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FRG CIGARETTE SALES 1974--1982 1SS 1 1 28 121 0 F U N I T S 114 107 100 1974 1975 1976 1977 1978 1979 1980 1981 1982 a i4E 41v- L~.c -~ tlz

REAL PRICE INCREASE OF FRG CSGARETTES 1975-19$2 20 P 1 14 E R C E N T C H A N G E , ztowEtzL.Ga tl/'.:

CHANGE IN FRG POPULATION 1975--1982 p E R C E N fd.~-1 T E -Q.8'~ 7 % 197S 1970 1977 1978 1979 1980 1981 1982 i CECVLMrQZ

IPAPLIED ELASTICITY OF FRG CIGAREIrl'E SAT,FR 1974 1982 % Change Cigarette Sales (Billions) 126.5 108.6 (14.2%) Cigarette Retail Price DM 2.30 DM 3.64 58.3% PDI/Capita DM 2,547 DM 4,273 67.8 Real Increase (9.5%) Implied Elasticity No Real Increase 1976 1977 % Change Cigarette Sales (Billions) 128.0 115.9 (9.5%) Cigarette Retail Price DM 2.40 DM 2.85 18.8% PDI/Capita DM 3,012 DM 3,196 6.1% Real Increase 12.7% Implied Elasticity - ,581(1) 1980 1981 % Change Cigarette Sales (Billions) 129.6 108.6 (16.2%) Cigarette Retail Price DM 3.00 DM 3.64 21.3% PDI/Capita DM 4,167 DM 4,273 2.5 Real Increase 18.8% Implied Elasticity - .917(1) . Note 1: (Change in Q) /(Q1 + Q,,) (Change in P)/(P1 + P2)

FRG ASStJ24PI'IONS 1974 1975 1976 1977 1978 1979 1980 1981 1982 Sales1 (Billions) 126.5 123.9 128.0 115.9 121.7 ].23.6 127.0 129.6 108.6 Retail Price2 (DM) 2.30 2.37 2.40 2.85 2.85 2.93 3.00 3.00 3.64 Disp. Inc3 158.2 174.6 185.2 196.2 209.1 226.2 243.1 256.7 263.4 (Billions of DM) Population4 (PZillions) 62.1 61.8 61.5 61.4 61.3 61.4 61.6 61.6 61.6 PDI/Capita 2,547 (DM) 2,826 3,012 3,196 3,412 3,683 3,947 4,167 4,273 Note 1: The Maxwell Report: International Tobacco Note 2: Weighted average price of Marlboro per Philip Morris International (see meno from J. M. Levrat to F. Caton). Four price categories were listed in this raem. For all price increases since 1974, the percentage increases of the four categories were virtually equal. Note 3: Deutsche Bundesbank per Chase Econometric's Data Base Note 4: Calculated from the cigarette consumption per capita ratio in the Maxwell Report. _

PHILIP MORRIS INCORPORATED INTER-OFFICE CORRESPONDENCE 120 PARK AVENUE, NEW YORK, N.Y. 10017 CONFIDENTIAL To, Mr. R. R. Millhiser DATE:March 8, 1983 FROM: suauCl: 1983-1987 Five-Year Plan Earnings J. E. Lincoln .l.l cbt` Based on the operating companies' submissions, the 1983-1987 Five-Year Plan asset and earnings growth plans would be summarized as follows: Philip Morris Incorporated Earnings Growth Rates (Based on Operating Company Submissions) % Increase vs. Earnings % Increase vs. Total Assets Previous Year Per Share Previous Year (in millions) 1982 Actual $ 9,692 5.6% $ 6.23 18.0% 1983 $10,599 9.4% $ 7.32 17.5% 1984 $11,310 6.7% $ 8.67 18.4% 1985 $11,968 5.8% $10.77 24.2% 1986 $12,707 6.2% $13.27 23.2% 1987 $13,481 6.1% $16.31 22.9% The operating companies' submissions would result in a five-year compound growth rate of 21.2% for EPS and 6.8% for total assets. Without the LIFO adjustment, the total asset growth rate would be 7.8%. The asset projections are slightly lower than those which the Corporate Finance Department included in the February Finance Committee Report. As an initial step in adjusting these figures, it is recommended that the Five-Year-Plan asset projections be conformed to the February Finance Committee Report. Additionally, Corporate Adjustments to reduce pre-tax income by $25 million in 1984, $175 million in 1985, $350 million in 1986, and $575 million in 1987 are recommended. The prevailing uncertainties appear to provide adequate justification for these adjustments. .c:. ReC?'l PM .~. w t:AR 9 1983 HL;toa CLOO&rt

The proposed Corporate Plan is summarized in the following table and in more detail in the attached schedules: Philip Morris Incorporated Earnings Growth Rates (Proposed Corporate Plan) % Increase vs. Total Assets Previous Year Earnings Per Share % Increase vs. Previous Year (in millions) 1982 Actual $ 9,692 5.6% $ 6.23 18.0% 1983 $10,563 9.0% $ 7.32 17.5% 1984 $11,263 6.6% $ 8.58 17.2% 1985 $11,963 6.2% $10.04 17.0% 1986 $12,787 6.9% $11.76 17.1% 1987 $13,766 7.7% $13.73 16.8% Average Annual Growth 1982-87 7.3% (8.2% without LIFO) 17.1% Since the recommended figures approximate our discussions with Mr. Weissman, we will proceed on the assumption that they are acceptable. Attachments JEL/V cc: Messrs. H. Cullman J. F. Cullman 3rd C. H. Goldsmith H. Maxwell J. A. Murphy S. P. Pollack H. G. Storr G. Weissman ~

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Actual Res A tated ctual 1977 1981 M. U.S.A. S 474,109 S 905,120 M. INTERNATIONAL European Econ. Cormxnlty 152,641 EFTA, E. Eur./ M/E, Africa 131,477 Australia/New Zealand 29,226 Asla 40,036 Canada 5,823 Latin America/Iberia 129,160 Duty Free Sales (U.S.A.) 11,279 Rothmans International 11,442 LIFO Adjustment (43,636) Inter-Regional Adjustments a `~i~ Regional Combined 47 Headquarters & Consolidating Adj. 8) (3 2 Total Combined Less, Unconsolidated Affiliates ~ 5 iie 3~0~) (5 Total, excluding Seven-Up Int'l. Seven-Lp International ~ ~324 Total from Business 383-86b European Interest Expense (11,423) Total Consolidated P.M. International -132,f8~ 372,437 LLER BREWING COhf'ANY 105,507 110,187 VEN-lP COhPANY Franchise Division (1,754) Packaged Beverage Division 1,436 Food Products Division 5,400 Headquarters (8,564) Consolidating Adjustments • 822 I : Total Seven-Up Domestic Seven-Up International Total Less, Seven-Up International Total Seven-Lp Company '.M. IPDUSTRIAL Nicolet Plainwell wisconsin Tissue Mills Koch Colonial Heights Discontinued Operations Headquarters Consolidating Adjustments Total P.M. Industrial :ISSION VIEJO COM'ANY .M. CREDIT CORP. :ONS0.IDATING ADJUSTMENTS ,LL OPERATING COM'ANIES bRPORATE ADJUSTMENT xIRPORATE HEADt1UARTERS D1NSOLIDATEO INCOME BEFORE TAXES 14,4 7 33,065 (400) 758,880 (133,364) 1 625,516 Actual 1982 S 1,100,925 136,461 156,545 34,814 40,689 6,186 129,523 11,792 25,596 (45,944) 4 (50~~) 4 (483g9.,_99b) ,391 399,917 (7 150) 3~ 154,262 9,887 3,621 (7,680) (14,877) 62 (2,6 a) 324 391 (2,337.,) (324) (391) (2,660) 8,987) 4,020 675 (4,155) (6,047) 12,690 5,251 4,077 5,283 4 6 4 5,856 3,118 (3,675) (4,742) ~(1 34~5) - 18,112 3,538 22,534 4,107 877 (21,226) (1,222) 1,404,504 1,646,267 (324,921) (343,968) ~ 1,079.583 S 1,302.299 .. hEC•bLLEVfl%7 PHILIP MORRIS INCORPORATED 1983 FIVE YEAR PLAN PRE-TAX INCOME Om e 1983 1984 $ 1,326,024 $ 1,555,065 147,710 215,800 187,685 227,900 28,003 34,000 59,170 72,200 6,864 12,900 157,938 185,300 14,374 16,800 24,334 25,900 (52,820) (52,650) (26) ~9 ) ~3;IS . (5 s,7 2i) ~8'I b) ei 5T4 ' (45 387 ) ~(so 700) ~ ~ ~930 - ' 4 ~'y',4~ 90. 0 47F,35 4 ~ 562,370 (10,100) (7,100) 460,254 555,250 212,185 230,750 (15,377) 512 7,852 20,631 8,299 10,860 (13,766) (15,752) (1 032) (2 222) - (14:024) 14:029 930 4 900 __7t,929 (930) (4 900) 4,024) 4,02 1,700 2,361 1,354 4,044 14,219 28,630 4,600 5,440 - - - - (2,185) (2,549) (9,688) (18,000) 10,000 19,926 6,900 10,900 4,696 7,117 (10,526) (10,525) 1,995,509 2,382,512 (25,00D) (373,267) (394,446) S 1.6?2.242 S 1.963.066 1985 1986 1987 S 1,811,355 $ 2,094,662 $ 2,416,129 275,100 268,400 38,600 101,600 16,900 216,600 19,400 27,700 (49,653) 311,900 326,100 51,500 139,900 19,100 257,600 22,400 29,500 (51,662) 351,000 381,500 67,200 195,500 19,800 306,300 25,500 31,500 (56,888) (_ ~) (1~~) () ~ (66 300) - (72 800) ~ ~ ~ (79 500) 74I;647 -548;338 - ,~77;n~ (79 500) ( ) i09 ~100) (l 300) 37 14 900 _ 32 500 a _s 4-t 40 900 821;738 93I;3I2 (1,000) 7 600 1 15 200 676,047 ~29 338 986 ST2 276,950 337,060 406,452 16,411 43,144 80,989 36,110 54,385 76,453 16,581 21,587 29,645 (17,410) (19,416) (21,520) ) 9a a35) ( ) - ; -I 6I;6~3 ~14 9.0_0_ ' 32 500 ~40,~.9.0~_0 63,582 128.>35 LU1,Y/3 (14 900) ~(32 500) (40 900) 48,6 y6,u~5 7jaI,d73 i 5,504 7,454 8,520 6,712 8,113 9,108 39,283 56,646 67,051 6,646 7,503 8,514 (2,849) (3,149) (3,549) (23,000) (29,000) (29,000) 32,296 47,567 60,644 35,800 40,300 46 100 9,159 11,316 13,898 (10,525) (10,525) (10,525) 2,879,764 3,445,753 4,080,283 (175,000) (350,000) (575,000) (381,109) _ (334,068) (298,617) 3 2.323.655 S 2.761.685 S 3.206.666 Corporate Plan March 8, 1983 Growth Rate _ 8 . . I 18.4% 17.0% 20.8 19.5 14.1 36.9 26.2 18.8 16.7 .4.~ 3 f, 9.6 -I.2 24.6 - 100.0s ~.a 24.3 20.2 7.9 21.4 52.3 84.0 100.0. - 16b.N 100.0. 00~.0. 100.0. _ 00T~.0. 66.0 66.4 10.0 4.5 76.5 (34.1) 62.2 73.8 16.8 19.9 20.9 (2.8) 15,8% 19.8%

r PHILIP MORRIS INCORPORATED CONSOLIDATED BALANCE SHEET FOR YEARS ENDING DECEMBER 31 1982 ACTUAL 1983 1984 1985 •1986 1987 ASSETS CASH $ ' 53,900 $ 45,000 $ 45,000 $ 45,000 $ 45,000 $ 45,000 RECEIVABLES 691,100 834,900 907,000 1,019,600 1,145,800 1,294,900 INVENTORIES-LEAF 2,468,600 2,752,200 3,115,400 3,465,000 3,815,400 4,220,000 -OTHER 1,092,300 1,120,500 1,259,000 1,409,500 1,586,600 1,772,800 -LIFO ADJ (492,400) (668,600) (836,400) (995,600) (1,161,500) (1,340,800) 3,068,500 3,204,100 3,538,000 3,878,900 4,240,500 4,652,000 PREPAID EXPENSES 36,800 38,800 41,800 45,600 50,400 54,500 TOT CURR ASSETS 3,850,300 4,122,800 4,531,800 4,989,100 5,481,700 6,046,400 INV d ADV TO SUBS 726,700 884,000 975,200 1,065,800 1,172,700 1,294,800 INV IN BOTTLING COS 30,000 60,000 90,000 120,000 150,000 LAND & OFFTRACT 195,100 213,600 260,000 275,300 286,600 301,200 PROP, PLANT & EQU 5,309,700 5,979,500 6,450,500 6,921,600 7,494,300 8,174,900 LESS ACC DEPR 1,114,800 1,384,100 1,696,000 2,051,300 2,426,200 2,844,300 4,194,900 4,595,400 4,754,500 4,870,300 5,068,100 5,330,600 BRANDS, PATS & GW 615,800 603,300 590,200 577,400 564,700 551,900 LIT RECEIVABLES 27,300 27,400 23,700 28,400 28,400 28,500 OTHER ASSETS 81,800 86,100 67,700 66,600 64,800 62,200 TOT ASSETS $ 9,691,900 $10,562,600 $11,263,100 $11,962,900 $12,787,000 $13,765,600 LIABILITIES NOTES PAYABLE CURR L/T DEBT 166,100 202,400 105,400 A/P 5 ACC LIABS 1,243,300 1,468,400 1,639,700 1,807,600 2,013,600 2,203,700 TAXES PAYABLE 295,000 384,600 272,600 290,800 338,700 358,000 DIVS PAYABLE 75,500 91,600 117,300 141,500 170,500 204,500 TOT CURR LIABS 1,613,800 2,110,700 2,232,000 2,345,300 2,522,800 2, 766 , 200 L/T DEBT 2,687,400 2,564,400 2,318,100 1,951,500 1,663,300 1,429,700 S/T DEBT RECLASS TO L/T DEBT 853,100 542,100 520,900 511,100 391,200 204,900 IND'L REV BONDS 208,800 244,500 238,400 248,300 260,200 268,800 DEF INC TAXES 624,300 837,900 1,070,300 1,310,700 1,539,200 1,752,300 OTHER LIABS 41,600 45,300 45,100 47,300 48,400 49,800 TOT LIABS 6,029,000 6,344,900 6,424,800 6,414,200 6,425,100 6,471,700 STOCKHOLDERS' EQUITY CODL*fON STOCK 125,900 126,100 126,300 126,500 126,700 126,900 ADD'L PIC 435,900 442,400 448,600 455,100 461,500 469,400 EARNINGS REINV 3,199,700 3,757,700 4,371,900 5,075,600 5,882,200 6,806,100 TRANS ADJ -PRIOR YEARS (26,800) (98,600) (108,500) (108,500) (108,500) (108,500) -CURR YEAR (71,800) (9,900) - TOT TRANS ADJ (98,600) (108,500) (108,500) (108,500) (108,500) (108,500) TOT S/E 3,662,900 4,217,700 4,838,300 5,548,700 6,361,900 00 7,29 900 TOT LIABS & S/E S 9,691,900 $10,562,600 $11,263,100 $11,962,900 $12,787,000 $13,765,600 ~