MO 10-K & 10-Q changes, risk factors and insider trading

We may be unsuccessful in anticipating and responding to changes in adult tobacconicotine consumer preferences and purchase behavior, including as a result of difficult economic conditions, and preferences, each of which could have a material adverse effect on our business, results of operations, cash flows or financial position.

Our operating companies’ portfolios of tobacconicotine products are largely comprised of premium brands, such as Marlboro, Copenhagen and Skoal. The willingness of adult tobacconicotine consumers to purchase premium brands is affected by macroeconomic conditions, including inflation and overall economic stability. In periods of economic uncertainty and high inflation, we have observed that adult tobacconicotine consumers reduce consumption, purchase more discount brands and consider lower-priced tobacconicotine products, increasing the market share of competitive discount products.

If our operating companies are unable to take actions to mitigate the effects of inflationary pressures and other factors that contribute to their products’ industry volume decline rates, it could negatively impact our business, results of operations, cash flows or financial position. For example, thedue inabilityto ofinflationary pressures and other adverse macroeconomic factors, our operating companies may be unable to sufficiently increase the prices of their premium products to offset volume declines from consumers down-trading to lower-priced competitive brands or moving across tobacconicotine categoriesproduct categories. This inability to increase product prices could have a material adverse effect on our business, results of operations, cash flows or financial position and our ability to achieve our Vision.

Furthermore, ourOur ability to effectively respond to new and evolving adult tobacconicotine consumer purchase behavior catalyzed by challenging macroeconomic conditions and changes in adult tobacconicotine consumer preferences depends on our ability to promote brand equity successfully among our premium and discount brands and broaden our product portfolios across price-points and categories, including by bringing to market new and innovative tobacconicotine products that appeal to adult tobacconicotine consumers. Our failure to do so or our failure to anticipate changing adult tobacconicotine consumer preferences, improve productivity or protect or enhance margins through cost savings and price increases, could have a material adverse effect on our business, results of operations, cash flows or financial position.

We face significant competition, including from the growth of innovative nicotine products, and our failure to compete effectively could have a material adverse effect on our business, results of operations, cash flows or financial position and our ability to achieve our Vision.

Our operating companies operate in highly competitive environments. Significant competition exists with respect to product quality, taste, price, product innovation, marketing, packaging, distribution and promotional activities. Because many of our operating companies’ products are market leaders, we are subject to antitrust risk. In addition, as adult tobacconicotine consumer preferences evolve, consumers are increasingly moving across tobacconicotine product categories. Our operating companies’ failure to compete effectively in these environments could negatively impact their profitability, market share and shipment volume.

The growth of innovative tobacconicotine products, including legal and illicit e-vapor products and oral nicotine pouches, has contributed to reductions in the consumption levels and industry sales volumes of cigarettes and other tobacco products, including MST products. These reductions have negatively impacted our business. Furthermore, the proliferation of illicit flavored disposable e-vapor products has negatively impacted the growth of pod-basedFDA-authorized e-vapor products, including NJOY.NJOY’s products. If we are unable to compete effectively in innovative tobacconicotine product categories, including through internal product development, on! oral nicotine pouch products, NJOY e-vapor products, our participation in Horizon,Horizon and other potential future partnerships with Japan Tobacco and potential future relationships and investments, such inability could have a material adverse impact on our business, results of operations, cash flows or financial position and our ability to achieve our Vision.

The competitive environments in which our operating companies compete and our operating companies’ competitive positions can be significantly influencedimpacted by the price differentials between premium and discount brands. PM USA faces competition from lower-priced brands sold by certain United Statesdomestic and foreign manufacturers that have cost advantages because they are not parties to settlements of certain healthcare cost recovery litigation in the United States and, as such, are not required to make annual settlement payments as required by the parties to the settlements. These settlement payments, which are inflation-adjusted, are significant for PM USA and have contributed to substantial cigarette price increases to help cover their cost. Manufacturers not party to the settlements are subject to state escrow legislation requiring escrow deposits. Such manufacturers may avoid these escrow obligations by concentrating on certain states where escrow deposits are not required or are required on fewer than all such manufacturers’ cigarettes sold in such states. Additional competition has resulted from diversion into the United States market of cigarettes intended for sale outside the United States, diversion of tobacco products intended for sale in one taxing jurisdiction within the United States into another taxing jurisdiction, the sale of counterfeit cigarettes by third parties, the sale of cigarettes by third parties over the Internet and by other means designed to avoid collection of applicable taxes and imports of foreign lower-priced brands. Competition may also result from tax advantages available to companies with significant imports and exports of finished goods. Our failure to compete with lower-priced brands and counter the impacts of illicit trade in tobacco products could have a material adverse effect on our business, results of operations, cash flows or financial position.

Our inabilityfailure to successfullycompete countereffectively, including as a result of litigation settlement obligations, the effectsimpacts of illicit trade in tobacconicotine products, includingthe e-vaporprice products,differentials between premium and discount brands and our inability to realize available tax advantages, could have a material adverse effect on our business, results of operations, cash flows or financial position and our ability to achieve our Vision.position.

FailureWe may be unsuccessful in commercializing innovative products, including nicotine products with reduced health risks relative to completecertain orother managenicotine strategic transactions, including acquisitions, dispositions, joint venturesproducts and investmentsthat inappeal thirdto parties,adult ornicotine realizeconsumers, thewhich anticipated benefits of such transactions, couldmay have a material adverse effect on our business, results of operations, cash flows or financial position and our ability to achieve our Vision.

IfFailure to complete or manage strategic transactions, including acquisitions, dispositions, joint ventures and commercial relationships with and investments in third parties, or realize the NJOYanticipated Transactionbenefits orof anysuch other acquisition, disposition, joint venture, investment in a third party or other strategic relationship is not successful, theretransactions, could behave a material negativeadverse impacteffect on our business, financial position and results of operations and our ability to achieve our Vision.

Shifts in crops (such as those driven by macroeconomic conditions and adverse weather patterns), government restrictions and mandated prices, production control programs, economic trade sanctions, import duties and tariffs, international trade disruptions, labor disruptions, inflation, geopolitical instability, climate and environmental changes and disruptions due to man-made or natural disasters may increase the cost or reduce the supply or quality of tobacco and other raw materials, ingredients and component parts used to manufacture our operating companies’ products. Any significant change in such factors could restrict our ability to continue manufacturing and marketing existing products or impact adult tobacconicotine consumer product acceptability and have a material adverse effect on our business and profitability.

For varieties of tobacco only available in limited geographies, government-mandated prices and production control programs, political instability or government prohibitions on the import or export of tobacco in certain countries pose additional risks to price, availability and quality. As consumer demand increases for innovative smoke-free products and decreases for combustible and MST products, the volume of tobacco leaf required for production of these products has decreased, resulting in reduced tobacco leaf demand. Reduced demand for tobacco leaf may result in the reduced supply and availability of domestic tobacco and increased costs, as growers divert resources to other crops or cease farming. Macroeconomic factors, such as tariffs, may exacerbate reductions in demand for tobacco leaf by increasing the cost of purchasing tobacco leaf from a supplier in another country. The unavailability or unacceptability of any one or more particular varieties of tobacco leaf or the unavailability of nicotine extract necessary to manufacture our operating companies’ products could negatively impact our ability to continue marketing existing products or impact adult tobacconicotine consumer product acceptability, which could have a material adverse effect on our business and profitability. In addition, the nicotine used in our operating companies’ innovative smoke-free products is extracted from tobacco produced in one country. If we are unable to identify alternate sources of nicotine for our operating companies’ innovative products, we could be exposed to the risks discussed above.

Current geopolitical and macroeconomic conditions (including tariffs, inflation, high interest rates, labor shortages, supply and demand imbalances and international armed conflicts) are causing worldwide disruptions and delays to supply chains and commercial markets, which limit access to, and increase the cost of, raw materials, ingredients and component parts (for example, wood tips used in our cigar products and aluminum used in our packaging). As consumer demand increases for innovative smoke-free products and decreases for combustible and MST products, the volume of raw materials, ingredients and component parts required for the production of these products has decreased. Reduced demand for raw materials, ingredients and component parts may reduce supply and availability and increase the cost of raw materials, ingredients and component parts as suppliers divert resources to other products or cease producing these products. Furthermore, challenging economic conditions can create the risk that our suppliers, distributors, logistics providers or other third-party partners suffer financial or operational difficulties, which may impact their ability to provide us with or distribute finished product, raw materials and component parts and services in a timely manner or at all. If we are unable to identify alternate sources of raw materials, ingredients and component parts for our operating companies’ products, we could be exposed to supply risk.

In addition, government taxes, restrictions and prohibitions on the sale and use of certain products may limit access to, and increase the costs of, raw materials and component parts and, potentially, impede our ability to sell certain of our products. For example, certain states have passed extended producer responsibility legislation concerning packaging. Because certain of our operating companies’ products’ packaging consists of single-use plastics, single-use plastic bans and extended producer responsibility mandates could result in bans on some of our operating companies’ product packaging or ourtheir products and adversely impact our costs and revenues. Additional taxes and limitations on the use of certain single-use plastics have been proposed by the U.S. Congress and various state and local governments. These existing and potential future laws and regulations could increase the costs of,of sourcing, and impair our ability to,to sourcesource, certain materials used in the packaging for our products.

If weour operating companies are unable to compensate for supply shortages or elevated commodity and other costs through sustained price increases, cost efficiencies, such as in manufacturing and distribution, or otherwise manage the exposure through sourcing strategies, the limited use of commodity hedging contracts or through other initiatives, our business, results of operations, cash flows and financial condition could be materially adversely impacted.

We may be required to write down goodwill and other intangible assets, including trademarks and other intellectual property, due to impairment, which could have a material adverse effect on our results of operations or financial position.

We periodically calculate the fair value of our reporting units and intangible assets to test for impairment. ThisThese calculationcalculations may be affected by several factors, including general macroeconomic conditions, the proliferation of illicit products, government actions, including FDA regulatory actions and inaction, changes in category growth (decline) rates as a result of changing adult tobacconicotine consumer preferences, success of planned new product expansions, competitive activity, unfavorable outcomes with respect to litigation proceedings, including actions brought against us alleging patent infringement, and income and excise taxes. Certain events also can trigger an immediate review of intangible assets.

ForIn example,the second quarter of 2024, we recorded an impairment onof the value of the Skoal trademarktrademark. in the second quarter of 2024. TheThis impairment was the result of the decrease in the fair value of the Skoal trademark caused by decreases in the size of the MST products category, which were due, in part, to the growth of nicotine pouch volumes. We continue to monitor several factors that impact the fair value of the Skoal trademark. For example, ifIf Skoal’s actual revenue and income or long-term outlook are significantly differentunfavorable fromcompared to forecasted performance used to estimate the fair value or if the discount rate used to estimate the fair value increases, we could have an additional non-cash impairment onof the carrying value of the Skoal trademark in future periods.

We continue to monitor several factors that impact the fair value of our goodwill and intangible assets. If any impairment is determined to exist, we will incur impairment charges, which could have a material adverse effect on our results of operations or financial position.

In October 2024, we announced the multi-phase Initiative, which is designed to enhance organizational speed, efficiency and effectiveness. The Initiative includes centralizing work, outsourcing certain transactional activities and streamlining, automating and standardizing processes across the enterprise. The Initiative presents a number of risks that could adversely impact our business, such as risks relating to operational continuity, talent management and internal control over financial reporting and audit procedures. For example, we may experience a loss of continuity, loss of accumulated knowledge and inefficiency during transitional periods. Furthermore, many of the outsourced tasks thatare will be outsourcedor will be performed in developing countries that may be at a heightened risk for geopolitical uncertainty, which could result in service interruptions. The expected savings associated with the Initiative may be offset to some extent by business disruption during the implementation phase as well as investments in new processes and systems until such time as the Initiative is fully implemented. The accelerated frequency and scale of new technology and systems deployment to support the Initiative may increase risks to our internal control framework, protection of sensitive data and regulatory compliance. Additionally, the Initiative may lead to a loss of control and oversight of outsourced functions, which could weaken our existing internal control over financial reporting and present audit challenges. If the vendors to whom we outsource certain tasks do not adhere to our financial controls and compliance processes and procedures, we could be at an increased risk for fraud and financial misstatements.

WeOur operating companies could decide, or be required to, recall products, which could have a material adverse effect on our business, reputation, results of operations, cash flows or financial position.

WeOur operating companies could decide, or laws or regulations could require us,them, to recall products due to the failure to meet quality standards or specifications, suspected or confirmed and deliberate or unintentional product contamination, or other product adulteration, misbranding or tampering. Similar issues may subject us to liability with respect to products our operating companies manufacture for third parties under contract manufacturing agreements. A product recall or a product liability or other claim (even if unsuccessful or without merit) could have negative economic consequences and also generate negative publicity about us and our operating companies’ products. In addition, if another company recalls or experiences negative publicity related to a product in a category in which weone compete,of our operating companies competes, adult tobacconicotine consumers might reduce their overall consumption of products in the category. Any of these events could have a material adverse effect on our business, reputation, results of operations, cash flows or financial position.

An epidemic, pandemic or other significant public health emergency, and the measures taken by governmental authorities to address it, could significantly disrupt our abilityoperating companies’ abilities to operate ourtheir businesses in the ordinary course. Furthermore, any associated economic consequences could have a material adverse effect on our business, results of operations, cash flows or financial position.

Legal proceedings covering a wide range of matters are pending or threatened in various U.S. and foreign jurisdictions against us and our subsidiaries, including PM USA, as well as our and their respective indemnitees and indemnitors. Various types of claims may be raised in these proceedings, including product liability, unfair trade practices, antitrust, tax, contraband-related claims, patentintellectual property infringement, breach of contract, employment matters, environmental matters, claims alleging violations of the Racketeer Influenced and Corrupt Organizations Act (“RICO”), claims for contribution and claims of competitors, shareholders and distributors. Legislative action, such as changes to tort law, also may expand the types of claims and remedies available to plaintiffs.

Competitors and other third parties have brought and may in the future bring action against us, our subsidiaries and/or our suppliers alleging patent infringement. Such claims, regardless of merit, expose us to significant litigation costs and damages, importation bans with respect to products and product components manufactured abroad, divert management’s attention and compromise our operating companies’ abilities to commercialize and improve their products. This risk is especially pertinent to smoke-free products where technology continuesis advancing rapidly, resulting in a high volume of patents in relevant technology spaces. In a patent lawsuit adjudicated before the ITC, the ITC bannedimposed bans on the importation of IQOSNJOY devices, Marlboro HeatSticks and component partsACE into the United States and theour sale and marketing of anyNJOY suchACE products previously imported into the United States. As a result of the ITC’s decision, PM USANJOY removed theNJOY IQOS devices, Marlboro HeatSticks and any infringing componentsACE from the marketplace. We assignedhave the U.S. commercialization rights to the IQOS System to PMI in April 2024. In a separate patent lawsuit brought by JUUL, the ITC imposed similar restrictions on NJOY ACE. Ifappealed the ban on the importation into the United States and theour sale and marketing of NJOY ACE, but the bans will remain in place during the pendency of the appeal. JUUL has filed similar actions in the U.S. District Court for the District of Arizona and with the ITC alleging patent infringement based on our sale of NJOY Daily in the United States. If the bans with respect to NJOY ACE becomesremain effective,effective itor we experience unfavorable outcomes with respect to the patent litigation relating to NJOY Daily, either outcome could have a material adverse effect on our business, our valuation of NJOY’sour assetse-vapor reporting unit’s goodwill and our plans with respect to the e-vapor category.

Although we historically have been able to obtain required bonds or relief from bonding requirements in order to prevent plaintiffs from seeking to collect judgments while adverse verdicts have been appealed, there remains a risk that such relief may not be obtainable in all cases. This risk has been substantially reduced given that 47 states and Puerto Rico now limit the dollar amount of bonds or require no bond at all. However, tobacco litigation plaintiffs have challenged the constitutionality of Florida’s bond cap statute in several cases and plaintiffs may challenge state bond cap statutes in other jurisdictions as well. Such challenges may include the applicability of state bond caps in federal court. Although we cannot predict the outcome of such challenges, it is possible that our business, results of operations, cash flows or financial position could be materially adversely affected in a particular fiscal quarter or fiscal year by an unfavorable outcome of one or more such challenges.

We cannot predict whether regulators, including the FDA, will permit the marketing or sale of any particular innovative products (including products with claims of reduced risk to adult tobacconicotine consumers) or whether they will impose a burdensome regulatory framework on such products. In addition, the FDA could, for a variety of reasons, determine that innovative products on the market but pending FDA review of the associated PMTA (such as on! oral nicotine pouches), or those that have previously received authorization are not appropriate for the public health, and the FDA could require such products be taken off the market. We also cannot predict whether or to what extent the FDA will take enforcement actions against manufacturers and products that violate the law.

The actions and inaction of regulators, including the FDA, can result in competitive challenges. For example, unpredictable and lengthy regulatory review periods complicate efforts to strategize and plan with respect to commercialization of new products, and we cannot predict or influence the speed with which the FDA reviews PMTAs. A protracted FDA review of one of our operating companies’ PMTAs would allow competitive products already on the market to establish market share, brand recognition and adult tobacconicotine consumer loyalty in the absence of competition from our product. Additionally, we cannot control the order in which the FDA reviews PMTAs. The FDA could review a PMTA for a competitor’s product before it reviews a PMTA submitted by one of our operating companies with respect to a competing product notwithstanding that our operating company submitted its PMTA first. Scenarios such as these would put us at a competitive disadvantage, which could have a material adverse impact on our business, profitability and our ability to achieve our Vision.

In addition to the outcomes discussed above, actions and inaction by the FDA and other federal, state or local governments or agencies can (i) impact the adult tobacconicotine consumer acceptability of or access to tobacconicotine products (for example, through nicotine or constituent limits or menthol or other flavor bans), (ii) limit adult tobacconicotine consumer choices, (iii) restrict communications to adult tobacconicotine consumers, (iv) restrict the ability to differentiate tobacconicotine products, (v) impose additional manufacturing, labeling or packaging requirements, (vi) interrupt manufacturing or otherwise significantly increase the cost of doing business, (vii) result in increased illicit trade in tobacconicotine products, (viii) restrict or prevent the use of specified tobacconicotine products in certain locations or the sale of tobacconicotine products by certain retail establishments, (ix) require the recall of tobacconicotine products due to a determination relating to product contamination or (x) otherwise require the removal of tobacconicotine products from the marketplace (for example, due to a determination that one or more tobacconicotine products fail to satisfy the statutory requirements for substantial equivalence, must proceed through the pre-market review process or must be removed from the marketplace for the protection of public health).

Any federal, state or local governmental action, including regulatory actions and inaction by the FDA, may have a material adverse impact on our business, results of operations, cash flows or financial position. Such action and inaction also could negatively impact adult smokers’ transition to thesepotentially reduced risk products, which could materially adversely affect our ability to achieve our Vision.

TobaccoNicotine products are subject to substantial taxation, and any increases in tobacconicotine product-related taxes could have a material adverse impact on sales of our operating companies’ products.

TobaccoNicotine products are subject to substantial taxation, including excise taxes. Significant increases in taxes or fees on tobacconicotine products (including traditional tobacco products as well as e-vapor and oral nicotine products) have been proposed or enacted and are likely to continue to be proposed or enacted within the United States at the federal, state and local levels. The frequency and magnitude of excise tax increases can be influenced by various factors, including federal and state budgets and the composition of executive and legislative bodies. Tax increases are expected to continue to have an adverse impact on sales of our operating companies’ tobacco products through lower consumption levels and the potential shift in adult tobacconicotine consumer purchases from the premium to the non-premium or discount segments, to other low-priced or low-taxed tobacco products or to counterfeit and contraband products. Such shifts may also have an adverse impact on the reported share performance of our tobaccooperating companies’ products. Any increases in tobacco-related taxes or fees applicable to our operating companies’ products could have a material adverse impact on our business, results of operations, cash flows or financial position. In addition, substantial excise tax increases on e-vapor and oral nicotine products could negatively impact adult smokers’ transition to these products, which could materially adversely affect our ability to achieve our Vision.

While we are primarily engaged in business activities in the United States, we engage (directly or indirectly) in certain international business activities that are subject to various U.S. and foreign laws and regulations, such as foreign privacy laws, the U.S. Foreign Corrupt Practices Act and other laws prohibiting bribery and corruption. Although we have a Code of Conduct for Compliance and Integrity and a compliance system designed to prevent and detect violations of applicable law, no systemwe can provide no assurance that itany system will always protect against improper actions by employees, joint venture partners, investees or third parties. Violations of these laws, or allegations of such violations could result in reputational harm, legal challenges and significant penalties and other costs.

The following discussionManagement’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the other sections of this Form 10-K, including our consolidated financial statements and related notes contained in Item 8, and the discussion of risk factors that may affect future results in Item 1A. All references to “Notes” in this MD&A are to Notes to our consolidated financial statements in Item 8. Additionally, refer to Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) in our 20232024 Annual Report on Form 10-K for management’s discussion and analysis of financial condition and results of operations for the year ended December 31, 20232024 compared to the year ended December 31, 2022,2023, which we filed with the SEC on February 27,26, 20242025 and is incorporated by reference into this Form 10-K.

We have a leading portfolio of tobacco products for U.S. tobacco consumers age 21+. OurWe Visionare isMoving toBeyond SmokingTM, by responsibly lead the transition oftransitioning adult smokers to a smoke-free future.future, Wecompeting arevigorously Movingfor Beyondexisting SmokingTM,smoke-free leadingadult nicotine consumers and exploring new growth opportunities - beyond the wayUnited in moving adult smokers away from cigarettes by taking action to transition millions to potentially less harmful choices - believing it is a substantial opportunity for adult tobacco consumers, our businessesStates and society.beyond nicotine.

In smoke-free products, we own USSTC, the leading global MST manufacturer, Helix, a leading manufacturer of oral nicotine pouches, and NJOY, an e-vapor manufacturer with a commercialized product portfolio fullyproducts covered by MGOs from the FDA. Additionally, we have a majority-owned joint venture, Horizon, for the U.S. marketing and commercialization of HTS products.

▪Deliver a mid-single digits adjusted diluted EPS compounded annual growth rate (“CAGR”) in 2028 from a $4.84$4.87 base in 20222022, which has been recast as described in Non-GAAP Financial Measures below (for our progress through 2024,2025, see Consolidated Results of Operations);

WeIn expectOctober 2024, we announced a multi-phase Initiative designed to modernize our ways of working as we work towards achieving our Vision and 2028 Goals. In 2025, we began modernizing our ways of working, which enabled increased speed, efficiency and effectiveness across the initialorganization. We are now adding the final phases of the Initiative willand continue to expect to deliver cumulative savings of at least $600 million in cumulative cost savings overby the nextend fiveof years,2029. whichWe wecontinue to plan to reinvest these savings in our businesses in support of our Vision and 2028 Goals. TheThese cumulative cost savings exclude our estimated total pre-tax charges for the Initiative’sInitiative initialof approximately $175 million, updated from our prior estimate of approximately $125 million, as a result of finalizing the plans for all phases of approximatelythe $100 million to $125 million,Initiative, which we will treat as special items and exclude from our adjusted diluted EPS. For further discussion of the Initiative, see Note 7. Asset Impairment,5. Exit and Implementation Costs to our consolidated financial statements in Item 8 (“Note 75”).

In this section of the MD&A section,A, we discuss certain factors that have impacted our businesses as of the date of this Form 10-K. In addition, we are aware of and address certain trends and developments that could, individually or in the aggregate, have a material impact on our businesses, including the value of our investments in equity securities, in the future. We focus inIn this Trendssection, andwe Developments sectionfocus on the discretionary income pressures on adult tobacconicotine consumers, tariffs, evolving consumer preferences and illicit flavored disposable e-vapor productsproducts. Other trends and recentdevelopments regulatoryare anddiscussed executiveelsewhere actionsin andthis their effects or potential effects on our businesses.MD&A.

TheWith the exception of the impact of illicit flavored disposable e-vapor products on NJOY, the trends and developments discussed above have not had a material adverse impact on our consolidatedresults of operations, cash flows or financial statements,position. but we continue to monitor these trends and developments and potential financial impacts. While the growth of illicit flavored disposable e-vapor products has caused us to reassess certain of our 2028 Goals, weWe do not believe the trends and developments discussed above have materially impacted our ability to achieve our Vision. As the trends and developments evolve and new ones emerge, we will continue to evaluate the potential impacts on our businesses, investments and Vision.

▪Operations: The decreaseincrease of $48$93 million in operations (which excludes the impact of special items shown in the table above) was due primarily to lowerhigher OCIOCI, andpartially offset by lower net periodic benefit income, excluding service cost.cost and higher interest and other debt expense, net.

Our 2028 Goals include delivering a mid-single digits adjusted diluted EPS compounded annual growth rate (“CAGR”) in 2028 from a $4.84$4.87 (1) base in 2022. Our calculation of progress towards this goal through 20242025 is as follows:

We report our financial results in accordance with GAAP. However, our management also reviews certain financial results, including OCI, OCI margins, net earnings and diluted EPS, on an adjusted basis, which excludes certain income and expense items that our management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt, restructuring charges, asset impairment charges, acquisition, disposition and integration-related items, equity investment-related special items, certain income tax items, charges associated with tobacco and health and certain other litigation items, and resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the Master Settlement Agreement (“NPM Adjustment Items”) and amortization expense associated with definite-lived intangible assets (“amortization of intangibles”). In addition, our management reviews the ratio of debt-to-Consolidated EBITDA, which we use as a factor to determine our ability to access the capital markets and make investments in pursuit of our Vision. Consolidated EBITDA is calculated in accordance with our Credit Agreement (defined below in Liquidity and Capital Resources) and includes certain adjustments. Our management does not view any of these special items to be part of our underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results. Our management also reviews income tax rates on an adjusted basis, which may exclude certain income tax items from our reported effective tax rate.

Note 2. Summary of Significant Accounting Policies to our consolidated financial statements in Item 8 (“Note 2”) 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 an accounting policy or method because it is the only policy or method permitted under GAAP.

▪Depreciation, Amortization, Impairment Testing and AssetAssets Valuation: We depreciate property, plant and equipment and amortize our definite-lived intangible assets using the straight-line method over the estimated useful lives of the assets. We depreciate machinery and equipment over periods up to 20 years, and buildings and building improvements over periods up to 50 years. We amortize definite-lived intangible assets over their estimated useful lives up to 25 years.lives.

We review long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in business circumstances indicate that the carrying value of the assets may not be fully recoverable. We perform undiscounted operating cash flow analyses to determine if an impairment exists. For purposes of recognition and measurement of an impairment for assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identifiable. If the carrying value of the long-lived asset exceeds its fair value, we determinemeasure thatthe anamount impairment exists, any relatedof impairment loss isas calculatedthe baseddifference onbetween the carrying value and the fair value.value of the long-lived asset, which is determined using discounted cash flows. We base impairment losses on assets to be disposed of, if any, on the estimated proceeds to be received, less costs of disposal. We also review the estimated remaining useful lives of long-lived assets whenever events or changes in business circumstances indicate the lives may have changed.

We conduct a required annual review of goodwill and indefinite-lived intangible assets for potential impairment as of October 1 of each year, and more frequently if an event occurs or circumstances change that would require us to perform an interim review.review, Weusing haveeither thea optionqualitative or quantitative assessment for each of firstour performingreporting units and indefinite-lived intangible assets. When a qualitative assessment tois performed, 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 fair value of a reporting unit orand the indefinite-lived intangible assetassets. isIn less than its carrying amount as a basis for determining whether it is necessary to performperforming a quantitative impairmentassessment, test. If necessary, we will perform a single step quantitative impairment test. Additionally, we have the option to unconditionally bypass the qualitative assessment and perform a single step quantitative assessment. Ifif the carrying value of a reporting unit that includes goodwill exceeds its fair value, which is determined using discounted cash flows, goodwill is considered impaired. We measure the amount of impairment loss as the difference between the carrying value and the fair value of a reporting unit; however, the amount of the impairment loss is limited to the total amount of goodwill allocated to a reporting unit. If the carrying value of an indefinite-lived intangible asset exceeds its fair value, which is determined using discounted cash flows, we consider the intangible asset to be impaired and reduce the carrying value to fair value in the period identified.

We use an income approach to estimate the fair value of our reporting units and trademarks using information available as of the impairment testing date. The income approach reflects the discounting of expected future cash flows at a rate of return that incorporates the risk-free rate for the use of those funds, the expected rate of inflation and the risks associated with realizing expected future cash flows. The discounted cash flows may include multiple scenarios that consider a range of potential outcomes in projected cash flows.

20242025 Annual Review of Goodwill and Indefinite-lived Intangible Assets:

We completed our annual impairment test of goodwill and indefinite-lived intangible assets performed as of October 1, 2024.2025. We elected to perform a qualitative assessment for certain of our reporting units and indefinite-lived intangible assets. This qualitative assessment included the review of certain macroeconomic factors and entity-specific qualitative factors discussed above to determine if it was more likely than not that the fair values of our reporting units and indefinite-lived intangible assets were below carrying value. For certain of our other reporting units and indefinite-lived intangible assets, we elected to unconditionally bypass the qualitative assessment and perform a single step quantitative assessment.

Upon completion of this testing, we determined that the estimated fair values of our reporting units and our indefinite-lived intangible assets exceeded their carrying values in all circumstances and thus, no impairment charges were recorded. The estimated fair values substantially exceeded the carrying values for all of our reporting units and indefinite-lived intangible assets with the exception of our Skoal trademark and e-vapor reporting unit discussedand below.Skoal trademark.

We made various judgments, estimates and assumptionsAdditionally, in determining the estimated fair values of our reporting units and indefinite-lived assets, the most significant of which were volume, revenue, income, perpetual growth rates and discount rates in performing our annual impairment test of goodwill and indefinite-lived intangible assets. All significant inputs used in the valuation are classified in Level 3 of the fair value hierarchy. Our annual impairment test incorporated assumptions used in our long-term financial forecast, which is used by our management to evaluate business and financial performance, including allocating resources and evaluating results relative to setting employee compensation targets. The assumptions incorporated the highest and best use of our reporting units and indefinite-lived intangible assets and also included perpetual growth rates for periods beyond the long-term financial forecast. The perpetual growth rates and discount rates used in performing the valuations ranged from 0% to 2% and 10.0% to 13.5%, respectively. Additionally, in determining these significant assumptions, we made judgments regarding the: (i) timing of effective enforcement against illicit flavored disposable e-vapor products; (ii) timing and receipt of regulatory authorizations of innovative tobacco products, including oral nicotine pouches and e-vapor products; (iii) long-term growth of innovative tobacco products, including oral nicotine pouches, and the related impact on the MST category; (iv) long-term growth of the e-vapor category; and (v) conversion rates of illicit flavored disposable e-vapor consumers to pod-basedFDA-authorized systemse-vapor products and specifically, NJOYNJOY’s ACE;e-vapor and (vi) ability of NJOY ACE to remain on the market.products. Fair value calculations are sensitive to changes in these estimates and assumptions, some of which relate to broader macroeconomic conditions outside of our control.

Although our discounted cash flow analyses are based on assumptions that arewe considered reasonable and are based on the best available information as of OctoberDecember 1,31, 2024, our annual impairment testing date,2025, we used significant judgment in determining future cash flows. In addition to the judgments discussed above, the following factors also have the potential to impact our assumptions and thus the expected future cash flows and, therefore, our impairment conclusions: general macroeconomic conditions; governmental actions, including FDA regulatory actions and inaction; changes in category growth (decline) rates as a result of changing adult tobacconicotine consumer preferences; success of planned new product expansions; competitive activity; unfavorable outcomes with respect to litigation proceedings, including actions brought against us alleging patent infringement; and income and excise taxes. For further discussion of these factors, see Operating Results by Business Segment - Business Environment below.

While our management believes that the estimated fair values of each reporting unit and indefinite-lived intangible assetassets at December 31, 20242025 are reasonable, actual performance in the short term or long term could be significantly different from forecasted performance, which could result in impairment charges in future periods.

During 2024 and 2023, our quantitative annual impairment test of goodwill and indefinite-lived intangible assets resulted in no impairment charges.

Through the firstsecond quarter of 2026, U.S. adult nicotine consumers continued to face inflationary pressure on discretionary income, with impacts more pronounced among lower-income consumers. Heightened geopolitical risk and uncertainty following the recent developments in the Middle East contributed to increased energy price volatility, with gas prices increasingaveraging to an average of $3.64$4.05 per gallon during March.June. The increase in gasGas prices contributed to elevated inflation in MarchJune of 3.3%,3.5%, above the Federal Reserve’s 2% target and the highest level since early 2024. These macroeconomic pressures were partially offset by incremental near-term liquidity support, as Internal Revenue Service data indicates average tax refunds through the end of March increased versus the prior year.target.

Overall discretionary income pressures on adult nicotine consumers have resulted in increased discount brand share and contributed to evolving adult nicotine consumer preferences, each of which has negatively impacted the sales volumes of certain of our operating companies’ premium brands. For the firstsecond quarter of 2026, the discount retail share of the cigarette category reached 33.3%,33.8%, an increase of 2.42.6 share points versus the firstsecond quarter of 2025 and 0.5 share points sequentially. When adjusted for trade inventory movements, our smokeable products segment domestic cigarette shipment volume declined by an estimated 4.5% in the second quarter of 2026 versus the second quarter of 2025. When adjusted for trade inventory movements, total estimated domestic cigarette industry volume declined by 5% in the second quarter of 2026 versus the second quarter of 2025. We believe moderating estimated domestic cigarette industry volume decline, which began in the third quarter of 2025, continues to primarily be driven by reduced cross-category movement between cigarettes and illicit flavored disposable e-vapor products. Additionally, we believe that a significant number of adult nicotine consumers switch among nicotine categories, use multiple forms of nicotine products and try innovative nicotine products, such as e-vapor products and oral nicotine pouches. The U.S. nicotine pouch category continued to grow throughout the firstsecond quarter of 2026 to 58.1%59.9% of the U.S. oral tobacco category, an increase of 9.18.1 share points versus the firstsecond quarter of 2025.2025 Whenand adjusted1.8 for trade inventory movements, our smokeable products segment domestic cigarette shipment volume declined by an estimated 4% in the first quarter of 2026 versus the first quarter of 2025. When adjusted for trade inventory movements, total estimated domestic cigarette industry volume declined by 5% in the first quarter of 2026 versus the first quarter of 2025. In the fourth quarter of 2025, we estimated the industry decline rate to be 6.5% versus the fourth quarter of 2024. We believe that the 1.5 percentageshare points change in the domestic cigarette industry volume decline rate in the first quarter of 2026 was due primarily to reduced cross-category movement between cigarettes and illicit flavored disposable e-vapor products.sequentially. As innovative smoke-free products evolve to better address the preferences of adult nicotine consumers, these consumers continue to transition from cigarettes and MST products to innovative smoke-free products, which has reduced the sales volumes of our operating companies’ cigarette and MST products.

In response to the proliferation of illicit flavored disposable e-vapor products,Various states and the federal government have taken various regulatory and enforcement actions.actions against manufacturers, distributors and retailers of illicit flavored disposable e-vapor products. For example, the FDA and U.S. Customs and Border Protection have made it more difficult to import properly declared illicit e-vapor products, seized unauthorized e-vapor products and issued warning letters to importers. Despite these enforcement measures, insufficient actions against manufacturers, distributors and retailers of nicotine products requiring FDA review for which no PMTAspremarket tobacco product applications (“PMTA”) have been submitted have allowed such products to continue to proliferate in the market. We expect that effective enforcement against illicit flavored disposable e-vapor products will occur more gradually than initially anticipated.expected and continue to monitor the overall dynamics and competitive threats to our brands across multiple nicotine categories.

We are monitoring volatility in domestic and global economies and disruptions in the supply and distribution chains. This volatility and disruption are the result of several factors, including macroeconomic conditions, raw materials availability and geopolitical events. We continue to assess the impact of volatility on price, availability or quality of tobacco, other raw materials or component parts, and work to mitigate the potential negative impacts of these macroeconomic and geopolitical dynamics on our businesses through, among other actions, proactive engagement with current and potential suppliers and distributors and the development of alternative sourcing strategies.

Consolidated Results of Operations for the ThreeSix Months Ended MarchJune 31,30, 2026

The changes in net earnings and diluted EPS for the threesix months ended MarchJune 31,30, 2026, from the threesix months ended MarchJune 31,30, 2025, were due primarily to the following:

For a discussion of special items and other business drivers affecting the comparability of statements of earnings amounts and reconciliations of adjusted net earnings and adjusted diluted EPS, see Consolidated Operating Results below.

▪Operations: The increase of $118$153 million in operations (which excludes the impact of special items shown in the table above) was due primarily to higher OCI.OCI and higher income from our equity investment in ABI, partially offset by lower net periodic benefit income, excluding service cost.

We report our financial results in accordance with GAAP. However, our management also reviews certain financial results, including OCI, OCI margins, net earnings and diluted EPS, on an adjusted basis, which excludes certain income and expense items that our management believes are not part of underlying operations. These items may include, for example, loss on early extinguishment of debt, charges related to restructuring charges,and other exit activities, asset impairment charges, acquisition, disposition and integration-related items, equity investment-related special items, certain income tax items, charges associated with tobacco and health and certain other litigation items, resolutions of certain non-participating manufacturer (“NPM”) adjustment disputes under the Master Settlement Agreement (“NPM Adjustment Items”) and amortization expense associated with definite-lived intangible assets (“amortization of intangibles”). While amortization of intangibles is excluded from our adjusted financial measures, net revenues generated from these definite-lived intangible assets during the periods presented, if applicable, are included in our adjusted financial measures. In addition, our management reviews the ratio of debt-to-Consolidated EBITDA, which we use as a factor to determine our ability to access the capital markets and make investments in pursuit of our Vision. Consolidated EBITDA is calculated in accordance with our Credit Agreement (defined below in Liquidity and Capital Resources) and includes certain adjustments. Our management does not view any of these special items to be part of our underlying results as they may be highly variable, may be unusual or infrequent, are difficult to predict and can distort underlying business trends and results. Our management also reviews income tax rates on an adjusted basis, which may exclude certain income tax items from our reported effective tax rate.

We conduct a required annual review of goodwill and indefinite-lived intangible assets for potential impairment as of October 1 of each year, in accordance with our accounting policy, and more frequently if an event occurs or circumstances change that would require an interim quantitative impairment assessment. There have been no events or changes in circumstances that indicate an interim quantitative impairment assessment was required as of MarchJune 31,30, 2026.

We believe that the estimated fair value of the e-vapor reporting unit at December 31, 2025 remains reasonable and there are no events or circumstances indicating an impairment for the six and three months ended MarchJune 31,30, 2026. Fair value calculations are sensitive to changes in certain judgments and assumptions. The significant judgments and assumptions that drive the fair value of the reporting unit are the (i) timing and extent of effective enforcement against illicit flavored disposable e-vapor products; (ii) timing and likelihood of regulatory authorizations of e-vapor products, including of NJOY’s products; (iii) timing of the commercialization of NJOY e-vapor products in the United States; (iv) long-term growth of the e-vapor category; and (v) conversion rates of illicit flavored disposable e-vapor consumers to FDA-authorized e-vapor products and, specifically, NJOY’s e-vapor products. Fair value calculations can be negatively affected by changes in these judgments and assumptions, some of which relate to broader macroeconomic conditions and governmental actions outside of our control. If these assumptions or judgments regarding the expectations for the future state of the e-vapor category and NJOY’s business fail to materialize as anticipated, if we experience unfavorable outcomes with respect to litigation proceedings (including actions alleging patent infringement), or if the discount rate used to estimate the fair value increases, we could have additional non-cash impairments of our e-vapor reporting unit goodwill in future periods, which could be material. Based on our 2025 annual impairment test, a hypothetical 1% increase in the discount rate used to estimate the fair value of the e-vapor reporting unit would have resulted in a goodwill impairment charge of approximately $150 million. For further discussion of these factors, see Operating Results by Business Segment - Business Environment below.

We believe that the estimated fair value of the Skoal trademark at December 31, 2025 remains reasonable and there are no events or circumstances indicating an impairment for the six and three months ended MarchJune 31,30, 2026. If the decline in sales volume for Skoal is higher than currently estimated and results in material revenue declines, we believe there may be a material adverse effect on the significant assumptions used in performing our valuation. If Skoal’s actual revenue and income or long-term outlook are significantly unfavorable compared to forecasted performance used to estimate the fair value or if the discount rate used to estimate the fair value increases, we could have material non-cash impairments of the Skoal trademark in future periods. Based on the 2025 annual impairment test, a hypothetical 1% increase in the discount rate used to estimate the fair value of Skoal trademark would have resulted in an impairment charge of approximately $90 million. For further discussion of these factors, see Operating Results by Business Segment - Business Environment below.

The following table provides a reconciliation of adjusted net earnings and adjusted diluted EPS for the threesix months ended MarchJune 3130:

The following specialtable itemsprovides affecteda the comparabilityreconciliation of statementsadjusted ofnet earnings amountsand adjusted diluted EPS for the three months ended MarchJune 31, 2026 and 202530:

(2) Recorded as general corporate expense. AmountAmounts isare net of $22 million of insurance recoveries of $7 million and $25 million for the six months ended June 30, 2026 and 2025, respectively, and $7 million and $3 million for the three months ended MarchJune 31,30, 2025.2026 and 2025, respectively. To date, we incurred total costs of $152$172 million, primarily associated with the ITC exclusion order and cease-and desistcease-and-desist orders prohibiting the importation and sale of NJOY ACE in the United States and patent infringement lawsuits related to the NJOY Transaction, which were offset by insurance recoveries of $64$71 million.

Additionally, we recorded a non-cash, pre-tax charge of $25 million for the threesix months ended MarchJune 31,30, 2025 for the change in the fair value of the contingent payments associated with the NJOY Transaction, which was recorded as general corporate expense and included in marketing, administration and research costs in our condensed consolidated statements of earnings. For further information, see Contingent Payments in Note 5. Financial Instruments.

▪Asset Impairment: We recorded a non-cash impairment charge of $873 million to reduce the carrying value of the e-vapor reporting unit goodwill to its estimated fair value for the threesix months ended MarchJune 31,30, 2025 in our all other category. For further discussion, see Note 2.

▪Amortization of Intangibles: We recorded pre-tax amortization expense ofassociated with definite-lived intangible assets of $46 million and $74 million for the six months ended June 30, 2026 and 2025, respectively, and $23 million and $37 million for the three months ended MarchJune 31,30, 2026 and 2025, respectively, in marketing, administration and research costs in our condensed consolidated statements of earnings.

Cost of sales decreasedincreased $18$78 million (1.4%2.9%), due primarily to lowerhigher NJOYmanufacturing costs and higher per unit settlement charges in our smokeable products segment and 2026 costs related to USSTC Facilities Consolidation, partially offset by lower shipment volume in our smokeable products segment,segment partiallyand offsetlower byNJOY higher manufacturing costs in our smokeable products segment.costs.

Excise taxes on products decreased $70$127 million (9.5%8.2%), due primarily to 2026higher refunds of taxes and duties paid on imported cigarettes and lower shipment volume in our smokeable products segment.

Marketing, administration and research costs decreasedwere $38essentially millionunchanged, (6.5%),as due primarily to lowerhigher tobacco and health and certain other litigation items, lower amortization of intangibles, lowerhigher general corporate expenses and higher spending in our oral tobacco products segment were mostly offset by lower amortization of intangibles, lower costs related to our OptimizeInitiative &and Acceleratelower initiative (“Initiative”), partially offset by higher spendingcosts in our smokeableall productsother and oral tobacco products segments.category.

(Income) losses from investments in equity securitiessecurities, werewhich favorabledecreased $15$46 million (10.5%15.8%), duewere primarilynegatively toimpacted favorableby resultsunfavorable special items from our investment in ABI.ABI as discussed above.

Reported net earnings of $2,183$4,481 million increased $1,106$1,026 million (100%+29.7%), due primarily to higher operating income. Reported basic and diluted EPS of $1.30,$2.67, each increased by 100%+,30.9%, due primarily to higher reported net earnings.

Adjusted net earnings of $2,218$4,698 million increased $129$176 million (6.2%3.9%), due primarily to higher OCI.OCI and higher income from our equity investment in ABI, partially offset by lower net periodic benefit income, excluding service cost. Adjusted diluted EPS of $1.32$2.80 increased by 7.3%,4.9%, due primarily to higher adjusted net earnings and fewer shares outstanding.

▪increased efforts by tobacco control advocates and other private sector entities (including retail establishments) to further restrict the availability and use of nicotine products or the ability to communicate with adult nicotine consumers through third-party digital platforms;

▪the highly competitive nature of all nicotine categories, including competitive disadvantages related to (i) the impact on cigarette prices due to the settlement of certain healthcare cost recovery litigation, (ii) the growth of innovative nicotine products, such as e-vapor and oral nicotine pouch products, and (iii) the ability of competitors to receive refunds of certain duties, taxes and fees paid on imported tobacco products when offsetting volumes of those products or substantially similar products are subsequently exported;

▪Final Tobacco Marketing Rule: As required by the FSPTCA, the FDA has promulgated a wide range of advertising and promotion restrictions for cigarettes and smokeless tobacco(1) products (the “Final Tobacco Marketing Rule”), which the FDA has subsequently amended to expand specific provisions to all tobacco products, including cigars, pipe tobacco and e-vapor and oral nicotine products containing tobacco-derived nicotine or other tobacco derivatives such as synthetic nicotine. The Final Tobacco Marketing Rule currently does not apply to products containing nicotine analogues.

▪Premarket Review Pathways for Tobacco Products and Market Authorization Enforcement: The FSPTCA permits the sale of tobacco products on the market as of February 15, 2007 and not subsequently modified (“Pre-existing Tobacco Products”) and new or modified products authorized through the pre-market tobacco product application (“PMTA”),PMTA, Substantial Equivalence (“SE”) or SE Exemption pathways. Subsequent FDA rules also provide a Supplemental PMTA pathway designed to increase the efficiency of submission and review for modified versions of previously authorized products.

The FSPTCA requires the FDA to issue a marketing order (either ana marketing granted order (“MGO”) or a marketing denial order (“MDO”)) with respect to a PMTA no later than 180 days after receipt of the PMTA. Following the 180-day FDA review period, the FSPTCA allows any party that receives an MDO to seek expedited judicial review of the ruling in a federal appellate court within 30 days. Together, these statutory deadlines for FDA action and judicial review create a structure and timeline for manufacturers seeking to market new products. While it is possible that the FDA may bring an enforcement action relating to commercialized products for which a PMTA has been pending longer than the 180-day review period, we believe that any such enforcement action would conflict with the FSPTCA. Our operating companies may decide to commercialize products that have not received MGOs from the FDA if the operating company submitted a PMTA with respect to any such product in compliance with the FSPTCA and the FDA failed to issue a marketing order within the statutory review period.

Modifications to currently marketed products, including modifications that result from, for example, (i) changes to the quantity of tobacco product(s) in a package, (ii) a manufacturer being unable to acquire ingredients or (iii) a supplier or contract manufacturer being unable to maintain the consistency required in ingredients or manufacturing processes, could trigger the FDA’s premarket review process. Additionally, a manufacturer may be unable to maintain consistency in manufacturing processes as it increases the scale of its manufacturing operations in response to market expansion or product introduction. These circumstances could cause a manufacturer to receive (i1) a“Smokeless “not substantially equivalenttobacco,” determinationas orused (ii)in athis denial or withdrawalsection of athis PMTA,Form either10-Q, ofrefers to smokeless tobacco products first regulated by the FDA in 2009, including MST. It excludes oral nicotine pouches, which couldwere resultfirst regulated by the FDA in a product being removed from the market. In addition, new scientific data continues to be developed relating to innovative nicotine products, which could impact the FDA’s determination as to whether a product is, or continues to be, appropriate for the protection of public health and could, therefore, result in the removal of one or more products from the market. Any such actions affecting our operating companies’ products could have a material adverse impact on our business, results of operations, cash flows or financial position.2016.

Helix submitted PMTAs for on! oral nicotine pouches on the market as of August 2016 in May 2020, PMTAs for additional on! oral nicotine pouches in September 2024, PMTAs for on! PLUS oral nicotine pouches in tobacco, mint and wintergreen flavors in June 2024 and PMTAs for on! PLUS oral nicotine pouches in six additional flavors in November 2025.2025 and June 2026. In September 2025, the FDA launched a pilot program intended to increase efficiency and streamline the review process for PMTAs for select oral nicotine pouch products. Also in September 2025, the FDA communicated to Helix that PMTAs for certain of its products, including on! PLUS, were being reviewed through the pilot program. In December 2025, the FDA issued MGOs with respect to on! PLUS oral nicotine pouches in tobacco, mint and wintergreen flavors in 6 mg and 9 mg nicotine levels. As of AprilJuly 27, 2026, the FDA has not issued a marketing order with respect to any other on! or on! PLUS product.

▪E-Vapor Products: In September 2022, the FDA represented that it had resolved more than 99% of the timely applications it had received, the vast majority of which were for e-vapor products and resulted in MDOs. As of AprilJuly 27, 2026, many manufacturers of menthol and other flavored e-vapor products have received MDOs for failure to provide sufficiently strong product-specific scientific evidence to demonstrate that the benefits of their products to adult smokers overcome the risks that their products pose to youth. The FDA has communicated in these MDOs that vapore-vapor products with non-tobacco flavors present unique questions relevant to the FDA’s “Appropriate for the Protection of Public Health” standard and that successful applications require strong, product-specific evidence. This perspective is reflected in the FDA’s MarchMay 2026 draft guidance onregarding flavoredhow electronicit intends to enforce premarket review requirements for certain e-vapor and oral nicotine deliverypouch systems.products with pending PMTAs. A number of manufacturers are challenging the MDOs for their products. In January 2024, the U.S. Court of Appeals for the Fifth Circuit ruled that the FDA had unlawfully changed its position with respect to the information required to obtain a PMTA. In April 2025, the U.S. Supreme Court vacated the U.S. Court of Appeals for the Fifth Circuit’s determination, concluding that manufacturers had been given fair notice of the PMTA requirements, and remanded the case for further review. Other U.S. Courts of Appeals have upheld adverse FDA determinations.

The FSPTCA imposes user fees on cigarette, cigarette tobacco, smokeless tobacco, cigar and pipe tobacco manufacturers and importers to pay for the cost of regulation and other matters. The FSPTCA does not impose user fees on e-vapor products or oral nicotine pouch manufacturers. The cost of the FDA user fee is allocated first among tobacco product categories subject to FDA user fees and then among manufacturers and importers within each respective category based on their relative market shares, all as prescribed by the FSPTCA and FDA regulations. Payments for user fees are adjusted for several factors, including market share and industry volume. See Liquidity and Capital Resources - Payments Under State Settlement Agreements and FDA Regulation below for a discussion of our FDA user fee payments. In addition, our operating companies’ compliance with the FSPTCA’s regulatory requirements has resulted, and will continue to result, in additional costs. The amount of additional compliance and related costs has not been material in any given quarter or year-to-date period but could become material, either individually or in the aggregate. The failure to comply with FDA regulatory requirements, even inadvertently, and FDA enforcement actions also could have a material adverse effect on our business, results of operations, cash flows or financial position.

Federal, state and local cigarette excise taxes have increased substantially over the past two decades, far outpacing the rate of inflation. Between the end of 1998 and AprilJuly 27, 2026, the weighted-average state cigarette excise tax increased from $0.36 to $2.02 per pack. As of AprilJuly 27, 2026, one state (Utah) has enacted legislation increasing cigarette excise taxes in 2026, and various increases are under consideration or have been proposed.