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2 3 4 INIBR 00 a) 6 °? R . d ~~ co ~ 7 1 PAUR2.: "Wbct !'l,11 B P :. ta and I as lp in 199pP" 2 - 44 8 0 ~~.... ~ Moderator Georg* Knos . . . . . . . 2,44 ~ Dr. Gc3rdon araen . . . . . . . . . 3 - 19 10 ~ z Mr. Pau7. F. Ely, Jr. . . . . . . . 19 - 28 Mr. Jon N. 8olar . . . . . . . . . 28 - 39 12 ran ~ z Qttsstion-and~-ArAwer Period .... 39 - 44 13 ~ E» ~ 14 ~ 15 ~ ~ 16 0 z ~ 17 0 U w 18 °[ ~ 19 z P 20 z x ~ 21 z 22 23 24 PH=I.IP MORRtS INWRPORATED 1984 CORPORATE APFAtAB WORLD C0NlBItSA1CX B7[S BROQK , NEW Y4RK . lriday 14orninq Sssaf.on Septembsr 14, 1984 25

1 3 4 5 I'I CC) CO Ja tRAIAM" BAttMBS I aroi* tor the first sassictwn of the 0losiag day - the Bi.81* is s"fto Will Buy Our Products and Ideas ia 1994?' "d the mod.xatoz for this grot>p is George lixwx+ who is Dix`cttor of Finanvial Relations and Admi"sU-a#i+an in the Ceatporate Affairs Department. 6 02> ~ WY1SRAMR KWXs Thank your Frank. ~ 7 I ~ Good mpsxiag: I would Like to open this final 8 0 ~ day of our conf+axencs by reaindinq you of an elemental 9 0 trutti, a truth so fvndam.ntal to human interaction, that it ~ 10 ~ z should quality as a holy writ, a truth so powerful that 22 23 24 it must be mentioned here. Simply statod, that truth iss It tskee two to tango. The application of that truth to Philip Morris is that for now and evermore, the existence of our company is reduced to the continuation of a simple act repeated millions of times a days a sales transaction. In that aomarc3.al tango there axe two dancers, the sellers -- that's us -- and the buyers; that's them. And we know who "us" is, but our problem is to continue to find who "them" is, and that's the job of the participants on our panels John Zoler, of PM U.S.A., and Paul Ely, of Miller Brewing Company, in the specific= and Gordon Green, of the U.S. Gensus Bureau, who is our outside and welcomed guest this morning. N 0 ~ ~ N N ~ N 25 11 Gentlemen?

1 2 4 22 23 24 25 J5 DR. QQRtJON t4AMx t+h1l# good mosaj", ladies aad gsntl.ma~ . To!lay I' m q+o#u,g to discuss the major +3a~aogz>~phia tr*Ads Which h1tv* takAtn pli!<Q11 in ti= ' QEatldltry, and. then spsculaias about the tsends which as+e likely to emerge in the fftum. These tsends ha.+" had and will oontinss to have significant social, oconxxda and political ramif.ieaations for this csat>rntry and also implications for public policy. >4ach of my presentation today rriil aaa,osrn the impact of ths most important demagraphiQ ph~cs~sn~ of this oentury t the sharp increase in birth rate after 1945, wwhich resulted in the post-Worid Wax 11 baby boom generation. All together there were aore than 75 million members added to our society by the baby boom during the twenty-period from 1946 through 1965. The impact of this many people added to our population in this time span comes into sharper focus when we realize that they total 701 more people than born during ths previous twenty years. How, the baby boom created an enormous age lump in the population that will be with us throughtout this century and beyond. It represents an age group bulge that is so dominant, that demographers and others like to refer to it as "a pig in a python," that stands out as it works its way through the life cycle. There is a first stop in conveying to you the sheer magnitude of the baby boom generation. I want to show

1 3 4 00 Cl) 6 ~ 0 J4 you sm" slides that clearly illastraWt how differing birth ratj.s over a period 0g ttms htv+. `a pronomced effect on the aga oospositioa of llmariaa. L'basfis you ar* about to rlee oov+sr a spun of 70 yesrs# beginning in 1955 and vontiantag rell into the 21st owatury" to the year 2025. They >«ri].l s how ohang*s for every ten years during this period. Following this brief owerview, we r3,ll .xmaiAe more closely the manifestations of this human tidal wave that th. baby boom has created sinoe World War II, and what impact we can expect to see in the future, with particular emphasis on the 1980s. Now, the best way to present the numbers -- and there are a fair amount of numbers -- is with slides. So...sse if this works -- well, how about that? This and tD other illustrations that follow show the population of the 16 0 _z 17 ~ O U w a 18 ~ 19 O H 20 Z a w E- 21 z 22 23 24 United States by ten-year age groups and for those aged 70 and over. Each age group -- I just realized that they jmmp twof I'm going to back up one -- is classified by sex, with females on the right and males on the left. As you can see here, the age groups are indicated by horizontal bars, starting at the bottom, with the youngest age group. The numbers across the bottom indicate millions of persons. Now, demographers like to refer to the population distribution when shown in a graphic form such as this as the 25

1 2 3 4 5 ~' 6 °M°'. '. CO 11 22 23 24 25 J5 agel's+sx pyramids wider at the bottom and sssriit narrow at the tap' as inoreasing ag!a takes its tnoll+ Thiu particular chart represents the distribution by aqe as it was at the beginning of our ss3.tct.d time spaa in 1955. In I95S we see that the baby boom is Mell sunder way* having begun ni>m years earlier. The sero to nim"yyear age grotap in this chart totals 35 m#,..llion and it helps create a very noticeable indentation in the two aqs categories imn.diately above it, those who were ten to 29 years old. The baby boom continues in earnest as we examine the chart for 1965. tisre we ses an invrease to a total of 40 million in those up to 9 years old and when they are added to those in the first decade of the baby boom, the total reaches 75 million persons. These two age groups in 1965 constitut.ad nearly 40% of the total population. Now, in this next chart we can see that the bulge of the baby boom generation as it was in 1975, when they were from ten to 29 years old -- at the same time, declining birth rates in the alte 1960s and 1970s placed even more accent on the size of the baby boom cohort. So far we have shown you age/sex pyramids with a great deal of confidence and they are based on people who have already been born. But as we move further into the future, we cannot be as confident, simply because we can't be certain of what will happen to the birth rate. The charts from here-on assume

1 3 4 5 7 22 23 24 25 (0 N J6 pao j.ctions 09 the fo~~ooao~inq population that arm based on a birth satr of, on average, 2.1 ad;i.idor per woman. Ws is the rate that will be requia+.dd to replaoe the current child-bearing generation. Now, ths bulge of the baby boomers moves further up #he chart as you look ahead to 10115, continuing its domination as they have reached audaltbood. In 1985 they will comprise one-third of the renti,ts population. mranwhile, the low birth rates are persistiag, presenting us with a narrow based age pyramide not unlike what we saw in 1945. In the meantima, our baby boom generation, as we rsacftl; the year 1995, will be entering tbe beginning of the most economically productive years, the ages from 30 to 49. They will continue to be highly productive as they reach 40 to 59 years old in the year 20D'.3 and throughout this ten-year span they will continue to reflect the economic concerns and the outlook of those who are middle-ag.. As we look forward to the year 2005, we see that another baby boom cohort is beginning to move up the chart. These you can see there in the 10 to 19 category. These are the children of the original baby boom and even though their parents bore children at only a fraction of the rate of their own parents, their nmsbers are so great that they will produce what we call an echo effect in the population some thirty years later.

1 3 4 22 23 24 25 J7 Agd in the year 2n13, sc+swt of the baby boom geneYatiras Is beqiaan3aq to r.tiri and a faa-out numb.r, those who are older than they are, and ten years later, in 2025, we find that we will have more older Americans than at any tims in our history. We also find that r.vaea will oo>sFrise a majQr portion of the survivors of tbe baby boom. *vr. I have bere a final chart that illvstrates the tremendous change that the baby bovm has made in the average age strvatsre of the population between 1965 and 2025. The proportion of the population under 20 years old falls from 400 in 1965 to 27s in 2039. On the other hand, the proportion that is 60 years old and over increases froart 12 to 20%. We no longer have a population pyramid. Instead we have a situation where we have nearly as many people over 60 as we do under 20 years of age. Now that you have that overview, lst's take a look at thsse slides which show the impact of thes® changes on some important elements of our eoonomSY for the period from 1970 to 1990. The slides showing population changes over this period are all organiaed exactly as -- I'm going to skip ahead here because my presentation really goes from 1950 up to 2025, which is kind of like a"This is Your Life" prssentation, but there isa't tise to do all of itr so what I' ca going to do is focus on the last decade and the present decade. I think it's important' to look back a little bit to

1 2 3 4 5 22 23 24 25 J8 get a feeling on how we got where we are because it will b.Zp us undrrslRaad better vhe" we're gc>isQ. How, l.t me spend a few mixulsrs dsaribtng what this chart is like. The age categories am identified etitStAdally along the right sidt of the chart. Now, this parlivulax chart is Wsa 1970 to 1fg0, age going up on th+e right-hand sida. Also verfci.ea3xy but on the left, we cabarscrterisis' several major stages in ube life cycle. These sxrr identified And color-coded with specific age groups, from the pre--schoolers at-i the bottom to those in their ret,iremant years at the top. The anoent of vertical space devoted to the different stagee in the life cycle varies according to the size of the population in that stage, relative to all other stages. That proportional size of'any age group is calculated according to the population count at the beginning of the ti.me peariod. In this case, this specific chart, 1970. Btote, for instance, that the popula- tion in the child-rearing years approaches about 30% of the total population. On the other hand, the pre-schoolers and those in their retirement years make up a considerably smaller percent of the population. Now, shown horizontally at the bottom of the chart is an index for the average annual percent change over the deaade, the right side reflecting increases and the left side reflecting decreases in that change. N N C1'i 4. N N N N N

I 2 3 5 7 12 v~i z 13 ~ H ~ 14 I 15 22 23 24 25 J9 Tbe length of fhe bass show the per cent that each aqe gsotip iecr.assod or drcreased anavally betweeen 1970 and 1990. And aotice aahwol age y.wm were decreasing. Part of the •empty a.at' years 8emrease, and the +ctiild+•rsar- ir,rg years invteare vo.ry siq"ficantly. During the 1970s the baby boom generation mwted through the young adult years and into the child-rearing years„ You can see the 40 annual increase in the number of persons 25 to 34 years old. Meanwhile, college enrollment is still high, especially in the earlier part of the decade. When we consicbr the 197iis, we should recall that this was the time of relatively slow economic gxowth, accented by the most severe recession in 1974 and 1975 of the post-World War II period. At the same time, members of the baby boom generation were flocking into the labor force in record nuwabors. This situation was ®oanpotim,ded by the record-high labor force participation rate of the young women of the baby boom generation. By 1975, well over half these young women, age 16 to 29, were in the labor force, a total of about 16 million workers. In the meantime, older women continued to increase their partidpation in the work force, although in lese dramatic numbers and at a slower rate. All this contribut+ed tEr -a 25t increase in the number of employect men with wozkinq wives during the last decade, attd had inportant implications for the marketing and design .

1 4 22 23 24 25 Jl0 of many produets. Yk helped psodum a surge in the demand for all k#.nd11 ©f atMtnit.tes, tLae•-saving household equlpmeait, prepared faods, insreased restauraYr{t and refreshment services, and other goods and serviaes that reduced time spent on hoW* work, 8usinhssas have become increasingly awar,e in the last !ea years of the purchasing power of these two --e.arnsr famil#ssf whil+or sosw of these families need both incomes to maintain their standard of living, others are able to make disor.tics#ary purchases with the second income. This was especially true of such couples born during the baby boom who had dstaided to postpone or forsake vhildbearing. During the decade of the 1970s the total labor forc e grew by more than Zt per year. This increase was concentrated primarily in the teen-age and young adult grotps, requiring the economy to absorb a large number of young and insxperi.enced workers, and we remember this resulted in high unemployment rates among young adults and created fierce competition for the entry level jobs. It was one of a number of factors that reduced the rate of growth in national productivity. Now, even though the economy was able to absorb most of these young workers, the relatively high level of unemployment created social pressures, which caused the f®dera]l government to act. As a res.Ut, we saw government