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Philip Morris Incorporated Annual Report 1972 r.wunurr Marl6oro PAIWAMEM w w w ®~'~ r . ~ MAoro ~ ~ ~.t

I Financial Highlights 2 Review of the Year 6 World Map-Philip Morris Incorporated 16 Philip Morris U.S.A. 22 Philip Morris International 28 Miller Brewing Company 32 Philip Morris Industrial 34 Mission Viejo Company 36 Directors and Officers 40 Financial Review 1i Philip Morris Incorporated, 100 Park Avenue, New York, N.Y. 10017. Transfer Agents: Morgan Guaranty Trust Company of New York, 30 West Broadway, New York, N.Y. 10015; United Virginia Bank, Box 6E, Richmond, Va. 23214. Annual Meeting: April 25, 1973, 2:00 P.M. 4001 Commerce Road, Richmond, Va. 7-1

Philip Morris Incorporated Annual Report 1972 J i Fincnic•iul fli-l:tigfits 1972 1971 Operating Revenues Net EarninLs Per Share of Common Stock: Net Earninas: Primary Fully Diluted Dividends Declared Percent Increase Over Prior Year: Operating Revenues Net Earninas Net Earnings Per Common Share: Primary Fully Diluted Operating Companies Revenues: Philip Morris U.S.A. Philip Morris International Philip Morris Industrial Miller Brewing Company ( 1) Mission Viejo Company (2) Consolidated Operating Revenues $ 920,323,000 424, 800,000 85,875,000 78.542,000 Operating Companies Income: Philip Morris U.S.A. Philip Morris International Philip Morris Industrial Miller Brewing Company ( I ) Mission Viejo Company (2) - Consolidated Operating Income (3) 52,131,22-1,0(10 S 1,852,-195,000 124,460.000 101,498,000 54.67 $4.02 4.37 3.64 1.262 1.21 15.01-r' 22.7% 2 2.6 % 31.0 ~/c 16.2 r~ 19.6 % I 0.1 r; 27.7% S 1,164,550,000 $1,035,178,000 623,699,000 517,670,000 1 13,136,000 95,513,000 211,262,000 204,134,000 18,577,000 $2,131,224,000 ' $1,852,495.000 S 194,072,000 - $ 166,734,000 84,095,000 66,968,000 7,735,000 6,135,000 228,000 1,300,000 1,331,000 $ 287,461,000 $ 241,137,000 1970 $1,509,540,000 77,498,000 $3.36 2.85 1.05 32.1% 32.8% 30.2% 18.8% $1,509,540,000 $ 138,051,000 54,167,000 - 6,049,000 4,913,000 $ 203,180,000 ( 1) Operating revenues from August 1, 1970. Equity of 53ry~ in net income in period 1/1 /70-7/31 /70 and 100 ':-r of operating income thereafter. (2) Operating revenues and operating income from September 30, 1972. (3) Corporate expense, interest, other items and income taxes, which are not directly attributable to the operating companies, are not allocated since any allocation thereof would be arbitrary. The notes to consolidated financial statements should be read in conjunction with the above data. JJ

Joseph F. Cullman 3rd Chairman Review of the Year In 1972, your company reported record operating revenues and profits and, for the 19th consecutive year, increased earnings per share over the previous year. Consolidated operating revenues for 1972 increased more than 15.0%, and net income rose 22.6%. Fully diluted earnings per share increased 20.1 and primary per share earnings 16.2%. Philip Morris in 1972 continued to gain a larger share of the world-wide cigarette industry. In unit sales, Philip Morris became the second largest publicly-held cigarette company in the world. Marlboro became the number one brand in the world and continued as the number two brand in the United States. Philip Morris continued as the second ranking cigarette company in the U.S. World-wide cigarette sales climbed 4% to approximately 3,450 billion units. Philip Morris's total unit sales, including U. S. and international, are now 6.5% of the world-wide total. U.S. industry sales increased in 1972 for the third consecutive year to approximately 554 billion units, a rise of over 3%. In the United States, Philip Morris's cigarette unit sales increased more than 13% during the year, and our market share increased to more than 20% at year end. Philip Morris's consolidated operating revenues have grown over the past five years at an average annual compounded rate of 18.7%. Net earnings for this period grew at an average annual compounded rate of 23.3%, and fully diluted earnings per share rose 17.6% a year. For the 45th year in a row, your company paid dividends on its common stock. For the fifth straight year, dividends were increased; the 1972 increase was the maximum permitted under the Phase II dividend guidelines. The current annual dividend is now $1.296 per common share. United States Sales Philip Morris U.S.A.'s sales gains were led by the continuing growth of Marlboro which has attained a share of more than 12.5% of the U.S. market, compared with 6.6% five years ago. Marlboro has narrowed the distance between it and the number one brand in the U.S. and continues to increase the gap between it and the brands ranked below. Philip Morris U.S.A. further strengthened its position as the leader in the I00mm category with Benson & Hedges 100's, which became the leading 100mm brand in the U.S. in 1972, as well as Marlboro 100's, Parliament 100's, and Virginia Slims. The l 00mm segment is the fastest-growing category in the U.S. market with total I 00mm unit sales accounting for more than 21 % of the market for the year 1972, International In 1955, when Philip Morris initiated its international affiliate activities to supplement exports, your company sold 4.3 billion cigarettes in international markets. In 1972, Philip Morris International sold 113 billion units in more than 160 countries and territories through exports of over 14 billion cigarettes and local manufacture by affiliates and licensees. Philip Morris International's manufacturing affiliates are located in Argentina, Australia, Belgium, Canada, Canary Islands, Dominican Republic, Germany, Guatemala, Holland, India, Indonesia, Mexico, Nigeria, Pakistan, Panama, Switzerland, United Kingdom, and Venezuela. Marketing affiliates exist in Ecuador, France, Greece, New Zealand, Puerto Rico, and Sweden. Licensees include manufacturers in Austria, Bolivia, Finland, Haiti, Hong Kong, Italy, Malaysia, Netherlands Antilles, The Philippines, and Yugoslavia. Philip Morris Europe, the largest International region in sales and profits, maintained its rapid growth, putting into production a new factory in West Berlin and expanding the Philip Morris Holland B. VV plant in Bergen op Zoom. Marlboro is among the leading brands in Austria, Finland, Italy and Switzerland and has substantial sales in other European countries. Muratti Ambassador is another leading Philip Morris entry in European cigarette markets. Philip Morris International's Asia/ Pacific, Canada,,and Latin America- Iberia regions also strengthened their respective market positions in 1972 and reported improved sales and earnings. LI i -SW [o 0 2

F 1 I 3t MlllPr Brewlnq Miller Brewing devoted substantial effort and resources to reorganizing and strenohcning its operations. while experiencing a difficult year. Althouzh barrel sales and operatinu, revenues increased in 1972. Miller's operating income declined. This decline reflected the intensified price competition in the brewing industry and the rising costs for raw materials, labor and packaging materials. Miller has undertaken to strengthen its sales and profitability by institutins far-reaching changes which are not yet reflected in the company's financial results. Senior management has been suhstantiallv reinforced, marketinQ has been reoraanizcd, and the distributor organization is beinL, strenuthened. In 1972, Miller's product line was expanded throuLh new products and acquisitions. Several packaging innovations were well received. The continuing concentration of the brewing industry offers promise of long-term opportunity for Miller since it is one of the three nationallv distributed brands of premium beer, the fast-growine segment of the market. In 197?, the premium beer segment accounted for 30% of the market compared with 23% in 1967. Philip A9orris Industrial Philip Morris Industrial's operating revenue exceeded S 100 million for the first time, an increase of 18~,c over 1971. and the increase in operating income was even greater- 26%. Our industrial companies benefited from the improvement in the U.S. economy in 1972, but more important is the fact that the sales strategies of these companies have been sharply re-focused, with satisfactorv results in terms of sales and profitability. The orientation of marketing strategies around high technology-high margin products produced substantial increases in revenues and income at Nicolet Paper Company and Polymer Industries, Inc., a specialty chemical manufacturer. Milprint Inc., the nation's leading producer of flexible packaging, recorded higher revenues, but income dipped slightly below the 1971 level. Mission Viejo In September, we acquired 100% of Mission Viejo Company, a new community development and home building concern. Mission Viejo's largest operations are located in Orange County, California, and it is also buildinL, homes in Phoenix, Arizona, and a new community in Denver, Colorado. Mission Viejo's sales and earnings were consolidated with those of Philip Morris's other operations in the fourth quarter of 1972. Capital Expansion We are in the initial stages of a major capital expenditure program. In 1972, our expenditures reached $120 million, a substantial increase over the $68 million spent in 1971. During the next five-year period, we expect to spend more than $500 million for new and expanded manufacturing facilities. These will be constructed not only in the U.S. but overseas as well, and principally for tobacco operations. These plans emphasize our confidence in the continued long-range expansion and profitability of the cigarette industry around the globe. The most significant component of this program is a cigarette manufacturing complex now under construction in Richmond, Virginia, planned as the world's largest and most efficient facility of its kind. When this project is completed in 1977, its total cost, including land, buildings, equipment and machinery, will exceed $200 million. It is anticipated that the first cigarettes will be produced in this facility in 1973 and that construction of the buildings will be completed in 1974. The new 8-story Research Tower in Richmond, housing some 300 scientists, will be dedicated this April. Smoking and Health The tobacco industry continues to broaden its support of research directed to finding answers to the many unresolved questions about smoking and health. At year end, the Harvard Medical School announced acceptance of a $2.8 million grant from eight tobacco companies, including Philip Morris, and an association of tobacco growers. The grant will fund a five-year program of research on the relationships, if any, between cigarette smoking and pulmonary and cardio-vascular diseases. In announcing the grant, the principal Harvard investigator said, "While it is common knowledge that cigarette smoking has been alleged to be a major cause of these diseases, many other factors, not so well publicized, may also be important. These include exposure to air pollutants, the genetic differences in host susceptibility, and so on. A direct causal relationship for many of these or other environmental factors has not been clearly demonstrated." Philip Morris is also a participant in a $2 million research grant to Washington University, in St. Louis, Missouri, for the study of cancer immunology in man. This study is now in its second year, and encouraging progress is being made in this very active and promising field of cancer investigation. While there was little in the way of new legislative activity relative to smoking and health in the United States, several countries in which we have operations did enact laws limiting cigarette advertising and requiring warning notices on packages and advertising. Problem Areas The government's Phase II wage and price regulations and the relatively moderate fiscal and monetary policies in effect in 1972 resulted in a reduced rate of inflation of approximately 3.8 % for the entire year. Profit margin limitations prevented your company . from raising the prices of its products or those of its subsidiaries during 1972. A serious threat to your company, all multi-national companies, and the national interest exists in the form of the "Hartke-Burke Bill" now before Congress. This legislation threatens harm to international trade by eliminating credits for taxes paid in other countries, which would greatly increase tax obligations in the U. S. The bill would also impose quotas on imports and prohibit the exportation of U. S. technology. As has been the case with most multi-national companies, Philip Morris's international expansion has resulted in increased U. S.

employment and a positive contribution to our balance of payments. Employment in the U.S. in support of our international activities increased more than 300% during this period. We sincerely hope that Congress will examine the record carefully before imposing any counter productive measures. In 1972, five states and the District of Columbia raised or passed legislation approving increases in cigarette excise taxes; this compares with 16 state increases in 1971. Unfortunately, we cannot realistically expect the number of future tax increases to remain at or close to the 1972 level. In fiscal 1972, total cigarette excise tax revenues came to $5.2 billion, an amount almost 50% greater than the combined revenues from cigarette sales of the six domestic manufacturers (excluding federal excise tax). This total was composed of $2.1 billion in federal excise taxes, $3.0 billion at the state level, and $.1 billion at the municipal and county levels. It is an accepted fact that the excise tax, like the sales tax, is a regressive form of taxation in that a larger proportion of lower incomes are absorbed by each dollar of such a tax. It has been documented that excise taxes actively discriminate against poor urban dwellers who tend to smoke greater numbers of cigarettes. In many instances, excise tax increases have been at least partially self-defeating. In New York City where the "tar" tax was added to substantial existing excise taxes, the number of cigarettes taxed continued to decline. In 1972, the number of cigarettes taxed declined below the level taxed in 1965. While actual tax revenues have increased marginally, legal cigarette sales are being diverted from New York City or are being displaced by bootlegged cigarettes. The New York State Commission of Investigation estimated last year that one out of three packs of cigarettes consumed in New York City was contraband. Social Responsibility In late 1971, Philip Morris initiated a company-wide audit of its practices in the areas which fall under the heading of "corporate responsibility" in an effort to determine whether management policies and directives were, in fact, being carried out-and to what extent, and where.-Requiring nearly a year, the findings have helped establish bench marks and directions for future management action at corporate, operating company, and individual plant levels. In October, our overall corporate program received favorable recognition in a report entitled "Initiatives in Corporate Responsibility," prepared and published by the Consumer Subcommittee of the U. S. Senate Committee on Commerce under the chairmanship of Senator Frank E. Moss, of Utah. This Senate Commerce Committee report, which surveyed 300 of the top corporations on the Fortune "500" list, referred to ". . . an outstanding report submitted by Philip Morris . . ." During 1972, responsibility for reviewing our continuing programs in these areas, and for initiating new programs, was assigned to two new committees of our Board of Directors -the Environmental Committee and the Corporate Committee on Social Responsibility and Contributions. These committees were created to ensure that our programs and performance are progressive and productive. The goals that we have been pursuing include recruitment of women, minorities, and veterans, advancement of equal opportunities for minorities and women, increased business with minority-owned institutions, on-the- job training, significant involvement in both community affairs and the arts, and substantial reduction or elimination of pollutants from our factories. Early in 1973, after a lengthy period of intensive study, Philip Morris announced a unique pioneering scholarship program in support of vocational training as a specific supplement to our support of higher education. We hope and expect that this program, which has received the support of the U. S. Department of Labor, will represent a significant educational-experiment in time to come. In 1972, Miller completed its conversion to fully recyclable, aluminum beer cans, while Formosa Spring's and Nicolet Paper's effluent control programs became fully operational. Mission Viejo's efforts to preserve and enhance the environment during and after home construction proved highly successful. In 1972, your Board was saddened by the death of Dr. Jess H. Davis, President of the Stevens Institute of Technology. We shall miss his wisdom and dedication. The Board was subsequently strengthened by the election as Directors of Mrs. Whitney M. Young, Jr., widow of the late civil rights leader, and Mr. John T Landry, Vice President of Philip Morris Incorporated and Group Vice President-Director of Marketing, Philip Morris U.S.A. We are optimistic about Philip Morris's future-in 1973 and the years beyond. Our record of growth in the cigarette business, in the U. S. and world-wide, is well known. Given the vitality and momentum of our cigarette brands throughout the world, there is every reason to believe that our cigarette growth will continue. We also believe there is great future potential in the brewing, industrial, and housing areas of our business. For their dedicated contributions to our continuing growth, we are grateful to all our 33,000 Philip Morris employees in this country and around the world, and we thank them for their outstanding performance. Respectfully submitted on behalf of the Board of Directors, I Joseph F. Cullman 3rd Chairman of the Board and Chief Executive Officer h3 C7 A,.,.e WA:.~ 03 0 George Weissman President and Chief Operating Officer w W a- .a , 1 1 I I4 ~

Architect, Ulrich Franzen; Photographer, Ezra Stoller I 5 The new Philip Morris Research Center Tower (above), completed last fall in Richmond, will be dedicated this April in a ceremony including a scientific symposium at which three Nobel Prize winners, among others, will participate. Dr. Glenn T. Seaborg, former Atomic Energy Commission Chairman and winner o f a Nobel Prize in 1951, has agreed to be keynote speaker at the ceremony. Research is a very high priority function at Philip Morris, not only in terms o f our corporate research in tobacco agronomy, product development, and product quality but also in fields not directly related to the internal Philip Morris research program. Specifically, Philip Morris as a company invests substantial sums in support of scientific and medical research in the area o f cigarette smoking and health, and the U.S. tobacco industry as a whole expends more funds in such research than the federal government or all voluntary health agencies in the United States combined. It is important to note that there is a continuing exchange of scientific data and findings between the Philip Morris Research and Development Center in Richmond and research organizations operated by Philip Morris International affiliates arouna the world.

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Retrospective de i'Annee En 1972, votre sociEt€ a fait 8tat d'un chiffre d'affaires et de b@n@fices sans precedent et, pour la I96me annee consecutive, Ies dividendes par action ont augmente par rapport a I'ann@e pre- cedente. Pour 1972. le chiffre d'affaires consolide a accuse un accrotssement de plus de 15,0% et les recettes nettes ont augmente de 22,617- Le revenu par action (en tenant compte deslitres convertibles) augmentait de 20,1 1~ et le revenu effectif par action de 16,2r . En 1972. Philip Morris a continue A accroitre sa part du marche mondial des cigarettes. En termes de ventes umtatres. Philip Morris devenait la seconde soctete cotee en bourse de l'industrie de Ia cigarette dans Ie monde. Marlboro est devenue la premtc're marque sur le marche mondial, tout en Sc maintenant au second rang sur le march@ des Etats-Unis. Et Philip Morris a toujours Ia seconde place dans I'industrie de la cigarette aux Etats-Unis. Le chiffre d'affaires de I'industrie est monte de 41r pour atteindre approximativement 3.450 milliards d'unites. Les ventes totales de Philip Morris (en comptant les Etats-Unis et I'etranger) atteignent maintenant 6-51c du marchb mondial. En 1972, pour la troisiPme annEe consEcutive, les ventes de I'industrie aux Etats-Unis ont accus6 un accroissement, atteignant environ 554 milliards d'unit€s, soit une majoration de plus de 3%. Pendant I'annEe, les ventes unitaires de Philip Morris sur Ie marchE americain ont augmente de plus de 13% et notre part du march6 est passee en fin d'annde A plus de 20%. Philip Morris a vu son chiffre d'affaires consolide croitre, au cours des cinq derni8res annees, au taux annuel compos6 de 18,7%- Pendant cette pertode, les revenus nets progressaient scion un taux compose annuel moyen de 23,3% et les revenus par action (en tenant compte des titres convertibles) croissaient de 17.6% par annee. Pour la 456me annce consecutive. votre compagnie a payd des dividendes sur ses actions ordinaires. Pour Ia cinqui8me annee cdnsecutive, les divi- dendes ont accusE une majoratioit; celle de 1972 represente le maximum autorise par les directives de Ia Phase 11. A l'heure actuelle, le dividende annuel se monte a$1,296 par action ordinaire. t'entes aux Etats-Unis Les gains realises par les ventes de Philip Morris aux Etats-Unis ont suivi 1'essor impressionnant de Marlboro qui, parti de 6,67c if y a cinq ans, s'est taille une de 12 5''' du ma hd a'rica part , o rc me tn. Marlboro s'est consid6rablement rapproch6 de la principale marque dec Etats-Unis et continue a distancer de plus en plus les marques qui Ia suivent. Philip Morris U.S.A. a de nouveau renforcE sa positton de chef de file dans la cat€gorie des 100 mm, avec Benson et Hedges 100 devenue en 1972 la principale marque de 100 mm aux Etats-Unis, suivie de Marlboro 100, de Parliament 100 et de Virginia Slims. La catEgorie des 100 mm est celle qui connait aux Etats-Unis la croissance Ia Plus rapide; en eHet, ses ventes ont atteint plus de 21% de I'ensemble du marche pour 1972. Ventes internationales En 1955, Iorsque Philip Morris entreprit d'ouvrir des filiales dans le monde pour approvisionner le marche de 1'exportation, ses ventes mondiales atteignirent 4,3 milliards de cigarettes. En 1972, les ventes dans 160 pays et territoires ont atteint 113 milliards d'unit8s, dont 14 milliards A I'expor- tation. le reste ayant et6 fabriqu6 localement ou sous licence. Les filiales de Philip Morris International not des usines de cigarettes en Argentine, en Australie, en Belgique, au Canada, aux Iles Canaries, en Republique Dominicaine, en Allemagne, au Guate- mala, en Holiande, en Inde, en Indonesie, au Mexique, au NiReria, au Pakistan, au Panama, en Suisse, dans Ie Royaume-Uni, et au Venezuela. II existe d'autres filiales de Philip Morris en Equateur, en France, en Grbce, en Nouvelle-Zdlande, it Porto-Rico et en Suede. Philip Morris a octroyE des licences de fabrication A des entreprises d'Autriche, de Bolivie, de Finlande, d'Haiti, de Hong-Kong, d'Italie, de Malaisie, des Antilles Neerlandaises, des Philippines et de Yougoslavie. Philip Morris-Europe qui, sur le plan interna- tional, constitue la zone Ia plus importante en ter- mes de ventes et b8n€fices, a mis en exploitation une nouveile usine AL Berlin-Ouest et Elargi les ins- tallations de Philip Morris Holland B. V. 5 Bergen Op Zoom. Marlboro figure parmi les premiisres marques en Autriche, Finlande, Italie et Suisse et atteint des chiffres de vente importants dans d'au- tres pays d'Europe. Muratti Ambassador est une autre marque Philip Morris que reussit particu- lierement bien sur le marchb europ8en de la cigarette. Dans les rfgions Asie-Pacifique, Canada, Ameri- que Latine et Espagne, Philip Morris a, en 1972, renforcb ses positions sur les differents march6s et il annonce une augmentation des ventes et profits. Miller Brewing Bien que 1'ann6e ait 6tE difficile pour Miller Brewing, celle-ci a consacr6 beaucoup d'efforts et des ressources importantes $ revigorer ses op6- rations. MalgrE l'augmentation des ventes de barils en 1972, Miller a vu diminuer ses recettes d'exploitation. Le d6ciin des recettes d'exploita- tion reflpte une concurrence plus sEvi're an sein de I'industrie de Ia bi8re, ainsi qu'une augmenta- tion des co0ts des mati@res premi8res, de la main d'oeuvre et des matEriaux de conditionnement. Miller a entrepris de renforcer ses ventes et d'amEliorer sa rentabilit6 en adoptant des mesu- res de r6forme profondes dont les rEsuitats ne se sont pas encore repercutEs sur les bilans finan- ciers. Les cadres supErieurs ont 6t6 fortement etoffEs, le service des ventes a ete reorganisE, tan- dis que Ie reseau de distribution se trouvait ren- forc6. En 1972, Miller a Elargi sa gamme de produits, en achetant ou en cr6ant de nouvelles marques. Plusieurs innovations en mati2re de conditionnement ont donnE de bons rFsultats. La tendance de I'industrie de la bit`re vers une con- centration de plus en lus poussee permet 'a Miller de faire des pr~visions'a long terme, puts- que cette societb figure parmi les trois distribu- teurs'a 1'6chelle nationale de bibres de qualit6. qui constituent Ie secteur du marche dont 1'expansion est la plus rapide. En 1972, le secteur des biPres de qualit@ repr8sentait 30% du march6, comparb A 23% en 1967. Philip Morris Industrial Philip Morris Industrial a vu son chiffre d'af- faires dEpasser, pour la premiPre fois, 100 millions de dollars, ce qui reprdsente une majoration de 18% sur 1971; 1'accrotssement des recettes d'ex- 3 loitation a 6tE encore plus marqu6, atteignant N. Nos societ6s industrielles ont profitd du mouvement de reprise qui a caract6ris6 I'bconomie ambricaine en 1972; if convient cependant d'at- tacher une importance encore plus grande au fait que ces soci6t8s ont restructur6 leurs stratEgies de vente, ce qui a donnb des rfsultats satisfaisants sur le plan des ventes et de la rentabilite. L'orien- tation des strat6gies de commercialisation en fonc- tion de produits qui font appel A une technologie complexe et offrent de fortes marges b€n6ficiaires, a permis d'augmenter les chiffres d'affaires et les b€n@fices de la Nicolet Paper Company et de Poty- mer Industries, Inc. qui 61abore des produits chi- miques A utilisations spEciales. Milprint Inc., le premier producteur americain de mat€riaux de conditionnement flexibles. a enregistre une aug- mentation de son chiffre d'affaires mais une baisse de bEnEfices par rapport au niveau de 1971. Mission Viejo Au mois de septembre dernier, nous avons acquis 'a 100% Ia Mission Viejo Company, nouvelle en- treprise de construction de logements et de d6ve- loppements communautaires. Mission Viejo a son plus grand chantier dans I'Orange County, en Californie, et construit 6galement des logements 2L Phoenix, Arizona, et dans un nouveau quartier de Denver, Colorado. Pendant te quatriPme tri- mestre de 1972, les ventes et les b@nefices de Mission Viejo ont 6tE consolid6s avec les autres opErations de Philip Morris. Expansion Nous en sommes aux premir`res €tapes d'un vaste programme d'expansion. En 1972, nos dEpenses ont atteint $120 millions ce qui repr6sente une forte majoration par rapport aux $68 millions d6- pens6s en 1971. Pendant la prochaine p6riode quinquennale, nous escomptons d6penser plus de $500 millions pour 6largir ou cronstruire des usi- nes, non seulement aux Etats-Unis, mais aussi'a 1'8tranger, surtout pour l'industrie du tabac. Ces projets tfmotgnent de la confiance que nous avons dans 1'expansion et la rentabilitb h long terme de l'industrie de la cigarette dans le monde. Le plus important ellment de ce programme est la construction AL Richmond, Virginie du complexe industriel le plus grand et le plus perfectionnE du monde pour la fabrication de la cigarette. Une fois les travaux achev6s en 1977, il aura coOtE au total plus de $200 millions pour le terrain, les batiments, I'6quipement et les machines. 11 est prEvu que les premibres cigarettes sortiront de 1'usine pendant ]e premier trtmestre 1973 et que le stade de pleine production sera atteint en 1974, lorsque Ia cons- truction des batiments sera terminee. La nouvelle tour de recherches. haute de 8 6tages, en construction'a Richmond, sera inaugur6e en avril prochain. Elle abritera 300 techniciens. Le tabac et la santE L'industrie du tabac continue A intensifier 1'appui qu'elle donne b la recherche, pour resoudre les nombreuses questions qui restent encore sans rEponse au sujet de Ia cigarette et de la sante. A la fin de l'ann@e, Ia Facultb de Mddecine de Harvard a annonc6 qu'elle a accept@ de huit entre- prises de tabac, dont Philip Morris, et d'une association de producteurs de tabac, un don de $2.8 millions, qui doit permettre la r8alisation d'un programme de recherches 6chelonnees sur cinq ans, portant sur les ra orts susce tib(es d'exister entre la cigarette etples maladies pulmo- naires et cardio-vasculaires. En annonsant ce don, le directeur des recherches 'a Harvard, a d6c1ar6: "Tout Ie monde sait qu'on a accuse Ia cigarette d'etre 1'une des principales causes de ces maladies; cependant, d'autres facteurs, qui n'ont pas requ Is mcme publicitE, peuvent egalement jouer un r8le important. Parmi eux, il faut citer la pollution de 1'air, les diff8rences g6n6tiques en ce qui con- cerne Ia susceptibilitb des hotes, etc. Nul n'a r€fut€ de fason nette qu'ii existe un rapport direct de cause'e effet dans le cas de ces facteurs ou d'autres el6ments de I'environnement". Philip Morris participe 6galement'a un don de $2 millions qui a€td fait A Washington University, Saint Louis, Missouri, pour des recherches sur l'immunologie du cancer chez I'homme. Cette 6tude, qui en est'd sa seconde annEe, fait des pro- gr8s encourageants dans ce domaine, trbs promet- teur et tr6s actif, des recherches sur le cancer. Tandis que les Etats-Unis n'ont gu8re adopt6 de dispositions nouvelles en ce qui concerne Ia fu- m€e et la sant6, plusieurs pays ot] nous avons des Int6rets ont promulgub des lois limitant la publi- citb des cigarettes et exigeant que des mises en garde figurent sur les paquets de cigarettes et dans Ie materiel publicitaire. Proble'mes En 1972, la Phase lI des rBglements fEderaux en mati8re de controle des prix et des salaires, ainsi qu'une politique fiscale et monetaire relativement modBrBe, ont eu pour effet de permettre un taux d'infiation limit6'a 3,8% environ pour 1'ensemble 115

I I I 9, de 1'annEe. Les limites im3os6es aux marges bdnb- flciaires n'ont pas permis votre socidt6 d'aug- menter les prix de ses produits, ni des produits de ses filiales. Pour votre soci6tE, pour toutes les soci6ttss multi- nationales, et pour 1'intbret national, le projet de loi dit "Hartke-Burke", qui fait actuellement l'objet de d6lib6rations au Congrrss. constitue une grave menace. Cette loi risque de causer des torts Nerieux au commerce international en eliminant les credits sur les imp8ts payes :l I'dtranger (ce qui augmenterait considErablement les obliga- tions fiscales payables aux Etats-Unis). En outre, Ia loi contingenterait les importations et interdi- rait I'exportation de la technologie am@ricaine. Tout comme Ia plupart des entreprises multina- tionales. Philip Morris a pris AL 1'Etranger une ex- pansion qui a crEE des emplois aux Etats-Unis et s'est traduite par un apport net dans notre balance de paiements. Durant la meme periode, le nombre d'emplois que nous avons cr66s aux Etats-Unis pour etayer nos activitEs internationales a aug- mentE de plus de 300%. Nous espdrons sincbre- ment que le CongrZs examinera les dossiers avant d'imposer des mesures allant e t'encontre des rdsultats escompt6s. En 1972, cinq Etats et le District de Colombia ont proposE ou adoptb des lois relevant I'imp8t 3 Ia consommation des cigarettes: en 1971. 16 Etats avaient pris des mesures analogues de majoration. Nous ne pouvons malheureusement pas nous at- tendre £ ce que, 31'avenir. le nombre de rel@ve- ments reste au meme niveau qu'en 1972. ou proche de celui-ci. Au cours de I'annEe fiscale 1972. I'impet £ la con- sommation des cigarettes a fourni un total de $5,2 milliards. c'est-&-dire une somme qui depasse de pr6s de 50% le total- hors impets, des recettes nettes realis@es par les six fabricants de cigarettes des Etats-Unis. Ce total se compose de $2,1 mil- liards de taxes fEd6rales 3 la consommation. $3 milliards de taxes des divers Etats et $0.1 milliard de taxes municipales ou de comtE. C'est un fait que. £ 1'instar de la taxe £ la vente, 1'imp8t £ la consommation represente une forme regressive de fiscalitd, en ce sens qu'il frappe plus durement, toutes proportions gardfes, la tranche des revenus les plus faibles. 11 est prouv6 que les imp8ts £ la consommation constituent une nette discrimination contre les citadins peu fortun6s qui ont tendance'a fumer un plus grand nombre de cigarettes. Dans de nombreux cas, les rel'evements de 1'im- p8t it la consommation sont all6s'a 1'encontre de certains buts recherch6s- A New York. 0" la taxe sur le "goudron" est venue s'ajouter £ une taxe'a la consommation dEj'a forte, le nombre de cigaret- tes taxEes a continuE A diminuer. En 1972, en effet, le nombre de cigarettes tax€es est retombb £ son niveau de 1965. Alors que le produit de la taxe augmentait IEg@rement, les ventes ldgales de ciga- rettes ont dimmu6: les acheteurs vont s'approvi- sionner en dehors de la ville ou achPtent des ciga- rettes de contrebande. La Commission d'Enquete de I'Etat de New York a estimE qu'£ 1'heure ac- tuelle, dans la ville de New York. un paquet de cigarettes sur trois est vendu en contrebande. Responsabilit€s sociales Vers la fin de I'annEe 1971, Philip Morris a en- trepris une 6tude d'ensemble de ses "responsa- bilit@s d'entreprise", afm de prEciser si ses politi- ques et directives de gestion Etaient effectivement mises en oeuvre-dans quelle mesure, et ou. Apri~s une anntse de preparation, cette Etude a permis de fixer des points de rep6re et de d6finir des prin- cipes directeurs dont s'inspireront 'a i'avenir les responsables de la compagnie £ tous Ies Echelons, qu'iI s'agisse de la direction gen6rale, des services d'exploitation ou des diverses usines. Au mois d'octobre dernier, le programme d'en- semble mis sur pied par notre soctEt6 a fait l'objet d'une mention favorable dans un rapport intitul6 "Initiatives en matiisre de responsabilit6 des so- ci6t6s", qui a 6te pr6par6 et publid, sous la direc- tion de M. Frank E. Moss, S6nateur de l'Utah, par Ia Sous-Commission de la consommation de Ia Commission s6natoriale du Commerce. Ce rap- port. qui examine 300 entreprises figurant sur la liste des "500" @tablies par Fortune Magazine, parle d'un . . . "document remarquable prEsent6 par Philip Morris. ..". Durant 1'ann€e 1972, deux nouveaux comitds de notre Conseil d'Administration-le Comit6 de 1'environnement et le Comitd des responsabilitbs et contributions sociales-se sont vus confier la tache d'examiner les programmes que nous exE- cutons dans ces domaines et d'en Instituer de nouveaux. Grace'a ces comitess, nous espErons veiller £ ce que nos programmes et nos activit8s allient le souci de productivitd'a celui du progr8s social. Nous nous sommes efforc6s de recruter des femmes, des anciens combattants et des membres des groupes minoritaires, d'offrir des chances 6 ales aux groupes minoritaires et aux femmes, de d1velopper les affaires avec les institutions appar- tenant aux groupes minoritaires, d'organiser I ap- prentissage sur place, de participer AL la vie de la communaut6, de donner notre appui aux arts et de rEduire, sinon d'6liminer la pollution, prove- nant de nos usines. Au dEbut de 1973, apr8s une longue p6riode d'Btu- des approfondies, Philip Morris a annoncE la crEa- tion d'un programme de bourses d'enseignement technique, d'une conception entibrement nouvelle, qui vient complbter 1'appui que nous donnons ii I'enseignement supbrieur. Nous espbrons et nous comptons que ce programme, qui a bbn6frcib de 1'appui du Dtspartement du Travail, sera une ex- perience en mati6re d'enseignement d'une grande importance pour 1'avenir. En 1972, Miller Brewing a terminE la conversion en aluminum des boites de biLre qui sont mainte- nant totalement recyclables, et les programmes de contr8les des effluents 6tablis par Formosa Springs et Nicolet Paper sont maintenant tout ii fait op€- rationnels. Quant £ Mission Viejo, ses efforts des- tin8s £ pr8server et embellir 1'environnement, pen- dant et aprbs la construction d'habitations, ont 6t€ couronn€s de succiSs. En 1972, votre Conseil d'Administration a eu la douleur de perdre le Dr. Jess H. Davis, Pr6sident du Stevens Institute of Technology. Sa sagesse et son d6vouement nous manqueront beaucoup. Ult6rieurement, le Conseil a dt6 renforcE £ la suite do l'6lection de deux Administrateurs, Mme Whitney M. Young, Jr., veuve du d€fenseur des droits civiques, et M. John T. Landry, Vice Pr6si- dent de Philip Morris Incorporated et Vice-Pr6si- dent de Groupe, Directeur des services commer- ciaux, Philip Morris, U.S.A. Nous sommes optimistes en ce qui concerne 1'ave- nir de Philip Morris-en 1973 et au-del'a. Notre es- sor exceptionnel dans I'industrie de la cigarette aux Etats Unis et dans le monde entier, est un fait bien connu. Gr£ce £ Ia vitalitb et 3 1'61an dont nos marques font preuve dans le monde, iI y a tout lieu de croire que nous poursuivrons notre expan- sion sur le march6 des cigarettes. Nous croyons dgalement que nos autres secteurs d'activitb, tels que la brasserie, 1'industrie et ie logement, offrent do grandes possibilitbs d'avenir. Notre reconnaissance s'adresse aux 33.000 em- ploy6s de Philip Morris, des Etats-Unis et d'ail- leurs. Nous les remercions pour la fagon remar- quable dont ils se sont acquitt€s de leur tache. Pr6sent6 avec les respects du Conseil d'Administration zc- ~ Joseph F. Cullman 3rd PrEstdent du Conseil d'Administration et Administrateur en chef A__e bj.c.Lw.ow..... George Weissman Pr6sident et Directeur des services d'exploitation Informe del ano La Compat'iia dio cuenta en 1972 de que los ingre- sos y las ganancias por operaci6n habian excedido todos los r€cords y de que, al igual que durante los tiltimos 19 afios consecutivos, eran mayores las utilidades por acci6n que en el ano anterior. Los ingresos por operaci6n consolidados para ei aRo 1972, experimentaron un aumento de m£s del 15,0%, y las entradas netas se elevaron el 22,6%. Las utilidades totalmente diluidas por acci6n aumentaron 20,1% y las utilidades primarias por acci6n 16,2%. En 1972, el incremento de Philip Morris en Ia participaci6n de la industria mundial de cigarrillos fue mayor. En ventas unitarias, Philip Morris se convirti6 en la segunda en importancia entre las companias cigarrilleras de dominio p6blico mun- diales. Marlboro se puso a la cabeza de las marcas en todos los mercados internacionales y continu6 ocupando el segundo lugar en los Estados Unidos. Al presente, Philip Morris contintia siendo el segundo entre los principales fabricantes de ciga- rrillos estadounidenses. Las ventas mundiales de la industria experimenta- ron un aumento de 4%; un volumen de aproxima- damente 3.450 mil millones de unidades.Tomando en cuenta los mercados internacionales y de E.U.A., las ventas unitarias de cigarri(los de Philip Morris representan el 6,5% de las cifras mundia- les totaies. Las ventas de la industria en E.U.A. se incremen- taron durante 1972 por el tercer afio consecutivo hasta unas 554 mil millones de unidades, o sea, un aumento de m£s del 3%. Las ventas unitarias de cigarrillos subieron el 13% sobre otros anos, y al finalizar el ano nuestra participaci6n del mercado aument6 a m£s del 20%. Los ingresos operativos consolidados de Philip Morris en los pasados cinco af5os han aumentado en un promedio capitalizado anualmente de 18,7%. Se acrecentaron las ganancias netas para este periodo en un promedio capitalizado anual- mente de 23,3%, y las utilidades totaimente dilui- das por acci6n se elevaron el 17,6% por atlo. La CompaRia, por el 45 afio consecutivo, ha pagado dividendos en sus acciones ordinarias. Por el quinto aifo consecutivo, estos dividendos han sido mayores; el aumento de 1972 fue el m£ximo per- mitido por las normas contables sobre dividendos de los organismos reguladores de la Fase II. El actual dividendo es de $1,296 por accl6n unitaria. Las ventas en E.U.A. De nuevo el notable aumento experimentado en este pals de las ventas de Philip Morris U.S.A., se debe al continuo aumento de la marca Marlboro que ahora Ilega a participar del mercado en un 12,5%, en comparacI6n con 6,6% de hace cinco afios. La distancia que separa Marlboro de la marca que va a Ia cabeza de la industria cada vez se acorta m£s y, es mayor cada vez m£s la dis- tancia entre Marlboro y las marcas que le van a la zaga. Philip Morris U.S.A. se ha aflanzado en el puesto de lfder en la categoria de cigarrillos de 100mm, con Benson & Hedges 100, que se convirti6 en la marca de 100mm m£s importante en 1972 en E.U.A., al iyual que Marlboro 100, Parliament 100 y Virginia Slims. Este rengl6n es el de mayor empuje entre las categorias que experimentan auge mayor en el mercado de E.U.A. cuyas ventas unttarias totales de 100mm para 1972 llegaron a m£s del 21 % del mercado. Activldades internactonales Cuando en 1955 Philip Morris inici6 sus activida- des por medio de las companias afitiadas interna- cionales con el fin de suplementar las exportacio- nes, Ia Compafila vendi6 en el mercado mundial 4,3 mil millones de cigarrillos. En 1972, Philip Morris International vendi6 113 mil millones de unidades en m£s de 160 paises y territorios por intermedio de la exportaci6n de m£s de 14 millones de cigarrillos y la manufactura local de sus afiliados y concesionarios. Philip Morris International cuenta con compaiiias afrliadas manufactureras en Alemania, Argentina, Australia, BElgica, Canad£, Guatemala, Holanda, India, Indonesia, Islas Canarias, MBxico, Nigeria,

Pakistan, Panama, Reino Unido. Reptiblica Dominicana. Suiza, y Venezueia- y existen compa- ftias afiliadas de distribuci6n y venta en Ecuador, Francia, Grecia. Nueva Zelandia, Puerto Rico y Suecia. Ilav concesionarios que incluyen fabri- cantes en Au.trta, Bolivia, Finlandia. Haiti, Hong Kong. Italia, Malasia, Antillati Holandesas, Filipinas y Yucoslavia. Considerada como la mayor de Ias regiones inter- nactonales tanto en ventascomo en utilidades. Phtlip Morn. Europa ha mantenido su rapido de- .arrolln: ya ecta en produccirin una nueva fabrica en Berlin occidental y se ha ampliado la planta de la Philip Morris Holland B.VV en Bergen op Zoom. Marlboro se cuenta entre las marcas principales en Austrta, Finlandia. Italia y Suiza y goza de ercelentes ventas en otros paiscs europeos. Otra marca popular de Philip Morris en los mercados cigarrilleros de Europa es la Muratti Ambassador. En las regiones del Pacifico asiatico- del Canada ~ de Espana e 1(i.panoamerica. se ha observado afianzamiento en Ias re%pectivas pociciones del mercado durante 1972 para Philip Morris Interna- tional y las ventas v ganancias obtenidas han sido mayores. La cerveceria Miller Cuantiosos esfuerzos y recursos dedic6 Ia Cerve- ceria Miller a Ia reorganizaci6n y fortalecimiento de sus operaciones, a Ia vez que atraves6 por un ano dificil. A pesar de que las ventas por barril y las entradas operativas aumentaron durante t972. declinaron las utilidades por operaci6n de Ia empresa Miller. Dicha disminuci6n reflej6Ia intensificaci6n de Ia competencia en precios en Ia industria cervecera y los costos cada vez mayores de las materias primas, la mano de obra y los matenales de envase. Se ha propuesto Miller fortalecer su estructura de centas y su remunerabitidad at instituir cambios de largo alcance que aun no se reflejan en los resultados financieros de la Compatiia. En forma tangible Ia gerencia principal ha adquirido mAs solidez.las operaciones de distribucidn de ventas y mercadeo se han reorganizado y se perfecciona Ia organizaci6n distribuidora. En 1972. el renglon de productos Miller se ampli6 debido a nuevos productos y adquisiciones. Demostraron tener exito varias innovaciones en el envase. La continuada concentraci6n de Ia industria cer- vecera ofrece una promesa de oportunidades de larga duraci6n para Ia compania Miller ya que esta es una de las tres marcas de cerveza de cali- dad alta distribuidas de costa a costa. siendo este el segmento de mAs rapido crecimiento del mercado. En 1972, el rengldn de cervezas de calidad alta alcanz6 el 30'"r del mercado en com- paraci6n a 23 ~-, en el afio 1967- Philip Morris industrial Las utilidades operativas de Philip Morris Indus- trial sobrepasaron $100 millones por primera vez, un aumento de 18'"r sobre 1971, y el aumento en entradas operactonales fue aun mayor - 26%. Nuestras companias industriales se beneficiaron de Ia economta de E.U.A. en 1972, pero, Io que todavia es mas importante es el hecho de que Ia estrategta de ventas de estas companias tiene un enfoque totaimente nuevo con resultados satisfac- tonos en lo que se refiere a ventas y a beneficios. La orientact6n de las estrategias de ventas que descansan en Ia premisa de tecnologia avanzada- productos de alto marFen, dio por resultado uhlidades mavores y mayores entradas, tanto en Nicolet Paper Company como en Polymer Indus- tries. Inc.. un fabricante de especialidades quimi- cas, y en Milprint Inc. el productor principal de toda la naci6n de envases flexibles- compania que obtuvo ingresos mAs elevados, pero con ganancias algo mAs reducidas que en 1971. Mission Viejo En septiembre, adquirimos el 100% de Ia Mission Viejo Company, empresa que se dedica al de- sarrollo de nuevas comunidades y a la construcci6n de casas. Su esfera de actividad es en Orange County, California y Ileva a cabo las construccio- nes de viviendas en los suburbios de Phoenix, Arizona y en una nueva urbanizaci6n de Denver, Colorado. Las ventas y las ganancias de Ia I Mission Viejo se consolidaron con las de Philip Morris en sus operaciones correspondientes at cuarto trimestre de 1972. Expan.sion de capital Nos hallamos en Ia actualidad en )a etapa inicial de un importante programa de erogaciones de capital. Nuestros gastos en 1972 alcanzaron la cifra de $120 millones, tin considerable aumento sobre los $68 miltones empleados en 1971. En cl transcurso de los pr6ximos cinco afios calculamos gastar mas de $500 millones en nuevas instalacio- nes o en Ia modernizaci6n de las existentes. Dichas construcciones tendran lugar no s61o en los E-U.A., sino tambi6n en el extranjero, especial- mente para las operaciones tabacaleras. Estos planes ponen de relieve nuestra confianza en Ia continua expansi6n de grandes alcancesy en Ia remunerabilidad que ha de esperarse de Ia indus- tria mundial de cigarrillos. La fase mAs significativa de este programa es el conglomerado de instalaciones para Ia manufac- tura de cigarrillos que se esta construyendo ahora en Richmond. Virginia, el cual se piensa ha de ser eI mayory mas moderno en su gEnero. Cuando esta obra estE terminada del todo en 1977, el costo total, inclusive el terreno, edificios. equipo y ma- quinaria. excedera $200 millones. Se espera que este lista para Ia producci6n de los primeros ciga- rrillos en 1973 y que la construcci6n de los edifi- cios 6nalice en 1974. El nuevo ediflcio de 8 pisos que albergara el centro de investigaciones en cuyas labores se dedi- caran 300 expertos y cientificos, se inaugurara el pr6ximo mes de abril. El fntnar y Ia salud La industria tabacalera contint5a prestando su decidido apoyo a Ia investigaci6n que ha de brin- dar las respuestas a tanta pregunta que boy en dia esta en Ia inc6gnita, referentes al fumar y a Ia salud. A fines de atSo,Ia Escuela de Medicina de Harvard anunci6 Ia aceptaci6n de una dona- ci6n de $2,8 millones hecha por ocho compar3ias tabacaleras. inclusive Philip Morris, y por una asociaci6n de productores de tabaco. Con este dinero se Ilevara a cabo tin programa de investiga- ci6n, de cinco afios de duraci6n, sobre las rela- ciones. de existir estas, entre el fumar cigarrillos y las enfermedades pttlmonares y cardiovasculares. AI anunciar esto, el investigador principal de Harvard ha dicho: "Aunque es de todos conocido el hecho de que se ha relacionado el fumar a estas importantes enfermedades, tal vez haya otros muchos factores, a los que no se les ha hecho tanta publicidad, que pueden ser importantes. Entre ellos. Ia exposicidn a los contaminadores del aire, las diferencias geneticas en susceptibilidades favo- rables hospedantes, y otros mas. Una relaci6n causal directa sobre estos u otros factores ambien- tales aun no ha sido claramente demostrada." Participa asimismo Philip Morris de una donaci6n de $2 millones para investigaciones hecha a Ia Washington University, en St. Louis, Misuri, para ei estudio de Ia inmunologia del cancer en el ser humano. Se haila al presente este estudio en su segundo atio y se han obtenido halagadores progre- sos en este campo tan prometedor y activo de investigaci6n de cancer. Aunque es poco lo nuevo que puede decirse acerca de las actividades recientes legislativas relativas at fumar y Ia salud en Estados Unidos, en varios de los paises en los que hacemos operaciones se han instituido Ieyes que limitan Ia publicidad de los cigarrillos y que exigen Ia inclusi6n de avisos en los paquetes y en Ia publicidad. Areas di/fctles La Fase 11 de las relaciones gubernamentales que rigen los precios y ralarios junto con las normas monetarias y fiscales, relativamente moderadas, i i vigentes en 1972, causaron un indice de inflaci6n menor de alrededor de 3,8% durante et ano. Las Iimitaciones con relaci6n al margen de ganan- cias no permitieron que Ia Compai5ia aumentara el precio de sus productos ni el de los productos de las empresas subsidiarias. Lo que representa scr una seria amenaza para esta Compafiia,_toda companfa multinacional y eI interes nacional es Ia medida Ilamada °Proyecto de Ley Hartke-Burke" ahora en manos del Con- greso. Esta ley causaria daito aI comercio interna- cional al climinar los crEditos obtenidos por impuestos pagados en otros paises, lo cual aumen- taria en forma cuantiosa las obligaciones tributariaa en E.U.A. Este proyecto de ley impondria tambicn cuotas a las importaciones y prohibiria Ia expor- taci6n de Ia tecnologia estadounidense. Tal como sucede con Ia mayoria de las companias multinacionales, Ia expansi6n internacional de Philip Morris ha dado por resultado el aumento d® empleos en E.U.A. y una positiva contribuci6n a nuestra balanza de pagos. Durante este periodo, el ntimero de empleados que se tomaron para hacer frente a nuestras actividades internacionales, aument6 m£s del 300%. Confiamos en que el Con- greso examinara los antecedentes a fondo, antes de imponer ninguna medida contraproducente. En 1972, cinco estados y el Distrito de Columbia plantearon o aprobaron legislaciones en las que se autorizaba el aumento de los impuestos sobre el consumo, esto en comparaci6n con el mismo aumento en 16 estados durante 1971. Lastima que no podamos realisticamente esperar que et ntimero de futuros aumentos de impuestos se mantenga igual a 1972 o que casi sean iguales. Durante el a"no fiscal de 1972, las entradas deven- gadas tie los impuestos sobre el consumo de ciga- rrillos fueron casi $5.2 mil millones, o sea, cerca de 50`,'b mayores que las cniradas netas combina- das obtenidas de las ventas de cigarrillos por los sels principales fabricantes estadounidenses (con exclusi6n del impuesto federal sobre consumos ). Form6 este total Ia suma de los $2,1 mil millones de los impuestos sobre consumo federales, $3,0 miI millones at nivel estatal y$0,1 mil millones a los niveles municipales y condales. Es un hecho aceptado que, este impuesto sobre consumos, al igual que eI impuesto sobre ventas, es una forma regresiva de imponer imp uestos porque una gran proporci6n de entradas mas bajas son absorbidas por cada d6lar de tal impuesto. Se ha documentado que tales impuestos sirven para Ia discriminaci6n activa contra los habitantes urbanos pobres, que son los que tienen Ia ten- dencia de fumar mas. En muchos casos, los aumentos en el impuesto sobre consumos han sido contraproducentes. en parte por io menos. En Ia ciudad de Nueva York donde el impuesto sobre Ia "brea" fue ariadido a una serie ya existente bastante cuantiosa de impues- tos sobre consumos, el ntimero de cigarrillos a los que se les aplica el impuesto continua decli- nando. En 1972, el ntimero de cigarrillos suJ'eto a impuesto declin6 al nivel gravado en el 1965. Mientras que las entradas obtenidas por los impuestos han aumentado marginalmente. las ven- tas legales de cigarrillos dejan de efectuarse en Ia ciudad de Nueva York o en vez de ellas se obtienen cigarrillos de contrabando. La Comisi6n Investigadora del Estado de Nueva York calculo el afio pasado que una de cada tres cajetillas de cigarrillos vendidas en Ia ciudad de Nueva York era de contrabando. Responsabilidades sociales A tiltimos de 1971, inici6 Philip Morris una revi- si6n extensa que abarca las areas de "incumbencia corporativa" de Ia compat5fa, para efectuar Ia determinaci6n de d6nde y en quE forma los man- datos de Ia gerencia eran implementados y si las normas eran cumplidas. Esto, que necesit6 casf un at3o para completarse, ha contribuido a establecer los puntos de referencia y Ia direcci6n que nuestro rumbo futuro ha de tomar tanto en la acci6n administrativa al nivel corporativo y de funciona- miento, como en los niveles de cada planta individual. En el mes de octubre, este programa corporativo global mereci6 favorables comentarios en un informe intitulado "Initiatives in Corporate Responsibility" (Iniciativas en Responsabilidad Corporativa ) preparado y publicado por el Sub- comite del Consumidor del Comitb Comercial del Ii,' t 1 110

I I I 11 Senado de E.U.A., balo Ia direccion del senador Sr. Frank E. Moss, dc Utah. Dicho comtte repaso 3UU dc las compatiia~ dc mayor tmportancta. aquellas de la lista de las "500" de la revista Fortune. y se refiri6 at cstudio del que tratamos diciendo °...un mforme extraordinarto presen- tado por Philip Morris..." En 1972. se lcs asignd a dos nuevos comitds de nucstra Junta Dircctiva -ei Comite de Asuntos Ambtentales y el Comtte Curporattvo sobre Res- ponsabilidades Soctales y Contribuciones- la tarea de hacerse cargo Lie la revtston de nuestros programas -intUnuados en e,te scnttdo y para la iniciacion Lie otros nuevos. Se crearon los cumttes con el tin de asegurar quc nuestros programas y desenvolvtmtento son progresistas y pruducttcoc, Los oblettcos que pcrscguimos mcluycn cl reduta- mtento de personal fcmenino. mmorias y de veterano,- la, oportumdade, de mejoranuento y avance para los empleados Lie grupos de minoria y para las muleres, aumento Lie los ne>:ocao, con cmpresas proptcdad Lie mmortas, adiestramtento en e1 mismo trabalo, concagractdn stt:mttcauva a los mtereses Lie la comunidad y a los e.entos artisticos. y reduccibn considerable o eltminacion de contammantes en nuestras fabricas. A comtenzos det 1973, despuds de haberse termt- nado un periodo de estudtos extensivos. Philip Morris ha anunciado un precursor y umco pro- grama de becas para el respaldo del adiestramiento vocactonal como un suplemento espectfico de nuestro apoyo a la educacidn superior. Esperamos y confiamos en que este programa, al que el Departamento de Trabajo dc E.U.A. le ha dado su aprobacton. ha de representar un expcrimento significativo en educacion para el futuro. En 1972 Ia Ccrveceria Miller puco en marcha ya la conversion a las latas de envase de cerveza de aluminio completamente rcutilizables. mientras que los programas de regulacton de descarga de efluente Lie Formosa Springs y de Ntcolet Paper funcionaron en operactdn completa. Gran exito tuvteron los e,lucrzos de Mission Vteto encamina- dos a la conscrvact6n v embellectmtento de las cercanias durante la construccl6n de viviendas y al finaltzar dicha construccion. La Junta Directiva de la Compania. en 1972, paco por la pena dcl fallecimiento dcl Dr. Jess 11. Davts. Prestdente del Stevens Institute of Tec hnology; sus grandes conocimientos y consagracton nos han de hacer mucha falta. La Junta Directiva adquirio mayor envergadura con la eleccion como Directores de ella de la Sra. Young, vtuda det lider de derechos civiles Whitney M. Young: se nombro asimismo al Sr. John T. Landry para ei cargo de vtceprestdente de la Philip Morris Incorporated y vicepresidente- director de mercadotecnica de la Philip Morris. U.S.A. Nuestro optimismo es grande respecto al futuro de Philip Morris - tanto en 1973 como en los anos venideros. Es bien conocido nuestro creamicnto y auge en E.U.A. y en todo el mundo. de nuestra linea de cigarrillos. Si tomamos en cuenta la vitali- dad y el impulso de que gozan nuestras marcas por el mundo entero. tenemos todas las razones para creer quc nuestro crecimiento en el ramo de los cigarrillos ha de continuar. Asimismo creemos que es enorme el potenctal futuro en nuestras operaciones cerveceras. industriales y de la cons- trucci6n de viviendas. Deseamos agradecerles a todo nuestro personal, tanto del pats como del extranjero. los 33.000 empleados de Philip Morris. su contribucidn y lealtad y asimismo manifestarles lo mucho que apreciamos el excelente desempeno de sus labores. Presentado respetuosamente a nombre de la Junta Directiva, 4 Joseph F. Culiman 3^ Presidente de la Junta Directiva y Primer Oficial Ejecutivo George Weissman Presidente y Oficial Jefe de Operaciones Jahresbericht Im Jahre 1972 gab Ihrc Firma neue Rekorde in bczug auf Betriebccrgebnisse und Ertr5ge und- damit 19 Jahre hintereinander-gegenuber dem Vorjahr erhbhte Gewinne pro Aktie bekannt. Das koncohdierte Betriebsergebnis fur 1972 wuchc um mehr als 15.0'':. und der Reingrewinn stieF um 22,6 o an. Gewinne pro Aktie bei voller Konver- ,iun von Wandelanlcihen vermehrten sich urn 20,1 ~r, und der ausgeschUttete Gewinn pro Aktie urn 16,2 c. Philip Morris hat 1972 weiterhin seinen Anteil an der weltweiten "Ligarettemndustric vergro,.ert. Am Gesamtumsatz gemessen. wurde Philip Morris zur zwettgrdssten mternationalcn Aktiengesell- ,chaft unter den Z.igarertcnproduzenten der Welt. Marlboro wurde zur bectverkauften Zigaretten- marke der Welt und behielt seine Stellung als zweitbestverkaufte Marke in den Vereinigien Staaten bei. Philip Morris ist weiterhin der zweit- gr8sste Zigarettenhersteller in den USA. Der internationale Absatz an Zigaretten stieg um 4no auf ungefahr 3450 Milliarden StOck. Der Gesamtumsatz von Philip Morris, die USA und den internationalen Markt mit eingeschlossen, hetriigt jetzt 6.5% des Gesamtumsatzes auf dem Wellmarkt. Der ZiEarettenumsatz der gesamten tabakverarbeitenden Industrie in den USA ver- mehrte sich 1972 schon das dritte Jahr in der Reihe auf ungefahr 554 Milliarden StUck, was einen prozentuellen Zuwachs von mehr ale 3% darstelit. Der Gesamtumsatz von Philip Morris .tieg wahrend des Jahres um mehr ala 13% und unser Marktanteil wuchs zum Jahresende auf mchr alv 20% an. Das konsolidierte Betriebsergebnis von Philip Morris ist in den letzten fiinf Jahren um eine durchschnittliche Jahresrate von insgetiamt 18-7% gewachsen. Der Reingewinn stieg in die.em Zeitahschnitt iahrlich um eine durch- cchnittliche Rate von insgesamt 23,34'o und der Gewinn pro Aktie bei voller Konversion von Wandelanleihen um j3hrlich 17,6 r an. Ihre Firma hat fiir das 45. Jahr in einer Reihe Dividenden auf ihre Stammaktien ausgeschuttet. Die Divi- denden wurden funf Jahre lang hintereinander erhoht: die Erhohungen fur 1972 erreichten die in der Wirtschaftsphase 11 unter den Dividenden- bestimmungen erlaubten Grenzen. Der derzeitige alljahrliche Dividendenstand betragt 1,296 Dollar pro Stammaktie. Utnsat: in den USA Die Umsatz.steigerung in den USA wurde wiederum durch das fortgesetzte Anwachsen von Marlboro ant:efuhrt. Diese Marke hat nun 12.5% des US-Marktes inne. im Vergleich zu 6.6% vor funf Jahren. Marlboro ist naher an die be.tver- kaufte Marke in den USA herangerOckt und vergr8ssert auch weiterhin standig den Abstand zu den nachfolgenden Marken. Philip Morris USA hat ausserdem seine Position als Spitzenhalter in der t00mm-Kategorie mit den Marken Benson & Hedges 100's, die 1972 zur fuhrenden I00mm-Marke wurden, wie auch Marlboro 100's, Parliament 100's und Virginia Slims gefestigt. Die 100mm-Kategorie ist der schnellst wachsende Teil des US-Marktes. und der Gesamtumsatz an 100mm-Zigaretten machte fur das Jahr 1972 mehr als 21% des Marktes aus. Internationaler Umsatz Ais Philip Morris 1955 seine internationalen Tochterunternehmen zur Exportstarkung in Betrieb setzte, verkaufte Ihre Firma 4,3 Milliar- den Liearetten auf den internationalen Markten. Im Jahre 1972 celite Philip Morris International i I l Milliarden Stiick in iiher 160 LSndern und Gebietcn durch Exporte von uber 14 Milliarden Zigaretten aowie durch die Herstellung am Ort durch Tochtergesellschaften und Lizenzinhaber ab. Tuchtergesell,chaften von Philip Morris Inter- national befinden cich in Argentinien. Australien, Belgien. Kanada. den Kanarischen Inseln, der Dominikani,chen Republik, Deutschland, Guate- mala. Halland, Indien. Indonesien. Mexiko, Nigerien. Pakistan, Panama, der Schweiz, Gross- hritanmcn und Vcnezucla. Vcrtriebsbranchen Iiegen in Ecuador. Frankreich. Griechenland. Neuseeland. Puerto Rico und Schweden. Und es rthlen zu uncercn I.izenzinhabern noch Hersteller in O.terretch. Bolivien, Finnland. Haiti, Hong- kong. Italien. 9ictlay.ia, den niederl5ndischen Antillen, den Philippinen und Jugoslawien. Philip Morris liurnpe, der erosste internationale .Ah,atz- und Gewinnbereich. hat sein schnelles Wachstum aufrechterhalten. eine neue Fabrik in \'ti'e.therlin in Betrieb genommen und das Philip Morris Holland B.V.-Werk in Bergen op Zoom erweitcrt. Marlboro gehbrt in Osterreich, Finn- land. Italien und der Schwriz zu den fuhrenden Marken und verkauft sich in anderen europaischen Liindcrn sehr gut. Die Muratti Ambassador ist ebenfalk cin fuhrender Vcrkaufsschlager von Philip Morris auf dem europ5ischen Zigaret- tenmarkt. Im asiatisch-pazifischen. im kanadischen wie auch im Iateinamerikanisch-iberischen Raum hat Philip Morris International im Jahre 1972 jeweils seine Marktpo,ition versttirkt und registrierte erhohte Umsatze Lind Einnahmen. .tfiller I3rew•inq Miller Brewing wendete in einem schwierigen Jahr grosse Muhe und Mittel an die Neuorga- I nisierung und Verstarkung ihrer Betriebe. Obwohl der Fas,bierau<stoss und das Betriebsergebnis im Jahre 1972 anstieg. sanken Millers Betriebsertrage. Dac Ab.inken spiegelt die verscharfte Preiskon- kurrenz im Brauereiwesen und die steigenden Kosten fiir die Rohmateriaiien. Gehalter und Liihne sowie fur die Verpackungsmateriatien wieder. Miller hat durch Einfuhrung von weitreichenden I Veranderuntten begonnen, den Verkauf zu akti- vieren und die Gewinnspanne zu vergrossern, was ~ sich bis jetzt noch nicht in den finanziellen i Ergebnissen dieses Unternehmens niederschl5gt. Die Verwaltung wurde durch neue Fuhrungs- krafte erheblich gest5rkt, der Vertrieb reorgani- sicrt, und die Verteilerorganisation untergeht derzeit einer Verstarkung. Millers Angebot wurde 1972 durch neue Produkte und Ankaufe ~ erweitert. Verschiedene neue Verpackungs- methoden haben guten Anklang gefunden. Die fortbestehende Konzentrierung der Brau- industrie verspricht auf lange Sicht gute Aus- sichten fur Miller, da es eine der drei im ganzen Land vertriebenen Biermarken der gehobenen Preisklasse ist. ein Artikel. dessen Marktanteil schnell anw3chst. Im Jahre 1972 betrug der Markt- anteil anteil des Biers in der gehobenen Preisklasse 30 J'n im Vergleich zu den 23% des Jahres 1967. ~ Philip Morris Industrial I Das Betriebsergebnis von Philip Morris Industrial ctieg zum erstenmal auf uber 100 Millionen ~ Dollar-ein Anstieg von 18'"a gegenuber 1971-, und die Erhohung des Betriebsertrages war mit 26% sogar noch griisser. Unsere Industrieunter- nehmen profitierten von dem wirtschaftlichen Aufschwung in den Vereinigten Staaten im Jahre 1972, aber noch wesentlicher ist die Tat- sache, dass man die Verkaufstaktik dieser Firmen einer radikalen Ltberprufung unterzogen hat, was zufriedenstellende Er,eebnisse in bezug auf Absatz und Profit zeitigte. Die Konzentrierung der Absatztaktik auf hochtechnisierte Erzeugnisse mit hohen Gewinnspannen brachte wesentlich erhShte Ergebnisse und Ertrage fur die Nicolet Paper Company, die Polymer Industries, Inc., eine chemische Spezialbranche, und Milprint Inc.,

der fUhrende Hersteller fiir flexible Verpackungen in den USA, registrierte hiihere Gewinne, doch die Einkiinfte sanken leicht unter den Stand von 1971 ab. _ Mission Vte/o Im September erwarben wir einenl00prozentigen Anteil der Mission Viejo Company, eines neuen Siedlungs- und Wohnbauunternehmens. Die grossten Unternehmen von Mission Vie7o befinden sich im kalifornischen Orange County, Woh- nungen werden auch in Phoenix (Arizona) und eine neue Siedlung in Denver (Colorado) gebaut. Mission Vtejos Ums9tze und Profite wurden im vierten Quartai von 1972 mit denen von Philip Morris konsolidiert. Kapitalerweiterung Wir befinden uns am Beginn eines Programms gesteigerter Kapitalaufwendungen. Unsere Aus- gaben erreichten 1972 eine Summe von 120 Mil- lionen Dollar, eine wesentliche Steigerung gegeniiber den 1971 ausgegebenen 68 Millionen. Wahrend der nachsten funf Jahre rechnen wir mit Ausgaben von iiber 500 Millionen Dollar fiir unsere erweiterten Herstellungsanlagen. Neue Aniagen werden nicht nur in den USA, sondern auch in Ubersee errichtet werden, hauptsachlich zur Tabakverarbeitung. Diese Plane unterstreichen unser Vertrauen in die fortwahrende Ausdehnung und die gesteigerten Profitmoglichkeiten der Zigarettenindustrie rund um die Erde. Der wichtigste Bestandteil dieses Programms ist ein sich in Richmond (Virginia) im Bau befind- licher Zigarettenfabrikationskomplex, der als der grosste und modernste seiner Art geplant ist. Nach Fertigstellung dieses Pro,'ekts im Jahre 1977 werden sich die Gesamtkosten. Grundstiick, Gebaude, Ausstattung und Maschinen inbegriffen, auf mehr als 200 Miliionen Dollar belaufen. Es ist vorgesehen, dass die ersten Zigaretten in diesem Werk im Jahre 1973 produziert werden und die volle Betriebsfahigkeit im Jahre 1974 erreicht wird. Das neue, achtst2Sckige Forschungszentrum in Richmond, das ungefahr 300 Wissenschaftler auf- nehmen kann, wird diesen April eingeweiht werden. Rauchen und Gesundheit Die Tabakindustrie untersttltzt auch weiterhin die Forschung zur Losung vieler ungeloster Fragen in bezug auf das Rauchen und die Gesundheit. Zum Jahresende gab die Harvard Medical School die Annahme eines Zuschusses von 2.8 Millionen Dollar bekannt, eine Spende von 8 Tabakfirmen, Philip Morris eingeschlossen, und einer Vereinigung von Tabakpflanzern. Der Zuschuss dient der Finanzierung eines fiinf- jahrigen Forschungsprogramms, das den Zusam- menhang, wenn ein soicher bestehen sollte, zwischen Zigarettenkonsurn und Lungen- und Herzkrankheiten ergrunden soll. Bei der Annahme des Zuschusses betonte der Leiter des Harvard- Projekts: "Wahrend es allgemein bekannt ist, dass der Zigarettenkonsum als eine Hauptursache dieser Krankheiten angeschuldigt wird, konnten auch viele andere, nicht so allgemein verbreitete Faktoren von Bedeutung sein. Diese schliessen die Auswirkung der Luftverschmutzung ein, die genetischen Unterschiede von anfalligen Menschen, usw. Ein direkter Kausalzusammenhang fur so viele dieser oder anderer umweltbedingter Faktoren ist noch nicht klar erwiesen." Philip Morris steuert auch zu einem Zwei-Mil- lionen-Dollar-Forschungszuschuss fiir die Wash- ington University in St. Louis (Missouri) bei, der der Untersuchung der menschlichen Krebs- immunologie dienen soll. Diese Studie lauft zur Zeit schon das zweite Jahr, und es sind ermuti- gende Fortschritte auf diesem so sehr aktiven und vielversprechenden Gebiet der Krebsforschung gemacht worden. Wahrend in bezug auf das Rauchen und die Gesundheit in den Vereinigten Staaten wenig in I I Hinsicht auf eine neue Gesetzgebung getan worden ist, haben mehrere Lander, in denen wir vertreten sind, Gesetze erlassen, die die Zigaretten- werbung einschranken und Warnungen auf Zigarettenpackungen und Anzeigen vorschreiben. Problemgebiete Die unter Wirtschaftsphase II von der Regierung vorgenommenen Lohn- und Preiskontrollen und die relativ bescheidene Fiskal- und Wahrungs- politik des Jahres 1972 verminderte die Inflations- rate des gesamten Jahres auf ungeffihr 3,8%. Die Profitbeschrankungen hielten Ihre Firma von Preissteigerungen ihrer Erzeugnisse oder derer unserer Tochtergesellschaften ab. Eine ernsthafte Gefahrdung lhrer Firma, aller multinationalen Geseltschaften sowie der nationalen Interessen stellt die jetzt vor den Kongress gebrachte sogenannte "Hartke-Burkesche Gesetzvorlage" dar. Diese Gesetzvorlage gef3hr- dpt durch die Aufhebung von Steuerkrediten in Ubersee (was die Steuerabgaben in den USA erheblich erhdhen wurde) den internationalen Handel. Diese Vorlage wurde uns auch Einfuhr- quoten aufburden und die Ausfuhr von amerika- nischen technischen Erzeugnissen verbieten. Wie bei den meisten multinationalen Gesell- schaften hat auch bei Philip Morris die inter- nationale Ausdehnung zur Vermehrung von Arbeitspl5tzen in den USA und zu einem positiven Beitrag in bezug auf unsere Zahlungsbilanz gefiihrt. Die Zahl unserer Arbeitsplatze in den USA, die direkt mit der Durchfuhrung unserer internationalen Unternehmungen in Beziehung steht, ist in diesem Zeitabschnitt um mehr als 300 b angestiegen. Wir hoffen sehr, dass der Kongress diese Zahlen ernsthaft erwagt, ehe er uns irgend- welche produktionshemmenden Massnahmen aufbiirdet. 1972 haben fiinf Staaten und der District of Columbia Gesetze eingebracht oder verab- schiedet, die eine Erhiihung der Umsatzsteuern fiir Zigaretten genehmigen. Vergleichsweise hatten 1971 sechzehn Staaten die Steuern erhoht. Leider konnen wir uns keiner begriindeten Hoff- nung hingeben. dass die Zahl der Steuerer- hiihungen auf oder nahe dern Stand von 1972 bleiben wird. Die Umsatzsteuereinnahmen durch Zigaretten beliefen sich 1972 auf die Gesamtsumme von 5,2 Milliarden Dollar, eine Summe, die um beinahe 50% gr6sser ist, als der aus dem Zigaretten- verkauf entstehende Gesamteinkommen der sechs amerikanischen Hersteller zusammengenommen (nach Abzug der Bundes-Umsatzsteuer). Diese Ge- samtsumme setzt sich aus 2,1 Milliarden an Bundes-Umsatzsteuern, 3,0 Milliarden an staat- lichen Steuern und 0.1 Milliarde an stadtischen und lokalen Steuern zusammen. Es ist allgemein anerkannt, dass die Verbrauchs- steuer wie auch die Verkaufssteuer, eine regressive Form der Besteuerung darstellt, da mit jedem Steuerdoilar ein grtSsserer Anteil der niedrigeren Einkommenssparte verschlungen wird. Man hat nachgewiesen, dass die Verbrauchssteuer direkt die armere Stadtbevolkerung benachteiligt, die zu einern grdsseren Zigarettenkonsum neigt. In vielen Fallen haben sich ErhBhungen der Verbrauchssteuer wenigstens teilweise selbst den Garaus gemacht. In der Stadt New York, wo die "Teersteuer" auf bereits betrachtliche Verbrauchs- steuer aufgestockt wurde, ging die Zahl von besteuerten Zigaretten standig zuriick. 1972 ying die Zahl von besteuerten Zigaretten auf den ahresstand von 1965 zurilck. Wahrend sich die tatsachiichen Steuereinnahmen nur unwesent- lich erhoht haben, wird der legale Zigaretten- verkauf aus New York verdrangt oder durch ge- schmuggelte Zigaretten ersetzt. Nach einer im vorigen Jahr durchgefuhrten Schatzung der New York State Commission of Investigation war in der Stadt New York jede dritte Zigarettenpackung Schmuggelgut. Soziale Verantwortltchkett Ende 1971 begann Philip Morris mit einem das gesamte Unternehmen umfassenden Rechen- schaftsbericht uber unsere Verfahrensweise in den Bereichen, die unter dem Titel "Korporative Verantwortlichkeit" zusammengefasst sind. Wir wollten herausfinden, ob, wie weit und in welchen Bereichen die Grunds'dtze und VerfUgun- gen der Firmenfiihrung befolgt bezw. durch- gefuhrt werden. Diese Untersuchung nahm bei- nahe ein Jahr in Anspruch und die Ergebnisse legen die "HShenmarke" und Richtung der kOnf- tigen Verwaltungspolitik auf Gesamt- und Einzelbetriebsebene fest. Unser gesamtes korporatives Prograrnm fand im Oktober eine positive Anerkennung in einem vom Konsumenten-Unterausschuss des US-Senats- ausschusses ffir Handel (Vorsitz: Senator Frank E. Moss, Utah) vorbereiteten und ver6ffentlichten Bericht mit dem Titel "Initiativen in kor- porativer Verantwortlichkeit". Der Bericht des Handelsausschusses des Senats, der 300 Spitzenunternehmen aus der 500 solche Unter- nehmen umfassenden Liste der Zeitschrift "Fortune" studierte, erwahnt den "von Philip Morris vorgelegten, ausgezeichneten Bericht". Zwei neue Ausschusse unseres Vorstandes er- hielten 1972 die Aufgabe, unsere fortlaufenden Programme auf diesen Gebieten zu iiber- prufen und neue einzuleiten: der Ausschuss fur Umweltschutz und der Ausschuss fiir korpora- tive Verantwortlichkeit und Mitwirkung. Diese Ausschiisse sollen die Fortschrittlichkeit und Produktivit5t unserer Programme und unseres Ver- haltens sicherstellen. Unter anderem verfolgen wir solche Ziele wie die Anstellung von Frauen, von Aagehorigen einer Minderheit und Kriegs- veteranen, die Erlangung gleicher Rechte fiir Min- derheiten und Frauen, verstarkte Geschafts- kontakte mit Unternehmen, die im Besitz von Minderheitsgruppen sind, Ausbildung am Arbeitsplatz, tatkraftige Mitwirkung bei Gemein- schaftsfragen und den Kunsten, sowie eine wesentliche Verminderung oder die Abschaffung der Verschmutzung durch unsere Fabriken. Nach einer langen intensiven Untersuchung hat Philip Morris zu Beginn des Jahres 1973 ein ein- zigartiges und bahnbrechendes Stipendienpro- gramm zur Unterstutzung der beruflichen Aus- bildung als spezifische Erganzung unserer FSrderung hoherer Erziehung bekanntgegeben. Wir hoffen und erwarten, dass dieses Pro- gramm, welches die Unterstiitzung des US- Arbeitsministeriums (Department of Labor) fand, ein wesentliches Erziehungsexperiment der Zukunft bilden wird. 1972 hat sich Miller Brewing endgiiltig auf den Einsatz von voll wiederverwertbaren Alu- miniumbierdosen umgestellt, und gleichzeitig kamen die Kontrollmassnahmen von Nicolet Paper und Formosa Springs zur vollen Wirkung. Die Bemiihungen von Mission Viejo um die Erhaltung und Verschonerung der Umwelt nach dem Hauserbau erwiesen sich als ausser- ordentlich erfolgreich. Unser Vorstand erlitt 1972 durch das Ableben von Dr. Jess H. Davis, Prasident des Stevens Insti- tute of Technology, einen schweren Verlust. Wir werden seine Intelligenz und Einsatzbereitschaft vermissen. Spater konnte unser Vorstand durch die Wahl von Mrs. Whitney M. Young, der Frau des verstorbenen Burgerrechtskampfers, und von Mr. John T. Landry, Vizeprasident von Philip Morris Incorporated und Gruppenvizepr5sidentund Di- rektor der Vertriebsabteilung von Philip Morris USA, zu Vorstandsmitgliedern einen positiven Zuwachs verzeichnen. Wir sehen der Zukunft von Philip Morris fiir 1973 und die folgenden Jahre mit Zuversicht ent- gegen. Unser Wachstum im Zigarettengeschaft, sowohl in den USA wie auch auf weltweiter Basis, ist allgemein bekannt. Wenn man die Vi- talitat und Schwungkraft unserer Zigaretten- marken in aller Welt in Betracht zieht, dann haben wir alles Recht zu glauben, dass unser Wachs- tum auf dem Zigarettensektor anhalten wird. Wir glauben auch an die grossen ZukunftsmogIich- keiten bei den Brauerei-, Industrie- und Wohn- bauunternehmen unserer Firma. Wir schulden allen unseren 33 000 Mitarbeitern bei Philip Morris in diesem Land und in der ganzen Welt Dank fiir ihren einsatzfreudigen Bei- trag zu unserem standigen Weiterwachsen, und wir danken ihnen ebenfalls fiir ihre grossartige Leistung. Fiir den Aufsichtsrat respektvolt vorgelegt von a Joseph F. Cullman 3rd Vorsitzender des Aufsichtsrats und Leiter des Gesamtunternehmens ~.,.~.. W,.:~..a,,,.....~ George Weissman Vorsitzender und Hauptgeschaftsfiihrer I 12

I I I 13( Rassegna delt'Anno La Vostra Societa ha presentato nel 1972 eccezionali entrate ed utili d'esercizio e, per it diciannovestmo anno consecutivo, utili per azione maggiori di quelli dell'anno precedente. Le entrate consolidate d'esercizio per it 1972 sono aumentate di oltre it 15% e it reddito netto del 22,6%. Assumendo esercitate tutte le opzioni, l'utile per azione e aumentato del 20,1 %, mentre 1'aumento e del 16.2% se riferito alle azioni esistenti. Net 1972 Ia Philip Morris ha continuato a gua- dagnare terreno nell'industria mondiale delle sigarette. Come vendite unitarie, la Philip Morris 2 divenuta la seconda nel mondo tra le societa private del ramo sigarette. Marlboro e divenuta la marca numero uno del mondo e continua ad essere la marca numero due negli Stati Uniti. La Philip Morris 6 tuttora Ia societa numero due del ramo sigarette negli Stati Uniti. Le vendite di sigarette nel mondo sono aumentate de14%u a circa 3,450 miliardi di unita. II quanti- tativo totale venduto dalla Philip Morris, tanto negli Stati Uniti che all'estero, rappresenta oggi it 6,5% del totale mondiale. Le vendite di sigarette negli Stati Uniti sono aumentate nel 1972 per it terzo anno consecutivo sino a raggiungere un totale approssimativo di 554 miliardi di unita, un aumento cio6 di oltre it 3%. Le vendite unitarie delia Philip Morris negli Stati Uniti sono aumentate di oltre it 13% durante t'anno, e la nostra quota del mercato e salita ad oltre ii 20% alla fine dell'anno. Le entrate consolidate ordinarie delta Philip Morris sono aumentate durante gli ultimi cinque anni ad un saggio annuale composto del 18,7%. L'utile netto durante tale penodo e aumentato al saggio composto annuale del 23,3% e gli utili per azione, assumendo esercitate tutte le opzioni, sono saliti del 17.6% all'anno. Per it 45mo anno consecutivo la Vostra Societa ha pagato un divi- dendo suite sue azioni ordinarie. Per it quinto anno consecutivo it dividendo @ stato aumentato; nel 1972 1'aumento @ stato it massimo permesso dai regolamenti per la 2a Fase imposti dal governo. 11 dividendo annuale corrente is $1,296 per azione ordinaria. Vendite negli Stati Unit! Le vendite della Philip Morris negli Stati Uniti sono state capeggiate dalla Marlboro, in continuo accrescimento, che ha raggiunto una quota del 12,546 del mercato nazionale, rispetto al 6,6% di cinque anni or sono. Marlboro si e avvicinata alla marca numero uno degli Stati Uniti e con- tinua ad aumentare it suo distacco dalle marche classificate al disotto di essa. La Philip Morris U.S.A. ha ulteriormente rinforzato la sua posizione di primato net campo delle sigarette 100 mm con le Benson & Hedges 100's, che sono divenute la prima marca 100 mm negli Stati Uniti durante it 1972, ed anche con le Marlboro 100's, Parliament 100's e Virginia Slims. 11 settore 100 mm i` quello in piu rapida crescita negli Stati Uniti. con vendite complessive rappresentanti oltre it 21% del mercato durante it 1972. I endite Internazionali Nel 1955, quando-allo scopo di integrare le esportazioni-la Philip Morris avvid 1'attivit'd delle sue affiliate intemazionali, essa vendette 4,3 miliardi di sigarette nei mercati esteri. Net 1972 la Philip Morris International ha venduto 113 miliardi di unita in oltre 160 paesi e terrttort tramite esportazioni di oltre 14 miliardi di sigarette e manifatture locali di socieNe affiliate o licenziatarie. La Philip Morris International ha affiliate fabbri- canti in Argentina, Australia. Belgio, Canada, Isole Canarie, Repubblica Domenicana, Ger- mania, Guatemala, Olanda, India, Indonesia, Messico, Nigeria, Pakistan. Panama, Svizzera, Regno Unito e Venezuela. Affiliate distributrici esistono in Ecuador, Francia, Grecia, Nuova Zelanda, Portorico e Svezia. Tra I IicenziatarI vi sono fabbricanti in Austria, Bolivia, Finlandia, Haiti, Hong Kong, Italia, Malesia, Antille Olandesi, Filippine e Jugoslavia. Philip Morris Europe, costituente la massima regione come vendite e profitti, ha mantenuto it suo rapido ritmo di espansione mediante la messa in esercizlo di una nuova fabbrica in Berlino Ovest e l'ingrandimento dello stabilimento in Bergen Op Zoom delia Philip Morris Holland B.V. Marlboro 6 tra le marche primarie in Austria, Finlandia, Italia e Svizzera e ha vendite rilevanti in altri paesi europei. Muratti Ambas- sador P un'altra primaria marca della Philip Morris nei mercati europei. Le regioni Asia/Pacifico, Canada, e Latino Americana-Iberia deila Philip Morris International hanno anche esse registrato un rafforzamento delle loro rispettive posizioni net mercato durante il 1972 ed aumentati vendite e profitti. Miller Brewing Miller Brewing ha dedicato sostanziale lavoro e mezzi alta rivitalizzazione delle sue attivit'a e superato un anno difficile. Malgrado nel 1972 Ie I vendite siano aumentate quantitativamente, come pure le entrate ordinarie, ii reddito d'esercizio della Miller is diminuito. La diminuzione del reddito d'esercizio riflette Ia intensificata concorrenza nel mercato della birra e gii aumenti nei costi delle materie prime, manodopera e materiali per imballaggio. Miller ha affrontato it rinvigorimento delle sue vendite e dei suoi profitti con l'effettuazione dl cambiamenti profondi, I quali non hanno ancora prodotto risultati finanziari per la socletA. I ranghi dei funzionari dirigenti sono stati rinforzati sostanzialmente, il marketing Z stato riorganizzato e la rete del distributori b in corso di rafforza- mento. Nel 1972 la linea del prodotti della Miller 6 stata estesa con nuovi prodotti ed acquisti. Diverse innovazioni nella confezione hanno dato favorevoli risultati. La continua concentrazione nell'industria della birra promette alla Miller delle possibilita a lungo termine dato che P una delle tre marche di birra di lusso distribuite in,tutta la nazione e questo 6 il settore del mercato che registra rapido aumento. Nel 1972 it settore della birra di lusso ha rappre- sentato it 30% del mercato contro i123%n del 1967. Philip Morris Industrial Le entrate ordinarie della Philip Morris Industrial hanno superato per Ia prima volta i 100 milioni di dollari, con aumento di oltre it 18% risPetto al 1971, e t'aumento nel reddito di esercizio e stato anche maggiore, del 26%. Le nostre societ6 indu- striali hanno beneficiato del miglioramento ge- nerale nella economia nazionale durante it 1972, ma it fattopiu importante b che le coordinazioni strategiche net campo vendite dl queste societa sono state nettamente rimesse a fuoco con risul- tati soddisfacenti in termini di vendite e profitti. L'orientamento della strategia di vendita verso Qrodotti ad alta tecnologia-alti margini 6 risultato in notevoli aumenti nelle entrate e net reddito della Nicolet Paper Company e Polymer Industries, Inc., la quale fabbrica specialitn chimiche. Milprint Inc., la primaria produttrice nazionale di imbaliaggi fiessibili ha riportato maggiori entrate, ma il reddito ~ diminuito leggermente rispetto al 1971. Mission VieJo NeI settembre abbiamo acquistato it controllo al 100% della Mission Viejo Company, dedicata allo sviluppo di nuove comunita ed alle costruzionl residenziali. I maggiori progetti della Mission Viejo sono siti in Orange County, California, ma sta costruendo case anche in Phoenix, Arizona ed una nuova comunita a Denver, Colorado. Le vendite e i profitti della Mission Viejo sono stati consolidati con quelli delle altre operazioni della Philip Morris durante il quarto trimestre del 1972. Espansione degli Investimenti Siamo allo stadio iniziale di un grandioso pro- gramma di investimento. Ne] 1972 tali nostre spese hanno raggiunto i 120 milioni di dollari con aumento sostanziale sui 68 milioni di dollari spesi nel 1971. Durante it susseguente periodo di cinque anni noi contiamo di spendere oltre 500 milioni di dollari per nuovi o maggiorati impianti produttivi. Essi verranno costruiti non solo negli Stati Uniti, ma anche oltremare e saranno addetti principalmente ad operazioni nel ramo tabacchi. Tali nostri piani sottolineano la nostra fiducia nella continua espansione a lungo termine dell'industria delle sigarette e nella sua redditi- viNa nel mondo intero. Il componente pit] significativo di questo pro- gramma b lo stabilimento per la produzione di sigarette attualmente in corso di costruzione a Richmond, Virginia, progettato quale it piu grande ed ii pitl efficiente impianto del mondo dI questo ramo. Quando it progetto verr'e completato nel 1977, it suo costo totale, includendo terreno, edifici, impianti e macchinari, superer'e 1200 millo- ni di dollari. Ci si attende che le prime sigarette saranno fabbricate in questo stabilimento durante it terzo trimestre del 1973 e che la costruzione degli edifici sar'e ultimata nel 1974. La nuova Torre delle Ricerche, ad Otto piani, In Richmond, che ospiteri circa 300 scienziati, sarn dedicata questo aprile. II Fumo e !a Salute L'industria del tabacco continua ad estendere it suo appogglo alle ricerche volte a trovare risposte ai molti problemi non risolti riguardanti it rap- porto tra it fumare e la salute. Alla fine deli'anno, la Harvard Medical School ha annunziato che accettava una donazione di $2.8 milioni da parte di otto societ3 dcl ramo tabacchi, tra le quati Ia Philip Morris, e una associazione di coltivatori di tabacco. La donazione provveder3 mezzi per un programma di ricerche di cinque anni sul rapporto-se esiste-tra it fumare sigarette e malat- tie polmonari e cardiovascolari. Nei dare notizia delta donazione, it capo ricercatore di Harvard ha detto: "Mentre @ di pubblico dominio it fatto che it fumare sigarette 6 stato accusato di essere una delle massime cause di queste malattie, moiti altri fattori. assai meno pubblicizzati, pos- sono anche rivestire importanza. Essi includono 1'essere esposti a sostanze inquinanti 1'aria, le differenze genetiche nella suscettibilit3 della persona esposta. eccetera. Una relazione causale diretta per molti di questi ed altri fattori ambien- tali non P stata chiaramente provata". Philip Morris partecipa anche nella donazione per ricerche di 2 milioni di dollari alla Washing- ton University di St. Louis, Missouri, per lo studio delta immunologia al cancro nell'uomo. Questo studio 6 entrato adesso net suo secondo anno e si registra un progresso incoraggiante in questo campo delle ricerche sul cancro, tanto attivo e promettente. Mentre negli Stati Uniti vi b stato ben poco di nuovo nel campo della legislazione relativa at fumare-salute, diversi paesi net quali abbiamo attivithi hanno messo in vigore leggi che limitano la publicit'a per sigarette e che impongono diffide sui pacchetti e nella publicit$. I problemi I regolamenti del Governo per it controllo dei salari e del prezzi, Fase 2a, e la politica relativa- mente mite nei campi fiscale e monetario che ha prevalso per it 1972 hanno prodotto una inflazione limitata, di circa it 3,8% per tutto I'anno. Le limitazioni del margine di utile hanno impedito alla Vostra SocieNe di rialzare i prezzi sui prodotti suoi e della sue affiliate. Una minaccia grave alla Vostra Societa, a tutte le societil plurinazionali e all'interesse della Nazione 6 rappresentata dal cosidetto "Hartke- Burke Bill" ora sull'agenda del Congresso Questa proposta di legge minaccia di dann.eg- glare il commercio internazionale mediante ta eliminazione del crediti per tasse pagate all'estero, cii) che porterebbe ad incremento sostanziale dei carichi fiscali negli Stati Uniti. Inoltre Ia proposta di leqge imporrebbe quote sulte importazioni e proibirebbe 1'esportazione delta tecnologia nazionale. Analogamente a quanto A stato registrato dalla maggioranza delle societa plurinazionali, la espansione Inter- nazionale della Philip Morris ha avuto come risultato un aumento nell'impiego di personale negli S.U.A. e un contributo positivo alla bilancia dei pagamenti. II numero dei nostri dipendenti negli Stati Uniti che lavora in ap ogglo delle nostre operazloni internazionali ~aumentato di oltre it 300% durante tale periodo. Noi speriamo sinceramente che il Congresso esaminer'a gli atti prima di imporre al paese rego- lamenti sconsiderati. Nel 1972, cinque stati e il Distretto di Columbia hanno approvato regolamenti che aumentano o sanzlonano aumenti nelle tasse di consumo suite sigarette, mentre it numero di Stati che ha approvato aumenti nel 1971 6 stato di 16. Sfortunatamente non possiamo realisticamente attenderci che it numero del futuri aumenti di tasse rimanga nelle vicinanze del livello del 1972. Nel 1972 il totale deile tasse dirette di consumo sulle sigarette 6 ammontato a $5,2 miliardi, cifra che eccede quasi del 50% le entrate nette com- plessive del sei fabbricanti nazionali derivanti da vendite di sigarette (non considerando la tassa di consumo federale). Il totale indicato comprende 2,1 miliardi di dollari di tasse di consumo federali, 3 miliardI di dollari al livello statale, e 0,1 miliardi di dollari al livello municipale e provinclale. E fatto riconosciuto che Ie tasse di consumo, al pari delle tasse sulle vendite, rappresentano una forma di tassazione regressiva in quanto ogni doilaro percepito assprbe in proporzlone mag- giore I redditt bassi. E stato documentato che le tasse di consumo costituiscono una forma di attiva discriminazione contro residenti poveri delle cittA che hanno la tendenza a fumare un maggior numero di sigarette. In molti casi, gli aumenti nelle tasse di consumo sono stati almeno in parte controproducenti. Nella Citt3 di New York, ove la tassa "catrame" 6 stata aggiunta a sostanziali tasse di consumo gia esistenti, il numero delle sigarette tassate continut a scendere. Nel 1972 il numero delle sigarette tassate b sceso al livello di quelle tassate nel 1965. ~ Mentre le entrate effettive dalla tassazione sono 0 aumentate in modo marginale, le vendite legit- ,p time di si8arette vengono distolte dalla Citt$ di ~p New York oppure sono soppiantate da sigarette Q di contrabbando. La Commissione d'Inchiesta

dello Stato di New York calcola che nella Citta di New York to scorso anno, uno su tre pacchetti di sigarette consumati e di contrabbando. Responsabilitd Sociale Verso la tine del 1971 Ia Philip Morris ha avviato una veritica estesa all'intera azienda delte prassi .eguite nelle aree che cadono sotto la denomi- naztone di "responsabilitk societarie", nell'intento di accertare se la politica e le direttive dell'am- mmistraztone erano attuate in pratica e sino a quale misura e dove. Dopo quasi un anno di lavoro i risultati sono serviti a definire punti di rifertmento e dtrettrici per la futura azione ` degli amministratori, al livello della societa in generale. delle singole societk di gestione e delle singole fabbriche. Durante it mese di ottobre il programma generale della Societk ha ricevuto favorevole riconosci- mento in una relazione dal titolo °Iniziative in tema di responsabilitk societarie", preparata e pubblicata dal Sottocomitato per i Consumatori del Comitato per it Commercio del Senato degli Stati Uniti, sotto Ia presidenza del Sen. Frank E. Moss dello Utah. La relazione del Comitato per il Commercio del Senato, che ha coperto 300 delle maggiori societ~ della lista di "500" preparata dalla rivista Fortune, menzionava ". . . un eccezionale rapporto presentato dalla Philip Morris . . .". Durante il 1972 la responsabilit'a per la verifica dei nosiri programmi permanenti in queste aree, e per I'avvio di nuovi programmi, fu affidata a due nuovi comitati del nostro Consiglio d'Am- ministrazione: it Comitato per 1'Ambiente ed il Comitato per la ResponsabilitA ed i Contributi Sociali. Questi comitati sono stati istituiti per assicurare che i nostri programmi e attivita siano progressivi e produttivi. Gli obiettivi che abbiamo perseguito comprendono assunzione di personale femminile. di gruppi di minoranza e veterani, miglioramento della eguaglianza di opportunitk per mmoranze e donne, aumento delle transazioni con ditte di propriet3 delle minoranze, addestra- mento sul lavoro, rilevante interessamento tanto nella vita delia comutiitu che nelle arti. e riduzione sostanziale oppure eliminazione degli inquina- menti provenienti dalle nostre fabbriche. AI principio del 1973, dopo un lungo periodo di studi intensi, la Philip Morris ha annunziato un eccezionale programma unico e innovativo di borse di studio, in appogglo alPeducazione pro- fessionate, quale supplemento speciale del nostro appoggio atl'educazione superiore. Noi speriamo e contiamo che questo programma, che ha ricevuto i'approvazione del Ministero del Lavoro degli Stati Uniti, possa rapprescntare un signifi- cativo esperimento nel campo dell'educazione col passare del tempo. Nel 1972 la Miller Brewing has ultimato la sua conversione all'uso di scatole di alluminio completamente riutilizzabili, mentre i programmi per it controllo delle emissionj da parte della Formosa Springs e la Nicolet Paper sono entrati in piena operazione. Gli sforzi della Mission Viejo nel preservare ed abbellire I'ambiente durante e dopq Ia costruzione delle residenze sono stati coronati da grande successo. II Vostro Consiglio d'Amministrazione fu rat- tristato nei 1972 dalla morte del Dolt. Jess H. Davis, Direttore dello Stevens Institute of Technology. Sentiremo la mancanza della sua saggezza e devozione. II nostro Consiglio d'Am- ministrazione Z stato pitl tardi arricchito mediante la elezione a Consigliere della Sig. ra Whitney M. Young Jr., vedova del compianto campione dei diritti civili, e del Sig. John T. Landry, Vice Direttore della Philip Morris Incorporated, Vice Direttore di Gruppo e Capo del Marketing della Philip Morris U.S.A. Siamo ottimisti circa it futuro della Philip Morris per it 1973 e per gli anni a venire. ti nostro passato di accrescimento nel ramo sigarette, negli Stati Uniti ed in tutto il mondo, t noto a tutti. Considerati la vitalit3 e lo slancio delle nostre marche per il mondo intero, abbiamo ogni diritto di credere che il nostro accrescimento nel campo sigarette continuerk. Riteniamo anche che vi sia un grande potenziale futuro nei rami delta nostra attiviNe dedicati alla produzione di birra, ai prodotti industriali ed alle costruzioni residenzlali. Siamo grati a tutti 133.000 dipendenti della Philip Morris, in questo paese e net mondo, per it loro devoto apporto alla nostra continua espansione e li ringraziamo per il loro eccellente lavoro. Presentato rispettosamente per it Consiglio d'Amministrazione ZL- { Joseph F. Cullman 3rd Presidente del Consiglio e Chief Executive Officer A_,,.I~ w4:.v 4',.,., George Weissman Direttore Generale e Chief Operating Officer Jaarrapport In 1972 meldde Uw firma rekordomzetten en -winsten, als ook voor het negentiende opeen- volgende jaar. een hogere winst per aandeel. De gekonsolideerde omzet nam in 1972 met mcer dan 15.0% toe, terwijl de nettowinst met 22,6% steeg. De winst steep met 20,1%, als alle aandeel- houders gebruik zouden maken van hun optierecht en met 16,2 < per aandeel na conversie. Philip Morris verwierf in 1972 een groter aandeel in de internationale sigarettenmarkt. In hoeveel- heid verkochte sigaretten uitgedrukt werd Philip Morris de op ts6n na grootste sigarettcnfabrikant ter wereld met beursnotering. Marlboro is op bet ogenblik bet meest verkochte merk ter wereld en bleef nummer twee op de Amerikaanse markt. Philip Morris is nog steeds op 68n na de grootste sigarettenfabrikant in de VS. De verkoop van de sigarettenindustrie nam over de gehele wereld toe met 4% tot een totaal van ongeveer 3.450 miljard stuks. De totale verkoop van Philip Morris (VS. en internationaal), in sigaretten uitgedrukt, bedraagt nu 6,5% van het totaal over de gehele wereld. De verkoop van de industrie in the V.S. stceg in 1972 voor bet derde opeenvolgende jaar tot onge- veer 554 miljard stuks, een toename met meer dan 3%. De verkoop van Philip Morris steeg in de V.S., in sigaretten uitgedrukt, met meer dan 13% en ons marktaandeel nam toe tot meer dan 20% aan bet eind van bet jaar. De gekonsolideerde omzet van Philip Morris groeide tijdens de afgqlopen vijf jaar met een jaar- gemiddelde van 18.7%. De netto-winst steeg in deze periode met een gemiddelde van 23.3°b en de winst per aandeel, voor konversie, met 17,6% per jaar. Voor het 45ste opeenvolgende jaar keerde Uw firma een dividend uit op de gewone aandelen. Voor bet vijfde opeenvolgende jaar werd het divi- dend verhoogd; de verhoging over 1972 bedroeg het maximum, dat de richtlilnen gedurende de tweede fase van de loon- en prijsmaatregelen toestaan. Het huidige jaarlijkse dividend be- draagt nu $1,296 per gewoon aandeel. Verkoop in de Verenigde Staten De toename in de verkoop van Philip Morris in de VS. was in de eerste plaats te danken aan de voortdurende yroei van Marlboro. Dit merk be- reikte een marktaandeel van 12,5%, vergeleken met 6,69'o vijf jaar geleden. Marlboro komt steeds dichter bij het meest verkochte merk in de VS. en liep, net als Philip Morris USA, uit op de merken die in rangorde volgen. Philip Morris USA verstevigde zijn positie verder als grootste in de 100mm klasse, met Benson & Hedges 100,dathet meestverkochte merk 100mm stgaretten in 1972 werd, met Marlboro 100, Parliament 100 and Virginia Slims. De 100mm groep is bet snelst groeiende soort sigaret op de Amerikaanse markt. De totale verkopen van 100mm sigaretten namen in 1972 meer dan 21% van de markt voor hun rekening. Internatfonaal Toen er in 1955 een begin werd gemaakt met de nevenaktiviteiten in andere landen, verkocht Philip Morris at 4,3 millard sigaretten op de in- ternational markt. In 1972 verkocht Philip Morris 113 miljard sigaretten in meer dan 160 landen door export van 14 miljard sigaretten en lokale produktie van f[lialen en licentiehouders. De dochtermaatschappijen van Philip Morris International, die zich met produktie bezig hou- den, bevinden zich in Argentinie, AustraliE, BelgiB, Canada, de Canarische Eilanden, de Domini- caanse RepublIek, Duitsland, Guatemala, Holland, Indie, Indonesib, Mexico, Nigeri8. PakIstan, Panama, Zwitserland, het Verenigd Koninkrijk en Venezuela. Er zijn verkoop-dochtermaatschappijen gevestigd in Ecuador, Frankrijk, Griekenland, Nieuw Zeeland, Puerto Rico en Zweden. Tenslotte behoren fabrikanten in Oostenrijk, Bolivia. Fin- land, Haiti, Hong Kong, Itali6, Malaysia, de Nederlandse Antillen, de Philippijnen en Joego- SlaviB tot onze licensie-houders. Gedurende het af¢elopen laar handhaafde Philip Morris Europe-als maatschappij die de grootste bijdra e levert aan de omzet en de winst van Philiporris International-zijn groei, die aan- vullende fabrikagefaciliteiten in Zwitserland, Nederland en West-Berlijn noodzakelijk maakte. Marlboro is nu een van de voornaamste Europese sigarettenmerken, met name in Oostenrijk, Fin- land, Italiil en Zwitserland. Op de andere markten in Europa neemt de afzet van dit merk snel toe. Muratti Ambassador komt op de tweede plaats van de meer dan honderd sigarettenmerken die Philip Morris in Europa op de markt brengt. Ook in de verkoopgebieden in Azi~/Stille Oceaan, Canada, Latijns-Amerika en Iberie versterkte Philip Morris International in 1972 zijn markt- positie en werden grotere verkopen en winsten gerapporteerd. Miller Brewing Miller Brewing getroostte zich aanzienlijke krachtsinspanningen en investeringen ten behoeve van een reorganisatie en versterking van haar aktiviteiten gedurende een moeilijk jaar. Hoewel de verkoop van bier in vaten tocnam in 1972 en de omzet steeg. daalde de bedrijfsinkom- sten. Deze dating weerspiegelt de versterkte prijs- konkttrrentie in de hicrmarkt als ook de stijgende kosten voor grondstoffen, arbeid en verpakkings- materialen. Miller heeft het op zich genomen. de verkoop en bet winstvermogcn te versterken door het invoeren van ingrijpende veranderingen, die nog niet weer- spiegeld zijn in de financicle resultaten der onder- nemmg. De topleiding werd aanzientijk versterkt, de verkoopmethoden werden herzien en he[ net van verkoopagenten wordt verstevigd. Het assor- timent van Miller werd in 1972 door nieuwe pro- dukten en onderncmingen uitgebreid. Verschei- dene nieuwe verpakkingen werden enthousiast ontvangen. De voorigaande koncentratie van de bier-industrie stelt Miller goede mogelijkheden over lange ter- mijn in het vooruitzicht. daar bet cen van de drie kwaliteitsmerken is. die overal in de Verenigde Staten verkocht worden en dit de marktsector is. die bet snelst groeit. De kwaliteitsbier-sector nam in 1972 30% van de totale markt voor zijn reke- ning, vergeleken met 23% in 1967. Philip Morris Industrial De omzet van Philip Morris Industrial lag voor bet eerst boven de $100 miljoen, een toename van 18% over 1971 en de bedrijswinst nam zelfs toe met een nog hoger percentage: 26%. Onze industricle ondernemingen profiteerden van de verbeteringen in de Amerikaanse economic in 1972. maar belangrijker nog is het feit, dat de ver- koopstrategie van deze-ondernemingen grondig onder de loep genomen werd. Dit letdde, wat ver- koopvolume en winst betreft. tot resultaten. die tot voldoening stemmen. ITet richten van de ver- koopstrategie op technisch hoog ontwikkelde pro- dukten met een hoge winstmarge leidde tot een aanzicniijk toegenomen omzet en winst bij de Nicolet Paper Company, bij Polymer Industries. Inc., een fabrikant van bijzondere chemische pro- dukten. Milprint Inc.. Amerika's grootste produ- cent van specialiteits-verpakkingen rapporteerde hogere inkomsten, maar ecn winst die kleiner was dan in 1971. Mission Viejo In september verwierven wij 100 % der aandelen van Mission Viejo Company, cen nieuwe onderne- ming voor landontwikkeling en woningbouw. De grootste projekten van Mission Viejo bevinden zich in Orange County in de staat Californie. Het bedrijf bouwt ook woningen in Phoenix (Arizona) en een nieuwe woongemeenschap in Denver (Colorado). De verkoop- en winstcijfers van Mission Viejo werden in bet vierde kwartaal van 1972 gekon- solideerd met die van de overige aktiviteiten van Philip Morris. Investeringen Wij staan aan bet begin van een groot investerings- programma. In 1972 besteedden wij hiervoor $120 miljoen, wat een aanzienli,ke toename is verge- leken met bet bedrag van 568 miljoen dat wij in 1971 uitgaven. Gedurende de komende periode van vijf jaar verwachten wij meer dan $500 miljoen te besteden aan nieuwe produktiefaciliteiten of uitbreiding van bestaande installaties. Deze zullen niet alleen in de VS. gebouwd worden, maar ook In het buitenland en wel voornamelijk voor het fabriceren van tabaksartikelen. Deze plannen leggen de nadruk op ons vertrouwen in de voort- durende groei en in het winstvermogen van de sigarettenindustrie overal ter wereld. Het belangrijkste onderdeel van dit plan is een fabriekscomplex voor sigarettenfabrikage, dat nu in Richmond, Virginia, in aanbouw is-de grootste en meeste efficiente ter wereld. Als dit projekt in 1977 gereed is, zutlen de totale kosten, met in- begrip van terreinen, gebouwen, uitrusting en machinerieen, meer dan $200 miijoen bedragen. Men voorziet dat de eerste sigaretten in deze fabriek in 1973 gefabriceerd zullen worden en dat de gebouwen in 1974 gereed zullen zijn. De nieuwe research-toren van acht verdiepingen in Richmond, die onderdak zal geven aan 300 vaklieden, zal in april a.s. in gebruik genomen worden. Roken en Gezondheid De tabaksindustrie gaat door met het uitbreiden van steun aan wetenschappelijk onderzoek dat gericht is op het beantwoorden van de vele onop- 114

I I I geloste vragen, die betrekking hebben op roken en gezondheid. De medische fakulteit van de uni- verstteit van Harvard maakte aan het eind van het jaar bekend, dat een subsidie van $2,8 miljoen dollar was aanvaard, gegeven door acht tabaks- maatschappijen (o.a. Philip Morris) en een groep tabakstelers. De subsidie zal een researchpro- gramma van vijf jaar financieren over het verband (zo dat bestaat) tussen het roken van aiparetten en long- en vaatziekten. Toen de subsidie bekend gemaakt werd. zei de voornaamste onderzoeker, "Terwijl het algemeen bekend is, dat het roken van sigaretten word[ aangevoerd als cen van de belangrijkste oorzaken van deze ziekten, kunnen vele andere faktoren, die niet zo'n uitgebreide F ublikatie kregen, ook van belang zijn. Tot deze aktoren behoren het blootgesteld zijn aan luchtverontreiniging, de erfelijke verschillen in gevoeligheid enz. Een direkt oorzakelijk verband is niet duidelijk aangetoond voor vele van deze of andere milieufaktoren." Philip Morris neemt ook deel in een research- subsidie van $2 miijoen voor de Washington Universiteit in St. Louis (Missouri), bestemd voor het onderzoek van kanker-immunologie bij de mens. Dit onderzoek bevindt zich thans in zijn tweede jaar en men maakt bemoedigende vooruit- gang op dit aktieve en veelbelovend gebied van kanker research. Er was in de Verenigde Staten weinig te doen, wat nieuwe wetgevende aktiviteit op het terrein van roken en gezondheid aangaat, maar verscheidene andere landen, waarin wij werkzaam zijn, namen wetten aan. waardoor beperkingen worden opge- legd voor het adverteren van sigaretten en waar- door waarschuwingen vereist zijn op de pakjes en in advertenties. Problemen De tweede fase van de loon- en prijsbeheersings- maatregelen der regering en het relatief voor- zichtig fiscaal en monetair beleid in 1972 leidden tot een beperktere inflatie van ongeveer 3.8% voor het gehele jaar. Beperkingen ten aanzien van de winstmarges verhinderden, dat Uw onderneming de prijzen van haar produkten, of die van haar dochtermaatschappijen, kon verhogen. Een ernstige bedreiging voor Uw onderneming, alle multi-nationale ondernemingen en het alge- meen belang wordt gevormd door de z.g. "Hartke-Burke Wet," die nu in het Congres in behandeling is. Deze wet dreigt ernstige schade toe te brengen aan de door in het buitenland betaalde belastingen niet langer als aftrekposten te beschouwen. Tevens zou deze wet invoerquota's vaststelten en de uitvoer van Amerikaanse tech- nologie verbieden. Zoals het *eval was voor de meeste multi-nationale ondernemtngen, heeft de internationale expansie van Philip Morris tot gevolg gehad, dat de werkge- le*enheid in de VS. toenam en een positieve bildrage tot de betalingsbalans geleverd werd. De binnenlandse werkgelegenheid. die rechtstreeks in verband staat met onze buitenlandse aktiviteiten, steeg met meer dan 300%. Wij hopen oPrecht, dat het Congres de feiten bestudeert. voor dat maatregelen worden genomen, die een averechtse uitwerking zullen hebben. In 1972 werden in vijf staten en in het district Columbia wetten ter verhoging van de sigaretten- accijns voorgesteld of aangenomen. In 1971 werd deze accijns in 16 staten verhoogd. Jammer genoeg kunnen wij, realistisch denkend, niet verwachten dat het aantal toekomstige belastingverhogingen gelijk zall blijven aan het peil van 1972, of niet veel zal veranderen. De totale opbrengst van de sigaretten-accijns bedroeg $5,2 miljard in 1972. Dit bedrag is bijna 50% groter dan de gezamenlijke netto opbrengst van de sigarettenverkoop der zes binnenlandse fabrikanten (na aftrek van de federale accijnsbe- lasting). Dit totaal bestond uit $2,1 miljard fede- rale accijns, $3.0 miljard accijns door de staten geheven en $0,1 miljard door districten en gemeenten. Het is een onomstreden felt dat accijnsbelasting, evenais omzetbelasting, een regressieve belasting is; per dollar betalen de lagere inkomens naar verhouding meer. Het is bewezen dat accijnsbe- lastingen discrimineren tegen de armere stads- bewoners, die ertoe geneigd zijn om grotere aantallen sigaretten te roken. In vele gevallen hebben accijnsverhogingen een averechtse uitwerking gehad. In de stad New York, waar de z.g. teer-accijns werd toegevoegd aan de reeds zeer aanzienlijke accijns, neemt het aantal sigaretten waarop belasting wordt geheven, steeds verder af. Dit aantal nam in 1972 af tot beneden bet peil van 1965. Terwijl de opbrengst van de accijns in geringe mate is toegenomen, worden meer sigaretten op legale wi)ze buiten New York verkocht, of koopt men klandestiene sigaretten. De New York State Commission of Investigation schatte vorig jaar dat van elke drie pakjes die er in New York City gerookt worden, er 66n gesmokkeld is. Sociale Verantwoordelfjkhefd Eind 1971 stelde Philip Morris een onderzoek in. dat zich over de gehele onderneming uitstrekte en dat zich richtte op dc gebieden, die men kan plaatsen onder het hoofd "verantwoordelijkheid van de onderneming." Het doel was te bepalen, of de politiek en de richtlijnen van de direktic in feite uitgevoerd werden, in welke mate en waar. Dit onderzoek vergde bijna een jaar en de konklu- sies hielpen maatstaven vast te stellen en aanwij- zingen te geven voor toekomstige aktie door de moedermaatschappij, de werkmaatschappijen en de individuele fabrieken. In oktober kreeg ons programma, dat de gehele onderneming omvat, een gunstige vermelding in een rapport getiteld "Initiatives in Corporate Responsibility," dat samengesteld en gepubliceerd werd door het "Consumer Subcommittee of the U.S. Senate Committee on Commerce" (onder voorzitterschap van Frank E. Moss. Senator uit de staat Utah). Dit rapport, dat 300 der grootste ondernemingen onderzocht, die voorkomen op de door "Fortune" gepubliceerde Iijst der 500 grootste ondernemingen, verwees naar "...een uitstekend rapport door Philip Morris ..: " Gedurende 1972 werd de verantwoordelijkheid voor de herziening van onze werkzaamheden op deze pebieden en voor het beginnen van nieuwe aktiviteiten opgedragen aan twee nieuwe kom- missies In onze raad van bestuur; de kommissie voor milieu-aangelegenheden en de kommissle voor sociale verantwoordelijkheid der onderneming en bijdragen. Deze kommissies werden in?esteld om ervan verzekerd te zijn, dat onze richtltjnen en de uitvoering daarvan progressief en produktief zijn. Tot de doeleinden, die wij nastreven, behoren het aanstellen van vrouwen, leden van minderheids- groepen en veteranen, het bevorderen van gelijke kansen voor leden van minderheidsgroepen en vrouwen, meer zakendoen met instellingen, die in handen zijn van minderheidsgroepen,training op het werk, het in aanzienlijke mate betrokken zijn in zowel gemeenschapsaangelegenheden als in kunstzaken en de belangrijke vermindering of uitschakeling van lucht- en waterverontreiniging. Na een lange periode van intensieve studie kon- digde Philip Morris, in begin 1973, een uniek en baanbrekend programma van studiebeurzen aan ter ondersteuning van beroepstraining als supple- ment van onze steun aan voortgezet onderwijs. Wij hopen en verwachten, dat dit programma, dat ondersteund wordt door het Amerikaans Minis- terie van Arbeid, een belangrijk experiment op onderwijsgebied zal betekenen in de toekomst. In 1972 voltooide Miller Brewing de omschakeling tot volledig herbruikbare aluminium blikjes, ter- wijl bij Formosa Springs en Nicolet Papier de afvalwater-zuiveringsinstallatie in gebcuik geno- men werd. De pogingen van Mission Viejo om het milieu tijdens en na de woningbouw te be- schermen en te verbeteren bleken zeer veel succes te hebben. In 1972 had Uw rood von bestuur het verlies van Dr. Jess H. Davis, president van Stevens Institute of Technology, te betreuren. Wij zullen zijn advies missen. De raad werd versterkt door de verkiezing van Mrs. Whitney M. Young Jr., weduwe van de strijder voor burgerrechten, en van Mr. John T. Landry, vice-president van Philip Morris Incorpo- rated en groeps vice-president en directeur van verkoop van Philip Morris U.S.A., tot leden. Wij zijn optimistisch ten aanzien van de toekomst van Philip Morris; In 1973 en in de daarop- valgendejaren. De geschiedenis van onze groei in de sigaretten- industrie, in de V.S. en in de gehele wereld, is welbekend. Gezien de vitaliteit en het grocitempo van onze merken, overal ter wereld, is er iedere reden om aan te nemen, dat onze groei op het gebied van sigaretten zich zal voortzetten. Wij geloven ook, dat er grote toekomstmogelijkheden zijn voor de brouwerij-, industriele- en woning- bouwaktiviteiten van onze onderneming. Wij danken al onze 33.000 Philip Morris em- ployees, in de Verenigde Staten en over de gehele wereld, voor hun toewijding en bijdragen tot onze voortdurende groei. Met hoogachting aangeboden, namens de Raad van Bestuur, Joseph F. Cullman 3rd Chairman of the Board en Chief Executive Officer WA-:.~ George Weissman President en Chief Operating Officer

I I ( Philip Morris U.S.A. (000 omitted ) 1972 1971 1970 Operating Revenues $1.164,550 $1,035•178 $920,323 Operating Tncome 194.072 166,734 138,051 Philip Morris U.S.A. recorded new highs in operating revenues and profits in 1972 as its unit sales of cigarettes increased for the 17th straight year. Philip Morris U. S. A.'s market share rose from about 18% to more than 20%, and the company today has a solid number two position in the United States. This growth is attributable to your company's strong position within the filter cigarette market, which has been the fastest-growing segment since the 1950's, and to its leadership in the 100mm category. The filter segment of the industry has grown from 29% in 1956 to 83% in 1972, while the I00mm segment has grown from 9% in 1967 to more than 21 % last year. Unique among cigarette companies, Philip Morris has four major brands currently enjo} ing strong growth trends. Marlboro, our leading brand, advanced to second place among all brands in 1971 and accelerated its rise toward the top in 1972. Total Marlboro unit sales increased bv 171/c in 1972 and accounted for more than I'?% of the total U.S. market. Benson & Hedges 100's became the leading I00mm brand in 1972 with a sales increase of 13%. Virginia Slims, with its special appeal to women, grew 13%. Parliament, with its exclusive recessed filter, increased by more than 4%, much of that growth coming from the Parliament 100's. With Benson & Hedges 100's, Parliament 100's, Marlboro ] 00's and Virginia Slims, Philip Morris is the leading company in the I 00mm category. The distinct positioning of our major brands permitted sharp marketing focus for each. The "Marlboro Country" theme has proved a daptable to magazine, newspaper, and outdoor advertising. This theme was amplified in several unusual ways in 1972. A unique eight-page magazine insert-the "Marlboro Country Store"-offered to the public items of Western merchandise that have been requested by consumers over the years. In a new promotional effort, the "Marlboro Chuckwagon and Western Art Exhibit" was a leading attraction at major fairs throughout the country. 1) Architect's rendering of new manufacturing complex in Richmond, Virginia. 2) Aerial view of manufacturing complex under construction; it will be completed in 1974. 3) New Philip Morris Research Tower adjacent to manufacturing complex. ,

I) Philip Morris U.S.A. scientists and researchers have patented 102 discoveries. The research staff now includes more than 400 scientists, technicians and support personnel. 2) Spider Sabich, one of the stars on the Benson & Hedges 100's Grand Prix, a popular series of Pro Ski classics. - 3) The Virginia Slims Women's Tennis Circuit attracted record crowds throughout 1972. 4) Marlboro cartons on the line in Richmond. 5) Benson & Hedges Multifilter cartons on the line. Benson & Hedges 100's continued to concentrate on "extra length" in its advertising, emphasizing its light-hearted "disadvantages" theme. Benson & Hedges 100's also became the leading sponsor of the "Grand Prix" of professional skiing in cooperation with the.International Ski Racers Association. The Virginia Slims Women's Tennis Circuit and the Virginia Slims Women's Opinion Poll by Louis Harris helped reinforce that brand's print and outdoor advertising which continued the well-established theme for women smokers, "You've come a long way." While total investment in cigarette marketing increased slightly, expenditures per 1,000 cigarettes decreased as a result of higher volume. Advertising expenditures remained below those in 1970, the last year of cigarette broadcast advertising. In 1972, our sales force was strengthened by additional field personnel, and a highly sophisticated marketing training course for field personnel was initiated. The majority of our new sales people are either Viet Nam veterans, women, or members of minority groups. More than 26% of the Philip Morris U.S.A. sales force are Viet Nam era veterans. The growing demand for Philip Morris cigarettes fully utilizes all of our present production capacity. Our new manufacturing complex nearing completion in Richmond represents a major move toward optimum efficiency and provision for future growth. 1 r

i I This new cigarette manufacturing complex, designed by architect Gordon Bunshaft. Senior Partner of Skidmore. Owings & Merrill, will ultimately have a capacity equal to nearly 2 5'~ of the total number of cigarettes currently sold in the United States. Production will commence this vear, and construction of'the buildings will be completed in 1974. A new generation of machinery and equipment and a vastly modified production line will assure the highest quality standards now attainable and make this facility the most efficient as well as the largest and most modern in the world. In every way, this cigarette manufacturing complex symbolizes your company's confidence in the future of the ci,_,arette business and Philip Morris's continued growth within the industrv. 1) Marlboro packages on the Louisville production line. 2) Benson & Hedges 100's-graphic depictions of "America's Favorite Cigarette Break." 3) Retail display rack for the new "Flicker" ladies' safety shaver. I 3 1) Benson & Hedges 100's cartons ready to be packed. 2) Another retail rack featuring the Personna 74* tungsten steel razor blade, together with the new Face Guard blade. 3) "The Parliament recessed filter works like a cigarette holder works"-for Parliament regular and Parliament 100's. 4) Member of expanded U.S. sales force, working at the retail counter. 4

1) Virginia Slims-"You've come a long way." 2) Data processing at Richmond Operations Center. 3) Marlboro Lights expanded brand's reach into the high filtration segment of the market. 4) Inspection control point on Virginia Slims line. 5) The "Marlboro Country" theme lives in print advertising. 4 5 Many innovations that will improve the environment for our manufacturing people have been incorporated in this facility. Machinery will be arranged in modules. Each team of employees will be involved in virtually all stages of production. This will provide variety in their work routines and personal identification with the quality of the finished product. These employees will be trained for this highly sophisticated production plant in the newly established training center in Richmond. It is our intention to incorporate in our Louisville operation the manufacturing equipment, techniques and modular manufacturing philosophy being implemented in the new Richmond factory. To effect this, plans are under study to completely modernize and enlarge our Louisville facilities. In addition to construction of our new cigarette manufacturing complex, Philip Morris in 1972 also completed a new R-story Research and Development Tower, which represents a major expansion of the Philip Morris U.S.A. Research Center in Richmond. The new Research Tower will enable us to expand further our current body of knowledge in the scientific and technical areas of our operations. The research staff-scientists, ~ technicians and support personnel- has also been expanded. ~ Research activity receives high priority at Philip Morris, and the achievements of our research staff i have gained increasing recognition in recent years. One Philip Morris i development, a gas sensor which ~ assists the analysis of cigarette smoke, ~ received an award as one of the major industrial inventions in 1972. In the past five years, Philip Morris U.S.A. researchers have published more than 164 papers and have patented 102 discoveries. Many of our research discoveries have application to Philip Morris operations and products, and, like our new factory, they symbolize our persistent effort to enhance product quality, to satisfy consumer i preferences, and to increase efficiency. The physical integration of the ~ Research Tower with the Operations Center and the new plant in one modern complex again emphasizes the productive relationship of research, leaf, marketing, and manufacturing functions. The General Products Division of Philip Morris U.S.A. introduced several new products in 1972. I Among them were Face Guard, a ~ blade designed for sensitive skin, and Flicker, a women's shaving ~ instrument shaped like a compact. In spite of its growing size and complexity, Philip Morris U.S.A. ~ has been able to enlarge its management almost entirely by i promotion from within. This fact attests to the capabilities of its I employees and is an important factor I in the loyalty of our personnel. zo

40 Philip Morris U.S.A. Operating Revenues Milhons ot Doltar5 1400 I 1300 1200 1100 1000 900 800 700 600 5o0 400 300 200 100 '63 '64 65 '66 67 '68 69 '70 '71 '7Z Operating Revenues of Philip Morris U.S.A. have increased at an average annual compounded rate of 10.2% since 1963. Marlboro Share of Total U.S. Industry Percentage 14 I All categories of Marlboro now represent 12.6% of industry, a growth rate of 10.9% per year since 1963. I f Philip Morris U.S.A. I Filter Cigarette Unit Sales  ~ Non-Filter Cigarette Unit Sales _ Philip Morris U.S.A. unit cigarette sales have grown at an average annual compounded rate of 9.1% over the last 10 years. Filter cigarette sales represent 98% of Philip Morris U.S.A.'s total. 100mm Cigarette Share of U.S. Industry  Philip Morris 100mm Share of U. S. Industry- Percentage 24 22 20 18 16 14 12 10 8 6 4 2 63 '64 65 66 67 '68 '69 '70 71 '72 Since 1965, the year 100mm cigarettes were introduced, this category has grown, at a rate of about three percent in share of market per year, to 21.6% of industry sales. Philip Morris U.S.A. brands, 6% of industry total, account for more than 27% of the category. U.S. Cigarette Industry Unit Sales Total Filter Cigarettes  Total Non-Filtcr Cigarettes Philip Morris Share of U.S. Industry tSf )- Total U.S. cigarette industry unit sales have increased at an average annual compounded rate of 2.8% since 1970 and at a rate of 1.1% since 1963.The filter segment has grown at a rate of 5.3% since 1963. Philip Morris U.S.A.'s share of U.S. industry was 20.0% for 1972. . -2

23 Philip Morris International (000 omittcd) 1972 1971 1970 Operating Rcvenucs $623.699 _ 5517,670 G.t74,8t)o OperatinF Income 8-t,t195 66,968 54.167 Philip Morris International posted new records in sales and income in 1972. Cicarette unit sales increased 14% over 1971, and consolidated operating revenues were ?0'"r higher than the previous year. Operating income increased 25%. During 1972. Philip Morris became the leading exporter of cigarettes from the U.S., and Marlboro now ranks as the number one ciaarette brand around the world. Philip Morris International's -,rrncth is due in great part to the demand for Philip Morris brands aenerated by our international afTiliates, licensees, and marketing companies in their own markets. Our major international brands account for approximately 50% of our international sales, but in many countries national brands dominate the market. Philip Morris Europe, the largest of the international reaions in sales and profits, continued its rapid growth during the year. It added to production capacity with the opening of a factorv in West Berlin and with the expansion of Philip Morris Holland B.V.'s plant in Bergen op Zoom. Marlboro continued to grow as the leading American brand in several European countries, while European brands-such as Muratti Ambassador -continued to stren2then their market positions. New marketing offices were opened during the year in Paris, France and Amstelveen. Holland, with resulting marketing efliciencies. In the Asia/Pacific region, Philip Morris strenethened its position. The Philip Morris (Australia) group recorded another large increase in sales and profits. This was achieved primarily by enlarging Philip Morris's share of the Australian cigarette market. Lindeman Wines, in_the first full year after acquisition, also posted satisfactory sales and profit growth. Our New Zealand affiliate and Philippines licensee both increased sales with the successful introduction of new brands. 1) Marlboro display at JFK Airport duty-free shop. 2) Marlboro sponsors European motor racing teams on the International Grand Prix circuit. 3) Viscount is a leading brand in Australia.

1) Marlboro is gaining an increasing market share in Europe. 2) Marlboro stagecoach promotion in Mexico. 3) Laboratory technician in Venezuela. 4) Marlboro boat cruises a Dutch canal. 5) Introductory advertising for Marlboro box packing in Germany. 5 In Indonesia, where P.T. Philip Morris Indonesia was formed in 1971 with local partners, our activities were directed toward structuring the organization and renovating the factory. The India-Pakistan war disturbed the cigarette markets in both those countries. Despite the obvious handicaps, our affiliate companies remained profitable. In the Latin America/Iberia region, Philip Morris Espana S.A. and Philip Morris Iberica S.A. increased their staffs and equipped their manufacturing facilities in the Canary Islands in preparation for marketing of brands on the Spanish mainland. Our Venezuelan affiliate, C. A. Tabacalera Nacional, further improved its market position with Astor, a leading brand, which now accounts for over half of the Venezuelan cigarette market. Our affiliate in Mexico, Cigarrera Nacional, S.A., has increased its sales but continues unprofitable. The Government of Mexico in November, 1972, formed a company, Tabacos Mexicanos, S. A. de C. V. (Tabamex), which has taken over all responsibilities in the nation for the growing and sale of leaf tobacco. Tabamex has indicated it will _negotiate for the purchase of Cigarrera Nacional's growing and leaf processing facilities. In addition, the Mexican Government is now seeking the Mexicanization of foreign controlled cigarette companies to bring foreign share ownership of cigarette companies to a minority position. Your management will make every effort to obtain fair and equitable compensation for shares made available to Mexicans upon Mexicanization. Tabacalera Centroamericana, S. A.. our Guatemalan affiliate, successfully concentrated its marketing efforts on enlarging its share of the Guatemalan cigarette business. During the year, Philip Morris acquired a substantial interest in its licensee in Panama, Tabacalera Nacional, S.A. In Argentina, Massalin y Celasco S.A.C. e I. continued to make progress in the sale of its premium-priced brands. Argentina's inflation and 4 M 0

I I 2SJ I eft, monetar}' problems. however, have adversely affected this afliliate's profitability. In the Dominican Republic, E. Leon Jimenes, C. por A. has successfullv introduced a new brand and is continuin,-, its marketin,-, and development programs. A licensing and technical exchange agreement with Colombia's largest cit'arette manufacturer, Cia. Colomhiana de Tabaco, S.A., was successfullv neaotiated. Benson & Hedges (Canada ) Ltd. had another successful year. A larRer share of the cigarette market produced greater earnings for Benson & Hedi-,es•Tobaccc) Company which dominates the 100mm category with its Benson & Hedaes 100's. The company purchased a leaf-processing plant in Delhi. Ontario, and expanded its Montreal factory. il-j I) Umbrella in Bombay promotes Cavanders cigarettes, a leading brand in India. 2) Lindeman's wine display in Australia. 3) Muratti Ambassador is the leading charcoal filter brand in Switzerland. 4) Cases of Canadian cigarettes packed for shipment. 5 ) Marlboro 100's-introductory advertising in Argentina. 1) Baronet is the third largest brand in Mexico. 2) Benson & Hedges retail shop in Toronto. 3) Formosa Spring Brewery quality control laboratory, Barrie, Ontario. 4) Company-supported clinic in Indonesia. 5) Cigarette research laboratory in Canada. ~

t) Formosa Spring Brewery is expanding its plant in Ontario. 2) Astor is the best-selling cigarette brand in Venezuela. 3) Swiss affiliate's factory in Neuchatel. 4) Marlboro jazz concert in Australia. 4 I korsningen, Tmftb'what-e f~re overg angstatb ..~~i t) Marlboro sign adorns hotel on the Mediterranean. 2) Delivery of Colorado cigarettes in Argentina. 3) Bond Street bus advertising in Sweden. 4) Marlboro greets travelers at airport in Quito, Ecuador. 5) Philip Morris is now the leading exporter of U.S.-made cigarettes. 4 ow'"„'yfts. ~ Formosa Spring Brewery, which began production in its new brewery in February, 1972, increased its share of the Ontario beer market fourfold through the introduction of a new brand, Oktoberfest. A new warehouse has already been added to the brewery, and a new aging facility and another bottling line will be j completed by mid-1973. Although ~ not yet profitable, Formosa Spring Brewery has achieved a growth record which indicates an encouraging potential. The increasing demand for quality American cigarettes like Marlboro in conjunction with Philip Morris International's ability to provide ~ consumers around the world with ~ their own indigenous types of ; cigarettes places your company in a position ideally suited for further ; international growth. 26

Philip Morris International Philip Morris International Total World Cigarette Unit Sales Operating Revenues Cigarette Unit Sales E.rcludin,q U.S.A., Sirro & Soviet Bloc's Consolidated  Total Filter Cigarettes a Export, A ffilicrtes, Licensees Unconsolidated 'Iut:d Non-Filter Cig;uettes Philip 1lorri. Share of World Market )- I Malwns cr Oc. a- 1200 1100 7000 900 &V S0p 400_ 300 200 100 _1 0 63 6-t ~,=o~~ill 65 66 67 66 69 :0 71 72 Excluding affiliates not whully owned, Philip Morris International Consolidated Operating Revenues have grown at an average annual compounded rate of 30% since 1963. Operating Revenues of consolidated and unconsolidated atliliates have increased at a rate of 28% since 1963. Total Exports of U.S. ,`larie Cigarettes  Philip Morris Share B+Ihon Un.3s 60 Percenta0? 30 Total exports of U.S.-made cigarettes have grown 1.41~ per year compounded annually since 1963. Philip Morris share of U.S.-made cigarette exports reached 30% in 1972 for an average annual compounded growth rate of 11.8%. B-1bon Unn[ Since 1963, Philip Morris International unit sales of cigarettes by affiliates. licensees, and through exports have grown at a compounded rate of 23`:c per year. I 63 '64 65 66 '67 68 63 '70- '71 '72 Industry unit cigarette sales in international markets (excluding the United States and Sino and Soviet Bloc countries) reached 1.8 trillion in 1972 and have grown at an average annual compounded rate of 4.1(''c since 1963. Percenlaqe to 9 8 271 '

29 Miller Brewing Company (000 omitted ) 1972 1971 1970 Operating Revenues $'_I1,262 $204,134 $198,479 Operating Income 228 _ 1,300 11,409 Miller Brewing Company's barrel sales increased 4r'r in 1972 and its operating revenues increased 3%, although operating income declined. The decline in operating income reflected the intensified price competition in the brewing industry and the rising costs for raw materials, labor and packaging materials. This cost-price squeeze has resulted in a decline in the number of U. S. brewing companies . from approximately I 18 in 1965 to approximately 65 today. Miller's potential is promising, however, since it is one of the three nationally distributed brands of premium beer, the fastest-growing segment of the market. In 1972, the premium beer segment accounted for 30% of the market compared with 23 9'c in 1967. 1) Miller High Life bottles move to market from the Milwaukee brewery. 1) Miller High Life in neon at the point of sale. 2) Cases of Miller High Life Beer move to market. 3) New Miller 7-oz. no deposit bottles were introduced in 1972.

1) New brands and new packages greatly expanded the Miller family last year. Notable addition was Miller Ale, while Miller Malt Liquor went national. 2) The Miller Tavern at Milwaukee brewery -important stop on visitors' tours. 3) Copper brewing kettles in Milwaukee. 3 2 I) Miller Reclamation Center for recycling aluminum cans-Azusa, California. 2) Miller High Life Beer in new lightweight, quart-size brown glass bottles was introduced during the year; they are encased in insulating foamed polystyrene sleeves-a first in the malt beverage industry. 3) Inspectors oversee quality production all along the Miller High Life line. 4) The Meister Brau brand names acquired in mid-year included both Meister Brau, sold in Illinois and several Midwest states, and Lite, a low calorie and low carbohydrate beer. During 1972, Miller's senior management was substantially strengthened and reinforced. The Marketing Department has been restructured, and a brand management system has been introduced. The Sales Management Department has also been reorganized, and Miller's distributor relationships and organization have been revitalized. Miller expanded its product line in 1972 through the acquisition of established brands. In June, 1972, Miller acquired the trade names and distribution network of Meister Brau, Inc. Meister Brau is one of the top three brands in the Chicago area and is marketed in several Midwest states. This purchase gives Miller an established brand in the popular- price segment. The Lite brand, a low calorie and low carbohydrate beer, and the Buckeye brand were also purchased. In addition to giving Miller additional brands to market through existing distributors, the Meister Brau acquisition increased the number of Miller distributors from approximately 750 to nearly 850.

I I I Miller also expanded its product tine in 1972 through the introduction of two new products-Milwaukee Extra and Miller Ale. Milwaukee Extra, a new popular-price brand, was introduced and test marketed in Greensboro, North Carolina, and Phoenix, Arizona, while Miller Ale was introduced and test marketed in three Northeast markets. During 1972, national distribution of Miller Malt Liquor was also begun. Miller also launched several innovative packages in 1972. The Miller High Life 7 oz. bottle in the 8-bottle "pony pack" was introduced with great success in the East and then expanded with similar success to most U. S. markets. Miller Plasti- Shield quarts, bottles with insulating plastic sheaths, have also been introduced in five test markets. Another important development during 1972 was the passage of a law by Oregon which-by means of a lower deposit-encourages the use of returnable bottles interchangeable among brewers. Since October 1, Miller High Life has been packaged for distribution in Oregon in stubby brown bottles, instead of the clear bottles. Consumer acceptance has been positive. The substantial malt beverage market in the United States, estimated at $11.2 billion in 1972, remains attractive in terms of its potential for growth. We are confident that Miller's new management will acquire a larger, more profitable share in the years to come. Miller Brewing Company Operating Revenues  Share of Total Industry ( % ) - MiIlions of Dollars 250 Percentage 10 Over the last 10 years Miller's Operating Revenues have increased 7.7% per year compounded annually. Miller's share of total beer industry sales in 1972 was 4.1 %. 8 5 Domestic Beer Industry Unit Sales Nationally Distributed Premium Beer (est.)  Regional and Non-Premium Beer (est.) Mdtions of Barrels 160 iao 120 +oo 80 40 20 '63 •s4 65 '68 •B7 •89 69 •70 -'71 '72- Since 1963, total beer industry unit sales have grown 3.8% a year on a compounded average annual basis. In contrast, the premium segment has grown 9.8% per year in this period. 4 a 31

I ) Test application of electrostatic coating powder at Armstrong I'roducts, in Warsaw. Indiana. 2) Milprint's Education Division produces Trans-Vision overlays-as shown here-that are used in textbooks and industrial manual.. 3) Press rolls of Milprint packaging materials used by national customers. 4) Kentucky Governor Wendall H. Ford (L), with Nicolet Paper president Robert G. Etter, announcing planned construction of new paper coating materials operation in Nicholasville. I 1 H MILPRINT ~ IACIIAGINGMATIAIAIt ..~~~. .,. ® m I) Quality control check at Milprint's Milwaukee plant. 2) Night view of one of Milprint's six packaging facilities. 3) Checking the print job on Kellogg's PepO packages. 4) Specialty paper used for food packaging in production at Nicolet Paper Co., in De Pere, Wisconsin. 5) Employee concentration on one of Philip Morris Industrial's production lines. Philip Morris Industrial (000 omitted ) 1972 1971 1970 Operating Revenues $113,136 $95,513 $85,875 Operating Income 7,735 6,135 6,049 Philip Morris Industrial exceeded $100 million in operating revenues for the first time in 1972 by recording an 18% increase over 1971. Operating income was up 26%. There are several reasons for this favorable performance. The improvement in the U. S. economy was one important factor; also the company's increased emphasis on strategic marketing of sophisticated high margin products was successful. Milprint Inc. increased revenues. Its operating income, however, was down slightly from 1971 due to the cost of enlarging its marketing organization and strengthening its market promotions. Initiated in 1971, the new marketing programs should have a positive effect on earnings in 1973. The company entered 1973 with a substantial backlog of orders. w W ,32 t,

I I I 33 Milprint produces flexible packaging materials used primarily for snack foods, candy, coffee, processed meat and dry processed foods. Its growing reputation as a leader in its field was enhanced last year when Milprint won nine of twenty-four awards presented to ten packaging-converter companies by the National Flexible Packaging Association. It also received a first place award from the World Packaging Organization in Tokyo. Among Milprint's newest award-winning developments are flexible pouches for antifreeze and motor oil. In addition, Milprint is now supplying a micro-thin, laminated material to Polaroid Corporation for use in the film for the new SX-70 Land camera. In May, Milprint established another manufacturing facility in Fremont, Ohio, to make thermoformed containers for packaged luncheon meats. Milprint's Koch Label Division was merged into its Midwest Packaging Division in an effort to broaden Koch's markets beyond the seasonal beer label business. Sales and earnings of Milprint's Educational Division were virtually unchanged. Nicolet Paper Co., which produces glassine and printing and specialty papers, recorded its highest sales in history while increasing its earnings. In October, Nicolet announced it will build a $5 million manufacturing facility in Nicholasville, Kentucky, as headquarters of its Special Products Division. Created in 1971 to coat paper and plastic materials for food packages, the division will begin coating operations in the new plant in late 1973. Nicolet's Plainwell Paper Co., Inc., produced satisfactory sales and earnings increases in 1972. The growing demand for its technical and printing papers required the start-up of its third paper-making machine with a capacity of 10.000 tons a year. This Annual Report is printed on Plainwell paper. Polymer Industries, Inc., also attained new highs in sales and earnings. The textile industry, Polymer's principal market for its coatings, expanded with the development of woven textured polyester fabrics. Polymer also maintained its leadership position in specialty coatings for household fabrics. Polymer's major new product introduced in 1972 was Mira-Glos RT, a high-gloss paper coating for the printing industry which "cures" or dries at room temperature. Similar competitive coatings require high temperatures for curing. Mira-Glos was introduced into Europe by the Polymer Industries Europe S. A. marketing organization. Polymer's further penetration into Europe will be aided by the acquisition last November of Wikolin Werk, Willi E. Kohlmeyer G.m.b.H. of Bremen, Germany, an established specialty chemical manufacturer serving the European Common Market. Armstrong Products Co., acquired in 1971, increased its sales and profits in 1972 with its liquid epoxy adhesives, electrostatic coating powders and powder application systems, three growing lines. Armstrong expanded its research and development laboratories, which are essential to the continuing development of new specialty chemicals, and strengthened its marketing organization in anticipation of increased demand for its products. Philip Morris lndu,trial Operating Revenues Philip Morris industrial's Operating Revenues have increased at an average annual compounded rate of 5.9% since 1963. hJ Ca 4b ~ ~ h. UI r.~r ~ ta

3 1) The "Tour de Mission Viejo" drew champion bicycle racers from Mexico, as well as the U.S. The race attracted thousands of viewers and exceptional coverage throughout California. - 2) Action on the gridiron at Mission Viejo school. 3) One section of the Mission Viejo community, as seen from the air. 4) The community has hosted some of the nation's top pro golfers at its Club House and championship golf course. 1 4 1) Table tennis is a popular sport at the Recreation Centers. 2) Young artists at work. 3) The basketball courts are always in play. Mission Viejo Company (000 omitted ) 1972 1971 1970 Operating Revenues $60,824 $37,812 $26,834 Operating Income 5,714 2,256 682 In September, Philip Morris Incorporated completed the acquisition of 100% of Mission Viejo Company, a new community, land development and home-building corporation headquartered in Southern California. Philip Morris had assumed operating control in 1970 after negotiating an option to acquire the company. Recording its best year in 1972, Mission Viejo received sales agreements for 1,920 homes. It sold 1,596 homes in the Mission Viejo planned community in Orange County, California, 178 homes in a development in Tempe, Arizona, a suburb of Phoenix, and 146 homes in Mission Viejo, Colorado, a suburban community of Denver, which opened in September. 34

I I By December, the population of Mission Viejo's communities at all three locations reached almost 24,000. Approximately 8,000 acres of our I 1,000-acre California community remain to be de% eloped. The Mission Viejo planned community in Colorado encompasses 6-10 acres and eventually will include 3.000 homes and townhouses, in addition to recreational centers and commercial land sites. In the Arizona project, called "The Lakes." Mission Viejo is building homes in conjunction with a ~ community developer. Four neighborhoods with a population of 1.000 are now open. and construction on a fifth will begin this year. Mission Viejo's financial services division became a comprehensive operation in 1972. It now includes MVC Financial Corporation. Mission Viejo Insurance Agency, Mission Viejo Realty, and Mission Viejo Escrow Corporation. This new division now enables homeowners to obtain mortgages at favorable rates, insure their property, and resell their homes. Mission Viejo builds homes of several price ranges in its communities. As a result, almost half of the Mission Viejo homeowners who sell their homes do not leave the community-rather, they tend to upgrade to larger houses within the communitv. Homes constructed by the company have shown greater-than-average appreciation. This is partly the result of the environmental amenities which are an integral and visible asset of each of Mission's carefully planned communities. For example, since 1965 at Mission Viejo, California, 95,000 trees and shrubs have been planted at a cost of $4.2 million- many more trees and shrubs, incidentally, than were removed in the process of home construction. Land is devoted to golf courses, large parks and green belts, and extensive, fully-equipped recreation centers. As one of the nation's most advanced and progressive new community corporations, we expect Mission Viejo to continue to outpace the housing market as it has in the past. Mission Viejo has consistently observed conservative accounting practices: Sales revenues are not recorded until the transaction has closed and payment in full has been received. Essentially all of Ivlission Viejo's revenues are from the sale of houses and land. Mission Viejo's operating results for the fourth quarter have been included in the consolidated financial statements of Philip Morris Incorporated starting with the fourth quarter of 1972. i 2 I) At "The Lakes," outside of Phoenix, Arizona, Mission Viejo is building homes in conjunction with a community developer. 2) Supervised games on one of the community's playing fields. 3) A typical street scene, where the traffic is never heavy. 1 35 ® 0 . .-~-.. .~~

1) Joseph F. Cullman 3rd_ 2) George Weissman. 3 ) Hugh Cullman. 4) Margaret B. Young. 5) Richard W. Dammann.6) James E. West. Directors and Officers Directors I James C. Bowling Vice President Alfred Brittain III President. Bankers Trust Company ~ Andrew C. Britton I 2 Vice President ~ 3 5 George V Comfort George Comfort & Sons Company, Inc. John E. Cookman Senior Vice President Dr. J. A. Cordido-Freytes President, C. A. Tabacalera Nacional Hugh Cullman Executive Vice President Joseph F. Cullman 3rd Chairman of the Board Richard W. Dammann Darnmann & Hetnirtg, Attorneys-at-Law Clifford H. Goldsmith Vice President Chandler H. Kibbee* John T. Landry** Vice President Edward Lasker Counsel, McKenna, Fitting & Finch, Attorneys-at-Law T. Newman Lawler Lawler, Sterling & Kent, A ttorneys-at-Law H. Robert Marschalk President, Richardson-Merrell Inc. Ross R. Millhiser Executive Vice President John A. Murphy Vice President George Weissman President James E. West Chairman of the Board, Mission Viejo Company J. Harvie Wilkinson, Jr. Consultant, United Virginia Bankshares Margaret B. Young* * Chairman, Whitney M. Young, Jr. Memorial Foundation Wirt H. Hatcher Director Emeritus 6 Ray Jones Director Emeritus Arthur Snapper Member, Advisory Board *Retired Senior Vice President "Newly elected directors and officers Of ficers Joseph F Cullman 3rd Chairntan of the Board and Chief Executive Officer George Weissman President and Chief Operating O fficer Ross R. tilillhiser Executive Vice President and President, Philip Morris U.S.A. Hugh Cullman Executire Vice Presidcnt and President, Philip Morris International John E. Cookman Senior Vice President and Chief Financial Officer Thomas F Ahrensfeld Vice President and General Counsel James C. Bowling Vice President, Assistant to the Chairman of the Board and Director, Corporate Affairs Andrew C. Britton Vice President and Senior Vice President-Operations, Philip Morris U.S.A. Clifford H. Goldsmith Vice President and Executive Vice President, Philip Morris U.S.A. S. Lyle Graham Vice President-Personnel John T Landry Vice President and Group Vice President-Directat-of Marketing, Philip Morris U.S.A. Jetson E. Lincoln Vice President-Planning George W. Macon, Jr. Vice President and Vice President- Leaf, Philip Morris U.S.A. Hamish Maxwell Vice President and Regional Vice President-Asia/Pacific, Philip Morris International John A. Murphy Vice President and President, Chief Executive O/Jicer, Miller Brewing Com pan y Philip J. Reilly Vice President and President, Mission Vie jo Company Benjamin A. Soyars* * Vice President and Vice President- Manufacturing, Philip Morris U.S.A. I 36

I I I 37J Fred M. Stefan Vice Yresvcient anci President. Philip !llorris Industrial Ronald ff. Thorn.ron* * Vice f'rc•siclcnt and Rc•t:ioncrl ['ice Pre.slclcwt-l;rn-ope Aliclclle liust, Africu. Philip Alorris Intcrnutioatul Dr. I leltuut R. R. Wakeham 1'icC Prcsiclent and Vice Presiclent- R& 1). Philip hlnrris U.S.A. l:uU'ene J. T. Flanaaan Associate G'enc•rcrl Counsel, Srcretarv - C. Gilbert Cullins*wooc] T rc•asttrer Walter F Sperber Controller Stephen F. W. Ball Assistcuu T rcctsttrer and Assistcrnt Sc•crc•tar}• Buford A. Tynes A.ssi.stunt Trc•ccsttrrr James G. Gilleran .-I.s.si.stccnt Controllrr Robert f/. Souther* * Assi.stunt Controller Robert A. White Assistctnt Controller Mary E. Russell Assistcutt Secvrtuo • Executive Cotnmittee J. F. Cullman 3rd, Chairman A. Brittain III G. VComfort J. E. Cookman I-I. Cullman T. N. Lawler R_ R. Millhiser G. Weissman J. H. Wilkinson, Jr. C. H. Kibbee - Ex Officio Finance Coinlntttee J. E. Cookman. Chairrnan A. Brittain III H. Cullman C. H. Kibbee E. Lasker R. R. Millhiser G. Weissman J. H. Wilkinson, Jr. Audit Committee J. H. Wilkinson, Jr., Chairman A. Brittain III R. W. Dammann E. Lasker H. R. Marschalk I 1 1) Ross R. Millhiser and James C. Bowling. '-) John A. Murphy. 3) John E. Cookman. 4) Andrew C. Britton. 5) Edward Lasker. 6) Alfred Brittain III. 7) T. Newman Lawler. 3 I 4 2 1) Chandler H. Kibbee. 2) Dr. J. A. Cordido-Freytes. 3) John T. Landry and Clifford H. Goldsmith. 4) J. Harvie Wilkinson. 5) George V. Comfort. 6) H. Robert Marschalk.

Ross R. Millhiser Philip Morris U.S.A. Philip Morris International 100 Park Avenue New York, New York 10017 Ross R. Millhiser, President Clifford H. Goldsmith, Executive Vice President Andrew C. Britton, Senior Vice President-Operations John T. Landry, Group Vice President-Director of Marketing George W. Macon, Jr., Vice President-Leaf Dr. Helmut R. R. Wakeham, Vice President-Research and Development Benjamin A. Soyars, Vice President-Manufacturing Max L. Berkowitz, Vice President- Assistant Director of Marketing Russell N. Freund, Vice President-Personnel Edward M. Schaaf, Jr., Vice President-Production Shepard P. Pollack, Vice President-Finance and Planning Charles H. Wilson, Vice President-General Products Division Richard D. Robertson, Vice President-Ecology Alex J. Kay, Jr., Controller 100 Park Avenue New York, New York 10017 Hugh Cullman, President Regional Vice Presidents: Charles Lombard, Canada Hamish Maxwell, Asia/Pacific Carlos E. Salguero, Latin AmericalIberia Ronald H. Thomson, Europe; .Lf iddle East,A f rica James E. Turner. Vice President-Sales William J. O'Connor, Vice President & Chief Administrative OB"icer Albert E. Bellot, Vice President Aleardo G. Buzzi, Vice President Fred C. hloessinger, Vice President-Personnel R. W. Murray, Vice President-Finance iller Brewing Company 4000 West State Street Milwaukee, Wisconsin 53201 John A. Murphy, President, Chief Executive Officer William K. Howell, Executive Vice President Lauren S. Williams, Vice Presidetu-Sales Clifford R. Wilmot, Vice President-Brand Managernent Thomas B. Shropshire, Vice President-Market Planning Charles H. Day, Vice President, Director of Operations Robert H. Lindstrom, Vice President-Finance Clement G. Meyn, Vice President-Master Brewer Warren H. Dunn, General Counsel, Secretary Phil A. Grau, Assistant Secretary Stanley C. Zupek, Controller . I Hugh Cullman 38

I Pflili p N9orris 1 ntlustrial 4200 North Hulton Street Milwaukee. «'iscuhsin -~'t. 212 Fred 11. Stef.rn, Presrdent Arthur P Witt, l•ic e 1'.rsrdc•nt•Frnanc•c & Planttotr; Jante. Li. KttrVweil. Prr tdrnt-.tlilprint Inc. Robert Cr. Liter. P+c.vdrat-~rrulet f'aprr Co. 1'aul I-L. Gruth, L•rcc President & rievreral .Itanaqer-Ntcofet Paper C o. Richard I.. Radt• lCtre•trttse F'rce President & (.r+teral .tlerna~r+-Plcrrnc.e•1l Paper Cu.. Ine•. Richard.un I'hurston, Pr<'vd<n!-Puh'nrrr Indrrstrres• Inc. I cunard L. Acller, f;.crcunic Vice Prc•srdr+tt- Poh mrr I nda vrtes. I nc. Edmund P Whitby, 1'rrsrdcnt-A+mstrortg Products Co., Inc. John A. Murphy 1 39 Mission Viejo Company 26137 La Pat Road 1f ission V ielo, California 92675 James E. «eJt. C l+atrman o f the Board Philip J. fteilly, Presrdcvv Anthuny R. %luiso, Srcrc•tart• Jame. G. Luepfer, Scnror I rre• Prcvdcnt, Operations Roger F- : Clark, l'rrr Prr rdrnt. Futancccrf Services Drcuiurr James G. Gellrran, Vice Pre•stdent, Aclnurrrnratfre Scri-rces Drnvsrcrtt Geurt Henri Ludder, F'!cr President, f: n c rru+rmc•rrtal Sr e!c•m s Dr a.sro+c Robert .t. Rodman. Controller William K. Smith, Aaststant Secretary Fred M Stefan Philip J. Reilly

Financial Review 5-10-15-Year Growth Record (000 Omitted ) 5 Years 1972 perating Revenues 52.131;2'_4 Pre-Tax Income 229,634 1967 Compounded Average Annual Growth Rate $904,841 18.7% 81,317 23.1% Earnings per Share Primary Fully Diluted 4.67 4.37 1.97 18.9% 1.94 17.6% 10 Years 1972 1962 O ti Compounded Average Annual Growth Rate pera ng Revenues $2,131,224 $550,624 14.5% Pre-Tax Income 229,634 47,464 17.1 ~b Earnings per Share Primary 4.67 0.98 169% Fully Diluted 4.37 0.98 16.1% 15 Years 1972 1957 O ti Compounded Average Annual Growth Rate pera ng Revenues $2,131,224 $439,920 11.1% Pre-Tax Income 229,634 35,740 13.2% Earnings per Share Primary 4.67 0.76 12.9% Fully Diluted 4.37 0.76 12.4% The year 1972 was one of significant achievement for Philip Morris Incorporated in terms of unit sales, revenues, profits and continued strengthening of its financial position. The above table highlights the record of our growth during the last 5-, 10-, and 15-year periods. This performance establishes Philip Morris as one of the leading growth companies in U. S. industry. The improving trend in pre-tax profit margin which commenced in 1965 continued during 1972, as may be noted in Chart 1. This improvement was particularly gratifying in view of the increased cost of tobacco leaf, labor, and other raw materials, and the absence of any opportunity to increase prices due to government controls. This improvement was primarily the result of the significantly greater unit volume and an effective cost control program throughout the company. Record levels of capital expenditures were recorded during 1972 in the amount of $120 million. However, our expanding funds from operations provided the majority- 97 percent in 1972-of our capital expenditure requirements, as illustrated in Chart 2 and further amplified in the Financial Statements. We anticipate that this high level of capital spending will continue for at least the next five years and that during that time these requirements will be exceeded by internally generated funds from operations. For the fifth consecutive year, the company increased the dividend on its common stock. As a result of the Phase II restrictions, this increase was limited to 4% for 1972. As illustrated in Chart 3, our dividend payout continues to be conservative and we believe represents sound financial policy in view of the high level of capital expenditures anticipated for the next several years. This conservative dividend policy, plus conversion of debentures, has resulted in a rather rapid expansion of stockholders' equity (Chart 7). Nonetheless, our pre-tax return on stockholders' equity continues to exceed 30%, which is well ahead of the return on equity of the 30 Dow Jones industrial companies (Chart 4). The recent rapid growth in our per share earnings extended into 1972. Chart 5 illustrates this growth and compares Philip Morris performance with that of the 425 stocks used in the Standard and Poor's industrial average. Our overall financial condition strengthened further in 1972 with a substantial increase in working capital as well as stockholders' equity (Chart 7). Long term debt increased from the prior year primarily as a result of converting $150 million of our short term borrowings to long term. However, the ratio of long term debt to equity (Chart 6) has been reduced from a peak in 1969 and is presently, in our opinion, at a conservative level. There are no significant near term maturities of funded debt, and with our strong financial condition we anticipate no need for any domestic long term debt or equity financing. The continuation of the government's balance of payments program requires us to raise certain funds overseas. During the year, Philip Morris sold $31 million of 15-year Deutsche Mark debentures. We would expect that other offshore term financing will be required from time to time for as long as the balance of payments program remains in effect. Following the Smithsonian Accord in December, 1971, there were no major currency realignments that affected earnings in a material manner. The net result of such realignments that did occur in 1972 was reflected by an increase in the reserve applicable to international operations of $3.8 million. During the year, the company was advised by the New York Stock Exchange that as a result of changes in its listing requirements our 3.90% Series Preferred was to be delisted. This would have resulted in further reducing its already limited marketability. Consequently, in December, 1972, the company offered to purchase all shares of the 3.90% Series Preferred for $70 per share and simultaneously offered to purchase all shares of the 4% Series Preferred at $75 per share. Upon the expiration of the offer, January 12, 1973, 141,565 shares representing 80.5% of the combined outstanding shares had been purchased and will be canceled. Subsequent to the offer, the 4% Series was also delisted. 40 I CI 0

I I 41 Operating Revenues a Pre-Tax %1 argins t `~ ) .- Chart I Mb:o~5 c+ DO, a's Pe•ce^•aae 24100 12 '~00 11 2000 •,iu :wu ~00 nn ,u0 r; W a0o IIIIIIIIIIIIII 58 59 60 61 6:-63 64 65 66 67 68 69 '0 'T -2 Funds from Operations (after Dividends) a Consolidated Capital Expenditures - Chart'_ Primary Earnings per Share  Dividends Declared per Share - Chart 3 Pre-Tax Return on Stockholders' Equity Primary Earnings Per Share Long-Term Debt to Equity Philip Morris  (1958=100) Senior Lung-Term Debt i Dow Jones 30 Industrials - Philip Morris  Subordinated Long-Term Debt Chart 4 Standard & Poor's 425 - Chart 6 Chart 5 Pe,cema:e "5 20 15 10 S 58 59 60 61 62 63 64 65-66 67 68 Stockholders' Equity  Working Capital - Chart 7 Whons oi Doilars 800 700 69 70 '1 72 500 100 300 ?00 100 58 59'60'61 63'64 62 65'66 67 68'69 70 71'72 tndec K00 400 300 200 100 58 59 60'61 62-63'64-65 66-67'68'69'7071 72 Pe,ceniaae 100

Consolidated Balance Sheets Philip Morris Incorporated and Consolidated Subsidiaries December 31, 1972 and 1971 1972 1971 Asset s: Cash and cash equivalents $ 54,471,000 $ 48,343,000 I Receivables 128,935.000 102,448,000 Inventories: Leaf tobacco 591,894,000 497,954,000 Other raw materials 51,997,000 42,348,000 Work in process and finished goods .............. ...... 130,827,000 129,942,000 Housing programs under construction 26,427,000 801,145,000 670,244,000 Prepaid expenses 5,157,000 5,418,000 Total current assets 989,708,000 826,453,000 Investments in and advances to unconsolidated subsidiaries and affiliates: Domestic 20,086,000 Foreign 92,431,000 , 80,369,000 92,431,000 100,455,000 Land and offtract improvements 25,999,000 Property, plant and equipment, at cost: Land and land improvements 18,796,000 14,362,000 I Buildings and building equipment 129,171,000 108,945,000 Machinery and equipment 313,639,000 265,638,000 Construction in progress 109,542.000 58,130,000 571,148,000 447,075,000 Less, Accumulated depreciation . .. .... ............. .... 197,776,000 173,005,000 373,372,000 274,070,000 Other assets 17,696,000 22,127,000 Brands, trademarks, patents and goodwill 202,288,000 168,930,000 $1,701,494,000 $1,392,035,000 See notes to financial statements. 42

I I 43 Liabilities: Notes payable Current portion of long-term debt Accounts payable and accrued liabilities Federal and other income taxes Dividends payable Total current liabilities Long-term debt: Senior Subordinated Deferred income taxes Reserve applicable to international operations Other liabilities Total liabilities Stockholders' Equity: Cumulative preferred stock, par value $100 per share . Common stock, par value $1 per share Additional paid-in capital Earnings reinvested in the business Less, Cost of treasury stock 1972 $ 197,900,000 3,300,000 212,489,000 42,287,000 8,941,000 464,917,000 370,154,000 109,652,000 35,674,000 17,963,000 7,585,000 1,005,945,000 24,773,000 27,315,000 179,581,000 473,925,000 705,594,000 10,045,000 695,549,000 $1,701,494,000 1971 $ 201,400,000 100,000 166,704,000 32,365,000 8,293,000 408,862,000 216,433,000 136,003,000 30,658,000 14,401,000 6,564,000 812,921,000 25,104,000 26,285,000 150,104,000 384,031,000 585,524,000 6,410,000 579,114,000 $1,392,035,000

Consolidated Statements of Earnings Philip Morris Incorporared and Consolidated Sub.idiaries for thc• rears ended Uc•rrrnher 31. 197' and 1971 1972 1971 Operating revenues $2,131,224,000 $1,852,495,000 I Cost of sales: Cost of products sold 832,890,000 700,021,000 ~ Federal and foreign excise taxes on products sold 722,929,000 642,529,000 Gross profit 575,405,000 509,945,000 ~ Marketing, administration and research costs 299,422,000 278,736,000 ~ 275,983,000 231 209 000 , , ~ ~ Equity in net earnings of unconsolidated subsidiaries and affiliates 11,478,000 9,928 000 ~ Operating income of operating companies 287,461,000 , 241,137,000 I Corporate expense 19,870,000 18,412,000 Interest expense 37,870,000 35,472,000 Other deductions (income), net 87,000 (2,547 000) Earnings before income taxes 229, 634,000 189, 800,000 Provision for federal and other income taxes: Current 100,278,000 78,743,000 Deferred 4,890,000 9,559,000 105,168,000 88,302,000 Net earnin,-,s $ 124,466,000 $ 101,498,000 r ~ ~ Earnings per common share: Primary $4.67 $4.02 I I Fully diluted $4.37 $3.64 See notes to financral statements. 44

Consolidated Statements of Stockholders' Equity Philip Morn. Incorporated and Consofidated Subtiidiaries /or the rcurs cvtded Urcenrber 31. 1972 mtd 1971 Preferred Stock, Authorized and Issued at S 100 Par Value Common Stock, Authorized 50,000,000 Shares at S I Par Value dditional Paid-In Capital Earnings Reinvested Cost of in the Treasury Business Stock otal Stockholders' Equity Bulancr, Jwucarv 1, 1971 $25,434,000 S?-1,4I4,000 S 95,210,000 S314,365,000 (S 6,574,000) $452,849,000 i f r h N o et earn ngs e year t 1971 101,498.000 101,498,000 Cash dividends declared: Preferred stock: 4% Series ( 496,000) ( 496,000) 3.90% Series ( 256,000) ( 256,000) Common stock, S1? 1 per share ( 31,080.000) ( 31,080,000) Preferred stock purchased for treasury ( 2,021,000) ( 2,021,000) Treasury and unissued common stock issued upon conversion of debentures ,690,000 1,274,000 ,936,000 4,900,000 Proceeds from common stock issued under stock options 181,000 3,539,000 3,720,000 Preferred stock retired through sinking fund ( 330,000) 81,000 249,000 Balanee, l)ecetnher3l,1971 I 25,104,000 26,285,000 150,104,000 _ 384,031,000 ( 6,410,000) 579,1 14,000 Net earnings for the year 1972 ' 124,466,000 124,466,000 Cash dividends declared: Preferred stock: 4% Series ( 447,000) ( 447,000) 3.90% Series ( 241000) ( 243,000) Common stock, $ 1.262 per share ( 33,882,000) ( 33,882,000) Preferred stock purchased for treasury ( 4,188,000) ( 4,188,000) Treasury and unissued common stock issued upon conversion of debentures 00 886 98,000 25 11,000 6,295 000 I Proceeds from common stock issued under stock options , 144,000 , 4,290,000 , 4,434,000 Preferred stock retired through sinking fund ( 331,000) 89,000 242,000 Balance,Uecember31,1972 $24,773,000 $27,315,000 $179,581,000 $473,925,000 ($10,045,000) $695,549,000 ( ) Denotes deduction. See notes to financial statements. I r.o 45

Consolidated Statements of Changes in Financial Position Philip Morris Incorporated and Consolidated Subsidiaries for the years ended Deremher 31, 1972 and 1971 Additions to 14'orking Capital: Operations: Net earnings Add (deduct) items not requiring current use of working capital: Depreciation Amortization Deferred income taxes Provision for reserve applicable to international operations Equity in net earnings of unconsolidated subsidiaries and affiliates Dividends received from unconsolidated subsidiaries From operations Financing* : Long-term debt: Issued Prepayments and retirements From long-term debt Stockholders' equity: Shares issued under stock options Shares of preferred stock purchased for treasury From equity transactions From financing Other: Disposal of property, plant and equipment Net unrealized exchange gains added to reserve applicable to international operations Additions to working capital Uses of Working Capital: Dividends Expansion and modernization of property, plant and equipment Investments in and advances to unconsolidated subsidiaries and affiliates Investments in consolidated subsidiaries, net of working capital acquired**: 1972 1971 -- $124,466,000 $101,498,000 26,576,000 21,500,000 1,563,000 1,421,000 4,890,000 9,559,000 1,723,000 (11,478,000) (9,928,000) 4,692,000 2,875,000 150,709,000 128,648,000 184,108,000 47,868,000 (38,892,000) (9,766,000) 145,216,000 38,102,000 4,434,000 3,720,000 (4,188,000) (2,021,000) 246,000 1,699,000 145,462,000 39,801,000 I 1,433,000 8,442,000 3,755,000 2,928,000 301,359,000 179,819,000 34,572,000 120,034,000 5,276,000 Mission Viejo Company 22,524,000 Other subsidiaries 6,873,000 29,397,000 Other, net 4,880,000 Working capital used 194,159,000 Increase in working capital $107,200,000 Changes in components of working capital: Cash and cash equivalents Receivables Inventories Notes payable Accounts payable and accrued liabilities Other, net .. $ 6,128,000 26,487,000 130,901,000 3,500,000 (45,785,000) (14,031,000) $107,200,000 31,832,000 68,001,000 4,013,000 2,255,000 2,255,000 3,809,000 109,910,000 $ 69,909,000 ($ 3,699,000) 929,000 101,816,000 (14,200,000) (19,960,000) 5,023,000 $ 69,909,000 *Other significant financing transactions, not affecting working capital, were conversions of $26,351,000 and $56,066,000 of debentures into common stock in 1972 and 1971, respectively. *Represented by: Net noncurrent assets of companies acquired, principally land and offtract improvements $ 21,004,000 Cost in excess of net assets acquired ........ ......................................._.........._......... 28,479,000 49,483,000 Less, Amount invested in Mission Viejo Company in 1970 .................................. . 20,086,000 $ 362,000 1,893,000 2,255,000 I 11 See notes to financial statements. $ 29,397,000 $ 2,255,000 46

Notes to Consolidated Financial Statements I I I 47 Summary of Accounting Policies: The siumificant accounting policies followed by Philip Morris and its subsidiaries are presented below to assist the reader in rcviewim-, the consolidated financial statements and other data contained in this report. These policies comply with generally accepted accounting principles and have been consistently applied. Con.tolidation: The consolidated financial statements include the accounts of the Company and all wholly owned subsidiaries. Investments in and ad% ances to unconsolidated subsidiaries and afTiliates are stated at cost adjusted for equity in undistributed earnings or losses since the dates of acquisition. Fr,reiL>n uprration.c: Appropriate amounts pro% ided out of earnings are added to the reserve applicable to international operations for possible losses %-~ hich mitzht arise from diminution in value of the Company's investments in foreign subsidiaries as the result of events such as go% ernmental actions or currency devaluations. The accounts of foreign subsidiaries are translated into U.S. dollars at year-end rates or <verage rates during the year except for noncurrent assets and liabilities which are translated at rates in efFect in the %cars the balances arose. Net unrealized translation gains are added to this reserve and net unrealized translation losses would be charged to income should such losses exceed previous unrealized gains and provisions. Recei rahles: Current earnings are charged with an allowance for doubtful accounts based on experience and any unusual circumstances which mav affect the ahility of customers to meet their obligations. Receivables are reported in the balance sheet net of such accumulated allowances. Accounts deemed uncollectible are charged against this allowance. Irtt•rntorirs: Iriventories are ~ alued at the lower of cost or market. The cost of leaf tobacco is determined on an average cost basis and the cost cif other im entories is determined generally on a first-in, first-out basis. It is a generally recognized industry practice to classif% the total amount of leaf tobacco inventory as a current asset although part of such inventory, because of the duration of the aging proccss, ordinarily would not be utilized within one year. The cost of housing programs under construc- tion represents the cost of land, including offtract improvements, interest and property taxes, plus housing construction costs on sites currently under de~elopment. Land and otltract intproremeiits: The cost of land, including ofTtract improvements, interest and property taxes, is reported as a noncurrent asset until a designated area is placed into development. Offtract improvements are items such as access roads, utilities, etc., which are essential to the de~ elopment of a community, but which are not directly attributable to the development of a particular tract or area. The cost of these improvements is allocated to the entire acreage available for sale. Brandc. trademarks. patents ancl gooclwill: In conformity with an opinion of the Accounting Principles Board, the cost in excess of net assets of companies acquired after Noveniber 1, 1970 is being amortized over a period of no more than forty years. Such excess cost in connection with imestments made prior to November 1, 1970 is not being amortized because, in the opinion of management, the related investments have not experienced any diminution in value. Patents and patent rights are being amortized on the straight-line method based on their respective lives. Income taxes: The pro\, isions for federal and foreign income taxes are calculated on reported pre-tax earnings. Certain items of income and expense included in the financial statements, such as depreciation, are reported in different years in the tax returns in accordance with applicable income tax laws. The resulting difference between the financial statement income tax provision and income taxes currently payable is reported in the financial statements as deferred income taxes. Investment tax credits on assets placed in service during the year are accounted for as a reduction in the provision for income taxes. Provision is also made for federal income taxes on the portion of undistributed earnings of foreign subsidiaries that is expected to be remitted to the United States. Maintenance, repairs and depreciation: Maintenance and repairs are charged to income and expenditures for renewals and improvements are capitalized. Provision for depreciation of assets is recorded by a charge against income at rates considered adequate to amortize the cost of such assets over their useful lives using the straight-line method of computation. Pension plans: The Company and certain of its consolidated subsidiaries have pension plans covering substantially all of their employees. Prior service costs, which are being amortized over periods of up to thirty years, and accrued pension costs are funded with independent trustees. Research and development: Research and development costs are charged against earnings in the year incurred.

Acquisitions: In 1970, the Company invested $20,086,000 in convertible notes, capital stock and related options of Mission Viejo Company. a planned community builder. During 1972, the Company converted the notes and invested an additional $13,500,000 to exercise the options. Also in 1972, the Company acquired, under new agreements, all of the remaining ownership interest in Mission Viejo for a maximum purchase price of $30,011,000. Of this amount, $21,010,000 is payable over a five-year period and is subject to downward adjustment if Mission Viejo's cumulative earnings, as defined, do not reach a specified level. The acquisition of Mission Viejo has been accounted for as a purchase and its accounts have been included in the consolidated results since September 30, 1972. The consolidation of Mission Viejo since September 30, 1972 affected the comparability of net earnings for the years 1972 and 1971 only to a minor extent. Investment cost in excess of net assets of Mission Viejo is included in brands, trademarks, patents and goodwill. Excess cost of $24,309,000 attributable to the 1970 agreements is not being amortized because, in the opinion of management, there has been no diminution in the value of the related investment. Excess cost attributable to the 1972 agreements of $176,000 at December 31, 1972 and the excess cost which will arise on payment of the remaining purchase price under such agreements will be amortized over a period of forty years. A number of other small acquisitions were made during 1972. None of these materially affected the reported operating results. Foreign Subsidiaries: Principal financial data of foreign subsidiaries are as follows: Consolidated Unconsolidated 1972: Assets $391,353,000 $241,151,000 Liabilities, other than due the Company .............. .. 198,572,000 114,554,000 Net assets 192,781,000 126,597,000 Company's equity and advances . .. .. .. .. .. ... ........ ........ 192,781,000 83,695,000 Operating revenues 521,159,000 456,131,000 Net earnings 25,031,000 19,168,000 Company's equity 25,031,000 11,478,000 1971: Operating revenues 434,874,000 389,739,000 Net earnings .... 19,392,000 16,279,000 ........ .. Company's equity 19,392,000 9,928,000 At December 3 I, 1972, the Company's investments in unconsolidated foreign subsidiaries exceeds its equity in their net assets by approximately $8,700,000. The Company is amortizing $3,000,000 of this excess which arose subsequent to November 1, 1970. Federal income tax has not been provided on $1 10,000,000 of undistributed earnings of foreign subsidiaries, accumulated since inception of the Company's investments in such subsidiaries, which is expected to be permanently invested abroad. Expansion of Facilities: Construction of the new cigarette manufacturing complex in Richmond, Virginia is proceeding on schedule. The construction cost, including interest and real estatertaxes during the construction period, will total approximately $100,000,000. Installation of the latest machinery and equipment over the next five years will bring the total cost of this complex to over $200,000,000. Actual commitments at December 31, 1972 at all locations for plant, equipment and machinery approximated $125,000,000. 48

Brands, Trademarks, Patents and Goodwill: At December 31, 1972, this account includes $202,200,000 of brands, trademarks and goodwill of which approximately $ 11,000,000, applicable to investments subsequent to November 1, 1970, is being amortized over periods of up to forty years. I I 49 Long-Term I)ebt: -1.901~ Notes, payable $2,600,000 annually from 1974 to 1988 and $16,000,000 in 1989 6-~it% Sinking Fund Debentures, payable S3,500,000 annually from 1976 to 1992 and $ 15,500,000 in 1993 Bank Term Loan Agreement maturing in 1980. Interest is at'/2 % above the bank prime rate 6'/a ~:~ Loan 100,000,000 Deutsche mark, payable 10,000,000 Deutsche mark annually from 1978 to 1987 8~h % Guaranteed (by Philip Morris Incorporated) Sinking Fund Debentures of Philip Morris International Capital N. V., payable $600,000 annually 1975 through 1979, $1,500,000 annually 1980 through 1985 and $3,000,000 in 1986 8% Guaranteed (by Philip Morris Incorporated) Notes of Philip Morris International Capital N. V., payable in 1978 7':z % Guaranteed (by Philip Morris Incorporated) 60,000,000 Dutch guilder notes of Philip Morris International Capital N. V., payable 15,000,000 Dutch guilders annually beginning in 1975 Secured trust deed notes of Mission Viejo Company. Interest ranges 1972 December 31 1971 $ 55,000,000 $55,000,000 75,000,000 75,000,000 150,000,000 31,226,000 15,000,000 15, 000, 000 15,000,000 15,000,000 17,868,000 17,868,000 from 5% to 8.875q 10,943,000 4~/s % Sinking Fund Debentures 9,705,000 Eurodollar revolving credit agreement cancelled December 31, 1972 26,000,000 Other notes and debentures 3,417,000 2,960,000 373,454,000 216,533,000 Less, Portion currently payable 3,300,000 100,000 Senior debt $370,154,009 $216,433,000 10% Subordinated Notes, payable S3,600,000 annually from 1974 to 1976, $5,760,000 annually from 1977 to 1981 and $32,400,000 in 1982. Callable after February 1, 1974 at no premium $ 72,000,000 $ 72,000,000 6% Convertible Subordinated Debentures due 1994, convertible at $27.75 per share . 28,590,000 49,778,000 Other subordinated convertible debentures 9,062,000 14,225,000 Subordinated debt $109,652,000 $136,003,000 Generally, the long-term debt is callable, at annually decreasing premiums. Expenses incurred in securing long-term loans are included in other assets and are being amortized on the straight-line method over the respective lives of the issues giving rise thereto. Aggregate maturities of long-term debt in each of the following years are: 1973, $3,300,000; 1974, $7,400,000; 1975, $11,300,000; 1976, $21,400,000; 1977, $18,000,000.

Capital Shares: Preferred, 4% Series: At December 31, 1971 Purchased Retired At December 31, 1972 Preferred, 3.90% Series: At December 31, 1971 Purchased Retired Authorized 147,873 Issued Outstanding 116,999 I ( 36,205) (36,205) Treasury 147,873 ( 30,874) (1,999) (1,999) 1,999 145,874 145,874 ( 65,080) 80,794 103,163 103,163 ( 40,528) (1,307) (1,307) ( 21,634) 1,307 62,635 I (21,634) i At December 31, 1972 101,856 101,856 ( 60,855) 41,001 Common, $ I par value: At December 31, 1971 .. . 50,000,000 26,284,981 (115,527) 26,169,454 Issued for: Debenture conversions 886,302 22,416 908,718 Stock options 143,873 143,873 At December 31, 1972 .... 50,000,000 27,315,156 ( 93,111) 27,222,045 Pursuant to an offer to stockholders to purchase all outstanding preferred shares, the Company had purchased and included in treasury stock at December 31, 1972, 32,535 shares of the 4% Series and 21,634 shares of the 3.90% Series. An addi- tional 58,224 shares of the 4% Series and 29,172 shares of the 3.90% Series were purchased in January, 1973. As of December 31. 1972, 1,291,782 shares of common stock are reserved for conversion of convertible debentures and 273,592 shares are reserved for the exercise of stock options. Stock Options: Pursuant to stock option plans approved by stockholders, common stock of the Company has been made available for option to officers and other key employees at market prices on the dates granted. 1972 1971 Shares under option, beginning of year 363,835 442,711 Options granted 55,750 106,350 Options exercised (143,873) (181,441) Options canceled (2,120) (3,785) Shares under option, end of year 273,592* 363,835 Shares available for option, end of year 25,992 • 79,622 *At prices ranging from $23.56 to $104.06. Dividend Restrictions: Certain of the agreements covering long-term debt and preferred stock contain restrictions with respect to the payment of dividends (other than stock dividends) on common stock and to the purchase, redemption or retirement of capital shares. At December 31, 1972, approximately $326,000,000 of consolidated earnings reinvested in the business was free of such restrictions. I I 50

I Earnings Per Share: Primarn• earnings per common share is calculated on the weighted average number of shares of common stock outstanding durin(-~ each year, which was 26.499,669 in 1972 and 25,063,307 in 1971. Fully diluted earnings per common share gives effect to the reduction in earnings per share which would result from the conversion of all outstanding comertible securities and the exercise of stock options. Convertible securities were assumed to have been converted from the beginning of the period and net earnings were adjusted for related interest net of tax. Funds assumed to have been received from exercise of stock options were assumed to have been used to acquire shares for the treasurv at the hiiher of the average market price during the periods or the market price at the close of the periods. The number of shares of common stock used in this computation was 28,632,716 for 1972 and 28,278,474 for 1971. Incentive Compensation Plan: In accordance with the Company's Incentive Compensation Plan, which was approved by stockholders at the 1967 annual meeting, a pni\,ision of S 1,933,000 was made against 1972 earnings for awards that will be made to officers and other key employees in 1973. A provision of S 1,702,000 was made against 1971 earnings. These amounts were less than the maximum amounts that could be provided under the plan. Income Taxes: 1972 1971 Provision for federal and other income taxes: Federal $ 75,001,000 $66,207,000 State and local 10,100,000 6,980,000 Forcign 20,067,000 15,1 15,000 $105,168,000 $88,302.000 Additional Information: 1972 1971 Depreciation of plant and equipment $ 26,576,000 $21,500,000 Pension plan expense $ 10,620,000 $1 1,200,000 In.estment tax credit $ 2 ,702,000 $ 908,000 Report of Independent Certified Public Accountants I To the Board of !)irectors and Stockholders of Philip Morris Incorporated: We ha~e examined the consolidated balance sheet of PHILtP MORRIS INCORPORATED and Consolidated Subsidiaries as of December 3 1. 1972 and the related consolidated statements of earnings, stockholders' equity and changes in financial position for the yenr then ended. Our examination was made in accordance with generally accepted auditing standards, and accordindy included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the consolidated financial statements for the year ended December 31, 1971. In our opinion, the financial statements mentioned above present fairly the financial position of Philip Morris Incorporated and consolidated subsidiaries at December 31, 1972 and 1971 and the results of their operations and the changes in financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. New York, January 30, 1973. Lybrand, Ross Bros. & Montgomery t•3 ~ 0 w. L3 511

Fifteen Year Financial Review Philip Morris Incorporated and Consolidated Subsidiaries (in thousands e.rcept last nine items) Operating Revenues Federal Excise Taxes Foreign Excise Taxes Operating Income Earnings Before Income Taxes Pre-Tax Profit Margins Net Earnings ................ Dividends Declared: Common Common Dividends Declared As % of Net Earnings . Dividends Declared: Preferred Net Earnings Reinvested .. ...._.. Capital Expenditures Annual Depreciation Property, Plant & Equipment (Gross) Property, Plant & Equipment (Net) Inventories Current Assets Working Capital Total Assets Short-Term Debt Senior Long-Term Debt Subordinated Long-Term Debt Total Debt Stockholders' Equity 1972 1971 1970 1969 1968 S''.131.'_' 24 1,852,495 1,509,540 1,142,373 1,019,846 -19-1.778 441,143 372,092 319,086 295,903 " 2 3_.151 201,386 147,124 54,247 41,841 387.461 241,137 203,180 153,237 126,159 229,634 189,800 150,008 115,613 100,107 10.V~ 10.2% 9.9% 10.1% 9.8% 124,466 101,498 77,498 58,340 48,866 33,882 31,080 24,452 21,794 18,755 37.2~/c 30.6% 31.6% 37.4% 38.4% 690 752 870 887 922 89,894 69,666 52,176 35,659 29,189 120.034 68,001 39,595 23,636 26,373 3h,57Ei 21,500 17,658 13,512 12,139 571,1-18 447,075 394,088 236,962 219,346 373.372 274,070 236,697 147,354 138,704 801,145 670,244 568,428 447,319 451,922 989,708 826,453 728,837 574,988 561,685 524,791 417,591 347,682 315,871 312,406 1,701,494 1,392,035 1,239,424 976,489 786,578 197,900 201,400 187,100 158,100 153,800 373,400 216,500 178,500 168,700 176,000 109.700 136,000 192,100 163,600 25,000 681,000 553,900 557,700 490,400 354,800 695,549 579,114 452,849 355,808 314,496 ............. ....... ..... Primary Earnings Per Common Share . .... .. ....... .... .. ..... Fully Diluted Earnings Per Common Share . .............. ... ......... Dividends Declared Per Common Share .......... ... ...... Book Value Per Common Share .. ........... ............... Market Price of Common Share High-Low ............_ Closing Price Year End ................. Price/Earnings Ratio No. of Common Shares-Actual Year End ...... ... ........................... No. of Common Shares-Weighted Average ........ $4.67 4.02 3.36 2.58 2.18 4.37 3.64 2.85 2.40 2.14 1.262 1.21 1.05 .98 .85 25.10 21.44 17.87 14.78 13.12 118t/a-673/a 71-463/a 501/4-28 363/s-25t/s 341/4-22 1181/4 70i/a 491fz 353/a 32 25 17 14 13 14 27,222,045 26,169,454 24,158,840 22,565,334 22,200,308 26,499,669 25,063,307 22,806,598 22,269,461 21,928,890 0 52 I I

1967 1966 1965 1964 1963 1962 1961 1960 1959_ 1958 -r I)) 904.841 771.975 704,5-14 641,439 585,059 550,624 529,127 509,332 499,598 473,552 271.073 234,975 214,128 194.312 193,768 187,133 184,146 175,947 168,608 163,023 39,658 30,057 27.780 22,462 8,276 3,785 101.838 81.867 65,128 55,568 56.634 56.402 52,701 52,376 49.690 47,426 81,317 65.144 52,423 44,466 46,729 47,464 45,985 44.578 41,159 39,854 9.0 0~ 8.4 ~i'c 7.4 % 6.9 % 8.0 % 8.6 % 8.7 % 8.8 % 8.2 %- 8.4 % -13,601 34,183 26,509 22,614 22.052 21,946 21,511 20.984 19,590' 18,705 15,226 15,101 12,896 12,867 12,855 13,046 13,212 13,085 11,140 10,467 34.9c'(' 44.2% 48.6 ~'c 56.9% 58.3% 59.4% 61.4% 62.4% 56.9% 56.0clo 922 923 943 953 953 953 970 1,011 1,024 1,037 27,453 18.159 12.670 8,794 8,244 7,947 7.329 6,888 7,426 7,201 25,688 17.089 12.078 19,366 26,243 11,843 8,733 7,300 12,380 8,580 10,903 9,532 8.857 8.316 6,765 6,293 5,638 5,362 4,932 4,981 193,656 172.593 159:759 153,224 139,595 110,204 99,066 93.641 90.050 80,906 123,555 110,157 104.044 102,417 93,150 68,664 61,560 59,960 59,655 53,444 386,576 297.761 271,823 257,256 235,375 228.088 232,541 209,326 210,967 219,744 485,908 372,895 339.082 318,978 297,295 279,068 277,350 249,819 252,239 271,658 306,172 253,257 213.826 202,810 190,982 179,222 190,859 190,423 187,404 150,103 648.994 512,549 466.277 443,438 412,543 365,024 351,018 321,717 321,620 333,489 ~l 82,600 173.800 27,200 133,800 57,300 100,800 56,700 102,300 53,800 91,400 57,400 63,400 45,200 65,400 21,000 67,400 30,000 69,100 89,400 30,600 256,400 161,000 158,100 159,000 145,200 120,800 110,600 88,400 99,100 120,000 280.186 249.821 230,677 217,783 208,711 201,720 199,685 195,956 189,317 181,352 1.97 1.54 1.19 1.01 .99 .98 .94 .91 .85 .81 1.94 1.54 1.19 1.01 .99 .98 .94 .91 .85 .81 .70 .70 .60 .60 .60 .60 .60 .60 .52 .50 11.77 10.48 9.63 9.03 8.62 8.25 7.99 7.74 7.47 7.13 283/a-15'/.~ 17~/8-12'./.+ 16i/8-12?4s 14i/8-1 11/4 15-11 1/8 183/4-101/8 20~/8-13 131/2-10 10~/s-9 101/4-71/8 221/4 17 143/a 12 i/4 123/8 12 1/4 183/8 133/8 103/8 101/4 11 11 12 12 12 12 19 14 12 12 21,830,874 21,613,344 21,521,730 21,458,478 21,429,444 21,526,428 21,972,954 22,029,792 21,937,686 21,774,654 21,674,884 v A V O ~ ~ Q ~ m .bt ~ .~ L ~ ~ ~ t+.X u Nv Q C. y ~ ci.I .C v lm

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