Philip Morris International Inc. (PM) FY2025 10-K and Q2 FY2026 10-Q Summary

Business

From Item 1 of the FY2025 Form 10-K (accession 0001628280-26-005939), with the current segment structure and market counts from the Form 10-Q for the quarter ended June 30, 2026 (accession 0001628280-26-049493).

Philip Morris International Inc. is a Virginia holding company incorporated in 1987 that became a separately listed U.S. public company on the New York Stock Exchange in March 2008. It is an international consumer goods company whose portfolio consists of cigarettes and smoke-free products, heat-not-burn, nicotine pouch and e-vapor, with a stated goal of completely ending the sale of cigarettes. As a holding company, its principal sources of funds are dividends and debt repayments from its subsidiaries; the right of its creditors and stockholders to subsidiary assets is subordinated to the claims of those subsidiaries' own creditors. At December 31, 2025 the Company employed approximately 84,900 people and had sold products in approximately 170 markets, operating 50 owned manufacturing facilities, of which 11 produced heated tobacco units and 10 produced oral nicotine products.

Combustibles. Cigarettes are sold in approximately 170 markets and hold the number one or number two share position in many of them. Marlboro, the world's best-selling international cigarette, accounted for approximately 43% of 2025 cigarette shipment volume; together with Parliament, Chesterfield, L&M and Philip Morris, the five international brands contributed 81% of cigarette shipment volume. Local brands include Dji Sam Soe and Sampoerna A in Indonesia and Fortune. The Company holds at least 15% share in approximately 100 markets.

Smoke-free. Since 2008 PMI has invested over $16 billion to develop, scientifically substantiate and commercialize smoke-free products. The November 2022 acquisition of Swedish Match AB added a leading oral nicotine position, including ZYN, the leading smoke-free brand in the U.S. market. Effective April 30, 2024 PMI holds the full rights to commercialize IQOS in the United States following the 2022 agreement ending its U.S. commercial relationship with Altria Group. The lead smoke-free brands are IQOS (heat-not-burn, with HEETS, TEREA, SENTIA, DELIA, BLENDS and the KT&G-licensed Fiit and Miix consumables, plus zero-tobacco LEVIA), ZYN (modern oral pouches) and VEEV (e-vapor). A January 2020 agreement with KT&G, extended in January 2023 for fifteen years to January 2038 and re-based in November 2025 with revised volume commitments for 2026–2028, gives PMI exclusive worldwide rights (excluding South Korea) to KT&G's smoke-free devices and consumables. The wellness unit, Aspeya, is developing primarily oral consumer wellness offerings including non-recreational cannabinoid products; management expects cannabinoid revenue to be negligible in the near to medium term.

Market presence expanded over the period covered: smoke-free products were available in 106 markets at December 31, 2025 and 109 markets at June 30, 2026; modern oral pouches in 56 markets rising to 61; VEEV in 47 markets rising to 51; and BONDS by IQOS in 5 markets rising to 8.

Volume and share (FY2025). Total shipment volume was 786.5 billion equivalent units, up 1.4%, comprising 607.4 billion cigarettes (down 1.5%) and 179.1 billion smoke-free equivalent units (up 12.8%), 155.1 billion heated tobacco units (up 11.0%), 20.7 billion oral smoke-free (up 18.5%) and 3.3 billion e-vapor (more than doubled). The total international market (cigarettes and heated tobacco units, excluding China and the U.S.) was 2,587 billion units. PMI's total international market share was 29.2% in 2025 versus 29.0% in 2024, with cigarette share of 23.4% (down from 23.7%) offset by heated tobacco unit share of 5.8% (up from 5.3%). Marlboro's share of the cigarette market was 10.7%, up from 10.2%.

Segments. Effective January 1, 2026 PMI reorganized around two business units, International and U.S., and replaced its four geographic segments with three reportable segments:

• International Smoke-Free
• International Combustibles
• U.S., which includes the Aspeya wellness unit

The chief operating decision maker is the Chief Executive Officer, and the primary profitability measure changed from regional operating income to segment gross profit. Marketing, administration and research costs (including restructuring charges), interest expense, income taxes and a new "Corporate expenses and other" caption are not allocated to segments. "Corporate expenses and other" carries foreign currency gains and losses and compensation expense on restricted share units and performance share units, reclassified out of cost of sales and marketing, administration and research costs. Segment assets and capital expenditures are not reported to the chief operating decision maker and are not disclosed. Prior-period segment amounts were reclassified to conform to the new structure; the reclassification did not change consolidated financial position, results of operations or cash flows in any period presented, and goodwill was reallocated across the affected reporting units using a relative fair value approach with no impairment resulting from the reorganization review.

For scale on the current basis, the segment-recast 8-K (accession 0001628280-26-017497) furnished recast full-year 2025 net revenues on the three-segment basis, unaudited supplemental information, not a restatement, of International Smoke-Free $13,996 million, International Combustibles $23,436 million and U.S. $3,216 million, against total PMI net revenues of $40,648 million.

Under the four-segment structure in force through 2025 (Europe; South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa; East Asia, Australia and PMI Global Travel Retail; and Americas), FY2025 net revenues were $17,111 million, $12,051 million, $6,632 million and $4,854 million respectively, and operating income $7,165 million, $4,096 million, $3,126 million and $505 million, totaling $14,892 million.

Distribution, customers and supply. Sales channels are tailored per market and used simultaneously: direct sales to retailers, independent distributors, exclusive zonified distribution, national and regional wholesalers, PMI's own e-commerce infrastructure, and its own brand retail infrastructure for smoke-free products and accessories. In 2025, sales to one distributor in the Europe Region and one in the EA, AU & PMI GTR Region each accounted for 10% or more of consolidated net revenues; management does not consider any segment dependent on a single customer, though loss of a distributor can cause temporary market disruption. Tobacco leaf is bought mostly through independent international suppliers, with direct contracting with farmers representing approximately 23% of global leaf requirements in 2025. Direct materials came from approximately 350 suppliers, the top ten representing approximately 60% of direct-material purchases; the four most significant are printed paper board, acetate tow, fine paper and susceptors. Electronic devices are made by third-party electronic manufacturing services providers. The largest cigarette and heated-tobacco-unit plants are in Turkey, Russia, Poland, Indonesia, Italy, the Czech Republic, Lithuania and Portugal; the largest nicotine pouch plant is in the United States.

Competition. PMI competes on product quality, brand recognition and loyalty, taste, research and development, innovation, packaging, customer service, marketing, advertising and retail price. Named competitors are Altria Group, British American Tobacco, Japan Tobacco and Imperial Brands, alongside new entrants in innovative products, regional and local manufacturers, and state-owned enterprises principally in Algeria, Egypt, China, Taiwan, Thailand and Vietnam.

Intellectual property. PMI owns or has rights to its principal brands, including Marlboro (outside the U.S.), HEETS, IQOS, IQOS ILUMA, TEREA, VEEV and ZYN. A 2008 Intellectual Property Agreement with Philip Morris USA allocates jointly funded intellectual property, PMI outside the United States, PM USA inside it. On February 1, 2024 a PMI subsidiary and a British American Tobacco subsidiary entered an eight-year settlement agreement dismissing pending proceedings with prejudice, rescinding the September 2021 International Trade Commission limited exclusion and cease-and-desist orders that had barred importation of certain heat-not-burn products into the United States, and providing mutual covenants not to sue on royalty-free or royalty-bearing terms.

Seasonality. The segments are not significantly affected by seasonality, though cigarette consumption can be lower in winter and higher in summer, and smoke-free user growth is typically higher in the first half of each year.

Risk factors

Condensed from Item 1A of the FY2025 Form 10-K (accession 0001628280-26-005939). The Form 10-Q for the quarter ended June 30, 2026 incorporates these risk factors by reference and adds no new ones.

The smoke-free transition may fail, or be blocked by regulators. PMI's strategic priority is the continued introduction, commercialization and growth of smoke-free products. If those efforts fail in key markets or systematically, financial results and growth prospects may be materially harmed. The Company may be disadvantaged if competitors execute better or if the categories in which it holds an advantage are inequitably regulated relative to cigarettes or other smoke-free categories. Third-party conduct, such as inappropriate marketing of e-vapor to youth, and claims challenging PMI's research and clinical data can shift public opinion and regulatory posture irrespective of the totality of scientific evidence. Actual or perceived youth or non-nicotine-user uptake would damage credibility and invite more restrictive regulation.

Cigarette consumption continues to decline. Tax-paid cigarette consumption is falling in many markets on higher taxes and prices, governmental action, diminishing social acceptance, health concerns, competition, economic and geopolitical uncertainty and illicit trade. The decline may materially reduce revenues, cash flows and profitability, and with them, the Company's ability to fund the smoke-free transformation.

Regulation. Governmental action, combined with private restrictions on smoking, has already reduced combustible industry volumes and is expected to keep doing so, increasing down-trading and the risk of counterfeiting, contraband, illicit trade and cross-border purchases. Several jurisdictions have restricted or prohibited smoke-free categories outright. World Health Organization and Framework Convention on Tobacco Control reports and proposals, though non-binding, could lead to restrictions on availability of, or accurate information about, smoke-free products. The contemplated or enacted measures the Company enumerates run across four fronts. Fiscal and trade: substantial and increasing excise and duty charges; elimination of duty-free sales and allowances; and import/export restrictions affecting logistics. Commercial access: retail licensing restrictions; advertising, marketing and sponsorship bans; point-of-sale display and vending bans; generation sales bans; and expanded public and private use bans. Product and packaging: larger and graphic health warnings; plain packaging and packaging-design restrictions; format and dimension restrictions; testing, disclosure and performance standards for smoke and product constituents; ingredient and flavor bans; device-feature restrictions; and outright prohibitions on novel tobacco or nicotine products and devices. Institutional: encouragement of litigation against tobacco companies; and exclusion of tobacco companies from public health policy dialogue.

United States regulatory dependence. Federal, state or local action, including FDA inaction, may materially affect U.S. commercialization. The FDA's premarket and modified-risk authorizations for two versions of IQOS, and its premarket authorizations for 20 varieties of ZYN nicotine pouches, carry strict marketing, reporting and other requirements; there is no guarantee the products remain authorized or that new versions receive authorization, particularly if youth or non-nicotine-user initiation rises.

Competition, consumer preferences and predictability. Competitive position can be materially influenced by weak economies, eroded consumer confidence, competitors' lower-priced or innovative products, willingness of adult smokers to convert, higher taxes and price gaps, unfair competition, and product regulation that limits differentiation. Some competitors have different profit, volume and regulatory objectives, some are less exposed to currency movements, and some sell in circumvention of applicable regulations. Separately, PMI may misjudge consumer trends, and the financial and business performance of smoke-free products is inherently less predictable than the mature cigarette business, with periods of accelerated and slower growth whose timing is harder to forecast. Growth may also be limited by inability to introduce products, enter markets, add capacity or improve margins through price and mix. Management's key business metrics, market share, in-market sales, adjusted in-market sales, smoke-free user counts, rest on assumptions and estimates and may not capture all aspects of an evolving business.

Talent and organizational design. PMI competes for talent against consumer products, technology and pharmaceutical companies that enjoy greater societal acceptance and may be unable to attract, motivate and retain the people needed for its transformation.

Taxation and finance. Cigarettes bear substantial excise, sales and import taxes; because the portfolio is weighted to premium-price cigarettes, sales-price-based regimes can put PMI at a competitive disadvantage. Increases drive lower consumption, shifts to other combustibles and to mid- and low-price categories where PMI may be under-represented, cross-border purchases and illicit products. PMI has largely persuaded regulators that smoke-free products are not cigarettes and should be taxed separately, but some jurisdictions have adopted rates approaching or equal to cigarettes; a loss of differentiation would materially hurt smoke-free unit margins. Effective tax rates may vary significantly with earnings mix and tax-law changes, including OECD base erosion and profit shifting work and the Pillar Two global minimum tax, and punitive tax legislation aimed at companies operating in Russia has been proposed in certain jurisdictions including the U.S. As a U.S. holding company dependent on distributions from non-U.S. subsidiaries, PMI is exposed to currency exchange controls and payment restrictions. Disrupted credit markets, limits on borrowing, slower-than-anticipated deleveraging or a ratings downgrade would raise borrowing costs. PMI may also be required to write down long-lived assets, reporting units, intangibles or equity investments.

War in Ukraine. In 2025 Russia accounted for around 9% of total cigarette and heated tobacco unit shipment volume and around 6% of total net revenues; Ukraine accounted for around 2% and around 1% respectively. The Company cannot predict Russian government action against it, including legal action, deprivation of rights in or access to Russian assets, or nationalization, any of which could cause material impairment and could cause deconsolidation of the Russian business. Divestment is constrained by complex local approval conditions and international restrictions, and in a divestment PMI's ability to realize full value would likely be subject to material impairment. In Ukraine, the extent to which operations, workforce, facilities and inventory can be normalized is unknown.

Sourcing, distribution and product quality. Growing reliance on third parties and their subcontractors, sometimes geographically concentrated, for distribution, manufacture of products and parts (particularly electronic devices) and for finance, commercialization and IT services diminishes direct control over quality, availability and responsiveness. Natural-environment risks (droughts, floods, heatwaves) and environmental regulation, including carbon taxation and disclosure regimes, may disrupt supply and raise costs; authorities and stakeholders are increasingly bringing actions alleging that sustainability statements are misleading. Tobacco leaf and clove prices and quality are exposed to supply-demand imbalances, government mandated prices and production control programs, and farmer exit. A prolonged disruption at a production facility is called out specifically for the ZYN plant in Kentucky, which currently supplies substantially all U.S. ZYN capacity. PMI could also decide or be required to recall products.

International operations, currency and inflation. Civil unrest, regime change, nationalization, terrorism, conflict, natural disasters, pandemics and geopolitical instability affecting international trade can disrupt supply, manufacturing, distribution and utilities. While PMI does not currently expect recent and anticipated tariffs to materially affect it, the tariff environment is volatile and further developments could raise production costs, limit market access, degrade supplier finances and reduce consumer demand, with potential for significant volume declines in Global Travel Retail and other key markets. Local-currency results translated into U.S. dollars are exposed to currency movements, and cost bases sit in different currencies from revenue markets, so dollar moves can hit cash flows and net revenues disproportionately relative to gross profit and operating income margins. Capital controls and currency constraints affect settlement of imports and payment of dividends and royalties. Sustained elevated inflation would raise direct material, wage, energy, transport and financing costs and could reduce consumer purchasing power.

Legal challenges and investigations. Tobacco- and nicotine-related litigation is pending in certain jurisdictions, with damages claimed in some cases ranging into the billions of U.S. dollars, and the Framework Convention on Tobacco Control encourages such litigation. An unfavorable outcome or settlement could materially affect results, cash flows or financial position in a particular quarter or year. Beginning in March 2024 PMI has faced litigation over its oral nicotine products in U.S. courts and anticipates new cases. Administrative and legal challenges to smoke-free activities concern product classification, advertising and distribution restrictions, corporate communications, product coach activities, scientific substantiation, product liability, antitrust and unfair competition. Governmental investigations recur across contraband allegations, pricing, income taxes, customs and excise, descriptors, advertising and distribution, product safety and labor practices. Intellectual property protection is uneven across jurisdictions, and third-party rights or infringement claims could impede development or commercialization of smoke-free products in one or more markets. The Wellness business's cannabinoid research carries legal, regulatory and reputational risk, with potential criminal, civil or tax liability for non-compliance.

Illicit trade. Large quantities of counterfeit cigarettes are sold internationally, and PMI believes Marlboro is the most heavily counterfeited international cigarette brand, though it cannot quantify lost revenue. Counterfeit smoke-free products bypass PMI's scientific validation and quality standards and may damage the reputation of the category. Contraband, cross-border purchases and non-tax-paid volume from local manufacturers compound the effect.

Cybersecurity, data governance and artificial intelligence. PMI depends heavily on its own and third-party IT networks, some developed or managed by providers that create supply-chain attack exposure. The Company states that cyberattacks, security incidents and vulnerabilities have impacted it, its business partners and its providers and are expected to continue to; immaterial third-party information security breaches have occurred frequently within the last three years, none material to business, financial condition or results. Non-compliance with privacy, data, AI and information security laws could bring substantial fines; cyber liability insurance may be insufficient. Increasing use of AI-based solutions introduces accuracy, reliability, IP, confidentiality and new attack-surface risks. As of the date of the Form 10-K, PMI was not aware of cybersecurity risks that had materially affected or were reasonably likely to materially affect it.

Acquisitions and divestitures. Transactions may divert management attention, prove difficult to integrate, damage customer and supplier relationships, create disputes and contingent liabilities, require competition-authority approvals PMI may not obtain, and, on the divestiture side, require recognition of impairment charges.

Management's discussion, fiscal year 2025

From Item 7 of the FY2025 Form 10-K (accession 0001628280-26-005939).

Consolidated results. Net revenues were $40.6 billion, up $2.8 billion or 7.3%, and up 6.5% excluding currency and acquisitions/divestitures, driven by favorable pricing on combustible tobacco and favorable volume/mix from higher smoke-free volume, notwithstanding unfavorable mix and lower cigarette volumes. Smoke-free products contributed $16.9 billion of net revenues in 2025 against $14.7 billion in 2024. Cost of sales was $13,366 million and marketing, administration and research costs $12,349 million. Operating income of $14,892 million rose 11.1%, and 9.3% excluding currency and acquisitions/divestitures. Interest expense, net, of $966 million fell $177 million or 15.5% on lower market rates on variable-rate debt and favorable derivative effects. The effective tax rate fell 5.0 percentage points to 19.7%. Net earnings attributable to PMI of $11.3 billion rose $4.3 billion or 60.8%; basic EPS of $7.27 rose 60.5% and diluted EPS of $7.26 rose 60.6% (59.7% excluding a $0.04 favorable currency impact).

The scale of that earnings increase is dominated by a prior-year charge rather than by 2025 operations: the FY2024 results carried a $2,316 million non-cash impairment of PMI's equity investment in Rothmans, Benson & Hedges Inc. (RBH), a $1.49 per diluted share charge, recorded in the consolidated statement of earnings for the year ended December 31, 2024 as a recognized subsequent event. The trigger was the October 17, 2024 filing by the court-appointed mediator and monitor in the Canadian Companies' Creditors Arrangement Act ("CCAA") proceedings of a proposed plan of compromise and arrangement under which RBH, Imperial Tobacco Canada and JTI Macdonald would pay an aggregate global settlement of CAD 32.5 billion (approximately $23.7 billion as of December 31, 2025); RBH's January 24, 2025 objection and related filings narrowed the range of possible outcomes on how that amount would be allocated among the three, which PMI treated as an impairment indicator. Excluding currency, the balance of the diluted EPS increase was $0.85 per share from operations.

Items affecting comparability, 2025. Pre-tax restructuring charges of $241 million ($222 million after tax) related to the end of combustible tobacco production at two German factories, against $180 million in 2024 (U.S. IQOS sourcing restructuring and cessation of Venezuelan operations) and $109 million in 2023. A $41 million goodwill impairment in the Europe segment followed the annual review in the second quarter. A $176 million Germany excise tax classification charge ($150 million after tax) was booked after PM Germany withdrew, on September 17, 2025, its court challenge to the German customs authority's classification of TEREA consumables as cigarettes for excise purposes (EUR 151 million assessed for February 2023 through August 2024, paid in April 2025). A $94 million pre-tax loss arose on the fourth-quarter sale of one business and held-for-sale classification of other consumer accessories businesses acquired with Swedish Match. A $146 million after-tax non-cash charge in the third quarter reflected an other-than- temporary impairment of a Wellness equity method investment after amendment of investment agreements. Amortization of intangibles rose to $1,003 million ($780 million after tax, $0.50 per share) from $835 million, reflecting the reacquired IQOS U.S. commercialization rights. Fair value adjustments on equity security investments in India and Sri Lanka produced a $289 million after-tax gain, versus $418 million in 2024. Following the RBH Plan's effectiveness on August 29, 2025, PMI recorded $156 million of after-tax income in the third quarter, $303 million of dividend income net of the corresponding reduction in the RBH carrying value, $19 million of other income and a $166 million tax charge. Prior-year 2024 items also included a $199 million pre-tax loss on the December 31, 2024 sale of Vectura Group to Molex Asia Holdings, a $45 million Egypt sales tax charge and a $77 million tax charge on the forced localization of PMI's Russian distributor holding structure.

Segment drivers (2025, on the four-segment basis then in effect). Europe net revenues rose 9.1% (6.8% organic) on combustible pricing and smoke-free volume; operating income rose 9.4% (3.4% organic), held back by the Germany excise charge, the consumer accessories loss and restructuring. SSEA, CIS & MEA net revenues rose 7.0% (6.4% organic) on combustible pricing, with unfavorable cigarette mix from an Indonesian commercial model change largely offset by volume; operating income rose 19.5% (20.3% organic). EA, AU & PMI GTR net revenues rose 3.7% (4.6% organic) on smoke-free volume and combustible pricing, with operating income up 8.6% (11.7% organic). Americas net revenues rose 7.1% (8.8% organic) on smoke-free volume but operating income fell 7.8% (0.9% organic) on unfavorable U.S. pricing, increased promotional activity, including retailer incentives taken in net revenues, as ZYN returned to full availability, plus higher amortization and investment in U.S. capabilities.

Business environment. Excessive excise increases and discriminatory tax structures remain the central fiscal risk. The German supplemental excise surcharge on heated tobacco products, upheld by the Court of Justice of the European Union in March 2024 and by the Fiscal Court in Dusseldorf in May 2024, is under appeal to the Federal Fiscal Court; PMI paid EUR 721 million (approximately $751 million) in January 2025 to stop interest accruing while accounting for the surcharge as a reduction of net revenues. Japan adopted a multi-year plan in March 2025 harmonizing heated tobacco excise with cigarettes in two steps in 2026, with predictability on rates through April 2029. In July 2025 the European Commission proposed revising the Tobacco Excise Directive to expand its scope to heated tobacco, e-cigarettes and nicotine pouches with differentiated treatment, contemplating a January 1, 2028 implementation date subject to unanimous member-state approval. The EU characterizing flavor ban was extended to heated tobacco products across all member states as of October 2023; PMI reports short-term disruption, most notably in Italy, but no expected meaningful long-term change to category growth. Significant markets prohibiting or severely restricting one or more smoke-free categories include Argentina, Brazil, Canada, France, India, Mexico, Turkey, Australia, Thailand and Vietnam. In the U.S., the FDA has authorized IQOS 2.4 and IQOS 3.0 with exposure modification orders, authorized all 20 marketed ZYN nicotine pouch varieties in January 2025, and renewed General snus modified risk orders in November 2024 through November 2032; bundled applications for IQOS ILUMA were accepted for review in March 2024. PMI estimates illicit trade at as much as 15% of global cigarette consumption excluding China and the U.S., and approximately 9% of EU consumption in 2024. Highly inflationary accounting applies to Argentina, Egypt, Turkey and Lebanon, producing $(26) million of remeasurement losses in 2025. Russian operations held approximately $4.8 billion of total assets excluding intercompany balances, of which approximately $2.3 billion was cash held mostly in rubles; Ukrainian operations held approximately $0.7 billion. Inflation and new tariffs were each stated to be immaterial to the 2025 consolidated financial statements. Research and development expense on the smoke-free portfolio accounted for approximately 100% of total R&D expense in 2025 and 2024.

Cash flow, liquidity and capital structure. Net cash provided by operating activities was $12.2 billion, essentially flat against 2024; excluding favorable currency, the $0.5 billion unfavorable variance came from $2.4 billion of higher working capital requirements, chiefly excise tax-paid inventory timing, including the approximately $0.8 billion German heated-tobacco surcharge paid in January 2025, and a larger final U.S. Tax Cuts and Jobs Act transition tax installment, partly offset by higher currency-neutral earnings and greater use of receivables factoring. Operating cash flow included $0.5 billion of dividend income from the deconsolidated Canadian affiliate. Net cash used in investing was $4.0 billion versus $1.1 billion, mainly derivative cash collateral movements and higher capital expenditures of $1.6 billion (2024: $1.4 billion). Net cash used in financing was $8.1 billion versus $9.5 billion. Dividends paid were $8.6 billion; the Board approved an 8.9% increase in the quarterly dividend to $1.47 per share in the third quarter of 2025, an annualized rate of $5.88. Cash and cash equivalents were $4.9 billion at year end, the majority held by foreign subsidiaries including $2.3 billion in Russia. Commercial paper capacity across U.S. and European programs is $8.0 billion, with none outstanding at year-end 2025 and an average balance of $3.0 billion during the year. Committed revolving credit facilities were $6.3 billion, entirely undrawn, with no rating triggers, material adverse change clauses or collateral provisions. Approximately EUR 2.5 billion (approximately $2.9 billion) remained outstanding under the five-year tranche of the Swedish Match acquisition term loan facility. PMI guarantees certain Swedish Match notes following a 2023 consent solicitation, and has no off-balance-sheet arrangements other than guarantees, which relate primarily to excise taxes on shipments. Purchase obligations were expected to be approximately $3.4 billion in 2026 and approximately $2.8 billion thereafter. PMI operates with a stockholders' deficit, which stood at $(8,028) million in total (and $(9,994) million attributable to PMI) at December 31, 2025.

Critical estimates. Goodwill carrying value was $17.3 billion at December 31, 2025, and the estimated fair value of each of the eleven reporting units, excluding held-for-sale businesses, and of the non-amortizable intangibles, exceeded carrying value. Assumption changes were expected to reduce 2026 pre-tax pension and postretirement expense to approximately $71 million from approximately $172 million in 2025. Management had not concluded that a loss was probable in any pending tobacco-related case and could not estimate a possible loss or range of loss, so no loss was accrued for those cases.

Current period, second quarter and first half of 2026

From the Form 10-Q for the quarter ended June 30, 2026 (accession 0001628280-26-049493), with volume and market detail from the results release furnished on Form 8-K (accession 0001628280-26-049107, Exhibit 99.1).

Consolidated. Second-quarter net revenues were $11,192 million, up 10.4% (7.6% excluding currency and acquisitions/divestitures) on combustibles-led pricing supported by international smoke-free volume/mix. Cost of sales was $3,533 million and gross profit $7,659 million, up 11.5% (8.7% organic). Operating income rose 22.0% (20.0% organic), helped by materially lower restructuring charges. Interest expense, net, of $243 million fell 12.3% on higher interest income on investments. The effective tax rate rose 3.3 percentage points to 22.3%. Net earnings attributable to PMI of $2.8 billion fell 7.3%, and basic and diluted EPS of $1.80 each fell 7.7%, a decline driven by lower income from equity security investments, the RBH impairment discussed below and the higher tax rate, partly offset by higher operating income and lower net interest.

For the six months, net revenues were $21,338 million, up 9.8% (5.3% organic); cost of sales $6,774 million; gross profit $14,564 million, up 10.9% (6.4% organic); operating income up 16.1% (10.4% organic); net interest expense $480 million, down 7.3%; effective tax rate 20.5%, up 1.0 percentage point. Net earnings attributable to PMI of $5.3 billion fell 8.3% and basic and diluted EPS of $3.36 fell 8.4% (down 14.4% excluding a $0.22 favorable currency impact).

Segment gross profit (the primary segment measure), in millions:

By product category, second-quarter net revenues split $4,645 million smoke-free and $6,547 million combustible tobacco. Smoke-free revenue spans both the International Smoke-Free segment ($3,877 million in the quarter) and the smoke-free part of the U.S. segment ($768 million, of which $56 million Wellness), so it is larger than the International Smoke-Free segment alone. For the six months the split was $9,024 million smoke-free (of which $118 million Wellness) and $12,314 million combustible tobacco.

International Smoke-Free. Second-quarter net revenues rose 14.2% (11.8% organic) on higher heated tobacco unit and e-vapor volumes and favorable heated-tobacco pricing; gross profit rose 17.1% (14.6% organic). Segment shipment volume rose 8.0% to 44.7 billion equivalent units, with broad-based growth notably in Taiwan, Romania and Greece. IQOS shipments rose 7.6% and heated tobacco unit adjusted in-market sales rose 5.1%, absorbing expected pantry de-loading and consumer adjustment after the April 1 excise-driven price increase in Japan and the characterizing flavor ban in Poland; excluding Japan and Poland, adjusted in-market sales grew about 10%. Modern oral volume grew 14.7% (26.3% excluding the Nordics) to 0.6 billion pouches but was more than offset by continued decline in the legacy Nordic snus business, leaving total oral smoke-free volume down 7.0%. VEEV shipments grew 55.1% and the brand holds the number one closed-pod position in Europe. Six-month segment volume rose 9.9% to 88.8 billion equivalent units, with IQOS up 9.4%, modern oral up 17.0% to 1.1 billion pouches and VEEV up 72.0%.

International Combustibles. Second-quarter net revenues rose 9.8% (6.4% organic) on pricing, partly offset by unfavorable mix as growth in developing economies outweighed European declines; gross profit rose 11.5% (8.0% organic). Cigarette shipment volume rose 1.1% to 156.9 billion units on Turkey, Indonesia and Egypt. Cigarette category volume share was 25.3%, flat year on year despite adverse market mix, while Marlboro gained 0.3 percentage points to match its record category share of 11.0%. For the six months, cigarette shipment volume fell 1.9% to 294.2 billion units, with notable declines in Russia, Mexico and Germany, and net revenues rose 8.4% (3.8% organic).

U.S. Second-quarter net revenues fell 0.7% (0.9% organic) on broadly stable ZYN revenues, declines in the cigar business and unfavorable phasing in Wellness; gross profit fell 9.2% (9.0% organic), also reflecting higher manufacturing costs from expansion of the U.S. footprint. U.S. smoke-free shipment volume rose 1.8%, with ZYN shipments up 1.8% to 2.9 billion pouches against an inventory tailwind in the prior-year quarter; ZYN offtake volumes were flat to slightly growing in a growing category, which management attributes largely to an uneven competitive landscape. In June the Company shipped ZYN ULTRA (9mg and 11mg moist variants at a lower price-per-pouch) and added flavors to the ZYN dry lineup, and stated it intends to accelerate U.S. investment in the second half to support the expanded portfolio and prepare for a future IQOS ILUMA launch. For the six months, U.S. net revenues fell 16.1% (16.5% organic) and gross profit fell 27.9%, reflecting first-quarter distributor and trade inventory movements and an unfavorable price comparison; U.S. smoke-free volume fell 10.0%, with ZYN shipments down 11.2% to 5.2 billion pouches.

Items affecting comparability, first half 2026. Pre-tax restructuring charges were $30 million ($24 million after tax, $0.01 per share) for a series of U.S. footprint optimization initiatives, against $243 million in the prior-year period for the German factory closures. Amortization of intangibles was $503 million ($392 million after tax, $0.25 per share). Fair value adjustments on the India and Sri Lanka equity security investments swung to a $240 million after-tax loss ($0.16 per share) from a $410 million gain; the fair value of these Level 1 securities was $983 million at June 30, 2026 against $1,291 million at December 31, 2025. An Egypt sales tax settlement adjustment added $18 million net of tax ($0.01 per share) after a May 2026 court approval of the 2016-year settlement under Egypt's December 2024 tax amnesty legislation, partially reversing the $45 million charge taken in 2024. Deferred tax on unrealized currency movements on Swedish Match acquisition financing intercompany loans reduced first-half diluted EPS by $0.06 (a $97 million expense), against a $373 million benefit in the prior-year period.

Completed divestiture. In the second quarter of 2026 PMI completed the sale of the last of the held-for-sale businesses, primarily the consumer accessories businesses acquired with Swedish Match, for total consideration of $121 million, of which $87 million of cash proceeds were received at closing and $34 million was deferred consideration recorded in other receivables and other assets. On completion, $3 million of currency translation losses was reclassified out of other comprehensive losses in the quarter; the pre-tax loss on the disposal group was recorded in 2025.

The 2026 RBH impairment, and how it differs from the 2024 charge. In May 2026, as required under the court-approved Plan that became effective August 29, 2025, RBH delivered an annual business plan to its Plan Administrator containing updated five-year financial projections reflecting current industry dynamics. On that basis PMI concluded the estimated fair value of its RBH investment was below carrying value and recorded a non-cash impairment charge of $511 million ($0.33 per diluted share) in the second quarter of 2026. This is a different trigger from the $2,316 million charge taken at December 31, 2024, which arose from uncertainty over how the CAD 32.5 billion aggregate CCAA settlement would be allocated among RBH and the two other Canadian manufacturers before that plan was approved; the 2026 charge instead reflects RBH's own updated operating projections under a plan that is already in force. RBH's carrying value was $51 million at June 30, 2026, down from $569 million at December 31, 2025, and cumulative impairments and downward adjustments reached $3,060 million (from $2,549 million). RBH remains deconsolidated, PMI concluded that powers held by the Plan Administrator and Claimants continue to remove elements of control, and is accounted for as an equity security without a readily determinable fair value until the global settlement amount is paid and the operating covenants governing RBH's business are lifted.

Other equity investments. Total equity method investments were $1,008 million at June 30, 2026. PMI holds 23% of JSC TK Megapolis, its Russian distributor, with a book value of $0.8 billion; approximately 25% of Algerian joint venture STAEM, with a book value of $0.7 billion; and 14.7% of Egypt's Eastern Company, in connection with which PMI guarantees credit facilities and bank loan repayment up to a maximum of $385 million running to 2034. The Megapolis and STAEM book values are stated gross of the cumulative foreign currency translation losses reflected in accumulated other comprehensive losses, $0.5 billion and $0.3 billion respectively, while the amounts included in the $1,008 million total above are net of those translation losses, which is why the individual book values do not sum to the total. Related-party net revenues, principally to the Megapolis group, were $2,440 million for the six months.

Cash flow. Net cash provided by operating activities was $5.1 billion for the six months, against $3.1 billion a year earlier. Excluding favorable currency, the $1.9 billion improvement came from $1.5 billion lower working capital requirements, the prior-year period carried the approximately $0.8 billion German heated-tobacco surcharge payment and the final Tax Cuts and Jobs Act transition tax installment, plus higher currency-neutral earnings. Investing activities provided $23 million, against $2,750 million used a year earlier, mainly on derivative cash collateral movements as the euro and Swiss franc weakened against the dollar and on debt securities investments. Financing activities used $3.9 billion, against $0.9 billion, on lower long-term debt issuance, higher repayments and higher dividends, partly offset by higher net short-term borrowings. Dividends paid in the first half were $4.6 billion at the annualized rate of $5.88 per share. Cumulative trade receivables sold were $5.3 billion for the six months (prior year: $5.6 billion), and amounts due to suppliers in the voluntary supply chain financing program were $1.0 billion at June 30, 2026.

Capital structure and liquidity. Total debt was $49.1 billion at June 30, 2026 against $48.8 billion at December 31, 2025. Long-term debt carrying value was $45,772 million, $37,371 million of U.S. dollar notes (average rate 4.719%, due through 2044), $6,563 million of euro notes (average rate 2.039%, due through 2039), $1,711 million of the euro Swedish Match acquisition credit facility borrowing at 2.859% due 2027, a $28 million Swedish krona note and $99 million of finance leases, of which $3,406 million is current. Short-term borrowings were $3,341 million, comprising $2,652 million of commercial paper at an average 3.7% (none was outstanding at December 31, 2025; the average balance during the first half was $4.7 billion) and $689 million of bank loans. Committed revolving credit facilities totaled $6.2 billion, entirely undrawn and available, plus approximately $4.2 billion of uncommitted short-term credit arrangements. EUR 1.5 billion (approximately $1.7 billion) remains outstanding under the five-year tranche of the Swedish Match term loan facility, expiring June 23, 2027. Cash and cash equivalents were $6.0 billion, the majority held by foreign subsidiaries including $2.8 billion in Russia. The majority of $52.2 billion gross notional of derivative instruments and foreign-currency-denominated debt is exposed to exchange-rate movements, which the Company notes could affect debt levels and the pace of anticipated deleveraging. Moody's revised its outlook from Stable to Positive on April 14, 2026; at June 30, 2026 Moody's and Standard & Poor's carried a Positive outlook and Fitch a Stable outlook. Total stockholders' deficit narrowed to $(6,657) million from $(8,028) million at December 31, 2025 (PMI's own deficit $(8,583) million from $(9,994) million), with total assets of $68,271 million against total liabilities of $74,928 million. No shares were repurchased under publicly announced programs during the quarter; 19,352 shares were acquired, primarily shares tendered by employees to settle taxes on vesting equity awards.

Outlook stated in the quarterly report. For full-year 2026 PMI expects broadly stable to slightly growing total cigarette and smoke-free shipment volume (previously broadly stable), with high-single-digit smoke-free volume growth and a cigarette volume decline of 2% to 3% (previously around 3%); an effective tax rate of around 21.5% excluding discrete tax events; and capital expenditures of $1.4 billion to $1.6 billion, predominantly supporting the smoke-free business.

Regulatory developments in the period. On April 17, 2026 the FDA renewed the exposure modification orders for the IQOS 2.4 device with three related consumables and the IQOS 3.0 device, with a stated expiration in April 2031. In June 2026 the FDA concluded that the requested modified risk claim is scientifically accurate for each of the 20 ZYN nicotine pouch products that had received premarket authorization, that consumers understand it, and that marketing with it would benefit the population as a whole, making these the only nicotine pouch products on the U.S. market authorized as modified risk tobacco products. On May 8, 2026 the FDA issued final guidance stating it does not intend to prioritize enforcement against certain unauthorized ENDS and nicotine pouch products that have demonstrated meaningful progress toward authorization; PMI notes that competitors have marketed or stated an intention to market products without marketing granted orders, and that it has commercialized and may commercialize products without such orders where it believes enforcement would be inconsistent with FDA public guidance and present practice. On April 29, 2026 the UK government adopted a bill banning the sale of tobacco products, including heated tobacco products, herbal smoking products and cigarette papers, to those born on or after January 1, 2009, and enabling a ban on cigarette filters; it does not apply to e-vapor products or nicotine pouches. The European Commission launched a stakeholder consultation on revising the Tobacco Products Directive in May 2026, with a potential legislative proposal expected by the end of 2026. Japan's first heated-tobacco excise harmonization step took effect April 1, 2026, with the second scheduled for October 1, 2026. PMI raised its illicit trade estimate to as much as 16% of global cigarette consumption excluding China and the U.S., and to more than 10% of EU consumption in 2025, mainly counterfeit. Russian operations held approximately $5.6 billion of total assets excluding intercompany balances at June 30, 2026, of which approximately $2.8 billion was cash held mostly in rubles; Ukrainian operations held approximately $0.6 billion. The Middle East conflict was stated to have had an immaterial impact in the first half. Tariffs and inflation were again stated to be immaterial to the condensed consolidated financial statements.

Contingencies. Since 1995 more than 600 combustible tobacco product-related cases have been filed against a PMI entity; all resolved by final, non-appealable liability judgment have been terminated in PMI's favor and only a small number remain. As of June 30, 2026 there were seven health care cost recovery cases pending, Brazil (1), Korea (1) and Nigeria (5), down from 17 a year earlier, principally because nine proposed class actions and ten health care cost recovery cases were released under the Canadian CCAA Plan and have been or will be dismissed. One public civil action remains pending in Venezuela. Two individual cases decided for plaintiffs remain on appeal; final resolution at the verdict amounts would not be material. In the Korean National Health Insurance Service case the appellate court dismissed the plaintiff's claims and appeal on January 15, 2026, and the plaintiff appealed to the Supreme Court of Korea on February 4, 2026. Nicotine pouch litigation continues: in the lead putative class action (Kelly, now proceeding as to plaintiff Maultsby, in the Southern District of Florida) discovery closed June 26, 2026, the plaintiff moved on April 6, 2026 to certify a Florida purchaser class and an under-21 subclass, defendants filed their opposition and moved for summary judgment on all claims on June 15, 2026, and trial is scheduled to begin December 7, 2026; three further putative class actions (Bates-Ferreira, Norris and Siegert) are stayed pending the class certification ruling, and the Mayor and City Council of Baltimore's consumer protection ordinance case remains subject to a stayed remand motion. No estimated loss has been accrued for these proceedings. Brazilian tax authorities have assessed a PMI affiliate for alleged indirect tax underpayments of approximately BRL 137 million (approximately $27 million) for 2020, BRL 211 million (approximately $42 million) for 2021 and BRL 369 million (approximately $74 million) for 2022 and 2023, with further assessments considered probable; PMI disagrees and will defend. In Japan, Future Technology K.K. has brought a series of patent infringement actions and customs applications against Philip Morris Japan's importer and distributor over TEREA and SENTIA consumables, which PMI is obligated to indemnify; three Tokyo District Court rulings have rejected the claims, eight actions have been withdrawn and the remainder are at various stages. Indonesian subsidiaries, principally PT Hanjaya Mandala Sampoerna, carry income tax receivables of 3.6 trillion Indonesian rupiah (approximately $200 million) relating to assessments paid to avoid penalties for 2017 to 2023, which are being challenged in court. Separately, new Indonesia Stock Exchange free float rules issued March 31, 2026 require listed companies with at least IDR 5 trillion of market capitalization and free float below 12.5% to reach 12.5% by March 31, 2027 and 15% by March 31, 2028; as of June 30, 2026, 7.5% of PT Hanjaya Mandala Sampoerna's equity, with a listed value of IDR 5.8 trillion (approximately $351 million), qualified as public free float, and the subsidiary is assessing the implications.

Subsequent events

The Form 10-Q for the quarter ended June 30, 2026 (accession 0001628280-26-049493) does not present a separate subsequent-events note. The material events after June 30, 2026 disclosed in that report and in the results release furnished on Form 8-K (accession 0001628280-26-049107, Exhibit 99.1) are set out below.

• Italian criminal proceeding resolved in PMI's favor (July 3, 2026). The trial court in Rome

orally announced its decision in the proceeding arising from the Public Prosecutor's 2020 indictment over alleged contravention of anti-corruption laws and related disruption of trade freedom. All charges against Philip Morris Italia S.r.l. were dismissed and the company was acquitted in full. The civil claim brought against PM Italia by British American Tobacco Italia S.p.A., which sought EUR 50 million (approximately $57 million) in damages on a theory of vicarious liability, was dismissed. The court acquitted one former PM Italia employee, convicted two other employees, and convicted the three government officials charged in the case. The court's detailed written reasoning is expected by the end of September 2026, after which the parties have 45 days to appeal.

• Egypt ceases to be accounted for as a highly inflationary economy (effective July 1, 2026).

From that date PMI no longer applies highly inflationary accounting to its Egyptian subsidiaries and has stopped using the U.S. dollar as their functional currency. The change is not expected to have a material impact on the consolidated financial statements. Argentina, Turkey and Lebanon continue to be accounted for as highly inflationary.

• Planned U.S. portfolio and investment actions. PMI stated it plans to extend the ZYN lineup

with 1.5mg and 8mg dry variants in the third quarter of 2026, and to accelerate U.S. investment in the second half of the year to support the expanded ZYN portfolio and to prepare for a future launch of IQOS ILUMA, which remains pending FDA authorization.

No acquisition, divestiture or financing transaction completed after June 30, 2026 was disclosed in the quarterly report.