital expenditures were primarily related to our ongoing investments in smoke-free product manufacturing capacity.

We expect total capital expenditures in 2026 to be $1.4 billion to $1.6 billion, predominantly due to investments supporting the smoke-free business.

• Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities of $9.5 billion for the year ended December 31, 2024 increased by $3.9 billion from the comparable 2023 period.

The increase in net cash used was primarily due to lower net borrowings in 2024, reflecting higher repayments on long-term debt, lower long-term debt proceeds and higher repayments on short-term borrowings (primarily commercial paper).

The increase was partly offset by favorable comparisons to 2023 mainly reflecting repayment on a credit facility in 2023 related to the Swedish Match acquisition, and payments in 2023 to acquire the remaining issued and outstanding shares in Swedish Match, as well as higher cash collateral received for derivative instruments.

Net cash used in financing activities in 2025 was $8.1 billion as compared to $9.5 billion in 2024.

The decrease in net cash used was mainly due to higher debt repayments in 2024 (primarily commercial paper and a credit facility related to the Swedish Match acquisition), partly offset by lower long-term debt proceeds in 2025, higher dividend payments and changes in the cash collateral received for derivative instruments, reflecting the appreciation of the Euro and Swiss franc versus U.S.

Dividends paid in 2025 and 2024 were $8.6 billion and $8.2 billion, respectively.

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This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2025.

• Debt and Liquidity

• Liquidity and Capital Resources

As a holding company, we depend on dividends and debt repayments from our subsidiaries as our primary sources of funds to pay dividends to our stockholders, make payments on our debt securities and meet other obligations.

In a number of jurisdictions, including Argentina and Russia, we are impacted by various capital controls and/or foreign currency exchange constraints that affect the ability of our subsidiaries in these jurisdictions to settle foreign currency denominated imports of goods and services and/or to pay dividends.

These factors increase foreign currency devaluation risks, which may have a negative impact on our financial condition, net assets and results of operations in these jurisdictions.

We define cash and cash equivalents as short-term, highly liquid investments, readily convertible to known amounts of cash that mature within a maximum of three months and have an insignificant risk of change in value due to interest rate or credit risk changes.

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Our cash and cash equivalents are mostly held with institutions that have investment-grade long-term credit rating.

These factors increase foreign currency devaluation risks, which may have a negative impact on our financial condition, net assets and results of operations in these jurisdictions.

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.

As of December 31, 2025 and 2024, we had cash and cash

equivalent of $4.9 billion and $4.2 billion, respectively, the majority of which was held by our foreign subsidiaries, including $2.3 billion and $1.0 billion, respectively, held in Russia.

To meet our ongoing liquidity requirements, our principal source of liquidity is cash generated from operations.

Additionally, 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.

Our ability to access the capital and credit markets as well as overall dynamics of these markets may impact borrowing costs.

We expect that the combination of our long-term and short-term debt financing, the commercial paper program and the committed credit facilities, coupled with our operating cash flows, will enable us to meet our liquidity requirements.

We expect that the combination of our long-term and short-term debt financing, the commercial paper program and the committed credit facilities, coupled with our cash generated from operations, will be adequate to meet our liquidity requirements.

Debt and Borrowing Arrangements

Credit Ratings – The cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings.

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Moody’s P-1 A2 Stable

Standard & Poor’s A-2 A- Stable

Fitch F1 A Negative

Revolving Credit Facilities

On December 17, 2024, we entered into a credit agreement, effective as of January 29, 2025, relating to a senior unsecured revolving credit facility with borrowings up to an aggregate principal amount of €1.5 billion, (approximately $1.6 billion) expiring on January 29, 2028.

Concurrently, we did not request an extension of the maturity date of the existing 364-day revolving credit facility and the facility matured on January 28, 2025.

At February 6, 2025, our committed revolving credit facilities were as follows:

(in billions)

Committed Revolving Credit Facilities

Multi-year $2.0 billion revolving credit, expiring February 10, 2026 (1)

Multi-year $2.5 billion revolving credit, expiring September 29, 2026 (2) (3)

Multi-year €1.5 billion revolving credit, expiring January 29, 2028

Total facilities

(1) On January 28, 2022, we entered into an agreement, effective February 10, 2022, to amend and extend the term of our $2.0 billion multi-year revolving credit facility, for an additional year covering the period February 11, 2026 to February 10, 2027, in the amount of $1.9 billion.

(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.

(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.

On September 20, 2023, PMI entered into an agreement, effective September 29, 2023, to amend and further extend the term to September 29, 2028.

At February 6, 2025, there were no borrowings under the committed revolving credit facilities, and the entire committed amounts were available for borrowing.

Standard & Poor’s A-2 A- Positive

Fitch F1 A Stable

Debt – Our total debt was $48.8 billion at December 31, 2025, and $45.7 billion at December 31, 2024.

Our total debt is primarily fixed rate in nature.

The weighted-average time to maturity of our long-term debt was approximately 7 years at the end of 2025 and 2024.

Foreign currency denominated debt and the majority of our $50 billion gross notional amount of derivative financial instruments are subject to foreign currency exchange rates fluctuation, primarily between the Euro and U.S.

Dollar, which could impact our debt levels and the pace of anticipated deleveraging.

For further details, including the fair value and currency denomination of our debt, see Item 8, Note 6.

Indebtedness and Note 14.

Financial Instruments .

The amount of debt that we can issue is subject to approval by our Board of Directors.

On February 10, 2023, 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.

During February 2026, we plan to file a new shelf registration statement with the Securities and Exchange Commission.

Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S.

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

At December 31, 2025 and 2024, we had no commercial paper outstanding.

The average commercial paper balance outstanding during 2025 and 2024 was $3.0 billion and $1.3 billion, respectively.

For further details, see Item 8, Note 6.

Indebtedness .

Revolving Credit Facilities – At December 31, 2025, our total committed revolving credit facilities were $6.3 billion, and there were no borrowings outstanding.

The entire committed amounts were available for borrowing.

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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We expect to continue to meet our covenants.

In addition to the committed revolving credit facilities discussed above, PMI maintains certain short-term credit arrangements, including uncommitted credit lines, to primarily meet working capital needs.

These credit arrangements amounted to approximately $2.1 billion at December 31, 2024 and approximately $2.7 billion at December 31, 2023.

Borrowings under these arrangements and other bank loans amounted to $137 million at December 31, 2024, and $283 million at December 31, 2023.

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

On November 7, 2022, PMI delivered notices of borrowing for advances totaling €5.5 billion under the term loan facility, of which €3.0 billion would become due on November 9, 2025, and €2.5 billion would become due on June 23, 2027, unless prepaid pursuant to the terms of the credit agreement.

On November 21, 2024, PMI prepaid approximately €3 billion (approximately $3.2 billion), including outstanding principal and accrued interest, representing all borrowings outstanding under the 3-year tranche of the senior unsecured term loan facility.

As of December 31, 2024, borrowings in the amount of €2.5 billion (approximately $2.6 billion) under the 5-year tranche of the term loan facility remained outstanding.

Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S.

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

At December 31, 2024, we had no commercial paper

At December 31, 2023, we had $1.7 billion of commercial paper outstanding.

The average commercial paper balance outstanding during 2024 and 2023 was $1.3 billion and $3.6 billion, respectively.

For further details on our revolving credit facilities, including other short-term credit arrangements, see Item 8, Note 6.

Indebtedness to our consolidated financial statements.

Term Loan Facility related to the Financing of the Swedish Match Acquisition – As of December 31, 2025, borrowings in the amount of €2.5 billion (approximately $2.9 billion) under the 5-year tranche of the term loan facility remained outstanding.

For further details, see Item 8, Note 6.

Indebtedness to our consolidated financial statements.

Sale of Accounts Receivable – To mitigate credit risk and enhance cash and liquidity management, we sell trade receivables to unaffiliated financial institutions.

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Supply Chain Financing to our consolidated financial statements.

Debt – Our total debt was $45.7 billion at December 31, 2024, and $47.9 billion at December 31, 2023.

Our total debt is primarily fixed rate in nature.

The weighted-average all-in financing cost of our total debt was 3.5% in 2024 and 3.3% in 2023.

For further details, including the fair value of our debt, see Item 8, Note 8.

Indebtedness .

The amount of debt that we can issue is subject to approval by our Board of Directors.

On February 10, 2023, 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.

Our debt issuances in 2024 were as follows:

(in millions)

Type Face Value Interest Rate Issuance Maturity

dollar notes (a) $750 4.750% February 2024 February 2027

dollar notes (a) $1,000 4.875% February 2024 February 2029

dollar notes (a) $1,250 5.125% February 2024 February 2031

dollar notes (a) $1,750 5.250% February 2024 February 2034

Euro notes (b) (c) €500 (approximately $543)

3.750% June 2024 January 2031

dollar notes (d) $750 4.375% November 2024 November 2027

dollar notes (d) $750 4.625% November 2024 November 2029

dollar notes (d) $750 4.750% November 2024 November 2031

dollar notes (d) $750 4.900% November 2024 November 2034

(a) Interest is payable semi-annually, commencing in August 2024

(b) Interest is payable annually, commencing in January 2025

(d) Interest is payable semi-annually, commencing in May 2025

The net proceeds from the sale of the securities listed in the table above were primarily used for general corporate purposes, including working capital requirements, repayment of commercial paper and to refinance certain of our outstanding notes.

On November 21, 2024, PMI financed the prepayment of the 3-year tranche of the senior unsecured term loan facility with the proceeds of the November 2024 bond issuances and cash on hand.

The weighted-average time to maturity of our long-term debt was approximately 7 years at the end of 2024 and 2023.

Cash Requirements – At December 31, 2025, our material short-term and long-term cash requirements for various contractual obligations and commitments primarily consisted of the following:

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Stock Plans to our consolidated financial statements.

On June 11, 2021, our Board of Directors authorized a share repurchase program of up to $7 billion, with target spending of $5 billion to $7 billion over a three-year period.

On July 22, 2021, we began repurchasing shares under this share repurchase program.

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

We did not make any share repurchases in 2023 and 2024.

Our three-year share repurchase program expired on July 21, 2024.

Dividends paid in 2025 were $8.6 billion.

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$221 $233 $272 $200

Year-over-year increases of the impact of foreign currency rates and decreases of the impact of interest rates on the value at risk computation above was primarily due to higher foreign currency volatility and lower interest rate volatility in 2024 compared to 2023.

The increases during the year of the impact of foreign currency rates and the decreases of the impact of interest rates on the value at risk computation above were primarily due to higher foreign currency volatility and lower interest rate volatility in 2025 compared to 2024.

The value at risk computation is a risk analysis tool designed to statistically estimate the maximum probable daily loss from adverse movements in interest and foreign currency rates under normal market conditions.

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We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions.

Our SFPs constitute a relatively new product category that is less predictable than our mature cigarette business.

Achievement of future results is subject to risks, uncertainties and inaccurate assumptions.

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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-K

Item 7. Management’s Discussion and Analysis