Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion should be read in conjunction with the other sections of this Annual Report on Form 10-K, including the consolidated financial statements and related notes contained in Item 8, and the discussion of risks and cautionary factors that may affect future results in Item 1A. Risk Factors .
Description of Our Company
We are a leading international consumer goods company, actively delivering a smoke-free future. We are evolving our portfolio for the long term to include products outside of the tobacco and nicotine sector. Our current product portfolio primarily consists of cigarettes and smoke-free products, including heat-not-burn, nicotine pouch and e-vapor products. Since 2008, we have invested over $16 billion to develop, scientifically substantiate and commercialize innovative smoke-free products for adults who would otherwise continue to smoke, with the goal of completely ending the sale of cigarettes. This investment includes the building of world-class scientific assessment capabilities, notably in the areas of pre-clinical systems toxicology, clinical and behavioral research, as well as post-market studies. In November 2022, we acquired Swedish Match AB ("Swedish Match") – a leader in oral nicotine delivery – creating a global smoke-free combination led by the companies’ IQOS and ZYN brands. As of April 30, 2024, we hold the full rights to commercialize IQOS in the U.S. after reaching an agreement to end our U.S. commercial relationship covering IQOS with Altria Group, Inc. in 2022. Following a robust science-based review, the U.S. Food and Drug Administration (the "FDA") has authorized the marketing of Swedish Match’s General snus and ZYN nicotine pouches and versions of PMI’s IQOS devices and consumables - the first-ever such authorizations in their respective categories. Versions of IQOS devices and consumables and General snus also obtained the first-ever Modified Risk Tobacco Product ("MRTP") authorizations from the FDA. We describe the MRTP orders in more detail in the "Business Environment" section of this Item 7.
Following the sale of Vectura Group Ltd. on December 31, 2024, we updated our segment reporting in January 2025 by including the ongoing Wellness results (previously referred to as Wellness & Healthcare) in the Europe segment. In addition, we renamed our “PMI Duty Free” business to “PMI Global Travel Retail” effective in the first quarter of 2025. As a result of this change, our segment that includes our duty free business was renamed East Asia, Australia & PMI Global Travel Retail (“EA, AU & PMI GTR”).
As of December 31, 2025, our four geographical segments were as follows:
• Europe Region, including our Wellness business;
• South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region ("SSEA, CIS & MEA");
• East Asia, Australia, and PMI Global Travel Retail (“EA, AU & PMI GTR”); and
• Americas Region.
As communicated in the fourth quarter of 2025, with our smoke-free business now operating at scale across our regions, including substantial growth from our U.S. business, we have implemented an evolved organizational model with two primary business units: International and U.S. The updated organizational structure is designed to enhance our agility and to support our journey to become a smoke-free company under the leadership of Jacek Olczak, Group CEO of PMI. This change was implemented effective January 1, 2026, and as a result we realigned our reportable segments accordingly. The four geographic segments have been replaced with three new reportable segments: International Smoke-Free, International Combustibles, and U.S. As of the first quarter of 2026, our reporting will reflect these changes.
Our cigarettes are sold in approximately 170 markets, and in many of these markets they hold the number one or number two market share position. We have a wide range of premium, mid-price and low-price brands. Our portfolio is comprised of both international and local brands.
Smoke-Free Business ("SFB”) is the term PMI uses to refer to all of its smoke-free products. SFB also includes wellness products, as well as consumer accessories, such as lighters and matches.
Smoke-free products (also referred to herein as "SFPs") is the term PMI uses to refer to all of its products that provide nicotine without combusting tobacco, such as heat-not-burn, e-vapor, and oral smokeless, and that therefore generate far lower levels of harmful chemicals. As such, these products have the potential to present less risk of harm versus continued smoking.
IQOS, ZYN and VEEV are the leading brands in our SFPs portfolio. As of December 31, 2025, our smoke-free products were available for sale in 106 markets.
With a strong foundation and significant expertise in life sciences, PMI has a long-term ambition to expand into wellness areas. The business strategy of our wellness unit, Aspeya, currently focuses on developing and commercializing primarily oral consumer wellness offerings. This includes medical and non-recreational cannabinoid products (including CBD), in line with applicable regulatory requirements, though any revenue related to cannabinoids is expected to be negligible in the near to medium term.
We use the term net revenues to refer to our operating revenues from the sale of our products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. Our net revenues and operating income are affected by various factors, including the volume and mix of products we sell, the price of our products and changes in currency exchange rates. Mix is a term used to refer to the proportionate value of premium-price brands to mid-price or low-price brands in any given market (product mix). "Mix" can also refer to the proportion of shipment volume in more profitable markets versus shipment volume in less profitable markets (geographic mix).
Our cost of sales consists primarily of: tobacco leaf, non-tobacco raw materials, labor and manufacturing costs; shipping and handling costs; and the cost of devices produced by third-party electronics manufacturing service providers. Estimated costs associated with device warranty programs are generally provided for in cost of sales in the period the related revenues are recognized.
Our marketing, administration and research costs include the costs of marketing and selling our products, other costs generally not related to the manufacture of our products (including general corporate expenses), and costs incurred to develop new products. The most significant components of our marketing, administration and research costs are marketing and sales expenses and general and administrative expenses.
Executive Summary
The following executive summary provides the business update and significant highlights from the Discussion and Analysis that follows.
Consolidated Operating Results
• Net Revenues – Net revenues of $40.6 billion for the year ended December 31, 2025, increased by $2.8 billion, or 7.3%, from the comparable 2024 amount. The change in our net revenues from the comparable 2024 amount was driven by the following (variances not to scale):
Net revenues increased by 7.3%. Net revenues, excluding currency and acquisitions/divestitures, increased by 6.5%, mainly reflecting: a favorable pricing variance due to higher combustible tobacco pricing; and favorable volume/mix, driven by higher smoke-free products volume, notwithstanding unfavorable mix and lower volumes for cigarettes.
Net revenues by product category for the years ended December 31, 2025 and 2024, are shown below:
• Diluted Earnings Per Share – The changes in our reported diluted earnings per share (“diluted EPS”) for the year ended December 31, 2025, from the comparable 2024 amounts, were as follows:
Diluted EPS
% Change
For the year ended December 31, 2024
2024 Restructuring charges
2024 Impairment of other intangibles
2024 Fair value adjustment for equity security investments
2024 Impairment related to RBH equity investment
2024 Amortization of intangibles
2024 Loss on sale of Vectura Group
2024 Egypt sales tax charge
2024 Megapolis localization tax impact
2024 Income tax impact associated with Swedish Match AB financing
2024 Tax items
Subtotal of 2024 items
2025 Restructuring charges
2025 Impairment of goodwill
2025 Fair value adjustment for equity security investments
2025 Amortization of intangibles
2025 Germany excise tax classification litigation charge
2025 RBH (Canada) Plan implementation, including dividend income, net
2025 Impairment of Wellness business related equity investment
2025 Loss on expected sale of consumer accessories and other businesses
2025 Income tax impact associated with Swedish Match AB financing
2025 Tax items
Subtotal of 2025 items
Currency
Interest
Change in tax rate
Operations
For the year ended December 31, 2025
Restructuring charges – During 2024, we recorded pre-tax restructuring charges of $180 million (representing $150 million net of income tax and a diluted EPS charge of $0.10 per share), related to the restructuring of the sourcing of IQOS products to be commercialized in the U.S., and the cessation of our operations in Venezuela. During 2025, we recorded pre-tax restructuring charges of $241 million (representing $222 million net o f income tax and a diluted EPS charge of $0.14 per share), related to the end of combustible tobacco production in two of our factories in Germany. For further details, see Item 8, Note 18. Restructuring Activities .
Impairment of goodwill and other intangibles – During the first quarter of 2024, we recorded an impairment charge of $27 million (representing $20 million net of income tax or $0.01 per share decrease in diluted EPS), primarily reflecting the impairment of non-amortizable intangible assets related to an in-process research and development project in our Wellness business. During the second quarter of 2025, after the completion of our annual review of goodwill, it was determined that the estimated fair value of a reporting unit included within the Europe segment was lower than its carrying value. Consequently, PMI recorded a goodwill impairment charge of $41 million (representing a $0.03 per share decrease in diluted EPS). For further details, see Item 8, Note 4. Goodwill and Other Intangible Assets, net .
Fair value adjustment for equity security investments – During 2024 and 2025, we recorded fair value adjustments for our equity security investments in India and Sri Lanka of $418 million after tax gain (or $0.27 per share increase in diluted EPS) and $289 million after tax gain (or $0.18 per share increase in diluted EPS), respectively. For further details, see Item 8, Note 5. Related Parties - Equity Investments and Other .
Impairment related to the RBH equity investment – On October 17, 2024, the court-appointed mediator and monitor in the Companies' Creditors Arrangement Act ("CCAA") proceedings filed a proposed plan of compromise and arrangement (“Proposed Plan”) setting forth, among other things, certain terms of a proposed comprehensive resolution of Canadian tobacco claims and related litigation. Under the resolution contemplated by the Proposed Plan, RBH, Imperial Tobacco Canada Limited ("ITL") and JTI Macdonald Corp ("JTIM") would pay an aggregate global settlement amount of CAD 32.5 billion (approximately $23.7 billion as of December 31, 2025). A significant determinative factor in the analysis of impairment indicators was the issue of allocation of CAD 32.5 billion aggregate settlement amount among RBH, ITL, and JTIM which remained unresolved at the time of filing. On January 24, 2025, RBH filed an objection to approval of the Proposed Plan with the CCAA court. Developments, including the positions taken by RBH in this objection and the positions taken by other parties in related filings narrowed the range of possible outcomes with respect to the allocation of the aggregate settlement amount of CAD 32.5 billion among RBH, ITL, and JTIM, which was determined to be an indicator that PMI’s investment in RBH may be . Although there remained some uncertainty as to the final terms of the Proposed plan, PMI evaluated its investment in RBH for potential and concluded that the estimated fair value of its investment in RBH was lower than its carrying value. As a result, PMI performed a quantitative valuation of its investment in RBH as of December 31, 2024, and recorded a non-cash charge of $2,316 million (representing a diluted EPS charge of $1.49 per share) in the consolidated statement of earnings for the year ended December 31, 2024, as a recognized subsequent event. For further details, see Item 8, Note 5. Related Parties - Equity Investments and Other .
Amortization of intangibles – During 2024 and 2025, we recorded amortization of intangible expense of $835 million (representing $629 million net of income tax or $0.40 per share decrease in diluted EPS) and $1,003 million (representing $780 million net of income tax or $0.50 per share decrease in diluted EPS), respectively. The higher amortization expense in 2025 included the reacquired rights recorded as other intangible assets, net following the reacquisition of IQOS commercialization rights in the U.S. from Altria Group, Inc., effective in May 2024. For further details, see Item 8, Note 4. Goodwill and Other Intangible Assets, net .
Loss on sale of Vectura Group – In September 2024, we announced the execution of a definitive agreement to sell Vectura to Molex Asia Holdings Ltd. On December 31, 2024, we completed the sale. The sale resulted in a pre-tax loss of $199 million (representing $206 million including income tax or a diluted EPS charge of $0.13 per share). This pre-tax loss was recorded in marketing, administration and research costs in PMI’s consolidated statements of earnings for the year ended December 31, 2024, and was included in the Europe segment results. For further details, see Item 8, Note 3. Acquisitions and Divestitures .
Egypt sales tax charge – In the third quarter of 2024, following a ruling issued by the Higher Administrative Court in Egypt and subsequent evaluation of available remedies, we concluded that an adverse outcome was probable and recorded a pre-tax charge of $45 million (representing $39 million net of income tax and a diluted EPS charge of $0.03 per share) in relation to tax assessments for general sales tax deducted on imported cutfiller for the years 2014 to 2016. This pre-tax charge was recorded in marketing, administration and research costs in the consolidated statement of earnings for the year ended December 31, 2024, and was included in the SSEA, CIS & MEA segment results.
Megapolis localization tax impact – PMI holds a 23% equity interest in JSC TK Megapolis ("TKM"), PMI's distributor in Russia (SSEA, CIS & MEA segment). In June 2024, the Russian government included TKM in the list of economically significant organizations that may be subject to forced localization under applicable Russian law, which referred to the mandatory removal of a foreign holding company from the shareholding structure. On August 8, 2024, the Arbitrazh Court of the Moscow Region granted the forced localization of Megapolis Distribution B.V. ("MDBV") as requested by the Ministry of Industry and Trade on July 18, 2024. As a result, MDBV’s shares in TKM were transferred to TKM and subsequently transferred to the Russian subsidiaries of its indirect shareholders during the fourth quarter of 2024. As a result of the transfer of shares, PMI recorded a tax charge of $77 million (representing a diluted EPS charge of $0.05 per share). This charge primarily reflected additional deferred withholding taxes related to the TKM pre-localization earnings and other adjustments of accumulated earnings of the Russian subsidiary. For further details, see Item 8, Note 5. Related Parties - Equity Investments and Other .
Germany excise tax classification litigation charge – In August 2024, the German Main Custom Office (“MCO”) notified Philip Morris (Germany) GmbH (“PM Germany”) of its decision to classify TEREA consumables as a cigarette for excise tax purposes with the associated tax assessment totaling EUR 151 million (approximately $176 million) covering the period of February 15, 2023, through August 1, 2024. In April 2025, PM Germany paid the outstanding amount, which was recorded in Other assets on the consolidated balance sheets, while it challenged the MCO’s decision in court. On September 17, 2025, PM Germany filed a request to withdraw the proceedings. As a result, the tax assessment amount of $176 million (representing $150 million net of income tax and a diluted EPS charge of $0.10 per share) was recorded as a pre-tax charge in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2025, and was included in the Europe segment results.
RBH (Canada) Plan implementation, including dividend income, net – On August 29, 2025, the plan of compromise and arrangement (the “Plan”) setting forth the terms of a resolution of Canadian tobacco claims and related litigation became effective. In the third quarter of 2025, we recorded after-tax income of $156 million ($0.10 per share increase in diluted EPS) following the Plan implementation, including $303 million of dividend income net of the corresponding decrease in the carrying value of the RBH investment, $19 million of other income and the related income tax charge of $166 million. For further details regarding the Plan, see Item 8, Note 5. Related Parties - Equity Investments and Other, and Note 10. Income Taxes .
Impairment of Wellness business related equity investment – In the third quarter of 2025, PMI recorded a non-cash after-tax charge of $146 million (representing a diluted EPS charge of $0.09 per share), primarily representing an other-than-temporary impairment of one equity method investment within the Wellness business following a reassessment of its estimated fair value triggered by the amendment of existing investment agreements in the third quarter of 2025. The impairment charge was recorded in equity investments and securities (income)/loss, net in the consolidated statements of earnings for the year ended December 31, 2025. For further details, see Item 8, Note 5. Related Parties - Equity Investments and Other .
Loss on expected sale of consumer accessories and other businesses – During the fourth quarter of 2025, PMI completed the sale of one business and classified as held-for-sale net assets of certain other businesses (disposal group), primarily related to its consumer accessories products acquired as part of the Swedish Match AB acquisition in 2022. As a result, PMI recorded a pre-tax loss of $94 million (representing a diluted EPS charge of $0.06 per share). The loss on sale was recorded in marketing, administration and research costs in the Europe segment in PMI’s consolidated statement of earnings for the year ended December 31, 2025. For further details, see Item 8, Note 3. Acquisitions and Divestitures .
Income taxes – The Income tax impact associated with Swedish Match AB financing that decreased our 2024 diluted EPS by $0.14 per share and increased our 2025 diluted EPS by $0.25 per share in the table above was due to a deferred tax impact for unrealized foreign currency gains and losses on intercompany loans related to the Swedish Match acquisition financing reflected in the consolidated statements of earnings, while the underlying pre-tax foreign currency movements fully offset in the consolidated statements of earnings and were reflected as currency translation adjustments in the consolidated statements of stockholders' (deficit) equity.
The 2024 tax items that increased our 2024 diluted EPS by $0.03 per share in the table above were due to a U.S. tax benefit for a worthless stock deduction under section 165(g) of the Internal Revenue Code related to PMI’s investment in C.A. Tabacalera Nacional, a wholly owned foreign corporation incorporated in Venezuela.
The 2025 tax items that increased our 2025 diluted EPS by $0.11 per share in the table above were due to benefits related to an interest expense election primarily driven by a reduction in prior year tax costs associated with global intangible low-taxed income and refunds expected on amended tax returns filed in Germany; partially offset by valuation allowances recorded on deferred tax assets related to U.S. foreign tax credits and the recognition of current tax expense related to the potential disallowance of deductions for certain intercompany transactions in Indonesia. For further details, see Item 8, Note 10. Income Taxes.
The change in the tax rate that decreased our diluted EPS by $0.01 per share in the table above was primarily due to changes in earnings mix by taxing jurisdiction.
Currency – The favorable impact of $0.04 per share during the reporting period primarily results from the fluctuations of the U.S. dollar, especially against the Argentine peso, Egyptian pound, Euro, and Polish zloty, partly offset by the Russian ruble and Swiss franc. This favorable currency movement has impacted our profitability across our primary revenue markets and local currency cost bases.
Interest – The favorable impact of $0.09 per share from interest in the table above was primarily due to the impact of lower market interest rates on our variable-rate debt, as well as the favorable impact of derivative financial instruments.
Operations – The increase in diluted EPS of $0.85 per share from our operations in the table above was due primarily to the following segments:
• SSEA, CIS & MEA: Favorable pricing and higher cigarette and SFP volume, partly offset by higher marketing, administration and research costs, and higher manufacturing costs;
• Europe: Favorable pricing and favorable volume/mix, partly offset by higher marketing, administration and research costs; and
• EA, AU & PMI GTR: Favorable volume/mix and a favorable pricing variance;
partly offset by
• Americas: Higher marketing, administration and research costs, higher manufacturing costs and an unfavorable pricing variance, partly offset by favorable volume/mix.
For further details, see the Consolidated Operating Results and Operating Results by Business Segment sections of the following Discussion and Analysis .
Discussion and Analysis
Critical Accounting Estimates
Item 8, Note 2. Summary of Significant Accounting Policies to our consolidated financial statements includes a summary of the significant accounting policies and methods used in the preparation of our consolidated financial statements. In most instances, we must use a particular accounting policy or method because it is the only one that is permitted under U.S. GAAP.
The preparation of financial statements requires that we use estimates and assumptions that affect the reported amounts of our assets, liabilities, net revenues and expenses, as well as our disclosure of contingencies. If actual amounts differ from previous estimates, we include the revisions in our consolidated results of operations in the period during which we know the actual amounts. Historically, aggregate differences, if any, between our estimates and actual amounts in any year have not had a significant impact on our consolidated financial statements.
The selection and disclosure of our critical accounting estimates have been discussed with our Audit & Risk Committee. The following is a discussion of the more significant assumptions, estimates, accounting policies and methods used in the preparation of our consolidated financial statements:
Acquisitions - PMI accounts for business combinations using the acquisition method of accounting. PMI allocates the purchase price of an acquired business to the assets acquired and liabilities assumed based upon their estimated fair values at the acquisition date with the excess recorded as Goodwill. The fair value of the applicable assets acquired and liabilities assumed is determined through established valuation techniques, such as the income, cost or market approach. PMI may utilize third-party valuation experts to assist in the fair value determination of certain assets acquired and liabilities assumed. The determination of fair value requires management to make judgments and may involve the use of significant estimates, including assumptions with respect to estimated projected revenue growth, future cash flows, terminal growth rates, useful economic lives of intangible assets acquired, discount rates, royalty rates and other factors. Certain acquired intangibles are expected to have indefinite lives based on their history and PMI’s intent to continue to support and build the intangible.
Although PMI believes its estimates of fair value are reasonable, actual financial results could differ from those estimates. Changes in assumptions related to future financial results or other underlying assumptions could have a significant impact on the determination of the fair value of the intangible assets acquired.
See Item 8, Note 3. Acquisitions and Divestitures to our consolidated financial statements for details of the critical accounting estimates relevant to the business combinations in the periods presented in this Form 10-K.
Revenue Recognition - We recognize revenue as performance obligations are satisfied. Our primary performance obligation is the distribution and sales of cigarettes and smoke-free products, including heat-not-burn, e-vapor and oral nicotine products. Our
performance obligations are typically satisfied upon shipment or delivery to our customers. PMI estimates the cost of sales returns based on historical experience, and these estimates are immaterial. Estimated costs associated with warranty programs for IQOS devices are generally provided for in cost of sales in the period the related revenues are recognized, based on a number of factors, including historical experience, product failure rates and warranty policies and are immaterial. The transaction price is typically based on the amount billed to the customer and includes estimated variable consideration where applicable. Such variable consideration is typically not constrained and is estimated based on the most likely amount that PMI expects to be entitled to under the terms of the contracts with customers, historical experience of discount or rebate redemption, where relevant, and the terms of any underlying discount or rebate programs, which may change from time to time as the business and product categories evolve.
Goodwill and Non-Amortizable Intangible Assets Valuation - We test goodwill and non-amortizable intangible assets for impairment annually or more frequently if events occur that would warrant such review, using either a qualitative or quantitative assessment for each of our reporting units and non-amortizable intangible assets. Where a qualitative assessment is followed, we determine whether it is more likely than not that an impairment exists based on qualitative factors such as macroeconomic conditions, industry and competitive conditions, legal and regulatory environment, historical financial performance and significant changes impacting the reporting unit and the non-amortizable intangible assets. If the qualitative assessment indicates that it is more likely than not that an impairment exists, then a quantitative assessment is performed. The quantitative impairment analysis involves comparing the fair value of each reporting unit or non-amortizable intangible asset to the carrying value. If the carrying value exceeds the fair value, goodwill or a non-amortizable intangible asset is considered impaired. To determine the fair value of a reporting unit, we use the market approach using earnings multiples of comparable global companies within the tobacco industry and a discounted cash flow model. To determine the fair value of non-amortizable intangible assets, we primarily use a discounted cash flow model applying the relief-from-royalty method. These discounted cash flow models include management assumptions relevant for forecasting operating cash flows, which are subject to changes in business conditions, such as volumes and prices, costs to produce, discount rates and estimated capital needs. Management considers historical experience and all available information at the time the fair values are estimated, and we believe these assumptions are consistent with the assumptions a hypothetical marketplace participant would use.
As discussed in Item 8, Note 4. Goodwill and Other Intangible Assets, net , PMI recorded impairment losses related to goodwill and non-amortizable intangible assets during the second quarter of 2025 and 2023, where certain reporting units and non-amortizable intangible assets were written down to their respective fair values as of the date of the annual impairment review. During 2024, PMI’s annual impairment review of goodwill and non-amortizable intangible assets resulted in no impairment charges. At December 31, 2025, the carrying value of our goodwill was $17.3 billion. The estimated fair value of each of our eleven reporting units, excluding the held-for-sale businesses, and non-amortizable intangible assets exceeded the carrying value as of December 31, 2025. All assumptions used in the impairment assessments for goodwill and non-amortizable intangible assets are based on the best available market information and are consistent with PMI’s internal forecasts and operating plans. A deterioration in these assumptions could adversely impact our results.
Investment in non-marketable equity securities – For further details, see Item 8, Note 5. Related Parties – Equity Investments and Other to our consolidated financial statements
Marketing Costs - We incur certain costs to support our products through programs that include advertising, marketing, consumer engagement and trade promotions. The costs of our advertising and marketing programs are expensed in accordance with U.S. GAAP. Recognition of the cost related to our consumer engagement and trade promotion programs contain uncertainties due to the judgment required in estimating the potential performance and compliance for each program. For volume-based incentives provided to customers, management continually assesses and estimates, by customer, the likelihood of the customer's achieving the specified targets, and records the reduction of revenue as the sales are made. For other trade promotions, management relies on estimated utilization rates that have been developed from historical experience. Changes in the assumptions used in estimating the cost of any individual marketing program would not result in a material change in our financial position, results of operations or operating cash flows.
Employee Benefit Plans - As discussed in Item 8, Note 12. Benefit Plans to our consolidated financial statements, we provide a range of benefits to our employees and retired employees, including pensions, postretirement health care and postemployment benefits (primarily severance). We record annual amounts relating to these plans based on calculations specified by U.S. GAAP. These calculations include various actuarial assumptions, such as discount rates, assumed rates of return on plan assets, compensation increases, mortality, turnover rates and health care cost trend rates. We review actuarial assumptions on an annual basis and make modifications to the assumptions based on current rates and trends when it is deemed appropriate to do so. As permitted by U.S. GAAP, any effect of the modifications is generally amortized over future periods. We believe that the assumptions utilized in calculating our obligations under these plans are reasonable based upon our historical experience and advice from our actuaries.
Weighted-average discount rate assumptions for pension and postretirement plan obligations at December 31, 2025 and 2024 are as follows:
Pension plans
Postretirement plans
We anticipate that assumption changes will decrease 2026 pre-tax pension and postretirement expense to approximately $71 million as compared with approximately $172 million in 2025, excluding amounts related to employee severance and early retirement programs. The anticipated decrease is primarily due to lower amortization of unrecognized actuarial losses of $62 million, coupled with higher expected return on assets of $45 million, lower service cost of $20 million, partially offset by higher interest cost of $24 million and other movements of $2 million.
Weighted-average expected rate of return and discount rate assumptions have a significant effect on the amount of expense reported for the employee benefit plans. A fifty-basis-point decrease in our discount rate would increase our 2026 pension and postretirement expense by approximately $46 million, and a fifty-basis-point increase in our discount rate would decrease our 2026 pension and postretirement expense by approximately $44 million. Similarly, a fifty-basis-point decrease (increase) in the expected return on plan assets would increase (decrease) our 2026 pension expense by approximately $49 million.
Income Taxes - Income tax provisions for jurisdictions outside the United States, as well as state and local income tax provisions, are determined on a separate company basis, and the related assets and liabilities are recorded in our consolidated balance sheets.
The extent of our operations involves dealing with uncertainties and judgments in the application of complex tax regulations in a multitude of jurisdictions. The final taxes paid are dependent upon many factors, including negotiations with taxing authorities in various jurisdictions and resolution of disputes arising from federal, state, and international tax audits. In accordance with the authoritative guidance for income taxes, we evaluate potential tax exposures and record tax liabilities for anticipated tax audit issues based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these reserves in light of changing facts and circumstances; however, due to the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the tax liabilities. If our estimate of tax liabilities proves to be less than the ultimate assessment, an additional charge to expense would generally result. If payment of these amounts ultimately proves to be less than the recorded amounts, the reversal of the liabilities would result in tax benefits being recognized in the period when we determine the liabilities are no longer necessary.
We are required to assess the likelihood of recovering deferred tax assets against future sources of taxable income. If we determine, using all available evidence, that we do not reach the more likely than not threshold for recovery, a valuation allowance is recorded. Significant judgment is required in determining the need for and amount of valuation allowances for deferred tax assets including estimates of future taxable income in the applicable jurisdictions an d the feasibility of on-going tax planning strategies , as applicable.
The effective tax rates used for interim reporting are based on our full-year geographic earnings mix projections. Changes in currency exchange rates, earnings mix by taxing jurisdiction, geopolitical conditions, or future regulatory developments may have an impact on the effective tax rates. Significant judgment is required in determining income tax provisions and in evaluating tax positions.
For further details, see Item 8, Note 10. Income Taxes to our consolidated financial statements.
Hedging - As discussed below in “Market Risk,” we use derivative financial instruments principally to reduce exposures to market risks resulting from fluctuations in foreign currency exchange and interest rates by creating offsetting exposures. PMI records derivative contracts at their fair value in accordance with U.S. GAAP and assesses their fair value using standard valuation models that rely on readily observable market inputs. The fair value of PMI’s foreign exchange forward contracts, foreign currency swaps and interest rate derivatives is determined using prevailing spot and forward foreign exchange rates, spot and forward interest rates, and the instruments’ respective maturity dates. The fair value of currency options is estimated using a Black‑Scholes valuation model that incorporates foreign exchange spot rates, interest rate differentials, currency volatilities, strike rates and maturity dates. The fair value of PMI’s commodity contracts is determined using prevailing market spot and futures prices and the corresponding maturity dates.
The valuation of derivative contracts includes the market inputs and estimates listed above, which are subject to changes in business conditions. Changes to the fair value of the derivative financial instruments could adversely impact PMI’s results.
Contingencies - As discussed in Item 8, Note 16. Contingencies , to our consolidated financial statements, legal proceedings covering a wide range of matters are pending or threatened against us, and/or our subsidiaries, and/or our indemnitees in various jurisdictions. We and our subsidiaries record provisions in the consolidated financial statements for pending litigation when we determine that an
unfavorable outcome is probable and the amount of the loss can be reasonably estimated. The variability in pleadings in multiple jurisdictions, together with the actual experience of management in litigating claims, demonstrate that the monetary relief that may be specified in a lawsuit bears little relevance to the ultimate outcome. Litigation is subject to uncertainty. At the present time, except as stated otherwise in Item 8, Note 16. Contingencies, while it is reasonably possible that an unfavorable outcome in a case may occur, after assessing the information available to it: (i) management has not concluded that it is probable that a loss has been incurred in any of the pending tobacco-related cases; (ii) management is unable to estimate the possible loss or range of loss for any of the pending tobacco-related cases; and (iii) accordingly, no estimated loss has been accrued in the consolidated financial statements for outcomes in these cases, if any. Legal defense costs are expensed as incurred.
Consolidated Operating Results
Net revenues, significant expenses, and operating income by segment were as follows:
(in millions)
Europe
SSEA, CIS & MEA
EA, AU & PMI GTR
Americas
Total
For the Year Ended December 31, 2025
Net revenues
Less:
Cost of sales
Marketing, administration and research costs
Impairment of goodwill
Operating income
For the Year Ended December 31, 2024
Net revenues
Less:
Cost of sales
Marketing, administration and research costs
Operating income
For the Year Ended December 31, 2023
Net revenues
Less:
Cost of sales
Marketing, administration and research costs
Impairment of goodwill
Operating income
Items affecting the comparability of results from operations were as follows:
• Restructuring charges - See Item 8, Note 18. Restructuring Activities for details of the $241 million, $180 million and $109 million pre-tax charges for the year ended December 31, 2025, 2024 and 2023, respectively, as well as a breakdown of these costs by segment.
• Impairment of goodwill and other intangibles – For the year ended December 31, 2025, PMI recorded a goodwill impairment charge of $41 million that was included in the Europe segment. For the year ended December 31, 2023, PMI recorded $680 million of goodwill and non-amortizable intangible assets impairment charges that was included in the Europe segment. For further details, see Item 8, Note 4. Goodwill and Other Intangible Assets, net .
• Germany excise tax classification litigation charge – In August 2024, the German Main Custom Office (“MCO”) notified Philip Morris (Germany) GmbH (“PM Germany”) of its decision to classify TEREA consumables as a cigarette for excise tax purposes with the associated tax assessment totaling EUR 151 million (approximately $176 million) covering the period of February 15, 2023, through August 1, 2024. In April 2025, PM Germany paid the outstanding amount, which was recorded in Other assets on the consolidated balance sheets, while it challenged the MCO’s decision in court. On September 17, 2025, PM
Germany filed a request to withdraw the proceedings. As a result, the tax assessment amount of $176 million was recorded in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2025, and was included in the Europe segment results.
• Loss on expected sale of consumer accessories and other businesses – See Item 8, Note 3. Acquisitions and Divestitures for details of the pre-tax loss of $94 million recorded in the Europe segment for the year ended December 31, 2025.
• Egypt sales tax charge – In the third quarter of 2024, following a ruling issued by the Higher Administrative Court in Egypt and subsequent evaluation of available remedies, PMI concluded that an adverse outcome was probable and recorded a pre-tax charge of $45 million in relation to tax assessments for general sales tax deducted on imported cutfiller for the years 2014 to 2016. This pre-tax charge was recorded in marketing, administration and research costs in the consolidated statement of earnings for the year ended December 31, 2024, and was included in the SSEA, CIS & MEA segment results.
• Loss on sale of Vectura Group – In September 2024, PMI announced the execution of a definitive agreement to sell Vectura to Molex Asia Holdings Ltd. On December 31, 2024, we completed the sale. The sale resulted in a pre-tax loss of $199 million. This pre-tax loss was recorded in marketing, administration and research costs in the consolidated statement of earnings for the year ended December 31, 2024, and was included in the Europe segment results. For further details, see Item 8, Note 3. Acquisitions and Divestitures .
• Termination of distribution arrangement in the Middle East – In the first quarter of 2023, PMI recorded a pre-tax charge of $80 million following the termination of a distribution arrangement in the Middle East. This pre-tax charge was recorded as a reduction of net revenues in the consolidated statements of earnings, and was included in the SSEA, CIS & MEA segment results for the year ended December 31, 2023.
• South Korea indirect tax charge – On July 13, 2023, PMI's South Korean subsidiary, PM Korea, received an adverse ruling from the Supreme Court of South Korea related to cases alleging underpayment of excise taxes in connection with a 2015 excise tax increase and subsequent audit by the South Korean Board of Audit and Inspection. The Supreme Court ruling reversed previous decisions that were in PM Korea’s favor at the trial and appellate levels. As a result of the ruling, we concluded that an adverse outcome was probable. Consequently, we recorded a non-cash pre-tax charge of $204 million in marketing, administration and research costs in the consolidated statements of earning, reflecting the full amount previously paid by PM Korea, which was included in the EA, AU & PMI GTR segment for the year ended December 31, 2023.
• Termination of agreement with Foundation for a Smoke-Free World – On September 29, 2023, PMI and the Foundation for a Smoke-Free World (the "Foundation") entered into the Final Grant Agreement and Termination of the Second Amended and Restated Pledge Agreement ("Agreement"). Under the terms of the Agreement, PMI paid $140 million in the third quarter of 2023 in return for the termination of the pledge agreement between the parties. As a result, in the third quarter of 2023, PMI recorded a pre-tax charge of $140 million commensurate with the early termination of the pledge agreement. The pre-tax charge was recorded in marketing, administration and research costs in the consolidated statements of earnings for the year ended December 31, 2023 and was included in the operating results of the following segments: Europe ($60 million); SSEA, CIS & MEA ($41 million); EA, AU & PMI GTR ($24 million); and Americas ($15 million).
• Charges related to the war in Ukraine – For the year ended December 31, 2023, PMI recorded pre-tax charges of $53 million in the Europe segment related to the war in Ukraine.
Our net revenues by product category were as follows:
(in millions)
Combustible tobacco products
Europe
SSEA, CIS & MEA
EA, AU & PMI GTR
Americas
Total combustible tobacco products
Smoke-free products
Europe
of which, Wellness
SSEA, CIS & MEA
EA, AU & PMI DF
Americas
Total Smoke-free
Total PMI net revenues
Note: Sum of product categories or Regions might not foot to total PMI due to rounding.
Net revenues related to combustible tobacco refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes. These net revenue amounts consist of the sale of our cigarettes and other tobacco products that are combusted. Other tobacco products primarily include roll-your-own and make-your-own cigarettes, pipe tobacco, cigars and cigarillos and do not include smoke-free products.
Net revenues related to smoke-free, excluding wellness, refer to the operating revenues generated from the sale of these products, including shipping and handling charges billed to customers, net of sales and promotion incentives, and excise taxes, if applicable. These net revenue amounts consist of the sale of our products that are not combustible tobacco products, such as heat-not-burn, e-vapor, and oral products, as well as consumer accessories. Net revenues related to wellness refer to the operating revenues generated from the sale of product, primarily associated with oral and intra-oral delivery systems.
PMI's heat-not-burn products include licensed KT&G heat-not-burn products.
References to "Cost/Other" in the Consolidated Financial Summary table of total PMI and the four segments throughout this "Discussion and Analysis" reflects the currency and acquisition/divestiture-neutral variances of: cost of sales (excluding the volume/mix cost component); marketing, administration and research costs (including restructuring charges); and amortization and impairment of intangibles. “Cost/Other” also includes the currency and acquisition/divestiture-neutral net revenue variance, unrelated to volume/mix and price components, attributable to: fees for certain distribution rights billed to customers in certain markets in the SSEA, CIS & MEA Region.
Our shipment volume for cigarettes, HTUs and Oral SFP is shown in the table below:
Shipment Volume
Cigarettes and Heated Tobacco Units (million units)
Cigarettes
Heated Tobacco Units
Total Cigarettes and Heated Tobacco Units
Oral SFP Volume (million cans) (1)
Nicotine Pouches
Snus
Moist Snuff
Other Oral SFP (2)
Total Oral Products
(1) Excluding snuff, snuff leaf and U.S. chewing tobacco
(2) Includes chew bags and tobacco bits
Note: Sum may not foot due to rounding
Following the deconsolidation of our Canadian subsidiary, we continue to report the volume and corresponding royalty revenues of brands sold by RBH for which other PMI subsidiaries are the trademark owners. These include Next, TEREA and VEEV . The volume and corresponding royalty revenues of these brands sold by RBH were not material to PMI for all periods presented.
Total shipment volume is defined as the combined total of cigarette, heated tobacco, oral smoke-free products (excluding snuff, snuff leaf and U.S. chew) and e-vapor shipment volume in equivalent units, unless otherwise stated.
Heated tobacco units ("HTUs") is the term we use to refer to heated tobacco consumables, which include our BLENDS , DELIA , HEETS , HEETS Creations (defined collectively as HEETS ), SENTIA , TEREA, TEREA CRAFTED and TEREA Dimensions, as well as the KT&G-licensed brands, Fiit and Miix (outside of South Korea). HTUs also include zero tobacco heat-not-burn consumables ( LEVIA ).
Oral smoke-free product volume excludes snuff, snuff leaf and U.S. chew and is measured in cans or, for the purposes of total shipment volumes, in pouches or pouch equivalents.
Unless otherwise stated, market share for HTUs is defined as the in-market sales volume for HTUs as a percentage of the total estimated industry sales volume for cigarettes and HTUs.
References to total industry and our market share performance reflect cigarettes and heated tobacco units, unless otherwise stated.
Consumer offtake or offtake is the term PMI uses to refer to an approximation of purchases by consumers based on various market specific sources.
Total industry volume, PMI in-market sales volume and PMI market share for the following geographies include the cigarillo category in Japan: the total international market, EA, AU & PMI GTR Region, and Japanese domestic market.
In-market sales ("IMS") is defined as sales to the trade channels, which serve the end legal age nicotine users. Depending on the market and distribution model, IMS may represent an estimate. Consequently, past reported periods may be updated to ensure comparability and to incorporate the most current information.
Adjusted market share for HTUs is defined as the total in-market sales volume for PMI HTUs as a percentage of the total estimated sales volume for cigarettes and HTUs, excluding the impact of estimated distributor and wholesaler inventory movements.
References to total international market, defined as worldwide cigarette and heated tobacco unit volume excluding the United States,
total industry (or total market) and market shares throughout this "Discussion and Analysis" are our estimates for tax-paid and Global Travel Retail products based on data from a number of internal and external sources and may, in defined instances, exclude China. Past reported periods may be updated to ensure comparability and to incorporate the most current information for industry and market share reporting.
From time to time, PMI’s shipment volumes and IMS are subject to the impact of distributor inventory movements (or wholesaler inventory movements in certain markets where PMI does not sell to distributors), and estimated total industry/market volumes are subject to the impact of inventory movements in various trade channels that include estimated trade inventory movements of PMI’s competitors arising from market-specific factors that significantly distort reported volume disclosures. Such factors may include changes to the manufacturing supply chain, shipment methods, consumer demand, timing of excise tax increases or other influences that may affect the timing of sales to customers. In such instances, in addition to reviewing PMI shipment volumes, IMS, certain estimated total industry/market volumes and estimated market shares on a reported basis, management reviews these measures on an adjusted basis that excludes the impact of distributor and/or estimated trade inventory movements. Management also believes that disclosing PMI's shipment volumes, IMS, and estimated total industry/market volumes and estimated market shares in such circumstances on a basis that excludes the impact of distributor and/or estimated trade inventory movements improves the comparability of performance and trends for these measures over different reporting periods.
2025 compared with 2024
The following discussion compares our consolidated operating results for the year ended December 31, 2025, with the year ended December 31, 2024.
Total Market
Estimated industry volume (excluding China and the U.S.) for cigarettes and HTUs was broadly stable, with a 1.1% decrease for cigarettes, largely offset by 10.2% growth of HTUs. For the full year 2026, we currently expect an estimated total international industry volume decline of around 2% for cigarettes and HTUs, excluding China and the U.S.
Shipment Volume
Total PMI
SFP
HTU
Oral SFP
E-vapor
Cigarettes
Total Shipment Volume
(equivalent units in billions)
Oral smoke-free products conversion: (i) nicotine pouches (units): 15 pouches per can in the U.S. and approximately 20 pouches per can outside the U.S.; (ii) snus products: weighted average 21 pouches equivalent per can; (iii) moist snuff products: weighted average 17 pouches equivalent per can; (iv) tobacco bits products: weighted average 30 pouches equivalent per can; (v) chew bags products: weighted average 20 pouches per can.
E-vapor products conversion: one milliliter of e-vapor liquid equivalent to 10 units.
Our shipment volume, including cigarettes and smoke-free products (in equivalent units), increased by 1.4% with smoke-free volumes up by 12.8%. All SFP categories grew, and cigarette volume declined by 1.5%. For the full year 2026, we currently expect broadly stable total PMI cigarette and SFP shipment volume, with high-single digit SFP shipment volume growth, and a cigarette shipment volume decline of around 3%, including the impact of weaker industry volume in India and Mexico, and the ongoing recovery of our business in Turkey.
International Share of Market - Cigarette and HTUs (Excluding China and the United States)
Full-Year
Change (pp)
Total International Market Share (1)
Cigarettes
HTU
Cigarette over Cigarette Market Share (2)
(1) Defined as PMI's cigarette and heated tobacco unit IMS volume as a percentage of total industry cigarette and heated tobacco unit sales volume, excluding China and the U.S., including cigarillos in Japan
(2) Defined as PMI's cigarette IMS volume as a percentage of total industry cigarette sales volume, excluding China and the U.S., including cigarillos in Japan
Note: Sum of share of market by product categories might not foot to total due to rounding
Key Market Data
Key market data regarding total industry size, our shipments and volume share of cigarettes and heated tobacco units (HTUs) were as follows:
PMI Shipments (billion units)
PMI Volume Share (%) (2)
Market
Cigarette & HTU Industry Volume
(billion units)
Cigarette & HTU
Cigarette
HTU
Cigarette & HTU
HTU
Total (1) (2)
Europe
France
Germany (3)
Italy (3)
Poland (3)
Spain
SSEA, CIS & MEA
Egypt
Indonesia (4)
Philippines
Russia
Turkey
EA, AU & PMI GTR
Australia
Japan (2) (3)
South Korea
Americas
Argentina
Mexico
(1) Market share estimates are calculated using IMS data, unless otherwise stated. Depending on the market and distribution model, IMS may represent an estimate. Consequently, past reported periods may be updated to ensure comparability and to incorporate the most current information.
(2) Total industry and volume share estimates include cigarillos in Japan
(3) PMI market share reflects estimated adjusted IMS volume share; Total Market is based on reported IMS
(4) 2025 includes 8.7 billion units and 2024 includes 0.6 billion units of cigarette shipment volume under an arrangement where PMI acts as brand management and fulfilment services agent
Financial Summary
Financial Summary -
Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
Total
Excl.
Curr. & Acquis. / Divest.
Total
Cur-
rency
Acqui-sitions / Dives-titures
Price
Vol/
Mix
Cost/Other
(in millions)
Net Revenues
Cost of Sales
Marketing, Administration and Research Costs (1)
Impairment of Goodwill (2)
Operating Income
(1) Cost/Other variance includes charges in 2025 of $241 million related to restructuring charges, $176 million related to the Germany excise tax classification litigation charge, $94 million related to the loss on expected sale of consumer accessories and other businesses, and higher amortization of intangibles in 2025, partly offset by charges in 2024 of $180 million related to restructuring charges, $27 million related to the impairment of other intangibles, $199 million related to the loss on sale of Vectura Group and $45 million related to the Egypt sales tax charge. For more details, see Item 8, Note 3. Acquisitions and Divestitures , Note 4. Goodwill and Other Intangible Assets, net , Note 11, Segment Reporting and Note 18. Restructuring Activities .
(2) For details on the impairment of goodwill recorded in the second quarter of 2025, see Item 8, Note 4. Goodwill and Other Intangible Assets, net .
Net revenues increased by 7.3%. Net revenues, excluding currency and acquisitions/divestitures, increased by 6.5%, mainly reflecting: a favorable pricing variance due to higher combustible tobacco pricing; and favorable volume/mix, driven by higher smoke-free products volume, notwithstanding unfavorable mix and lower volumes for cigarettes.
The favorable currency impact in net revenues was due primarily to the Euro, Polish zloty and Russian ruble, partly offset by the Indonesian rupiah and Mexican peso.
Net revenues include $16.9 billion in 2025 and $14.7 billion in 2024 related to smoke-free.
Operating income increased by 11.1%. Operating income, excluding currency and acquisitions/divestitures, increased by 9.3%, mainly reflecting: the same factors as for net revenues, as well as a favorable comparison to 2024 reflecting a charge of $199 million related to the loss on sale of Vectura Group in 2024 and $45 million related to the Egypt sales tax charge in 2024. The increases were partly offset by higher marketing, administration and research costs, higher manufacturing costs, higher restructuring charges in 2025, the impairment of goodwill charge in 2025, higher amortization of intangibles in 2025, the loss on expected sale of consumer accessories and other businesses of $94 million in 2025, and the 2025 Germany excise tax classification litigation charge of $176 million.
Interest expense, net, of $966 million decreased by $177 million or 15.5%, primarily due to the impact of lower market interest rates on our variable-rate debt, as well as the favorable impact of derivative financial instruments.
Our effective tax rate decreased by 5.0 percentage points to 19.7%. We estimate that our 2026 effective tax rate will be around 21.5%, excluding discrete tax events. For further details, see Item 8, Note 10. Income Taxes .
We recorded an impairment charge of $2,316 million related to our RBH equity investment in the consolidated statement of earnings for the year ended December 31, 2024. For further details, see Item 8, Note 5. Related Parties - Equity Investments and Other.
Income from equity investments and securities, net, increased by $68 million or 10.7%, primarily driven by a favorable fair value adjustment for our equity security investments in India and Sri Lanka. For further details, see Item 8, Note 5. Related Parties - Equity Investments and Other .
Net earnings attributable to PMI of $11.3 billion increased by $4.3 billion or 60.8%. This increase was primarily due to higher operating income, higher income from equity investments and securities, the favorable comparison to 2024 reflecting the impairment charge related to the RBH equity investment in 2024, a lower effective tax rate and lower interest expense, net. Basic earnings per share of $7.27 increased by 60.5%. Diluted EPS of $7.26 increased by 60.6%. Excluding the favorable currency impact of $0.04, diluted EPS increased by 59.7%.
2024 compared with 2023
For a discussion comparing our consolidated operating results for the year ended December 31, 2024, with the year ended December 31, 2023, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Discussion and Analysis - Consolidated Operating Results in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the U.S. Securities and Exchange Commission on February 6, 2025. This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2025.
Operating Results by Business Segment
2025 compared with 2024
The following discussion compares operating results within each of our segments for 2025 with 2024.
Europe:
Financial Summary - Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
Total
Excl.
Curr. & Acquis. / Divest.
Total
Cur-
rency
Acqui-sitions / Dives-titures
Price
Vol/
Mix
Cost/
Other
(in millions)
Net Revenues
Operating Income
Net revenues increased by 9.1%. Net revenues, excluding currency and acquisitions/divestitures, increased by 6.8%, reflecting: a favorable price variance, predominantly due to higher combustible tobacco pricing; and favorable volume/mix, driven by higher SFP volume, notwithstanding lower volumes and unfavorable mix for cigarettes.
The pricing variance for 2024 and 2025 was negatively impacted by the supplemental tax surcharge on heated tobacco products ("HTPs") in Germany, which went into effect in 2022. On March 14, 2024, the Court of Justice of the European Union (the "CJEU") ruled that the German fiscal regulation imposing an additional excise tax on HTPs does not contravene EU law. On May 15, 2024, following the decision issued by CJEU, the Fiscal Court in Dusseldorf (the "FCD") also ruled that the German fiscal regulation imposing an additional excise tax on HTPs does not contravene EU law. The FCD admitted an appeal to the Federal Tax Court. On June 19, 2024, PMI submitted an appeal. The negative impact will continue, at least until the appeal ruling on the legality of the surcharge is concluded. PMI currently accounts for the surcharge as a reduction in net revenues. The amounts withdrawn before May 15, 2024, were under a payment suspension. Despite this payment suspension and, in order to avoid the future addition of interest, PMI elected, on January 14, 2025, to pay the amount outstanding of EUR 721 million (approximately $751 million), excluding accrued interest. An unfavorable outcome to the appeal would negatively impact PMI’s future cash provided by operating activities for the amounts of interest. A outcome to the appeal would impact future PMI’s operating results and future cash provided by operating activities for the amounts paid in January 2025.
Operating income increased by 9.4%. Operating income, excluding currency and acquisitions/divestitures, increased by 3.4%, primarily reflecting: the same factors as for net revenues and a favorable comparison to 2024 reflecting a charge of $199 million related to the loss on sale of Vectura Group in 2024; partly offset by higher marketing, administration and research costs, as well as the 2025 loss on expected sale of consumer accessories and other businesses of $94 million, the 2025 Germany excise tax classification litigation charge of $176 million and the 2025 restructuring charges of $241 million.
Europe - Total Industry, PMI Shipment Volume and Market Share Commentaries
The estimated industry volume for cigarettes and HTUs decreased by 3.5% to 524.0 billion units, with a 5.0% decrease for cigarettes and continued HTU growth. The decrease in the estimated total market were notably in Poland (down by 12.1%) and the Ukraine (down by 10.6%), partly offset by Bulgaria (up by 6.0%).
Our shipment volume (in equivalent units) decreased by 1.0% with cigarettes down by 5.5% and SFP up by 10.9%.
Our cigarette and HTU shipment volume decreased by 1.5% to 213.1 billion, with decreases in Poland (down by 9.4%) and France (down by 7.9%), partly offset by Italy (up by 3.1%) and Spain (up by 4.9%).
Our HTU share of the total cigarette and HTU market increased by 1.2 points on an adjusted basis.
Other Oral SFP includes chew bags and tobacco bits
Note: Sum may not foot due to rounding.
Our oral SFP shipments decreased by 6.9% to 268.8 million cans.
SSEA, CIS & MEA:
Financial Summary - Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
Total
Excl.
Curr. & Acquis. / Divest.
Total
Cur-
rency
Acqui-sitions / Dives-titures
Price
Vol/
Mix
Cost/
Other
(in millions)
Net Revenues
Operating Income
Net revenues increased by 7.0%. Net revenues, excluding currency and acquisitions/divestitures, increased by 6.4%, mainly reflecting: a favorable price variance, predominantly driven by combustible tobacco pricing; while unfavorable cigarette mix, due to the commercial model change in Indonesia, was largely offset by higher cigarette and SFP volume.
A change in our commercial model for the below tier-one cigarette segment in Indonesia in the fourth quarter of 2024 resulted in lower net revenue growth, with no meaningful impact on operating income.
Operating income increased by 19.5%. Operating income, excluding currency and acquisitions/divestitures, increased by 20.3%, primarily reflecting: a favorable price variance, as well as higher cigarette and SFP volume and a favorable comparison to 2024 reflecting a charge of $45 million related to the Egypt sales tax charge in 2024, partly offset by higher marketing, administration and research costs, as well as manufacturing costs (notably tobacco leaf).
SSEA, CIS & MEA - Total Industry, PMI Shipment Volume and Market Share Commentaries
The estimated industry volume for cigarettes and HTUs increased by 1.1% to 1,562.9 billion units. The increase was mainly driven by India (up by 9.8%), Turkey (up by 6.4%) and Egypt (up by 5.5%), partly offset by Bangladesh (down by 10.7%) and Indonesia (down by 2.4%).
Our shipment volume (in equivalent units) increased by 1.7% with SFP up by 14.1% and cigarettes up by 0.7%.
Our cigarette and HTU shipment volume increased by 1.7% to 379.6 billion units, mainly driven by India (up by 39.2%), Egypt (up by 8.9%) and the Philippines (up by 4.3%), partly offset by Turkey (down by 4.9%) and Indonesia (down by 1.8%).
EA, AU & PMI GTR:
Financial Summary - Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
Total
Excl.
Curr. & Acquis. / Divest.
Total
Cur-
rency
Acqui-sitions / Dives-titures
Price
Vol/
Mix
Cost/
Other
(in millions)
Net Revenues
Operating Income
Net revenues increased by 3.7%. Net revenues, excluding currency and acquisitions/divestitures, increased by 4.6%, predominantly due to: favorable volume/mix, driven by SFP volume; coupled with favorable price variance, driven by higher combustible tobacco pricing.
Operating income increased by 8.6%. Operating income, excluding currency and acquisitions/divestitures, increased by 11.7%, reflecting the same factors as for net revenues.
EA, AU & PMI GTR - Total Industry, PMI Shipment Volume and Market Share Commentaries
The estimated industry volume for cigarettes and HTUs, excluding China, decreased by 1.1% to 316.4 billion units, with HTU growth more than offset by decrease in cigarettes. Notable decreases in South Korea (down by 3.5%) and Australia (down by 45.7%) were partly offset by Global Travel Retail (up by 6.7%).
Our shipment volume (in equivalent units) increased by 4.1% with SFP up by 11.0%, and cigarettes down by 4.1%.
Our cigarette and HTU shipment volume increased by 3.8% to 108.5 billion units, driven by Japan (up by 4.7%), partly offset by Australia (down by 45.2%).
Our HTU adjusted in-market sales volume increased by an estimated 9.3%.
Americas:
Financial Summary - Years Ended December 31,
Change
Fav./(Unfav.)
Variance
Fav./(Unfav.)
Total
Excl.
Curr. & Acquis. / Divest.
Total
Cur-
rency
Acqui-sitions / Dives-titures
Price
Vol/
Mix
Cost/
Other
(in millions)
Net Revenues
Operating Income
Net revenues increased by 7.1%. Net revenues, excluding currency and acquisitions/divestitures, increased by 8.8%, primarily reflecting favorable volume/mix, driven by SFP volume, partly offset by unfavorable pricing. The unfavorable pricing was mainly due to the U.S. (reflecting the increased impact of promotional activities in the second half of 2025, as a result of ZYN 's return to full availability, with promotional costs including retailer incentives taken in net revenues), partly offset by cigarette pricing outside of the U.S.
Operating income decreased by 7.8%. Operating income, excluding currency and acquisitions/divestitures, decreased by 0.9%, mainly reflecting an unfavorable pricing variance (described above), higher amortization of intangibles, and higher marketing, administration and research costs, and manufacturing costs (both including further investments in our U.S. capabilities and organization). These decreases were partly offset by favorable volume/mix (described above) and a favorable comparison to 2024 reflecting the restructuring charges of $180 million in 2024.
Americas - Total Industry, PMI Shipment Volume and Market Share Commentaries
The estimated industry volume for cigarettes and HTUs, excluding the U.S., decreased by 2.0% to 183.5 billion units due to a decrease in the cigarette market. The decrease in the estimated total market was mainly due to Canada (down by 12.2%) and Mexico (down by 3.6%), partly offset by Argentina (up by 1.8%).
Our shipment volume (in equivalent units) increased by 3.1% with SFP up by 27.7% and cigarettes down by 1.7%.
Our total cigarette and HTU shipment volume decreased by 1.5% to 61.3 billion units, mainly due to Mexico (down by 4.8%), partly offset by Argentina (up by 4.1%).
(1) Excluding U.S. chew
Note: Sum may not foot due to rounding. U.S. travel retail volumes of approximately 11.9 million nicotine pouch cans were recorded in the Americas segment in 2025, while financial impacts were recorded in the EA, AU & PMI GTR segment. There were no meaningful U.S. travel retail volumes in prior year.
Oral SFP shipments increased by 29.4% to 930 million cans, predominantly driven by ZYN nicotine pouches in the U.S.
2024 compared with 2023
As previously disclosed in the Description of Our Company section of this Item 7, we updated our segment reporting in January 2025 by including the ongoing Wellness results in the Europe segment.
For a discussion comparing our consolidated operating results within each of our segments for the year ended December 31, 2024, with the year ended December 31, 2023, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Operating Results by Business Segment in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the U.S. Securities and Exchange Commission on February 6, 2025. This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2025.
Business Environment
The industries we operate in and our company face a number of challenges that may adversely affect our business, product sales volume, results of operations, cash flows, and financial position. These challenges, which are discussed below and in Part II, Item 1A. Risk Factors — Cautionary Factors That May Affect Future Results in this report, include:
• regulatory restrictions on our products, including restrictions on the packaging, marketing, registration and sale of tobacco or other nicotine-containing products or related devices that could reduce our competitiveness, eliminate our ability to communicate with adult consumers, or ban certain of our products;
• fiscal challenges, such as excessive excise tax increases and discriminatory tax structures;
• illicit trade in tobacco and nicotine-containing products, including counterfeit, contraband and other non-compliant or otherwise illicit products;
• intense competition, including unfair competition from non-tax paid volume by certain manufacturers; and
• legal challenges, including the pending and threatened litigation discussed in Part II, Item 8, Note 16. Contingencies in this report.
Smoke-Free Products (SFPs)
Our Approach to SFPs
We recognize that smoking cigarettes causes serious diseases and that the best way to avoid the harm of smoking is to never start or to quit. Nevertheless, according to WHO estimates, there are approximately one billion smokers globally. This number has not meaningfully changed in decades and, based on current trends, is not expected to significantly change in the near future.
Cigarettes burn tobacco, which produces smoke. As a result of the combustion process, the smoker inhales high levels of various toxic substances. In contrast, while SFPs contain nicotine, which is addictive and not risk-free, SFPs do not burn tobacco and therefore contain significantly lower levels of harmful and potentially harmful constituents ("HPHCs") than found in cigarette smoke.
Our SFPs and commercial activities for these products are designed for, and directed toward, current adult smokers and adult users of nicotine-containing products. We put in significant effort to restrict access to our products from underage persons.
For adult smokers who would otherwise continue to smoke cigarettes, we believe that SFPs, while not risk-free, offer a much better choice. Accordingly, our key strategic priorities are to: (i) continue developing and commercializing products that have the potential to present less risk of harm to adult smokers who switch to such products versus continued cigarette smoking; and (ii) educate and encourage current adult smokers who would otherwise continue to smoke cigarettes to switch to those products.
We recognize that this transformation from cigarettes to SFPs will take time and that the rate of transformation will depend in part upon factors beyond our control, such as the willingness of governments, regulators, and other policy groups to embrace SFPs as a desirable alternative to continued cigarette smoking. As a leading international cigarette manufacturer, we will continue to accelerate this transformation by using our extensive commercial and distribution infrastructure as an effective platform for the commercialization of our SFPs and communication with adult smokers and trade partners about the substantiated benefits of switching to our SFPs. As long as a significant number of adult smokers continue to smoke cigarettes, responsible leadership of the category is critical. We aim to maintain our competitive position in the cigarette market through selective investment. We are judiciously reallocating resources from cigarettes to SFPs and are streamlining our cigarette portfolio.
We have a range of SFPs in various stages of development, scientific assessment, and commercialization. We are committed to conducting rigorous scientific assessments of our SFPs to substantiate that they reduce exposure to HPHCs and, ultimately, that these products present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to SFPs versus continued cigarette smoking. We draw upon a team of expert scientists and engineers from a broad spectrum of scientific disciplines, and our extensive learnings of adult consumer preferences, to further develop and assess our SFPs. Our efforts are guided by the following key objectives:
• to develop SFPs as satisfying alternatives to smoking for adult smokers who would otherwise continue to smoke cigarettes;
• for those adult smokers, our goal is to develop and offer SFPs with a scientifically substantiated risk-reduction profile that approaches as closely as possible the risk-reduction profile associated with smoking cessation;
• to substantiate the reduction of risk for the individual adult smoker and the reduction of harm to the population as a whole, based on scientific evidence of the highest standard that is made available for scrutiny and review by external independent scientists and relevant regulatory bodies; and
• to advocate for the development of science-based regulatory frameworks for the development and commercialization of SFPs, including the communication of scientifically substantiated information to enable adult smokers to make better choices.
Our SFPs
Our product development is based on the elimination of combustion via tobacco heating and other innovative systems, as well as through oral tobacco and nicotine products, which we believe are the most promising paths to providing a better consumer choice for those who would otherwise continue to smoke cigarettes. We recognize that no single product will appeal to all adult smokers. Therefore, we are developing and commercializing a portfolio of products intended to appeal to a variety of distinct adult consumer preferences and achieve population harm reduction, including:
• Heat-not-burn products, which use a precisely controlled heating device incorporating our patented technologies, into which a specially designed and proprietary tobacco unit is inserted in a holder and heated to generate an aerosol. We have conducted a series of clinical studies for this platform, the results of which were included in our submissions to the U.S. Food and Drug Administration (“FDA”). In addition to the original version of IQOS , which relies on a heating technology using a blade, a newer version of IQOS uses induction heating. Most of the studies referenced above were conducted with the blade version of IQOS and additional research was conducted with the induction technology. We believe that there is full comparability between the bladed versions of IQOS and the subsequent induction versions of IQOS , and that the data from the studies conducted with the blade version of IQOS remain valid and applicable to the newer and adjacent versions of IQOS . We also produce a heat-not-burn product that utilizes external resistive heating technology, which is commercialized under the BONDS by IQOS brand, and has been launched in certain markets.
• Oral tobacco and nicotine products, which include snus and modern oral pouches. Snus refers to (a) dried loose tobacco, or snuff, which is consumed by sniffing the product through the nose; (b) moist loose tobacco which is put in the mouth between the lower or upper lip and gum; and (c) snus pouches which contain ground tobacco, water, salt and flavors. Modern oral pouches mainly refer to pre-portioned pouches containing nicotine, flavors, and cellulose substrate. In some markets, modern oral pouches may also contain small amounts of tobacco. Users place a pouch between the upper lip and gum and leave it there while the nicotine and flavor are being released. Like snus, nicotine pouches are inherently smoke-free as they are consumed orally, and no combustion process occurs during use. The pouches contain pharmaceutical-grade tobacco-derived nicotine like the nicotine used in medicinal products, such as nicotine-containing gums and inhalers, and flavors approved for use in food in accordance with the product quality standards for nicotine pouches developed by the Swedish Institute for Standards and the British Standards Institute. In 2022, we significantly expanded our oral smokeless products portfolio with the acquisition of Swedish Match. Swedish Match's ZYN is the leading smoke-free product brand in the U.S. market.
• e-Vapor products, which are battery-powered devices that produce an aerosol by vaporizing a tobacco-free liquid solution. We have developed e-liquids for our e-Vapor products with different flavor profiles, including e-liquids designed to deliver an authentic tobacco taste. Using patented technology, flavors and nicotine are extracted directly from the tobacco leaves and captured in a tobacco-free liquid solution, without having to add flavoring ingredients.
Data show that, in a stable regulatory environment, only a very small percentage of adult smokers who convert to IQOS switch back to cigarettes.
We aim to continue to develop and expand our SFP brand portfolio and market positions. In addition, we continue to use our expertise, technology and capabilities to explore new growth opportunities beyond our current business, including products that do not contain nicotine or tobacco.
Commercialization of SFPs
We are continuing to develop a multiplatform approach and tailoring our commercialization strategy to the characteristics of each specific market. We focus our commercialization efforts on consumer retail experience, guided consumer trials and customer care, and increasingly, digital communication programs and e-commerce. In order to accelerate switching to our SFPs, our initial market introductions typically entail one-on-one consumer engagement (in person or by digital means) and device discounts. These initial commercialization efforts require substantial investment, which we believe will moderate over time and further benefit from the increased use of digital engagement capabilities. PMI has invested, and continues to invest, in digital consumer engagement.
In 2014, we introduced IQOS in pilot city launches in Nagoya, Japan, and in Milan, Italy. Since then, we have continuously expanded our commercialization activities.
As of December 31, 2025, PMI's smoke-free products were available for sale in 106 markets.
We have integrated the production of our heated tobacco units into several of our existing manufacturing facilities, are progressing with our plans to build manufacturing capacity for our other SFPs, and continue to optimize our manufacturing infrastructure and expand our commercialization activities for new products and markets. We discuss certain risks related to the commercialization and supply of our SFP portfolio in Part I, Item 1A. Risk Factors—Cautionary Factors That May Affect Future Results in this report .
On October 20, 2022, PMI announced that it had reached an agreement with Altria Group, Inc., ("Altria") to end the companies' commercial relationship as of April 30, 2024, with respect to IQOS in the U.S. (the “Altria Agreement”). Under the Altria Agreement, PMI now holds the full rights to commercialize IQOS in the United States - the world’s largest smoke-free market. The Altria Agreement provides a clear path to expanding IQOS ’s international success in a market where over 30 million adults continue to smoke cigarettes. On March 27, 2025, we began selling IQOS 3.0, the blade version of IQOS , in Austin, Texas. We are pursuing a limited U.S. roll-out of the IQOS device while waiting for authorization to market IQOS ILUMA , the induction version, in the United States.
In January 2020, we announced an agreement with KT&G, a leading tobacco and nicotine company in South Korea, for the commercialization of KT&G’s smoke-free products outside of South Korea on an exclusive basis. On January 30, 2023, building on three years of collaboration, we announced a long-term collaboration with KT&G to continue to commercialize KT&G's innovative smoke-free devices and consumables on such an exclusive basis. In November 2025, the parties reached an agreement that will facilitate the continuation of the collaboration with a new and revised volume commitment for the 2026-2028 period. For more information, see Acquisitions, Divestitures and Other Business Arrangements below.
Our commercialization efforts for the other PMI-developed SFPs are as follows:
• Since 2022, we began commercializing BONDS devices and BLENDS consumables, and they are now available in 5 markets.
• Since August 2020, we have launched and expanded our portfolio of vaping products (branded VEEV ) in 47 markets.
• Following our acquisition of Swedish Match, we have access to a strong portfolio of Swedish Match brands, and more specifically to ZYN . Modern oral pouches are currently available in 56 markets.
Legislation, Regulation, Taxation and Other Matters Regarding the Manufacture, Marketing, Sale and Use of Tobacco and Other Nicotine-Containing Products
Fiscal Challenges
Excessive and disruptive excise, sales and other tax increases and discriminatory tax structures are expected to continue to have an adverse impact on our profitability, due to lower consumption and consumer down-trading to non-premium, discount, other low-price or low-taxed products such as fine cut tobacco, illicit cigarettes or illicit SFPs. In addition, in certain jurisdictions, some of our products are subject to tax structures that discriminate against premium-price products and manufactured cigarettes. We believe that such tax policies undermine public health by encouraging consumers to turn to illicit trade or negatively impact the transition of adult smokers to SFPs, and ultimately undercut government revenue objectives, disrupt the competitive environment, and encourage activity. Other jurisdictions have imposed, or are seeking to impose, levies or other taxes specifically on tobacco companies, such as taxes on revenues and/or profits.
On March 14, 2024, the Court of Justice of the European Union (the "CJEU") ruled that the German fiscal regulation imposing an additional excise tax on heated tobacco products ("HTPs") does not contravene EU law. The Fiscal Court in Dusseldorf (the "FCD") had previously referred that question to the CJEU. On May 21, 2024, the FCD delivered its judgment and dismissed the claim of our local affiliate, f6 Cigarettenfabrik GmbH & Co.KG, ("PM Germany"). PM Germany filed a notice of appeal to the Federal Fiscal Court on June 19, 2024. To avoid further accumulation of interest, in January 2025, PM Germany provisionally paid the additional HTP excise tax relating to 2022, 2023 and 2024 (pending the outcome of the FCD decision). An oral hearing is expected by the third quarter of 2026.
In March 2025, Japan adopted a multi-year tax plan that included changes to its excise tax structure and rates for tobacco products. Under the plan, the excise tax for HTPs will be harmonized with cigarettes in two steps; one on April 1, 2026, and the second on October 1, 2026. The first increase in the harmonized HTP and cigarette excise tax will occur in April 2027, and the plan provides predictability on future excise rate increases for all tobacco product categories until April 2029.
Legislative and Regulatory Environment
The tobacco industry operates in a highly regulated environment. The well-known risks of smoking have led regulators to impose significant restrictions and high excise taxes on cigarettes. The regulatory landscape for novel nicotine-containing products is inconsistent and evolving but is, in some instances, even more restrictive compared to the regulatory environment for cigarettes.
Much of the regulation that shapes the business environment in which we operate is driven by the World Health Organization's (the "WHO") Framework Convention on Tobacco Control (the "FCTC"), which entered into force in 2005. The main objective of the FCTC is to establish a global agenda for tobacco regulation, with the purpose of reducing tobacco use. To date, 182 countries and the European Union ("EU") are Parties to the FCTC. The treaty requires Parties to have in place various tobacco control measures and recommends others. The FCTC governing body, the Conference of the Parties (“CoP”), has also adopted non-binding guidelines and policy recommendations related to certain articles of the FCTC that go beyond the text of the treaty. In October 2018, the CoP recognized the need for more scientific assessment and improved reporting to define policy on HTPs. Similar to its previous policy recommendations on e-cigarettes, the CoP invited countries to regulate, restrict or prohibit HTPs, as appropriate under their national laws.
The WHO study group on tobacco product regulation published their ninth and tenth reports on the scientific basis of tobacco product regulation in August 2023 and November 2025, respectively. The reports are based on a review of scientific evidence related to novel and emerging nicotine and tobacco products, such as electronic nicotine delivery systems ("ENDS"), electronic non-nicotine delivery systems and HTPs. The report concludes by making a number of policy recommendations on HTPs and ENDS that, if implemented, could restrict both the availability of these products and access to accurate information about them.
The Eleventh Session of the CoP ("CoP11") took place in November 2025. No specific new decisions or policy recommendations on novel and emerging tobacco or nicotine products were adopted, though the parties were invited to "consider comprehensive regulatory options regarding tobacco and nicotine product components, and related external components that increase environmental harms, taking into consideration public health impacts." The WHO's reports and other FCTC guidelines or recommendations are not binding on the WHO Member States or on Parties to the FCTC. CoP12 will take place in 2027.
We believe that when better alternatives to cigarettes exist, the discussion should not be whether these alternatives should be made available to the more than one billion people who smoke cigarettes today, but how fast they can be made available, and within what regulatory framework to maximize their adoption by adult smokers while minimizing unintended use. Therefore, we advocate for regulatory frameworks that are based on a continuum of risk where non-combustible products fall below combustible cigarettes. And we believe that regulation and taxation should differentiate between cigarettes and products that present, are likely to present, or have the potential to present less risk of harm to adult smokers who switch to these products versus continued smoking.
Product regulation should include measures that encourage and accelerate switching to non-combustible products, for example, by allowing adult consumers who would otherwise continue smoking cigarettes to receive truthful and non-misleading information about such alternatives to enable them to make informed decisions and by applying uniform product standards to enable manufacturers to demonstrate the absence of combustion, as well as the reduction in HPHCs.
Regulation should also include specific rules for ingredients, labeling and consumer communication, and should ensure that the public is informed about the health risks of all combustible and non-combustible tobacco and nicotine-containing products. Importantly, regulation must include measures designed to prevent initiation by youth and non-nicotine users. We support mandated accurate and factual health warnings on packaging, minimum age laws, restrictions on advertising, and smoking restrictions in public spaces. We also support regulatory measures that help reduce illicit trade. At the same time, we oppose excessive or prohibitive regulations that may prevent adult smokers, who would otherwise continue smoking, from accessing and switching to SFPs or trigger unintended consequences such as illicit trade.
Regulatory Restrictions
SFP Sales Prohibitions : Some governments have banned, are seeking to ban, or severely restrict emerging tobacco and nicotine-containing products, such as our SFPs, and communication of truthful and non-misleading information about such products. Significant markets that have prohibited or severely restricted the sale of one or more category of SFP include Argentina, Brazil, Canada, France, India, Mexico, Turkey, Australia, Thailand, and Vietnam. In the U.S., some states and municipalities have introduced stringent restrictions on the sale of certain SFPs, including those authorized by the FDA.
These regulations might foreclose or unreasonably restrict adult consumer access to products that might be a better consumer choice than continuing to smoke cigarettes. These regulations could also constitute, in effect, non-tariff barriers to trade. We oppose blanket
bans and unreasonable restrictions of products that have the potential to present less risk of harm compared to continued cigarette smoking. By contrast, we support regulation that sets clear standards for all SFP categories and propels innovation to benefit adult smokers who would otherwise continue to smoke cigarettes.
EU Tobacco Products Directive ("TPD") : In April 2014, the EU adopted a significantly revised TPD, which came into force in May 2016. All EU Member States have adopted laws transposing the TPD. The TPD sets forth a comprehensive set of regulatory requirements for tobacco products, including:
• health warnings covering 65% of the front and back panels of cigarette packs, with an option for Member States to further standardize tobacco packaging, including the introduction of plain packaging;
• a ban on characterizing flavors in some tobacco products;
• security features and tracking and tracing measures; and
• a framework for the regulation of novel tobacco products and e-cigarettes, including requirements for health warnings and information leaflets, a prohibition on product packaging text related to reduced risk, and the introduction of notification requirements or authorization procedures in advance of commercialization.
In February 2024, the European Commission published an updated implementation roadmap to Europe's Beating Cancer Plan (the "Plan"). On December 16, 2025, the European Commission published the "EU Cardiovascular Health Plan — Safe Hearts Plan," where it announced its intention to propose a revision of the legislative framework on tobacco control (including TPD) in 2026.
In May 2024, the EU-wide systems of traceability and security features for tobacco products were extended to include tobacco products other than cigarettes and roll-your-own tobacco products. As such, all tobacco products are covered by the traceability system.
EU Tobacco Excise Directive ("TED") : In July 2025, the EU Commission published a legislative proposal for the revision of the 2011 EU Tobacco Excise Directive. The proposal intends to review minimum excise tax rates for combustible tobacco products and expands the scope of the directive to include smoke-free products, such as heated tobacco, e-cigarettes, and nicotine pouches, providing differentiated tax treatment for novel tobacco and nicotine containing products. This proposal marks the beginning of the formal legislative process which requires unanimous approval by all EU Member States and subsequent transposition of TED into national legislation in the EU 27 Member States. The proposal contemplates an implementation date for this directive of January 1, 2028, and provides for an additional transitional period of four years for several categories, including heated tobacco and nicotine pouches.
Plain Packaging and Other Packaging Restrictions : Plain packaging legislation bans the use of branding, logos and colors on packaging other than the brand name and variant that may be printed only in specified locations and in a uniform font. To date, plain packaging laws have been adopted in certain markets, including the key markets of Australia, France, Saudi Arabia and Turkey. Some countries, such as Denmark and Israel, adopted plain packaging regulations that apply to all tobacco products, including SFPs. Other countries are also considering plain packaging legislation.
Some countries have adopted, or are considering adopting, packaging restrictions that could have an impact similar to plain packaging. Examples of such restrictions include standardizing the shape and size of packages, prohibiting certain colors or the use of certain descriptive phrases on packaging, and requiring very large graphic health warnings that leave little space for branding.
Restrictions and Bans on the Use of Ingredients : The WHO and others in the public health community have recommended restrictions or total bans on the use of some or all ingredients in both combustible products and SFPs, including menthol. Broad restrictions and ingredient bans would require us to reformulate our American blend tobacco products, which could reduce our ability to differentiate these products in the market in the long term. In many countries, menthol or flavor bans would eliminate entire product categories.
The EU banned cigarettes and roll-your-own tobacco products with characterizing flavors, while exempting other tobacco products under EU TPD from this characterizing flavor ban. This was also the case for heated tobacco products until November 23, 2022, when the EU Commission published a delegated directive that eliminated this exemption. All EU Member States were required to apply the delegated directive as of October 23, 2023, which bans the use of characterizing flavors in heated tobacco products, impacting a significant proportion of our SFP products currently sold in the EU. Currently, all EU Member States have transposed this directive into national law, withdrawing the heated tobacco product exemption from the characterizing flavor ban. Based on high consumer switching to non-flavored products in reaction to past bans on flavors in other categories and markets, we anticipated that, while short-
term volatility would be possible, the ban’s impact on our shipment volumes in the EU would be relatively limited in the near term. To date, our experience is generally consistent with this expectation. There has been some short-term disruption in countries that have implemented the ban, most notably in Italy, but the impact has generally been limited in time and magnitude. But our fundamental view remains that we do not expect a meaningful long-term change in the structural growth of the category. We will continue to actively monitor relevant developments in the EU market, including from an illicit trade standpoint.
Other countries may follow the EU’s approach toward tobacco product ingredients. Broader ingredient bans have been adopted by, among others, Brazil (pending a court decision), Thailand, Hong Kong (pending implementation date), and Canada. Specific bans were introduced in countries such as Turkey, which banned menthol as of May 2020. In the U.S., certain states and localities have adopted, or are considering adopting, flavor bans that apply to SFPs.
Bans on Display of Tobacco Products at Retail : In a number of our markets, including, but not limited to, Australia, Canada and Russia, governments have banned the display of tobacco products at the point of sale. Other countries are considering similar bans.
Bans and Restrictions on Advertising, Marketing, Promotions and Sponsorships : For many years, the FCTC has called for, and countries have imposed, partial or total bans on tobacco advertising, marketing, promotions and sponsorships, including bans and restrictions on advertising on radio and television, in print and on the Internet. The FCTC's non-binding guidelines recommend that governments prohibit all forms of communication with adult smokers. In CoP10, Specific Guidelines were adopted to address cross-border Tobacco Advertising, Promotion, and Sponsorship (“TAPS”) and the depiction of tobacco in entertainment media. These Specific Guidelines are non-binding on WHO Member States and FCTC Parties.
Product Standards and Restrictions on Product Design : In some countries, including in the EU, cigarettes are subject to testing, disclosure and mandatory emissions limits for tar, nicotine, carbon monoxide and other smoke constituents.
Some members of the public health community are calling for further standardization of tobacco products by requiring, for example, that cigarettes have a certain minimum diameter, which would result in a ban on slim cigarettes, or requiring the use of standardized filter and cigarette paper designs. In the Netherlands, an anti-smoking organization has brought a lawsuit to force the government to require a different test method for measuring cigarette emissions than what is currently required under EU law, which, if allowed, could lead to a de facto ban on manufactured cigarettes in the Netherlands and, potentially, in other EU countries. In addition, at its meeting in November 2016, the CoP adopted non-binding guidelines recommending that countries regulate product design features that increase the attractiveness of tobacco products, such as the diameter of cigarettes and the use of flavor capsules.
Currently, national standards in certain countries set minimum quality and safety requirements for heat-not-burn products with technical heat-not-burn specifications and/or methods for demonstrating the absence of combustion, including, for example, Algeria, Angola, Armenia, Bahrain, Colombia, Costa Rica, Dominican Republic, Egypt, Indonesia, Jordan, Kazakhstan, Kyrgyzstan, Lebanon, Morocco, the Philippines, Russia, Saudi Arabia, Tajikistan, Tunisia, the United Arab Emirates ("UAE"), the U.K., Ukraine, Uzbekistan and Vietnam. These standards may be mandatory or voluntary, depending on the market. In Japan, a voluntary standard sets minimum safety requirements for tobacco heating devices.
For e-Vapor products, national standards setting minimum quality and safety requirements have been adopted in several markets, including, for example, Armenia, Australia, Azerbaijan, Bahrain, China, Costa Rica, Egypt, France, Indonesia, Jordan, Morocco, New Zealand, the Philippines, Russia, Saudi Arabia, Tajikistan, the UAE, the U.K., and Ukraine. These standards may be mandatory or voluntary, depending on the market.
Currently, national standards setting minimum quality and safety requirements for modern oral pouches have been adopted in several countries, including, for example, Angola, Armenia, Bahrain, Costa Rica, France, Malawi, Mexico, Moldova, Morocco, Pakistan, the Philippines, Sweden, UAE, the U.K., Ukraine and Zimbabwe. These standards may be mandatory or voluntary, depending on the market.
We expect other governments to consider similar product standards for all novel tobacco and nicotine-containing products and encourage making them mandatory.
Restrictions on Public Smoking and Use of Nicotine-Containing Products in Public : The pace and scope of restrictions on the use of our products have increased significantly in most of our markets. Many countries around the world have adopted, or are likely to adopt, regulations that restrict or ban smoking and use of certain nicotine-containing products in public and/or workplaces, restaurants, bars and nightclubs. Some public health groups have called for, and some countries, regional governments and municipalities have adopted or proposed, bans on smoking in outdoor places, as well as bans on smoking in cars (typically, when minors are present) and private homes. On December 3, 2024, the EU Council adopted its legally non-binding recommendation on smoke- and aerosol-free
environments. While the recommendations recognize scientifically proven differences between smoke-free and combustible products, they nevertheless encourage EU member states to restrict usage of both conventional tobacco products and inhalable smoke-free products in indoor public spaces and some outdoor areas. Each member state is to decide whether or not to implement these recommendations.
Generation Bans : Certain jurisdictions are considering generation sales bans, which prohibit the sale of certain tobacco or nicotine products to people born after a particular year. In December 2022, New Zealand adopted regulatory measures prohibiting the sale of smoked tobacco products to anyone born on or after January 1, 2009. These measures were limited to smoked tobacco products and did not apply to heated tobacco products and e-cigarettes. The New Zealand parliament repealed the measures in February 2024, before they were implemented. On November 5, 2024, the UK government introduced a bill to its Parliament, which if adopted, would ban the sale of tobacco products, including HTPs, herbal smoking products and cigarette papers to those born on or after January 1, 2009.
Other Regulatory Issues : Some jurisdictions are considering, or in some cases have adopted, measures designed to reduce the supply of tobacco products. These include regulations intended to reduce the number of retailers selling tobacco products by, for example, reducing the overall number of tobacco retail licenses available or banning the sale of tobacco products within specified distances of certain public facilities. In a limited number of markets, most notably Japan, we are dependent on governmental approvals that may limit our pricing flexibility.
The EU Single-Use Plastics Directive, which requires tobacco manufacturers and importers to cover the costs of public collection systems for tobacco product filters, under Extended Producer Responsibility ("EPR") schemes, came into force on July 2, 2019. As of December 31, 2025, the majority of EU Member States transposed the directive into national legislation and brought into force mandatory EPR schemes and related EPR costs for tobacco manufacturers and importers. We currently expect further adoption of similar laws in other jurisdictions, and we are monitoring developments in this area. We do not estimate a material impact to our business in the EU as a result of compliance with these mandatory EPR schemes.
SFP Commercialization and Risk Statement Authorizations
Certain markets have instituted regulatory authorization processes that govern the commercialization of SFPs or the use of statements addressing SFP harm-reduction.
FDA Authorization Process and Status of PMI SFPs : In the United States, an established regulatory framework for assessing tobacco products including “Modified Risk Tobacco Products” ("MRTP") exists under the jurisdiction of the FDA. FDA actions may influence the regulatory approach of other governments and international regulatory agencies.
FDA Review of IQOS : We submitted to the FDA a Modified Risk Tobacco Product Application (“MRTPA”) for the IQOS Tobacco Heating System, which includes both the corresponding device and consumables, ("THS") in December 2016, and a Premarket Tobacco Product Application (“PMTA”) for IQOS in March 2017.
On April 30, 2019, following its comprehensive assessment of our PMTA, the FDA determined that marketing a version of IQOS , namely, IQOS 2.4 and three related consumables, is appropriate for the protection of public health and authorized those products for sale in the United States. On December 7, 2020, the FDA reached the same determination for IQOS 3.0, authorizing that version of the device for sale in the United States.
On July 7, 2020, the FDA determined that the available scientific evidence demonstrates that the issuance of an exposure modification order would be appropriate for the promotion of public health and authorized the marketing of a version of IQOS , namely IQOS 2.4 and three related consumables, as MRTP products with reduced exposure claims. On March 11, 2022, the FDA reached the same determination for the IQOS 3.0 device. The FDA authorized the marketing of these products in the U.S. with the following claims:
"AVAILABLE EVIDENCE TO DATE:
• the IQOS system heats tobacco but does not burn it.
• this significantly reduces the production of harmful and potentially harmful chemicals.
• scientific studies have shown that switching completely from conventional cigarettes to the IQOS system significantly reduces your body’s exposure to harmful or potentially harmful chemicals."
The FDA may issue two types of MRTP orders: a risk modification order or an exposure modification order. We had requested both types of orders for IQOS 2.4 and an initial selection of three related consumables' variants. After review, the FDA determined that the evidence did not support issuing a risk modification order at that time, but that it did support issuing an exposure modification order for the product. This determination included a finding that issuance of the exposure modification order is expected to benefit the health of the population as a whole. We also received an exposure modification order for IQOS 3.0 in March 2022.
The FDA’s PMTA and MRTP orders do not mean that the agency has “approved” IQOS products. These authorizations are subject to strict marketing, reporting, and other requirements, and are not a guarantee that the product will remain authorized, particularly if there is a significant uptake in youth or non-smoker initiation. The FDA monitors the marketing of the products.
On January 26, 2023, the FDA authorized the marketing of two new tobacco-flavored consumables ( Marlboro Sienna HeatSticks and Marlboro Bronze HeatSticks ) and a modified version of the authorized Marlboro Amber HeatSticks . These products are line extensions and/or modified versions of the three consumables for which the FDA had previously issued a marketing granted order. In its assessment, the FDA determined that these three variants of HeatSticks were comparable to the previously authorized tobacco-flavored consumables.
On July 5, 2023, we submitted applications to the FDA requesting renewal of the MRTP authorizations previously granted to IQOS products in the United States. These renewal requests were received by the FDA 360 days prior to the stated July 2024 expiration date of the original exposure modification orders, as requested by the FDA in the original orders. On May 9, 2024, the FDA filed for scientific review of our MRTP renewal applications for IQOS products and posted materials from these applications. The FDA referred our MRTP renewal to the Tobacco Product Scientific Advisory Committee (“TPSAC”). TPSAC held a meeting on our renewal application on October 7, 2025. The recommendations of TPSAC are not binding on the FDA. By regulation, the FDA’s decision on our renewal application will take into account, in addition to the views of TPSAC, scientific evidence as well as comments, data and information submitted by interested persons. The FDA did not issue a decision on our MRTP renewal applications prior to the stated July 7, 2024, expiration date of the original exposure modification orders. The MRTP renewal applications were timely filed in accordance with FDA direction, and we believe that we are permitted to continue to use the modified exposure claim with respect to those products that received exposure modification orders until the FDA decides on our MRTP renewal applications.
On October 20, 2023, we submitted bundled PMTAs for our IQOS ILUMA THS products together with MRTPAs requesting authorization of the modified exposure order previously granted for IQOS blade versions. We submitted these applications at the same time for the FDA to evaluate the PMTAs and MRTPAs concurrently. In March 2024, the FDA formally accepted our bundled PMTAs and MRTPAs. As our applications proceed through the review process, the FDA may request additional information or conduct subsequent inspections to verify the information we submitted.
On January 19, 2024, the FDA completed its review of our Requests for Exemption from Substantial Equivalence (the “EX REQs”) for the five submitted IQOS consumables and determined that these tobacco products were exempt from the requirements outlined for substantial equivalence (a regulatory pathway that can be used to introduce new tobacco products which have the same characteristics as a product previously authorized by the FDA). These submissions were made in November 2022 (for the three initial IQOS consumables) and February 2023 (for the two new IQOS consumables) to enable domestic manufacturing of IQOS consumables utilizing materials purchased from vendors operating in the United States.
On April 30, 2025, we submitted the Annual Report for the IQOS THS to the FDA. The report included a systematic review of the literature covering publications related to the IQOS THS between March 1, 2024, and February 28, 2025. The report included publications in various scientific fields including aerosol chemistry and physics, standard and systems toxicology, clinical studies on exposure reduction to HPHCs, and observational studies. Overall, the review continues to support the finding that IQOS THS is "appropriate for the promotion of public health."
FDA Review of Oral Tobacco and Nicotine Products : PMTAs for 20 varieties of ZYN nicotine pouches were submitted in March 2020. On January 16, 2025, the FDA determined that all 20 ZYN nicotine pouch varieties currently marketed in the U.S. met the applicable public health standard and were appropriate for the protection of public health and, therefore, authorized them for sale in the United States. In its assessment, the FDA concluded that “among several key considerations, the agency’s evaluation showed that, due to substantially lower amounts of harmful constituents than cigarettes and most smokeless tobacco products, such as moist snuff and snus, the authorized products pose lower risk of cancer and other serious health conditions than such products.”
On January 16, 2026, we submitted the first Annual Report for ZYN products to the FDA. The report included a systematic review of the literature covering publications related to ZYN products between January 16, 2025, and October 31, 2025. The report included publications in various scientific fields including observational studies on trends related to the potential health impact of the products, and behavioral studies analyzing the impact on former and never smokers, impact on cessation, product acceptance and the impact of
marketing approaches. Our review of publications revealed no significant new findings. Overall, the review continues to support the FDA's conclusion that marketing of these ZYN products is "appropriate for the protection of public health."
In April 2024, we submitted MRTPAs for ZYN products currently marketed in the United States and requested authorization of a modified risk claim. In February 2025, the FDA formally accepted our MRTPAs and in June 2025, issued a filing letter for 20 ZYN nicotine pouch products. This action initiated a scientific review of our MRTPAs which requested the following modified risk claim: “Using ZYN instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis.” During the review, the FDA will determine whether our applications provide the necessary evidence for ZYN products to be marketed with the requested claim. The FDA referred our MRTPAs to TPSAC, which met on January 22, 2026.
We have and will continue to make additional submissions to FDA to market other ZYN products in the United States. In September 2025, the FDA launched a pilot program that aims to increase efficiency and streamline the review process for PMTAs for nicotine pouches. We are aware that certain of our competitors have recently marketed, or stated their intention to market, products that had pending PMTAs and were not previously marketed in the United States. We continue to evaluate the practices of the FDA and other regulators regarding products with respect to which regulatory submissions have been made and assess all potential pathways to market in the United States that might be available
On July 17, 2023, Swedish Match USA, Inc. submitted an application to the FDA requesting re-authorization to continue to market its eight snus smokeless tobacco products (sold under the General snus brand name) with a modified risk claim. General snus products received modified risk orders on October 22, 2019. Swedish Match USA, Inc. was authorized to market these products with the claim, “Using General snus instead of cigarettes puts you at a lower risk of mouth cancer, heart disease, lung cancer, stroke, emphysema, and chronic bronchitis.” On November 7, 2024, the FDA renewed the General snus modified risk orders, with a stated expiration date in November 2032.
Other Commercialization and Risk Statement Authorization Frameworks : On March 22, 2023, a bill amending the Tobacco Hazards Prevention and Control Act in Taiwan went into effect. It regulates heated tobacco products and bans e-cigarettes. The amendment particularly specifies that designated tobacco products (including heated tobacco products) that are not cigarettes, cut tobacco, cigars, snuff nor chewing tobacco, must undergo a health risk assessment as part of an authorization system. In July 2023, we filed an authorization request to commercialize IQOS in Taiwan pursuant to this Act. We have since received this authorization, which took effect on October 11, 2025.
On March 23, 2023, the Greek Ministry of Health authorized a claim for IQOS with HEETS AMBER to inform Greek IQOS users about reduction in emissions of toxicants when using such product compared to cigarette smoking. The decision authorized the following claim: “The concentration of chemical substances with recognized toxicity produced when using IQOS with HEETS AMBER tobacco sticks is lower compared to conventional smoking. A reduction in the concentration of chemical substances with recognized toxicity does not mean a corresponding reduction in risk for health. The aerosol of this tobacco product contains nicotine and other hazardous chemicals. This tobacco product harms your health and is addictive. The best choice is to quit tobacco and nicotine use altogether.” With this authorization, Greece is the second country officially recognizing the reduction in level of toxicants in the IQOS aerosol compared to cigarette smoke. In February of 2025, the Greek Ministry of Health authorized a substantially similar claim and disclaimer for IQOS ILUMA devices with seven TEREA variants (Amber, Bronze, Russet, Sienna, Silver, Teak and Yellow).
SFP Scientific Findings
We make our scientific findings publicly available for scrutiny and peer review through several channels, including our websites. From time to time, adult consumers, competitors, members of the scientific community, and others inquire into our scientific methodologies, challenge our scientific conclusions or request further study of certain aspects of our SFPs and their health effects. We are committed to a robust and open scientific debate and believe that such debate should be based on accurate and reliable scientific information. We seek to provide accurate and reliable scientific information about our SFPs; nonetheless, we may not be able to prevent third-party dissemination of false, misleading or unsubstantiated information about these products. The dissemination of scientifically unsubstantiated information or studies with a strong confirmation bias by third parties may cause confusion among adult smokers and affect their decision to switch from continued smoking to better alternatives, such as our SFPs.
To date, we have been largely successful in demonstrating to regulators that our SFPs are not cigarettes due to the absence of combustion, and as such, they are frequently taxed either as a separate category or as other tobacco products, which typically yields more favorable tax rates than cigarettes. Although we believe that this is sensible from the public health perspective, some jurisdictions have considered or adopted taxation regimes with SFP taxation rates approaching or equal to cigarettes and there is no guarantee regulators will maintain current levels of differentiation. Further, there can be no assurance that we will succeed in our
efforts to replace cigarettes with SFPs or that regulation will allow us to commercialize SFPs in all markets, to communicate about our SFPs, including making scientifically substantiated risk-reduction claims, or to treat SFPs differently from cigarettes.
To date, several governmental agencies have published their scientific findings that analyze the harm-reduction potential of certain SFPs versus continuing to smoke cigarettes, including:
In December 2017, at the request of the U.K. Department of Health and Public Health England, the U.K. Committee on Toxicity published its assessment of the risk of heat-not-burn products relative to cigarette smoking. This assessment included analysis of scientific data for two heat-not-burn products, one of which was IQOS . The assessment concluded that, while still harmful to health, compared with the known risks from cigarettes, heat-not-burn products are probably less harmful. Subsequently, in February 2018, Public Health England published a report stating that the available evidence suggests that heat-not-burn products may be considerably less harmful than cigarettes but more harmful than e-cigarettes.
In May 2018, the German Federal Institute for Risk Assessment (“BfR”) published a study on IQOS aerosol relative to cigarette smoke using the Health Canada Intense Smoking Regimen. BfR found reductions in selected HPHCs in a range of 80-99%. This publication indicates that significant reductions in the levels of selected toxicants are likely to reduce toxicant exposure, which BfR stated might be regarded as a discrete benefit compared to combustible cigarettes.
In May 2018, the Dutch National Institute for Public Health and Environment (“RIVM”) published a factsheet on novel tobacco products that heat rather than burn tobacco, focusing on IQOS . RIVM analyzed the aerosol generated by our IQOS product and concluded that the use of this product, while still harmful to health, is probably less harmful than continuing to smoke cigarettes.
In June 2018, the Korean Food and Drug Administration (“KFDA”) issued a statement on products that heat rather than burn tobacco. The KFDA tested three heat-not-burn products, one of which was IQOS . The KFDA confirmed that the levels of the nine HPHCs tested in the aerosol of these products were on average approximately 90% lower compared to those measured in the cigarette smoke of the top five cigarette brands in South Korea. However, the KFDA stated that it could not establish that the tested heat-not-burn products are less harmful than cigarettes. In October 2018, our Korean subsidiary filed a request with a local court seeking information underlying KFDA’s analysis, conclusions and public statements. In May 2020, the court ordered KFDA to produce certain records. Subsequent to that decision, and after exchanges between the parties, the case was closed.
In August 2018, the Science & Technology Committee of the U.K. House of Commons published a report of its inquiry into e-cigarettes and heat-not-burn products. The report concluded that e-cigarettes are significantly less harmful to health than smoking tobacco. The report also observed that for those smokers who do not accept e-cigarettes, heat-not-burn products may offer a public health benefit despite their relative risk. The report called for a risk-proportionate regulatory environment for both e-cigarettes and heat-not-burn products and noted that e-cigarettes should remain the least taxed, cigarettes the most taxed, with heat-not-burn products falling between the two. The U.K. Committee on Advertising Practice announced the removal of a prohibition of health claims in the advertising of e-cigarettes in the U.K., effective November 2018.
In November 2018, the Eurasian Economic Commission (regulatory body of the Eurasian Union consisting of Armenia, Belarus, Kazakhstan, Kyrgyzstan and Russia) published the results of its commissioned study on novel nicotine-containing products, including IQOS . The study confirms significantly lower levels of HPHCs in the aerosol generated by this product compared to cigarette smoke.
In January 2019, scientific media published the results of the study of the China National Tobacco Quality Supervision and Test Centre (“CNTQST”) comparing the aerosol generated by IQOS with cigarette smoke. The CNTQST found that the former contained fewer, and lower levels of, harmful constituents than the latter and concluded that the lower temperature of heating tobacco in IQOS contributed to the difference. The CNTQST stated that the reduction in emissions of harmful constituents cannot be interpreted as a harm/risk reduction for cigarette smokers in the same proportion.
In April 2020, the Superior Health Council of Belgium (“SHC”) published results of its inquiry into heat-not-burn products. The SHC concluded that heat-not-burn products, while not safe, have a more favorable toxicity profile than cigarettes. However, in light of the uncertainty of such products’ short and long-term impacts, the toxic effects of the dual use with cigarettes, and the existence of approved smoking cessation tools, the SHC recommended that current regulations for cigarettes should apply to heat-not-burn products.
In June 2022, the SHC published new advice on e-cigarettes in which they confirm that e-cigarettes are substantially less harmful than smoking cigarettes and, therefore, a better alternative for smokers. The SHC underlines that the vast majority of the risks of tobacco smoking are not caused by nicotine, but by the harmful substances that are released by the combustion of tobacco. Based on the cited
science, the SHC calls for legislation that makes a clear distinction between cigarettes and e-cigarettes by focusing on better informing smokers about the benefits of the lower-risk (but not risk-free) alternative, as well as on protecting non-smokers and young people.
The foregoing scientific findings of government agencies may not be indicative of the measures that the relevant government authorities could take in regulating our products.
Legal Challenges to SFPs
We face various 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. While we design our programs to comply with relevant regulations, we expect these or similar challenges to continue as we expand our efforts to commercialize SFPs and to communicate with the public. The outcomes of these matters may affect our SFP commercialization and public communication activities and performance in one or more markets.
Illicit Trade
Illicit trade creates a cheap and unregulated supply of tobacco and nicotine-containing products, undermines efforts to reduce smoking prevalence, especially among youth, damages legitimate businesses and intellectual property rights, stimulates organized crime, increases corruption and reduces government tax revenue. We generally estimate that, excluding China and the U.S., illicit trade may account for as much as 15% of global cigarette consumption; this includes counterfeit, contraband and the persistent problem of “illicit whites,” which are cigarettes legally purchased in one jurisdiction for the sole purpose of being exported and illegally sold in another jurisdiction where they have no legitimate market. Currently, we estimate that illicit trade in the EU accounted for approximately 9% of total cigarette consumption in 2024. Illicit trade also increasingly targets SFPs.
We devote substantial resources to help prevent illicit trade in combustible tobacco products and SFPs. We engage with governments, our business partners, and other stakeholders to implement effective measures to combat illicit trade. Where effective and appropriate, we pursue legal remedies to protect our intellectual property rights from counterfeiting or to counter the illicit diversion of our products. We also cooperate with governmental authorities to combat fraudulent imports of non-compliant or unauthorized tobacco and nicotine-containing products.
As an example, the recent commercial success of the nicotine pouch category makes it more prone to be affected by illicit trade. Our ongoing anti-illicit initiatives for nicotine pouches include PMI’s ‘know-your-customer’ and ‘anti-diversion’ governance and other measures, such as volume monitoring, tracking and tracing, product security, as well as internal and external awareness training and communications. We are also expanding our market monitoring (both online and offline) and illicit trade research program to nicotine pouches. PMI affiliates and Swedish Match affiliates are taking appropriate actions to address the illicit resale of certain of our oral products including nicotine pouches outside their initial intended market of retail, such as Scandinavia, the U.S. and other markets. Such actions include awareness communications to trade partners, cease-and-desist letters to those involved in illicit trade of products bearing our brands and limiting and/or terminating sales to certain customers in both the online and traditional trade.
A number of jurisdictions are considering actions to prevent illicit trade. In November 2012, the FCTC adopted the Protocol to Eliminate Illicit Trade in Tobacco Products (the “Protocol”), which includes supply chain control measures, such as licensing of manufacturers and distributors, enforcement of these control measures in free trade zones, controls on duty free and Internet channels and the implementation of tracking and tracing technologies. To date, 72 Parties, including the EU, have ratified the Protocol. The Protocol came into force in September 2018. Since then, implementation in national legislations has been ongoing. The fourth Meeting of the Parties ("MOP4") concluded in November 2025, with no restrictions decided with regard to duty-free tobacco sales, or as to whether the Protocol’s provisions cover electronic nicotine and non-nicotine delivery systems. MOP5 will take place in 2027. The tracking and tracing regulations for cigarettes and roll-your-own products manufactured or destined for the EU were extended to include tobacco products other than cigarettes, including some of our SFPs, as of May 20, 2024.
Governmental Investigations
From time to time, we are subject to governmental investigations on a range of matters, including tax, customs, antitrust, advertising, and labor practices. We describe certain pending matters in Item 8, Note 16. Contingencies .
Trade Policy
PMI complies with all applicable trade restrictions and requirements, including sanctions, in the markets in which it operates. We have taken appropriate actions in response to the latest sanctions to ensure full compliance with the relevant restrictions.
We are subject to various trade restrictions imposed by the U.S., the EU, Switzerland, the U.K., and other jurisdictions in which we do business (“Trade Sanctions”), including the trade and economic sanctions administered by the U.S. Department of the Treasury's Office of Foreign Assets Control (“OFAC”) and the U.S. Department of State. It is our policy to comply fully with these Trade Sanctions.
Pursuant to specific exemptions or licenses, or where sanctions do not apply to our business, PMI may make sales in countries subject to Trade Sanctions.
We do not do business or sell products in Belarus, Iran, North Korea, Cuba and Syria.
Certain states within the U.S. have enacted legislation permitting or requiring state pension funds to divest or abstain from future investment in stocks of companies that do business with certain countries that are sanctioned by the U.S. Because we do business in certain of these countries, consistent with our policy to fully comply with Trade Sanctions and as described above, these state pension funds may have divested of our stock or may not invest in our stock. We do not believe such legislation has had a material effect on the price of our shares.
Following the start of the conflict in Ukraine on February 24, 2022, the U.S., the EU, the U.K., Switzerland, Canada, Australia, New Zealand, Singapore, South Korea, Japan and other countries introduced extensive economic sanctions and export controls in relation to Russia. While the introduced sanctions vary from jurisdiction to jurisdiction, they are largely aligned. The restrictions target, among others, the Russian financial, banking, oil, military, aviation and marine sectors. The U.S. has also introduced a prohibition on new investment in the Russian Federation by a U.S. person, wherever located, and authorized the imposition of blocking sanctions on anyone operating in the Russian manufacturing sector. Among sanctions targets are Russian political figures and military personnel, certain oligarchs and journalists, and companies operating in the above-mentioned sectors. Export to Russia of certain luxury goods and goods and technology which might contribute to Russia’s technological enhancement was banned. Seven non-EU countries (Norway, Iceland, Liechtenstein, North Macedonia, Bosnia and Herzegovina, Montenegro, and Albania) announced that they “aligned themselves” with the majority of the EU sanctions. The U.S., the EU, Switzerland and Japan introduced additional trade restrictions banning, among many other goods, the export of certain non-tobacco materials used to produce cigarettes and heated tobacco consumables in Russia. The EU, Switzerland and the U.K. also prohibited technical assistance and other services related to restricted goods. The EU, Switzerland and the U.K. prohibited import into their territories of certain goods, including cigarettes, among others, which might generate significant revenues for Russia if they originate in Russia or are exported from Russia. The EU and Switzerland prohibited transfer and licensing of intellectual property rights in relation to restricted goods.
PMI holds a 23% equity interest in JSC TK Megapolis ("TKM"), PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of December 31, 2025 had a carrying value of $303 million. Previously, TKM was a subsidiary of Megapolis Distribution B.V. ("MDBV"), a Dutch holding company in which PMI held a 23% equity interest. In June 2024, the Russian government included TKM in the list of economically significant organizations that may be subject to forced localization under applicable Russian law, which referred to the mandatory removal of a foreign holding company from the shareholding structure. On August 8, 2024, the Arbitrazh Court of the Moscow Region granted the forced localization of MDBV as requested by the Ministry of Industry and Trade on July 18, 2024. As a result, MDBV’s shares in TKM were transferred to TKM and subsequently transferred to the Russian subsidiaries of its indirect shareholders during the fourth quarter of 2024. MDBV was dissolved in December of 2025. Previously, Mr. Igor Kesaev was a non-majority shareholder of MDBV. The EU, the U.S., the U.K., Switzerland, Canada, Australia, New Zealand and Ukraine imposed sanctions on Mr. Igor Kesaev.
The U.S., the U.K., Switzerland and the EU banned the export of electric accumulators, static converters and electronic cigarettes and similar personal electric vaporizing devices, including IQOS devices, to Russia. Certain countries have also banned the delivery of services to Russia, such as information technology consultancy services, accounting and business and management consulting services, or require licenses to continue delivering these services to Russian persons or entities. We are working to mitigate any potential impacts from these restrictions.
Russia introduced certain countermeasures aimed at reducing the effect of Western sanctions. Countermeasures include restrictions on export of certain goods from Russia, including tobacco-related production equipment, restrictions on lending to foreign borrowers, repatriation of dividends and transactions with securities and real estate involving companies from “hostile” countries (i.e., those which introduced sanctions in relation to Russia).
The U.S. has adopted new and increased tariffs on countries and specific goods, subject to evolving exemptions, with additional tariff increases proposed. Those changes, along with retaliatory actions by some trading partners, non-tariff restrictions or requirements being considered in connection with trade dispute negotiations, and the likelihood of additional developments, have created a volatile environment for global trade. We expect the global tariff environment to remain volatile throughout 2026. PMI is actively monitoring developments, evaluating all changes, and adapting operations and compliance practices accordingly. For further details, see the " Impact of Tariffs on Our Business " section of this MD&A.
PMI continues to monitor the development of new sanctions and other trade laws in order to ensure full compliance.
Impact of Inflation on Our Business
Like many other global companies, we have experienced inflationary pressures in 2022, 2023, 2024, including: growing pressures on the cost of certain direct materials, wages, energy, transportation, and logistics as well as an increased cost of capital due to interest rate increases driven by the response to increased inflation. In 2025, certain inflationary elements such as direct materials and utilities stabilized, with a moderate overall increase in inflationary pressures driven by tobacco leaf costs. The impact of inflation on cost of sales during 2025 was not material to our consolidated financial statements.
Impact of Tariffs on Our Business
The current U.S. and international political environment, including existing and potential changes to U.S. policies related to global trade and tariffs, have resulted in uncertainty surrounding the future state of the global economy.
While the global tariff environment is volatile, as a global company with a broadly diversified production, a worldwide supplier network, including an established U.S. manufacturing base for nicotine pouches, and existing supply chains that are largely self-contained within their respective trade regions, we currently believe we are well-positioned to mitigate potential supply chain challenges and that the changing tariff environment will not have a material impact on our business. During 2025, the impact of new tariffs on our business was not material to our consolidated financial statements. We expect the global tariff environment to remain volatile throughout 2026.
We are actively monitoring developments in the global tariff environment and will continue to evaluate the potential impact of the announced tariffs and related developments on our business and financial condition, as well as on our suppliers, and the actions we may take to mitigate any impact. For our risk factors related to the impact of tariffs, see Item 1A. Risk Factors .
War in Ukraine
In Ukraine, our main priority remains the safety and security of our employees and their families in the country. We continue commercial activities in select locations where safety allows, in order to provide product availability and service to adult consumers, and supplies the market from production centers outside Ukraine, as well as through a contract manufacturing arrangement. Production at our factory in Kharkiv remains suspended. On June 20, 2023, we announced the investment of $30 million in a new production facility in the Lviv region, in Western Ukraine. Preparatory work for the facility began in July 2023. The new production facility was completed at the end of the first quarter of 2024 and local production commenced in April 2024. As of December 31, 2025, our Ukrainian operations had approximately $0.7 billion in total assets, excluding intercompany balances.
In Russia, we are continuously assessing the evolving situation in the country. This includes regulatory constraints in the market entailing very complex terms and conditions that must be met for any divestment transaction to be granted approval by the authorities, and restrictions resulting from international regulations. In the event of a divestment, our ability to fully realize the value of the business would likely be subject to material impairment. As of December 31, 2025, our Russian operations had approximately $4.8 billion in total assets, excluding intercompany balances, of which approximately $2.3 billion consisted of cash and cash equivalents held mostly in local currency (Russian rubles).
Additionally, PMI holds a 23% equity interest in JSC TK Megapolis, PMI's distributor in Russia (SSEA, CIS & MEA segment), which as of December 31, 2025 had a carrying value of $303 million. For further details, see Item 8, Note 5. Related Parties – Equity Investments and Other.
These developments above have or may have a material adverse impact on our business, results of operations, cash flows and financial position, and may result in impairment charges.
For further details, see Item 1A. Risk Factors and the "Trade Policy " section of this Item 7.
Research and Development Expense
The research and development expense for our smoke-free portfolio accounted for approximately 100% of our total research and development expense for the years ended December 31, 2025 and 2024, and approximately 99% for the year ended December 31, 2023. The research and development expense for the years ended December 31, 2025, 2024 and 2023, is set forth in Item 8, Note 13. Additional Information to the consolidated financial statements.
Restructuring Activities
We discuss restructuring activities in Item 8, Note 18. Restructuring Activities to our consolidated financial statements.
U.S. GAAP Treatment of Highly Inflationary Economies
We apply highly inflationary accounting to the results of operations of our subsidiaries in Argentina, Egypt, Turkey and Lebanon as the cumulative inflation rate in these economies for a three-year period meets or exceeds 100%, in accordance with U.S. GAAP. As a result, monetary assets and liabilities denominated in local currencies are remeasured to the U.S. Dollar at each balance sheet date, with remeasurement gains and losses recognized in consolidated statement of earnings.
This impact of currency fluctuations could negatively impact our financial condition and results of operations. For the years ended December 31, 2025, 2024 and 2023, we recognized exchange gains (losses) of $(26) million, $(46) million, and $(194) million, respectively, resulting from remeasurement adjustments related to highly inflationary accounting.
Environmental and Social Laws and Regulations
While, to date, the effect of environmental and social laws and regulations on PMI has not been material to our business, results of operations or financial condition, consideration of these laws and regulations is an integral aspect of PMI’s risk management process. To this end, we actively monitor the existing and potential impact on PMI of significant pending or existing legislation, regulations, international accords, reporting frameworks, standards, principles, and other forms of guidance related to environmental and social matters.
Acquisitions, Divestitures and Other Business Arrangements
We discuss our acquisitions and divestitures in Item 8, Note 3. Acquisitions and Divestitures to our consolidated financial statements.
On January 30, 2023, PMI announced a long-term collaboration with KT&G, South Korea’s leading tobacco and nicotine manufacturer, to continue to commercialize KT&G’s innovative smoke-free devices and consumables on an exclusive, worldwide basis (excluding South Korea).
The agreement covers fifteen years, to January 29, 2038, with performance-review cycles and associated commitments, based on volume, to be confirmed for each three-year period, to allow flexibility for evolving market conditions.
The agreement gives PMI continued exclusive access to KT&G’s smoke-free brands and product-innovation pipeline, including offerings for low- and middle-income markets, that will enhance PMI’s existing portfolio of smoke-free products.
Products sold under the agreement will be subject to assessment to ensure they meet the regulatory requirements in the markets where they are launched, as well as PMI’s high standards of quality and scientific substantiation. PMI and KT&G will seek any necessary regulatory approvals that may be required on a market-by-market basis.
On July 30, 2024, PMI announced a memorandum of understanding with KT&G. This non-binding memorandum establishes the parties’ intent to collaborate on regulatory submissions for those new KT&G heat-not-burn products that PMI selects to commercialize
in the U.S. KT&G’s new platform products are expected to be launched first outside the U.S. Thereafter, the partners plan to work on a PMTA submission for review by the U.S. FDA, in accordance with the memorandum.
Equity Investments
We discuss our equity investments in Item 8, Note 5. Related Parties - Equity Investments and Other to our consolidated financial statements.
Financial Review
For the Years Ended December 31,
(in millions)
Net cash provided by (used in) operating activities
Net cash provided by (used in) investing activities
Net cash provided by (used in) financing activities
2025 compared with 2024
• Net Cash Provided by (Used in) Operating Activities
Net cash provided by operating activities of $12.2 billion in 2025 was essentially flat compared to 2024. Excluding favorable currency movements, the unfavorable variance of $0.5 billion was due primarily to higher working capital requirements of $2.4 billion. This was partly offset by higher currency-neutral net earnings, excluding non-cash depreciation and amortization expense, non-cash movements in deferred income tax benefit, the losses on the sales of businesses, the impairment charge related to the RBH equity investment and other non-cash movements reflected in Other. Our net cash provided by operating activities also includes dividend income from our deconsolidated Canadian affiliate of $0.5 billion received in the third quarter of 2025 (for further details, see Item 8, Note 5. Related Parties – Equity Investments and Other ).
The higher working capital requirements in 2025 as compared with 2024 were primarily due to more cash used in inventories, coupled with more cash used in accrued liabilities and other current assets, mainly reflecting the timing of excise tax-paid inventory movements primarily related to excise tax increases and the timing of the corresponding excise tax payments. Excise tax payments included the disputed supplemental tax surcharge on heated tobacco products in Germany of approximately $0.8 billion as PMI elected to pay the supplemental tax surcharge in January 2025 to avoid the future addition of interest (for further details refer to the MD&A Europe segment section where we describe the case). In addition, more cash used in income taxes primarily reflected the higher final 2017 U.S. Tax Cuts and Jobs Act transition tax installment payment. These unfavorable movements were partially offset by less cash used in accounts receivable mainly reflecting higher usage of our factoring arrangements to sell trade receivables, as well as the timing of sales and cash collections (for further details, see Item 8, Note 17. Sale of Accounts Receivable ).
For the full year 2026, we currently expect net cash provided by operating activities of around $13.5 billion at prevailing exchange rates, subject to year-end working capital requirements.
• Net Cash Provided by (Used) in Investing Activities
Net cash used in investing activities in 2025 was $4.0 billion as compared to $1.1 billion in 2024. This increase in net cash used was primarily due to changes in the cash collateral posted for derivative instruments, reflecting the appreciation of the Euro and Swiss franc versus the U.S. dollar, and higher capital expenditures.
Our capital expenditures were $1.6 billion in 2025 and $1.4 billion in 2024. The 2025 capital expenditures were primarily related to our ongoing investments in smoke-free product manufacturing capacity. We expect total capital expenditures in 2026 to be $1.4 billion to $1.6 billion, predominantly due to investments supporting the smoke-free business.
• Net Cash Provided by (Used in) Financing Activities
Net cash used in financing activities in 2025 was $8.1 billion as compared to $9.5 billion in 2024. The decrease in net cash used was mainly due to higher debt repayments in 2024 (primarily commercial paper and a credit facility related to the Swedish Match acquisition), partly offset by lower long-term debt proceeds in 2025, higher dividend payments and changes in the cash collateral received for derivative instruments, reflecting the appreciation of the Euro and Swiss franc versus U.S. dollar.
Dividends paid in 2025 and 2024 were $8.6 billion and $8.2 billion, respectively.
2024 compared with 2023
For a discussion comparing our net cash activities (operating, investing and financing) for the year ended December 31, 2024, with the year ended December 31, 2023, refer to Part II, Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operation - Financial Review in our Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the U.S. Securities and Exchange Commission on February 6, 2025. This section is incorporated by reference into this Annual Report on Form 10-K for the year ended December 31, 2025.
• Liquidity and Capital Resources
As a holding company, we depend on dividends and debt repayments from our subsidiaries as our primary sources of funds to pay dividends to our stockholders, make payments on our debt securities and meet other obligations. Our principal wholly owned and majority-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or to make other distributions that are otherwise compliant with law, including governmental capital and foreign currency exchange controls.
In a number of jurisdictions, including Argentina and Russia, we are impacted by various capital controls and/or foreign currency exchange constraints that affect the ability of our subsidiaries in these jurisdictions to settle foreign currency denominated imports of goods and services and/or to pay dividends. These factors increase foreign currency devaluation risks, which may have a negative impact on our financial condition, net assets and results of operations in these jurisdictions.
We define cash and cash equivalents as short-term, highly liquid investments, readily convertible to known amounts of cash that mature within a maximum of three months and have an insignificant risk of change in value due to interest rate or credit risk changes. As a policy, we do not hold any investments in structured or equity-linked products. Our cash and cash equivalents are mostly held with institutions that have investment-grade long-term credit rating. As of December 31, 2025 and 2024, we had cash and cash
equivalent of $4.9 billion and $4.2 billion, respectively, the majority of which was held by our foreign subsidiaries, including $2.3 billion and $1.0 billion, respectively, held in Russia.
To meet our ongoing liquidity requirements, our principal source of liquidity is cash generated from operations. Additionally, we utilize long-term and short-term debt financing, including a commercial paper program that is regularly used to finance ongoing liquidity requirements, as part of our overall cash management strategy. Our ability to access the capital and credit markets as well as overall dynamics of these markets may impact borrowing costs. We expect that the combination of our long-term and short-term debt financing, the commercial paper program and the committed credit facilities, coupled with our cash generated from operations, will be adequate to meet our liquidity requirements.
Debt and Borrowing Arrangements
Credit Ratings – The cost and terms of our financing arrangements as well as our access to commercial paper markets may be affected by applicable credit ratings. At February 6, 2026, our credit ratings and outlook by major credit rating agencies were as follows:
Short-term
Long-term
Outlook
Moody’s
Stable
Standard & Poor’s
Positive
Fitch
Stable
Debt – Our total debt was $48.8 billion at December 31, 2025, and $45.7 billion at December 31, 2024. Our total debt is primarily fixed rate in nature. The weighted-average time to maturity of our long-term debt was approximately 7 years at the end of 2025 and 2024. Foreign currency denominated debt and the majority of our $50 billion gross notional amount of derivative financial instruments are subject to foreign currency exchange rates fluctuation, primarily between the Euro and U.S. Dollar, which could impact our debt levels and the pace of anticipated deleveraging. For further details, including the fair value and currency denomination of our debt, see Item 8, Note 6. Indebtedness and Note 14. Financial Instruments . The amount of debt that we can issue is subject to approval by our Board of Directors.
On February 10, 2023, we filed a shelf registration statement with the U.S. Securities and Exchange Commission, under which we may from time to time sell debt securities and/or warrants to purchase debt securities over a three-year period. During February 2026, we plan to file a new shelf registration statement with the Securities and Exchange Commission.
Commercial Paper Program – We continue to have access to liquidity in the commercial paper market through programs in place in the U.S. and in Europe having an aggregate issuance capacity of $8.0 billion. At December 31, 2025 and 2024, we had no commercial paper outstanding. The average commercial paper balance outstanding during 2025 and 2024 was $3.0 billion and $1.3 billion, respectively. For further details, see Item 8, Note 6. Indebtedness .
Revolving Credit Facilities – At December 31, 2025, our total committed revolving credit facilities were $6.3 billion, and there were no borrowings outstanding. The entire committed amounts were available for borrowing.
All banks participating in our committed revolving credit facilities have an investment-grade long-term credit rating from the credit rating agencies. We continuously monitor the credit quality of our banking group, and at this time we are not aware of any potential non-performing credit provider.
These committed revolving credit facilities do not include any credit rating triggers, material adverse change clauses or any provisions that could require us to post collateral. We expect to continue to meet our covenants.
For further details on our revolving credit facilities, including other short-term credit arrangements, see Item 8, Note 6. Indebtedness to our consolidated financial statements.
Term Loan Facility related to the Financing of the Swedish Match Acquisition – As of December 31, 2025, borrowings in the amount of €2.5 billion (approximately $2.9 billion) under the 5-year tranche of the term loan facility remained outstanding. For further details, see Item 8, Note 6. Indebtedness to our consolidated financial statements.
Sale of Accounts Receivable – To mitigate credit risk and enhance cash and liquidity management, we sell trade receivables to unaffiliated financial institutions. For further details, see Item 8, Note 17. Sale of Accounts Receivable to our consolidated financial statements.
Supply Chain Financing – We engage with unaffiliated global financial institutions that offer a voluntary supply chain financing program to some of our suppliers. For further details, see Item 8, Note 20. Supply Chain Financing to our consolidated financial statements.
Cash Requirements – At December 31, 2025, our material short-term and long-term cash requirements for various contractual obligations and commitments primarily consisted of the following:
• principal payments related to long-term debt and the associated interest payments. For further details, see Item 8, Note 6. Indebtedness to our consolidated financial statements;
• accounts payable and accrued liabilities on our consolidated balance sheet (primarily short-term in nature);
• purchase obligations for inventory and production costs to be utilized in the normal course of business such as raw materials, electronic devices, indirect materials and supplies, packaging, co-manufacturing arrangements, storage and distribution, as well as capital expenditures. These purchase obligations are expected to be approximately $3.4 billion in 2026 and approximately $2.8 billion for years beyond; and
• operating lease liabilities, on an undiscounted basis, which were included in our consolidated balance sheets. For further details, see Item 8, Note 19. Leases to our consolidated financial statements.
• Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, including special purpose entities, other than guarantees, and cash requirements discussed above.
Guarantees – At December 31, 2025, we have guarantees of our own performance, which are primarily related to excise taxes on the shipment of our products. There is no liability in the consolidated financial statements associated with these guarantees. These guarantees have not had, and are not expected to have, a significant impact on PMI’s liquidity.
In August 2024, PMI entered into a guarantee agreement for an equity investee. For further details, see Item 8, Note 5. Related Parties – Equity Investments and Other .
Swedish Match Notes Consent Solicitation and PMI Guarantee – On June 15, 2023, our wholly owned subsidiary, Swedish Match AB ("Swedish Match"), initiated a public consent solicitation of eligible holders of certain outstanding series of its notes to amend certain terms and conditions of these respective notes. The eligible noteholders provided the requisite irrevocable consent instructions voting in favor of the amendments, which were subsequently passed by way of extraordinary resolution at the noteholders’ meeting held on July 28, 2023. As a result of the passage of the extraordinary resolution, Philip Morris International Inc. entered into a guarantee, which guarantees unconditionally and irrevocably to the noteholders the punctual payment when due, whether at stated maturity, by acceleration or otherwise, of the principal, premium, if any, and interest on the notes.
Equity and Dividends
We discuss our stock awards as of December 31, 2025, in Item 8, Note 8. Stock Plans to our consolidated financial statements.
Dividends paid in 2025 were $8.6 billion. During the third quarter of 2025, our Board of Directors approved a 8.9% increase in the quarterly dividend to $1.47 per common share. As a result, the present annualized dividend rate is $5.88 per common share.
Market Risk
Counterparty Risk - We predominantly work with financial institutions with strong short- and long-term credit ratings as assigned by Standard & Poor’s and Moody’s. These banks are also part of a defined group of relationship banks. Non-investment grade institutions are only used in certain emerging markets to the extent required by local business needs. We have a conservative approach when it comes to choosing financial counterparties and financial instruments. As such, we do not invest or hold investments in any structured or equity-linked products. The majority of our cash and cash equivalents is currently invested with maturities of less than 30 days.
We continuously monitor and assess the credit worthiness of all our counterparties.
Derivative Financial Instruments - We operate globally with manufacturing and sales facilities in various locations around the world. Consequently, we use certain financial instruments to manage our foreign currency and interest rate exposure. We use derivative financial instruments principally to reduce our exposure to market risks resulting from fluctuations in foreign exchange and interest rates by creating offsetting exposures. We are not a party to leveraged derivatives and, by policy, do not use derivative financial instruments for speculative purposes.
See Item 8, Note 14. Financial Instruments to our consolidated financial statements for further details on our derivative financial instruments and the related collateral arrangements.
Value at Risk - We use a value at risk computation to estimate the potential one-day loss in the fair value of our interest-rate-sensitive and foreign currency price-sensitive derivative financial instruments, representing the majority of our derivative financial instruments exposure. This computation includes our debt and foreign currency forwards, swaps and options. Anticipated transactions, foreign currency trade payables and receivables, and net investments in foreign subsidiaries, which the foregoing instruments are intended to hedge, were excluded from the computation.
The computation estimates were made assuming normal market conditions, using a 95% confidence interval and a one-day holding period using a "parametric delta-gamma" approximation technique to determine the observed interrelationships between movements in interest rates and various currencies and in calculating the risk of the underlying positions in the portfolio. These interrelationships were determined by observing interest rate and forward currency rate movements primarily over the preceding quarter for determining value at risk at December 31, 2025 and 2024, and primarily over each of the four preceding quarters for the calculation of average, high and low value at risk amounts during each year.
Fair Value Impact
(in millions)
At December 31, 2025
Average
High
Low
Instruments sensitive to:
Foreign currency rates
Interest rates
Fair Value Impact
(in millions)
At December 31, 2024
Average
High
Low
Instruments sensitive to:
Foreign currency rates
Interest rates
The increases during the year of the impact of foreign currency rates and the decreases of the impact of interest rates on the value at risk computation above were primarily due to higher foreign currency volatility and lower interest rate volatility in 2025 compared to 2024.
The value at risk computation is a risk analysis tool designed to statistically estimate the maximum probable daily loss from adverse movements in interest and foreign currency rates under normal market conditions. The computation does not purport to represent actual losses in fair value or earnings to be incurred by us, nor does it consider the effect of favorable changes in market rates. We cannot predict actual future movements in such market rates and do not present these results to be indicative of future movements in market rates or to be representative of any actual impact that future changes in market rates may have on our future results of operations or financial position.
Contingencies
See Item 3 and Item 8, Note 16. Contingencies to our consolidated financial statements for a discussion of contingencies.
Cautionary Factors That May Affect Future Results
Forward-Looking and Cautionary Statements
We may from time to time make written or oral forward-looking statements, including statements contained in filings with the SEC, in reports to stockholders and in press releases and investor webcasts. You can identify these forward-looking statements by use of words such as "strategy," "expects," "continues," "plans," "anticipates," "believes," "will," "aspires," "estimates," "intends," "projects," "aims," "goals," "targets," "forecasts" and other words of similar meaning. You can also identify them by the fact that they do not relate strictly to historical or current facts.
We cannot guarantee that any forward-looking statement will be realized, although we believe we have been prudent in our plans and assumptions. Achievement of future results is subject to risks, uncertainties and inaccurate assumptions. Should known or unknown risks or uncertainties materialize, or should underlying assumptions prove inaccurate, actual results could vary materially from those anticipated, estimated or projected. Investors should bear this in mind as they consider forward-looking statements and whether to invest in or remain invested in our securities. In connection with the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we are identifying important factors that, individually or in the aggregate, could cause actual results and outcomes to differ materially from those contained in any forward-looking statements made by us; any such statement is qualified by reference to the following cautionary statements. We elaborate on these and other risks we face throughout this document, particularly in Item 1A. Risk Factors and Business Environment of this section. You should understand that it is not possible to predict or identify all risk factors. Consequently, you should not consider the following to be a complete discussion of all potential risks or uncertainties. We do not undertake to update any forward-looking statement that we may make from time to time, except in the normal course of our public disclosure obligations.
