Philip Morris International Inc.

Company Overview

Business Model: Philip Morris International Inc. (PMI) is a leading international consumer goods company committed to delivering a smoke-free future by evolving its portfolio beyond traditional tobacco and nicotine. Its primary product offerings include cigarettes and smoke-free products (SFPs) such as heat-not-burn, nicotine pouch, and e-vapor products. Since 2008, PMI has invested over $16 billion in developing, scientifically substantiating, and commercializing innovative SFPs for adult smokers who would otherwise continue to smoke, with the ultimate goal of ending cigarette sales. The company is also expanding into wellness areas through its Aspeya unit, focusing on oral consumer wellness offerings, including medical and non-recreational cannabinoid products, though revenue from cannabinoids is expected to be negligible in the near to medium term.

Market Position: PMI holds a strong international market position, with cigarettes sold in approximately 170 markets, often securing the number one or number two market share. Marlboro is the world’s best-selling international cigarette, contributing approximately 43% of PMI’s total 2025 cigarette shipment volume. In the rapidly growing SFP category, IQOS, ZYN, and VEEV are leading brands. PMI's total international market share (cigarettes and heated tobacco units, excluding China and the U.S.) was 29.2% in 2025, up from 29.0% in 2024. The company maintains a market share of at least 15% in approximately 100 markets.

Recent Strategic Developments:

• Swedish Match AB Acquisition: In November 2022, PMI acquired Swedish Match AB, a leader in oral nicotine delivery, strengthening its global smoke-free portfolio with brands like ZYN.
• U.S. IQOS Commercialization Rights: As of April 30, 2024, PMI holds full rights to commercialize IQOS in the U.S. following an agreement to end its commercial relationship with Altria Group, Inc. PMI began selling IQOS 3.0 in Austin, Texas, on March 27, 2025, and is pursuing a limited U.S. roll-out while awaiting authorization for IQOS ILUMA.
• Organizational Realignment: Effective January 1, 2026, PMI implemented an evolved organizational model with two primary business units: International and U.S., replacing its four geographic segments with three new reportable segments: International Smoke-Free, International Combustibles, and U.S.
• Vectura Group Ltd. Divestiture: On December 31, 2024, PMI completed the sale of Vectura Group Ltd. to Molex Asia Holdings Ltd.
• KT&G Collaboration: PMI extended its long-term collaboration with KT&G, a South Korean tobacco and nicotine company, in January 2023, for the exclusive commercialization of KT&G’s smoke-free products outside of South Korea. A new volume commitment for 2026-2028 was agreed upon in November 2025.
• Wellness Business Adjustments: In January 2025, Wellness results were integrated into the Europe segment. In the fourth quarter of 2025, PMI completed the sale of one business and classified as held-for-sale net assets of certain other businesses, primarily consumer accessories acquired as part of the Swedish Match AB acquisition.

Geographic Footprint: PMI operates globally, with its current four geographical segments (as of December 31, 2025) being:

• Europe Region: Headquartered in Lausanne, Switzerland, covering EU countries, Switzerland, UK, Ukraine, Moldova, Southeast Europe, and the Wellness business.
• South and Southeast Asia, Commonwealth of Independent States, Middle East and Africa Region (SSEA, CIS & MEA): Headquartered in Dubai, UAE.
• East Asia, Australia, and PMI Global Travel Retail (EA, AU & PMI GTR): Headquartered in Hong Kong, including global travel retail.
• Americas Region: Headquartered in Stamford, Connecticut, covering the U.S., Canada, and Latin America.

PMI's smoke-free products were available in 106 markets as of December 31, 2025, with modern oral pouches available in 56 markets. Cigarettes are sold in approximately 170 markets.

Financial Performance

Revenue Analysis

Profitability Metrics (2025):

• Gross Margin: 67.1%
• Operating Margin: 36.6%
• Net Margin: 27.9%

Investment in Growth:

• R&D Expenditure: $756 million (1.9% of revenue)
• Capital Expenditures: $1.6 billion
• Strategic Investments: PMI has invested over $16 billion since 2008 to develop and commercialize smoke-free products. This includes the acquisition of Swedish Match AB in November 2022 and the reacquisition of IQOS commercialization rights in the U.S. for a total cash consideration of $2.8 billion (with $1.8 billion paid in July 2023). In 2023, PMI announced a $30 million investment in a new production facility in the Lviv region, Ukraine, which commenced local production in April 2024.

Business Segment Analysis

Europe Region

Financial Performance:

• Revenue: $17.1 billion (+9.1% YoY, +6.8% YoY excluding currency and acquisitions/divestitures)
• Operating Income: $7.2 billion (+9.4% YoY, +3.4% YoY excluding currency and acquisitions/divestitures)
• Key Growth Drivers: Favorable pricing, primarily from combustible tobacco, and higher smoke-free product (SFP) volume. This was partly offset by lower cigarette volumes and an unfavorable cigarette mix. Operating income also benefited from a favorable comparison to 2024, which included a $199 million loss on the sale of Vectura Group Ltd., but was offset by higher marketing, administration, and research costs, a $94 million loss on the expected sale of consumer accessories, a $176 million Germany excise tax classification litigation charge, and $241 million in restructuring charges in 2025. Product Portfolio: The segment includes the Wellness business. Heated tobacco unit (HTU) share of the total cigarette and HTU market increased by 1.2 points on an adjusted basis. Oral SFP shipments decreased by 6.9% to 268.8 million cans. Market Dynamics: The estimated industry volume for cigarettes and HTUs decreased by 3.5% to 524.0 billion units, driven by a 5.0% decrease in cigarettes, partially offset by continued HTU growth. Notable decreases occurred in Poland (-12.1%) and Ukraine (-10.6%), while Bulgaria saw an increase (+6.0%).

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

Financial Performance:

• Revenue: $12.1 billion (+7.0% YoY, +6.4% YoY excluding currency and acquisitions/divestitures)
• Operating Income: $4.1 billion (+19.5% YoY, +20.3% YoY excluding currency and acquisitions/divestitures)
• Key Growth Drivers: Favorable pricing, predominantly from combustible tobacco, and higher cigarette and SFP volume. Operating income also benefited from a favorable comparison to 2024, which included a $45 million Egypt sales tax charge, but was partly offset by higher marketing, administration, and research costs, as well as increased manufacturing costs (notably tobacco leaf). Product Portfolio: SFP volume increased by 14.1%, and cigarette volume increased by 0.7%. Total cigarette and HTU shipment volume increased by 1.7% to 379.6 billion units. Market Dynamics: The estimated industry volume for cigarettes and HTUs increased by 1.1% to 1,562.9 billion units, primarily driven by India (+9.8%), Turkey (+6.4%), and Egypt (+5.5%), partially offset by declines in Bangladesh (-10.7%) and Indonesia (-2.4%).

East Asia, Australia, and PMI Global Travel Retail (EA, AU & PMI GTR)

Financial Performance:

• Revenue: $6.6 billion (+3.7% YoY, +4.6% YoY excluding currency and acquisitions/divestitures)
• Operating Income: $3.1 billion (+8.6% YoY, +11.7% YoY excluding currency and acquisitions/divestitures)
• Key Growth Drivers: Favorable volume/mix, driven by SFP volume, coupled with favorable pricing from higher combustible tobacco pricing. Product Portfolio: SFP volume increased by 11.0%, while cigarette volume decreased by 4.1%. Total cigarette and HTU shipment volume increased by 3.8% to 108.5 billion units, driven by Japan (+4.7%). HTU adjusted in-market sales volume increased by an estimated 9.3%. Market Dynamics: 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 a decrease in cigarettes. Notable decreases were observed in South Korea (-3.5%) and Australia (-45.7%), partly offset by growth in Global Travel Retail (+6.7%).

Americas Region

Financial Performance:

• Revenue: $4.9 billion (+7.1% YoY, +8.8% YoY excluding currency and acquisitions/divestitures)
• Operating Income: $505 million (-7.8% YoY, -0.9% YoY excluding currency and acquisitions/divestitures)
• Key Growth Drivers: Favorable volume/mix, driven by SFP volume. This was partly offset by unfavorable pricing, mainly in the U.S. (due to increased promotional activities for ZYN), higher amortization of intangibles, and increased marketing, administration, and research costs, as well as manufacturing costs (including investments in U.S. capabilities). Operating income benefited from a favorable comparison to 2024, which included restructuring charges. Product Portfolio: SFP volume increased by 27.7%, while cigarette volume decreased by 1.7%. Total cigarette and HTU shipment volume decreased by 1.5% to 61.3 billion units. Oral SFP shipments increased by 29.4% to 930 million cans, predominantly driven by ZYN nicotine pouches in the U.S. Market Dynamics: The estimated industry volume for cigarettes and HTUs (excluding the U.S.) decreased by 2.0% to 183.5 billion units, primarily due to a decrease in the cigarette market. Decreases were mainly in Canada (-12.2%) and Mexico (-3.6%), partly offset by Argentina (+1.8%).

Capital Allocation Strategy

Shareholder Returns:

• Share Repurchases: During the quarter ended December 31, 2025, 14,621 shares were repurchased at an average price of $158.91 per share, representing shares tendered by employees for tax payments related to vested awards. No open market share repurchase program was disclosed.
• Dividend Payments: $8.6 billion in 2025, up from $8.2 billion in 2024.
• Future Capital Return Commitments: The Board of Directors approved an 8.9% increase in the quarterly dividend to $1.47 per common share, resulting in an annualized dividend rate of $5.88 per common share.

Balance Sheet Position (as of December 31, 2025):

• Cash and Equivalents: $4.9 billion
• Total Debt: $48.8 billion
• Net Cash Position: -$43.9 billion (Net Debt)
• Credit Rating (as of February 6, 2026):
  • Moody’s: P-1 (Short-term), A2 (Long-term), Stable (Outlook)
  • Standard & Poor’s: A-2 (Short-term), A- (Long-term), Positive (Outlook)
  • Fitch: F1 (Short-term), A (Long-term), Stable (Outlook)
• Debt Maturity Profile: Aggregate maturities of long-term debt are $3.9 billion in 2026, $6.8 billion in 2027, $5.0 billion in 2028, $5.0 billion in 2029, $5.9 billion in 2030, $14.2 billion from 2031-2035, $3.6 billion from 2036-2040, and $5.1 billion thereafter.

Cash Flow Generation:

• Operating Cash Flow: $12.2 billion in 2025, essentially flat compared to $12.2 billion in 2024. The 2025 figure was impacted by higher working capital requirements of $2.4 billion, partly offset by higher currency-neutral net earnings.
• Free Cash Flow: $10.7 billion in 2025, down from $10.8 billion in 2024.
• Cash Conversion Metrics: Higher working capital requirements in 2025 were primarily due to increased cash used in inventories and accrued liabilities, reflecting excise tax-paid inventory movements and payments (including $0.8 billion for the Germany HTP supplemental tax surcharge). This was partially offset by less cash used in accounts receivable due to increased factoring arrangements.

Operational Excellence

Production & Service Model: PMI owns or leases various manufacturing, office, and research and development facilities globally. As of December 31, 2025, it operated 50 manufacturing facilities, including 11 for heated tobacco units (HTUs) and 10 for oral nicotine products. PMI has integrated HTU and nicotine pouch production into existing facilities and is expanding manufacturing capacity for SFPs. Products manufactured in one facility are not necessarily distributed in the same geographical region.

Supply Chain Architecture: Key Suppliers & Partners:

• Tobacco Leaf: Sourced globally from independent international tobacco suppliers, with approximately 23% directly contracted from farmers in countries like Argentina, Brazil, Italy, Pakistan, and Poland in 2025. Largest supplies come from Argentina, Brazil, China, India, Italy, Indonesia, Malawi, Mozambique, the Philippines, Turkey, and the U.S.
• Direct Materials: Approximately 350 suppliers for materials such as printed paper board, acetate tow, fine paper, susceptors (for TEREA and other consumables), and cloves (for Indonesian kretek products). The top ten suppliers accounted for approximately 60% of total direct materials purchases in 2025. For oral SFPs, materials include plastic cans/lids, nicotine salt/premix, and pouch material.
• Electronic Devices: Manufactured by various electronic manufacturing services providers (EMS), with components sourced from EMS or other suppliers (mechanical parts, electrical/electromechanical components, batteries, semiconductors, packaging).
• Technology Partners: KT&G for smoke-free product commercialization.

Facility Network:

• Manufacturing: 50 facilities worldwide, including 11 for HTUs and 10 for oral nicotine products. Largest facilities for cigarette and HTU volume are in Turkey, Russia, Poland, Indonesia, Italy, Czech Republic, Lithuania, and Portugal. The largest nicotine pouch manufacturing facility is in the U.S. A new production facility in the Lviv region, Ukraine, was completed in Q1 2024.
• Research & Development: State-of-the-art R&D facility located in Switzerland.
• Distribution: Utilizes a global operating model where manufacturing locations do not dictate distribution regions.

Operational Metrics: Certain facilities manufactured over 30 billion units (cigarettes and HTUs combined) in 2025. The ZYN production facility in Kentucky, U.S., substantially supplies all capacity for ZYN sales in the U.S.

Market Access & Customer Relationships

Go-to-Market Strategy: Distribution Channels:

• Direct Sales: Sales directly to retailers.
• Channel Partners: Distribution through independent distributors (often for other fast-moving consumer goods), exclusive zonified distributors, and national/regional wholesalers.
• Digital Platforms: Own e-commerce infrastructure for sales to trade partners and consumers.
• Brand Retail Infrastructure: Own retail infrastructure for SFPs and accessories.

Customer Portfolio: Customer Concentration: In 2025, sales to a distributor in the Europe Region and a distributor in the EA, AU & PMI GTR Region each accounted for 10% or more of PMI’s consolidated net revenues. Total net revenues from customers in Japan, PMI's largest market, were $4.2 billion in 2025.

Geographic Revenue Distribution (2025):

• Europe Region: 42.1% of total revenue
• SSEA, CIS & MEA Region: 29.6% of total revenue
• EA, AU & PMI GTR Region: 16.3% of total revenue
• Americas Region: 11.9% of total revenue
• Growth Markets: The U.S. business is experiencing substantial growth. Industry volume growth was noted in India (+9.8%), Turkey (+6.4%), and Egypt (+5.5%) in 2025.

Competitive Intelligence

Market Structure & Dynamics

Industry Characteristics: The tobacco industry is highly competitive and heavily regulated. Consumption of tax-paid cigarettes continues to decline in many markets due to taxes, pricing, health concerns, social acceptance, and illicit products. The SFP categories are relatively new, and their adoption rate by adult smokers varies by market. Market Size & Growth: Estimated international industry volume (excluding China and the U.S.) for cigarettes and HTUs was broadly stable in 2025, with a 1.1% decrease in cigarettes largely offset by 10.2% growth in HTUs. For 2026, PMI expects a total international industry volume decline of around 2% for cigarettes and HTUs (excluding China and the U.S.).

Competitive Positioning Matrix:

Direct Competitors

Primary Competitors: Altria Group, Inc., British American Tobacco plc, Japan Tobacco Inc., Imperial Brands plc, new market entrants (especially for innovative products), and regional/local tobacco companies (including state-owned enterprises in Algeria, Egypt, China, Taiwan, Thailand, and Vietnam).

Emerging Competitive Threats: New market entrants and disruptive technologies pose threats. Inappropriate marketing campaigns, misleading messaging, and inferior product satisfaction from certain SFP competitors, lacking scientific substantiation, could alienate consumers from innovative products. The growing use of digital media could accelerate the spread of inaccurate information about SFPs.

Competitive Response Strategy: PMI aims to accelerate its transformation to a smoke-free company by leveraging its extensive commercial and distribution infrastructure for SFPs and communicating scientifically substantiated benefits to adult smokers. It is reallocating resources from cigarettes to SFPs and streamlining its cigarette portfolio. PMI advocates for science-based regulatory frameworks that differentiate non-combustible products from cigarettes based on a continuum of risk.

Risk Assessment Framework

Strategic & Market Risks

• Market Dynamics: Risks include unsuccessful introduction, commercialization, and growth of SFPs; continued decline in tax-paid cigarette consumption; inability to anticipate changes in adult consumer preferences; and the less predictable financial performance of SFPs compared to the mature cigarette business.
• Technology Disruption: New market entrants and disruptive technologies, particularly in innovative products, pose competitive threats.
• Customer Concentration: Sales to a single distributor in the Europe Region and another in the EA, AU & PMI GTR Region each accounted for 10% or more of consolidated net revenues in 2025, posing a risk of temporary market disruption if a distributor is lost.

Operational & Execution Risks

• Supply Chain Vulnerabilities: Reliance on third-parties for distribution, manufacturing (especially the ZYN production facility in Kentucky, U.S., for U.S. ZYN sales), and services could negatively impact product quality, availability, and supply chain resilience. Disruptions to farmer livelihoods could also impact tobacco supply.
• Geographic Concentration: Operations in Russia (9% of 2025 shipment volume, 6% of net revenues, $4.8 billion in assets) and Ukraine (2% of 2025 shipment volume, 1% of net revenues, $0.7 billion in assets) expose PMI to significant geopolitical risks, including potential asset impairment or deconsolidation in Russia.
• Capacity Constraints: Inability to maintain sufficient production capacity could limit profit growth.

Financial & Regulatory Risks

• Market & Financial Risks: Disruptions in credit markets or credit rating downgrades could increase borrowing costs. A sustained period of elevated inflation could lead to higher operating/financing costs and reduced demand. Unfavorable currency exchange rates and capital controls in certain countries (e.g., Argentina, Russia) could adversely affect financial condition and results. Assets may be subject to impairment write-downs.
• Regulatory & Compliance Risks: Significant governmental actions aimed at reducing tobacco/nicotine use, including increased regulatory requirements, taxes, and marketing restrictions, could decrease demand or increase operating costs. The evolving legal and regulatory framework in the U.S. for SFPs, including FDA authorizations, is critical. Failure to differentiate SFPs from cigarettes in taxation could materially affect unit margins. Research, development, and commercialization of non-recreational cannabinoid products carry legal, regulatory, and reputational risks.

Geopolitical & External Risks

• Geopolitical Exposure: Operations in numerous countries expose PMI to adverse economic, political, or regulatory developments, natural disasters, pandemics, or conflicts. The war in Ukraine has had and may continue to have a material adverse impact on business, results, cash flows, and financial position.
• Trade Relations: The volatile global tariff environment could lead to increased production costs, limited market access, supplier degradation, and reduced consumer demand.
• Sanctions & Export Controls: Compliance with extensive economic sanctions and export controls (e.g., related to Russia) can limit operations, supply chain, and intellectual property transfers.

Innovation & Technology Leadership

Research & Development Focus:

• Core Technology Areas: PMI's R&D is focused on developing SFPs that eliminate combustion, including heat-not-burn (IQOS, BONDS by IQOS), oral tobacco and nicotine products (ZYN, General snus), and e-vapor products (VEEV). The company has invested over $16 billion since 2008 in scientific substantiation and commercialization of SFPs, building world-class scientific assessment capabilities.
• Innovation Pipeline: PMI has a range of SFPs in various stages of development, scientific assessment, and commercialization. The Aspeya wellness unit is developing oral consumer wellness offerings, including medical and non-recreational cannabinoid products. PMI also collaborates with KT&G for innovative smoke-free devices and consumables, including new platform products for low- and middle-income markets.

Intellectual Property Portfolio:

• Patent Strategy: PMI holds a large number of granted patents and pending patent applications globally, which are material to its business, though no single patent or group of related patents is individually material. The company owns or has rights to trademarks for all principal brands, including Marlboro (outside the U.S.), HEETS, IQOS, IQOS ILUMA, TEREA, VEEV, and ZYN.
• Licensing Programs: PMI has agreements such as the long-term collaboration with KT&G for commercialization of its smoke-free products outside South Korea.
• IP Litigation: PMI is involved in intellectual property disputes, including a February 2024 settlement agreement with Nicoventures Trading Limited (British American Tobacco p.l.c.) resolving certain patent disputes and rescinding ITC orders related to IQOS importation in the U.S. However, Future Technology K.K. (FTKK) has filed multiple patent infringement actions against Sojitz Corporation (PMJL's importer/distributor) regarding TEREA and SENTIA consumables in Japan, with PMJL obligated to indemnify Sojitz.

Technology Partnerships: PMI engages in strategic alliances, such as its long-term collaboration with KT&G for smoke-free products, and has reacquired full commercialization rights for IQOS in the U.S. from Altria Group, Inc.

Leadership & Governance

Executive Leadership Team (as of February 6, 2026)

Leadership Continuity: PMI's evolved organizational model, effective January 1, 2026, with International and U.S. business units, is designed to enhance agility and support the smoke-free transformation under the leadership of Group CEO PMI Jacek Olczak. The Board of Directors oversees human capital management, with the Compensation and Leadership Development Committee responsible for executive compensation and related risks. Dessislava Temperley will not stand for re-election to the Board at the 2026 annual meeting.

Board Composition: The Board of Directors provides oversight of workforce matters. PMI has a Code of Conduct and Corporate Governance Guidelines emphasizing ethical business conduct, honesty, respect, and fairness.

Human Capital Strategy

Workforce Composition:

• Total Employees: Approximately 84,900 people worldwide as of December 31, 2025.
• Geographic Distribution: Employees represent more than 130 nationalities, reflecting the demographics of the countries, communities, and consumers served.
• Skill Mix: Focus on attracting, retaining, developing, and motivating diverse global talent with the necessary experience, competencies, and skills to achieve strategic goals, particularly for the smoke-free future transformation.

Talent Management:

• Acquisition & Retention: Compensation and benefit programs are designed to attract and retain top talent, remaining competitive with other consumer product companies.
• Employee Value Proposition: PMI fosters a performance-driven and collaborative culture, committed to employee impact, growth, and well-being through a supportive environment and resources for career and professional development.

Diversity & Development:

• Diversity Metrics: PMI maintained its global EQUAL-SALARY certification from the EQUAL-SALARY Foundation in 2019, completing another year of market-level reviews successfully.
• Development Programs: Principles codified in the "PMI DNA" cultural values are embedded throughout people and business guidelines, practices, and systems.

Environmental & Social Impact

Environmental Commitments:

• Climate Strategy: PMI prioritizes managing land and water resources and uses a geographically diversified sourcing strategy for agricultural products to increase production system resilience and minimize operational risks. An annual global water risk assessment identifies potential physical water risks in tobacco-growing regions.
• Supply Chain Sustainability: The water stewardship strategy includes a landscape approach to water optimization, natural resource protection, and irrigation efficiency. PMI monitors and aims to mitigate disruptions to farmer livelihoods that could arise from unsustainable farming practices. The EU Single-Use Plastics Directive, requiring tobacco manufacturers to cover costs of public collection systems for filters under Extended Producer Responsibility (EPR) schemes, has been transposed into national law by most EU Member States, but PMI does not anticipate a material impact on its EU business from these schemes.

Social Impact Initiatives: PMI's Code of Conduct and Corporate Governance Guidelines underscore its commitment to ethical business conduct, honesty, respect, and fairness. The company's global EQUAL-SALARY certification is a valuable component of its employer reputation.

Business Cyclicality & Seasonality

Demand Patterns: PMI's business segments are not significantly affected by seasonality overall. However, cigarette consumption in certain markets may be lower in winter and higher in summer due to outdoor use, longer daylight, and tourism. Smoke-free product (SFP) adult user growth typically experiences higher rates in the first half of each year due to seasonal influences.

Planning & Forecasting: PMI's management reviews short-term and long-term trends, forecasts, and budget-to-actual variances to assess segment performance and allocate resources.

Regulatory Environment & Compliance

Regulatory Framework: PMI operates in a highly regulated industry, subject to diverse laws and regulations across jurisdictions. The World Health Organization's (WHO) Framework Convention on Tobacco Control (FCTC) significantly influences global tobacco regulation.

• SFP Authorizations: The U.S. Food and Drug Administration (FDA) has authorized the marketing of Swedish Match AB’s General snus and ZYN nicotine pouches, and versions of PMI’s IQOS devices and consumables, with some also receiving Modified Risk Tobacco Product (MRTP) authorizations. PMI submitted renewal applications for IQOS MRTP authorizations in July 2023 and bundled PMTAs/MRTPAs for IQOS ILUMA in October 2023.
• EU Regulations: The EU Tobacco Products Directive (TPD) sets comprehensive requirements, including health warnings, flavor bans (extended to heated tobacco products in October 2023), and traceability measures. A legislative proposal for the revision of the EU Tobacco Excise Directive (TED) in July 2025 aims to review minimum excise tax rates and expand scope to SFPs with differentiated tax treatment, with a contemplated implementation date of January 1, 2028.
• Other Restrictions: Regulations include plain packaging laws (e.g., Australia, France, Saudi Arabia, Turkey), bans on product display at retail, and restrictions on advertising, marketing, promotions, and sponsorships. Some jurisdictions are considering "generation sales bans" (e.g., UK).

Trade & Export Controls: PMI complies with all applicable trade restrictions and sanctions, including those imposed by the U.S., EU, Switzerland, and UK. The company does not operate in Belarus, Iran, North Korea, Cuba, or Syria. Following the war in Ukraine, extensive economic sanctions and export controls against Russia have been implemented, impacting PMI's operations, supply chain, and intellectual property transfers to Russia.

Legal Proceedings: PMI faces significant litigation related to tobacco and nicotine products, which could materially affect profitability and liquidity. As of December 31, 2025, this includes 7 health care cost recovery cases and one public civil action related to combustible tobacco products. Additionally, beginning in March 2024, PMI and its subsidiaries faced litigation in the U.S. related to ZYN nicotine pouches, with 7 cases pending as of December 31, 2025, alleging addiction, defective design, marketing to minors, and misrepresentation. PMI is also subject to governmental investigations on various matters and other patent challenges in multiple jurisdictions.

Tax Strategy & Considerations

Tax Profile:

• Effective Tax Rate: PMI's effective tax rate was 19.7% in 2025, down from 24.7% in 2024 and 22.4% in 2023. The 2025 rate was favorably impacted by deferred tax benefits for unrealized foreign currency losses on intercompany loans and benefits related to an interest expense election, partially offset by increased deferred tax liabilities and tax impacts from the RBH (Canada) Plan Implementation. PMI estimates its 2026 effective tax rate to be around 21.5%, excluding discrete tax events.
• Geographic Tax Planning: Changes in foreign tax laws, including those arising from the OECD's Base Erosion and Profit Shifting (Pillar Two) project, could impact PMI's effective tax rate. Pillar Two did not materially impact 2024 or 2025 financial statements.
• Tax Reform Impact: The U.S. "One Big Beautiful Bill Act" (signed July 2025) did not materially impact 2025 results. Japan adopted a multi-year tax plan to harmonize excise tax for HTUs with cigarettes in two steps in 2026, with further increases until 2029.
• Tax Litigation: In 2025, PMI recorded a $176 million pre-tax charge related to the Germany excise tax classification litigation for TEREA consumables. In 2023, a $204 million pre-tax charge was recorded due to an adverse ruling in South Korea regarding excise tax underpayments. PMI also has income tax receivables of approximately $269 million in Indonesia related to disputed corporate income tax assessments.

Insurance & Risk Transfer

Risk Management Framework: PMI manages its credit risk by working predominantly with financial institutions with strong credit ratings and actively monitoring its exposure. The company uses derivative financial instruments to mitigate foreign currency and interest rate exposures. PMI maintains a cyber liability insurance policy to address cybersecurity risks. The company also has guarantees of its own performance, primarily related to excise taxes, and has entered into a guarantee agreement for an equity investee (Eastern Company) for up to $385 million until 2034. Philip Morris International Inc. also guarantees certain outstanding notes of Swedish Match AB.