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Financial Highlights Operating Revenues Billions of Dollars 1991  Domestic tobacco  International tobacco 1990  North American food 1989  International food  Beer 1988  Financial Services & Real Estate 1987 Operating Companies Income 1991 Billions of Dollars  Domestic tobacco 1990 + International tobacco 1989  North American food  International food 1988  Beer  Financial Services & Real Estate 1987  Other Earnings Before Cumulative Effect of 1991 Accounting Change Billions of Dollars 1990 1989 1988 1987 Dividends Declared Per Share 1991 Dollars 1990 1989 1988 1987  Cash Flow Per Share From Operating 1991 Activities  Earnings Per Share 1990 Before Cumulative 1989 Effect of Accounting Change 1988 Dollars 1987 0 1 5 1 20% 0 I 0 I 10 10 1 I .25 1 10 2 I 15 1 3 I 489b 1 I 1.00 .50 2.00 20 1 25 4 I .75 1 3.00 i 30 35 40 45 50 55 60 I I I I I I 1 -1% 5 6 I 8 I 9 I 2 I 4.00 I 1.25 2.00 1 5.00 6.00 7.00 Contents Financial Highlights Letter to Stockholders I 2 Business Review 5 Corporate Citizenship 22 Board of Directors 24 ~ Officers 26 O Financial Review 28 00 General Corporate Information 57 Ul W 2196 `' 3 Registered trademarks and servicemarks of Philip Morris Companies Inc. and its subsidiaries are italicized in this report.

(in millions of dollars, except per share data) 1991 1990 1989 1988 1987 Operating revenues $56,458 $51,169 $44,080 $31,273 $27,650 Earnings before cumulative effect of accounting change 3,927 3,540 2,946 2,064 1,842 Net earnings 3,006 3,540 2,946 2,337 1,842 Earnings per share before cumulative effect of accounting change 4.24 3.83 3.18 2.22 1.94 Net earnings per share 3.25 3.83 3.18 2.51 1.94 Dividends declared per share 1.91 1.55 1.25 1.01 .79 Percent Increase Over Prior Year Operating revenues 10.3% 16.1% 41.0% 13.1% 8.3% Earnings before cumulative effect of accounting change 10.9% 20.2% 42.7% 12.1% 24.7% Net earnings (15.1)% 20.2% 26.1% 26.9% 24.7% Earnings per share before cumulative effect of accounting change 10.7% 20.4% 43.2% 14.4% 25.0% Net earnings per share (15.1)% 20.4% 26.7% 29.4% 25.0% Dividends declared per share 23.2% 24.0% 23.8% 28.6% 27.3% Operating Revenues Domestic tobacco $11,589 $10,370 $ 9,474 $ 8,491 $ 7,640 International tobacco 12,251 10,720 8,375 8,085 7,004 North American food 20,244 20,071 18,750 8,799 7,779 International food 7,934 6,014 3,623 2,099 1,702 Beer 4,056 3,534 3,342 3,177 3,037 Financial services and real estate 384 460 516 622 488 Total operating revenues $56,458 $51,169 $44,080 $31,273 $27,650 Operating Companies Income Domestic tobacco $ 4,774 $ 4,206 $ 3,606 $ 3,087 $ 2,715 International tobacco 1,694 1,394 1,007 774 582 North American food 2,071 1,984 1,769 684 621 International food 891 664 369 165 152 Beer 301 285 226 190 170 Financial services and real estate 179 197 173 163 68 Other - - - - 20 Operatingcompaniesincome 9,910 8,730 7,150 5,063 4,328 Gain on sale of Rothmans International p.l.c. - - 455 - - Restructurings of food operations (455) - (179) (348) (71) Amortization of goodwill (499) (448) (385) (125) (105) Unallocated corporate expenses (334) (336) (252) (193) (162) Interest and other debt expense, net (1,651) (1,635) (1,731) (670) (646) Earnings before income taxes and cumulative effect of accounting change $ 6,971 $ 6,311 $ 5,058 $ 3,727 $ 3,344 Compounded Average Annual Growth Rate 1991-1986 1991-1981 1991-1976 Operating revenues 17.2% 17.9% 18.7% Earnings before cumulative effect of accounting change 21.6% 19.5% 19.7% Net earnings - 15.3% 16.4% 17.5% Earnings per share before cumulative effect of accounting change 22.3% 20.4% 19.9% Net earnings per share 16.0% 17.3% - 17.8% Total return to stockholders 38.7% 33.2% 27.7% Certain prior years' amounts have been reclassified to conform with the Company include the operating results of Kraft, Inc. since its acquisition. current year's presentation. In 1988, the Company adopted the method of accounting for income taxes - d' th 1991 See notes to the consolidated financial statements regar mg e rescribed b SFAS No 96 resulting in a cumulative effect of accounting p y adoption of SFAS No. 106, the 1990 acquisition of Jacobs Suchard AG, the change which increased net eamings by $?73 million or $.29 per share. 1989 sale of the Company's equity investment in Rothmans International p.l.c. and the restructurings of food operations. Total return to stockholders includes stock appreciation and dividends. In 1988, the Company acquired Kraft, Inc. Consolidated results of the 1 e*+s+e+se !m"" M

Dear Stockholder: In 1991, your company continued to grow strongly despite a weak eco- nomic environment in much of the industrialized world. We also posi- tioned ourselves for further profit- able expansion through the rest of the decade. Our overall business performed well, and our interna- tional operations are on the way to achieving the size and profitability of our domestic businesses. 1991 Results Consolidated operating revenues rose to $56.5 billion, 10% higher than in 1990. Operating companies income grew 14%, to $9.9 billion. Principally due to a charge taken in 1991 for postretirement health care costs in accordance with Statement of Financial Accounting Standards No. 106, net earnings of $3 billion and net earnings per share of $3.25 were both down 15%. We also pro- vided for the restructuring of our food business, which should gener- ate approximately $750 million in pretax savings through 1996. Excluding the impact of these charges, operating companies income grew 15%, and net earnings and net earnings per share both climbed 21%. Our tobacco operations enjoyed continued sales and profit growth. We sold almost 200 million more cigarettes in the United States than in 1990, while U.S. industry volume, based on shipments, declined 13 bil- lion units. Outside the United States, we sold 417 billion units, 13% more than in 1990. Volume in our worldwide food business grew 3% for the full year. Despite many bright spots, particu- larly in fat free products, beverages, and breakfast cereals, overall results r ir in our North American food busi- ness were lower than expected. In our international food operations, volume grew strongly, even after excluding the effect of our 1990 acquisition of Jacobs Suchard. Volume in our brewing business grew 0.4%, despite the doubling of the federal excise tax on beer at the beginning of the year. Our overall performance in 1991 enabled us to increase our dividend by 22.1%, to an annualized rate of $2.10 per share, marking the 24th consecutive year of dividend increases. During 1991, we purchased 10 million shares of our common stock for an average price of $70.04 per share, including 2.5 million shares bought under our new, two-year repurchase program announced in November. Even after the impact of the change in accounting and the restructuring charge on stockholders' equity, the ratio of our consumer products debt to stockholders' equity improved from 1.44 to 1 at the beginning of 1991 William Murray to 1.22 to I at the end of the year-its lowest level since the acquisition of Kraft, Inc. in 1988. We increased our revolving credit facility to permit us to borrow up to $15 billion. We regard our debt capacity as an indication of our flexibility in building stockholder wealth. Management and Board of Directors Nineteen ninety-one marked the completion of Hamish Maxwell's terms as Chairman of the Board of Directors, and as Chief Executive Officer, of Philip Morris Companies Inc. Mr. Maxwell will continue to serve as a member of the Board of Directors and as Chairman of its Executive Committee. John A. Murphy, who helped build our international tobacco business and led the revitalization of Miller Brewing Company, retired from his position as Vice Chairman of the Board, and will not stand for reelection in April. Both men were instrumental in the growth of your company, and we Michael A. Miles 0 I > 2

thank them for their years of service and leadership. Having reached the mandatory retirement age, Alfred Brittain III, Dr. Elizabeth J. McCormack, and Margaret B. Young also stepped down from your Board. Each made substantial contributions to your company, and we thank them for their time, dedication, and commit- ment. They all will be missed. In November 1991, Roger S. Penske, President of Penske Corporation and Chief Executive Officer of both the Detroit Diesel Corporation and the Penske Truck Leasing Company, joined the Philip Morris Board of Directors. Social and Legislative Issues Our manufacturing and marketing activities involve us in a wide variety of public policy issues in every country in which we do business. Tobacco use is one of the most widely discussed health issues around the world. Given the general availability of information concern- ing that issue, we regard smoking as a voluntary lifestyle decision that need not be subjected to new mar- keting or use restrictions. While we believe that consumers are aware of the claimed health risks of smoking, nonetheless, in February 1992, we took actions to begin placing the U.S. Surgeon Gen- eral's health warning on all our cigarette packages worldwide where warnings are not currently required. This initiative applies to brands manufactured in the United States for export, as well as to those pro- duced overseas by our affiliates and affected licensees. We are taking these steps because the lack of a warning on a relatively small num- ber of packages-approximately 10% of our volume-has become an issue out of proportion to its importance. Moreover, in the United States, we are acting to increase awareness and enforcement of minimum-age purchase restrictions on our tobacco and beer products through multimillion-dollar programs involv ing advertising, trade relations, and family education. In the area of smoking and health litigation, the number of cases pending against the U.S. cigarette industry stood at 50 at December 31, employees, investors, and commu- nities. A more detailed account of our corporate citizenship programs begins on page 22 of this report. The Outlook Our mission has been, and remains, to be the most successful consumer packaged goods company in the world. Some of our strategies to achieve this goal take advantage of opportu- 1991, as compared with a peak of nities to answer consumer demand. 151 in 1986. The appeal of the These strategies include develop- Cipollone case to the U.S. Supreme ing new products to meet emerging Court, undecided as this report goes consumer trends, expanding to press, involves the question of geographically, and manufacturing whether federally imposed health and marketing globally. We also warnings prevent plaintiffs from plan to generate continuous asserting certain liability claims improvement in all aspects of our against cigarette manufacturers in operations. By turning concepts like state and federal courts. We believe synergy and total quality manage- that, whatever the outcome, juries ment into active disciplines, we will continue to find in favor of the expect to improve our bottom line - cigarette companies, understanding , substantially eaclr ear. that people who smoke are aware of the claimed health risks. In debates over environmental tobacco smoke, we understand the interests of smokers and non- smokers alike. We therefore con- tinue to press for accommodation of both groups. Nearly 60% of our revenues come from our food and beer operations. These businesses are not as con- troversial as tobacco, but they are involved in similarly complex and highly charged social issues, includ- ing the safety of product use, label- ing, and environmental impact. Our public policy positions, like our phil- anthropic activities, are determined by the interests of our consumers, To satisfy growing worldwide demand for American-blend ciga- rettes, we have begun a series of expansions and upgrades of our tobacco facilities, from Virginia and North Carolina to Germany and the Netherlands. As our U.S. exports continue to climb, we are strength- ening our positions in large and growing markets abroad by invest- ing in tobacco businesses in Eastern Europe and Turkey. We are also investing in our future by adjusting our food and beer operations to reflect changes in consumer demand. In 1991, we reopened our Trenton, Ohio, brew ery; resumed construction at our Jonesboro, Arkansas, Post cereals factory; and expanded our beverage business by acquiring Capri Sun all natural juice drinks and by adding capacity for our new Kool Aid Kool Bursts drinks. 3 (0

 r r In 1991, our capital expenditures amounted to $1.6 billion; from 1992 to 1996, we expect to spend another $9 billion. These expenditures, like continued investments in new product development, are essential for the long-term growth of your company. Our People There are human factors, however, that transcend money and market- ing plans. Our brands were built by entrepreneurial men and women; they are the results of creativity, courage, and vision. To cultivate these qualities in our people, we are determined to keep Philip Morris an exciting, challenging, and eminently fair place to work. This report is dedicated to all our employees, and it reflects their commitment to building the Philip Morris family. Their strength, skills, and ambition can make us the most successful consumer packaged products company in this-and the next-century. Michael A. Miles Chairman of the Board and Chief Executive Officer William Murray President and Chief Operating Officer N a 0 Hamish Maxwell At the end of 1984, the year Hamish Maxwell became Chairman and Chief Executive Officer of your com- pany, Philip Morris common stock, adjusted for subsequent splits, was trading at $10.125 per share. Within a relatively short period of time, the new Chairman had presided over the sale of Seven-Up and Philip Morris Industrial, and the purchase of General Foods Corpor- ation. By the end of 1986, we were focused on our three consumer businesses: tobacco, food, and beer. In 1988 and 1990, we further strengthened our food operations with the acquisitions of Kraft, Inc. and Jacobs Suchard. At the end of 1991, as Mr. Maxwell's term as Chair- man came to a close, the value of our stock had multiplied nearly eight-fold. Hamish Maxwell came to his position as Chairman from a back- ground in U.S. and international tobacco. He joined Philip Morris as a salesman in 1954, just as we were repositioning the Marlboro brand as a filter cigarette for men. He grew with the company. As large and successful as Philip Morris has become, however, Hamish has primarily been known by his colleagues for his ambition for improvement. He repeatedly made clear his distrust of size alone, warning against the complacency that afflicts many large companies. He based his actions on a deep conviction that a little humility serves both the bottom line-and the soul -better than the pride that accompanies most forms of corpo- rate success. A large company's prosperity is never the result of just one person's efforts. It is safe to say, however, that Hamish Maxwell has put his stamp on Philip Morris. His legacy is solid management, a clear strategic focus, and a dedication to excellence. 4

The following discussion of the 1991 per- formance of operating companies excludes the effects of the adoption of SFAS No.106 Tobacco In 1991, we strengthened our posi- tion as the leader in the growing worldwide cigarette industry. Our volume, share, revenues, and income grew in nearly all of our major markets. We continued to invest for future growth by broaden- ing the global scale of our manufac- turing and marketing. In a year when the worldwide cig- arette industry grew by 2.5%, our total volume rose 8.3%, to reach 640 billion units. Our share of the world- wide market now stands at 11.6%. The Marlboro brand alone holds more than twice the worldwide mar- ket share of its closest competitor. In the domestic tobacco business, despite increased excise taxes and a difficult economy, Philip Morris U.S.A. increased volume to 220.7 bil- lion units, and gained 1.1 share points, to account for 43.3% of the market. Revenues grew 12%, and income rose 14%. We widened our lead in the premium segment to attain a 48% share, and we took the lead in the growing discount segment for the first time as our share approached 30%. Marlboro cigarettes continued to account for more than one out of every four cigarettes sold in the United States, and the brand's share of premium-priced cigarettes rose to 34.3%. Its share of adult smokers under age 35-the largest group of purchasers of premium-priced ciga- rettes-stands at 46%. Our large share of this group provides a solid base for our business in the future. The Marlboro line was further strengthened by the national intro- duction of Marlboro Medium ciga- rettes. The brand achieved a 1.4% share by the end of the year, and it is attracting a significant number of smokers from competitors' brands outside the Marlboro family. To continue building the Marlboro brand, we are using adver- tising and sponsorships combining its classic Western heritage with contemporary, high-impact events like auto racing. We are also com- plementing these image efforts with quality promotions to reinforce the brand's competitiveness. Supporting our other premium brands, we developed new advertis- ing and fashion promotions for [/irginia Slims cigarettes, and sharp- ened advertising for Benson & Hedges cigarettes. Early in 1992, we introduced Merit Ultima ciga- rettes in the lowest tar and nicotine segment. In the growing discount category, which now accounts for 25% of the U.S. industry, our Cambridge, Bristol, and Bucks cigarettes grew strongly. As retailers continued to consoli- date, we reorganized our sales force to improve our presence in-and relationships with-key, high- volume channels such as super- markets, convenience stores, and wholesale clubs. Philip Morris U.S.A. has a unique and powerful portfolio of trade- marks, and we are committed to competing vigorously in every mar- ket segment offering opportunities for profitable growth or strategic advantage. At the same time, with improvements in productivity and efficiency, we are moving toward our goal of becoming the low-cost pro- ducer in each category. We are 6 On preceding page: Experienced leaf inspec- tors like Thomas Jeffery Vice help make sure that we buy only the best tobacco. Top: Bob Maher and Michael Mullins, at our Richmond, Virginia, facility, research a pack inspection system. Above: Lynwood Jones helps us meet climbing export demand for our cigarettes. Right (I to r): Marlboro Brand Group members Stephen Piskor, James Taylor, and Jim Raporte plan creative strategy to support the launch of Marlboro Mediumcigarettes. U.S. Cigarette Industry Unit Sales (Based on Sbipments)  U.S. Cigarette Industry Unit Sales  Philip Morris Share of the U.S. Industry (%) W 0

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i Left: Yeonghwa Chung has guided our introduction of Virginia Slims cigarettes in Korea. Top: Marisa Campagnaro sets up a meeting in Italy, where Merit cigarettes have become the best-selling low tar and nicotine brand. Above: Using a laptop computer, Laurent Bogeat updates a customer file in Paris, France. World Cigarette Industry Unit Sales (Exduding U.S.A.) 1! World Cigarette Industry Unit Sales  Philip Morris Share of the World Market (%) confident that these strengths will continue to enhance our profitability and our position as the U.S. industry leader. Outside the United States, Philip Morris International had an excel- lent year, with volume rising 13.4%, to reach 417.3 billion units. The upward trend of our interna- tional cigarette sales remained strong. Our export volume increased nearly 10%, reaching 107 billion units. These exports made a gross contribution of $3.6 billion to the U.S. balance of payments, and repre- sented over 50% of all U.S. cigarette exports. The U.S. trade deficit would have been almost $5 billion higherr without the tobacco industry. With a 10% volume gain outside the United States, our Marlboro brand strengthened its position as the best-selling cigarette in the world. Approximately 22% of our volume outside the United States comes from our portfolio of other interna- tional brands, such as Merit, Virginia Slims, Parliament, Lark, Chesterfield, Philip Morris, and L&M cigarettes. Overall volume for these trademarks rose 8% last year. Volume of our locally produced brands, including Congress and Bond Street cigarettes, increased substantially because of exports to Russia. In the European Community, our market share increased almost two points, to reach approximately 25%. Our volume continued to grow in all 12 member states of the Community. . In Germany, volume increased 18%, aided by our 1990 acquisition of a leading cigarette manufacturer in the former East Germany. Our share of the unified market exceeded 34%. In Italy, where we are by far the leading foreign tobacco company, we gained share and now account for over 40% of the market. Volume in France grew nearly 9%, and our market share topped 25%. In Spain, volume grew almost 23%, and our share rose to nearly 16% of the market. In Eastern Europe and Russia, we benefited from economic liberaliza- tion. In the Middle East and Africa, we also posted volume gains. Our combined volume in these countries grew by one-third. Our market share increased by one point, to 43%, in Switzerland. Volume grew in Finland, Sweden, and Austria. As we completed ship- ments to Russia to fulfill our 22-bil- lion-unit export order for 1991, we negotiated a new, 11-billion-unit con- tract for 1992. In Poland, we gained nearly a 4% share of the market- the largest of any foreign competitor since the market opened in 1990. We established a joint venture for the manufacture of our brands with a local partner in Turkey, where we are the leading foreign competitor. We are continuing to invest in the tobacco industry in Eastern Europe. We purchased an 80% stake in Egri Dohanygyar, our licensee in Hun- gary. Egri is one of the highest- quality cigarette manufacturers in Hungary. We increased our market share in Saudi Arabia by over three points, to nearly 45%. In Kuwait, we were the first multinational cigarette com- pany to resume business after the Persian Gulf war, and our market share has climbed to 60%. Our volume increased in the Asia Pacific region, led by growth in Japan, Korea, and Indonesia. In Japan, volume rose 7%, and our market share grew to 11%. We now hold 64% of the international 9

7 1 Top: In Germany, Hartmut Wellmann inspects print quality for Philip Morris Ultra Lights cigarette cartons. Above: Yoshiko Hirao helps make sure Japanese smokers get the message about our American-blend cigarettes. Right: Irene Rosenfeld spearheaded our acquisition of Capri Sun all natural juice drinks. Philip Morris U.S. Cigarette Export Volume Billion Units 120 87 88 89 90 10 91 r ^ M V am a i N segment in Japan. We are also the leading foreign cigarette company in Korea, where we account for 38% of the growing import segment. In Indonesia, the world's fifth-largest cigarette market, our volume grew substantially. In Hong Kong, where we are the market leader, our share reached nearly 43%. In August, we began shipping cigarettes to Thailand, as this 40-billion-unit monopoly market opened to foreign competition. In Latin America, our volume grew by over 9%. Increased volume in Mexico raised our market share to nearly 29%. In Argentina, volume grew by 12%, and we increased our share to 47%. In Brazil, we increased volume over 7%. Else- where in the region, our market share reached 74% in the Domini- can Republic, 23% in Venezuela, and 19% in Puerto Rico. As worldwide demand for Philip Morris brands continues to rise, we are upgrading and expanding our manufacturing facilities around the globe. We plan more than $3 billion in capital expenditures from 1992 through 1996, including the 40- billion-unit-a-year expansion of our Cabarrus, North Carolina, facility. The growing worldwide prefer- ence for American leaf tobacco provides a much-needed boost for U.S. farmers and the U.S. export economy. We are the largest pur- chaser of U.S.-grown flue-cured and burley tobacco. In addition to providing a market for this impor- tant cash crop, we support the farm community through a land grant university program, which helps farmers improve quality and productivity. In 1991, we continued to combat efforts to use prejudices against cigarettes as excuses to raise taxes. In the United States, we fought state and local government attempts to close budget gaps by increasing tobacco excise taxes. In Europe, although new tax structures under discussion would increase retail prices for premium-priced cigarettes more than for many local products, we expect to remain competitive. Unreasonable marketing restric- tions on tobacco have often been proposed in both Europe and the United States. We believe that legis- lators understand that advertising influences brand choice without affecting an informed adult's deci- sion to smoke. Tobacco is a growth industry, and we are gaining volume and share in large markets around the world. In the United States and Western Europe, we are continuing to build our established businesses. We are also growing in Japan, and expand- ing in the newly opened markets of Eastern Europe, the former Soviet Union, Latin America, and the rapidly industrializing nations of Asia. We expect profitable and sustainable growth in all these markets. Food At Kraft General Foods, successes in established brands in both North American and international opera- tions, together with strong new product introductions, raised volume 3%, revenues 8%, and income 14% above 1990 levels, excluding the 1991 restructuring charge. Given our aggressive targets and strong track record, however, 1991 was a disappointing year. As consumers became more price- sensitive, competition in many of our markets intensified. In North 86CS8p 1.6 i-°fd-s 7--i- r 1-41F '"1 .. N I

, i , , America, private-label brands were more popular and commodity costs were more volatile than expected. Toward the end of 1991, we acted to improve our performance on a number of fronts. We announced plans to close unprofitable facilities or otherwise cut costs. We also reduced the list prices for several of our most popular natural cheeses and process cheese slices by 8%, and lowered prices for certain red meats as well. These and related actions, together with more effective marketing programs, should make us more flexible and competitive in the years ahead. Our North American food opera- tions (KGF North America and KGF Commercial Products) posted revenue and income gains of 1% and 8%, respectively, while volume increased slightly. A large number of our grocery products performed well. Post cereals enjoyed a volume increase of nearly 5% in the United States, while continuing to gain vol- ume and share in Canada. Reaching an 11.5% U.S. category share, the Post brand continued to enjoy strong growth for the second consecutive year. In beverages, U.S. volume rose more than 8%, led by the introduc- tion of Kool Aid Kool Bursts ready- to-drink beverages in an innovative plastic squeeze bottle, as well as volume gains in Crystal Light and Country Time powdered soft drinks. Our acquisition of Capri Sun, Inc., the U.S. pioneer in single-serve fruit drinks, will help us build a stronger, broader portfolio of ready-to-drink products. The Maxwell House brand con- tinued its U.S. profit recovery, and 12 i W  m Is-M M a I" remained the clear leader in Can- ada. U.S. volume for the General Foods International Coffees line grew over 16%. Applying the "light" (caffeine-reduced) coffee concept established in Europe, we tested Maxwell House Lite caffeine- reduced ground coffee in 1991, and expanded it throughout the United States early this year. In our other grocery categories, we also benefited from U.S. volume gains of 8% in dinners and enhancers such as Minute rices, Stove Top stuffing mixes, Shake 'n Bake seasoned coatings, and Log Cabin syrups; and from our expansion of Boboli Italian bread shells from the West Coast. Building on our first-to-market position in fat free products, we launched Kraft Seven Seas Free pourable salad dressings, Miracle Whip Free nonfat dressing, and Kraft Free nonfat mayonnaise dressing in the United States. OurJell-0 brand remained strong, aided by the Jell-O gelatin Alphabet and HolidayJigglers promotions, as well as new flavors of both gelatin and pudding. In addition, we intro- duced ready-to-eat Jell-O Pudding shelf-stable snacks in Canada. In the refrigerated case, some of the factors discussed earlier, such as dramatic swings in dairy com- modity costs and competition from private-label products, lowered our U.S. results. We stepped up our marketing activities to defend our cheese brands in the United States, and we further strengthened our leadership position in Canada. We made Kraft Free Singles cheese slices available throughout the United States, began testing Philadelphia Brand Free nonfat cream cheese, and intro- duced Light n' Lively nonfat cottage cheese, snack-size cottage cheese, Top: Sergio Bardaji manages the Metro-New York territory for our foodservice business. Above: Antonio Setaro is on the line in Mount Royal, Qu6bec, for Kraft peanut butter, the most popular brand in Canada. Right (I to r): In Glen- view, Illinois, Jill Goldfarb, Vanessa Besteda, and Dan Tidwell discuss a storyboard for a com- mercial for Kraft Macaroni & Cheese dinners.

Left: Paula Sneed discusses Jell-O Jigglers promo- tions with staff members. Top: At our Breyers ice cream facility in Massachusetts, Joseph Crowley has increased productivity while cutting energy use. Above: Thomas Kessler and Marjorie Cox monitor the Oscar Mayer luncheon meats line. and sour cream. We also increased our refrigerated foods presence by expanding DiGiorno refrigerated pasta and sauces. Among our refrigerated meats, the Oscar Mayer brand benefited from continued growth in its Deli-Thin sliced meats, the successful national expansion of a lower fat bologna line, and a repositioning of Variety Pak products to respond to growing consumer interest in submarine-style sandwiches. In addition, Lunchables lunch com- binations maintained a strong category share. We held our leading share posi- tions in poultry-based luncheon meats and hot dogs, and the national introduction of Louis Rich turkey bacon brought us the leading share of the category. However, a com- bination of increasing price competition and slowing category growth in turkey hurt the overall per- formance of the Louis Rich brand. We are confident that initiatives under way will strengthen both the Oscar Mayer and Louis Rich brands. Many of our frozen products posted strong results. Dairy prod- ucts, which account for more than half our revenues and income from frozen products, continued to build volume, aided by the introduction of Cool Whip Lite whipped toppings. U.S. volume for Lender's frozen bagels grew 6%, with category share reaching 82%. Now sold in 35 states, Tombstone pizza continued to increase volume while expanding geographically, and it is the fastest- growing frozen pizza brand in the United States. Tombstone Special Order pizza, introduced last year, was particularly successful. In frozen entrees and dinners, however, we have had to step up marketing efforts in an increasingly competitive environment. The All American Gourmet Company built volume by introducing frozen prod- ucts such as Budget Gourmet Hot Lunches, Quick Stirs, and Light & Healthy Dinners. And Birds Eye improved its product mix by empha- sizing its vegetable and sauce offerings, which include new Birds Eye easy recipes add-meat meals. At KGF Commercial Products, volume increased in both the food- service and food ingredients divisions, although income declined slightly due to the recession's impact on consumption of food away from home. Implementing a total quality management program registered under the name Service So Good We Put Our Name On It!, Kraft Foodser- vice built volume by selling more to existing accounts as well as by open- ing new ones. Kraft Food Ingredients continued to benefit from good per- formances in its oil products and specialty ingredients businesses. As Kraft General Foods begins its fourth year, we are continuing to integrate our operations. In 1991, we created the Southeast Distribution Center, combining the warehousing operations of General Foods USA, Oscar Mayer, Kraft USA, and KGF Frozen Products, to give our custom- ers a single point of access. We are planning to extend this project to include common order and transac- tion management, customer service, and logistics. Joint promotions such as The Great American Breakfast and Holiday Homecoming provide still another source of synergy. Running for the second time, Holiday Homecoming united 38 brands through a special KGF magazine featuring recipe and decoration ideas. Both promotions were highly successful. W

0 i" 1ki i iN We are among the official spon- sors of the 1992 Olympics. As a kickoff for the program, 30 Kraft USA brands, joined by Birds Eye, Jell-O, Oscar Mayer, and Maxwell House brands, "set the Olympic training table" in meals for over 3,000 Olympic hopefuls at U.S. Olympic Training Centers. Through these and other busi- ness-building tactics, we plan to protect and revitalize our key brands. We expect improved performance in our North American food operations, particularly in the second half of 1992. Our international food operations continued to turn in a strong per- formance, with volume up 16% and income up 34%. KGF International's three core product groups are cof- fee, confectionery, and cheese. We are already the clear leader in the $16 billion coffee business in Europe, and we are continuing to build our established Jacobs, Maxwell House, Jacques Vabre, Grand' Mere, Gevalia, and HAG brands. Jacobs Kronung coffee, the largest single brand in the entire German grocery trade, launched a light line extension, which gained two share points after only six months on the market. We also brought the light coffee concept to our Monarch brand in Austria and ourMaxwell House brands in the United Kingdom. In confectionery, we are capital- izing on our strong Jacobs Suchard portfolio of trademarks -Milka, Cote d'Or, Suchard, and Toblerone chocolates-with numerous line extensions. Milka chocolates, for example, are already Europe's lead- ing chocolate brand, and are avail- ~ ra WN I r~0 IN W able in a wide variety of forms across the Continent. To build on our presence in the $2.8 billion European process cheese category, we are introducing a variety of low calorie and reduced fat cheeses throughout the region. We launched Kraft Light Singles cheese slices in the United King- dom, Kraft Tranchette light cheese slices in Spain, and low fat Qremor fresh cheese in Germany. We also introduced Philadelphia Brand reduced fat cream cheese products in Italy, Belgium, and Germany. In other market expansions, we brought Philadelphia Brand cream cheese into Sweden and Greece; ourMiracoli Italian dinners and sauces into Holland and Sweden; and light, low cholesterol dressings into Spain and Australia. Through a joint venture, we will be marketing Yoplait yogurt and dairy dessert products in Italy through our well-developed Invernizzi store delivery system. Geographic expansion into newly accessible markets provides another source of growth. We are offering our coffee, confectionery, and other food products in the former East Germany, and we now have a joint venture production and marketing agreement with BEV, the largest con- fectionery company in Hungary. We also brought our brands into Hun- gary, Czechoslovakia, and Poland, as markets began to stabilize. And by introducing Gevalia coffee in Fin- land, we have built on the brand's strong presence in the Scandinavian region. In the Asia/Pacific region, our fastest-growing major food business is coffee. In Japan, our Maxim brand continues to gain share in the rapidly expanding roast-and-ground market. We also expanded Blendy soluble coffees into the ready-to- Top: In Ldrrach, Germany, Hans Maier and Melanie Ebbeskotte are designing lighter- weight packaging-with more recycled and recyclable materials -for Milka chocolates, the most popular chocolate brand on the European continent. Above: Antonietta Spinelli packs Fini fresh tortellini in Modena, Italy. Right: Raymond Fry doesn't have to reinvent the cheese wheel- our Kraft brand is already the most popular cheese in Australia. 11 16

e Top: In Rio de Janeiro, Arnaldo Doria Bispo delivers Kibon ice cream, the most popular brand in Brazil. Above: Jacobs Suchard coffee buyer Emmanuel Geerinckx checks a sample in Choisy Le Roi, France. Right: John Belli ensures Miller's promotions are well positioned. U.S. Malt Beverage Industry Barrel Shipments  U.S. Malt Beverage Industry Shipment  Miller Share of U.S. Malt Beverage Industry (%) Mllions of Barrels 200 160 120 80 40 0 87 18 88 89 90 sr 20 15 0 5 0 drink liquid coffee market, in both bottles and cans. In Korea, the world's fastest-growing soluble cof- fee market, our Maxim brand continues to build volume, and we hold a strong share of the category despite competitors' introductions. After the successful launch of pre- mium Maxim Grandee coffee in Korea, we brought a Grandee line extension to our Maxwell House brand in Taiwan. In China, our Maxwell House coffees and Tang breakfast drinks continued to achieve double-digit volume growth. We see enormous opportunities in the Asia/Pacific region. We are committed to building on our strong positions in Australia, Japan, and Korea, while expanding our pres- ence in emerging markets such as China, Indonesia, and Thailand. As we did with tobacco in Europe decades ago, we are investing in a sound infrastructure as a platform for aggressive growth in our food business. We are also building our pres- ence in Latin America. In Brazil, Kibon ice cream achieved record sales, with volume up 25%, for a 79% share of the market. In Mexico, our total food volume grew 8%, aided by a strong performance in powdered soft drinks, in which we accounted for more than 85% of the category. Jacobs Suchard's vol- ume in Argentina was up by 71%, and our share of the chocolate con- fectionery segment reached 21%. In Venezuela, we reversed a decline in mayonnaise sales, and attained a 50% share of the segment. As econ- omies improve, we expect to see further expansion of our core food categories throughout the regiot In the years ahead, KGF Interna- tional will use its marketing and. technological strengths to increase its brands' volumes, shares, and margins as it expands geograph- ically. We plan to be the low-cost producer of quality foods and beverages, extending our global operations to approach the size and market strength of KGF North America. In 1991, despite difficult economic conditions, Kraft General Foods made clear progress toward fulfill- ing its mission of becoming the world's leading food company. We expect further advances, and contin- uous improvements in volume and productivity, in 1992. Beer Volume, revenue, and income at Miller Brewing Company again set new records in 1991, although an increase in the federal excise tax on beer lowered volume for the U.S. malt beverage industry by approxi- mately 2%. For the sixth consecutive year, our growth outperformed industry averages. Total shipments of 43.6 million barrels, including exports and Sharp's non alcohol brew, grew 0.4% for the year, raising our share of the total U.S. malt beverage industry to 22.5%. Our export volume grew 38%. Despite increased marketing investments, our margins improved, excluding excise taxes from our revenues. Shipments of Miller Genuine Draft beer continued to grow, and the brand climbed two places to become the country's seventh-most- popular beer. Our national roll-out of the new Miller Genuine Draft Light beer in April contributed to the brand family's growth. Our Miller

Left (I to r): Alan Leidig and Dan McCabe monitor new product development in the Milwaukee Techni- cal Center. Top: Ron Miller, brewing technician, is one of our team members at our reopened Trenton, Ohio, brewery. Above: Alan Sidman and Charles Salyer, of Philip Morris Capital Corporation, review inventory at a Miller distributor financed by PMCC. Genuine Draft and Genuine Draft Light brands, together with Miller High Life, Miller Lite, and Sharp's brews, now have a 27% share of the highly profitable premium segment of the domestic malt beverage industry. Miller Lite low calorie beer remained the second-best-selling beer in the United States, with 41% of the premium low calorie segment. Miller's low calorie premium and below premium products account for almost half the low calorie beer sold in the United States. Our breakthrough Sharp's brew, introduced in December 1989, continued to lead the growing non alcohol segment. Volume grew 30%, raising our share of the non alcohol category to 30%. To keep our marketing efforts in tune with changing consumer values, we began a series of new advertising campaigns for several of our brands, including Miller Lite low calorie beer ("Miller Lite. It's It and That's That"), Lowenbrau above premium beers ("German Born, American Brewed"), and the grow- ing Milwaukee's Best below premium family ("Here's to the Best"). We also began testing our 77-calorie Lite Ultra beer. In the super premium category, we have expanded tests of Miller Reserve and Reserve Light 100% barley beers. Our growth led us to reopen our Trenton, Ohio, brewery with a work force organized according to team- work and total quality manage- ment concepts. We also expanded capacity for Leinenkugel's beer. We are investing in Miller's con- tinued expansion as one of our core businesses. Financial Services and Real Estate Despite rising income from financial services, slow real estate results lowered Philip Morris Capital Corporation's consolidated income 9% below 1990's record level. Income from our financial ser- vices operations grew 16%. During the year, we broadened our fixed asset and working capital financing for customers and suppliers of Philip Morris operating companies. We also expanded our investments in third party leveraged leases. Having completed its first decade of operations, our financial services business has a strong capital base and a sound asset portfolio. With conservative investment policies and increasing operating efficien- cies, our finance business should continue to grow profitably. At our Mission Viejo land develop- ment subsidiary, revenues and income fel149% and 54%, respec- tively. Despite the recession's impact on real estate, and the related reduced availability of financing for our customers, our planned com- munities continued to outsell the . competition. Aliso Viejo ranked first in total sales per project in Orange County, California, and Highlands Ranch captured nearly 20% of new home sales in the Denver area. 21 S i I a

. - r Corporate Citizenship Beyond satisfying our customers and consumers with our products, we have a direct interest in the well- being of society at large. In our con- tributions and other citizenship programs, we strive to achieve the excellence and scope characteristic of all our operations. Every aspect of our business, from purchasing and packaging to shipping and advertising, has some potential impact on the environ- ment. We have begun to establish uniform environmental reporting and enforcement policies for our facilities around the world. In a sep- arate publication, we are providing a summary of our efforts to protect the environment. One key to any society's future vitality is education. In 1991, we pro- vided substantial funds to Teach for America, an innovative program to recruit talented young people as a "national teacher corps" for rural and inner-city classrooms. Comple- menting this program, we also collaborated with foundations and local agencies in Milwaukee, Chicago, and Washington, D.C., to join communities, schools, and fam- ilies in the effort to reform inner-city public schools. At the same time, we began plans to bring our successful Gateway adult literacy program from Philadelphia to other cities. Through its sponsorship of Star- Serve-Students Taking Action and Responsibility in Service-Kraft General Foods Foundation is enhancing citizenship education by encouraging direct student involve- ment in community service. To date, StarServe has provided community service kits of teaching materials to more than 100,000 schools in the United States. 0 Through these and other pro- grams, we hope to improve the quality of public education in the United States. As one of the world's largest food companies, we are also concerned with the effects of hunger and mal- nutrition. We donated food last year to various service agencies, and we continued efforts to raise money for Second Harvest, the only national food bank network in the United States. Working with the Food Research and Action Center, we are the leading underwriter of the national campaign to end childhood hunger. We are supporting a study at the Center on Hunger, Poverty and Nutrition Policy at Tufts University to establish more effective ways to pro- tect children from the educational consequences of poor nutrition. We are also helping to ensure the deliv ery of food to the elderly and to people with AIDS. As leaders in corporate support for the arts for nearly 35 years, we believe that the arts encourage both creativity and an appreciation of diversity in our employees and com- munities. Because we have found that the arts make important contri- After work, Karen Labenz of Kraft USA helps students learn to read. - Phillip Grace, employed at Kraft General Foods in Middlebury, Vermont, is a member of his local volunteer fire department. butions to the material and spiritual welfare of our country, we spoke out in favor of continued public funding of the arts in the United States in 1991. The benefits of the arts include their impact on learning, as we have found through our continued back- ing of the children's center at The Art Institute of Chicago. Exhibitions we supported in 1991 included "A Tribute to Survival" at the Milwaukee Public Museum, which focused on North American Indian history and culture. We also sponsored a major touring retro- spective of the works of Romare Bearden, which originated at The Studio Museum in Harlem; and an exhibition of Swiss and American folk art, which appeared in the United States and is slated to travel to Switzerland. Last year also marked the tenth year of our touring support for the Alvin Ailey American Dance Theater and The Joffrey Bal- let, two of the many performing arts organizations we assist. By working for justice and eco- nomic opportunity for specific constituencies, many organizations and programs we support also make the United States a better place for all its citizens. In 1991, we continued to support U.S. organizations such as the i , , 22

A National Puerto Rican Forum, the National Hispanic Scholarship Fund, the Asian Pacific American Legal Consortium, the National Black and Minority Chamber of Commerce, and the United Negro College Fund. As the recession in the United States worsened the plight of many disad- vantaged communities, we joined with Junior Achievement and the National Urban League in a major program to assist inner city youth. Philip Morris has responded to the needs of victims of disease for many years. Our cumulative funding to combat AIDS now comes to over $2 million. In 1991, one of our contri- butions established a postdoctoral fellowship in AIDS research at the New York Blood Center. Our 1991 relief efforts included donations of food and supplies to victims of floods in China, of an earthquake in Costa Rica, and of a volcanic eruption in the Philippines. Through donations of food and other items, we also supported the U.S. and other coalition troops stationed in the Persian Gulf. Our company continued to make major efforts on behalf of the United Way of America through corporate grants and campaigns in our many facilities in the United States. After visiting each of the 50 states, our national bicentennial tour of the U.S. Bill of Rights ended in Decem- ber 1991. The exhibition accom- plished its goal of increasing aware- ness of the freedoms guaranteed by the Bill of Rights. We are proud to have helped an important part of our heritage come alive for millions of people in the United States. A Spirit of Public Service In times of great change and uncer- tainty, it is natural for many people to concentrate first on their own affairs. Yet this is precisely when a Members of E.C.H.O. (Enriching the Community by Helping Others) volunteer group at General Foods USA. Top row (I to r): Carole Fulco, Rita Smith, Valerie Giuliani, Milly Barbarite, Nancy Daigler, Jay Agosta, Marilyn Vines, Mindy Solomon. Middle row: Clyde Hicks, Flora Lee, Jack Nevins, Marielena Carilli. Seated on floor: Carol Bowman, Dave Carminucci, Harriet Masilotti. Peter Wolf, who works for Philip Morris International by day, is a volunteer paramedic once a week at the Malteser Hilfsdienst in Munich. personal spirit of voluntarism can have the most impact. Whether through donations of nearly $2.5 million to various non- profit educational, cultural, and charitable organizations, or by giv ing thousands of pints of blood, the people of Philip Morris came through for their communities in 1991. A Kraft Foodservice purchasing department made the winter holi- days a bit brighter with its Adopt- a-Family program; a Tombstone Pizza employee organized a church "EcoStore" selling environmentally friendly gift items; employees in our Rye Brook, New York, facility con- tributed to a food drive for needy families in Westchester County. Of course, these are just a few of the many ways our people gave their time and money to others in 1991. The volunteers presented on these two pages are representative of the many Philip Morris employees who work every day to help others. Through these and other efforts, we contribute to society not simply as a large philanthropic company, but as a family of people sharing an ethic of caring and community service. 23 (0 0 co (T7 ~ ~ 4 4 ! i I r

Board of Directors Committees 'Member of Executive Committee Hamish Maxwell, Chairman 2Member of Finance Committee John A. Murphy, Chairman 3Member of Audit Committee Robert E. R. Huntley, Chairman 4Member of Committee on Public Affairs and Social Responsibility John A. Murphy, Chairman sMember of Nominating Committee T. Justin Moore, Jr., Chairman 6Member of Compensation Committee John S. Reed, Chairman 7Member of Corporate Employee Plans Investment Committee William H. Donaldson, Chairman Joseph F. Cullman 3rd Chairman Emeritus 24 0 Dr. Elizabeth E. Bailey 3•4 John C. Hower Professor of Public Policy & Management, TheVJharton School of the University of Pennsylvania, Philadelphia, PA Murray H. Bring 4 Senior Vice President and General Counsel Dr. Harold Brown z•a,s,s,7 Chairman of the Foreign Policy Institute, School of Advanced International Studies, The Johns Hopkins University, Washington, DC i a i r ® Jane Evans 4s Vice President and General Manager, Home & Personal Services Division, U.S. West Communications, Inc., Phoenix, AZ Robert E. R. Huntley zs•a•s Counsel, Hunton & Williams, Richmond, VA I Dr. Jose Antonio Cordido-Freytes 4•s Member of Betancourt, Cordido and Associates, Caracas, Venezuela, Attorneys, and ~ President of C.A. Tabacalera Nacional ~ William H. Donaldson 1,2,3,5,7 Chairman and Chief Executive Officer, O 00 New York Stock Exchange, Inc., New York, NY Paul W. Douglas 1•3,s CT7 ~ Former Chairman and Chief Executive Officer of The Pittston Company, Greenwich, CT N 0

I Hamish Maxwell 1•z Chairman of the Executive Committee Michael A. Miles i•z.4 .:hairman of the Board and Chief Executive Officer T. Justin Moore, Jr.'-,4•s Counsel, Hunton & Williams, Richmond, VA Rupert Murdoch 4,6 Chairman and Chief Executive of The News Corporation Limited, New York, NY John A. Murphy2•4•7 Former Vice Chairman of the Board William Murray 1.2.4 Presidentand Chief Operating Officer Richard D. Parsons 1.3,4 Chairman and Chief Executive Officer, The Dime Savings Bank of New York, FSB, NewYork, NY Roger S. Penske President, Penske Corporation, and Chief Executive Officer, Detroit Diesel Corporation and Penske Truck Leasing Company, Detroit, MI John S. Reed 1.z,3s,sa Chairman of Citicorp and Citibank, N.A., NewYork, NY John M. Richman 1.4,5,7 Counsel, Wachtell, Lipton, Rosen & Katz, Chicago, IL Hans G. Storr 2,7 Executive Vice President and Chief Financial Officer 25

i Officers Philip Morris Companies Inc. Michael A. Miles Chairman of the Board and Chief Executive Officer William Murray President and Chief Operating Officer Geoffrey C. Bible Executive Vice President, International Hans G. Storr Executive Vice President and Chief Financial Officer Murray H. Bring Senior Vice President and General Counsel Craig L. Fuller Senior Vice President, Corporate Affairs Marc S. Goldberg Senior Vice President, Corporate Planning John J. Tucker Senior Vice President, Human Resources and Administration Dede Thompson Bartlett Vice President and Secretary Bruce S. Brown Vice President, Taxes George R. Lewis Vice President and Treasurer Kathleen M. Linehan Vice President, Government Affairs Katherine P. Wickham Vice President and Controller Alfonso L. Carney, Jr. Assistant Secretary 26 Corporate Staff: Vice Presidents: NancyJ. De Lisi Stephanie T. French David I. Greenberg David M. Kirby George L. Knox III F. Robert Kurimsky Herbert Millington James J. Morgan Dr. Thomas S. Osdene D. Eric Pogue Rosemary Ripley William C. Smiy Timothy A. Sompolski Timothy C. Sullivan Charles R. Wall Philip Morris U.S.A. William I. Campbell President and Chief Executive Officer Mark A. Serrano Executive Vice President, Operations Stephen J. Bloom Senior Vice President, Trade Development David E.R. Dangoor Senior Vice President, Marketing Fred J. Laux Senior Vice President, Human Resources Harry G. Steele Senior Vice President, Finance and Administration Michael E. Szymanczyk Senior Vice President, Sales Lawrence S. Wexler Senior Vice President, Planning and Information Systems Andrew Whist Senior Vice President, External Affairs Vice Presidents: David R. Beran Barry J. Case Dr. James L. Charles Stephen C. Darrah O. Witcher Dudley Charles R. Finch Dr. Kenneth S. Houghton Craig A. Johnson James R. Kuhlman Suzanne A. LeVan Nancy Brennan Lund Ellen Merlo Robert L. Mikulay David L. Milby E. Henry Mize Douglas H. Nelson John R. Nelson Richard D. Olson Steven C. Parrish William P. Taylor Philip Morris International Inc. Aleardo G. Buzzi President and Chief Executive Officer Carlos E. Salguero Executive Vice President Walter Thoma Executive Vice President William H. Webb Executive Vice President Dinyar Devitre Senior Vice President and Chief Administrative Officer Thomas M. Kearns Senior Vice President Vice Presidents: Larry A. Gates Andreas Gembler Georges Karandjoulis John Kramer Francisco J. Moreno Lee Pollak Peter Schreer Kraft General Foods North America Richard P. Mayer Chairman and Chief Executive Officer Martin D.J. Buss Senior Vice President, Strategy and Development Calvin J. Collier Senior Vice President, General Counsel and Secretary Daniel M. Dressel Senior Vice President, Human Resources Joseph P. Durrett Senior Vice President, Sales J. Bruce Harreld Senior Vice President and Chief Information Officer Alan J. Lacy Senior Vice President, Finance Robert G. McVicker Senior Vice President, Technology, Quality Assurance, and Scientific Relations Thomas D. Ricke Senior Vice President, Corporate Affairs Edward W. Smeds Senior Vice President, Operations and Logistics Eric C. Strobel Senior Vice President, Corporate Marketing Corporate Staff: Vice Presidents: Donald R. Abel John P. Amboian Arthur Anderson Deborah A. Becker David K. Braun Jack Brown Richard B. Burgess Donald W. Carlin William Cunningham Philip J. Davis William J. Dowd Richard R. Floersch Enrique J. Guardia Walter B. Guenther John L. Hogan E. Boyd Hollingsworth, Jr. PaulJackson Adrienne M. Johns John E. Kelly William Kiedaisch James R. Kinney Darrell G. Medcalf William Morris John F. Mowrer III

Michael S. Mudd James P. Dollive Gary Karp Miller Brewing Verdis Norton Alan J. Grant Jack A. Peterson Company David Olsen Derek J. Hall Leroy E. Radtke Stephen L. Puente Michael T. Harrington Gregory Schaffner Leonard J. Goldstein Robert V. Richards Jean Paul Martineau Harry B. Smith Chairman Richard O. Stuedemann Jeremy D. Young Samuel L. Spear Thomas Taylor Bil1yJ. Strong Warren H. Dunn Victor Tinucci Oscar Mayer Foods Thomas L. Thomas President and Prescott Wallace J John D. Bowlin Chief Executive Officer _ . J. Douglas Wert President Kraft Food Ingredients Corp. Apple Billy R Frederick F. Avery . Carolyn Yoch Officers: President Senior Vice President, neral Foods USA G Operations e Robert E. Drane Officers: Robert S. Morrison Terry M. Faulk Allen A. Schumer President Charles J. Hunn Alan Cooper Senior Vice President, Officers: Paul J. Liska Joe Gilliam Administration Philip F. Pellegrino Dick Hynes David J. Driscoll Paul G. Roehrig Bob Jeter Vice Presidents: Ann M. Fudge Thomas J. Ryan Dennis Koerner Rodney J. Blucher Gary K. Harmon Richard G. Searer Gary Severseike Virgis W. Colbert J. Mark Harran Bryan G. Stockton Mike Taylor Frank L. Donnelly Sylvester T. Hinkes Bjorn J. Thompson Daryl Vrbas Leonard H. Jacob Thomas J. Hoeppner Koehler Thomas A Randy D. Kautto Kraft General Foods - Kraft General Foods . Mollomo Paul R Frozen Products International . Gregory B. Murphy Thomas Herskovits Arthur J. Rehberger John E. Nevins George D Riemer William A. Paterson President John M. Keenan . Kathleen D. Ryan Charles A. Phillips Officers: President William A. Saupe Irene B. Rosenfeld Schmus William G i S L Benjamin Lawrence S James S. King . orra ne carpa Paula A. Sneed . John S. Craig President, KGFAsia/Pacific Robert L. Smith Ronald R. Strain Roger K. Hove Plackett John G Richard F. Strup Kraft USA Charles F. Marcy . KGF Europe President James M. Kilts Hugh Mazza , Philip Morris Capital President Harold E. Reinhart Raymond G. Viault Corporation Officers: Ellis Reynolds Chief Executive Officer, Fred Sherriff Jacobs Suchard Hans G. Storr Richard E Baile Spear Kathleen K . y Chiasson William B . Strickland Danny L Charles A. Adamo Chairman and . Gary J. Conte . David D. Weick Senior Vice President Chief Executive Officer Robert A. Eckert Operations and Technology Norman J. Treisman Seth A. Eisner Kraft General Foods Brian A. McIver President Ronald D. Harris Commercial Products Senior Vice President, Michael J Kinney M. Carl Johnson III Strategic Planning and Marketing . Richard H. Lenny Kraft Foodservice, Inc. Services Vice President Charles F. Martin III James A. Miller Mission Viejo Company Thomas J. Mason President Officers: Hugh Roberts James G. Gilleran William Williams Officers: Lani L. Beach President and Edward J. Moy Chief Executive Officer Kraft General Foods Canada William E. Beedie Frank T. Toscano Douglas A. Smith Daryl D. Boddicker John C. Webber Craig McCallum President Anthony F. Bonadonna President-Colorado Divisii James P. Brannigan Officers: John M. Cabot Van Stevens Edward C. Dudley Executive Vice President Daniel S. Antonelli Lawrence J. Eiden Bailey Richard A Danette S. Fenstermacher . Robert L. Herst George W. Beal Senior Vice President and L. Don Brown Treasurer William K. Smith Vice President and General Counsel 27

Financial Review Management's Discussion and Analysis 29 Selected Financial Data-Fifteen Year Review 34 Consolidated Balance Sheets 36 Consolidated Statements of Earnings 38 Consolidated Statements of Stockholders' Equity 39 Consolidated Statements of Cash Flows 40 Notes to Consolidated Financial Statements 42 Report of Independent Accountants 56  Ratio of Total Debt to  Total Debt (Year-End) Total Return to Stockholders' Equity Stockholders (Year-End)  Consumer Products (Includes stock appreciation  Ratio of Consumer Debt (Year-End) and dividends) Products Debt to Stockholders' Equity Billions of Dollars (Year-End) Mo 2.5 20 75 ~ 2.0 60 _ 1.5 45 15 I 10 - ~ 1.0 30 5 •IS 15 0 n 87 88 89 90 91 87 88 89 90 91 28

Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results Operating Revenues Operating Income (in millions) 1991 1990 1989 1991 1990 1989 Tobacco $23,840 $21,090 $17,849 $6,463 $5,596 $5,063 Food 28,178 26,085 22,373 2,016 2,205 1,580 Beer 4,056 3,534 3,342 299 285 226 Financial services and real estate 384 460 516 178 196 172 Operating profit 8,956 8,282 7,041 Unallocated corporate expenses (334) (336) (252) Total $56,458 $51,169 $44,080 $8,622 $7,946 $6,789 Effective January 1, 1991, the Company adopted SFAS No. 106, "Bmployers' Accounting for Postretirement Benefits Other Than Pensions," for its U.S. retiree benefit plans. The incre- mental effect of SFAS No. 106 during 1991 decreased oper- ating profit by $141 million, of which $52 million, $66 million and $22 million related to tobacco, food and beer, respec- tively. The Company expects to adopt SFAS No. 106 for its non- U.S. plans in 1995 and, based upon preliminary estimates, does not anticipate that the effects of adoption will be signifi- cant. (See Note 13 to the 1991 Consolidated Financial Statements.) During the fourth quarter of 1991, the Company provided for the costs of restructuring its worldwide food operations. The charge relates to further consolidation of manufacturing and distribution facilities, exiting from certain unprofitable busi- ness lines and other related overhead cost reductions. This restructuring charge reduced earnings before income taxes, net earnings and earnings per share by $455 million, $275 million and $.30, respectively. In August 1990, the Company's wholly-owned subsidiary, Kraft General Foods, Inc., acquired certain coffee and confec- tionery operations of Jacobs Suchard AG, a Swiss-based com- pany. The acquisition has been accounted for as a purchase and, accordingly, operating results of Jacobs Suchard have been included in the consolidated operating results of the Company since acquisition. Effective January 1, 1991, the federal excise tax on beer increased from $9 per barrel to $18 per barrel, and the federal excise tax on cigarettes increased from $8 per thousand to $10 per thousand. Under existing legislation, the cigarette excise tax will increase to $12 per thousand, effective January 1, 1993. In addition, legislation is proposed periodically, both in the United States and abroad, that would curtail further the advertisement and use of tobacco and beer products. Some or all of the foregoing may have an adverse impact on the Com- pany's operating revenues and operating profit. During 1991 the Food and Drug Administration proposed new labeling requirements for food products. The proposed effective date for the new requirements is May, 1993; however, provisions within the proposed regulation allow for possible extension of that date. Subject to their final form and effective dates, the Company believes that compliance with the new requirements will not have a material adverse impact on the Company's results of operations. 1991 Compared with 1990 Operating revenues for 1991 increased $5.3 billion (10.3%) and operating profit as defined for segment reporting pur- poses (operating income excluding unallocated corporate expenses), increased $674 million (8.1%). Of these amounts, $2.0 billion (37.4%) of the increase in operating revenues and $96 million (14.2%) of the increase in operating profit resulted from the inclusion of Jacobs Suchard's operations for the first eight months of 1991. U.S. excise tax increases in 1991 resulted in $817 million (15.4%) of the increase in operating revenues. Amortization of goodwill increased 11.4%, to $499 million in 1991, due primarily to the amortization of Jacobs Suchard goodwill. Interest and other debt expense, net, increased $16 million (1.0%) in 1991 compared with 1990, due primarily to lower interest income, partially offset by lower rates and lower average outstanding debt during the year. Earnings before cumulative effect of accounting change increased in 1991 by $387 million (10.9%), due to increased operating profit ($674 million), partially offset by a higher income tax provision ($273 million). The cumulative effect as of January 1, 1991 of adopting SFAS No. 106 was a decrease in 1991 net earnings of $921 mil- lion ($.99 per share). 1990 Compared with 1989 Operating revenues for 1990 increased $7.1 billion (16.1%) and operating profit increased $1.2 billion (17.6%). The inclu- sion of Jacobs Suchard since acquisition resulted in $1.4 billion (20.0%) of the increase in operating revenues and $89 million (7.2%) of the increase in operating profit. Amortization of goodwill increased 16.4%, to $448 million in 1990, due primarily to goodwill arising from acquisitions, of which $33 million related to Jacobs Suchard. Interest and other debt expense, net, decreased $96 million (5.5%) in 1990 „ r i. ;i M1 9

compared with 1989, due primarily to lower rates, lower aver- Net earnings increased in 1990 by $594 million (20.2%), age outstanding debt during the year and higher interest due to increased operating profit ($1.2 billion), partially offset income. by a higher income tax provision ($659 million). i Operating Results by Business Segment Operating Revenues - Operating Profit (in millions) 1991 1990 1989 1991 1990 1989 Domestic tobacco $11,589 $10,370 $ 9,474 $4,774 $4,206 $3,606 International tobacco 12,251 10,720 8,375 1,694 1,394 1,007 Amortization of goodwill (5) (4) (5) Gain on sale of investment in Rothmans 455 Total $23,840 $21,090 $17,849 $6,463 $5,596 $5,063 Tobacco 1991 Compared with 1990 In 1991, the Company's domestic tobacco operating revenues increased 11.8% due to price increases ($1.2 billion) and the increase in federal excise taxes ($437 million), partially off- set by unfavorable product mix. The Company's domestic volume (based on shipments) increased 189 million units, to 220.7 billion units. The domestic cigarette industry's volume decreased approximately 2.4% in 1991 as compared with a 0.3% decline in 1990. Philip Mon•is' domestic market share (based on shipments) increased to 43.3%, up 1.1 share points over 1990. The Marlboro family's volume was down 4.4 billion units (3.2%) from 1990, resulting in a 25.8% market share as compared with a 26% market share in 1990. In the growing discount segment, which now accounts for 25% of the U.S. cigarette industry, the Company's brands grew strongly. The Company now holds a 29.5% share of the discount segment. In 1991, the Company's domestic tobacco operating profit increased 13.5%, reflecting higher gross profit ($808 million), offset by higher marketing, administration and research costs ($240 million), substantially all of which related to marketing. The increase in gross profit was due primarily to price increases ($1.2 billion) and cost savings, partially offset by unfavorable product mix ($370 million). Excluding the 1991 incremental impact of SFAS No. 106, domestic tobacco oper- ating profit increased 14.3%. International tobacco operating revenues increased 14.3%, due primarily to increases in unit volume ($469 million), price increases ($330 million) and higher foreign excise taxes ($752 million, due primarily to higher volume). Total 1991 international unit volume including exports increased 49.3 billion units (13.4%), to 417.3 billion units, due primarily to higher volume in the European Community, Eastern Europe, Russia, the Middle East and Japan. Of this increase, ship- ments to Russia accounted for 16.6 billion units. U.S. export volume increased 9.5%, to 106.6 billion units. International tobacco operating profit increased 21.5%, due primarily to higher gross profit ($487 million), offset by higher marketing, administration and research costs ($187 million). The increase in gross profit was due primarily to price increases (net of cost increases) of $203 million, volume increases ($166 million)_ and currency translation ($80 million). 1990 Compared with 1989 In 1990, the Company's domestic tobacco operating revenues increased 9.5% due to price increases ($1.0 billion) and vol- ume increases ($43 million), partially offset by unfavorable product mix. Volume increases in 1990 resulted from new product introductions. Philip Morris' domestic volume (based on shipments) increased 1.0 billion units to 220.5 billion units. This unit volume growth increased Philip Morris' domestic market share (based on shipments) to 42.2%, up 0.3 share points over 1989. The domestic cigarette industry's volume decreased approximately 0.3% in 1990 as compared with a 6% decline in 1989. The industry decline in 1989 reflected, in part, a decision by the Company's competitors to reduce trade inventories by limiting shipments. Philip Morris' 1990 increase in market share was understated due to these changes in competitors' trade inventory practices, which depressed their 1989 volume while inflating Philip Morris' 1989 share. Consequently, Philip Morris' 1989 market share rose 2.6 share points, and 1990 market share rose 0.3 share points. However, in the opinion of management, a more meaningful indicator of underlying share growth is the Com- pany's average annual gain of 1.5 share points over the two- year period. Marlboro continued to be the number-one- selling cigarette in the United States, with a 26% share of the market. In 1990, the Company's domestic tobacco oper- ating profit increased 16.6%, reflecting higher gross profit ($914 million), partially offset by higher marketing expenses ($309 million). The increase in gross profit was due primarily to price increases ($1.0 billion) and cost savings, partially offset by unfavorable product mix ($216 million). 30

International tobacco operating revenues increased 28.0%, due primarily to increases in unit volume ($844 million), price increases ($138 million), currency translation ($897 mil- lion) and higher foreign excise taxes ($750 million, due primarily to higher volume), partially offset by the decon- solidation of certain operations. Total international unit volume of the Company for 1990 increased 15.5% over 1989, reflecting significant increases in Europe and Asia. Interna- Food tional tobacco operating profit increased 38.4%, due pri- marily to higher gross profit ($648 million), offset by higher marketing, administration and research costs ($261 million). The increase in gross profit was due to price increases (net of cost increases) of $76 million, volume increases ($469 mil- lion) and currency translation ($127 million), partially offset by the deconsolidation of certain operations. Operating Revenues Operating Profit (in millions) 1991 1990 1989 1991 1990 1989 North American food $20,244 $20,071 $18,750 $2,071 $1,984 $1,769 International food 7,934 6,014 3,623 891 664 369 Amortization of goodwill (491) (443) (379) Restructuring charges (455) (179) Total $28,178 $26,085 $22,373 $2,016 $2,205 $1,580 During 1991, the Company reorganized its reporting and man- agement structure for food operations into North American food and International food. 1991 Compared with 1990 In 1991, North American food operating revenues increased 0.9% due primarily to price increases. Volume increased in beverages, cereals and frozen products, as well as in the food- service and Canadian operations. Offsetting these volume gains were volume declines in cheese, pourable salad dress- ings, mayonnaise and processed meats. Volumes were impacted by the recession as consumers traded down from premium products. Consequently, the Company has announced plans to reduce retail prices on certain cheese and processed meat products in 1992. Operating profit increased 4.4% due to higher gross profit ($317 million), off- set by higher marketing, administration and research costs ($230 million), substantially all of which related to marketing. Excluding the 1991 incremental impact of SFAS No. 106, North American food operating profit increased 7.7%. International food operating revenues in 1991 increased 31.9% due primarily to the impact of the Jacobs Suchard acquisition ($2.0 billion), volume increases ($131 million) and price increases ($88 million), partially offset by currency translation ($86 million) and the impact in 1990 of conform- ing reporting periods of all operations. Volume increased in Europe, led by expansion into eastern Germany. Operating profit increased 34.2% due to higher gross profit ($807 mil- lion), offset by higher marketing, administration and research costs ($580 million), approximately 67% of which were due to higher marketing expenses. The increase in gross profit was primarily related to the acquisition of Jacobs Suchard ($696 million), price increases and cost savings ($173 mil- lion) and volume increases ($55 million), partially offset by currency translation ($37 million) and the impact in 1990 of conforming reporting periods of all operations. 1990 Compared with 1989 In 1990, North American food operating revenues increased 7.0%, due primarily to price increases ($805 million), volume increases ($424 million) and the net impact of acquisitions and dispositions ($99 million). Volume increased in baked goods, beverages, cereals and dinners, as well as frozen desserts, bagels and pizza. Volume also increased in the food- service and Canadian operations. Partially offsetting these volume gains were volume declines in retail cheese, pro- cessed meats and frozen dinners. Operating profit increased 12.2% due primarily to higher gross profit ($842 million), resulting primarily from price and cost increases ($661 mil- lion) and volume increases ($165 million), offset by higher marketing, administration and research costs ($627 million), approximately 76% of which related to higher marketing expenses. International food operating revenues in 1990 increased 66.0%, due primarily to the acquisition of Jacobs Suchard ($1.4 billion), volume increases ($153 million), currency trans- lation ($340 million), other acquisitions ($197 million) and a change in reporting periods to conform all operations. Vol- ume growth occurred primarily in Europe and the Pacific area. International food operating profit increased 79.9% in 1990. Excluding Jacobs Suchard, operating profit increased $172 million (46.6%) due to higher gross profit ($391 million), offset by higher marketing, administration and research costs ($219 million) substantially all of which related to marketing. The increase in gross profit resulted primarily from volume increases ($60 million), currency translation ($116 million), other acquisitions ($46 million) and a change in reporting periods to conform all operations ($137 million). 31 CD _L O OQ -R I I 4kt s If 0 9

Beer 1991 Compared with 1990 Operating revenues in 1991 increased 14.8% due to the increase in federal excise taxes ($380 million), price increases ($129 million) and volume increases ($13 million). Volume increased 0.4%, to 43.6 million barrels (based on shipments), compared with a U.S. malt beverage industry decline of more than 2%. Volume increases in the Miller Genuine Draft and Milwaukee's Best brand families as well as Sharp's more than offset volume declines in Mi1lerHigh Life and Miller Lite. Market share of the domestic beer and non alcohol brew industry rose to 22.5% from 22.0% in 1990. Operating profit in 1991 increased 4.9% from higher gross profit ($135 million), due to pricing and cost savings - ($153 million) and volume increases ($5 million), partially offset by higher marketing, administration and research costs ($121 million), approximately 87% of which related to mar- keting expenses. Excluding the 1991 incremental impact of SFAS No. 106, operating profit increased 12.6%. 1990 Compared with 1989 Operating revenues in 1990 increased 5.7% due to volume increases ($127 million) and price increases ($65 million). The increase in volume was attributable, in part, to the intro- duction of new products, including Sharp's non alcohol brew. Market share of the domestic beer and non alcohol brew industry rose to 22.0% from 21.9% in 1989. Operating profit in 1990 increased 26.1% from higher gross profit ($108 million), due to price and cost increases ($55 million) and volume increases ($53 million), partially offset by higher marketing, administration and research costs ($49 million), approx- imately 90% of which related to marketing expenses. Financial5ervices and Real Estate 1991 Compared with 1990 Operating revenues and operating profit from financial ser- vices and real estate decreased 16.5% and 9.2%, respectively, in 1991. In financial services, operating revenues and operat- ing profit increased in 1991 due primarily to increased investments in finance assets and the sale of certain finance assets, partially offset by a higher loss provision relating to non-performing assets. Operating revenues and operating profit from real estate operations in 1991 decreased substan- tially from 1990 levels. The decreases resulted from the general effects of the recession on the real estate market and the weakness in consumer demand. 1990 Compared with 1989 Operating revenues from financial services and real estate decreased 10.9% in 1990, however, operating profit in 1990 increased 14.0% over 1989. In financial services, operating revenues and operating profit increased in 1990 due primarily to increased investments in finance assets, partially offset by higher interest expense resulting from higher commercial r paper balances. Operating revenues and operating profit from real estate operations in 1990 decreased from 1989 levels, reflecting the continued impact of a 1988 change in business strategy in California from residential homebuilding to land planning, development and sales. While there was a demand for the Company's California properties, developments in the domestic banking industry reduced the financing options available to prospective purchasers. Financial Review Cash Provided and Used Net Cash Provided by Operating Activities Cash provided by operating activities of $6.3 billion increased in 1991 by $874 million (16.2%). The increase was related primarily to higher earnings before considering the cumulative effect of accounting change and the provision for the costs of restructuring the Company's worldwide food operations, neither of which had an impact on the Company's operating cash flows in 1991. Cash provided by operating activities increased in 1990 by 46.7% to $5.4 billion. The increase was related primarily to higher earnings ($594 million) and to less cash used for working capital items in 1990. Net Cash Used in Investing Activities - Capital expenditures were $1.6 billion in 1991, approximately 61% of which related to food operations, primarily for mod- ernization of manufacturing facilities and expansion of certain production capacity, and approximately 28% of which related to tobacco operations, primarily for modernization of manufacturing facilities. In 1990, capital expenditures increased $109 million over 1989. Capital expenditures are estimated to be $1.8 billion in 1992 and a total of $9.0 billion for the five-year period 1992-1996, of which approximately 60% and 54%, respectively, are projected for food operations, and approximately 32% and 40%, respectively, are projected for tobacco operations. In 1990, the Company paid $3.1 billion for the purchase of Jacobs Suchard, net of $825 million of acquired cash. In 1989, cash provided by investing activities included $992 million received from the divestiture of the Company's equity investment in Rothmans and several food operations. In 1991, cash used for net investments in finance assets was $628 million as compared with $412 million in 1990 and $291 million in 1989. Net Cash Used in Financing Activities Consumer Products Debt During 1991, total consumer products debt decreased by $1.9 billion. The decrease represented $4.1 billion of net repayment of short-term borrowings, long-term debt repay- ment of $1.5 billion and currency translation of $159 million, partially offset by $3.9 billion of long-term debt issued. 32

At December 31, 1991, the Company's ratio of consumer products debt to total equity was 1.22, down from 1.44 at December 31,1990. Excluding the impact of the adoption of SFAS No. 106, the ratio of consumer products debt to total equitywould have been 1.13 at December 31,1991. Fixed rate debt comprised approximately 90% and 73% of consumer products debt at December 31, 1991 and 1990, respectively. The average interest rate on total consumer products debt was approximately 8.8% and 9.2% during 1991 and 1990, respectively. At December 31, 1991, the average interest rate on total consumer products debt, including the impact of interest and currency swap agreements discussed below, was approximately 8.3%. During 1990, total consumer products debt increased by $2.3 billion. The increase represented $3.6 billion of debt issued, $1.1 billion of debt assumed in the acquisition of Jacobs Suchard and currency translation of $250 million, partially offset by $2.7 billion of debt repayments. During 1989, total consumer products debt decreased by $1.6 billion. The decrease represented $4.0 billion of debt repayments and currency translation of $62 million, partially offset by $2.5 billion of domestic debt issued to refinance commercial paper and bank borrowings arising from the acquisition of Kraft. Total Debt The Company's credit ratings by Moody's at December 31, 1991 and 1990 were "P-1" in the commercial paper market and "A2" for long-term obligations, as compared with ratings of "P-2" and "A3," respectively, at December 31, 1989. The Com- pany's credit ratings by Standard & Poor's remained at "A-1" in the commercial paper market and "A' for long-term debt obligations. At December 31, 1991, the Company's total debt-to-equity ratio was 1.35, down from 1.57 at December 31, 1990. Exclud- ing the impact of the adoption of SFAS No. 106, the Company's total debt-to-equity ratio would have been 1.25 at December 31,1991. Total debt was $16.9 billion at December 31,1991, compared with $18.7 billion at December 31, 1990. The Company has entered into currency swap agreements to manage exposure to currency movements. The aggregate notional principal amount of currency swap agreements out- standing at December 31, 1991 was $2.0 billion, of which $1.3 billion related to consumer products debt. At December 31, 1991, the Company had interest rate swap agreements with an aggregate notional principal amount of $952 million, of which $852 million related to consumer prod- ucts debt, and a weighted average maturity of one year. These agreements provided a weighted average interest rate of 8.6%. The Company expects to continue to refinance long-term and short-term debt from time to time. The nature and amount of the Company's long-term and short-term debt and the proportionate amount of each can be expected to vary as a result of future business requirements, market conditions and other factors. The Company's percentages of fixed rate debt and average interest rates for 1991 and 1990 relative to total debt were approximately the same as those previously discussed for consumer products debt. At December 31, 1991, the Company's credit facilities amounted to approximately $19.5 billion, of which approx- imately $19.2 billion were unused. Included in these credit facilities is a revolving credit agreement which was renegoti- ated in 1991, resulting in an increase from $12 billion to $15 billion. This agreement expires in 1996. These facilities are used to support the Company's commercial paper borrowings. The Company expects that cash from operations and avail- able credit facilities will continue to be sufficient to meet the future needs of the business. The Company continually monitors its foreign currency exposure. It acts to manage such exposure, when deemed prudent, through various hedging transactions. Equity and Dividends In 1989, the Company announced its intention to spend up to $1.5 billion to repurchase common stock in open market transactions at prevailing prices from time to time over a two- year period commencing in 1990. Prior to the program's expiration in November, 1991, a total of 13.3 million shares were repurchased at an aggregate cost of $751 million. In November of 1991, the Company announced a new two-year program to spend up to $2 billion to repurchase from time to time outstanding shares of its common stock. Under this new program, the Company repurchased 2.5 million shares at an aggregate cost of $173 million. Under the two programs, the Company repurchased 10 million shares of common stock in 1991 at an aggregate cost of $703 million. Dividends paid in 1991 increased 24.2% over 1990, reflect- ing the increase in dividends declared to $1.91 per share in 1991 from $1.55 per share in 1990. The quarterly dividend rate established in August 1991 is at an annual rate of $2.10 per share, an increase of 22.1% over the annual rate of $1.72 established in August 1990. Return on average stockholders' equity was 24.6% in 1991 and 32.9% in 1990. Excluding the cumulative effect of the adoption of SFAS No. 106, the return on average stockholders' equity would have been 30.9% in 1991. The decrease from 1990 reflects the restructuring charge for food operations and the impact of treasury stock acquired pursuant to the com- mon stock repurchase program. New Financial Accounting Standard In February, 1992, the Financial Accounting Standards Board issued SFAS No. 109, "Accounting for Income Taxes," which must be applied for years beginning after 1992. Based upon a preliminary review of SFAS No. 109, the Company believes that adoption will not have a significant impact on the Com- pany's financial position and results of operations. L

Selected Financial Data Fifteen-Year Review (in millions of dollars, except per share data) 1991 1990 1989 1988 1987 , Summary of Operations: Operating revenues $ 56,458 $ 51,169 $ 44,080 $ 31,273 $ 27,650 United States export sales 3,061 2,928 2,288 1,863 1,592 Cost of sales 25,612 24,430 21,868 13,565 12,183 Federal excise taxes on products 2,978 2,159 2,140 2,127 2,085 Foreign excise taxes on products 5,416 4,687 3,608 3,755 3,331 Operating income 8,622 7,946 6,789 4,397 3,990 Interest and other debt expense, net (consumer products) 1,651 1,635 1,731 670 646 Earnings before income taxes and cumulative effect of accounting change 6,971 6,311 5,058 3,727 3,344 Pretax profit margin 12.3% 12.3% 11.5% 11.9% 12.1% Provision for income taxes $ 3,044 $ 2,771 $ 2,112 $ 1,663 $ 1,502 Earnings before cumulative effect of accounting change 3,927 3,540 2,946 2,064 1,842 Cumulative effect of accounting change (921) 273 .~ Netearnings 3,006 3,540 2,946 2,337 1,842 Earnings per share before cumulative effect of accounting change 4.24 3.83 3.18 2.22 1.94 Per share cumulative effect of accounting change (.99) .29 Net earnings per share 3.25 3.83 3.18 2.51 1.94 Dividends declared per share 1.91 1.55 1.25 1.01 .79 Weighted average shares (millions) 925 925 927 932 951 Capital expenditures (consumer products) $ 1,562 $ 1,355 $ 1,246 $ 1,024 $ 718 Depreciation (consumer products) 938 876 755 608 564 Property, plant and equipment, net (consumer products) 9,946 9,604 8,457 8,648 6,582 Inventories (consumer products) 7,445 7,153 5,751 5,384 4,154 Total assets 47,384 46,569 38,528 36,960 - 21,437 Total long-term debt 14,213 16,121 14,551 16,812 5,983 Total debt-consumer products 15,289 17,182 14,887 16,442 6,355 -financial services and real estate 1,611 1,560 1,538 1,504 1,378 Total deferred income taxes 1,803 2,083 1,732 1,559 2,044 Stockholders' equity 12,512 11,947 9,571 7,679 6,823 Common dividends declared as a % of net earnings 58.7% 40.5% 39.3% 40.3% 40.6% Book value per common share $ 13.60 $ 12.90 $ 10.31 $ 8.31 $ 7.21 Market price of common share-high/low 813/4-48r/4 52-36 45'/2-25 25'/2-20t/8 31 t/s-18'/s Closing price of common share at year-end 80'/4 513/4 415/8 25'/2 213/8 Price/earnings ratio at year-end 19 14 13 11 11 Number of common shares outstanding W at year-end (millions) 920 926 929 924 947 Number of employees 166,000 168,000 157,000 155,000 113,000 See notes to the consolidated financial statements regarding the 1991 Company include the operating results of Kraft, Inc. since its acquisition. adoption of SFAS No. 106, the 1990 acquisition of Jacobs Suchard AG, the -P In 1988, the Company adopted the method of accounting for income taxes 1989 sale of the ComPanY's equity investment in Rothmans International p.l.c. b d b SFAS N 96 l i i l and the restructurings of food operations. In 1988, the Company acquired Kraft, Inc. Consolidated results of the 34 prescr e y , resu o. t ng n a cumu ative effect of accounting change which increased net earnings by $273 million or $.29 per share. In 1988 and 1987, the Company provided for restructuring charges for its food operations of $348 million and $71 million, respectively.

1986 1985 1984 1983 1982 1981 1980 1979 1978 1977 $ 25,542 $ 16,158 $ 14,102 $ 13,256 $ 11,720 $ 10,886 $ 9,822 $ 8,303 $ 6,633 $ 5,202 1,193 923 925 970 978 834 702 521 424 316 11,901 6,709 5,840 5,665 5,532 5,253 4,675 3,857 3,134 2,455 2,075 2,049 2,041 1,983 1,180 1,169 1,105 1,037 961 862 2,653 1,766 1,635 1,527 1,435 1,411 1,389 1,122 703 490 3,537 2,664 1,908 1,840 1,547 1,312 1,144 1,096 883 721 772 311 276 230 244 232 205 190 137 95 2,765 2,353 1,632 1,610 1,303 1,080 939 906 746 626 10.8% 14.6% 11.6% 12.1% 11.1% 9.9% 9.6% 10.9% 11.2% 12.0% $ 1,287 $ 1,098 $ 743 $ 706 $ 521 $ 420 $ 390 $ 398 $ 337 $ 291 1,478 1,255 889 904 782 660 549 508 409 335 1,478 1,255 889 904 782 660 549 508 409 335 1.55 1.31 .91 .90 .78 .66 .55 .51 .42 .35 1.55 1.31 .91 .90 .78 .66 .55 .51 .42 :35 .62 .50 .43 .36 .30 .25 .20 .16 .13 .10 954 959 981 1,008 1,005 999 997 996 966 957 $ 678 $ 347 $ 298 $ 566 $ 918 $ 1,019 $ 751 $ 629 $ 566 $ 280 514 367 341 294 250 211 178 133 105 78 6,237 5,684 4,014 4,381 4,178 3,583 2,806 2,214 1,723 1,188 3,836 3,827 2,653 2,599 2,834 2,922 2,499 2,235 2,077 1,728 19,482 18,712 9,880 9,908 9,756 9,180 7,362 6,379 5,608 4,048 6,887 8,035 2,239 2,549 3,776 3,499 2,598 2,448 2,147 1,427 6,889 7,887 2,566 3,054 3,728 3,804 2,800 2,507 2,365 1,547 1,141 944 436 141 83 3 1 9 7 17 1,519 1,233 907 825 627 455 327 234 150 104 5,655 4,737 4,093 4,034 3,663 3,234 2,837 2,471 2,115 1,690 39.9% 38.1% 46.8% 40.5% 38.6% 37.9% 36.3% 30.6% 30.6% 27.9% $ 5.94 $ 4.96 $ 4.21 $ 4.03 $ 3.64 $ 3.22 $ 2.84 $ 2.48 $ 2.13 $ 1.76 19'/z-11 11'/a-9 103/s-73/4 9-63/4 81/2-51/z 67/s-5'/4 6-35/s 47/s-37/s 43/4-3'/z 4-3'/4 18 11 101/8 9 7'/z 6'/a 53/s 4'/z 43/s 3'/s 11 8 11 10 9 9 9 8 10 11 _ 951 955 971 1,000 1,007 1,003 998 996 994 959 1 111,000 114,000 68,000 68,000 72,000 72,000 72,000 65,000 60,000 53,000 .~ i I i !i b I1 35 ~~~I,

Consolidated Balance Shee#s (inmillionsofdollars) at December 31, 1991 1990 Assets Consumer products Cash and cash equivalents $ 126 $ 146 Receivables, net 4,121 4,101 Inventories: Leaftobacco 2,912 2,458 Other raw materials 1,795 1,934 Finished product 2,738 2,761 7,445 7,153 Other current assets 902 967 Total current assets 12,594 12,367 ~ Property, plant and equipment, at cost: Land and land improvements 725 664 I Buildings and building equipment 4,210 4,004 Machinery and equipment 9,114 8,480 Construction in progress 1,232 1,133 15,281 14,281 Less accumulated depreciation 5,335 4,677 I 9,946 9,604 ~ . Goodwill and other intangible assets (less accumulated amortization of $1,673 and $1,178) 18,624 19,037 Other assets 1,682 1,675 Total consumer products assets 42,846 42,683 t I Financial services and real estate Finance assets, net 3,847 3,220 - Real estate held for development and sale 471 418 Other assets 220 248 Total financial services and real estate assets 4,538 3,886 ~ ~ TOTAL ASSETS $47,384 $46,569 0 co See notes to consolidated financial statements. .P 36 ~ ~IIII ~ 1 !~ ...

I Philip Morris Companies Inc. and Subsidiaries 1991 1990 Liabilities Consumer products Short-term borrowings $ 514 $ 1,034 ( 1,355 863 , i Current portion of long-term debt ;i,a Accounts payable 2,820 2,462 Accrued liabilities: Marketing 1,396 1,398 Taxes, except income taxes 781 851 Employment costs 895 832 Other 1,974 2,155 Income taxes 1,603 1,366 Dividends payable 486 399 Total current liabilities 11,824 11,360 Long-term debt 13,420 15,285 Deferred income taxes 731 1,316 Accrued postretirement health care costs 1,854 314 Other liabilities 3,515 3,185 Total consumer products liabilities 31,344 31,460 Financial services and real estate Short-term borrowings 818 724 Long-term debt 793 836 Deferred income taxes 1,743 1,382 Other liabilities 174 220 Total financial services and real estate liabilities 3,528 3,162 Total liabilities 34,872 34,622 Contingencies (Note 14) b I !i !! Stockholders' Equity ! Common stock, par value $1.00 per share (935,320,439 shares issued) 935 935 `i Earnings reinvested in the business 12,038 10,960 i i Currency translation adjustments 453 561 ; 13,426 12,456 Less cost of treasury stock (15,469,198 and 9,101,348 shares) 914 509 Total stockholders' equity 12,512 11,947 TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $47,384 $46,569 I iu 1! 37

Consolidated Statements of Earnings (inmillionsofdollars,exceptpersharedata) for the years ended December 31, 1991 1990 1989 Operating revenues $56,458 $51,169 $44,080 Cost of sales 25,612 24,430 21,868 Excise taxes on products 8,394 6,846 5,748 Gross profit 22,452 19,893 16,464 Marketing, administration and research costs 13,331 11,499 . 9,290 Amortization of goodwill 499 448 385 I Operating income 8,622 946 7 6 789 , , Interest and other debt expense, net 1,651 1,635 1,731 Earnings before income taxes and cumulative effect of accounting change 6,971 6,311 5,058 i Provision for income taxes 3,044 2,771 2,112 Earnings before cumulative effect of accounting change 3,927 3,540 2,946 Cumulative effect of change in method of accounting for postretirement benefits other than pensions (net of income tax benefit of $572 million) (921) Net earnings $ 3,006 $ 3,540 $ 2,946 Per share data: Earnings before cumulative effect of accounting change $ 4.24 $ 3.83 $ 3.18 Cumulative effect of accounting change (.99) Net earnings $ 3.25 $ 3.83 $ 3.18 See notes to consolidated financial statements. I 38 I

Consolidated Statements of Stockholders' Equtty (in millions of dollars, except per share data) Additional Common Paid-in Stock Capital Earnings Reinvested in the Business Currency Translation Adjust- ments Cost of Treasury Stock Total Stock- holders' Equity Balances, January 1, 1989 $240 $ 252 $ 7,833 $117 $(763) $ 7,679 Net earnings 2,946 2,946 Exercise of stock options/u nits and issuance of other sto ck awards prior to stock spl it (35) 87 52 Cash dividends declared $1.25 per share (1,159) (1,159) Four-for-one stock split 695 (217) (478) Exercise of stock options/u nits and issuance of other stock awards after stock split (63) 90 27 Currency translation adjust ments (net of income tax provisions of $4) 26 26 Balances, December 31, 1989 935 - 9,079 143 (586) 9,571 Net earnings 3,540 3,540 Exercise of stock options/u nits and issuance of other stock awards (218) 298 80 Cash dividends declared $1.55 per share (1,432) (1,432) Currency translation adjust ments (including income tax benefits of $17) 418 418 Stock purchased (221) (221) Other (9) (9) Balances, December 31, 1990 935 - 10,960 561 (509) 11,947 Net earnings 3,006 3,006 Exercise of stock options/u nits and issuance of other sto ck awards (172) 298 126 Cash dividends declared $1.91 per share (1,765) (1,765) Currency translation adjust ments (including income tax provisions of $24) (108) (108) Stock purchased (703) (703) Other 9 9 Balances, December 31, 1991 $935 $ - $12,038 $453 $(914) $12,512 C) (Ji li I I 11 I I f i r See notes to consolidated financial statements. ~~ 39

Consolidated Statements of Cash Fiows (inmillionsofdollars) for the years ended December 31, 1991 1990 1989 Cash Provided By (Used In) Operating Activities Net earnings-Consumer products $ 2,889 $ 3,400 $ 2,817 -Financial services and real estate 117 140 129 Net earnings 3,006 3,540 2,946 Adjustments to reconcile net earnings to operating cash flows: Consumer products Cumulative effect of accounting change 1,487 Depreciation and amortization 1,497 1,367 1,194 Deferred income tax (benefit) provision (715) 108 154 u Restructuring charges 455 179 Gain on sale of investment in Rothmans International p.l.c. (455) Gains on sales of businesses (5) _(104) Cash effects of changes, net of the effects from acquired companies: Receivables, net (139) (249) (718) Inventories (468) (699) (431) Accounts payable 395 100 171 Other working capital items 231 730 203 Other 140 378 201 Financial services and real estate Cumulative effect of accounting change 6 Deferred income tax provision 357 277 217 Decrease in real estate receivables 58 32 22 Increase in real estate held for development and sale (57) (41) (7) Other 11 (54) (4) Net cash provided by operating activities 6,259 5,385 3,672 Cash Provided By (Used In) Investing Activities f~( Consumer products 1 Purchase of Jacobs Suchard AG, net of acquired cash of $825 in 1990 (3,116) Purchase of other businesses, net of acquired cash (162) (171) (788) Proceeds from sales of investments and businesses 29 159 992 Capital expenditures (1,562) (1,355) (1,246) Other 9 246 82 i Financial services and real estate Investments in finance assets (936) (523) (481) Proceeds from other finance assets 308 111 190 Other (17) lt;; Net cash used in investing activities (2,314) (4,666) (1,251) PEf, Net cash provided by operating and investing activities $ 3,945 $ 719 $ 2,421 ~ See notes to consolidated financial statements. 0 .~„ co CT~ .P Iv co 40

1991 1990 1989 Cash Provided By (Used In) Financing Activities Consumer products Net repayment of short-term borrowings $(4,129) $ (994) $(2,990) Long-term debt proceeds 3,850 3,562 2,534 Long-term debt repaid (1,486) (1,776) (1,014) Purchase of treasury stock (703) (221) Dividends paid (1,678) (1,351) (1,101) Issuance of shares 119 80 79 Financial services and real estate Net issuance of short-term borrowings 94 91 60 Long-term debt repaid (12) (182) (20) Net cash used in financing activities (3,945) (791) (2,452) Effect of exchange rate changes on cash and cash equivalents (20) 100 (19) Increase (decrease) in cash and cash equivalents (20) 28 (50) Cash and cash equivalents at beginning of year 146 118 168 Cash and cash equivalents at end of year $ 126 $. 146 $ 118 Cash paid: Interest-Consumer products $ 1,465 $ 1,511 $ 1,711 -Financial services and real estate $ 76 $ 100 $ 90 Income taxes $ 2,229 $ 2,027 $ 1,303 CO 1' I i i 11 I i i

i .  0 I Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies: i Basis of presentation: The consolidated financial statements include all significant subsidiaries. Balance sheet accounts are segregated by two broad types of business. Consumer products assets and liabilities are classified as either current or non-current, whereas financial services and real estate assets and liabilities are unclassified, in accordance with respective industry practices. Certain prior years' amounts have been reclassified to con- form with the current year's presentation. Cash and cash equivalents: Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. Inventories: Inventories are stated at the lower of cost or market. The last- in, first-out ("LIFO") method is used to cost substantially all domestic inventories. The cost of other inventories is deter- mined by the average cost or first-in, first-out methods. It is a Note 2. Acquisition: On August 16, 1990, the Company's wholly-owned subsidiary, Kraft General Foods, Inc. ("KGF") purchased Colima Holding AG, the principal asset of which was a controlling interest in Jacobs Suchard AG, a Swiss-based coffee and confectionery company. In September 1990, a tender offer was completed for substantially all of the remaining publicly held interests of Jacobs Suchard. KGF retained certain coffee and confection- ery operations of Jacobs Suchard and sold to the former owner of Colima certain assets which would not fully inte- grate into the KGF structure, including the industrial chocolate business, the Canadian coffee business and por- tions of the U.S. confectionery business. In addition, as a condition of the contemplated transaction, Jacobs Suchard disposed of its interests in three foreign banks prior to KGF's purchase of Colima. The acquisition has been accounted for as a purchase and, accordingly, operating results okJacobs Suchard have been included in the consolidated operating results of the Company since acquisition. The aggregate pur- chase price, net of amounts received for businesses sold, was generally recognized industry practice to classify the total amount of leaf tobacco inventory as a current asset although part of such inventory, because of the duration of the aging process, ordinarily would not be utilized within one year. Income taxes: The Company accounts for income taxes in accordance with the method prescribed by Statement of Financial Accounting Standards ("SFAS") No. 96, "Accounting for Income Taxes." Depreciation and amortization: Depreciation is recorded by the straight-line method. Substantially all goodwill and other intangible assets are amortized by the straight-line method, principally over 40 years.' Postretirement benefit plans other than pensions: Effective January 1, 1991, the Company adopted the method of accounting for postretirement benefits other than pensions prescribed by SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." See Note 13. $4.2 billion which was financed with the Company's credit facilities, internally generated funds and a SFr 250 million note payable. The fair value of assets acquired and liabilities assumed totaled $3.1 billion and $2.6 billion, respectively. The excess of the purchase price over the fair value of the net assets pur- chased was $3.7 billion and such excess is being amortized over 40 years by the straight-line method. Had the acquisition occurred at the beginning of 1990 and 1989, pro forma operating revenues, net earnings and earn- ings per share would have been approximately $52.7 billion, $3.4 billion and $3.74, respectively, for the year ended Decem- ber 31, 1990 and $47.8 billion, $2.7 billion and $2.89, respec- tively, for the year ended December 31, 1989. Pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been consummated at the beginning of each year, nor are they necessarily indicative of future consolidated results. 42

Note 3. Restructurings and Divestiture: In 1991, the Company provided for the costs of restructuring its worldwide food operations. The charge relates to further consolidation of manufacturing and distribution facilities, exiting from certain unprofitable business lines and other related overhead cost reductions. This restructuring charge reduced earnings before income taxes, net earnings and earnings per share by $455 million, $275 million and $.30, respectively. In 1989, General Foods Corporation was combined with Kraft to form KGF. The Company charged $179 million against Note 4. Inventories: pretax income which was primarily for costs of this merger. In addition, the Company sold its equity investment in Roth- mans International p.l.c. for.H10 million 10%4% notes matur- ing in 1994, generating a pretax gain of $455 million. These notes were subsequently sold with recourse for approx- imately $850 million. The net impact of these items was an increase in earnings before income taxes, net earnings and earnings per share of $276 million, $152 million and $.16, respectively. The cost of approximately 58% of inventories in 1991 and 56% $980 million and $880 million lower than the current cost of of inventories in 1990 were determined using the LIFO method. inventories at December 31, 1991 and 1990, respectively. The stated LIFO values of inventories were approximately Note 5. Short-Term Borrowings and Borrowing Arrangements: At December 31, the Company's short-term borrowings and related average interest rates consisted of the following: 1991 1990 Amount Average Amount Average (in millions) Outstanding Year-End Rate Outstanding Year-End Rate Consumer products: Bank loans $ 338 8.9% $ 1,661 9.2% Commercial paper 1,686 Amount reclassified as long-term debt (1,510) $ 514 Financial services and real estate: Commercial paper $ 818 The Company maintains credit facilities with a number of lending institutions, amounting to approximately $19.5 billion at December 31,1991. Approximately $19.2 billion of these facilities were unused at December 31, 1991. These facilities are used to support the Company's commercial paper borrow- ings and are available for acquisitions and other corporate purposes. The Company renegotiated its revolving bank credit agreement, resulting in an increase from $12.0 billion to 5.4% 4,576 8.4% (5,203) $ 1,034 4.9% $ 724 8.2% $15.0. billion. The agreement expires in 1996 and enables the Company to refinance short-term debt on a long-term basis. Accordingly, short-term borrowings intended to be refinanced have been reclassified as long-term debt. Certain of these facilities limit payment of cash dividends and the purchase, redemption or retirement of capital shares and/or require maintenance of a fixed charges coverage ratio. At December 31, 1991, approximately $1.5 billion of earnings reinvested in the business was free of such restrictions. -A. i I i I 43

Note'$ (continued) Note 6. Long-Term Debt: At December 31, the Company's long-term debt consisted of the following: (in millions) 1991 1990 Consumer products: Short-term borrowings, reclassified $ 1,510 $ 5,203 Notes, 6.6% to 10% (average effective rate 8.95%), due through 2003 9,911 7,518 Debentures, 4.375% to 10.75% (average effective rate 10.26%), $1.6 billion face amount, due through 2017 1,284 1,354 Foreign currency obligations: Swiss franc, 33/a°h to 8%s°!o, due through 2005 1,110 828 ! Deutsche mark, 23/a% to 6%, due through 1997 362 435 Japanese yen, 53/s°k, due 1992 102 249 Other 171 240 Other 325 321 14,775 16,148 Less current portion of long-term debt (1,355) (863) $13,420 $15,285 Financial services and real estate: Notes, 9.25% to 12.25% (average rate 9.58%), due through 1993 $ 113 $ 125 Zero coupon bonds, 13.3% effective rate, $200 million face amount, due 1994 147 130 Foreign currency obligations: Swiss franc, 4%a% and 43/a%, due 1993 and 1996 253 285 1 Sterling,ll%s°h, due 1995 134 149 fI Other 146 147 $ 793 $ 836 11. I f The Company has entered into currency and interest rate swap agreements with third parties to manage exposure to currency and interest rate movements. As a result, the effective currency denominations and interest rates of debt may differ from those set forth in this note. At December 31, 1991, the Company had currency and related interest rate swap agreements with an aggregate notional principal amount of $2.0 billion. The aggregate maturities of the notional amounts of these swap agree- ments are as follows (in millions):1992-$781; 1993-$356; 1994-$300;1996-$446 and 1997-$150. Market value fluctua- tions on these swap agreements are offset against the related foreign exchange gains and losses on foreign currency denominated assets and liabilities. In addition, at December 31, 1991, the Company had inter- est rate swap agreements with an aggregate notional principal amount of $952 million. These agreements, with a weighted average maturity of one year, provided a weighted average interest rate of 8.6%. The differential to be paid or received on these swap agreements is included in interest and other debt expense, net as interest rates change over the lives of the respective agreements. The Company is exposed to credit loss in the event of non- performance by the other parties to the swap agreements. However, the Company does not anticipate nonperformance by the counterparties. Aggregate maturities of long-term debt, excluding short- term borrowings reclassified as long-term debt, are as follows: (in millions) 1992 1993 1994 1995 1996 1997-2001 2002-2006 Consumer products Financial services and real estate $1,355 $ 13 1,566 387 1,279 200 1,611 133 1,833 113 4,874 553 The revolving credit facility under which the consumer products short-term debt was reclassified as long-term debt expires in 1996 and any amounts then outstanding mature. N 44

Effective September 15,1989, outstanding shares of common stock were split four-for-one. All references in the financial statements to weighted average numbers of shares and related prices, per share amounts and stock plan data have Exercise of stock options/units and issuance of other stock awards prior to split Four-for-one stock split Exercise of stock options/units and issuance of other stock awards Exercise of stock options/units and issuance of other stock awards Exercise of stock options/units and issuance of other stock awards Balances, December 31,1991 At December 31,1991, 27,336,112 shares of common stock were reserved for stock options, stock units and other stock awards and 10,000,000 shares of Serial Preferred Stock, $1.00 par value, were authorized, none of which have been issued. In 1989, the Company distributed rights for each outstand- ing share of its common stock. The rights are not exercisable and trade automatically with the common stock until ten days after public announcement that any person has acquired 10% or more of the Company's common stock or ten business days after any person announces a tender offer for 10% or more of the Company's common stock. When exercisable, unless a person has acquired 10% or more of the Company's shares, each right entitles the holder to buy from the Company one share of common stock for the exercise price (currently $150). If the Company is thereafter involved in a business combination, the rights will entitle Note 8. Stock Plans: Under the 1987 Philip Morris Long Term Incentive Plan, the Company can grant to eligible employees stock options, stock appreciation rights, restricted stock, deferred stock, stock purchase rights and long-term performance awards. Such grants may be for cash and up to 32 million shares of com- mon stock. Under previous option plans, eligible employees were granted options to purchase common stock of the Company at market prices on dates of grant. Under one such plan, units were granted which permit the holder to purchase shares of been restated to reflect the split. Shares of authorized com- mon stock are 4 billion; issued, treasury and outstanding were as follows: 239,618,948 (8,588,003) 231,030,945 935,320,439 (6,790,848) 928,529,591 3,384,700 3,384,700 9K,320,439 (9,101,34d) 926,219,091 935,320,439 (15,469,198) 919,851,241 holders to buy shares of the acquiring company having a value of twice the exercise price. If any person acquires 10% or more of the Company's common stock, the rights will enti- tle holders (other than such person) to buy shares of the Company's common stock having a market value of twice the exercise price. Following the acquisition by any person of more than 10% but less than 50% of the Company's shares, the Company may exchange one share of common stock for each right (other than rights held by such person). The Company may redeem the rights for $.01 per right before any person acquires 10% or more of the Company's common stock. The rights expire on October 25, 1999 unless earlier redeemed or exchanged. At December 31, 1991, 962,656,551 shares of common stock were reserved for iss- uance upon exercise of the rights. common stock at market prices on dates of grant or to receive the appreciation value (the excess of the market price at the date of exercise over the market price at the date of grant) in the form of stock or stock and cash. Appreciation value may be received with respect to the equivalent of 50% of the unit granted. At December 31,1991 and 1990, options and units were exercisable for 18,371,257 shares and 16,177,150 shares, respectively. Shares available to be granted at December 31, 1991 and 1990 were 3,051,202 and 9,021,081, respectively. ® I ,+: ::; !

Note$ (continued) Note 8. Stock Plans (continued): Options/units activity was as follows for the years ended December 31, 1991 1990 1989 Balance, beginning of year 22,348,561 19,942,060 16,817,528 Granted 5,951,794 6,200,846 7,226,076 Exercised (3,891,191) (3,619,610) (3,821,384) Cancelled (124,254) (174,735) (280,160) Balance, end of year 24,284,910 22,348,561 19,942,060 Range of exercise prices at year-end $6.43-$47.00 $6.43-$35.42 $6.43-$22.38 Grant prices $54.94, $63.69 and $69.25 $46.94 and $47.00 $35.42 and $39.88 In 1991, 1990 and 1989, the Company granted 150,000 shares, shares, and such shares are subject to forfeiture in certain 75,000 shares and 592,000 shares, respectively, of restricted events. At December 31, 1991, restrictions on 632,668 shares stock to officers and key employees, giving them in most remain, net of forfeitures, and will lapse in varying amounts instances all of the rights of stockholders, except that they through 1996. may not sell, assign, pledge or otherwise encumber such Note 9. Earnings per Share: Earnings per common share have been calculated on the 925,190,833 and 926,520,510 for 1991, 1990 and 1989, weighted average number of shares of common stock respectively. .outstanding for each year, which was 925,123,394, Note 10. Pretax Earnings and Provision for Income Taxes: I Pretax earnings and provision for income taxes were comprised of the following: (in millions) 1991 1990 - 1989 Pretax earnings: United States $5,166 $4,743 $4,080 Outside United States 1,805 1,568 978 Total pretax earnings $6,971 $6,311 $5,058 Provision for income taxes: United States federal: Current $1,764 $1,481 $1,089 Deferred 119 350 323 1,883 1,831 1,412 State and local 355 332 282 Total United States 2,238 2,163 1,694 Outside United States: Current 711 573 370 +~ Deferred 95 35 48 cc ~ Total outside United States 806 608 418 0 00 Total provision for income taxes $3,044 $2,771 $2,112 (J7 .P W -P

At December 31,1991, applicable United States federal permanently reinvested abroad. If these amounts were not income taxes and foreign withholding taxes have not been considered permanently reinvested, additional deferred taxes provided on approximately $2.8 billion of accumulated of approximately $174 million would have been provided. earnings of foreign subsidiaries that are expected to be The effective income tax rate on pretax earnings differed frc.: the U.S. federal statutory rate for the following reasons: 1991 1990 1989 (in millions) Amount % Amount % Amount % Provision computed at U.S. federal statutory rate $2,370 34.0% $2,146 34.0% $1,720 34.0% Increases (decreases) resulting from: State and local income taxes, net of federal tax benefit 240 3.5 215 3.4 191 3.8 Repatriation of foreign earnings 51 0.7 62 1.0 54 1.1 Rate differences-foreign operations 117 1.7 66 1.1 28 0.5 Goodwill amortization 166 2.4 146 2.3 128 2.5 Other 100 1.4 136 2.1 (9) (0.1) Provision for income taxes $3,044 43.7% $2,771 43.9% $2,112 41.8% Deferred income tax assets (liabilities) included in the consolidated balance sheets were as follows: Consumer products Financial services and real estate December 31, December 31, (in millions) 1991 1990 1991 1990 Other current assets $ 677 $ 619 $ - $ Income taxes (6) (4) Deferred income taxes (731) (1,316) (1,743) (1,382) - ~ $ (60) $ (701) $(1,743) $(1,382) The major types of temporary differences that give rise to deferred income tax assets and liabilities are differences between the book and tax bases of property, plant and equip- ment, investments in finance leases, accrued liabilities and accrued postretirement health care costs. 47

N®te$ (continued) Note 11. Segment Reporting: Tobacco, food, beer, and financial services and real estate are the major segments of the Company's operations. The Com- pany's consolidated operations outside the United States, which are principally in the tobacco and food businesses, are organized into geographic regions by segment, with Europe the most significant. Intersegment transactions are not reported separately since they are not material. For purposes of segment reporting, operating profit is operating income exclusive of certain unallocated corporate Data by Segment for the years ended December 31, (in millions) Operating revenues: Tobacco " Food Beer Financial services and real estate Total operating revenues Operating profit: Tobacco Food Beer Financial services and real estate Total operating profit Unallocated corporate expenses Operating income Identifiable assets: Tobacco Food Beer Financial services and real estate Other assets Total assets Depreciation expense: Tobacco Food Beer Financial services and real estate Capital additions: Tobacco - Food Beer i d 48 expenses. See Note 2 regarding the acquisition of certain operations of Jacobs Suchard and Note 3 regarding restructur- ings of food operations and the sale by the Company's tobacco business of its investment in Rothmans. Substantially all goodwill amortization is attributable to the food segment. Identifiable assets are those assets applicable to the respective industry segments. Reportable segment data rec- onciled to the consolidated financial statements were as follows: 1991 1990 1989 $23,840 $21,090 $17,849 28,178 26,085 22,373 4,056 3,534 3,342 384 460 516 $56,458 $51,169 - $44,080 $ 6,463 $ 5,596 $ 5,063 7 2,016 2,205 1 580 , - - ~ . 299 285 226 ~ 178 196 172 8,956 8,282 7,041 334 336 252 $ 8,622 $ 7,946 $ 6,789 $ 8,648 $ 7,770 $ 6,879 ' i 4 31,622 32 336 25 983 1,608 , 1,612 , 1,556 i ~ ~ 4,538 3,886 3,440 ~ 46,416 45,604 37,858 968 965 670 $47,384 $46,569 - $38,528 ~ $ 294 $ 282 $ 246 480 438 '356 139 141 137 1 1 2 $ 438 $ 324 $ 422 955 860 733 --O ~ p0 1 144 99 80 .P ~

Data by Geographic Region for the years ended December 31, (in millions) 1991 1990 1989 Operating revenues: United States-domestic $34,829 $33,086 $30,890 -export 3,061 2,928 2,288 Europe 16,029 12,474 8,160 Other 2,539 2,681 2,742 Total operating revenues $56,458 $51,169 $44,080 Operating profit: United States $ 7,028 $ 6,715 $ 6,061 Europe 1,523 1,173 692 Other 405 394 288 Total operating profit 8,956 8,282 7,041 Unallocated corporate expenses 334 336 252 Operating income $ 8,622 $ 7,946 $ 6,789 Identifiable assets: United States $34,302 $33,094 $32,144 Europe 10,616 10,906 4,210 Other 1,498 1,604 1,504 46,416 45,604 37,858 Other assets 968 965 670 Total assets $47,384 $46,569 $38,528 Note 12. Pension Plans: The Company and its subsidiaries sponsor noncontributory defined benefit pension plans covering substantially all U.S. employees. The plans provide retirement benefits for salaried employees based generally on years of service and compen- sation during the last years of employment. Retirement benefits for hourly employees generally are a flat dollar amount for each year of service. The Company funds these plans in amounts consistent with the funding requirements of federal law and regulations. U.S. Plans Net pension cost consisted of the following components: (in millions) Service cost-benefits earned during the year Interest cost on projected benefit obligation Return on assets-actual -deferred gain (loss) Amortization of net gain upon adoption of SFAS No. 87 Net pension cost Pension coverage for employees of the Company's non-U.S. subsidiaries is provided, to the extent deemed appropriate, through separate plans, many of which are governed by local statutory requirements. The plans provide pension benefits that are based primarily on years of service and employees' salaries near retirement. The Company provides for obliga- tions under such plans by depositing funds with trustees or purchasing insurance policies. The Company records lia- bilities for unfunded foreign plans. 1991 1990 1989 $ 148 $ 141 $ 128 337 315 303 (1,152) 263 (788) 726 (671) 408 (28) (28) (28) $ 31 $ 20 $ 23 t 49

Notes (continued) Note 12. Pension Plans (continued): The funded status of U.S. plans at December 31 was as follows: (in millions) 1991 1990 Actuarial present value of accumulated benefit obligation-vested $3,022 $2,948 -nonvested 259 230 3,281 3,178 Benefits attributable to projected salaries 962 898 Projected benefit obligation 4,243 4,076 Plan assets at fair value 5,657 4,684 Excess of assets over projected benefit obligation 1,414 608 Unamortized net gain upon adoption of SFAS No. 87 (261) (289) Unrecognized prior service cost 156 167 Unrecognized net (gain) loss from experience differences (783) 53 Prepaid pension cost $ 526 $ 539 The projected benefit obligation at December 31, 1991, 1990 and 1989 was determined using assumed discount rates of 8% and assumed compensation increases of 6% and 7%. The assumed long-term rate of return on plan assets was 9% at December 31,1991,1990 and 1989. Plan assets consist prin- cipally of common stock and fixed income securities. The Company and certain of its subsidiaries sponsor deferred profit-sharing plans covering certain salaried, nonunion and union employees. Contributions and costs are generally determined as a percentage of consolidated pretax earnings, as defined by the plans. Certain other subsidiaries of the Company also maintain defined contribution plans. Amounts charged to expense for defined contribution plans totaled $220 million, $209 million and $180 million in 1991, 1990 and 1989, respectively. Non-U.S. Plans Net pension cost in 1991 and 1990 consisted of the following components: (in millions) 1991 1990 Service cost-benefits earned during the year $ 54 $ 41 ,. : ~+ Interest cost on projected benefit obligation 122 82 Return on assets-actual (134) 25 -deferred gain (loss) 40 (100) Amortization of net (gain) loss upon adoption of SFAS No. 87 (2) (2) Net pension cost $ 80 $ 46 50

The funded status of the non-U.S. plans at December 31 was as follows: Assets Exceed Accumulated Benefits Accumulated Benefits Exceed Assets (in millions) 1991 1990 1991 1990 Actuarial present value of accumulated benefit obligation-vested $ 812 $ 758 $454 $ 460 -nonvested 54 78 47 44 866 836 501 504 Benefits attributable to projected salaries 295 280 ' 103 106 Projected benefit obligation 1,161 1,116 604 610 Plan assets at fair value 1,231 1,174 44 48 Plan assets in excess of (less than) projected benefit obligation 70 58 (560) (562) Unamortized net (gain) loss upon adoption of SFAS No. 87 (26) (26) 6 8 Unrecognized net loss from experience differences 32 38 15 27 Prepaid (accrued) pension cost $ 76 $ 70 $(539) $(527) The assumptions used in 1991 and 1990 were as follows: 1991 1990 Discount rates 6.0% to 10.0% 6.0% to 11.0% Compensation increases 4.0% to 8.0% 3.0% to 8.0% Long-term rates of return on plan assets 4.8% to 11.0% 5.0% to 11.0% Plan assets consist primarily of common stock and fixed income securities. Note 13. Postretirement Benefits Other Than Pensions: Effective January 1, 1991, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions," for its U.S. retiree benefit plans. Under SFAS No. 106, the Company is required to accrue the estimated cost of retiree benefit payments, other than pensions, during employees' active service period. The Company previously expensed the cost of these benefits, which are principally health care, as claims were incurred. The Company has elected to recognize this change in accounting on the immediate recognition basis. The cumula- tive effects as of January 1, 1991 of adopting SFAS No. 106 were a decrease in deferred taxes of $572 million, an increase in accrued postretirement health care costs of $1,493 million and a decrease in 1991 net earnings of $921 million ($.99 per share). Application of SFAS No. 106 during 1991 decreased earnings before cumulative effect of accounting change by $89 million ($.10 per share). The Company expects to adopt SFAS No. 106 for its non-U.S. plans in 1995 and, based upon preliminary estimates, does not anticipate that the effects of adoption will be significant. Net postretirement health care cost and related disclosures for non-U.S. pl,ans in 1991 and for all plans in 1990 and 1989 were determined under the provisions of the previous accounting principles. U.S. Plans The Company and its U.S. subsidiaries provide health care and other benefits to substantially all retired employees, their covered dependents and beneficiaries. Generally, employees who have attained age 55 and who have rendered 5 to 10 years of service are eligible for these benefits. Certain health care plans are contributory; other benefit plans are noncontributory. Net postretirement health care cost for 1991 consisted of the following components: (in millions) Service cost-benefits earned during the period $ 68 Interest cost on accumulated postretirement benefit obligation 148 Net postretirement health care cost $216 O 00 51

Note$ (continued) Note 13. Postretirement Benefits Other Than Pensions (continued): Net postretirement health care cost, prior to adoption of SFAS No. 106, for the years ended December 31, 1990 and December 31, 1989 was not significant. The Company's postretirement health care plans currently are not funded. The status of the plans at December 31 and January 1, 1991 was as follows: (in millions) Actuarial present value of accumulated postretirement benefit obligation: Retirees Fully eligible active plan participants Other active plan participants Accrued postretirement health care costs Included in accrued postretirement health care costs at January 1, 1991 were liabilities for postretirement health care benefits of eligible retirees of $333 million previously recorded in connection with the acquisitions of General Foods Corporation and Kraft. The assumed health care cost trend rate used in measuring the accumulated postretirement benefit obligation was 11.0% in 1991 and 10.5% in 1992, gradually declining to 6% by the year 2001 and remaining at that level thereafter. A one- percentage-point increase in the assumed health care cost trend rate for each year would increase the accumulated post- retirement benefit obligation as of December 31, 1991 and December 31, January 1, $ 908 $ 832 190 178 872 816 $1,970 $1,826 net postretirement health care cost by approxmately 14%. The assumed discount rate used in determining the accumulated postretirement benefit obligation was 8%. Non-U.S. Plans Postretirement health care coverage for employees of the Company's non-U.S. subsidiaries is provided, to the extent deemed appropriate, through separate plans. The cost of these benefits, which has not been significant for the years ended December 31, 1991, 1990 and 1989, is expensed as claims are incurred. Note 14. Contingencies: There is litigation pending against the leading United States cigarette manufacturers seeking compensatory and, in some cases, punitive damages for cancer and other health effects alleged to have resulted from cigarette smoking or exposure to cigarette smoking. Philip Morris Incorporated ("PM Inc."), a wholly-owned subsidiary of the Company, is a defendant in some of these actions. It is not possible to predict the out- come of this litigation. Litigation is subject to many uncertainties and it is possible that some of these actions could be decided unfavorably to PM Inc. Among the defenses to certain of this litigation raised by PM Inc. is preemption by the Federal Cigarette Labeling and Advertising Act (the "Cigarette Labeling Act") of some or all such claims arising after 1965. Five federal courts of appeals have held that the Cigarette Labeling Act bars at least some of such claims. The Supreme Court of New Jersey and one Texas intermediate court of appeals held that the Cigarette Labeling Act does not limit the claims that can be asserted against cig- arette manufacturers. This conflict among lower court decisions will be resolved by the United States Supreme Court, which has the case of Cipollone v. Liggett Group Inc., et aL under review. An adverse decision on the preemption defense by the United States Supreme Court could affect the scope of claims in pending and future litigation. Such a deci- sion or the unfavorable outcome of a pending action could encourage the commencement of additional similar litigation. All smoking and health cases are and will be vigorously defended. Management does not believe that this litigation will have a material adverse effect upon the financial condi- tion of the Company. The Company is contingently liable for payment of S610 million notes maturing in 1994, sold with recourse in 1989. 52

Note 15. Additional Information: (in millions) Years ended December 31: 1991 1990 1989 Depreciation expense $ 939 $ 877 $ 757 Rentexpense $ 314 $ 283 $ 209 Research and development expense $ 396 $ 344 $ 318 Interest and other debt expense, net: Interest expense $1,696 $1,746 $1,789 Interest income (45) (111) (58) $1,651 $1,635 $1,731 Interest expense of financial services and real estate operations included in cost of sales $ 83 $ 93 $ 91 Note 16. Financial Services and Real Estate Operations: Philip Morris Capital Corporation ("PMCC") is a wholly- owned subsidiary of the Company. PMCC invests in third- party leveraged and direct finance leases and securities of third parties, primarily preferred stocks, and engages in vari- ous financing activities for customers and suppliers of the Company's subsidiaries. Additionally, PMCC is engaged through its wholly-owned subsidiary, Mission Viejo Company, in land planning, development and sales. Pursuant to a support agreement, the Company has agreed to retain ownership of 100% of the voting stock of PMCC and make periodic payments to PMCC to the extent necessary to ensure that earnings available for fixed charges equal at least 1.25 times its fixed charges. No payments were required in 1991, 1990 or 1989. Condensed balance sheet data at December 31 follows: (in millions) 1991 1990 I Assets Finance leases $4,525 $3,526 Other investments 1,184 1,208 5,709 4,734 Less unearned income and allowances 1,795 1,449 Finance assets, net 3,914 3,285 Real estate held for development and sale 471 418 Goodwill, net of accumulated amortization 38 39 Other assets 187 209 Total assets $4,610 $3,951 Liabilities and stockholder's equity , Short-term borrowings $ 818 $ 724 ~ Long-term debt 1,001 836 ~ Deferred income taxes 1,743 1,382 O 00 Other liabilities 174 225 01 I,~ 4h. Stockholder's equity 874 784 -h Total liabilities and stockholder's equity $4,610 $3,951 _1 53

NOte's(continued) Note 16. Financial Services and Real Estate Operations (continued): The amounts shown above include receivables and payables with the Company and its subsidiaries as follows: (in millions) 1991 1990 Finance assets, net $ 67 $65 Other assets $ 5 Long-term debt $208 Other liabilities $ 5 These amounts were eliminated in the Company's consolidated balance sheets. Finance leases consist of investments in transportation, rentals less principal and interest on third-party nonrecourse power generation, and commercial equipment and facilities. debt. Other investments consist primarily of preferred stock Rentals receivable for leveraged leases represent unpaid and real estate and commercial receivables. Condensed income statement data follows for the years ended December 31, (in millions) 1991 1990 1989 Revenues: Financial services $269 $223 $186 :~ Real estate 125 243 333 Total revenues 394 466 519 Expenses: - A Financial services 141 113 100 Real estate 83 153 244 4 Total expenses _ 224 266 344 " Earnings before income taxes and cumulative effect of accounting change 170 200 175 Provision for income taxes 49 60 46 Earnings before cumulative effect of accounting change 121 140 129 Cumulative effect of change in method of accounting for postretirement benefits other than pensions (4) Netearnings $117 $140 $129 ~ ~ O co ~ P ~ x! N [M 54

Note 17. Quarterly Financial Data (Unaudited): 1991 Quarters (in millions, except per share data) 1st 2nd 3rd 4th Operating revenues . $14,222 $14,770 $13,770 $13,696 Gross profit $ 5,399 $ 5,961 $ 5,487 $ 5,605 Earnings before cumulative effect of accounting change $ 920 $ 1,131 $ 1,109 $ 767 Cumulative effect of accounting change (921) Net earnings (loss) $ (1) $ 1,131 $ 1,109 $ 767 Per share data: Earnings before cumulative effect of accounting change $ .99 $ 1.22 $ 1.20 $ .83 Cumulative effect of accounting change (.99) Net earnings $ - $ 1.22 $ 1.20 $ .83 Dividends declared $ .430 $ .430 $ .525 $ .525 Market price-high $ 701/2 $ 71'/s $ 745/s $ 813/4 -low $ 48'/4 $ 62 $ 63'/s $ 67 1990 Quarters 1st 2nd 3rd 4th Operating revenues $ 11,388 $ 12,740 $ 12,818 $ 14,223 Gross profit $ 4,345 $ 5,113 $ 5,086 . $ 5,349 Net earnings $ 775 $ 948 $ 937 $ 880 Per share data: Net earnings $ .84 $ 1.03 $ 1.01 $ .95 Dividends declared $ .344 $ .344 $ .430 $ .430 Market price-high $ 433/4 $ 47'/a $ 507/s $ 52 -low $ 36 $ 39 $ 41 $ 44 See Note 2 regarding the acquisition of certain operations of Jacobs Suchard in the third quarter of 1990. See Note 3 regarding restructuring charges in the fourth quarter of 1991. See Note 13 regarding the change in method of accounting for postretirement benefits other than pensions, effective January 1, 1991. The principal stock exchange on which the Company's common stock (par value $1 per share) is listed is the New York Stock Exchange. At January 31,1992 there were approximately 122,500 holders of record of the Company's common stock. 1 55

Report of Independent Accountants To the Board of Directors and Stockholders of Philip Morris Companies Inc.: We have audited the accompanying consolidated balance sheets of Philip Morris Companies Inc. and subsidiaries as of December 31, 1991 and 1990, and the related consolidated statements of earnings, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1991. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated finan- cial position of Philip Morris Companies Inc. and subsidiaries at December 31, 1991 and 1990, and the consolidatedd results of their operations and their cash flows for each of the three years in the period ended December 31,1991, in conformity with generally accepted accounting principles. As discussed in Notes 1 and 13 to the consolidated financial statements, the Company adopted in 1991 the method of accounting for postretirement benefits other than pensions prescribed by Statement of Financial Accounting Standards No. 106. COOPERS & LYBRAND tI New York, New York January 27, 1992 56 Company Report on Financial Statements ~-~ The consolidated financial statements and all related finan- ~ cial information herein are the responsibility of the Com ~ panY ~-. The financial statements, which include amounts based on ~~_ judgments, have been prepared in accordance with generally- accepted accounting principles. Other financial information:~-_ in the annual report is consistent with that in the financial statements. The Company maintains a system of internal controls which it believes provides reasonable assurance that trans- _= m actions are executed in accordance with management's authorization and properly recorded, that assets are safe- guarded, and that accountability for assets is maintained. The system of internal controls is characterized by a control- oriented environment within the Company which includes written policies and procedures, careful selection and train- 7-~ ing of personnel, and audits by a professional staff of internal a auditors. = Coopers & Lybrand, independent accountants, have audited Y-= and reported on the Company's consolidated financial state- ments. Their audits were performed in accordance with = generally accepted auditing standards. --= - The Audit Committee of the Board of Directors, composed _= - of six non-management directors, meets periodically with Coopers & Lybrand, the Company's internal auditors and management representatives to review internal accounting ~L control, auditing and financial reporting matters. Both Coopers & Lybrand and the internal auditors have unre- stricted access to the Audit Committee and may meet with it without management representatives being present. __~ -

General Corporate Information Headquarters Kraft Stock Exchange Annual Addresses: General Foods, Inc. Listings: Meeting: Three Lakes Drive New York The annual meeting of Philip f.4orris Northfield, Illinois 60093 Amsterdam stockholders of Philip Morris Companies Inc. Antwerp Companies Inc. will be 120 Park Avenue Operating Unit Headquarters: Basel held on Apri123, 1992, at the New York, New York 10017 Brussels Philip Morris Manufacturing (212) 880-5000 General Foods USA Frankfurt Center, 3601 Commerce Road, 250 North Street Geneva Richmond Virginia Philip Morris White Plains, New York 10625 London , . incorporated For further information on the k Avenue 20 P Kraft USA Luxembourg l i ar 1 New York 10017 k Y Kraft Court Paris annua meet ng, stockholders , or New Illinois 60025 Glenview Tokyo may call toll-free: Philip Morris U.S.A. , Zurich 1-800-367-5415. 120 Park Avenue Kraft General Foods Form 10-K: New York 10017 rk Y N Canada NY Stock Exchange ' l , o ew 95 Moatfield Drive Symbol: MO The Company s annua report which will be on Form 10-K Philip Morris Don Mills, Ontario Independent , filed with the Securities and International Inc. M3B 3L6 Accountants: Exchange Commission will 800 Westchester Avenue , New York 10573 Rye Brook Oscar Mayer Foods Coopers & Lybrand be available to stockholders , 910 Mayer Avenue 1301 Avenue of the Americas in April upon written Regional Headquarters: Madison, Wisconsin 53704 New York, New York 10019 request to: Philip Morris EEC Kraft General Foods Transfer Agent and Dede Thompson Bartlett, Brillancourt 4 Frozen Products Registrar: Secretary Case Postale Three Lakes Drive First Chicago Philip Morris Companies Inc. 1001 Lausanne Northfield, Illinois 60093 Trust Company of New York 120 Park Avenue 30 West Broadway New York, New York 10017 Switzerland Inc. Kraft Foodservice New York 10007-2192 New York Eastern Philip Morris EFTA , 1 Parkway North , Public Policy Issues: , the Middle East Europe Illinois 60015 Deerfield Dividend Reinvestment Inquiries about our positions , , , Agent: on public policy issues & Africa Avenue de Cour 107 Kraft Food Ingredients Corp. First Chicago involving the company and its Case Postale 6410 Poplar Avenue Trust Company of New York products should be directed to: 1001 L Memphis, Tennessee 38119 Dividend Reinvestment Plan ausanne S it l d P.O. Box 3506 Corporate Affairs Department w zer an Kraft General Foods Church Street Station Philip Morris Companies Inc. Philip Morris Latin America International New York 10008-3506 New York 120 Park Avenue 800 Westchester Avenue 800 Westchester Avenue , New York, New York 10017 Rye Brook, New York 10573 Rye Brook, New York 10573 U.S. stockholders may call Stockholder Philip Morris Asia Inc Miller Brewing First Chicago Trust Company Publications: , . 23rd Floor Two Pacific Place Company about their accounts, Stockholders may call toll-free: , 88 Queensway 3939 West Highland Boulevard certificates, or dividends 1-800-367-5415. Hong Kong Wisconsin 53201 Milwaukee using the toll-free telephone , number 1-800-446-2617. Philip Morris Capital Canadian and overseas Corporation stockholders may call First 800 Westchester Avenue Chicago Trust Company Rye Brook, New York 10573 using the following telephone Mission Viejo Company number: (212) 791-6422. 26137 La Paz Road Mission Viejo, California 92691 Design: Eisenman & Enock Inc. Photography: Richard Alcorn, Chris Collins, Burt Glinn, Alen MacWeeney, Jay Maisel, Mesopotamia Produc- tions, Franz Morin, Vickers & Beechler, Ed Wheeler Typography: Grid Typographic Services, Inc. Printed in U.S.Ay by lasky Company Printed on Recycled Paper 57

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