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CIGARETTES. IN VENEZUELA, OUR AFFILIATE CATANA, STRENGTHENED ITS POSITION IN THE VENEZUELAN MARKET BY MERGING WITH ANOTHER MAJOR COMPANY THERE SO THAT THE MERGED COMPANY NOW SUPPLIES SOMETHING OVER 507o OF THE CIGARETTES CONSUMED IN VENEZUELA. CATANA MANUFACTURES IN VENEZUELA OUR PHILIP MORRIS, MARLBORO, PARLIAMENT AND ALPINE BRANDS, AS WELL AS SUCH LEADING VENEZUELAN BRANDS AS LIDO, FORTUNA AND CAPRI. DURING THIS FIVE YEAR PERIOD, WE HAVE ALSO MADE A NUMBER OF SUCCESSFUL LICENSING ARRANGEMENTS WITH MANUFACTURERS IN FOREIGN COUNTRIES. MARLBORO IS THE LEADING AMERICAN BRAND MADE IN SWITZERLAND, AND IS STILL GROWING. MARLBORO MADE IN WEST GERMANY HAS ALSO BEEN VERY WELL RECEIVED. IN FINLAND, WHERE MANUFACTURE

OF MARLBORO HAS RECENTLY COMMENCED, THE BRAND HAS BEEN A NOTABLE SUCCESS. THE FRENCH REGIE IS MANUFACTURING PARLIAMENT IN FRANCE WITH THE BLENDED TOBACCOS SUPPLIED FROM HERE IN RICHMOND. PARLIAMENT IS THE FIRST AMERICAN-TYPE CIGARETTE TO BE MADE IN FRANCE. IN THE BENE LUX COUNTRIES, PHILIP MORRIS ARE BEING MADE LOCALLY. IN HONG KONG, PHILIP MORRIS MADE LOCALLY HAS A LEADING POSITION, AND IN THE PHILIPPINES, PHILIP MORRIS HAS FOR YEARS ENJOYED A WIDE CONSUMER ACCEPTANCE. WE ARE HOPEFUL THAT COMPLICATIONS THAT TEMPORARILY INTERRUPTED THE F LOW OF AMERICAN GROWN TOBACCO INTO THE PHILIPPINES WILL BE RESOLVED TO PERMIT RESUMPTION OF PRODUCTION OF PHILIP MORRIS BRANDS THERE SHORTLY. THE PRODUCTION OF PHILIP MORRIS PRODUCTS MADE IN THE UNITED STATES FOR EXPORT

- 12 - OVERSEAS HAS HELD UP VERY WELL, NOTWITHSTANDING OUR ACTIVITIES WITH OUR FOREIGN TOBACCO SUBSIDIARIES, AFFILIATES AND LICENSEES. AMERICAN-MADE PHILIP MORRIS BRANDS HAVE A TRADITIONALLY STRONG POSITION IN EUROPE AND SOUTH AMERICA, AND THERE IS EVERY REASON TO BELIEVE THAT THIS POSITION WILL BE MAINTAINED AND ENHANCED AS WORLDWIDE COMMUNICATIONS ARE IMPROVED AND SPEEDED UP AND WORLD MARKETS BLEND INTO ONE. THE AMERICAN TYPE CIGARETTE IS IN STRONG DEMAND ALL OVER THE FREE WORLD AND THIS GIVES PHILIP MORRIS INTERNATIONAL AN UNUSUAL OPPORTUNITY TO PROVIDE GROWTH FOR PHILIP MORRIS INCORPORATED OVER AND ABOVE THE AVERAGE ANNUAL CONSUMPTION GROWTH OF APPROXIMATELY 3-4% IN THE UNITED STATES. ~ ~ .~ 00 0 r OVER-RIDING ALL OTHER CONSIDERATIONS ~ ~ ~ IN THE CONDUCT OF OUR BUSINESS IS THE CONVICTION

THAT THE QUALITY OF OUR PRODUCT IS THE SINGLE MOST IMPORTANT FACTOR IN ATTRACTING THE CONSUMER. WE FEEL THAT OUR PRODUCTS ARE SECOND TO NONE IN THEIR INTRINSIC QUALITY APPEAL, AND THIS VIEW IS CONFIRMED REGULARLY IN EXHAUSTIVE, IMPARTIAL PANEL TESTS. IT IS THE QUALITY OF OUR PRODUCTS AND THE QUALITY OF OUR PEOPLE IN WHICH WE TAKE THE MOST CARE -- AND THE MOST PRIDE. OUR SALES CONTINUED TO INCREASE IN THE FIRST QUARTER OF 1962, IMPROVING ON THE EXCEPTIONALLY FINE FIRST QUARTER OF LAST YEAR. MARLBORO AND PARLIAMENT WERE THE PRINCIPAL CONTRIBUTORS TO THIS INCREASE, AND WE ALSO OBTAINED A BETTER PERFORMANCE FROM BOTH MILPRINT AND A. S. R. IN THE PERIOD. PROFITS, TOO, SHOULD SHOW SOME IMPROVEMENT OVER 1961's RECORD FIRST QUARTER. ESTIMATES BASED ON PRELIMINARY FIGURES ARE COMPARED TO LAST YEAR'S COMPARABLE FIGURES , OF

- 14 - OUR BASIC MANAGEMENT OBJECTIVE REMAINS THE SAME AS IT HAS BEEN IN THE RECENT PAST WE HAVE BEEN REVIEWING. WE ARE ATTEMPTING TO STRENGTHEN OUR POSITION IN BOTH TOBACCO AND NON-TOBACCO PRODUCTS; TO IMPROVE OUR STANCE IN BOTH DOMESTIC AND FOREIGN MARKETS. SUCH INVESTMENTS AS OUR ENTRY INTO THE CANADIAN MARKET ARE NECESSARILY EXPENSIVE AND TEMPORARILY AFFECT PROFITS. BUT WE. ARE CONVINCED THIS POLICY OF MAKING INVESTMENTS EVEN AT THE EXPENSE OF PROFITS NOW IS THE WISE ONE FOR YOUR CORPORATION AS WE LOOK TO THE NEXT FIVE YEARS TO COME AND BEYOND. IN THE SPRING OF 1955, AFTER THE DEATH to 0 .a OF MY FATHERs MY UNCLE MR. HOWARD CULLMAN ~ N ~ t_j TOOK HIS PLACE ON THE BOARD OF DIRECTORS OF ~I THE COMPANY. HAVING ATTAINED THE AGE OF 70, HOWARD CULLMAN BECOMES A DIRECTOR EMERITUS TODAY.

AS SUCH HE WILL CONTINUE TO SERVE THE COMPANY BUT IN A LESS ACTIVE CAPACITY. I WANT IN CLOSING TO PARTICULARLY PAY TRIBUTE TO HIM AND THANK HIM FOR HIS OUTSTANDING SERVICE TO THE COMPANY DURING THE SEVEN EVENTFUL YEARS HE HAS SERVED AS A DIRECTOR. SOME YEARS AGO, MY PREDECESSOR MR. O. PARKER McCOMAS SAID THAT PHILIP MORRIS BELIEVED THAT PEOPLE NOT MACHINES MAKE CIGARETTES. MORE THAN ANYTHING ELSE, OUR CONFIDENCE IN THE FUTURE IS BUTTRESSED BY THE PEOPLE OF PHILIP MORRIS ALL OVER THE WORLD. THEIR INTELLIGENCE, THEIR DEDICATION, THEIR EXPERIENCE IS OUR MOST VALUABLE ASSET AND OUR BEST HOPE FOR THE FUTURE.