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PHILIP MORRIS COONIES INC. INTER-OFFIOCORRESPONDENCE , 120 PARK AVENUE, NEW YORK, N.Y lOO 7 ~ `" G6/ <~'I"~ TO: The Members of the Board of Directors DATE: April 13, 1992 FROM: Michael A. Miles RE: Philip Morris 1992-1996 Five Year Plan ~ L5 Q V ~ APR 1 3 Q92 MURRAY H. NFRi Enclosed is the Philip Morris 1992-1996 Five Year Plan book and the agenda for the Sea Island business meetings. Together, this book and the presentations at Sea Island are intended to convey the following key points. 1. In spite of a somewhat more challenging environment (due to weak/slow growth economies in several countries, increasing legal, legislative, and regulatory challenges, and intensifying global competition), Philip Morris will continue to generate EPS growth in excess of 20% per year over the next five years. Growth will be led by our international tobacco and food businesses, while environmental issues are expected to constrain our domestic businesses somewhat. Overall, financial results in the base plan (i.e., without acquisitions or share repurchase beyond the currently authorized program) are projected as follows: PM Companies Inc. 1991 1996 CAGR ($ millioris, except EPS) Revenues 56,458 84,078 8.3% IFO 9,910 20,036 15.1% IFO Margin 17.6% 23.8% Net Earnings 3,006 10,491 28.4% EPS 3.25 11.42 28.6% EPS (without restructuring and SFAS 106) 4.54 11.42 20.3% 2. Acquisitions could add additional upside to the plan in terms of volume, revenue, and IFO. Although near-term EPS impact would be minimal (or even slightly negative), successful acquisitions would, of course, add EPS growth over the longer term, and so do play a key role in our long-term thinking.

At present, however, we do not foresee initiating a large-scale acquisition over this plan's time frame, since: - As one of the largest competitors in the world in each of our core businesses, we have no strategic need for added critical mass. - Regulatory limits and/or legal concerns preclude a domestic cigarette transaction, and no very large international scale , cigarette companies are presently attractive/available (although investment in one or more government monopolies may be an attractive option). - There are currently no large food companies which are attractive, affordable, or (especially in the case of international companies) available. - We do not believe this is the right time to be targeting a large acquisition outside our existing core businesses. Accordingly, and although the development of an opportunistic situation could change our thinking, management is presently focused on smaller (i.e., less than $4 billion) strategic and targeted acquisitions that complement our present core categories. There are a number of attractive, small- and medium-size candidates available, particularly overseas. Currently, for example, we are looking at several investments in both the tobacco and food businesses in Eastern Europe. While not large individually, these kinds of small-to-medium size transactions can aggregate to substantial investment during the plan period. Our plan is to pursue the most attractive of these to enhance our core businesses, add new growth, and benefit from further synergy and productivity savings. This strategy is neither new nor novel, but has been demonstrated to be effective. As you know, Philip Morris has made numerous smaller acquisitions over the past several years, and nearly all of these have performed successfully. Other major companies, including Unilever and Nestle, have pursued a similar acquisition strategy with success. 3. In addition to acquisitions, share repurchases can also be used to enhance EPS and, thus, shareholder value. Accordingly, during the plan period, a more aggressive share repurchase program will be considered. A review of other major companies' experience suggests that a repurchase program is most effective when used as a complement to an on-going growth strategy rather than as a stand-alone financial engineering tool.

• Philip Morris' strong cash flow will support continuing growth initiatives combined with a more aggressive repurchase program, while still retaining flexibility to pursue unforeseen opportunities as they may arise. We will elaborate on this in our Sea Island presentations. 4. With respect to divestitures, at present we see no strategic need for any in the foreseeable future. However, we will continue to review our non-core businesses, as well as underperforming units of our core operations, to determine if and when divestiture would enhance overall shareholder value. We will also be alert to the opportunity for the "divestiture" of business units into joint ventures or strategic alliances with other companies, where participation in the jointly-owned business would be more attractive to us than sole ownership of the unit we would contribute. All of these points, as well as the entire Five Year Plan, will be covered in greater detail at Sea Island. I look forward to seeing you there. Enclosures Distribution: Dr. Elizabeth E. Bailey Murray H. Bring Dr. Harold Brown Dr. J. A. Cordido-Freytes Joseph F. Cullman 3rd William H. Donaldson Paul W. Douglas Jane Evans Robert E. R. Huntley Hamish Maxwell T. Justin Moore, Jr. Rupert Murdoch R. William Murray Richard D. Parsons Roger S. Penske John S. Reed John M. Richman Hans G. Storr George Weissman