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-S- V. STRATEOIC ZSS1/I~ 2I GROW VILLI~-FOR-MO~y pERFORM2~NCE OBJECTIVES - B&W ~st continue to participate in this strong growth segment to ensure long term p~ofitabiiity. A key challenge is to manage the VFM portfollc under B&W,s new priceposttioning through a combination of discounting and list prlceI go that a strategic brand is positioned at each price point and diltlnct relationships between price megments are established and maintained. B~W*s VFH portfolio is forecast to grc~ from 6.8~ market share in 1992 to ll.g% share in 1997. A primary objective is to improve brand unit and total profitability. SITUATION ~WMJ~yS~S - Consumer acceptance of VFM brandl continues to grow as the price differential between full revenue and VFM offerings expands. The prlJnary element of VFM marketing has been pries discounting through carton/pack couponing. Although discounting will continue to be an important element, it is anticipated that the newly e~tablished list price differentials versus full revenue will take on more importancet relieving some of the pressure for further discounting. This should provide a~ opportunity for more traditional marketing tools - advertising, display progrD~ms, Bigness - to take On greater importance in VTM marketing. It should be noted, however, that a more aggressive discounting approach by key competitors may necessitate a retur~ to the heavy discounting levels observed in recent years° The key dyn~ic that has occurred in VFM in recent yearo iJ the exceptional growth of Extra Low Priced offerings, which has doubled in size during 1992 to 11.1 share points. Growth is expected to continue through the plan period as: consumers become i~creasingly price conscious, retail cigarette prices outp&ce inflation, ELP brands continue to deliver on the promise of price/value, and the price gap between ELP and Full Revenue grows. ~s VFM branded offerings find it increasingly difficult to compete with ELP offerings on purely price, they will be forced to find other means by which to differentiate themselves and compete. Thust JJnagery and quality reassurance ere expected to become increasingly im~rtant for branded VFM entries. VICEROX - Based on its heritage as a mainstream non-menthol brand, VICEROY is felt to have considerable potential as the "Low Price Alternative" to current smokers of competitive full revenue non-menthol brands (i.e., Marlboro and winston). Central to this strategy is the ability to u~unlcate VICEROY's quality and value message. Key elements of the VICEROY plan are devoted to media, direct mail end value-added promotions, that are designed to enhance awareness and create a positive image. In addition, significant opportunities should be available through development of new VICEROY styles - BOX and Ultra Lights. Along with these image and awareness building activities, a moderate level of discounting spend is planned to ensure that VICEROY maintains its differential releb£ve to full revenue brands over the plan period to deliver ¢0nsistent price~value to increasingly prlce-conscious smokers. - The primary strategy behind H~LEIGH EXTRA is to maintain the brand at GPC's llst price level, thus providing a price advantage versus other branded VFM products. Supporting this strategy will he limited on carton/pack discounting spend, targeted primarily at outlets that do not carry GPC. Additional discounting will alIow RALEIGH EXTRA to compete head on with the aggressive positioning of PM/RJR offerings and in selective markets where the brand has been traditi0nally ~trong. Merchandising and display support remain critical el~ments of the RAlEiGH EXTRA plan to ensure effective retail presence and price c~unicatlon. 690951892

-7- Gp~- GPC has shared in the explosive growth of the lowest priced segment of the business, plans for the bra,d will focus on maintaining its distribution base while improving profitability. Volume is projected to grow only modestly from current levels. TO accomplish this, discounting spend will be required to offset the $5/M price disadvantage that GPC has vers~s most other ELP offerings and heavy levels Of competitive promotional spend. Retail efforts will focus on communiclting Gpc's price proposition to the consumer and building an increased level of brand equity. Unit profitability is projected to almost triple over the plan period to $13.60 per thousand. Mowever, it will be difficult to improve profitability further in the competitive marketplace since it is likely that competitive entries would be introduced below Gpc's price positioning to take advantage of those substantial margins. During the first half Of 1993, a redesigned GPC package will be test marketed to provide greater insight regarding the potential of increasing SPC brand equity among consumers. S&Vpd~NAH - SAVA/~NA~ was rolled into approximately 34% of the U.S. in 1992 and plans are to complete national rollout in 1993, but only after validating that recent positive trends continue, primary focus will be to position SAVANNA~ as an everyday low price, high quality VFM Slims entry that can appeal directly to smokers of Virginia Slims as well ms to smokers of competitive VFM slims products. Progra~ elements will focus on gaining awareness and trial with limited discounting support planned. VI. OTHER SIGNIFI~ ~STIC ISSUES CAPR~ - Since the slI~s segment has remained basically stable at 6% of the market, CAPRI plans focus on growing its smoker base through the expansion of the ~20's into the remainder of the U.5. and the introduction of CAPRI Ultra Lights. Apart from these introductions, support behind CAPRI will be a continuation of image-based advertising and promotions. Due to its unique product characteristics, CAPRI has not experienced significant VFM defections, and the impact of SAVANNAH on the CAPRI franchise is expected to be minimal. SALES ~RD DISTRIBUTION - A critical element required to implement B&W'S plan is the Field Sales Force. Plans include additional manpower increases and reevaluation of call frequencies to help gain competitive advantage in high opportunity retail locations, Expanded strategic use of the handheld computer (particularly regarding pricing and discounting), enhanued distribution programs and increased package contracts are high priorities. NEW PRODUCTS -- Development Of new products will be required during the plan period to build the iong-ter~ profitability of the business. The current portfolio will need to be updated with products designed to exploit niches or changing consumer demands. This new product focus will intensify later in the plan period after achieving superiority goals. VII. I~TERNATIOMAL L~VIROMME~TAL OVZRVIEW, ~SSUMP~IONS RRD ~RBCAST Overall, world economic c0ndltlons and inflstlon are expected to i~prove modestly. Interest rates are antlclpated to remain higher than in the U.S. and the Yen is expected to continue to show itrength Igalnst ~he dollar. International ass~mptlons are generally in llne with B.~.T'S Future Business Environment paper. ~iobaI opportunities for U.S. brands will be excellent over the plan period° World cigarette volume is expected to grow at a 1.2% ¢ompeund rate even in the face of increasing worldwide smoking and marketing restrictions, tax increases and social pressures. Much of the growth will c~e from China, the CIS and Eastern Europe, • 690951893

-8- U.Sm Inters~tlonal 8rends will grow from 461 billion unit8 in 1992 to 554 billion u~it8 at the end of 1997 (CGR 3.?,). U.S. cigarette export volume for 1992 will be down somewhat from 1991"g 179 billion units, primarily ~ue to lower males by PMI and RJR to CIS. Growth resume8 in 1993, with the rate Of g~owth in out yBa~8 impacted as competitors' U.S. export production 18 transferred to local markets through jolnt ventures. However, thig could be moderate~ is there is potentially aome excess competitive capacity in the U.S. later in the plan. BecauBe of the current opportunltiel, ~nternatlonal cigarette markets will be g~b~ect to increagingly Itrong price c~petltio~. PMI, RJR and JT~ are mll expected to market valuB off,ring8 &gg~esgively, particularly in emerglng marketm to gain a itrong foothold. PMI will cent•hum w~rldwide Btrateglc management of Marlboro and their other key brandg, especially Parliament ~nd Merit, while evaluating alternative Conumu~icationl. pMI will gtroNgly g~pport key market8 of Germany, Italy, Japan, France and Mexico, while exploiting new cpportunitieA in Asia, CIS~ Eastern Europe and South America. R~R will maintain a mtrategy focusing on the Asian, ~uropea~ and Eastern Europe Reglon8 add key B~rategic braN~s of Camel, Win~to~ a~d Salem. JTI will con~in~e to purmue businesl outside of Japan a~d even Lorillard is attempting to develop opportunities outnide the U.S~ VIII. STRATEGIC ISSUE 3z ~xF~ Ah~ GROW IF~ER~ATIONALLy PERFORMANCE OBJECTI~FES - The gtrategic drive to expand and grow the International b~ines8 generat~ a f~recasted profit co~tributlon ind expQrt/~ntract volume increase from $219.4 million/46.9 billion in 1992, to $394.7 million/75.5 billi~n in 1997. This represent8 an 12.5% compound profit contribution growth rate (i~c~uding B.A.T notational adju~tmentJ) combined with significant investment and a 10.4% export volume compo~n~ growth rate. KEy B&W IMTERWATIONAL STRATEGIES C~ti~ue ~[o~m~n~ o~ str~t~Ic bra~ (L~ $T~I~* KENT. 8aRCLAT. ~APKI). a~ ~r~iti~te ~ut[7 in the ~ro~1~ Li0h~ ~e~e~t. E~t~b~h standav~ ~or PAiL ~LL a~ • It~a~I~ ~•~. ~i~ ~o c~trate reserves ~ ~vel~i~ bu~i~ss in key A~i~ turkeys; inves~ se[~ti~y in ~rt~Ity ~In~e ~o •~r~n~th~ ~he In~er~nL ~rg~Jz|~l~ ~ ~ure ~e human reserves are •viSibLe ~o expID~ t ~r~ies. T~et~er wlth other Grou9 ~pa~ie$. ~L~ • ¢~di~t~ •~r~¢h ~o the ~ur¢~ ~,d mrketi~ of Group bra~ i~ ~rk re, ¢~*%~Iet~n~ re[i~ve ~cI~ o~ ~tcmt~ic br•~ In di~e~ ivke~$• * ~ork ~th BATCO•/~T-Chi~ ~o ~tlmiz• the ~L~m~n~ Q~ ~4 brands m~ ~r~ pro~it~iLi~7 i, ~he F•r |8~$. A~ress the i~re6s~ty price ¢~tltI~ ~i¢~t ~ ~rk1~ with Group ¢~ni~ to i~?ove Ir|i~ Zhwu~h ~rm~ ~er•~e. KEY ~NTERN~TIOWAL BRANDS - B&W'8 portfolio Of strategic and ~actical U.S. International brands is po~itloned to ~ompete within the total USlB aegment. Thin approach ~upports the group 8tr&tegy to provide a portfolio of competitive alternativQJ to ~mokerm of ~SIB8 worldwide. KENT i8 a mild U.S. cigarette for self-assured adults who want a more styllJh, sociable end mature image than offered by Marlboro. LUCK~ STRIK~ in a high quality, full flavor U°S. cigarette f~r young adult male•. It provide• a contemporary, ma~oullne image of freedom, adventure an~ independence. BARCLAy £s the U.S. lower tar ~garette offering clalsic smoking pleasure through product innovation for 690951894

-9- adults who want the image of personal success and contemporary sophistication. CAPRI is the U.S. superslim low tar cigarette offering the female smoker a statement of contemporary feminine style, pail W-~ is an ~eriran-blended product with a high qualfty full flavor heritage which competes with mainstream USIBS, usually on a value platform. A range of tactical brands will be employed to complement the strategic portfolio and provide increased flexibility in dealing with unique market situationn. REG]ON~JL/KEy M~T ~A~ySIE Far EASt - The Far East contimues to be the most significant region in te~s of volume growth and profit potential. ExpOrt/contract volumes are expected to grow to 37.0 billion units (OGR 8.3q) and represent SS.8q of regional contribution in 1997. Japan continues to be a top priority marketI although slower growth in the total market and import segmRnt is mxpected over the pla~ years. In 1997, exerts to Japan will represent 21.6% of BWI's total expozt/contract volume. China is a market with slgnfficsnt potentialt but polltfcal stability and continuation of refo~ efforts are keyu to develo~ent. Export volume in the Hone Kong Group is projected to grow at 9.2% per annum, increasing 54% by 1997. Europe - Eastern Europe and fo~nmer Soviet union represent pr~/~e opportunities for longer te~ growth as the USTB legment ie expected to steadily develop over the plan period. Support of key brands is essential to building consumer franchises. Howevert volltile political, economic, and social factors are sensitivities which must be considered within the context of the plan. Current ~lans forecast growth in exgor~/contract volume to Europe of 24.7% per a,num from 1992 through 1997. Regional contribution is projected to increase at 14.4% per annum. M/ddlo East/Afrlca - Middle East/Africa volumes are forecast to grow slightly over 19~3-97. Regional contribution is projected to grow at a compound annual rate of 15~1%, reflecting Improved pricing. Business in the Middle East will continue to be concentrated in the Levant region where official im~rts are expected to increQse. Americas - USIBS will maintain their popularity and achieve additional growth in the ~er~cae. Although progress towardl proposed free t~ade agreements is limited, interim activities such as the re0uction of tariff~ and duties as well ae increasing investment from Nor£h America will enhance economic development and provide a~dltional opportunities for exports into the region. Export/contract volumes will grow to 4.0 billlon units (15.1% CGR) over the plan period with contribution growing a~ 23.7% per annum to $37.7 million in 1997. ZX. STP.AT~GIC ISSUZ 4z M2J,~'ACTURING CAPACI~"/ pRODUCTION FACILITIES - Capacity fDr cigarette manufacture (including reserve) remalng a critical iegue as total forecasts continue to 9row rapidly, reaching an estimated 142 billion per year for 1997 with even higher requirements in Primary. B&W'e overall plan iB dependent upon its ability to produce elgnifisantly higher volumes with greater flexibility, cost competitiveness and ~uperior quality. Over the plan period, this wile require major investment to up~a~e mnd expan~ Macon. 690951895

-10- Plans for Macon include capacity increases in both Primary and Fabrleation~ including additional redrying capabilities. Phase II will raise Primary capacity to ]IOB per year in early 1993S and a program under development would further rails capacity to ~50B in 1995 and add additional redrylng capability. Planned Fabrication capacity expansion involves the purchase of sufficient new modules to meet forecast requirementsa a 15% reserve capacity far soft cup products and 20% reserve for box products. 5% of the reserve will come from up to ~2 ~vertime Saturdays per year. Productivity, flexibility and quality gains will accrue through upgrades to higher speed equipment. Operations in Wilsonj Winston-Salem and Lancaster will also be upgraded to meet production, productivity and quality targets. Environmental lesuel will remain prominent in relation to the workplace, raw materials and products. Z. OTHER SIGNIFICANT OPERATIONS - E~GINEERINOt MA~FACT~ZNO A~ R&D ISSDI~S - A requirement for B&W'B SUCCess Is delivering products and services that are superior based on consumer preferences and perceptions. R&D'I focus IB superior smoking and product q~ality. Smoking superiority goals have been set for priority brands and styles relative to competitive offerings ~ong targeted smoker groups. B&W'S objective to develop and test a KS full flavor product preferred over Marlboro has continued to be successfully progrmssed. Development of superior menthol products will also remain a critical motivity. Plans include all aspects of product recipe and design incorporating new product engineerlng and materials technology with OPT testing in 1993. Continued improvement work i| planned through the Worldwide Best project with initial internatlonal CPT rlsultm during early 1993. SUCCeSsful technologies and recipes will be incorporatmd in melected Domestic and International brands, following testing. B&W's plans include continued leadership to provide group coordination of information throughout the B.A.T group regarding practices for worldwide superiority progra/~s and products. Engineering/Manufacturing will continue to develop programs and processes that address consumer q~allty require~entm and continue to reduce defect rates. Key to this effort are programs that ~ve quality toward total product validation and "Best Practices" Zeadership. New technologies supporting improved quality and achievement Of objectives will he investigated and implemented in Manufacturing Operations. Plan6 include improved process control, product visio~ systems, foreign matter removal systems, and improved raw materials quallty. PRODUCTIV/~ - Productivity improvement is a significant issue to remain cost competitive with other major c~panles. For Macon, productivity targets of 30,000 cigarettes per man-hour in 1993, and 36,000 for 1997 have been established. Programs include Primary processing upgrades, Fabrication machinery speed-up and replacement, efficiency improvement, new technology in Shipping and Supply, and improved logimticl and operating efflclencies. Wilmon's key projects include material handling, threehlng, and automated searching. OTHER - B&W will pursue development of plans end alternatives to relocate R&D and the Development Center to Macon IAter in the plan period. This move would facilitate new product development and transfer of new ~echnologieg into production, al well is promote efficiency. 690951896

-11- XI. $T.qATEOIC ISSt, Z$ 5: 1MP~O~ M.~qAGEMEKT ST~GTU Over the plan perlod, B&W will place more emphasis on increasing the capability of the total work force with particular attention to the technical areas, InternAtional, Domestic Sales snd Marketing, &nd Quality. Selection, development, training, appraisal and award syBt~s will all be key elements of the improvement. Comprehensive review of B&W'I organization structure add staffing will bB done In 1993 to ensure that resources Bre focused on business building activities such as Sales and achieving superior consumer satisfaction. B&W will increase efforts to strengthen management depth and to sustain a highly motivated work for~e in the face Of an increaslngly hos£11e anvirorueent. PI&~B arm in place to aBgure that the relationshipe with the unionized work force contribute to B&W's ability to achieve productivity goals at • competitive cost. XZI. IRFORMATION 'I~CH~OLOQy B&W'B cDmputer systems and information technology plans concentrate on strategic businels applications. A key Plan thrust Is to identify tha major opportunities for ~echnology to help drays B&W'm business. Resources will be focused on applications Needed to gain competitivl advantage •~d support Btratmglc growth, such as in Marketing an~ Sales, International, and Operations. The degree of emphasis of this resource focus represents a Bignificant change for all Cow.rate systeml users and will be managed through the cooperati0n of u0erl and MIS. XIIZ. CONSU~R SATISrACTIOM /dfD ~U~.~ZTY FOCUS AGhievement of superior consumer satisfaction is the underlying key to B&W'S SUCCESS. Over the last five years, B&W has made mignificant progress in its quality efforts as evidenced by improved smoking and manufactured product quality, higher IIvell of Bervic~ to ~ and Inter~al COns~merl and customers~ grQltQr solicitation of and responsiveness to consumer feedback, and higheE levQls of employee participatlon and involvement. The t~tal quality process embodying productlon quality verification; comprehensively understanding conlumer needs; designing products to meet thesl needs better than competitive products; aggressively reacting to cons~er feedback; employee suggestion systems; and te~ problem solving will continue as a top priority. 92preptn.~p 690951897

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~992 PRELIMTN~Ry FIV~-YEAR~ ~Y ~INA~CIAL ASSUMPTIONS (DOLLARS IN MILLIONS1 DOMESTIC SALES VOLUMES 1992 Industry shipments arg forecast to decline 2.8% from 1991 to 495~I billion, &nd continue to da~line at a ComI>~und rate af 3.1%, aB continued gro~h of Extra Low Price productB is more than offset by declines for Full Revmnue and Low price brands. 1997 IBdumtry ghi~ents are formcaBt to be 423.9 bil1~on. B&W'B domt$~ic volume is forecaBt to increamm from 60.6 billion in 1992 to 65.fi billion in 1997, for a com~und grow%h rate of 1.6%+ DOMESTIC V~IABLE ~L%RGIN The following assumption £I made for domestic cigarette selllng price increases pe~ M (January 1 and July I each yBar): ~3-1997 Full Revenue $3.00/$3.00 LOW Price Branded $2.00/$2.00 Extra Low Price $3.00/ -0- The recent $2.00 per M increase in GPC would Bignificantly improve GPC'S profitabil~ty if the asBumed $3.00 increaBe in January 1993 can also be achieved. The ~otential impact is included an a sensitivity to the plan. Federal ~xclse t~xe~ will incrmaBe January l, 1993, by $2.Q0 per M t~ $12.00 ~r M. It £m &g~umed ~his incr~&ge will be pa~sed through, and will be in addition to the pri~e increases ~ot~d above. NO further federal ~xcise tax i~eases were asstu~d for the remainder ~f th~ Plan ~riod. LBa~ and other maN~facturin~ materlal pric~8 are fQre~ast to in~rease at rates below general inflation rate aBsumptionB in ~993. For the yearl beyond 19~3, material price~ aro generally in line with Inflation. DOMESTIC MAR~TING Speclf£~ br~n~ mpend~ng iB consi~ten~ with brand Btrategies and provldeB fundin~ for DO~Btic retail pri~e discounting. Non-lpecific marketing ~xpenses ar~ ~pacte~ by • 199~ flel~ sales manpower expansion mnd related mpen~ing. Spending also reflects a new ~iltributor incentive program, i~troduced during 1992, which is offset by the el~inati~n of rebates for all brands excsp% GPC Approved. All ~ther Belling f~eld and non-specific spend are generally a~umed to in~rea~ ba~ed on £nflation. ~ NTERN~T~ Exert v~lumes Of 39.6 billion for ig92 are f~reca~t to increage at • cc~i~und rate of 10.4% to a 1997 exp~rt volum~ level of 65.0 billion. Co~ined exp~rt an~ contrac~ wclu~es are forecasted to grow at a 10.Q% compound rate, ~992 thraugh 1997. The Yen IB assumed to Btrengthen evenly fr~ Y125 ~ $1.~D in 1993 t~ Yll3 $i.00 in 1997. 690951899

COC Manufacturing reflects the impact of capital mtrategles including major expanslon eapenditures for Macon, and continuation of the equipment overhaul program. Con~mon Operating Costs other than manufacturing are influenced, beginning in 1993 by the estimated incremBntal effect of adopting the U.S. accounting standard for post-retirement benefits other than penmions which effectm 1992 ~omparative trading profi~ by a range of $16.9 million in 1993 %0 $23.5 million in ig97. NET INTEP~ES~ Trade accounts are assumed to be mold in 1992, and this form of financing £t assumed to discontinue for 1993 - 1997 (receivablel sold year-end 1992 are $326.7 million). Commercial paper rates are projected to average 4.20% in 19~2 and range from 3,40% to 6.10% over the Plan period. CAPITAL SPENDING Capital ex~nditures incorporate major expanmion expenditures for Macon. To~al fixed asset additionm are shown belOW. 1994 199__5 199~ 1997 1993 - 1997 $148.7 $182.0 $157.7 $103~6 $75.9 $667.9 Seginning in 1993~ all Batue Boldings distributable cash is a~sumed to be dividended to B.~.T (aftur adjusting for the accounts receivable financing change ~n 1993). Conse~en~ly, consolidated debt remain8 constant for lg93 throughout the Plan period. NOTE: Any presentation in this report of the income of BATUS and its consolidated U.S. Dubsidiaries usln~ an inventory accounting method, on a basis other than LIFO, is suppllmental to the primary U.S. income statements. 690951900

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