PM 10-Q — Smart Summary

• Segment realignment: Effective January 1, 2026, PMI replaced its four geographic reportable segments with three new reportable segments — International Smoke-Free; International Combustibles; and U.S. (including the wellness business unit, Aspeya) — reflecting an evolved organizational model with two primary business units: International and U.S.
• Reclassifications: Prior year amounts were reclassified to conform with the new segment structure; the consolidated statement of earnings added a new 'Corporate expenses and other' caption, with foreign currency gains/losses and compensation expense related to restricted share units and performance share units awards reclassified from 'Cost of sales' and 'Marketing, Administration and Research' costs; these reclassifications did not impact PMI's consolidated financial position, results of operations, or cash flows in any of the periods presented.
• Business definitions: PMI defines its Smoke-Free Business (SFB) to include all smoke-free products (heat-not-burn, e-vapor, and oral smokeless), wellness products, and consumer accessories such as lighters and matches.

• Consumer accessories disposal group held for sale (Q4 2025 and ongoing): 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 of March 31, 2026, $149M of disposal group assets and $61M of disposal group liabilities were classified as held-for-sale within other current assets and other accrued liabilities, respectively, in PMI's consolidated balance sheet, up from $142M of assets and $59M of liabilities as of December 31, 2025; PMI recorded a pre-tax loss of $94M in 2025 — primarily an impairment charge to write the net assets down to the lower of carrying value or fair value less costs to sell, plus the loss on the completed sale — of which $3M related to the reclassification of currency translation losses from other comprehensive losses, with the full loss recorded in marketing, administration and research costs; fair value was determined using a market approach based on expected net sales proceeds.

• Plan capacity: Under the 2022 Performance Incentive Plan (up to 25 million shares), 15,080,666 shares remained available for grant at March 31, 2026; under the 2017 Non-Employee Directors Plan (up to 1 million shares), 845,900 shares remained available at March 31, 2026.
• RSU activity: RSU compensation expense was $72M (tax benefit $32M) for Q1 2026 vs. $63M (tax benefit $20M) for Q1 2025; 1,274,800 shares were granted at a weighted-average fair value of $182.61 per award in 2026 vs. 1,502,150 shares at $145.16 in 2025; 1,327,466 RSU awards vested in Q1 2026 with a grant date fair value of approximately $136M and total fair value at vesting of approximately $242M; unrecognized RSU compensation cost was $338M as of March 31, 2026, expected to be recognized over approximately three years.
• PSU activity: PSU compensation expense was $46M (tax benefit $22M) for Q1 2026 vs. $51M (tax benefit $16M) for Q1 2025; 327,880 shares were granted in 2026 at a weighted-average fair value of $182.81 (other performance factors) and $236.97 (TSR factor, Monte Carlo) vs. 395,810 shares in 2025 at $145.32 and $213.72, respectively; 816,829 PSU awards vested in Q1 2026 with a grant date fair value of approximately $94M and total fair value at vesting of approximately $149M; unrecognized PSU compensation cost was $77M as of March 31, 2026, expected to be recognized over approximately three years.
• PSU performance metrics (2026 grants): Metrics are TSR relative to peers and absolute (40% weight), currency-neutral compound annual adjusted diluted EPS growth rate (30% weight), and a VALUE Index comprising product impact (20%) and operational impact (10%); the VALUE Index replaced the prior Sustainability Index while retaining the same guiding principles, structure, governance, and KPI weights; PSUs vest at 0%–200% of target based on aggregate weighted performance factors, with each vested PSU entitling the participant to one share of common stock plus accumulated dividend equivalents.

• Benefit cost swing: Total pension and other employee benefit costs swung from income of ($5M) in Q1 2026 versus a cost of $12M in Q1 2025, driven primarily by net pension income of ($41M) in Q1 2026 compared to ($20M) in Q1 2025, while net postemployment costs rose to $32M from $29M and net postretirement costs rose to $4M from $3M.
• Net periodic pension cost: Net periodic pension cost declined to $15M in Q1 2026 from $37M in Q1 2025, as expected return on plan assets increased to ($122M) from ($102M) and net loss amortization fell to $23M from $33M, partially offset by higher interest cost of $59M versus $50M; service cost was roughly flat at $56M versus $57M.
• Employer contributions: PMI made employer contributions of $30M to its pension plans during the three months ended March 31, 2026, and currently anticipates making approximately $115M in additional contributions during the remainder of 2026, subject to changes in tax and benefit laws, asset performance, and interest and currency rates.

• Goodwill movement: Total goodwill declined from $17.3B at December 31, 2025 to $17.1B at March 31, 2026, with the entire $195M decrease attributable to currency translation effects across all three segments (International Smoke-Free: ($97M), International Combustibles: ($90M), U.S.: ($8M)).
• Segment realignment: Effective January 1, 2026, PMI implemented an evolved organizational model and realigned reportable segments, requiring goodwill to be reallocated using the relative fair value approach; a pre- and post-reorganization impairment review found no impairment charges were required.
• U.S. goodwill impairment history: The U.S. goodwill balance of $8.5B is net of accumulated impairment losses of $556M at March 31, 2026 and December 31, 2025, relating to PMI's wellness unit Aspeya.
• Intangible assets & amortization: Total other intangible assets, net decreased from $10.9B at December 31, 2025 to $10.5B at March 31, 2026, driven by $251M of amortization and impairment and ($121M) of currency and other effects; non-amortizable intangibles ($4.7B) substantially consist of ZYN trademarks, trademarks from acquisitions in Indonesia and Mexico, and a tobacco manufacturing license from Egypt; amortization expense for each of the next five years is estimated to be approximately $1B or less.

• Gross notional exposure: Total gross notional amounts of outstanding derivative contracts rose to $54.2B at March 31, 2026, from $50B at December 31, 2025, driven primarily by an increase in undesignated foreign exchange contracts ($19.3B vs. $16.3B) and designated foreign exchange contracts ($29.5B vs. $29.1B); interest rate contracts grew to $5.3B from $4.7B.
• Fair value positions: Total gross derivative assets were $1.1B at March 31, 2026 (vs. $653M at December 31, 2025) and total gross derivative liabilities were $1.2B (vs. $2B); after netting financial instruments and cash collateral, net asset position was $150M and net liability position was $1M.
• Fair value hedges — carrying amount: The carrying amount of debt hedged under fixed-to-floating interest rate contracts was $5.1B as of March 31, 2026, including $401M related to discontinued hedges, with $649M in current portion of long-term debt and $4.4B in long-term debt; cumulative fair value losses included in that carrying amount were ($21M).
• AOCI hedging activity and near-term reclassification: Derivative gains in accumulated other comprehensive losses increased to $346M at March 31, 2026 from $284M at the start of the period (vs. $324M at March 31, 2025); PMI expects $159M of those gains to be reclassified to earnings within the next 12 months, expected to be substantially offset by the statement of earnings impact of the respective hedged transactions.
• Other investments: At March 31, 2026, PMI held Level 1 U.S. dollar denominated bonds in Argentina with a fair value of $103M and Level 2 Indonesian rupiah denominated bonds in Indonesia with a fair value of $26M; gross unrealized pre-tax losses on these investments for the three months ended March 31, 2026 were immaterial.

Antidilutive awards: For both the 2026 and 2025 computations, there were no antidilutive stock awards. Two-class method: Unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities included in PMI's earnings per share calculation pursuant to the two-class method.

• Segment reorganization: Effective January 1, 2026, PMI reorganized its reportable segments to reflect changes to its organizational structure, including restructuring of roles and responsibilities of the executive management layer reporting directly to the CODM as of January 2026. The three reportable segments are now International Smoke-Free, International Combustibles, and U.S.; the results of PMI's Wellness unit, Aspeya, are included within the U.S. reportable segment.
• Primary profitability measure change: In conjunction with the reorganization, the primary profitability measure used by the CODM changed from regional operating income to segment gross profit. Segment net revenues and segment gross profit are the primary financial measures used to review trends, forecasts, and budget-to-actual variances.
• Excluded items: Marketing, administration and research costs (including restructuring charges), interest expense net, corporate expenses and other, and provision for income taxes are not allocated to segments. Information about total assets and capital expenditures by segment is not disclosed as such information is not reported to or used by PMI's CODM.
• Depreciation and amortization — other: In addition to the per-segment D&A disclosed in the table, $326M (Q1 2026) and $308M (Q1 2025) of depreciation and amortization is classified as 'Other,' included in marketing, administration and research costs, and corporate expenses and other in PMI's condensed consolidated statements of earnings.

Legal Proceedings

• Health Care Cost Recovery (7 cases pending as of March 31, 2026): Cases in Brazil (1), Korea (1), and Nigeria (5) seek reimbursement of smoking-related health care costs; no estimated loss accrued.
• Attorney General of Brazil v. Souza Cruz Ltda. et al. (filed May 21, 2019): Federal Trial Court, Porto Alegre; trial court issued procedural order on March 13, 2026 directing parties to submit closing arguments.
• National Health Insurance Service v. KT&G et al. (filed April 14, 2014): Appellate court dismissed claims on January 15, 2026; plaintiff appealed to Supreme Court of Korea on February 4, 2026.
• Kelly v. Philip Morris International Inc. et al. (filed March 19, 2024): ZYN nicotine pouch putative class action in S.D. Florida; plaintiff Darryl Maultsby filed class certification motion April 6, 2026; trial set December 7, 2026.
• Bates-Ferreira v. Philip Morris International Inc. et al. (filed March 29, 2024): ZYN class action in E.D. California stayed pending Kelly class certification ruling; no estimated loss accrued.
• Norris v. Philip Morris International Inc. et al. (filed July 30, 2024): ZYN class action in D. Connecticut stayed pending Kelly class certification ruling; no estimated loss accrued.
• Mayor and City Council of Baltimore v. Philip Morris International Inc. et al. (filed May 7, 2025): ZYN Consumer Protection Ordinance suit; remand motion stayed pending appellate disposition of similar issue; no estimated loss accrued.
• Austin Siegert v. Philip Morris International Inc. et al. (filed September 26, 2025): ZYN class action in D. Connecticut stayed pending Kelly class certification ruling; no estimated loss accrued.
• PM Italia anti-corruption trial (indictment September 21, 2020): British American Tobacco Italia S.p.a. civil claim seeks EUR50 million (approximately $59M); final hearing scheduled April 29, 2026.
• Brazilian Tax Authority indirect tax assessments (2020-2023 fiscal years): Assessments totaling approximately BRL 137 million (~$28M), BRL 211 million (~$43M), and BRL 369 million (~$76M) for FY2020, FY2021, and FY2022-2023, respectively; affiliate will defend vigorously.
• FTKK v. Sojitz (TEREA/SENTIA patent actions, November 2024-December 2025): 12 patent infringement damages actions and 8 preliminary injunction actions filed in Tokyo; several withdrawn following favorable indicative opinions; remaining matters at various stages; PMJL indemnifying Sojitz.

• Effective tax rates: PMI's effective tax rate for the three months ended March 31, 2026 was 18.5%, down from 20.0% for the three months ended March 31, 2025.
• Q1 2026 rate drivers: The 2026 rate was favorably impacted by a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($95M), partly offset by deferred tax expense for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing reflected in the condensed consolidated statements of earnings ($75M).
• Q1 2025 rate drivers: The 2025 rate was favorably impacted by a deferred tax benefit for unrealized foreign currency losses on intercompany loans related to the Swedish Match acquisition financing ($93M), partially offset by an increase in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($40M).
• Indonesia tax receivables: Subsidiaries in Indonesia, principally PT Hanjaya Mandala Sampoerna Tbk, have recorded income tax receivables of 3.6 trillion Indonesian rupiah (approximately $214M) related to corporate income tax assessments paid to avoid potential penalties for domestic and other intercompany transactions for the years 2017 to 2023; objection letters have been filed and assessments are being challenged at various levels in court, with these receivables included in other assets as of March 31, 2026 and December 31, 2025.

• Short-term borrowings: At March 31, 2026, short-term borrowings totaled $5.7B, comprising $5.5B in commercial paper (average rate 3.8%) and $216M in bank loans (average rate 12.8%), up sharply from $168M total at December 31, 2025 (no commercial paper outstanding); PMI maintains commercial paper programs in the U.S. and Europe with aggregate issuance capacity of $8B.
• Long-term debt: Carrying value of long-term debt declined to $46.3B at March 31, 2026 from $48.7B at December 31, 2025, with U.S. dollar notes (0.875% to 6.375%, average 4.653%) at $36.7B and Euro notes (0.125% to 3.750%, average 2.039%) at $6.6B; current portion stood at $2.4B versus $3.5B at year-end.
• Long-term debt fair value: At March 31, 2026, fair value of outstanding long-term debt (excluding finance leases) was $42.5B at Level 1 and $2.9B at Level 2.
• Revolving credit facilities: Total committed revolving credit facilities were $6.2B at March 31, 2026 — comprising a $2B facility expiring January 29, 2031, a $2.5B facility expiring September 29, 2026 (with an amendment extending $2.3B to September 29, 2028), and a €1.5 billion facility (~$1.7B) expiring January 29, 2029 — with no borrowings outstanding under any of these facilities at period-end; uncommitted credit arrangements totaled approximately $3.7B at March 31, 2026.

• Overall AOCI position: Total accumulated other comprehensive losses narrowed to ($11.8B) at March 31, 2026 from ($12.3B) at December 31, 2025, but widened compared to ($11.1B) at March 31, 2025, with currency translation adjustments representing the largest component at ($10.8B).
• Pension and other benefits: The pension and other benefits loss of ($1.4B) at March 31, 2026 improved significantly from ($2.4B) at March 31, 2025, and modestly from ($1.4B) at December 31, 2025.
• Derivatives hedges: The derivatives accounted for as hedges remained the only positive component, at $346M at March 31, 2026, up from $284M at December 31, 2025 and $324M at March 31, 2025.

• Equity method investments: PMI had total equity method investments of $1B at March 31, 2026 and $1B at December 31, 2025; carrying value exceeded PMI's share of investees' book value by $1B and $1B, respectively, with the difference attributable mainly to equity method goodwill, convertible debt instruments, and definite-lived intangible assets; the definite-lived intangibles and other assets difference of $160M (March 31, 2026) and $161M (December 31, 2025) is amortized on a straight-line basis.
• Key investee exposures: PMI holds a 23% interest in JSC TK Megapolis (TKM), carrying value $307M at March 31, 2026, with ~$531M of cumulative foreign currency translation losses in AOCI; PMI holds a 49% interest in EITA (UAE) and an indirect ~25% economic interest in STAEM (Algerian JV); PMI holds an indirect 14.7% economic interest in Eastern Company (Egypt's largest cigarette manufacturer) and guarantees certain of Eastern's credit facilities and bank loans up to a maximum of $385M through 2034.
• RBH equity security: PMI's investment in Rothmans, Benson & Hedges Inc. (RBH), deconsolidated March 22, 2019 and carried as an equity security without readily determinable fair value, had a carrying value of $555M at March 31, 2026 and $569M at December 31, 2025, including cumulative impairments and downward adjustments of $2.5B in both periods; PMI determined RBH will remain deconsolidated following the CCAA Plan effective August 29, 2025.
• Other equity securities and related-party financials: PMI's Level 1 equity securities had fair value of $859M at March 31, 2026 vs. $1.3B at December 31, 2025, with an unrealized pre-tax loss of ($433M) (($338M) net of tax) for the three months ended March 31, 2026; related-party net revenues were $1.2B (Q1 2026) vs. $937M (Q1 2025), driven primarily by the Megapolis Group ($704M vs. $549M), and related-party receivables were $996M at March 31, 2026 vs. $839M at December 31, 2025.

• Program structure: PMI sells trade receivables to unaffiliated financial institutions on an ongoing basis without recourse under two arrangement types — servicing (where PMI continues administrative servicing but does not act on behalf of the financial institutions, with an immaterial servicing liability as of March 31, 2026 and 2025) and non-servicing (where PMI provides no administrative support after sale).
• Cumulative receivables sold: Cumulative trade receivables sold, including excise taxes, for the three months ended March 31, 2026 and 2025 were $2.5B and $2.4B, respectively; trade receivables sold that remained outstanding under these arrangements as of March 31, 2026 and 2025 were $600M for both periods.
• Cash flow impact and loss on sale: Net proceeds are included in cash provided by operating activities; the loss on sale of trade receivables (recorded within marketing, administration and research costs) was $7M for the three months ended March 31, 2026 and $8M for the three months ended March 31, 2025.

Program overview: In Q1 2026, PMI's U.S. organization announced the Further Integration Program (FIP), encompassing closure of the Richmond office, transition of roles to a new Business Solutions Center (BSC) in Tampa, Florida and PMI U.S. headquarters in Stamford, Connecticut, closure of the cigar manufacturing facility in Dothan, Alabama, and consolidation of cigar production into PMI's Dominican Republic footprint.

Q1 2026 charges: PMI recorded $24M of pre-tax restructuring charges in the three months ended March 31, 2026 (no charges were recorded in the three months ended March 31, 2025), consisting primarily of $19M in employee separation and other employee-related costs and $5M in asset impairment charges; all charges were included in marketing, administration and research costs and are not allocated to segments.

Full-year 2026 outlook: PMI expects total pre-tax restructuring charges associated with the FIP program to be approximately $55M for the full year 2026.

Liability rollforward: The restructuring liability decreased from $115M at January 1, 2026 to $102M at March 31, 2026, reflecting $19M of net charges, $27M of cash spent, and a $5M currency/other reduction; future cash payments for restructuring activities incurred to date are anticipated to be substantially paid by the end of 2027.

• Program structure: PMI has arranged a voluntary supply chain financing (SCF) program through unaffiliated global financial institutions whereby suppliers may elect, at their sole discretion, to sell PMI's payment obligations to those institutions; PMI does not participate in negotiations, has no economic interest in the agreements, and provides no guarantees or securities under the program.
• Payment terms and balance sheet classification: Supplier payment terms generally do not exceed 120 days; all outstanding payables to SCF-participating suppliers are recorded in accounts payable, and associated payments are included in cash flows from operating activities.
• Outstanding balances: The total amount due to suppliers participating in the SCF program was $1B as of March 31, 2026 and $1.1B as of December 31, 2025.

ASU 2024-03: On November 4, 2024, the FASB issued ASU 2024-03, 'Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses,' which requires more detailed disclosure of certain costs and expenses in the notes to financial statements at interim and annual reporting periods; the standard is effective for annual periods beginning after December 15, 2026, and for interim periods within annual periods beginning after December 15, 2027, with early adoption permitted. PMI is currently evaluating the impact of ASU 2024-03 on its disclosures.

• Business overview: PMI is a leading international consumer goods company with a portfolio primarily consisting of cigarettes and smoke-free products (heat-not-burn, nicotine pouch, and e-vapor); cigarettes are sold in approximately 170 markets, with number one or number two market share in many, and smoke-free products were available in 108 markets as of March 31, 2026.
• Smoke-free investment and brands: Since 2008, PMI has invested over $16B to develop, substantiate, and commercialize smoke-free products; IQOS, ZYN, and VEEV are the leading brands in its smoke-free portfolio, and in November 2022 PMI acquired Swedish Match AB, creating a global smoke-free combination led by IQOS and ZYN brands.
• Segment realignment: Effective January 1, 2026, PMI implemented an evolved organizational model replacing four geographic segments with three new reportable segments: International Smoke-Free, International Combustibles, and U.S. (including wellness business unit Aspeya).
• Revenue and cost definitions: Net revenues are operating revenues net of sales and promotion incentives and excise taxes; cost of sales consists primarily of tobacco leaf, non-tobacco raw materials, labor and manufacturing costs, shipping and handling costs, and the cost of third-party-produced devices; marketing, administration and research costs include marketing and selling expenses and general and administrative expenses; corporate expenses and other include foreign currency gains/losses and compensation expense related to restricted share units and performance share units awards reclassified from cost of sales and marketing, administration and research costs.

• Net revenues: Net revenues of $10.1B for the three months ended March 31, 2026, increased by $800M, or 9.1%, from the comparable 2025 amount; excluding currency, net revenues increased by 2.7%, with a favorable pricing variance mainly driven by International Combustibles, partly offset by an unfavorable volume/mix/other mainly driven by lower International Combustibles and U.S. volumes, notwithstanding higher International Smoke-Free volumes.
• Diluted EPS: Diluted EPS declined 9.3% to $1.56 for the three months ended March 31, 2026, from $1.72 in the comparable 2025 period, with the primary drag being a $338M loss after tax (or $0.22 per share decrease) on fair value adjustments for equity security investments in India and Sri Lanka, versus a $143M gain after tax (or $0.09 per share increase) in Q1 2025; partially offset by a favorable $0.18 per share currency impact (primarily Euro and Russian ruble) and a $0.06 per share benefit from a reduction in tax costs associated with global intangible low-taxed income and discrete tax benefits.
• Restructuring charges: Pre-tax restructuring charges of $24M ($19M net of income tax, or $0.01 per share) were recorded in Q1 2026 related to footprint optimization initiatives in the U.S.
• Segment operations drivers: The $0.03 per share increase from operations reflected favorable volume/mix/other and pricing in International Smoke-Free, favorable pricing (partly offset by unfavorable volume/mix/other) in International Combustibles including a favorable impact from the restructuring of distribution terms in certain markets, and was partially countered by unfavorable volume/mix/other, unfavorable pricing (mainly driven by increased consumer promotions), higher manufacturing costs in the U.S. segment, and higher marketing, administration and research costs.

• Quarterly industry volume: Estimated industry volume (excluding China and the U.S.) for cigarettes and HTUs declined by 1.0% during the quarter.
• Full-year 2026 outlook: Management currently expects an estimated industry volume decline of around 2% for cigarettes and HTUs, excluding China and the U.S., for the full year 2026.

• Total volume: Total shipment volume fell 1.9% to 184.3 billion equivalent units for the three months ended March 31, 2026, from 187.8 billion in the prior-year period, as cigarette declines were only partly offset by smoke-free growth.
• Cigarettes: Cigarette volumes declined 5.1% to 137.3 billion units from 144.8 billion, consistent with the company's full-year 2026 expectation of a cigarette shipment volume decline of around 3%.
• Smoke-free products: Smoke-free product volumes grew 9.1% to 47.0 billion equivalent units from 43.0 billion, driven by HTUs (+11.3% to 41.3 billion) and E-vapor (+94.8% to 1.2 billion), partially offset by Oral SFP (-16.1% to 4.5 billion).
• Full-year 2026 outlook: The company currently expects broadly stable total cigarette and SFP shipment volume for full-year 2026, with high-single digit SFP shipment volume growth.

• Revenue growth: Net revenues for the International Smoke-Free Segment grew 24.7% to $3.8B in Q1 2026 from $3.1B in Q1 2025; excluding currency, growth was 15.8%, driven by favorable volume/mix/other from higher HTU and e-vapor volumes and a favorable pricing variance due to higher HTU pricing.
• Gross profit: Gross profit rose 28.6% to $2.7B from $2.1B; excluding currency, the increase was 19.4%, attributable to the same factors as net revenues.
• Germany HTP surcharge: Net revenues in 2024, 2025, and 2026 were negatively impacted by the supplemental tax surcharge on HTPs in Germany (in effect since 2022); PMI accounts for the surcharge as a reduction in net revenues, and on January 14, 2025, elected to pay the outstanding amount of EUR 721 million (approximately $751M), excluding accrued interest, to avoid future interest additions — an unfavorable appeal outcome would negatively impact future cash provided by operating activities for unpaid interest amounts, while a favorable outcome would positively impact future operating results and cash provided by operating activities for the amounts paid in January 2025.

• Overall volume: International Smoke-Free shipment volume increased 11.9% to 44.1 billion equivalent units in Q1 2026, driven notably by Italy, Global Travel Retail, Taiwan, and Russia.
• Heat-not-burn: HTU adjusted IMS volume grew 10.9%, broadly in line with shipment volume growth of 11.3%, with all key consumables product lines (TEREA, DELIA/SENTIA, and LEVIA) contributing; excluding consumer pantry-loading in Japan ahead of the April 1 excise-driven price increase, adjusted IMS grew by an estimated 9.4%.
• Oral Smoke-Free: Modern oral volume growth of 0.5 billion pouches was more than offset by snus declines in the Nordics, resulting in a total oral SFP shipment volume decrease of 5.1%.
• E-vapor: VEEV quarterly shipments exceeded one billion equivalent units for the first time, with VEEV now sharing the #1 closed pod position in Europe (estimated based on Nielsen offtake data), with growth in Germany, France, Romania, Italy, Greece, and Bulgaria.

• Net revenues: Rose 6.8% to $5.7B in Q1 2026 from $5.3B in Q1 2025; excluding currency, growth was 1.0%, driven by a favorable pricing variance of $454M, partly offset by an unfavorable volume/mix/other variance of ($402M), with the latter including a favorable impact from the restructuring of distribution terms in certain markets.
• Gross profit: Increased 9.8% to $3.8B from $3.5B; excluding currency, grew 3.9%, with the same pricing and volume/mix/other dynamics as net revenues, plus an unfavorable cost variance of ($12M).

• Shipment volume: International Combustibles segment cigarette shipment volume declined 5.1% to 137.3 billion units in Q1, with notable decreases in Indonesia, Russia, Germany, and Mexico.
• Category share: Overall cigarette category volume share was 24.8%, down 0.6pp, driven by unfavorable market mix and lower share in Indonesia, Russia, and Turkey, partly offset by gains in Egypt.
• Marlboro share: Marlboro gained category share by 0.4pp to 10.7%.

• Net revenues: Fell 30.8% to $622M (down 31.6% excluding currency), driven by lower ZYN volumes due to distributor and trade inventory movements in both the current and prior year periods and an unfavorable price comparison due to low levels of ZYN promotional activity in the prior year.
• Gross profit: Declined 44.5% to $380M (from $685M), reflecting the same volume and price factors as net revenues plus higher manufacturing costs.

• Overall volume decline: U.S. smoke-free product shipment volume decreased by 21.2% in Q1, with U.S. oral smoke-free products shipment volume down 21.3% to 2.8 billion in equivalent units.
• ZYN shipments: ZYN shipments fell 23.5% to 2.3 billion pouches or 155 million cans, driven by distributor and trade inventory movements in both the current and prior year periods and a challenging promotional comparison.
• ZYN offtake vs. shipments: ZYN offtake volumes, as estimated by Nielsen, grew by 10%, though the company notes an uneven competitive landscape where it does not yet have access to all of the most dynamic strength and flavor segments.

• Regulatory risk: The company faces restrictions on product formulation, packaging, marketing, registration, and sale of tobacco or other nicotine-containing products or related devices that could reduce competitiveness, eliminate adult consumer communication, or ban certain products.
• Fiscal and competitive pressures: Challenges include excessive excise tax increases, discriminatory tax structures, intense competition, and unfair competition from non-tax paid volume by certain manufacturers.
• Illicit trade: The company identifies illicit trade — including counterfeit, contraband, and other non-compliant or otherwise illicit products — as a named operating challenge.
• Legal exposure: Pending and threatened litigation is cited as a challenge, with details referenced to Note 9 (Contingencies) in Part I, Item 1 of the filing.

• Strategic rationale: Management acknowledges that smoking causes serious disease and cites WHO estimates of approximately one billion smokers globally, a figure that has not meaningfully changed in decades and is not expected to significantly change in the near future; the company positions smoke-free products (SFPs) as a "much better choice" for adult smokers who would otherwise continue to smoke, given that SFPs do not burn tobacco and therefore contain significantly lower levels of harmful and potentially harmful constituents (HPHCs) than found in cigarette smoke.
• Key strategic priorities: The company's stated priorities are to (i) develop and commercialize products with the potential to present less risk of harm to adult smokers who switch versus continued cigarette smoking, and (ii) educate and encourage current adult smokers to switch to those products, while maintaining competitive position in cigarettes through selective investment and judiciously reallocating resources from cigarettes to SFPs.
• SFP portfolio: The company commercializes three product platforms — heat-not-burn products (IQOS, including blade and induction versions, and BONDS by IQOS using external resistive heating), oral tobacco and nicotine products (snus and modern oral pouches, including ZYN, described as the leading smoke-free product brand in the U.S. market, acquired via Swedish Match in 2022), and e-Vapor products (battery-powered devices vaporizing a tobacco-free liquid solution with patented tobacco-flavor extraction technology).
• Regulatory and conversion dynamics: Management states that in a stable regulatory environment, only a very small percentage of adult smokers who convert to IQOS switch back to cigarettes, and notes that the pace of transformation will depend in part on the willingness of governments, regulators, and other policy groups to embrace SFPs as a desirable alternative to continued cigarette smoking.

• Market availability: As of March 31, 2026, PMI's smoke-free products were available for sale in 108 markets, with commercialization having begun with pilot city launches in Nagoya, Japan, and Milan, Italy in 2014.
• U.S. IQOS rollout: Following the agreement with Altria Group, Inc. to end their commercial relationship as of April 30, 2024, PMI holds full rights to commercialize IQOS in the United States; on March 27, 2025, PMI began selling IQOS 3.0 (the blade version) in Austin, Texas, while awaiting authorization to market IQOS ILUMA (the induction version) in the U.S., which PMI describes as "the world's largest smoke-free market" where approximately 25 million adults continue to smoke cigarettes.
• KT&G collaboration: In November 2025, PMI and KT&G reached an agreement facilitating continuation of their exclusive commercialization collaboration for KT&G's smoke-free devices and consumables outside South Korea, with a new and revised volume commitment for the 2026–2028 period.
• SFP portfolio reach: BONDS devices and BLENDS consumables are available in 5 markets (since 2022); VEEV vaping products have been launched in 49 markets (since August 2020); and modern oral pouches (including ZYN, acquired via Swedish Match) are currently available in 59 markets.

• Germany HTP excise dispute: The CJEU ruled on March 14, 2024 that Germany's additional excise tax on HTPs does not contravene EU law; the Fiscal Court in Dusseldorf dismissed PM Germany's (f6 Cigarettenfabrik GmbH & Co.KG) claim on May 21, 2024, PM Germany filed a notice of appeal to the Federal Fiscal Court on June 19, 2024, provisionally paid the additional HTP excise tax relating to 2022, 2023 and 2024 in January 2025 to avoid further accumulation of interest, and an oral hearing is expected by the third quarter of 2026.
• Japan multi-year tax plan: In March 2025, Japan adopted a plan to harmonize HTP excise tax with cigarettes in two steps — April 1, 2026 and October 1, 2026 — with the first increase in the harmonized HTP and cigarette excise tax occurring in April 2027, and predictability on future excise rate increases for all tobacco product categories provided until April 2029.
• EU Tobacco Excise Directive revision: In July 2025, the EU Commission published a legislative proposal revising the EU TED to set minimum excise tax rates for combustible tobacco products and expand scope to smoke-free products (heated tobacco, e-cigarettes, nicotine pouches) with differentiated tax treatment; the proposal requires unanimous approval by all EU Member States, contemplates an implementation date of January 1, 2028, and provides an additional transitional period of four years for categories including heated tobacco and nicotine pouches.
• Adverse profitability impact: Excessive excise, sales, and other tax increases and discriminatory tax structures — including levies specifically on tobacco companies' revenues and/or profits — are expected to continue to adversely impact profitability through lower consumption and consumer down-trading to non-premium, discount, or illicit products.

• FCTC framework: The WHO Framework Convention on Tobacco Control, in force since 2005 and ratified by 182 countries and the EU, drives much of the regulatory environment; its Conference of the Parties (CoP) has issued non-binding guidelines inviting countries to regulate, restrict, or prohibit HTPs, and CoP11 (November 2025) added no new binding decisions on novel products, with CoP12 scheduled for 2027.
• WHO scientific reports: The WHO study group on tobacco product regulation published its ninth and tenth reports in August 2023 and November 2025, respectively, reviewing scientific evidence on ENDS, electronic non-nicotine delivery systems, and HTPs, and making policy recommendations that, if implemented, could restrict availability of these products and access to information about them.
• Company regulatory advocacy: Management advocates for a risk-continuum regulatory framework differentiating non-combustible from combustible products in both regulation and taxation, supports truthful consumer information, minimum age laws, advertising restrictions, and anti-illicit-trade measures, and opposes excessive or prohibitive regulations that could prevent adult smokers from accessing smoke-free products (SFPs) or drive illicit trade.

• SFP sales prohibitions: 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 certain SFPs, including those authorized by the FDA.
• EU TPD and flavor bans: The EU's ban on characterizing flavors in heated tobacco products took effect October 23, 2023, impacting a significant proportion of SFP products sold in the EU; management states experience is generally consistent with its expectation of limited near-term impact, though short-term disruption occurred most notably in Italy, and the company does not expect a meaningful long-term change in the structural growth of the category.
• UK generation ban: On November 5, 2024, the UK government introduced a bill that would ban the sale of tobacco products, including HTPs, herbal smoking products, and cigarette papers to those born on or after January 1, 2009; the bill formally completed parliamentary stages on April 21, 2026, and is awaiting royal assent.
• Plain packaging and EPR costs: Plain packaging laws have been adopted in key markets including Australia, France, Saudi Arabia, and Turkey, with other countries considering similar measures; the EU Single-Use Plastics Directive's mandatory Extended Producer Responsibility schemes for tobacco product filters are now in force across all EU Member States, with the company not estimating a material impact to its EU business from compliance.

• FDA IQOS MRTP renewal: On April 17, 2026, the FDA renewed the exposure modification orders for the IQOS 2.4 and IQOS 3.0 devices and related consumables, with a stated expiration date in April 2031; these orders permit marketing with reduced-exposure claims but do not constitute FDA "approval" and remain subject to strict marketing, reporting, and other requirements.
• IQOS ILUMA applications pending: Bundled PMTAs and MRTPAs for IQOS ILUMA THS products were submitted October 20, 2023, formally accepted by the FDA in March 2024, and remain under review; separately, on April 30, 2025, the company submitted its Annual Report for the IQOS THS covering literature through February 28, 2025, with findings continuing to support the conclusion that IQOS THS is "appropriate for the promotion of public health."
• ZYN FDA status: All 20 ZYN nicotine pouch varieties received FDA marketing authorization on January 16, 2025; MRTPAs requesting the 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" were formally accepted in February 2025, a filing letter for 20 ZYN products was issued in June 2025 initiating scientific review, and the FDA referred the MRTPAs to TPSAC, which met on January 22, 2026.
• International authorizations: Taiwan authorization to commercialize IQOS took effect October 11, 2025 under its amended Tobacco Hazards Prevention and Control Act; in February 2025, the Greek Ministry of Health authorized a reduced-toxicant claim for IQOS ILUMA devices with seven TEREA variants, and on November 7, 2024, the FDA renewed General snus modified risk orders with a stated expiration date in November 2032.

• Scientific debate posture: PMI makes scientific findings publicly available for peer review but acknowledges it cannot prevent third-party dissemination of false, misleading, or unsubstantiated information about its SFPs, which may confuse adult smokers and affect their decision to switch from cigarettes.
• Tax differentiation risk: PMI has been largely successful in demonstrating to regulators that SFPs are not cigarettes due to the absence of combustion, resulting in more favorable tax rates, but notes some jurisdictions have considered or adopted SFP taxation rates approaching or equal to cigarettes with no guarantee that current levels of differentiation will be maintained.
• Government agency findings: Multiple agencies—including the UK Committee on Toxicity (December 2017), Public Health England (February 2018), Germany's BfR (May 2018, reporting 80–99% reductions in selected HPHCs), the Netherlands' RIVM (May 2018), South Korea's KFDA (June 2018, ~90% lower HPHCs vs. top cigarette brands), the Eurasian Economic Commission (November 2018), China's CNTQST (January 2019), and Belgium's Superior Health Council (April 2020 and June 2022)—have published findings generally indicating IQOS and similar heat-not-burn products generate substantially lower levels of harmful constituents than cigarettes, though most stop short of concluding the products are less harmful to health.
• Regulatory caveat: The filing states that the foregoing scientific findings of government agencies may not be indicative of the measures that the relevant government authorities could take in regulating PMI's products, and there is no assurance PMI will succeed in replacing cigarettes with SFPs or that regulation will permit commercialization or risk-reduction claims in all markets.

• Nature of challenges: The company faces administrative and legal challenges related to SFP activities covering product classification, advertising/distribution/sales restrictions, corporate communications, product coach activities, scientific substantiation, product liability, and unfair competition.
• Ongoing exposure: Management expects these or similar challenges to continue as the company expands SFP commercialization and public communications, and notes that outcomes may affect SFP commercialization, public communication activities, and performance in one or more markets.

• Illicit trade scale: PMI estimates illicit trade may account for as much as 16% of global cigarette consumption (excluding China and the U.S.), including counterfeit, contraband, and "illicit whites"; illicit trade in the EU accounted for approximately 9% of total cigarette consumption in 2024, and illicit trade increasingly targets smoke-free products (SFPs).
• Nicotine pouch exposure: The recent commercial success of the nicotine pouch category makes it more prone to illicit trade; PMI and Swedish Match affiliates are addressing illicit resale of oral products outside intended markets (Scandinavia, the U.S., and other markets) through awareness communications, cease-and-desist letters, and limiting or terminating sales to certain customers in online and traditional trade.
• Regulatory framework: The FCTC Protocol to Eliminate Illicit Trade in Tobacco Products has been ratified by 72 Parties including the EU and came into force in September 2018; MOP4 concluded in November 2025 with no restrictions decided on duty-free tobacco sales or whether the Protocol covers electronic nicotine and non-nicotine delivery systems, and MOP5 will take place in 2027.
• EU tracking & tracing expansion: 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 SFPs, as of May 20, 2024.

• Sanctions compliance posture: PMI states it complies with all applicable Trade Sanctions, including those administered by OFAC and the U.S. Department of State, and does not do business or sell products in Belarus, Iran, North Korea, Cuba, and Syria; sales in other sanctioned countries occur only pursuant to specific exemptions or licenses.
• Russia-related restrictions: The U.S., the EU, Switzerland, and Japan introduced additional trade restrictions banning export of certain non-tobacco materials used to produce cigarettes and heated tobacco consumables in Russia, and the U.S., UK, Switzerland, and EU banned export of IQOS devices to Russia; PMI states it is working to mitigate potential impacts from these restrictions.
• TKM equity interest: PMI holds a 23% equity interest in JSC TK Megapolis (TKM), its Russian distributor in the SSEA, CIS & MEA segment, which as of December 31, 2025 had a carrying value of $303M; following a forced localization order by the Arbitrazh Court of the Moscow Region on August 8, 2024, MDBV's shares in TKM were transferred to TKM and then to Russian subsidiaries of its indirect shareholders during Q4 2024, and MDBV was dissolved in December of 2025.
• U.S. tariff volatility: The U.S. has adopted new and increased tariffs on countries and specific goods, subject to evolving exemptions; although some tariffs were ruled unconstitutional by the U.S. Supreme Court in February 2026, PMI expects the global tariff environment to remain volatile throughout 2026 and states it is actively monitoring developments, evaluating all changes, and adapting operations and compliance practices accordingly.

• Historical inflationary pressures: In 2022, 2023, and 2024, the company experienced inflationary pressures on direct materials, wages, energy, transportation, logistics, and cost of capital due to interest rate increases.
• 2025 stabilization: Certain inflationary elements such as direct materials and utilities stabilized in 2025, with a moderate overall increase driven by tobacco leaf costs; the impact of inflation on cost of sales during 2025 was not material to consolidated financial statements.
• Q1 2026: The impact of inflation on cost of sales during the first three months of 2026 was not material to condensed consolidated financial statements.
• Geopolitical risk: The current conflict in the Middle East may result in increased inflationary pressures globally.

• Tariff exposure: Management currently believes the changing tariff environment will not have a material impact on the business, citing 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.
• Q1 2026 impact: The impact of new tariffs on the business was not material to the condensed consolidated financial statements during the first three months of 2026.
• Outlook: Management expects the global tariff environment to remain volatile throughout 2026 and states it is actively monitoring developments and evaluating potential impacts on the business, financial condition, and suppliers.

• Business impact: The Middle East conflict had an immaterial impact in the first quarter, affecting shipments to Global Travel Retail and certain markets in the region for both combustibles and HTUs.
• Consumer behavior: Increased energy prices and some disruption in energy supply have been observed in a number of markets, but have not translated into a discernible shift in consumer behavior at this stage.
• Ongoing uncertainty: The situation remains uncertain in both duration and potential impact; management notes it could lead to increased inflationary pressures affecting consumer behavior as well as transportation, energy, and other input costs.

• Ukraine operations: PMI's Kharkiv factory remains suspended; a new facility in the Lviv region (Western Ukraine), representing over $30M in investment, commenced local production in April 2024, and commercial activities continue in select locations where safety allows. As of March 31, 2026, Ukrainian operations had approximately $700M in total assets, excluding intercompany balances.
• Russia operations: PMI is continuously assessing the evolving situation, including regulatory constraints that impose complex conditions on any divestment and restrictions from international regulations; management notes that any divestment would likely result in material impairment of realized value. As of March 31, 2026, Russian operations had approximately $5B in total assets (excluding intercompany balances), of which approximately $2.3B was cash and cash equivalents held mostly in Russian rubles.
• Russia equity investment: PMI holds a 23% equity interest in JSC TK Megapolis, its Russian distributor, with a carrying value of $307M as of March 31, 2026.
• Material risk: These developments have or may have a material adverse impact on PMI's business, results of operations, cash flows, financial position, and may result in impairment charges.

• Scope of highly inflationary accounting: Subsidiaries in Argentina, Egypt, Turkey, and Lebanon are subject to highly inflationary accounting under U.S. GAAP, as the cumulative inflation rate in each of those economies meets or exceeds 100% over a three-year period; monetary assets and liabilities denominated in local currencies are remeasured to U.S. Dollar at each balance sheet date, with remeasurement gains and losses recognized in the consolidated statement of earnings.
• Materiality of remeasurement impact: Exchange gains (losses) from remeasurement adjustments related to highly inflationary accounting were not material for the three months ended March 31, 2026 and 2025.

Environmental/social impact: PMI states that the effect of environmental and social laws and regulations on its business, results of operations, and financial condition has not been material to date, but frames consideration of these laws and regulations as an integral part of its risk management process, including active monitoring of pending or existing legislation, regulations, international accords, reporting frameworks, standards, principles, and other forms of guidance.

• IDX free float rule: On March 31, 2026, the Indonesia Stock Exchange issued new regulations requiring listed companies with a market capitalization of at least IDR 5 trillion and a public free float below 12.5% as of March 31, 2026 to increase their free float to at least 12.5% by March 31, 2027 and to at least 15% by March 31, 2028.
• HMS exposure: PMI's Indonesian subsidiary PT Hanjaya Mandala Sampoerna Tbk ("HMS"), listed on the IDX, had only 7.5% of its equity qualifying as public free float under the new regulations as of March 31, 2026, with a listed value of IDR 6.5 trillion (approximately $381M); HMS is assessing the implications of these new requirements.

• KT&G collaboration agreement: On January 30, 2023, PMI announced a fifteen-year exclusive worldwide collaboration with KT&G (excluding South Korea), running to January 29, 2038, covering KT&G's smoke-free brands and product-innovation pipeline, including offerings for low- and middle-income markets; performance-review cycles and volume commitments are confirmed for each three-year period to allow flexibility for evolving market conditions.
• Regulatory requirements: Products sold under the agreement are subject to assessment for regulatory requirements in each launch market, as well as PMI's quality and scientific substantiation standards, with PMI and KT&G to seek any necessary regulatory approvals on a market-by-market basis.
• U.S. market MOU: On July 30, 2024, PMI announced a non-binding memorandum of understanding with KT&G establishing intent to collaborate on regulatory submissions for KT&G heat-not-burn products PMI selects to commercialize in the U.S.; KT&G's new platform products are expected to launch first outside the U.S., after which the partners plan to work on a PMTA submission for U.S. FDA review.

• Financing cash flows: Net cash provided by financing activities was $1.1B in the first three months of 2026, up from $700M in the first three months of 2025.
• Drivers of increase: The improvement was primarily due to higher short-term borrowings (primarily higher commercial paper outstanding) and changes in cash collateral received for derivative instruments, reflecting depreciation of the Euro and Swiss franc versus the U.S. dollar.
• Partial offsets: The increase was partially offset by higher long-term debt repayments and higher dividend payments in 2026.

• Holding company structure: As a holding company, the company depends on dividends and debt repayments from subsidiaries to pay stockholder dividends, service debt, and meet other obligations; principal wholly owned and majority-owned subsidiaries are not currently restricted by long-term debt or other agreements from paying cash dividends or making distributions compliant with law.
• Cash position: Cash and cash equivalents were $5.5B as of March 31, 2026 and $4.9B as of December 31, 2025, with the majority held by foreign subsidiaries, including $2.3B held in Russia in both periods; the company holds no structured or equity-linked products, and cash is mostly held at investment-grade-rated institutions.
• Foreign currency and capital controls: In certain jurisdictions, capital controls and foreign currency exchange constraints affect subsidiaries' ability to settle foreign currency denominated imports and pay dividends, increasing foreign currency devaluation risks that may negatively impact financial condition, net assets, and results of operations.
• Liquidity adequacy: Management expects that the combination of long-term and short-term debt financing, the commercial paper program, committed credit facilities, and cash generated from operations will be adequate to meet liquidity requirements.

• Total debt: Total debt was $51.9B at March 31, 2026, up from $48.8B at December 31, 2025; foreign currency denominated debt and the majority of the $54.2B gross notional amount of derivative financial instruments are subject to foreign currency exchange rate fluctuations, primarily between the Euro and U.S. Dollar, which could impact debt levels and the pace of anticipated deleveraging.
• Credit ratings: At March 31, 2026, Moody's rated PMI P-1 (short-term) / A2 (long-term) with a Stable outlook (subsequently revised to Positive on April 14, 2026); S&P rated A-2 / A- with a Positive outlook; Fitch rated F1 / A with a Stable outlook.
• Commercial paper: PMI has aggregate commercial paper issuance capacity of $8B across U.S. and European programs; at March 31, 2026, $5.5B was outstanding versus none at December 31, 2025, with an average balance of $4.8B during Q1 2026 versus $3B for full-year 2025.
• Revolving credit & term loan: Total committed revolving credit facilities were $6.2B at March 31, 2026, fully undrawn, with no credit rating triggers or material adverse change clauses; the 5-year tranche of the Swedish Match acquisition term loan facility had €2.5 billion (approximately $2.9B) outstanding as of March 31, 2026.
• Shelf registration: On February 6, 2026, PMI filed a shelf registration statement with the SEC permitting the sale of debt securities and/or warrants to purchase debt securities over a three-year period.

• Dividends paid: Dividends paid in the first three months of 2026 were $2.3B.
• Dividend rate: The Board of Directors approved an 8.9% increase in the quarterly dividend to $1.47 per common share during the third quarter of 2025, resulting in a present annualized dividend rate of $5.88 per common share.

• Counterparty standards: The company works predominantly with financial institutions holding strong short- and long-term credit ratings from Standard & Poor's and Moody's; non-investment grade institutions are used only in certain emerging markets to the extent required by local business needs, and the company does not invest in any structured or equity-linked products.
• Cash investment posture: The majority of cash and cash equivalents is currently invested with maturities of less than 30 days.
• Derivatives policy: Derivative financial instruments are used principally to reduce exposure to foreign exchange and interest rate fluctuations by creating offsetting exposures; the company is not a party to leveraged derivatives and does not use derivatives for speculative purposes by policy.

• SFP commercialization risk: Management identifies the continued introduction, commercialization, and growth of smoke-free products (SFPs) as a strategic priority, warning that failure in key markets or systematically could materially adversely impact financial results and future growth prospects.
• Competitive and regulatory disadvantage: If SFP categories where the company holds a competitive advantage are inequitably regulated compared to cigarettes or other SFP categories without regard to the totality of scientific evidence, the company may face a competitive disadvantage; regulators may also prohibit or further restrict the sale and/or marketing of SFPs beyond current restrictions.
• Youth usage and reputational risk: Despite efforts to restrict underage access, significant usage — actual or perceived — of the company's or competitive products among youth or non-nicotine users could damage the company's reputation, prompt more restrictive regulation, and undermine its advocacy for science-based regulatory frameworks.
• Scientific and data challenges: Claims challenging the company's research and clinical data, regardless of merit, may impede the development and maintenance of science-based regulatory frameworks and harm the commercialization of the SFP category broadly.

• Cigarette volume decline drivers: Consumption of tax-paid cigarettes continues to fall due to increased taxes and pricing, governmental actions, diminishing social acceptance of smoking, health concerns, competition, continuing economic and geopolitical uncertainty, and the prevalence of illicit products; management states this could have a material adverse effect on revenues, cash flows, profitability, and the ability to fund the smoke-free transformation.
• Combustible product pressures: Governmental actions combined with reduced social acceptance have resulted in reduced industry volumes for combustible products in many markets, with management expecting these factors to continue reducing combustible consumption levels and to increase down-trading and the risk of counterfeiting, contraband, illicit trade, and cross-border purchases.
• SFP regulatory risk: WHO and FCTC reports and proposals make policy recommendations on smoke-free products (SFPs) that, if implemented, could restrict availability of SFPs or access to accurate information about them; while not binding on Member States or FCTC parties, management notes these documents could ultimately lead to restrictions in current or future markets with a material adverse effect on financial results and growth prospects.
• Regulatory initiatives enumerated: Significant regulatory restrictions under consideration or enacted across jurisdictions include outlet licensing, substantial and increasing tax and duty charges, advertising and marketing bans, plain packaging mandates, generation sales bans, flavor bans, nicotine content restrictions that could de facto ban nicotine products, prohibitions on novel tobacco or nicotine-containing products, and exclusion of tobacco companies from public policy dialogue; management states requirements that commoditize tobacco products or impede adult consumer access to SFPs could have a material adverse effect on financial results and growth prospects.

• FDA authorization risk: The FDA's premarket tobacco product and modified risk tobacco product authorizations covering two versions of IQOS and 20 varieties of ZYN nicotine pouches are subject to strict marketing, reporting, and other requirements, and there is no guarantee the products will remain authorized for sale in the United States or that new versions will receive authorizations, particularly if there is significant uptake in youth or non-nicotine user initiation.
• Compliance exposure: Failure to manage compliance with federal, state, and local laws, regulations, legal agreements, and related interpretations could negatively impact the timing, manner, or success of SFP commercialization in the United States, which could have a material adverse effect on results of operations, revenues, cash flows, or profitability.

Consumer preference risk: The company warns that failure to accurately assess market trends or adapt product offerings to evolving adult consumer demands could result in missed opportunities, supply chain challenges, reduced competitiveness, inefficient expenditures, and adverse impacts on its customer base and brand reputation.

• Regulatory constraint: Restrictions on packaging, labeling, or promotional and advertising activities may limit the company's ability to communicate product innovations designed to address changing adult consumer preferences.
• Potential impact: Any of these factors could have a material adverse effect on results of operations, revenues, cash flows, profitability, and prospects for growth.

• SFP growth predictability: Smoke-free products compete in relatively new categories where the pace of adult smoker adoption may vary by competitive, regulatory, fiscal, and cultural environment, with periods of accelerated and slower growth that are more difficult to predict than the mature cigarette business; geopolitical or macroeconomic events negatively impacting SFP availability or adoption may have a material adverse effect on results of operations.
• Profit growth constraints: Profit growth may be materially adversely impacted if the company is unable to introduce new products, enter new markets, meet demand with increased production capacity, raise prices, or improve the proportion of sales of higher-margin products and in higher-margin geographies.
• Business metrics limitations: Management relies on operating, performance, risk, and financial metrics including market shares, in-market sales, adjusted in-market sales, and SFP users, but these metrics may not accurately reflect all aspects of the business, are based on assumptions and estimates subject to significant uncertainties, and may be substituted for different metrics as the business evolves.
• Talent and organizational risk: Success requires evolving culture, aligning talent and organizational design with increasingly complex business needs, and competing for talent against consumer products, technology, pharmaceutical, and other sectors that enjoy greater societal acceptance, with potential inability to attract, motivate, and retain best global talent posing a risk to strategic goals.

• Premium-price exposure: Because the company's portfolio is weighted toward the premium-price cigarette category, tax regimes based on sales price can place it at a competitive disadvantage in certain markets, with an adverse effect on volume and profitability.
• Tax-driven demand erosion: Increases in cigarette taxes are expected to continue to adversely impact sales via lower consumption levels, a shift from manufactured cigarettes to other combustible tobacco products, a shift from premium-price to mid-price or low-price categories where the company may be under-represented, and migration to cross-border purchases or illicit products such as contraband, counterfeit, and other non-compliant products.
• Material adverse risk: Each of these risks could have a material adverse effect on the company's business, operations, results of operations, revenues, cash flows, and profitability.

• SFP tax differentiation: The company has been largely successful in demonstrating to regulators that smoke-free products (SFPs) are not cigarettes due to the absence of combustion, resulting in SFPs frequently being taxed as a separate category or as other tobacco products at more favorable rates than cigarettes; however, some jurisdictions have considered or adopted taxation rates for SFPs approaching or equal to cigarettes, and failure to maintain differentiation could materially adversely affect SFP unit margins, results of operations, revenues, cash flows, and profitability.
• OECD Pillar Two / effective tax rate risk: Changes in foreign tax laws — including those arising from the OECD's base erosion and profit shifting project — could materially adversely impact the effective tax rate and reduce net earnings; many countries have enacted or taken actions to align with the OECD's global minimum tax framework ("Pillar Two"), effective for taxable years beginning after December 31, 2023, which could also create additional uncertainty around the recovery of deferred tax assets in future periods.
• Geopolitical tax risk: Unstable geopolitical conditions, including Russia's invasion of Ukraine, have prompted certain taxing jurisdictions including the U.S. to propose punitive tax legislation applicable to companies doing business in Russia, which could materially adversely impact the effective tax rate if enacted.
• Repatriation and currency controls: As a U.S. holding company whose most significant source of funds is distributions from non-U.S. subsidiaries, the company faces risk that certain countries could adopt or institute currency exchange controls or other regulations limiting local subsidiaries' ability to convert local currency into U.S. dollars or make payments outside the country, exposing the company to local currency devaluation and business disruption.

• Credit market exposure: The company generates significant cash flows from operations and accesses global credit markets through short- and long-term financing activities, but disruptions in credit markets, limitations on borrowing, slower-than-anticipated debt deleveraging, or a credit rating downgrade could increase future borrowing costs and materially and adversely affect financial condition and results of operations.
• Supplier and customer contagion risk: Tighter or more volatile credit markets may cause business disruptions for certain suppliers, contract manufacturers, or trade customers, which could in turn adversely impact the company's business, results of operations, cash flows, and financial condition.
• Asset impairment risk: The company continuously monitors long-lived assets, reporting units, intangible assets, and equity securities investments for impairment, and tests goodwill and non-amortizable intangible assets annually; impairment determinations are influenced by macroeconomic and geopolitical conditions, regulatory and legal developments, changes in product volume growth rates, pricing strategies, cost bases, discount rates, new product expansion success, competitive activity, and income and excise taxes, and any recognized impairment losses could have a material adverse effect on results of operations or financial position.

• Russia and Ukraine exposure: Russia accounted for around 9% of total cigarette and heated tobacco unit shipment volume and around 6% of total net revenues in 2025; Ukraine accounted for around 2% of shipment volume and around 1% of total net revenues.
• Russia-specific risks: The likelihood of Russian government action against PMI — including legal action, deprivation of rights in or access to Russian or Russia-related assets, or nationalization of foreign businesses or assets (including cash reserves and intangible assets such as trademarks) — is impossible to predict; regulatory constraints entail very complex terms and conditions for any divestment approval, and in the event of a divestment, the ability to fully realize the value of the business would likely be subject to material impairment.
• Ukraine operations: It is not possible to know when and to what extent operations in Ukraine will be fully normalized or to what extent the workforce, facilities, inventory, and other assets will remain intact.
• Broader consequences: The conflict continues to elevate supply chain disruption risk, may inhibit timely sourcing of materials and services, and could increase material and operating costs, reduce product demand, constrain liquidity or access to capital markets, increase currency fluctuation exposure, and heighten cyber-attack risk; management states these developments have and will continue to have a material adverse impact on business, results of operations, cash flows, and financial position, and may result in further impairment charges.

• Third-party reliance: The company increasingly relies on third-parties and their subcontractors/suppliers, sometimes concentrated in a specific geographic area, for product distribution, manufacturing (particularly electronic devices and accessories), and services including finance, commercialization, and IT; diminished direct control may disrupt distribution, harm product quality and availability, and increase costs if third parties must be replaced, while third-party failure to comply with the company's standards or applicable laws could expose it to operational disruptions, legal or regulatory liabilities, reputational damage, or financial losses.
• Environmental and regulatory risks: Extreme droughts, floods, and heatwaves could disrupt manufacturing operations, tobacco-growing areas, and supply chains, while a dynamic and fragmented regulatory landscape across multiple jurisdictions introduces risks including carbon emissions taxation, energy price increases, disclosure and data assurance requirements, new compliance costs, and increased distribution and supply chain costs; government authorities, non-governmental organizations, and other external stakeholders are increasingly filing lawsuits or initiating regulatory actions alleging that public sustainability-related statements are misleading or false.
• Agricultural commodity risk: Tobacco leaf and clove prices can be influenced by supply-demand imbalances, natural disasters, pandemics such as COVID-19, and government-mandated prices and production control programs; the company sources the vast majority of its tobacco from a global network of farmers across multiple countries rather than through commodity markets, meaning disruptions to farmer livelihoods could lead to supply chain disruption, reduced crop quality, unsustainable farming practices, increased regulatory scrutiny, and reputational risks.
• Facility disruption and product recall: A prolonged disruption at or shut-down of production facilities — especially the ZYN production facility in Kentucky, U.S., which currently supplies substantially all of the company's capacity for ZYN sales in the U.S. — due to natural or man-made disasters, equipment malfunction, cybersecurity incidents, or supply chain constraints could limit capacity to meet customer demands and result in lost revenue and market share; separately, a product recall or liability claim due to quality, safety, contamination, manufacturing defects, adulteration, misbranding, or tampering could generate negative publicity and materially adversely affect the business, reputation, results of operations, cash flows, or financial position.

• Tariff exposure: PMI does not currently expect recently imposed U.S. and other-country trade tariffs to materially impact its business, but warns that further tariff or trade-related developments could raise production costs, limit market access, degrade supplier financial condition, and reduce consumer demand through price increases.
• Middle East conflict: The impact of the Middle East conflict on Q1 results was immaterial, but PMI flags uncertainty around duration and potential for inflationary pressure on transportation, energy, and other input costs, broader geopolitical instability, and security or cybersecurity incidents.
• Currency risk: Results are translated into U.S. dollars at average exchange rates, exposing revenues, operating income, and EPS to foreign currency fluctuations; capital controls or foreign currency exchange constraints in certain jurisdictions may also impair subsidiaries' ability to settle import payables or remit dividends and royalties, increasing devaluation risk and potentially affecting leverage ratios, liquidity, and profitability.
• Inflation: Elevated inflation has increased and may continue to increase expenses across direct materials, wages, energy, transportation, and logistics, as well as financing costs through higher benchmark interest rates; sustained inflation across major markets may also reduce consumer purchasing power and demand for PMI's products.

• Tobacco litigation exposure: Damages claimed in some tobacco-related litigation are significant and in certain cases range into the billions of U.S. dollars; the FCTC encourages litigation against tobacco product manufacturers, and an unfavorable outcome or settlement could materially adversely affect consolidated results of operations, cash flows, or financial position in a particular fiscal quarter or fiscal year.
• SFP legal challenges: The company faces administrative and legal challenges related to certain SFP activities, including allegations concerning product classification, advertising and distribution restrictions, corporate communications, product coach activities, scientific substantiation, product liability, antitrust, and unfair competition.
• Oral nicotine product litigation: As of March 2024, the company began facing litigation related to oral nicotine products before certain courts in the United States, with new cases anticipated to continue to be filed; outcomes may affect SFP commercialization and public communication activities and performance in one or more markets.

• Governmental investigations: Active investigations cover contraband cigarette shipments, unlawful pricing, underpayment of income taxes/customs/excise taxes, false and misleading use of descriptors, unlawful advertising or distribution, product safety or specification, and unlawful labor practices; outcomes cannot be predicted and an unfavorable result could materially adversely affect the business.
• Intellectual property risks: Inadequate protection of trademarks, designs, copyrights, patents, trade secrets, and other IP rights globally — or third-party infringement claims regardless of merit — could divert management attention, expose the company to significant litigation costs and damages, and impede development, manufacture, or commercialization of SFPs, with potential material adverse effect on revenues and profitability.
• Cannabinoid/Wellness business: The Wellness business is researching and developing medical, pharmaceutical cannabinoids, and non-recreational cannabinoid products including CBD; commercialization is currently limited and exploratory, and is subject to a constantly evolving legal and regulatory environment where non-compliance could result in criminal, civil, or tax liability.

• Counterfeiting exposure: Management states that Marlboro is believed to be the most heavily counterfeited international cigarette brand, though the company cannot quantify the associated revenue loss; counterfeit smoke-free products additionally fall outside the company's scientific validation procedures and are unlikely to meet its product quality standards.
• Illicit trade risk: Revenues may be materially adversely affected by counterfeiting, contraband, cross-border purchases, non-tax-paid volume produced by local manufacturers, and other non-compliant or illicit cigarettes or smoke-free products, with reputational harm to smoke-free products cited as an additional risk with consumers, regulators, and other stakeholders.

• Cybersecurity incident history: PMI states that immaterial third-party information security breaches have occurred frequently within the last three years, but none have been material to its business, financial condition, or results; the company acknowledges it cannot provide assurance that future incidents will not have a material adverse effect.
• Third-party and supply chain exposure: PMI's reliance on third-party service providers for information systems creates vulnerability to "supply chain" style cyberattacks, and the company maintains both a cybersecurity risk program and a third-party cybersecurity risk management program, though it states these may not be comprehensive or sufficient to mitigate all risks.
• Regulatory and privacy compliance risk: Failure to comply with laws including the EU General Data Protection Regulation, various U.S. state and federal laws, and AI regulations across multiple jurisdictions could result in substantial fines, legal challenges, and reputational harm; PMI maintains a cyber liability insurance policy but notes it may not be sufficient to prevent a material adverse effect.
• AI-specific risks: PMI and its business partners are increasingly incorporating AI-based solutions, introducing risks including flaws, biases, data sourcing issues, operational disruptions, intellectual property and data privacy concerns, and a new attack surface for cybercriminals to exploit and use to scale and automate targeted attacks.

• Integration and operational risks: Acquisitions, divestitures, joint ventures, and investments present risks including diversion of management's attention, difficulties integrating or separating personnel, IT, financial and other systems, inability to implement control environment processes, adverse effects on customer and supplier relationships, and potential disputes with buyers, sellers, or partners, as well as contingent liabilities and litigation.
• Regulatory requirements: Transactions are subject to antitrust and competition laws in the United States, the European Union, the United Kingdom, and elsewhere; the company may be required to obtain regulatory approvals or satisfy legal requirements that could result in additional costs, delays, or inability to complete transactions.
• Divestiture-specific risks: Additional risks include finding appropriate buyers, executing transactions on favorable terms, separating divested operations with minimal impact to remaining operations, managing transitional or long-term service arrangements, and potential impairment charges, any of which could materially and adversely affect financial condition and operating results.