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P H I L I P M 0 R R I S INCORPORATED ~ l96~ A N N U A L R E P O R T Executivc Offices: One Ilundred Park Avenue, HIGHLIGHTS 1981 (($000) Net Sales .................. S 526,7; Net Income ................ 21,5 Per Share of Common Stock: Net Iiicome .............. $ 5.1 Dividends Declared ....... 3•( Net Income Reinvested For Expansion ............. 2•' Taxes Federal Excise Taxes ...... $ 184,1 Federal and State Income Taxes .................. 24, ") CONTENTS President's Message 2 Other: Social Security and Local Taxes ............ 4,5 Manufacturing and Leaf 4 Total Taxes ........ $ 213,3 Research and Development 4 Marketing 5 Number of Stockholders (At Dec. 31) Preferred ................ 2,2 Philip Morris International 8 Common ................ 33,4 Subsidiaries 8-9 Executive Personnel 10 Total Assets ................ $ 351,0 Total Assets Per Share ....... 95. Industry Affiliations 10 Financial 10 Common Stockholders' Equity Per Share ................ 47• Audited Financial Statements 12-17 Charts and Summary 18-19 The notes to consolidated financial statements should be read in conjunction with the above data. t 2048014426

Philip Morris Incorporated OFFICERS Joseph F. Cullman, 3rd President Chandler H. Kibbee Executive Vice President-Finance Robert P. Roper Executive Vice President-Operations George Weissman Executive Vice President-International Andrew C. Britton Vice President, Chief of Manufacture Hugh Cullman Vice President, Assistant Chief of Operations John E. Cookman Vice President, Diversi fication and Treasurer George C. Dawson Vice President, International Clifford H. Goldsmith Vice President, Subsidiary Relations Roger M. Greene Vice President, Advertising Justus Heymans Vice President, International Ray Jones Vice President, Sales George W. Macon, Jr. Vice President, Leaf Ross R. Millhiser Vice President, Director of Marketing Jack R. O'Connor Vice President, National Sales Manager Paul D. Smith Vice President, General Counsel Dr. Helmut R. R. Wakeham Vice President, Research and Development Thomas F. Ahrensfeld Associate General Counsel and Secretary Henry R. Blum Controller John A. Hampson Assistant Treasurer L. C. Metzger Assistant Treasurer Walter F. Sperber Assistant Controller Cornelia Craig Assistant Secretary Mary E. Russell Assistant Secretary I a DiRECTORS Joseph F. Cullman, 3rd President Howard S. Cullman President, Cullman Bros., Inc. Richard W. Dammann Dammann, Blank, Hirsch & Heming Attorneys-at-Law Dr. Jess H. Davis President, Stevens Institute of Technology Dr. Robert N. DuPuis Vice President, General Foods Corporation Wirt H. Hatcher Consultant, Retired Senior Vice President Chandler H. Kibbee Executive Vice President-Finance Edward Lasker Hastings and Lasker Attorneys-at-Law T. Newman Lawler Lawler & Rockwood Attorneys-at-Law Robert P. Roper Executive Vice President-Operations Arthur Snapper Chairman, Milprint, Inc. Sidney Weil Chairman, Executive Committee A•S•R Products Company George Weissman Executive Vice President-International j Harvie Wilkinson, Jr. President, State-Planters Bank of Commerce and Trusts, Richmond, Virginia Alfred E. Lyon, Honorary Chairman Leonard G. Hanson, Director Emeritus Herman E. Riddell, Director Emeritus Kenneth H. Rockey, Director Emeritus TRANSFER AGENT Morgan Guaranty Trust Company of New York 30 West Broadway, New York, New York REGISTRARS The First National City Bank of New York 55 Wall Street, New York, New York Chemical Bank New York Trust Company 100 Broadway, New York, New York COUNSEL Conboy, Hewitt, O'Brien & Boardman 39 Broadway, New York, New York AUDITORS Lybrand, Ross Bros. & Montgomery 2 Broadway, New York, New York .p Co p[ 41 ' P F A R HIG Net Net Per 1\ I r ( Nu ( I ( Toi To, Co I The be r

PHILIP MORRIS iNTERNATIONAL 100 Park Avenue, New York 17, New York George Weissman, Chairman, Chief Executive Officer George C. Dawson, President and Chief Operating Officer Justus Heymans, Senior Vice President Sidney Bach, Vice President William F. Fielden, Vice President Robert J. Leahy, Vice President James E. Turner, Vice President and Secretary George P. Washburne, Vice President BENSON & HEDGES (CANADA ) LTD. Brampton, Ontario Robert J. Leahy, President M. J. Adler, Vice President & Chie f o f Operations John Hughes, Vice President, Cigar Sales Antonio Toledo, Vice President, Marketing Joseph Secter, Secretary-Treasurer PHILIP MORRIS & CO., LTD. London, England Earle R. Adler, Managing Director M1LPR1lOdT, INC. Milwaukee, Wisconsin Arthur Snapper, Chairman o f the Board Fred hL Stefan, President and Chief Executive Officer Robert C. Roderick, Vice President, Manu facturing . Wagner Van Vlack, Vice President, Marketing C. K. Billeb, Vice President, Engineering Donald L. Faulkner, Vice President, Merchandise Manager S. Lyle Graham, Vice President, Personnel Walter J. Hullinger, Vice President, Manager, Field Operations Paul B. Hultkrans, Vice President, Manager, Industry Sales Adolph Miller, Vice President, Director o f Research Jack R. Jewell, Secretary NICOLET PAPER CORPORATION West DePere, Wisconsin Henry Fowler, President S Robert Etter, Executive Vice President Robert J. Hadraba, Vice President-Director of Sales Frank X. Kreiling, Vice President & General Mill Manager Herbert Wenberg, Vice President-Technical Services A•S•R PRODUCTS COMPANY New York, New York Robert G. Urban, President George Bratt, Jr., Vice President Joseph A. Dammann, Vice President and Treasurer Richard W. Dammann, Secretary AMERICAN SAFETY RAZOR COMPANY New York, New York Richard D. Robertson, Vice President-Staunton Operations Jay S. Salamon, Vice President, Marketing EVER-READY RAZOR PRODUCTS LTD. London, England Earle R. Adler, Chairman o f the Board SUPREME PRODUCTS CORPORATION Chicago, Illinois David Spatz, President TME LIGHTFOOT COMPANY Hoboken, New Jersey B. L. Marks, President PAL BLADE CORP., LTD. (CANADA ) Montreal, Quebec Jack Hendler, President & General Manager POLYMER INDUSTRIES, iNC. Springdale, Connecticut Dr. Frank C. Campins, President Richardson Thurston, Vice President and General Manager Raymond T. Clarke, Vice President John W. Foster, Jr., Vice President Dr. Howard L. Kane, Vice President J. W. Ogletree, Vice President Ralph C. White, Secretary-Treasurer Horace W_ Pierpoint, Controller I I I

P H I L I P M 0 R R 1 S ~- - INCORPORATED 1961 A N N U A L R E P O R T Executii;e Oflices: One Hundred Park AUCntte, New York 17, New York I I HIGHLIGHTS $ 351,018 95.85 Net Sales .................. S 526,732 $ 506,412 Net Income ................ 21,511 20,98-} Per Share of Common Stock: Net Income .............. S 5.61 $ 5.44 Dividends Declared ....... 3.60 3.60 Net Income Reinvested For Expansion ............. 2.01 1.84 Taxes Federal Excise Taxes ...... Federal and State Income Taxes .................. Other: Social Security and Local Taxes ............ Total Taxes ........ Number of Stockholders (At Dec. 31) Preferred ................ Common ................ S 18-1,1-16 $ 175,947 24,36•1 23,370 4,839 3,939 S 213,3-19 $ 203,256 2,200 33,474 Total Assets ................ Total Assets Per Share ....... Common Stockholders' Equity Per Share ................ 1960 ($000) 2,238 34,451 $ 321,717 87.62 47.93 46.46 The notes to consolidated financial statements should be read in confunction with the above data. 2048014429

PRESIDENT'S MESSAGE Philip Morris maintained its forward , momentum ir 1961. Net sales amounted to $526,752,000, an increase o 4 per cent over last year's total of $506,412,000. Net income of $21,511,000 was 2.5 per cent greater than the $20,984,000 for 1960. Unit cigarette sales were at a new high, and both net sales and net earnings increased for the eighth consecutive year. On a per common share basis, earnings were $5.61 in 1961, up 3.1 per cent over $5.44 for 1960. Dividends of $3.60 were paid on the common shares, the 34th consecutive year of common stock payments. Dividends of $4.00 were paid on the 47o Cumulative Preferred Stock and $3.90 on the 3.90% Cumulative Preferred Stock. CIGARETTE SALES INCREASED AGAIN: Cigarette sales were again the most important factor in the improved results for 1961. Shipments of our American- made cigarettes both for the domestic and world market were significantly ahead of the previous year. A marked profit improvement resulted from increased cigarette production in the United States. This profit improvement was offset by heavy introductory expenses in Canada and England, important additions to our non-tobacco research, development and new product programs, and by adjustments occasioned by the decline in the value of the Venezuelan bolivar. Marlboro had an excellent year with important gains both domestically and overseas. Marlboro is the largest selling American-made filter cigarette in the flip-top box in the world. It is also becoming increasingly popular in the king size soft pack. Parliament has been on an accelerating sales curve all through 1961. It is far and away the world's largest selling recessed filter cigarette. More and more smokers are recognizing the advanta es of Parliament's recessed filter and distinctive mild blend. Philip Morris brand has had a healthy year marked by a trend away from the long decline this brand had been experiencing, and for the first time in a decade, its production increased. The heartening public response to our new Philip Morris King Size Commander was responsible for the improved Philip Morris brand sales performance. The noticeably better tasting, better made cigarette produced by the new Mark VIII making machine attracted many new smokers to Philip Morris Commander. Our Alpine brand continued to share an important segment of the menthol filter field, and Benson & Hedges in its distinguished new packet had a fine sales increase to strengthen further its position as America's largest selling premium priced premium quality cigarette. Philip Morris International expanded its operations on a number of important fronts. ` 0 2 204801443t3

INTERNaTIONAL OPERATIONS EXPANDED: In Canada, our wholly owned company, Benson & ed~,~,es ( C;:nnada ) Ltd. opened a fine new factory iu rampton, near Toronto, and introduced in selected iarkets our Alpine and Parliament brands. Reaction by Canadian smokers to these products which are niade from Canadian grown leaf, using Canadian produced packaging materials and employing Canadian personnel, has been encouraging so far. Distribution is being widened to all important areas of Canada early in 1962. In Venezuela, our affiliate Catana strengthened its position when it amalgamated with Cavet, another large cigarette manufacturer in this important South American country. Profits to Philip \torris from Venezuela were reduced in 1961 by the devaluation of the bolivar, but «•e believe Catana has measurably enhanced its position in the Venezuelan market during the vear and the future should show a favorable profit trend. Philip \forris is receiving dollars from Venezuela on a satisfactory basis. Philip \torris (Australia) Ltd. enjoyed a year of sustained sales progress with profits at a satisfactory level, but not keeping pace with the sales increase, due to the expense of introducing Alpine and Philip \Iorris King Size. Both the new brands were successfully launched and are going, established brands in Australia. Philip hlorris Regular and Marlboro also howed good increases. The organization and roductiou facilities of Philip '1lorris & Co., Ltd. England )%c,cre strengthened and enlarged, but our osition still remains very small in this market. Philip Aiorris International was active in Europe. In Switzerland, Marlboro, made under license by Fabriques de Tabac Reunies SA, improved its leading position. In West Germany, \larlboro made under license by the Brinkmann Company showed consistent sales gains and enjoys a fine volume. NEW LICENSING AGREEMENTS SIGNED: In France, Parliament was successfully introduced under a manufacturing license arrangement with the French Government Regie. In Benelux, Philip NIorris is being manufactured under a licensing arrangement made late in 1961 with Ed. Laurens "Le Khedive." Marlboro will be introduced in Finland in 1962, to be made there by Amer-Tupakka Oy, under license from Philip D4orris. In South America, Philip Morris brands have a wide acceptance and our sales in this important market increased in 1961. In the Far East we enlarged our position, especially in Hong Kong where Philip Morris, locally made to our quality standards, were successfully introduced. In the Philippines, sales of our locally made Philip Morris and Marlboro brands were sharply curtailed at year's end by restrictions on the importation W f American grown tobaccos. Philip Morris brands have historically enjoyed a wide cceptance in world markets. We are aggressively trying o strengthen and enlarge our position in this rapidly growing segment of the cigarette industry. Our principal brands have a unique international character which we feel represents a most promising opportunity for Philip \[orris growth in the future all over the world. PAL, GEM PREMIUM BLADES INTRODUCED: In 1961 we reactivated the name American Safety Razor Company to indicate our emphasis on this important blade and razor division of A•S•R Products Company, our principal non-tobacco consumer products activity. During 1961 we continued our intensive program of product development and product improvement at American Safety Razor. The first result of this program reached the shaving public early in the year when the new Pal Premium injector blade was introduced nationally. Later in the year we introduced the new Gem Premium Edge single edge blade to strengthen our dominant position in this segment of the blade market. Philip Morris sales energies and advertising properties are being used to promote both these new products and results have been encouragirig so far. Both of these new products are superior to anything we have produced in the past, but they represent only our first steps in a much larger program which we believe will give consumers here and abroad a new standard of excellence and shaving comfort. Profits of A•S•R have been affected by our new product development and research program as well as our expanded promotional effort, but familiarity with the razor and blade business has reinforced our confidence in its future. Wet shaving is becoming more popular throughout our enlarged world population. 1961 was not a satisfactory year for our flexible packaging subsidiary, Milprint, Inc. of Milwaukee. Profit margins continued to narrow in the face of increased costs of production and -naterials without compensating increase in prices to o,..r customers. The industry continues to be plagued by excess capacity. We are making determined efforts to increase efficiency and develop more profitable lines. NICOLET OPERATION IMPROVED: Nicolet Paper Corporation, makers of glassine and sulphite papers in DePere, Wisconsin, a Milprint subsidiary, improved its operation. We continue to strengthen our Milprint organization against the day when more normal conditions in the packaging industry will permit Milprint to produce satisfactory profits on its volume. The future for Philip Morris appears promising in both domestic and international operations. The world-wide demand for quality American type cigarettes in general, and brands made by Philip Morris in particular, should expand with the increase in the world's population and the economic growth of many underdeveloped countries. Our emphasis on quality as a foundation for growth is firmly planted in all the people o f Philip Morris all over the world whose efforts have resulted in Philip Morris' present position o f unique strength. Thanks go to them especially for the progress made in 1961. New York, N. Y., February 28, 1982 .!• JOSEPfi F. GULLMAN, 3rd President 3

1]OME r3TtiC TOgACCO Philip Morris plants at Richmond and Louisville (upper right) added evening shifts to meet increasing demands for the Company's cigarette brands. MANUFAG't[3R3NG AND LER.F i In 1961, the Jtanufacturing Department at its plants in Richrnond' and Louisville continued its program of introducing new and improved machinery and manufacturing techniques designed further to enhance the quality of our products and the efficiency of manufacture. Production of Philip Morris Regular cigarettes was transferred during the year to Mark VIII making machines. This is the revolutionary equipment, first successfully employed on Philip Morris Commander, which produces cigarettes that are noticeably better made, better tasting and more uniform. During 1961, new three-year contracts were signed with the major unions which represent the Company's hourly employees. The Company continues to enjoy a history of fine relationships with its skilled men and women. Leaf purchases in 1961 were increased to provide for growing sales in the United States and abroad. The 1961 Burley and Bright crops were appreciably larger than 1960. Their average prices again were higher than those of the previous year, and prices paid by Philip Morris were also higher. Turkish-type leaf was of satisfactory quality and was purchased at about the same price as last year. RESEARCH AND DEVELOPMENT During 1961, the Research Center staff at Richmond was further augmented to meet the growing demands on its skills. Facilities for flavor studies were expanded, and the staff continued its searcr for improved methods of evaluating and testing leaf, other cigarettE` , components and packaging materials. 2048014432

Subsidiaries, as wejl, maintain product development operations, and use tlie Philip Morris corporate research center facilities to supplement their o«;n activities. These specialized units work for the continued improvement of product quality and the development pf new products to meet consumer interests and demands. MARKETING The C:oiuhauv's major brands-Marlboro, Philip Morris, Parliameut, Alpine and Benson & Iledges - strengthened their positions in the inclustrv. It is «•orthv of note that Philip Morris is the only cigarette manufacturer with established brands covering all segments of the cigarette market: full Havor filter, high filtration, regular, king size, menthol and premium priced. Advertising again played a key role. For the 1961-62 television season. the Company's brands are supported by the successful diversified lineup of network programs - Professional Football (National Football League ), Perrv Mason, The Dobie Gillis Show, Douglas Edwards witli the News, Rawhide and Route 66 - carefully selected the previous year. This is an unusual and desirable achievement, particularly for 1961, a vear noted for the high fatality rate of new as well as established shows. Moreover, the Companv's television properties were top rated in their time periods. Such performance means the Company reaches its audiences at a cost significantly lower than the industry average. Color newspaper advertising again in 1961 was used where the added imhact and visibility of color justified the premium cost. Black and white newspaper advertising continued its major role because of its relative efficiency and universal availability. Magazines reaching national audiences -such as Life, Look, The New Yorker, TV Guide, Sports Illustrated, Newsweek and Time - provided their _special function of portraying product advantages with high quality reproduction not available in other print media. I Network radio supplemented national television throughout the country in hundreds of markets. Local television and radio spots delivered additional penetration in major selected inarkets. _ Revelation and Bond Street smoking tobaccos were advertised chiefly through national magazines and were supported by strong point-of-sale merchandising. The total marketing efforts behind the brands' successes were demonstrably effective. Sales, Sales Promotion, Public Relations and Marketing Research each supplied special merchandising and promotion to make up the Company's total marketing effort. Enhancing basic distribution through all types of outlets were special programs to assist in the merchandising of cigarettes in the nation's super markets, vending machines and other specialized sales areas; e.g., the fourth in a series of volume outlet merchandising films, "The Consumer Wins Or Else," was completed in 1961 and demonstrated to super market management mutually advantageous methods in which to stock, display, merchandise and sell cigarettes. In addition, special programs were directed toward the college market. Chief of these is the popular "On Campus" column by humorist Max Shulman, which appears in the campus newspapers. Marketing Research guided the Company's marketing efforts into the most productive and efficient areas. This Department conducts continuing surveys among the smoking public to detect and evaluate changes or new trends in tastes and types of cigarette preference. Dwayne Hickman, star of the Dobie Gillis Show (CBS-TV) discusses future plans for the comedy series with Roger M. Greene, Advertising Vice President, left, and Ross R. Millhiser, Vice President and Director of Marketing. 5

DIVISIONS AND SUBSIDIARIES George Weissman, Chairman of Philip dforris International, left, and 11f. Girard of French Regie, following New York press conference to announce his- toric cross-licensing a;reement. PHILIP Mt3RA$S 1111TERIUA7if3NAL Throughout the year, the Companv's international activities wer again increased and expanded. To reflect more accurately th~ scope and nature of the Company's worldwide operations, thi; division's name was changed in Scptember from Philip Morris Overseas to Philip 'Morris International. The importance of this division's activities is growing. Sales potential internationally is impressive. As standards of living rise in the rest of the free world, per capita consumption of cigarettes increases strongly. Philip Morris is in a position to capitalize on this potential: the reputation of the Company's domestic products assists their acceptance around the world; the Company has historically Joseph F. Ctdlman, 3rd, left, President of Philip Morris, and M. Grinumelli, head of the French Gocernment Tobacco Administration, at Ei$el Tower reception to announce unique international Gauloises- Parliament agreement. Officials of Amer-Tupakka Oy and representatives of Philip Morris International f ollowing signing of agreement under which Marlboro cigarettes will be made and marketed by that firm in Finland. From left, Martti Santala, Director of Sales, and Reino Sarvanne, Director of Production, both of Amer-Tupakka Oy, with George Weissman, Chairman of the Board, Sidney Bach and Justus Heymans, all of Philip Morris International. engaged in foreign trade; trained personnel knowledgeable in world trade are equipped to further the Company's interests; and well founded licensees and subsidiaries are able to take advantage of expanding markets. In 1961, Philip Morris International again operated effectively in three ways: • it exported American-made cigarettes to more than 104 countries and territories, • its affiliated companies manufactured and sold Philip Morris cigarettes in 4 countries, and • the number of licensees, who make and market the Company's cigarettes, grew to 8. In all cases, quality standards of the parent Company are closely supervised and implemented by Philip Morris personnel. During the year, progress was made in all three areas: Export: Despite import restrictions imposed by many countries which have been key markets for Philip Morris brands, 1961 was one of the best years for the sale abroad of cigarettes made in the United States. To strengthen the sales effort, Philip Morris International stationed men in the field in Europe, the Far East, and South America. Affiliated Companies: A modern cigarette factory was completed near Toronto by Benson & Hedges ( Canada ) Ltd. and the production and sale of Parliament and Alpine cigarettes began in the early Fall. Consumer response has been encouraging. An amalgamation involving C. A. Tabacalera Nacional ( CATANA ), an affiliate of Philip Morris, and C. A. Venezolana de Tabaco ( CAVET ), was announced in December. Philip Morris : 2048014434 6