PM 10-Q: Smart Summary

• Entity and operations: Philip Morris International Inc. (PMI) is a Virginia-incorporated holding company whose subsidiaries, affiliates, and licensees are primarily engaged in the manufacture and sale of cigarettes and smoke-free products (SFPs), defined as products providing nicotine without combusting tobacco — including heat-not-burn, e-vapor, and oral smokeless — grouped under the term 'Smoke-Free Business' (SFB), which also includes wellness products and consumer accessories.
• Segment realignment: Effective January 1, 2026, PMI replaced its four geographic segments with three new reportable segments — International Smoke-Free, International Combustibles, and U.S. (including wellness business unit Aspeya) — reflecting an evolved organizational model with two primary business units: International and U.S.
• Reclassifications: Certain prior year amounts were reclassified to conform to the new segment structure; the consolidated statement of earnings includes a new 'Corporate expenses and other' caption, with 'Other' capturing 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.
• Basis of presentation: The interim condensed consolidated financial statements are unaudited, prepared in conformity with U.S. GAAP on a consistent basis, with all adjustments being of a normal recurring nature; interim results are not necessarily indicative of results for the full year.

• Consumer accessories businesses held-for-sale / divested (Q4 2025 through Q2 2026): PMI classified net assets of certain businesses — primarily consumer accessories products acquired as part of the Swedish Match AB acquisition in 2022 — as held-for-sale during Q4 2025, with $142M of disposal group assets included in other current assets and $59M of disposal group liabilities included in other accrued liabilities in the December 31, 2025 consolidated balance sheet; PMI also completed the sale of one business in Q4 2025, recording a combined pre-tax loss of $94M (including a $6M reclassification of currency translation losses from other comprehensive losses — $3M in Q4 2025 and $3M in Q2 2026), with the loss recorded in marketing, administration and research costs; fair value of the disposal group was determined using a market approach based on expected net sales proceeds.
• Remaining held-for-sale businesses sold (Q2 2026): PMI completed the sale of the remaining businesses previously classified as held-for-sale for total consideration of $121M, comprising $87M of cash proceeds received at closing and $34M of deferred consideration recorded in other receivables and other assets.

• Plan capacity: Under the 2022 Performance Incentive Plan (up to 25 million shares), 15,097,356 shares remained available for grant as of June 30, 2026; under the 2017 Non-Employee Directors Plan (up to 1 million shares), 836,062 shares remained available.
• RSU compensation expense: RSU-related compensation expense was $113M for the six months ended June 30, 2026 (vs. $97M in 2025), and $41M for the three months ended June 30, 2026 (vs. $34M in 2025), with associated tax benefits of $43M and $11M for the six- and three-month periods, respectively; all recorded in corporate expenses and other costs.
• RSU activity and unrecognized cost: 1,285,510 RSU shares were granted in the six months ended June 30, 2026 at a weighted-average grant date fair value of $182.60 per share; 1,405,563 RSU awards vested with a grant date fair value of approximately $145M and total fair value at vesting of approximately $255M; unrecognized compensation cost on non-vested RSUs was $290M as of June 30, 2026, expected to be recognized over approximately three years.
• PSU compensation expense and activity: PSU-related compensation expense was $53M for the six months ended June 30, 2026 (vs. $60M in 2025); 327,880 PSU shares were granted at weighted-average grant date fair values of $182.81 (other performance factors) and $236.97 (TSR, via Monte Carlo using 3.5% risk-free rate and 21.7% expected volatility); 816,829 PSUs vested with a grant date fair value of approximately $94M and total fair value at vesting of approximately $149M; unrecognized compensation cost on non-vested PSUs was $62M as of June 30, 2026, expected to be recognized over approximately three years.

• Total benefit (income) costs: Net pension and other employee benefit costs swung to income of ($10M) for the six months ended June 30, 2026, versus a cost of $23M for the same period in 2025; for the three months ended June 30, 2026, the figure was ($5M) versus $11M in 2025, driven primarily by net pension income of ($81M) and ($40M) for the respective periods.
• Net periodic pension cost components: For the six months ended June 30, 2026, service cost was $111M, interest cost was $118M, expected return on plan assets was ($244M), and amortization of net loss was $46M, yielding net periodic pension cost of $30M — down from $74M in the comparable prior-year period (primarily non-U.S. based defined benefit retirement plans).
• Employer contributions: PMI made $67M in employer contributions to pension plans during the six months ended June 30, 2026, and currently anticipates making approximately $79M in additional contributions during the remainder of 2026, subject to changes in tax and benefit laws, asset performance, interest rates, and currency rates.

• Goodwill movement: Total goodwill declined from $17.3B at December 31, 2025 to $16.9B at June 30, 2026, with the entire $347M decrease driven by currency translation; by segment, International Smoke-Free fell $186M to $3.7B, International Combustibles fell $152M to $4.7B, and U.S. fell $9M to $8.5B (net of accumulated impairment losses of $556M related to PMI's wellness unit Aspeya).
• 2026 annual impairment review: PMI completed its annual goodwill and non-amortizable intangible asset impairment review in Q2 2026; no impairment charges were required, and each reporting unit had fair values substantially in excess of carrying values. PMI continues to monitor the Wellness reporting unit given risks from changes in assumptions, unfavorable clinical trial results, failure to obtain regulatory approvals, and other market factors.
• 2025 impairment charge: In Q2 2025, PMI recorded a goodwill impairment charge of $41M — the entirety of goodwill in the reporting unit — related to consumer accessories products acquired as part of the Swedish Match AB acquisition in 2022, driven by updated financial projections showing estimated fair value below carrying value.
• Other intangible assets: Total other intangible assets, net declined from $10.9B at December 31, 2025 to $10.2B at June 30, 2026, reflecting $503M of amortization and impairment and $203M of currency and other movements; the largest amortizable assets are reacquired commercialization rights for IQOS in the U.S. (net $1.6B, 3-year remaining life) and customer relationships and other (net $2.6B, 9-year remaining life); non-amortizable assets of $4.7B substantially consist of ZYN trademarks, other trademarks from Indonesia and Mexico acquisitions, and a tobacco manufacturing license from Egypt. Estimated amortization expense for each of the next five years is approximately $1B or less.

• Notional exposure: Total gross notional amounts of outstanding derivative contracts were $52.2B at June 30, 2026 vs. $50B at December 31, 2025, comprising designated foreign exchange contracts ($29.2B / $29.1B), designated interest rate contracts ($4.8B / $4.7B), designated commodity contracts ($3M / $3M), and non-designated foreign exchange contracts ($18.1B / $16.3B).
• Fair value — gross vs. net: Total gross derivative assets were $1.2B (June 30, 2026) vs. $653M (December 31, 2025); total gross derivative liabilities were $1B vs. $2B. After netting financial instruments and cash collateral, net asset positions were $47M vs. $26M and net liability positions were $29M vs. $157M. All derivatives are classified within Level 2.
• P&L impact: For the six months ended June 30, 2026, total pre-tax gain recognized in other comprehensive earnings was $799M (vs. loss of $2.3B in 2025) and total gain recognized in earnings was $558M (vs. loss of $960M in 2025). For the three months ended June 30, 2026, total OCI gain was $132M (vs. loss of $1.7B) and earnings gain was $181M (vs. loss of $928M). Net investment hedge OCI swings were principally related to Euro/U.S. dollar rate changes.
• Fair value hedge & AOCI reclassification: The carrying amount of fair-value-hedged debt (fixed-to-floating interest rate contracts on U.S. dollar-denominated fixed-rate debt) was $6.1B at June 30, 2026, including $1.4B related to discontinued hedges; the cumulative fair value adjustment included in that carrying amount was $12M. PMI expects $171M of derivative gains currently in accumulated other comprehensive losses to be reclassified to earnings within the next 12 months, substantially offset by the hedged transactions' earnings impact. Cash flow hedges cover forecasted transactions with contracts expiring at various dates through December 2028.
• Other investments & contingent features: Indonesian rupiah-denominated bonds in Indonesia are classified within Level 2 with a fair value of $24M at June 30, 2026; gross unrealized pre-tax gains/losses for the six and three months ended June 30, 2026 were immaterial. Derivative instruments contain no contingent features.

• 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 EPS calculation pursuant to the two-class method.
• Antidilutive awards: For both the 2026 and 2025 computations, there were no antidilutive stock awards.

• Segment reorganization: Effective January 1, 2026, PMI reorganized its reportable segments by product groupings and geographical region into 3 segments: International Smoke-Free, International Combustibles, and U.S. (which includes the Wellness unit, Aspeya). Prior to this change, segments were organized by region.
• Primary profitability measure: The CODM's primary measure of segment profitability changed from regional operating income to segment gross profit. Marketing, administration and research costs (including restructuring charges), interest expense net, corporate expenses and other, and income taxes are not allocated to segments.
• Asset and capex disclosure: Information about total assets and capital expenditures by segment is not disclosed because such information is not reported to or used by PMI's CODM; segment goodwill and other intangible assets are disclosed separately in Note 5.
• Revenue disaggregation: PMI also disaggregates net revenues by product category (smoke-free and combustible tobacco) within each segment; U.S. smoke-free revenues of $1.3B (six months ended June 30, 2026) include $118M from Wellness, and U.S. combustible revenues of $167M reflect cigarettes and other combusted tobacco products sold domestically.

Legal Proceedings

• Kelly v. Philip Morris International Inc., et al. (filed March 19, 2024; trial December 7, 2026): Putative ZYN nicotine pouch class action; discovery closed June 26, 2026; plaintiff Maultsby's class certification motion and defendants' summary judgment motions pending; no loss accrued.
• Bates-Ferreira v. Philip Morris International Inc., et al. (filed March 29, 2024): ZYN nicotine pouch putative class action stayed pending class certification ruling in Kelly; PMI previously dismissed without prejudice; no loss accrued.
• Norris v. Philip Morris International Inc., et al. (filed July 30, 2024): ZYN nicotine pouch putative class action stayed pending class certification ruling in Kelly; PMI's motion to dismiss denied without prejudice; no loss accrued.
• Mayor and City Council of Baltimore v. Philip Morris International Inc. et al (filed May 7, 2025): City alleges deceptive ZYN marketing violating Consumer Protection Ordinance; remand motion fully briefed but stayed pending appellate ruling in unrelated case; no loss accrued.
• Austin Siegert v. Philip Morris International Inc. et al (filed September 26, 2025): ZYN nicotine pouch putative class action stayed pending class certification ruling in Kelly; no loss accrued.
• PM Italia anti-corruption trial (indictment September 21, 2020; oral decision July 3, 2026): All charges against PM Italia dismissed and company acquitted; BAT Italia's EUR50 million (approximately $57M) civil claim dismissed; written reasoning expected by end of September 2026, with 45-day appeal window.
• Brazilian indirect tax assessments (notices December 2024–March 2026): Brazilian Tax Authority assessed approximately BRL 137 million (~$27M) for 2020, BRL 211 million (~$42M) for 2021, and BRL 369 million (~$74M) for 2022–2023 fiscal years; affiliate disagrees and will defend vigorously.
• FTKK patent actions against Sojitz/PMJL (November 2024–December 2025): FTKK filed 12 patent infringement actions and 8 preliminary injunction actions covering TEREA and SENTIA consumables; 3 rulings issued rejecting FTKK's claims; 8 actions withdrawn; remaining actions at various stages.
• National Health Insurance Service v. KT&G, et al. (filed April 14, 2014): Korea health care cost recovery case seeking damages for 3,484 cancer patients; appellate court dismissed on January 15, 2026; plaintiff appealed to Supreme Court of Korea on February 4, 2026.
• Attorney General of Brazil v. Souza Cruz Ltda., et al. (filed May 21, 2019): Health care cost recovery case seeking treatment cost reimbursement and moral damages; closing arguments filed May–July 2026.

• Effective tax rates: PMI's effective tax rates for the six months and three months ended June 30, 2026 were 20.5% and 22.3%, respectively, up from 19.5% and 19.0% for the comparable periods ended June 30, 2025.
• H1 2026 rate drivers: The six months ended June 30, 2026 rate was unfavorably impacted by deferred tax expense for unrealized foreign currency gains on intercompany loans related to the Swedish Match acquisition financing ($97M), partly offset by a decrease in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($68M).
• H1 2025 rate drivers: The six months ended June 30, 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 ($373M), partially offset by an increase in deferred tax liabilities related to the fair value adjustment of equity securities held by PMI ($115M) and recognition of current tax expense related to the potential disallowance of intercompany transactions in Indonesia ($46M).
• Indonesia tax receivables: Subsidiaries of PMI in Indonesia, principally PT Hanjaya Mandala Sampoerna Tbk, have recorded income tax receivables of 3.6 trillion Indonesian rupiah (approximately $200M) relating to corporate income tax assessments paid to avoid potential penalties for domestic and other intercompany transactions for the years 2017 to 2023, with objection letters filed and assessments being challenged at various levels in court; these receivables are included in other assets as of June 30, 2026 and December 31, 2025.
• Legislative and Pillar Two impact: The One Big Beautiful Bill Act signed July 4, 2025 did not have a material impact on PMI's 2025 consolidated financial statements; PMI has also determined that the OECD Pillar Two global minimum tax did not have a material impact on its 2025 consolidated financial statements and should not be expected to have a material impact on its 2026 consolidated financial statements.

• Short-term borrowings: At June 30, 2026, total short-term borrowings were $3.3B, comprising $2.7B in commercial paper at an average rate of 3.7% and $689M in bank loans at an average rate of 5.4%, compared to $168M in bank loans only (at 10.3%) and no commercial paper at December 31, 2025. PMI's commercial paper programs in the U.S. and Europe have an aggregate issuance capacity of $8B. Fair values of short-term borrowings approximate carrying value at both dates.
• Long-term debt: Carrying value of long-term debt declined to $45.8B at June 30, 2026 from $48.7B at December 31, 2025, with U.S. dollar notes (1.750% to 6.375%, average 4.719%) of $37.4B and euro notes (0.125% to 3.750%, average 2.039%) of $6.6B as the largest components; current portion was $3.4B. Fair value of outstanding long-term debt (excluding finance leases) at June 30, 2026 was $43.2B (Level 1) and $1.7B (Level 2).
• Debt issuances: In the first six months of 2026, PMI issued two tranches of U.S. dollar notes — $750M at 4.125% due April 2029 and $750M at 4.875% due April 2036, both issued April 2026 with interest payable semi-annually commencing October 2026 — with net proceeds designated for general corporate purposes including commercial paper repayment or refinancing of 2026 maturities.
• Euro term loan and revolving credit facilities: On June 29, 2026, PMI prepaid €1.0 billion (approximately $1.1B) under the 5-year tranche of the Swedish Match acquisition term loan, leaving €1.5 billion (approximately $1.7B) outstanding expiring June 23, 2027. Total committed revolving credit facilities were $6.2B at June 30, 2026, with no borrowings outstanding under those facilities; uncommitted short-term credit arrangements totaled approximately $4.2B at June 30, 2026 (versus approximately $3.9B at December 31, 2025).

• Components at June 30, 2026: Accumulated other comprehensive losses totaled ($11.7B), composed of currency translation adjustments of ($10.6B), pension and other benefits of ($1.4B), and derivatives accounted for as hedges of $346M.
• Period-over-period change: The total loss position improved from ($12.3B) at December 31, 2025 and from ($13.2B) at June 30, 2025, driven primarily by narrowing in currency translation adjustments and pension and other benefits losses.
• Reclassifications: Movements in each component and related tax impacts are reflected in the condensed consolidated statements of comprehensive earnings for the six months and three months ended June 30, 2026 and 2025.

• Equity method investments: PMI had total equity method investments of $1B at June 30, 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 mainly attributable to equity method goodwill, convertible debt instruments, and definite-lived intangible assets. The definite-lived intangibles and other assets difference of $161M in both periods is amortized on a straight-line basis. Year-to-date dividends received from equity method investees were $17M at June 30, 2026 and $203M at December 31, 2025.
• Key equity method investees: PMI holds a 23% interest in JSC TK Megapolis (TKM), its Russian distributor, with a book value of $800M including $500M in cumulative foreign currency translation losses; an indirect ~25% interest in Société des Tabacs Algéro-Emiratie (STAEM), an Algerian joint venture, with a book value of $700M including $300M in cumulative FX translation losses; and a 14.7% indirect interest in Eastern Company (Eastern), Egypt's largest cigarette manufacturer, for which PMI also guarantees certain credit facilities and bank loan liabilities up to a maximum of $385M through 2034.
• RBH impairment: PMI recorded a non-cash impairment charge of $511M in Q2 2026 on its investment in Rothmans, Benson & Hedges Inc. (RBH) after RBH's updated five-year financial projections reflected current industry dynamics; the carrying value fell to $51M at June 30, 2026 from $569M at December 31, 2025, with cumulative impairments and downward adjustments of $3.1B as of June 30, 2026. PMI continues to account for RBH as an equity security without readily determinable fair value under ASC 321.
• Other equity securities and related-party revenues: PMI's Level 1 equity securities had a fair value of $983M at June 30, 2026 ($1.3B at December 31, 2025), with unrealized pre-tax loss of ($308M) (($240M) net of tax) for the six months ended June 30, 2026. Related-party net revenues totaled $2.4B for the six months ended June 30, 2026 ($2.1B in the prior-year period), of which $1.5B was from Megapolis Group; related-party receivables were $1B at June 30, 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 June 30, 2026 and 2025) and non-servicing (where PMI provides no administrative support after sale).
• Cumulative receivables sold: Cumulative trade receivables sold, including excise taxes, were $5.3B for the six months ended June 30, 2026, versus $5.6B for the same period in 2025; receivables outstanding with unaffiliated financial institutions were $600M and $700M as of June 30, 2026 and 2025, respectively.
• Loss on sale: The loss on sale of trade receivables, recorded within marketing, administration and research costs, was $14M for the six months ended June 30, 2026 ($17M in 2025) and $7M for the three months ended June 30, 2026 ($9M in 2025).
• Cash flow treatment: Net proceeds from sold receivables are included in cash provided by operating activities, and PMI states operating cash flows were positively impacted by the amount of trade receivables sold and derecognized from the condensed consolidated balance sheets.

• FIP charges (six months ended June 30, 2026): PMI recorded $30M in pre-tax restructuring charges for the six months ended June 30, 2026 ($6M for the three months ended June 30, 2026) under the Further Integration Program (FIP), a U.S. reorganization announced in Q1 2026; charges included employee separation and other employee-related costs of $25M and asset impairment charges of $5M. PMI expects total FIP pre-tax restructuring charges for full-year 2026 to be approximately $50M.
• FIP scope: The FIP includes planned closure of the Richmond office, transition of certain roles to a newly established Business Solutions Center (BSC) in Tampa, Florida and PMI U.S. headquarters in Stamford, Connecticut, plus closure of a cigar manufacturing facility in Dothan, Alabama with consolidation of cigar production into PMI's Dominican Republic footprint.
• Germany factory closures (prior-year charges): For the six months and three months ended June 30, 2025, PMI recorded $243M in pre-tax restructuring charges related to the closure of factories in Berlin and Dresden operated by Philip Morris Manufacturing GmbH and F6 Cigarettenfabrik GmbH & Co. KG; charges comprised pension and employee separation costs of $127M, contract termination and other costs of $24M (cash), and asset impairment costs of $92M (non-cash, primarily property lease and machinery and equipment).
• Restructuring liability rollforward: The restructuring liability decreased from $115M at January 1, 2026 to $89M at June 30, 2026, reflecting net charges of $25M, cash payments of $45M, and a currency/other reduction of $6M; future cash payments for restructuring activities incurred to date are anticipated to be substantially paid by end of 2027.

• Program structure: PMI has engaged unaffiliated global financial institutions that offer a voluntary SCF program to some suppliers, under which suppliers may elect, at their sole discretion, to sell PMI's payment obligations to these institutions; PMI does not participate in negotiations, has no economic interest in these agreements, and provides no guarantees or securities under the SCF program.
• Balance sheet classification: All outstanding payable amounts related to SCF-participating suppliers are recorded in accounts payable, and associated payments are included in cash flows from operating activities; payment terms generally do not exceed 120 days.
• Outstanding balances: As of June 30, 2026 and December 31, 2025, the total amount due to suppliers participating in the SCF program was $1B and $1.1B, respectively.

ASU 2024-03 (Expense Disaggregation): 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; it 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 description: 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 positions in many, while smoke-free products were available for sale in 109 markets as of June 30, 2026, led by the IQOS, ZYN, and VEEV brands.
• Smoke-free investment and regulatory milestones: Since 2008, PMI has invested over $16B to develop and commercialize smoke-free products; in November 2022 it acquired Swedish Match AB; as of April 30, 2024, PMI holds full U.S. rights to commercialize IQOS; the FDA has authorized marketing of General snus, ZYN nicotine pouches, and versions of IQOS devices and consumables, including first-ever Modified Risk Tobacco Product authorizations in their respective categories.
• Segment realignment: Effective January 1, 2026, PMI implemented an evolved two-primary-business-unit organizational model (International and U.S.), replacing four geographic segments with three new reportable segments: International Smoke-Free, International Combustibles, and U.S. (including wellness business unit Aspeya).
• Cost and revenue 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, manufacturing, shipping and handling costs, and third-party device costs; marketing, administration and research costs cover marketing, selling, general and administrative, and new product development expenses; corporate expenses and other include foreign currency gains/losses and compensation expense related to restricted share units and performance share units.

• Six-month net revenues: Net revenues of $21.3B for the six months ended June 30, 2026 increased by $1.9B, or 9.8%, from the comparable 2025 amount; excluding currency and acquisitions/divestitures, revenues grew 5.3%, driven by favorable pricing mainly in international combustibles, partly offset by unfavorable volume/mix in international combustibles and U.S. volumes, notwithstanding higher international smoke-free volumes.
• Q2 net revenues: Net revenues of $11.2B for the three months ended June 30, 2026 increased by $1.1B, or 10.4%, from Q2 2025; excluding currency and acquisitions/divestitures, revenues grew 7.6%, driven by favorable pricing in international combustibles and favorable volume/mix from international smoke-free volumes, notwithstanding adverse international combustibles mix.
• Six-month diluted EPS: Reported diluted EPS declined 8.4% to $3.36 for the six months ended June 30, 2026 from $3.67 in the comparable 2025 period; the largest drag was a $511M non-cash impairment of the RBH equity investment ($0.33 per share), a $240M after-tax fair value loss on equity security investments in India and Sri Lanka ($0.16 per share), and $503M in amortization of intangibles ($0.25 per share net of tax), partially offset by favorable currency ($0.22 per share), operations ($0.21 per share), and a lower tax rate ($0.11 per share).
• Q2 diluted EPS: Reported diluted EPS declined 7.7% to $1.80 for the three months ended June 30, 2026 from $1.95 in Q2 2025, with the RBH impairment ($0.33 per share) the primary drag, partly offset by operations ($0.19 per share); a $98M after-tax gain on equity security investments ($0.06 per share) partially mitigated prior-year's $267M comparable gain ($0.17 per share).

Critical accounting estimates: No material changes since the Annual Report on Form 10-K for the fiscal year ended December 31, 2025; the filing cross-references that document for the full disclosure.

• Full-year 2026 volume outlook: Management currently expects broadly stable to slightly growing (previously broadly stable) total PMI cigarette and SFP shipment volume, with high-single digit SFP shipment volume growth and a cigarette shipment volume decline of 2% to 3% (previously around 3%).
• Smoke-free growth drivers: The 8.3% increase in smoke-free product volumes was driven by HTU (+9.4%) and E-vapor (+72.0%), partly offset by Oral SFP, which declined 8.8%.

• Industry volume: Estimated industry volume (excluding China and the U.S.) for cigarettes and HTUs increased by 0.8% during the quarter.

• Total shipment volume: Total shipment volume increased 2.5% to 205.2 billion equivalent units for the three months ended June 30, 2026, driven by a 7.5% increase in smoke-free products, mainly due to IQOS, and complemented by a resilient combustible segment, notably in markets where SFPs are banned or have a limited market presence.
• E-vapor growth: E-vapor was the fastest-growing category at 55.1% growth (0.9B to 1.3B units), while HTU grew 7.6% (38.8B to 41.8B units) and cigarettes grew 1.1% (155.2B to 156.9B units).
• Oral SFP decline: Oral smoke-free products were the only category to contract, declining 1.2% from 5.2B to 5.1B units.

• International Smoke-Free net revenues: Rose 14.2% to $3.9B in Q2 2026 (from $3.4B in Q2 2025); excluding currency and acquisitions/divestitures, net revenues grew 11.8%, driven by favorable volume/mix from higher HTU and e-vapor volumes and a favorable pricing variance due to HTUs.
• Gross profit: Increased 17.1% to $2.7B (from $2.3B); excluding currency and acquisitions/divestitures, gross profit grew 14.6%, attributable to the same factors as net revenues.
• German HTP surcharge: Net revenues in 2024, 2025, and 2026 were negatively impacted by the supplemental tax surcharge on heated tobacco products in Germany (effective 2022); PMI accounts for the surcharge as a reduction in net revenues. Following adverse rulings by the CJEU (March 14, 2024) and the Fiscal Court in Dusseldorf (May 15, 2024), PMI submitted an appeal on June 19, 2024. To avoid future interest accrual, PMI paid EUR 721 million (approximately $751M) in outstanding amounts on January 14, 2025; a favorable outcome would positively impact future operating results and cash from operations for amounts paid, while an unfavorable outcome would negatively impact future cash from operations for unpaid interest.

• Net revenues: For the six months ended June 30, 2026, net revenues increased by 19.2% to $7.7B from $6.5B; excluding currency and acquisitions/divestitures, growth was 13.7%, driven by favorable volume/mix from higher HTU and e-vapor volumes and a favorable pricing variance due to higher HTU pricing.
• Gross profit: Gross profit increased by 22.6% to $5.4B from $4.4B; excluding currency and acquisitions/divestitures, growth was 16.9%, attributable to the same factors as net revenues.

• Overall volume: International Smoke-Free shipment volume increased 8.0% to 44.7 billion equivalent units in Q2, with broad-based growth across markets, notably Taiwan, Romania and Greece; for the six months year-to-date, volume increased 9.9% to 88.8 billion equivalent units, notably due to Taiwan, Italy and Global Travel Retail.
• Heat-not-burn (IQOS): IQOS grew Q2 shipment volumes by 7.6%; HTU adjusted IMS volume grew 5.1%, reflecting broad-based growth notwithstanding pantry de-loading and initial consumer adjustment following the April 1 excise-driven price increase in Japan and the characterizing flavor ban in Poland — excluding Japan and Poland, adjusted IMS grew 10%; YTD IQOS shipment volumes grew 9.4%.
• Oral Smoke-Free: Modern oral volume grew 14.7% (26.3% excluding the Nordics) to 0.6 billion pouches in Q2, but was more than offset by continued declines in the legacy snus business in the Nordics, resulting in a total oral SFP volume decrease of 7.0%; YTD modern oral volume grew 17.0% to 1.1 billion pouches.
• E-vapor (VEEV): VEEV quarterly shipments grew 55.1% in Q2, with VEEV now holding the #1 closed pod position in Europe with continued growth notably in Germany, Romania and Greece; YTD VEEV shipments grew 72.0%.

• Quarterly net revenues: Net revenues grew 9.8% to $6.5B (Q2 2026 vs. $5.9B Q2 2025); excluding currency and acquisitions/divestitures, growth was 6.4%, driven by a favorable pricing variance partially offset by unfavorable mix as growth in developing economies more than offset declines in Europe.
• Quarterly gross profit: Gross profit grew 11.5% to $4.4B (vs. $3.9B), or 8.0% excluding currency and acquisitions/divestitures, with drivers consistent with net revenues.
• Six-month net revenues: Net revenues grew 8.4% to $12.1B (vs. $11.2B); excluding currency and acquisitions/divestitures, growth was 3.8%, reflecting a favorable pricing variance more than offsetting an unfavorable volume/mix.
• Six-month gross profit: Gross profit grew 10.7% to $8.2B (vs. $7.4B), or 6.1% excluding currency and acquisitions/divestitures, with drivers consistent with net revenues.

• Q2 volume: International Combustibles cigarette shipment volume increased 1.1% to 156.9 billion units in Q2, with notable increases in Turkey, Indonesia, and Egypt.
• Category share: Cigarette category volume share stood at 25.3% (flat versus the prior year) despite adverse market mix; Marlboro gained 0.3 percentage points to match its record category share of 11.0%.
• YTD volume: For the six months year-to-date, cigarette shipment volume decreased 1.9% to 294.2 billion units, with notable decreases in Russia, Mexico, and Germany.

• Quarterly net revenues: Net revenues decreased 0.7% (down 0.9% excluding currency and acquisitions/divestitures) to $856M in Q2 2026 from $862M in Q2 2025, primarily reflecting broadly stable ZYN revenues, declines in the cigar business, and unfavorable phasing dynamics in Wellness.
• Quarterly gross profit: Gross profit decreased 9.2% (down 9.0% excluding currency and acquisitions/divestitures) to $555M from $611M, driven by the same revenue factors plus higher manufacturing costs linked to the expansion of the U.S. footprint.
• Six-month net revenues: Net revenues decreased 16.1% (down 16.5% excluding currency and acquisitions/divestitures) to $1.5B from $1.8B, reflecting unfavorable first-quarter dynamics with ZYN volumes impacted by distributor and trade inventory movements and an unfavorable price comparison due to low levels of ZYN promotional activity in the prior year.
• Six-month gross profit: Gross profit decreased 27.9% (down 27.8% excluding currency and acquisitions/divestitures) to $935M from $1.3B, attributable to the same revenue factors and higher manufacturing costs.

• Q2 volume: U.S. smoke-free product shipment volume increased by 1.8% in Q2, with U.S. oral smoke-free products shipment volume up 1.8% to 3.5 billion equivalent units, including a 1.8% increase in ZYN shipments to 2.9 billion pouches, despite an inventory tailwind in Q2 2025.
• ZYN offtake & competitive context: ZYN offtake volumes were flat to slightly growing versus the prior year in a growing category, largely as a result of the uneven competitive landscape.
• ZYN portfolio expansion: In June, ZYN ULTRA (9mg and 11mg moist variants at a lower price-per-pouch) shipped for the first time, alongside additional flavors within the ZYN dry flagship lineup; management intends to accelerate U.S. investments in the second half to maximize long-term brand value and prepare for the future launch of IQOS ILUMA.
• YTD volume: For the six months year-to-date, U.S. smoke-free product shipment volume decreased by 10.0%, with U.S. oral smoke-free products shipment volume down 10.1% to 6.3 billion equivalent units, including an 11.2% decline in ZYN shipments to 5.2 billion pouches.

• Regulatory risks: The company identifies regulatory restrictions on product formulation, packaging, marketing, registration, and sale of tobacco or other nicotine-containing products or related devices as a key challenge, with potential outcomes including reduced competitiveness, elimination of adult consumer communication, or product bans.
• Fiscal and competitive pressures: Excessive excise tax increases, discriminatory tax structures, intense competition, and unfair competition from non-tax paid volume by certain manufacturers are cited as ongoing challenges.
• Illicit trade: Counterfeit, contraband, and other non-compliant or illicit tobacco and nicotine-containing products are identified as a business challenge.
• Legal exposure: Pending and threatened litigation (referenced in Part I, Item 1, Note 9 — Contingencies) is listed as a material challenge to the business.

• Strategic rationale: Management acknowledges that smoking causes serious diseases and that SFPs do not burn tobacco, therefore containing significantly lower levels of HPHCs than cigarette smoke; the company's strategic priorities are to develop and commercialize products presenting less risk of harm to adult smokers who switch versus continued cigarette smoking, and to educate those smokers to switch.
• SFP portfolio: The company offers three product platforms — heat-not-burn products (including IQOS, commercialized in blade and induction heating versions, and BONDS by IQOS using external resistive heating); oral tobacco and nicotine products (snus and modern oral pouches, including ZYN, acquired via Swedish Match in 2022 and described as the leading smoke-free product brand in the U.S. market); and e-Vapor products (battery-powered devices vaporizing tobacco-free liquid solution, with patented flavor-extraction technology).
• Cigarette portfolio management: As long as a significant number of adult smokers continue smoking cigarettes, management states that responsible leadership of the category is critical; the company aims to maintain its competitive cigarette position through selective investment while judiciously reallocating resources to SFPs and streamlining the cigarette portfolio.
• Consumer retention data: Management states that, in a stable regulatory environment, only a very small percentage of adult smokers who convert to IQOS switch back to cigarettes; the company also states it continues to explore new growth opportunities beyond its current business, including products that do not contain nicotine or tobacco.

• Market availability: As of June 30, 2026, PMI's smoke-free products were available for sale in 109 markets, with commercialization efforts focused on consumer retail experience, guided consumer trials, customer care, digital communication programs, and e-commerce.
• U.S. IQOS rollout: Following the termination of the commercial relationship with Altria Group, Inc. as of April 30, 2024, PMI now 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.
• 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.
• Other SFP portfolio: BONDS devices and BLENDS consumables are available in 8 markets (since 2022); VEEV vaping products have been launched in 51 markets (since August 2020); and modern oral pouches (including ZYN, acquired via Swedish Match) are currently available in 61 markets.

• Tax headwinds: Excise, sales, and other tax increases and discriminatory tax structures are expected to continue adversely impacting profitability through lower consumption and consumer down-trading to non-premium, discount, or illicit products; management asserts such policies undermine public health, government revenue objectives, and the adult smoker transition to smoke-free products (SFPs).
• Germany HTP excise dispute: The CJEU ruled on March 14, 2024 that Germany's additional excise tax on heated tobacco products 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; and to avoid further interest accumulation, in January 2025 PM Germany provisionally paid the additional HTP excise tax relating to 2022, 2023, and 2024, with an oral hearing expected at the earliest by the fourth quarter of 2026.
• Japan multi-year tax plan: In March 2025, Japan adopted a multi-year plan harmonizing HTP excise tax with cigarettes in two steps (first on April 1, 2026; second on October 1, 2026), with the first harmonized rate increase occurring in April 2027 and predictability on future excise rate increases for all tobacco product categories through April 2029.
• EU Tobacco Excise Directive revision: In July 2025, the EU Commission published a legislative proposal revising the EU Tobacco Excise Directive to set minimum excise rates for combustible tobacco and expand scope to smoke-free products (heated tobacco, e-cigarettes, nicotine pouches) with differentiated tax treatment; the proposal requires unanimous EU Member State approval and contemplates an implementation date of January 1, 2028, with an additional four-year transitional period for categories including heated tobacco and nicotine pouches.

• 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 the company operates in; the CoP11 session in November 2025 adopted no new specific decisions on novel or emerging tobacco or nicotine products, though parties were invited to "consider comprehensive regulatory options regarding tobacco and nicotine product components, and related external components that increase environmental harms, taking into consideration public health impacts." CoP12 will take place in 2027.
• WHO study group reports: The WHO study group on tobacco product regulation published its ninth and tenth reports in August 2023 and November 2025, respectively, covering ENDS, electronic non-nicotine delivery systems, and HTPs; the reports make policy recommendations that, if implemented, could restrict both the availability of these products and access to accurate information about them, though WHO reports and FCTC guidelines are not binding on WHO Member States or Parties.
• Company's regulatory position: Management advocates for regulatory frameworks based on a continuum of risk where non-combustible products fall below combustible cigarettes, supports differentiated regulation and taxation between cigarettes and less harmful alternatives, mandated accurate health warnings, minimum age laws, advertising restrictions, and measures to reduce illicit trade, while opposing excessive or prohibitive regulations that could prevent adult smokers from accessing smoke-free products or trigger illicit trade.

• SFP sales prohibitions: Multiple significant markets have prohibited or severely restricted the sale of one or more category of smoke-free products (SFPs), including Brazil, Canada, France, India, Mexico, Turkey, Australia, Thailand, and Vietnam; in the U.S., some states and municipalities have introduced stringent restrictions on the sale of certain SFPs, including those authorized by the FDA.

• EU TPD and characterizing flavor ban: The EU banned characterizing flavors in heated tobacco products effective October 23, 2023 (all EU Member States have transposed the directive); management anticipated limited near-term volume impact based on prior consumer switching behavior, and experience to date is "generally consistent with this expectation," though some short-term disruption occurred in Italy; the European Commission launched a stakeholder consultation for revision of the TPD in May 2026 and is expected to issue a potential legislative proposal by end of 2026.

• Generational bans: On April 29, 2026, the UK government adopted a bill banning the sale of tobacco products — including HTPs, herbal smoking products, and cigarette papers — to those born on or after January 1, 2009, and enabling the government to ban cigarette filters; the ban does not apply to products that do not contain tobacco, such as e-vapor products and nicotine pouches.

• Plain packaging, ingredient bans, and other restrictions: Plain packaging laws have been adopted in Australia, France, Saudi Arabia, and Turkey, with other countries considering similar measures; broader ingredient bans (including menthol and flavors) have been adopted in Brazil (pending a court decision), Thailand, Hong Kong, Canada, and Turkey; the EU Single-Use Plastics Directive requires tobacco manufacturers to cover costs of public collection systems for tobacco product filters under EPR schemes, with management not estimating a material impact to its EU business from compliance.

• IQOS MRTP renewal: On April 17, 2026, the FDA renewed the exposure modification orders for IQOS 2.4 and IQOS 3.0 devices and related consumables, with a stated expiration date in April 2031; 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.
• ZYN MRTP authorization: In June 2026, the FDA concluded that a modified risk claim is scientifically accurate for all 20 ZYN nicotine pouch varieties, authorizing them to be marketed with the claim "Using ZYN instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis"; these 20 products are described as the only nicotine pouch products on the U.S. market authorized as MRTPs.
• Unauthorized product commercialization posture: 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; the company states it has commercialized and may decide to commercialize products without a marketing granted order where it believes FDA enforcement would be inconsistent with its public guidance, present practices, or the Family Smoking Prevention and Tobacco Control Act.
• International authorizations: Taiwan authorization to commercialize IQOS took effect October 11, 2025; in February 2025, the Greek Ministry of Health authorized a substantially similar reduced-toxicant claim and disclaimer for IQOS ILUMA devices with seven TEREA variants (Amber, Bronze, Russet, Sienna, Silver, Teak, and Yellow).

• Regulatory scientific findings: Multiple governmental agencies have published assessments concluding that heat-not-burn products, including IQOS, are probably less harmful than cigarettes while still harmful to health, including: the UK Committee on Toxicity (December 2017), Public Health England (February 2018), the German BfR (May 2018, finding 80–99% reductions in selected HPHCs), the Dutch RIVM (May 2018), the Korean KFDA (June 2018, confirming approximately 90% lower levels of nine tested HPHCs but declining to establish reduced harm), the Eurasian Economic Commission (November 2018), the China CNTQST (January 2019, cautioning that reduced emissions cannot be interpreted as harm/risk reduction in the same proportion), the Belgian SHC (April 2020), and the Belgian SHC again on e-cigarettes (June 2022).
• Tax differentiation risk: The company states it has been largely successful in demonstrating to regulators that SFPs are not cigarettes, resulting in more favorable tax rates than cigarettes, but notes that some jurisdictions have considered or adopted taxation regimes with SFP rates approaching or equal to cigarettes, with no guarantee regulators will maintain current levels of differentiation.
• Scientific debate risk: The company acknowledges it may not be able to prevent third-party dissemination of false, misleading, or unsubstantiated information about SFPs, which may cause confusion among adult smokers and affect their decision to switch from continued smoking to SFPs.
• Regulatory uncertainty: The company states there can be no assurance it will succeed in efforts to replace cigarettes with SFPs, that regulation will allow commercialization in all markets, or that SFPs will be permitted to be treated differently from cigarettes; it also notes that the foregoing scientific findings of government agencies may not be indicative of the measures those authorities could take in regulating its products.

• Legal and regulatory challenges: The company faces administrative and legal challenges related to certain SFP activities, including allegations concerning product classification; advertising, distribution and 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 efforts to commercialize SFPs and communicate with the public, and states that outcomes may affect SFP commercialization and public communication activities and performance in one or more markets.

• Illicit trade scope: PMI estimates illicit trade may account for as much as 16% of global cigarette consumption (excluding China and the U.S.), encompassing counterfeit, contraband, and "illicit whites"; illicit trade in the EU accounted for more than 10% of total cigarette consumption in 2025, mainly driven by counterfeit, and is increasingly targeting SFPs.
• Anti-illicit trade measures: PMI devotes substantial resources to combating illicit trade, including engagement with governments and business partners, legal remedies to protect intellectual property, and cooperation with governmental authorities against fraudulent imports; for nicotine pouches specifically, measures include 'know-your-customer' and 'anti-diversion' governance, volume monitoring, tracking and tracing, product security, and market monitoring both online and offline, with PMI and Swedish Match affiliates issuing cease-and-desist letters, awareness communications, and limiting or terminating sales to certain customers involved in illicit resale outside intended markets such as Scandinavia, the U.S., and other markets.
• Regulatory developments: 73 Parties, including the EU, have ratified the FCTC Protocol to Eliminate Illicit Trade in Tobacco Products (in force since September 2018); the fourth Meeting of the Parties concluded in November 2025 with no restrictions decided on duty-free tobacco sales or coverage of electronic nicotine and non-nicotine delivery systems, and MOP5 will take place in 2027; EU tracking and tracing regulations were extended to 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 administered by the U.S., EU, Switzerland, UK, and other jurisdictions, including those administered by the U.S. Department of the Treasury's Office of Foreign Assets Control and the U.S. Department of State; PMI does not do business or sell products in Belarus, Iran, North Korea, Cuba, or Syria.
• Russia-related restrictions: Following the conflict in Ukraine beginning February 24, 2022, the U.S., EU, UK, Switzerland, Canada, Australia, New Zealand, Singapore, South Korea, Japan, and other countries introduced extensive sanctions and export controls targeting Russian financial, banking, oil, military, aviation, and marine sectors; the U.S., EU, Switzerland, and Japan specifically banned 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 and similar personal electric vaporizing devices to Russia.
• TKM equity interest: PMI holds a 23% equity interest in JSC TK Megapolis (TKM), its distributor in Russia, which as of December 31, 2025 had a carrying value of $303M; following forced localization proceedings initiated by the Russian Ministry of Industry and Trade, MDBV's shares in TKM were transferred during Q4 2024 and MDBV was dissolved in December 2025; sanctions have been imposed on former non-majority shareholder Mr. Igor Kesaev by the EU, U.S., UK, Switzerland, Canada, Australia, New Zealand, and Ukraine.
• U.S. tariff environment: The U.S. has adopted new and increased tariffs on countries and specific goods, and PMI expects the global tariff environment to remain volatile throughout 2026; PMI states it is actively monitoring developments and adapting operations and compliance practices accordingly.

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

• Tariff impact to date: The impact of new tariffs on the company's business was not material to its condensed consolidated financial statements during the first six months of 2026.
• Current positioning: Management currently believes the company is well-positioned to mitigate potential supply chain challenges due to 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.
• Ongoing volatility: The company expects the global tariff environment to remain volatile throughout 2026 and states it is actively monitoring developments to evaluate potential impacts on its business, financial condition, and suppliers.

• Impact to date: The Middle East conflict had an immaterial impact on the company's business in the first half of 2026, with increased energy prices and some disruption in energy supply in a number of markets observed but no discernible shift in consumer behavior.
• Forward risk: Management notes the situation remains uncertain in both duration and potential impact and could lead to increased inflationary pressures affecting consumer behavior as well as transportation, energy, and other input costs, though longer-term implications are described as difficult to assess.

• Ukraine operations: PMI's main priority is employee safety; commercial activities continue in select locations, with the Kharkiv factory still suspended. PMI has invested over $30M in a new production facility in the Lviv region, where local production commenced in April 2024. As of June 30, 2026, Ukrainian operations had approximately $600M in total assets, excluding intercompany balances.
• Russia operations: PMI is continuously assessing the evolving situation, noting that any divestment faces complex regulatory approval requirements and international restrictions, and that full value realization in a divestment would likely be subject to material impairment. As of June 30, 2026, Russian operations had approximately $5.6B in total assets (excluding intercompany balances), of which approximately $2.8B was cash and cash equivalents held mostly in Russian rubles.
• Russia distributor equity stake: PMI holds a 23% equity interest in JSC TK Megapolis, PMI's distributor in Russia.
• Material impact risk: These developments have or may have a material adverse impact on PMI's business, results of operations, cash flows, and financial position, and may result in impairment charges.

• Economies affected: Highly inflationary accounting was applied to subsidiaries in Argentina, Egypt, Turkey, and Lebanon for the six months ended June 30, 2026 and 2025, as the cumulative three-year inflation rate in each economy meets or exceeds 100%; monetary assets and liabilities in local currencies are remeasured to U.S. Dollar at each balance sheet date, with gains and losses recognized in the consolidated statement of earnings.
• Remeasurement impact: Exchange gains (losses) from remeasurement adjustments under highly inflationary accounting were not material for the six months ended June 30, 2026 and 2025.
• Egypt change: As of July 1, 2026, PMI will no longer account for its Egyptian subsidiaries as highly inflationary and will cease using the U.S. dollar as their functional currency; the impact of this change is not expected to be material to consolidated financial statements.

Environmental and social laws: PMI states that the effect of environmental and social laws and regulations has not been material to its business, results of operations, or financial condition to date, though consideration of these laws and regulations is an integral aspect of PMI's risk management process, and PMI actively monitors the existing and potential impact of significant pending or existing legislation, regulations, international accords, reporting frameworks, standards, principles, and other forms of guidance related to environmental and social matters.

• IDX free float regulations: On March 31, 2026, the Indonesia Stock Exchange issued new free float rules 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 current position: As of June 30, 2026, 7.5% of PT Hanjaya Mandala Sampoerna Tbk ("HMS") equity — a PMI Indonesian subsidiary listed on the IDX — qualified as public free float under the new regulations, with a listed value of IDR 5.8 trillion (approximately $351M); HMS is assessing the implications of these new requirements.

• Long-term exclusivity 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, with three-year performance-review cycles tied to volume commitments.
• U.S. regulatory collaboration: 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., with new platform products expected to launch outside the U.S. first, followed by a PMTA submission for U.S. FDA review.

Equity investments disclosure: Details on equity investments are discussed in Note 13. Related Parties – Equity Investments and Other to the condensed consolidated financial statements; no standalone quantitative disclosure is provided in this subsection.

• Investing cash swing: Net cash provided by investing activities was $23M in the first six months of 2026, versus net cash used in investing activities of $2.8B in the comparable 2025 period — a favorable variance driven primarily by changes in cash collateral posted for derivative instruments (reflecting depreciation of the Euro and the Swiss franc versus the U.S. dollar) and favorable movements in investments in debt securities.
• Capital expenditures: 2026 capital expenditures were primarily related to ongoing investments in smoke-free product manufacturing capacity; management expects total 2026 capital expenditures of $1.4B to $1.6B, predominantly supporting the smoke-free business.

• Financing cash flows: Net cash used in financing activities was $3.9B in the first six months of 2026, compared to $900M in the first six months of 2025.
• Drivers of increase: The higher outflow was primarily due to lower long-term debt issuances, higher long-term debt repayments, and higher dividend payments in 2026, partially offset by higher net short-term borrowings and changes in cash collateral received for derivative instruments, the latter reflecting depreciation of the Euro and the Swiss franc versus the U.S. dollar.

• Cash and cash equivalents: As of June 30, 2026 and December 31, 2025, cash and cash equivalents were $6B and $4.9B, respectively, the majority of which was held by foreign subsidiaries, including $2.8B and $2.3B, respectively, held in Russia.
• Primary liquidity sources: The principal source of liquidity is cash generated from operations, supplemented by long-term and short-term debt financing, a commercial paper program, and committed credit facilities; management expects this combination to be adequate to meet liquidity requirements.
• Holding company structure: As a holding company, the company depends on dividends and debt repayments from subsidiaries; principal wholly owned and majority-owned subsidiaries are not currently limited by long-term debt or other agreements in their ability to pay cash dividends or make other compliant distributions.
• 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.

• Credit ratings: At June 30, 2026, Moody's rates PMI P-1 (short-term) / A2 (long-term) with a Positive outlook (revised from Stable on April 14, 2026); S&P rates A-2 / A- with a Positive outlook; Fitch rates F1 / A with a Stable outlook.
• Total debt: $49.1B at June 30, 2026, up from $48.8B at December 31, 2025; foreign currency denominated debt and $52.2B gross notional amount of derivative financial instruments are subject to foreign currency exchange rate fluctuation, primarily between the Euro and U.S. Dollar, which could impact debt levels and the pace of anticipated deleveraging; a shelf registration statement filed February 6, 2026 with the SEC permits sale of debt securities and/or warrants to purchase debt securities over a three-year period.
• Commercial paper: Aggregate issuance capacity of $8B across U.S. and European programs; $2.7B outstanding at June 30, 2026 vs. none at December 31, 2025; average balance of $4.7B during the first six months of 2026 vs. $3B for full-year 2025.
• Revolving credit facilities: Total committed facilities of $6.2B at June 30, 2026 with no borrowings outstanding and the entire committed amount available; facilities contain no credit rating triggers, material adverse change clauses, or collateral-posting provisions, and management expects to continue to meet covenants.

• Stock awards: Discussed in Note 3 (Stock Plans) to the condensed consolidated financial statements as of June 30, 2026.
• Dividends: Dividends paid in the first six months of 2026 were $4.6B; the Board approved an 8.9% increase in the quarterly dividend to $1.47 per common share during Q3 2025, resulting in a present annualized dividend rate of $5.88 per common share.

• Counterparty risk: 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 majority of cash and cash equivalents is currently invested with maturities of less than 30 days.
• Investment policy: The company does not invest or hold investments in any structured or equity-linked products, reflecting a self-described conservative approach to choosing financial counterparties and financial instruments.
• Derivative instruments: Derivatives 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, by policy, does not use derivative financial instruments for speculative purposes.

• SFP commercialization risk: Management identifies the introduction, commercialization, and growth of smoke-free products (SFPs) as the company's strategic priority, warning that failure in key markets or systematically may 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 — or if other market participants are more successful in commercialization — the company may be at a competitive disadvantage; regulatory restrictions have already, and could further, limit SFP commercialization.
• Third-party conduct and perception risks: Actions by other market participants, such as inappropriate marketing of e-vapor products to underage individuals, as well as alleged health consequences associated with certain SFPs, may unfavorably impact public opinion and mischaracterize the health consequences of the company's SFPs to consumers, regulators, and policymakers, potentially impeding science-based regulatory frameworks.
• Underage access exposure: Despite efforts to restrict underage access, technological, operational, and/or regulatory developments might undermine prevention mechanisms; significant usage — actual or perceived — among underage individuals or non-nicotine users could harm the company's reputation, make regulation more restrictive, and significantly impact its advocacy for science-based regulatory frameworks.

• Drivers of decline: Consumption of tax-paid cigarettes is declining due to increased taxes and pricing, governmental actions, diminishing social acceptance of smoking, health concerns, competition, continuing economic and geopolitical uncertainty, and the continuing prevalence of illicit products; this decline could have a material adverse effect on revenues, cash flows, and profitability, and in turn on the company's ability to fund its smoke-free transformation.
• Regulatory pipeline: Governmental actions have reduced industry volumes for combustible products in many markets, with the company expecting such factors to continue reducing combustible consumption levels and to increase down-trading and the risk of counterfeiting, contraband, illicit trade, and cross-border purchases; a broad range of regulatory initiatives have been contemplated, proposed, introduced, or enacted globally, including outlet licensing restrictions, substantial and increasing tax and duty charges, advertising and marketing bans, plain packaging mandates, generational sales bans, flavor bans, and restrictions or prohibitions on novel tobacco or nicotine-containing products.
• Smoke-free product (SFP) risk: Governmental actions to restrict or entirely prohibit certain SFP categories have been considered or adopted in various jurisdictions; reports and proposals from the WHO and the FCTC make policy recommendations on SFPs that, if implemented, could restrict availability of these products and access to accurate information about them, potentially having a material adverse effect on financial results and growth prospects.
• Commoditization concern: Requirements that lead to commoditization of tobacco products or impede adult consumers' ability to access and convert to SFPs, as well as any significant increase in the cost of complying with new regulatory requirements, could have a material adverse effect on financial results and growth prospects.

• FDA authorization risk: The FDA's premarket tobacco product and MRTP authorizations of two versions of IQOS and 20 varieties of ZYN nicotine pouches are subject to strict marketing, reporting, and other requirements; there is no guarantee products will remain authorized or that new versions will receive authorizations, particularly if there is significant uptake in underage or non-nicotine user initiation.
• Compliance dependency: Commercialization of products in the United States depends on successfully managing compliance with federal, state, and local laws, regulations, legal agreements, and related interpretations; failure to resolve disputes could negatively impact timing, manner, or success of SFP commercialization and have a material adverse effect on results of operations, revenues, cash flows, and profitability.
• Competitive pressures: The company faces highly competitive conditions across all aspects of its business, with competitive position susceptible to weak economic conditions, competitors' lower-price or innovative products, higher product taxes, unfair competition, more effective adoption of artificial intelligence tools and processes by competitors, and product regulation that diminishes differentiation or disproportionately impacts SFP commercialization relative to competitors.
• Competitor structural advantages: Some competitors have different profit, volume, and regulatory objectives; some international competitors may be less susceptible to currency exchange rate changes; and some competitors may sell products in circumvention of applicable regulations, all of which could have a material adverse effect on profitability and results of operations.

• Smoke-free product predictability: SFPs compete in relatively new categories where the pace of adult smoker adoption may vary by competitive, regulatory, fiscal, and cultural environment; periods of accelerated and slower growth may be harder to predict than the mature cigarette business, and geopolitical or macroeconomic events negatively impacting SFP availability or adoption may have a material adverse effect on results of operations.
• Profitability growth constraints: Profit growth may be materially adversely impacted if the company is unable to introduce new products, enter new markets successfully, meet demand with increased production capacity, raise prices, or improve the proportion of sales of higher-margin products and in higher-margin geographies.
• Key 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 — that are based on assumptions and estimates subject to significant uncertainties; these metrics may not accurately reflect all aspects of the business and may change or be substituted as the business evolves.
• Talent and organizational risk: The company competes for talent with consumer products, technology, pharmaceutical, and other sectors that enjoy greater societal acceptance, and may be unable to attract, motivate, and retain the best global talent with the right degree of diversity, experience, and skills to achieve its strategic goals.

• Cigarette tax exposure: Significant increases in cigarette-related taxes have been proposed or enacted and are likely to continue to be proposed or enacted in numerous jurisdictions, which may disproportionately affect profitability and competitive positioning.
• Premium-price portfolio disadvantage: Because the portfolio is weighted toward the premium-price cigarette category, tax regimes based on sales price can place the company at a competitive disadvantage in certain markets, adversely affecting volume and profitability.
• Volume erosion channels: Increases in cigarette taxes are expected to continue to have an adverse impact on cigarette sales through lower consumption, 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 a shift from local sales to cross-border purchases or illicit products such as contraband, counterfeit, and other non-compliant products.
• Materiality statement: 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: To date, 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 regimes with SFP rates 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: 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; changes arising from this framework, as well as changes in taxing jurisdictions' administrative interpretations, decisions, policies, or positions, could have a material adverse impact on the company's effective tax rate, thereby reducing net earnings, and could subject deferred tax asset recovery to additional uncertainty.
• 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 affect the effective tax rate if enacted.
• Repatriation and currency controls: The company is a U.S. holding company whose most significant source of funds is distributions from non-U.S. subsidiaries; certain countries have adopted or could institute currency exchange controls and other regulations limiting or prohibiting 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 risks.

• Credit market risk: Cash flows from operations and access to global credit markets support current financing activities, but disruptions in credit markets, limitations on borrowing capacity, slower-than-anticipated debt deleveraging, or a downgrade of current credit ratings could increase future borrowing costs and materially and adversely affect financial condition and results of operations.
• Supplier/customer contagion: Tighter or more volatile credit markets may cause business disruptions for suppliers, contract manufacturers, or trade customers, which could in turn adversely impact business, results of operations, cash flows, and financial condition.
• Asset impairment monitoring: Long-lived assets, reporting units, intangible assets, equity securities investments, goodwill, and non-amortizable intangible assets are continuously or annually monitored for impairment; key value drivers include macroeconomic and geopolitical conditions, regulatory and legal developments, product volume growth rates, pricing strategies, cost bases, discount rates, new product expansion success, competitive activity, and income and excise taxes — with any determined impairment potentially having a material adverse effect on results of operations or financial position.

• Russia/Ukraine exposure: 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% of shipment volume and around 1% of total net revenues.
• Russia-specific risks: The company cites inability to predict likelihood of Russian government action against PMI — including legal action, deprivation of or access to Russian or Russia-related assets, or nationalization of foreign businesses or assets (including cash reserves and trademarks); any divestment would likely be subject to material impairment, and deconsolidation of the Russian business remains a possibility.
• Ukraine operational uncertainty: The company states it is not possible to know when or to what extent operations in Ukraine can be fully normalized, or to what extent its workforce, facilities, inventory, and other assets will remain intact.
• Broader financial and operational risks: The conflict elevates risks of supply chain disruption, sanctions, currency restrictions, punitive tax law changes, embargoes, increased cyber-attacks, and adverse macroeconomic and currency effects, any of which could impair liquidity, capital market access, manufacturing, or distribution capabilities, and may result in further impairment charges.

• Third-party reliance: The company increasingly relies on third-parties and their subcontractors/suppliers for product distribution, manufacturing (particularly electronic devices and accessories), and services including finance, commercialization, and IT processes; diminished direct control — including over availability of semiconductors and other critical electronic components — may disrupt distribution, harm product quality and availability, and impair responsiveness to changing market conditions, while failure to renew arrangements on satisfactory terms could disrupt distribution in certain markets or significantly increase costs.
• Third-party compliance risks: Third parties are expected to adhere to applicable standards and laws related to product quality, responsible marketing, data protection, and labor practices, but the company's ability to monitor and enforce compliance is inherently limited, exposing it to operational disruptions, legal or regulatory liabilities, reputational damage, or financial losses.
• Environmental and regulatory risks: Increased frequency and intensity of extreme droughts, floods, and/or heatwaves could disrupt supply chains and operations at factories, warehouses, and other premises; additionally, evolving environmental policies — including carbon emissions taxation, energy price increases, and disclosure requirements — across highly dynamic and fragmented jurisdictions may elevate costs, create compliance risks, and expose the company to lawsuits or regulatory actions alleging misleading sustainability-related statements.
• Agricultural supply and facility disruption: Tobacco leaf and clove prices and quality are subject to supply-demand imbalances, natural disasters, government-mandated prices, and production control programs, and disruptions to the company's global farmer network could lead to supply chain disruption or reputational risks; separately, a prolonged disruption at key production facilities — especially the ZYN production facility in Kentucky, U.S., which currently supplies substantially all capacity for ZYN sales in the U.S. — could limit capacity, delay shipments and revenue, and result in significant expense, while a product recall due to quality, safety, contamination, or other concerns could have a material adverse effect on business, reputation, results of operations, cash flows, or financial position.

• Tariff exposure: Management does not currently expect recent and anticipated trade tariffs imposed by the U.S. and other countries to materially impact the business, but flags the volatile global tariff environment as a source of potential risk including increased production costs, limited market access, supplier financial condition degradation, and price increases that could reduce consumer demand.
• Middle East conflict: The impact on PMI's business in the first half of 2026 was immaterial, but management notes the duration and potential impact remain uncertain and could lead to inflationary pressures affecting consumer behavior, transportation, energy and other input costs, broader geopolitical instability, or security/cybersecurity incidents.
• Currency risk: Results are translated into U.S. dollars at average exchange rates, and foreign currency fluctuations may reduce net revenues, operating income, and EPS; capital controls or foreign currency exchange constraints in certain jurisdictions may also affect subsidiaries' ability to settle foreign currency-denominated imports or pay dividends and royalties, with potential negative impact on net assets, leverage ratios, cash flows, liquidity, and profitability.
• Inflation: Inflationary pressures have and may continue to increase expenses including direct materials, wages, energy, transportation, and logistics costs, while also raising financing costs via benchmark interest rate increases and potentially reducing consumer purchasing power and demand for PMI's products.

• Tobacco/nicotine litigation scope: Litigation related to tobacco and/or nicotine products is pending in certain jurisdictions where the company operates, with damages in some cases ranging 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-related 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; as of March 2024, litigation related to oral nicotine products commenced before certain courts in the United States, and new cases are anticipated to continue to be filed.
• Ongoing exposure: The outcomes of these matters may affect SFP commercialization and public communication activities and performance in one or more markets; management expects these or similar challenges to continue as the company expands efforts to commercialize SFPs and communicate with the public.

• Investigations scope: Active governmental investigations cover allegations including contraband cigarette shipments, unlawful pricing, underpayment of income taxes/customs duties/excise taxes, false and misleading usage of descriptors, unlawful advertising or distribution, product safety or specification issues, and unlawful labor practices; the company states it cannot predict outcomes or whether additional investigations may be commenced, and that an unfavorable outcome could materially adversely affect the business.
• Intellectual property risk: The company identifies inadequate IP protection, third-party infringement or misappropriation, and competitor IP claims as risks that could divert management attention, generate significant litigation costs and damages, impede development or commercialization of SFPs, and materially adversely affect revenues and profitability, including the ability to convert adult smokers to SFPs in affected markets.
• Wellness/cannabinoid risk: The Wellness business is researching and developing medical, pharmaceutical, and non-recreational cannabinoid products (including CBD) in a limited and exploratory commercialization stage; success depends on compliance with a constantly evolving legal and regulatory environment, and non-compliance could result in criminal, civil, or tax liability.

• Counterfeiting risk: The company states that Marlboro is the most heavily counterfeited international cigarette brand, though it cannot quantify the revenue lost as a result of this activity.
• Smoke-free product exposure: Counterfeit smoke-free products are not subject to the company's scientific validation procedures, are unlikely to meet its product quality standards, and may materially adversely affect the reputation of those products with consumers, regulators, and other stakeholders.
• Broader illicit trade: 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.

• Cybersecurity incident history: PMI discloses 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 of operations; PMI maintains a cybersecurity risk program and a third-party cybersecurity risk management program, though it provides no assurance these programs comprehensively identify or sufficiently mitigate all risks.
• Regulatory and data-privacy exposure: Failure to comply with laws such as the EU General Data Protection Regulation, various U.S. state and federal laws, and other jurisdictional privacy, data, and AI regulations could result in substantial fines, legal challenges, and reputational harm; PMI maintains a cyber liability insurance policy but states 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, which carry risks including flaws, biases, data sourcing issues, misconfiguration, and potential compromise of information technology networks; AI also presents a new attack surface that cybercriminals may exploit and enables scaling and automation of targeted attacks, any of which could have a material adverse effect on PMI's business, reputation, financial condition, or operating results.

• Acquisition and integration risks: The company evaluates and may pursue acquisitions, joint ventures, or investments that fit strategic objectives, but identifies risks including management distraction, inability to integrate personnel/IT/financial systems, adverse effects on customer and supplier relationships, contingent liabilities, and litigation.
• Regulatory and antitrust exposure: 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 and may be unable to do so, potentially resulting in additional costs, delays, or inability to complete transactions.
• Divestiture-specific risks: Divestiture activities carry additional risks around finding appropriate buyers, executing on favorable terms, separating operations with minimal disruption to remaining operations, managing transitional or long-term service arrangements, and potential impairment charges.