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a Philip Morris Companies Inc. FORM 10-K Annual Report to the Securities and Exchange Commission for the Year Ended December 31, 1989

r t f SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K (Mark One) 0 ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1989 OR D TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE AGT OF 1934 [NO FEE REQUIRED] For the transition period from to Commission file number 1-8940 Philip Morris Companies Inc. (I'xact name of registrant aa 3pec.ified ii its cLarter) Virginia 13-3260245 (State or other jurisdiction of (I.R.S. Empioyer ldmtiflcatioi No.) incorporatios or orgaaizsbio.) 120 Park Avenue, New York, N.Y. 10017 (Address of principsd e:ecvtire o~'icea) (tig C.ode) Registrant's telephone number, 9ncluding area code: 212-880-5000 Securities registered pursuant to Section 12(b) of the Act: Name of each ezc]a'ge on Titie of eacb class which registered Common Stock, $1 par value New York Stock Exchange Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes V No At February 1, 1990, the aggregate market value of the shares of Common Stock held by non-affiliates of the registrant was approximately $35.1 billion. At such date, there were 927,265,834 shares of the registrant's Common Stock outstanding. Documents Incorporated by Reference Portions of the registrant's annual report to stockholders for the year ended December 31, 1989 are incorporated in Item 1 of Part I, Part II and Part IV hereof and made a part hereof. The registrant's definitive proxy statement in connection with its annual meeting of stockholders on April 26, 1990, filed with the Securities and Exchange Commission, is incorporated in Part III hereof and made a part hereof.

PART I Item 1. Business. General Description of Business General Philip Morris Companies Inc. is a holding company whose principal wholly-owned subsidiaries, Philip Morris Incorporated, Philip Morris International Inc., Kraft General Foods, Inc. and Miller Brewing Company, are engaged primarily in the manufacture and sale of various consumer products. A wholly-owned subsidiary of the Company, Philip Morris Capital Corporation ("PMCC"), formerly Philip Morris Credit Corporation, engages in various financing and investment activities. A wholly-owned real estate subsidiary of PMCC, Mission Viejo Company ("Mission Viejo"), formerly Mission Viejo Realty Group Inc., is engaged principally in land planning, development and sales. As used herein, unless the context indicates otherwise, the term "Company" means Philip Morris Companies Inc. and its subsidiaries. The Company is the largest consumer packaged goods company in the world. Philip Morris Incorporated ("Philip Morris U.S.A."), Philip Morris International Inc. ("Philip Morris International") and their subsidiaries and affiliates are engaged primarily in the manufacture and sale of tobacco products (mainly cigarettes). Philip Morris U.S.A. is the largest cigarette company in the United States and Philip Morris International is the leading United States exporter of cigarettes. Their principal brand, Marlboro, has been the world's largest selling cigarette brand since 1972. Through its foodd subsidiary, Kraft General Foods, Inc. ("KGF'), the Company is the largest processor and marketer of packaged grocery, coffee, cheese and processed meat products in the United States. A wide variety of similar products is manufactured and marketed by the Company in Europe, Canada, Latin America and the Asia/Pacific region. Food products are sold under more than 62 major brand names. KGF also conducts foodservice businesses and sells food ingredients. KGF resulted from the merger on December 30, 1989, of General Foods Corporation, acquired in 1985, into Kraft, Inc., acquired on December 7, 1988. From March 1, 1989, until the merger, the Company's food operations were conducted by General Foods Corporation and Kraft, Inc. under the management responsibility of the Kraft General Foods Group. Miller Brewing Company ("Miller") is the second largest brewing company in the world. Source of Funds - Dividends Because the Company is a holding company, one of its principal sources of funds is dividends from its subsidiaries. The Company's principal wholly-owned subsidiaries currently are not limited by long-term debt or other agreements in their ability to pay cash dividends or make other distributions with respect to their common stock. Industry Segments Tobacco products (of which cigarettes accounted for 40% of the Company's operating revenues in 1989 as compared with 52% in 1988), food products and beer represent the Company's significant industry segments. Operating revenues, operating profit (together with a reconciliation to operating income) and identifiable assets attributable to each such segment for each of the last three years are set forth in a note to the consolidated financial statements on page 44 of the Company's annual report to stockholders for the year ended December 31, 1989 and are incorporated herein by reference and made a part hereof. Operating profit from tobacco operations was approximately 72% of the Company's total operating profit in 1989 compared with 84% in 1988, of which Philip Morris U.S.A. and Philip Morris International contributed 51% and 21%, respectively, in 1989 and 67% and 17%, respectively, in 1988. Food products accounted for approximately 22% of the Company's operating profit in 1989 and 9% in 1988, and beer accounted for approximately 3% of operating profit in 1989 and 4% in 1988. Operating revenues and operating profit from food products reflect Kraft, Inc. results since its acquisition by the Company. 1

Narrative Description of Business Tobacco Products Philip Morris U.S.A. is responsible for the manufacture, marketing and sale of tobacco products in the United States (including military sales) and Philip Morris International is responsible for the manufacture, marketing and sale of such products outside the United States and for tobacco product exports from the United States. Domestic Tobacco Products In 1989, Philip Morris U.S.A.'s total sales of cigarettes amounted to 219.5 billion units, an increase of 0.2 billion units over 1988. The industry's estimated cigarette sales in the United States decreased by 6.1% in 1989 as compared to 1988, following a decrease of 2.1% in 1988 as compared to 1987. The following table sets forth, based on shipments, the industry's estimated cigarette sales in the United States, Philip Morris U.S.A.'s unit sales and its share of industry sales. Export and military sales have been excluded in all cases: Philip Morris Years Ended PLffip Morris U.S.A. Share December 31 Yndnstry (a) U.S.A. .f Indnstry (a) (ia biIIios of iaita) (%) 1989 ..................................... 523.9 219.5 41.9 1988 ..................................... 558.1 219.3 39.3 1987 ..................................... 570.4 215.6 37.8 (a) Source: Wheat, First Securities, Inc. (John C. Maxwell, Jr.) Philip Morris U.S.A.'s increase in market share and the industry decline in 1989 are both partly attributable to lower customer demand as well as a decision by Philip Morris U.S.A.'s largest competitor to reduce trade inventories below year-end 1988 levels by limiting shipments. Philip Morris U.S.A.'s market share increase is attributable in part to this reduction of trade inventories and may be inflated by as much as one share point. The 1989 market share information set forth below also reflects this reduction. According to The Maxwell Consumer Report issued by Wheat, First Securities, Inc., Philip Morris U.S.A. has been the leading cigarette company in the United States market since 1983. Philip Morris U.S.A.'s major cigarette brands are Marlboro, Benson & Hedges 100's, Merit and Virginia Slims. Marlboro is the largest selling brand in the United States with unit sales of 138 billion units in 1989, approximately 26.3% of the United States market. In 1989 and 1988, the market share of low "tar" cigarettes, generally considered to consist of cigarettes delivering 15 mg or less of "tar" per cigarette, accounted for 54.7% and 56.1% of United States industry sales, respectively. Philip Morris U.S.A.'s low "tar" brands accounted for 43.6% of such market in 1989, up from 39.4% in 1988. Sales of ultra-low "tar" cigarettes, generally considered to consist of brands delivering 6 mg or less of "tar" per cigarette, accounted for 11.3% of United States industry sales in 1989 and 10.8% in 1988. Philip Morris U.S.A.'s ultra-low "tar" cigarette brands accounted for 33.1% of such market in 1989, up from 32.2% in 1988. Sales in the price-value category, which consists of "generic" and lower-priced cigarettes, have grown markedly in recent years, constituting 14.8% of United States industry sales in 1989, up from 11.1% in 1988. Philip Morris U.S.A. commenced the manufacture and sale of its lower-priced cigarette brands in 1985 with Players Lights 25s and introduced Cambridge in 1986 and Alpine in 1989. Philip Morris U.S.A.'s cigarette products accounted for 23.2% of that market segment in 1989, up from 21.0% in 1988. Excise taxes, sales taxes and other taxes levied by various states, counties and municipalities affecting cigarettes have been increasing. These taxes vary considerably and, when combined with the federal 2

excise tax, may be as high as 69 cents per package of 20 cigarettes. In the opinion of the Company, such increases have an adverse effect on sales. International Tobacco Products Philip Morris International estimates that world cigarette industry unit sales (excluding the United States) were approximately 4.8 trillion units in 1989. Philip Morris International's share of the world market in 1989 was 7.5%, up from 7.2% in 1988. Unit sales of its principal brand, Marlboro, increased 9.4% in 1989 over 1988 to 182 billion units, accounting for 3.8% of the world cigarette market (excluding the United States). Philip Morris International has cigarette market shares of at least 15% - and in a number of instances substantially more than 15% - in at least 25 countries, including Argentina, Australia, Finland, France, the Federal Republic of Germany, Hong Kong, Italy, Mexico, Saudi Arabia and Switzerland. Philip Morris International is the leading United States exporter of cigarettes. It exported 78 billion units in 1989, an increase of 13.4% from 1988. Prices in many of Philip Morris International's markets are government-controlled, and excise and other tax increases, higher costs and government price restraints in a number of markets have restricted, and may continue to restrict, the sales and income of Philip Morris International. In December 1989, a subsidiary of Philip Morris International sold its ownership of approximately 29% of the equity of Rothmans International p.l.c. to a subsidiary of Compagnie Financiere Richemont AG for £610 million of 101/4% Sterling Notes maturing in 1994. These Notes were subsequently sold with recourse for approximately $850 million. Smoking and Health and Related Matters Reports with respect to the alleged harmful physical effects of cigarette smoking have been publicized for many years and, in the opinion of the Company, have had and may continue to have an adverse effect upon tobacco industry sales. Since 1964, the Surgeon General of the United States and the Secretary of Health and Human Services have released a number of reports purporting to link cigarette smoking with a broad range of health hazards, including various types of cancer, coronary heart disease and chronic lung disease, and recommending various governmental measures to reduce the incidence of smoking. The two most recent reports, released in 1988 and 1989, repeat many of the earlier conclusions regarding the alleged health hazards of smoking, recommend additional restrictions on smoking, and focus upon the purported addictive nature of cigarettes, the prevalence of smoking among different population segments and the decrease in smoking in the United States. Federal legislation requires cigarette manufacturers and importers to include the following warning statements in rotating sequence on cigarette packages and in advertisements: SURGEON GENERAL'S WARNING: Smoking Causes Lung Cancer, Heart Disease, Emphysema, And May Complicate Pregnancy; SURGEON GENERAL'S WARNING: Quitting Smoking Now Greatly Reduces Serious Risks to Your Health; SURGEON GENERAL'S WARNING: Smoking By Pregnant Women May Result in Fetal Injury, Premature Birth, And Low Birth Weight; and SURGEON GENERAL'S WARNING: Cigarette Smoke Contains Carbon Monoxide. Such legislation also covers the size and format of warnings in cigarette advertising and prescribes a modified version of the warnings for outdoor billboard advertisements. In addition to the warning statements, cigarette advertising in the United States includes a disclosure of the average "tar" and nicotine deliveries of the advertised brand or variety. Cigarette manufacturers and importers are also required to provide annually to the Secretary of Health and Human Services a list of ingredients added to tobacco in the manufacture of cigarettes, and the Secretary is directed to report to Congress concerning the health effects, if any, of such ingredients. A majority of Philip Morris International's cigarettes are sold in countries where warning statement requirements for cigarette packages have been adopted. 3

Another federal statute established the Interagency Committee on Cigarette and Little Cigar Fire Safety to direct the work of a Technical Study Group created by the same statute and to make policy recommendations to Congress. The Technical Study Group, which consisted of representatives of designated government agencies, the tobacco and furniture industries and various other organizations, studied the feasibility and consequences of developing cigarettes and little cigars that would have a minimum propensity to ignite upholstered furniture or mattresses. Based on this research, the Interagency Committee submitted its final technical report to Congress in December 1987, which contained the conclusion of the Technical Study Group that it is technically feasible and may be commercially feasible to develop cigarettes that will have a significantly reduced propensity to ignite upholstered furniture and mattresses. The Interagency Committee recommended that legislation be adopted to facilitate additional research guided by a new scientific Advisory Committee. Since 1971, television and radio advertising of cigarettes has been prohibited in the United States. Enactments by regulatory agencies and other governmental authorities have restricted or prohibited smoking areas aboard certain common carriers, in certain public places and in places of employment. As of February 25, 1990, smoking was banned on all commercial airline flights within the 48 contiguous states and all domestic flights to or from Alaska and Hawaii scheduled for more than six hours. Numerous other legislative and regulatory measures have been proposed at the federal, state and local levels which, if implemented, could adversely affect Philip Morris U.S.A.'s cigarette business. The most significant of such measures would increase federal, state or local taxes on cigarettes, further restrict cigarette advertising and promotion, and further restrict or prohibit smoking aboard common carriers or in public places or places of employment. A number of foreign countries have also taken steps to restrict or prohibit cigarette advertising and promotion, to increase taxes on cigarettes and to discourage cigarette smoking. In some cases, such restrictions are more onerous than those in the United States. Litigation is pending against the leading United States cigarette manufacturers seeking compensatory and, in some cases, punitive damages for cancer and other health effects alleged to have resulted from cigarette smoking. Philip Morris U.S.A. is a defendant in some of these actions. It is not possible to predict the outcome of this litigation. Litigation is subject to many uncertainties and it is possible that some of these actions could be decided unfavorably to Philip Morris U.S.A. An adverse development in pending litigation could encourage the commencement of additional similar litigation. All such actions are and will be vigorously defended. However, management does not believe that this litigation will have a material adverse effect upon the financial condition of the Company. As of March 1, 1990, 57 such actiQns against the leading United States cigarette manufacturers were pending, as compared to 61 such actions pending as of December 31, 1989 and 80 such actions pending as of December 31, 1988. Philip Morris U.S.A. was a defendant in 28 of such actions pending as of March 1, 1990, as compared to 31 such actions as of December 31, 1989 and 39 such actions pending as of December 31, 1988. Distribution, Competition and Raw Materials Philip Morris U.S.A. sells its tobacco products principally to wholesalers (including distributors and government-owned organizations), large retail organizations and vending machine operators. Philip Morris International markets cigarettes and other tobacco products worldwide through subsidiaries, affiliates, export sales organizations, licensees and other entities with which it has contractual arrangements. The market for tobacco products is highly competitive, with product quality, marketing and packaging constituting the principal methods of competition. Philip Morris U.S.A. and Philip Morris International extensively advertise and promote their tobacco products through various media, although television and radio advertising of cigarettes is prohibited or restricted in many countries, including the United States. Promotional activities include, in certain instances, price reductions, allowances and other discounts. Philip Morris U.S.A. and Philip Morris International purchase leaf tobacco of various grades and types each year, primarily at auction. The tobacco is then graded, cleaned, stemmed and redried prior to its storage for aging up to three years. Large quantities of leaf tobacco inventory are maintained to support cigarette manufacturing requirements. 4

Tobacco is an agricultural commodity subject to United States government controls, including the tobacco price support and production adjustment programs administered by the United States Department of Agriculture (the "USDA"). Under a federal price support program enacted in 1986, tobacco production quotas were adjusted and Philip Morris U.S.A. and three other United States cigarette manufacturers agreed to buy over a period of several years more than 1.1 billion pounds of surplus tobacco accumulated by tobacco grower cooperatives from 1976 to 1984. Philip Morris U.S.A. has substantially fulfilled its obligations under the program. The effect of the program was a moderate reduction in prices paid by Philip Morris U.S.A. for leaf tobacco and a moderate and temporary increase in its leaf tobacco inventory, which has been subsequently adjusted to appropriate levels. Food Products KGF consists of seven operating units: (i) General Foods USA, responsible for General Foods domestic packaged grocery products and coffee businesses; (ii) Kraft USA, responsible for Kraft domestic dry grocery foods and refrigerated foods businesses; (iii) Kraft General Foods International, responsible for all General Foods and Kraft businesses outside the United States and Canada; (iv) Kraft General Foods Canada, responsible for all General Foods and Kraft Canadian businesses; (v) Oscar Mayer Foods, responsible for domestic processed meat and poultry products businesses; (vi) Kraft General Foods Frozen Products, responsible for domestic frozen foods and cultured dairy products businesses; and (vii) Kraft General Foods Commercial Products, responsible for domestic foodservice and food ingredients businesses. GErrFRAL FooDs USA. General Foods USA is one of the largest processors and marketers of packaged grocery products and is the largest processor and marketer of coffee in the United States. Its principal brands include Maxwell House, Yuban, Sanka, Brim, Maxim and General Foods International coffees, Jell-O and D- Zerta desserts, Post cereals, Log Cabin syrups, Kool Aid, Tang; Crystal Light and Country Hme beverages, Entenmann's and Freihofer's bakery products, Oroweat specialty breads, Minute rice, Stove Top stuffing, Shake'n Bake coatings, Good Seasons salad dressings and Dream Whip topping. KxaFr USA. Kraft USA's principal products include cheese and related products; vegetable oil-based products, such as salad dressings and related products; margarine and margarine-type spreads; barbecue sauce; confections; fruit spreads, jellies and preserves; packaged pasta dinners; and dips. In addition to Kraft, its principal brands include Velveeta, Cracker Barrel and Churny cheeses, Miracle Whip salad dressing, Philadelphia Brand cream cheese, Cheez Whiz pasteurized process cheese spread, Seven Seas pourable dressings, Parkay and Chiffon margarines and Bull's-Eye barbecue sauce. KxAFr GnsrEx.A,t. FOODS IrrrsxxA'noxat,. Kraft General Foods International is responsible for manufacturing and marketing a wide variety of packaged grocery, coffee, cheese and processed meat products in Europe, Latin America and the Asia/Pacific region, and for the Company's international foodservice business. International brands include a wide variety of the products sold by General Foods USA and Kraft USA, as well as Gevalia, Hag and Saimaza coffees, Simmenthal meats, Mato Mato ketchup, Mirbcoli pasta dinners, Dairylea processed cheese, Hollywood chewing gum and Kibon ice cream. The international foodservice business markets coffee and grocery products to restaurants, airlines, schools and other institutions. KxAFr GENERALFoons CANADA. Kraft General Foods Canada is responsible for manufacturing and marketing packaged grocery, coffee and cheese products. Major brands include Kraft, Philadelphia Brand, Jell-O, Post, Kool-Aid, Baker's, Tang: Miracle Whip, Parkay, Cool Whip, Sanka, Maxwell House and Chase & Sanborn. In addition, Hostess and Frito-Lay products are manufactured and sold pursuant to a joint venture with another company. The Canadian foodservice business markets coffee, salad dressings and food condiments to restaurants and other institutions. OSCAR MAYER FooDS. Oscar Mayer Foods is one of the largest processors and marketers of processed meat and poultry products sold in the United States. Its principal brands include Oscar Mayer luncheon meats, hot dogs, bacon, ham and other meat products; Louis Rich turkey cuts, luncheon meats and other products; Louis Kemp Seafood Company surimi products; and Claussen pickles. 5

Ky-uz'r GErrERAt Foons FRozEN PROnuc'rs. Kraft General Foods Frozen Products is responsible for the manufacture and marketing of a variety of products, including the following brands: The Budget Gourmet frozen entrees, side dishes and dinners, Lender's frozen bagels, Breyers ice cream and yogurt, Sealtest frozen desserts and cultured dairy products, Light n' Lively ice milk and cultured dairy products, Knudsen cultured dairy products, Frusen GTddje super-premium ice cream products, Birds Eye frozen foods, Tombstone frozen pizza, Jell-O frozen novelties, Cool Whip toppings and Breakstone's cultured dairy products. KRAFr GENExAi Foons CoMMmtciAi. PRODUCrs. Kraft General Foods Commercial Products consists of domestic Foodservice and Food Ingredients business groups. Kraft Foodservice is the second largest broadline distributor of food service products, including food products and supplies manufactured by others, in the United States. Kraft Food Ingredients manufactures certain private label products as well as a variety of industrial food products for sale to other food processors, which products include edible oils, shortenings, whey products, non-dairy creamers, confection products, cheese flavorings, seasonings and cheese analogs. Distribution, Competition and Raw Materials Sales of products of the General Foods USA, Kraft USA, Kraft General Foods Canada, Oscar Mayer Foods and Kraft General Foods Frozen Products operating units are generally made on the basis of orders by supermarket chains, wholesalers, buying cooperatives, distributors and individual stores. Substantially all products are distributed through retail food outlets. Dry grocery products are shipped to, or picked up by, customers from plants and distribution centers. Products are also shipped to customers from a number of satellite warehouses and other facilities. Frozen and refrigerated products are shipped from manufacturing locations and from intermediate public cold storage facilities. Fresh baked goods are delivered daily to depots where they are then distributed to the retail trade. Selling efforts are assisted by national and regional advertising on television and radio, and in magazines and newspapers, as well as by sales promotions, product displays, informative material offered to customers and other promotional activities. Regional foodservice distribution centers support the operations of the Foodservice Group of Kraft General Foods Commercial Products. Each Foodservice Group distribution center has a warehouse, sales office and fleet of trucks to distribute products to customers in its district. The products of the Food Ingredients Group of Kraft General Foods Commercial Products are distributed to food processors, foodservice operators and distributors and retail food stores. Sales are made primarily through the Food Ingredients Group sales force, but also to independent brokers. The Food Ingredients Group maintains warehouse and distribution centers at each of its main manufacturing facilities. Advertising is primarily through promotional programs, including price reductions, allowances and functional discounts. Products of Kraft General Foods International are sold primarily through sales offices and agents abroad. Europe represents the majority of the sales of this operating unit. European regional distribution is coordinated from a headquarters office located in Munich, Germany and through facilities located throughout Europe. The Asia/Pacific area operations are headquartered in Melbourne, Australia. Latin American and world trade operations are directed from the Kraft General Foods International headquarters in White Plains, New York. Advertising is tailored by product and country to reach targeted audiences. KGF is subject to highly competitive conditions in virtually all aspects of its business. Competitors include large national and international companies and numerous local and regional companies. Its food products also compete with generic products and private label products of food retailers, wholesalers and cooperatives. In the United States, KGF is the leading or a leading seller of cheese, viscous salad products, coffee, luncheon meats and other processed meat and poultry products, pourable dressings, barbecue sauce, 6 ZZ

packaged dinners, bakery products, frozen bagels, mayonnaise, margarine, jellies and preserves, syrups, ice cream, powdered beverages, frozen pizza and entrees, cottage cheese, sour cream, yogurt and refined oils. KGF competes primarily with respect to price, quality and service. KGF is a major purchaser of green coffee beans, milk, cheese, wheat, cocoa, rice, eggs, livestock, poultry, meat cuts, shortening, vegetable oil, aspartame, flour, fruits and berries, sugar, corn syrup, herbs and spices, and tomato products. KGF continuously monitors worldwide supply and cost trends of these commodities to enable it to take appropriate action to obtain ingredients needed for production. KGF purchases from outside sources all of its milk requirements and a substantial part of its cheddar cheese requirements. Such purchases are made principally from cooperatives and individual producers, pursuant to both contractual relationships and informal arrangements. The prices for United States milk purchases are based upon or substantially influencedd by the floor prices established by the milk price support program administered by the USDA and/or state government agencies. The prices paid for cheese in the United States are based upon or substantially influenced by weekly quotations on the National Cheese Exchange in Green Bay, Wisconsin. Such quotations generally reflect the USDA-set support price at which the Commodity Credit Corporation ("CCC"), an arm of the USDA, will purchase cheese, which price, in turn, is based upon the floor prices established by the milk price support program. See "Regulation" below. The most significant cost item in coffee products is green coffee beans, which are purchased on world markets. Green coffee bean prices are affected by the quality and availability of supply, trade agreements among producing and consuming nations, the unilateral policies of the producing nations, changes in the value of the United States dollar in relation to certain other currencies, and consumer demand for coffee products. In mid-1989, green coffee bean prices had moderated as a result of the July 3, 1989 expiration of the International Coffee Agreement. Governmental discussions between producer and consumer nations are taking place on an informal basis. These discussions may result in a formal agreement which could affect current prices. Livestock (hogs), poultry (turkey) and meat cuts (pork, beef, turkey and chicken) represent the principal raw materials used in manufacturing Oscar Mayer and Louis Rich branded products. The price paid for these raw materials is the major factor in the cost of these products. Livestock and meat cut prices are affected by market demand and supply. Poultry prices are principally affected by the cost of turkey-growing operations. In 1989, Oscar Mayer obtained 70% of the meats for its Louis Rich processed products and 13% of the meats for its Oscar Mayer processed products from its own slaughtering operations and augmented its supply with bulk market purchases. KGF is also a major user of packaging materials. Outside purchases of packaging materials are made from many suppliers. The prices paid for other food product raw materials generally reflect external forces, among which weather conditions and commodity market activities are significant. Although the prices of the principal raw materials required by KGF can be expected to fluctuate as a result of government actions and/or market forces (which would directly affect the cost of products and value of inventories), such materials are generally in adequate supply and available from numerous sources. Regulation Almost all of KGF's domestic food products (and packaging materials therefor) are subject to regulations administered by the Food and Drug Administration ("FDA"), with the exception of products containing meat and poultry products, which are regulated by the USDA. Among other things, the FDA enforces the statutory prohibitions against misbranded and adulterated foods, establishes ingredients and/or manufacturing procedures for certain standard foods, establishes standards of identity for food, and 7

determines the safety of food substances. FDA regulations may, in certain instances, affect the ability of KGF's domestic operating units to develop and market new products and to utilize technological innovations in the processing of existing products. In addition, various states regulate the business of KGFs domestic operating units by licensing dairy plants, enforcing federal and state standards of identity for food, enforcing federal standards and their own standards for fluid milk products, grading food products, inspecting plants, regulating certain trade practices in connection with the sale of dairy products, and imposing their own labeling requirements on food products. The prices paid for grade-A raw milk in the United States are controlled in most areas by Federal Milk Marketing Orders or state regulatory agencies. Such orders and agencies establish basic minimum prices, with adjustments based upon usage and geographic location. In some areas, the prices for raw milk also include additional premiums charged by suppliers. In certain states, governmental agencies affect the wholesale price of dairy products. In addition, the USDA sets a support price, which serves as a floor for the price of cheese, butter and milk powder at which the CCC will purchase such products. Under a United States Government program administered by the various states, cheese previously purchased by the CCC is distributed to certain individuals and organizations free of charge, with a primary objective being to decrease the inventories of such cheese. From time to time, KGF (as well as other cheese producers) sells excess cheese production to the CCC. Almost all of the activities of Kraft General Foods International and Kraft General Foods Canada are subject to the same kinds of regulation as the domestic businesses. Each of the operations and locations of these units is subject to local and national, and in some cases, international (such as by the European Economic Community) regulatory provisions. The rules and regulations, which relate to labeling, food content, pricing, marketing and advertising and related areas, are not deemed to present a significant impediment to the operations affected thereby. Beer Products Miller's major products are Lite, the largest selling reduced-calorie beer and second largest selling brand in the United States; Miller High Life; Miller Genuine Draft, which was introduced in 1986 and is one of the fastest growing premium beers in the United States; Meister Brau and Milwaukee's Best, introduced in the "popular price" segment of the United States market in 1983 and 1984, respectively; and Lowenbrau, brewed and sold in the United States under a license agreement with Lowenbrau Munchen AG and the second largest selling super-premium beer in the United States. Lite, Miller High Life, Miller Genuine Draft and Milwaukee's Best are among the top ten selling beers in the United States. Miller beer sales increased 3.7% in 1989 (3.3% excluding export sales) compared with 1988. This increase resulted principally from increased barrel sales of Miller Genuine Draf t and Milwaukee's Best. The growth of Miller Genuine Draft has significantly slowed the volume decline of the Miller High Life brand family. Beer sales accounted for 7.7% of the Company's total revenues in 1989. The following table sets forth, based on domestic shipments, the industry's sales of beer, Miller's unit sales and its share of industry sales: Yem's Ended Milkr's Share December 31 Indnstr (n) MiIler of Indushy(a) (in thousanck of barreis) (%) 1989 ............................... 179,506 41,355 23.0 1988 ............................... 178,227 40,026 22.5 1987 ............................... 177,849 38,887 21.9 (a) Source: United States Department of the Treasury (federal tax paid withdrawals). 8

Distribution, Competition and Raw Materials Beer products are distributed primarily through independent beer wholesalers. The beer industry is highly competitive, with the principal methods of competition being product quality, price, distribution, marketing and advertising. Miller engages in a wide variety of advertising and sales promotion activities. Barley, hops, corn and water represent the principal ingredients used in manufacturing Miller's beer products and are generally available in the market. The production process, which includes fermentation and aging periods, is conducted throughout the year and at any one time Miller has on hand only a small quantity of finished products. Containers (bottles, cans and kegs) for beer products are either purchased from suppliers or produced at Miller's facilities. Regulation In recent years, various states have raised the legal age for the purchase of alcoholic beverages. Currently, all 50 states prescribe a legal age of 21. The Alcoholic Beverage Labeling Act of 1988 requires all alcoholic beverages manufactured for sale in the United States to include the following warning statement on containers: GOVERNMENT WARNING: (1) According to the Surgeon General, women should not drink alcoholic beverages during pregnancy because of the risk of birth defects. (2) Consumption of alcoholic beverages impairs your ability to drive a car or operate machinery and may cause health problems. The statute empowers the Bureau of Alcohol, Tobacco and Firearms to promulgate regulations to prescribe the size and format of the warning. In addition, various legislative and regulatory proposals to prohibit or restrict the advertising of alcoholic beverages in the media have also been introduced. Such increases in the legal age, the warning statement requirement and any restrictions on advertising could have an adverse impact on Miller's sales, but it is not possible to predict with certainty their long-term effects. Financial Services and Real Estate PMCC engages in various financing and investment activities, including third-party leveraged and direct finance leasing, investing in securities of third parties, primarily preferred stock, and financing for customers and suppliers of the Company's subsidiaries. PMCC increased its total assets to $3.5 billion at year-end 1989 as compared to $3.3 billion at year-end 1988, reflecting among other things the investment of an additional $484 million in finance assets. Mission Viejo and its subsidiaries are engaged principally in land planning, development and sales in southern California and in the Denver, Colorado area. Customers None of the Company's business segments is dependent upon a single customer or a few customers, the loss of which would have a material adverse effect on the Company's consolidated results of operations. Employees At December 31, 1989, the Company employed approximately 157,000 people worldwide. Trademarks Trademarks are of material importance to all three of the Company's consumer products businesses and are protected by registration or otherwise in the United States and most other markets where the related products are sold. Environmental Controls The Company and its subsidiaries are subject to various federal, state and local laws and regulations and proceedings thereunder concerning the discharge of materials into the environment or otherwise related to environmental protection, including the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act and the Comprehensive Environmental Response, Compensation and Liability Act 9

(commonly known as "Superfund"), and expect to make capital and other expenditures in connection therewith. Compliance with such laws and regulations and the making of such expenditures are not expected to have any material adverse effect on the Company's earnings, capital expenditures or competitive position. Foreign and Domestic Operations and Export Sales The amounts of operating revenues, operating profit and identifiable assets attributable to each of the Company's geographic regions and the amount of export sales from the United States for each of the last three fiscal years are set forth in the notes to the consolidated financial statements on pages 44-45 of the Company's annual report to stockholders for the year ended December 31, 1989 and are incorporated herein by reference and made a part hereof. The Company, through its subsidiaries Philip Morris International, KGF and Miller, exports cigarettes, tobacco and tobacco-related products, coffee, grocery products, cheese, processed meats and beer. In 1989 the value of all exports from the United States by the Company and its subsidiaries amounted to approximately $2.6 billion. In addition, subsidiaries and affiliates of Philip Morris International operating outside the United States purchased from third parties tobacco grown in the United States in an aggregate amount of approximately $300 million. Item 2. Properties. Tobacco Products Philip Morris U.S.A. owns ten tobacco manufacturing and processing facilities - seven in the * Richmond, Virginia area, two in Louisville, Kentucky and one in Cabarrus County, North Carolina. Philip Morris U.S.A. owns or leases other premises and facilities, including an operations center, a research and development facility and various administrative facilities in Richmond and an engineering center in York County, Virginia. Subsidiaries and affiliates of Philip Morris International own cigarette manufacturing facilities in 21 countries outside the United States. Pursuant to an agreement with Philip Morris U.S.A., Philip Morris International purchases cigarettes and tobacco products manufactured by Philip Morris U.S.A. at certain of its facilities in the United States for sale by Philip Morris International abroad. Food Products KGF subsidiaries have more than 132 manufacturing and processing facilities, 56 major distribution centers, 528 depots and various other facilities in the United States, as well as 78 foreign manufacturing and processing facilities in 18 countries and various distribution and other facilities outside the United States. All significant plants and properties used for production of food products are owned, although certain warehouses and distribution branches are leased. - Beer Miller currently owns and operates breweries located in Milwaukee, Wisconsin; Fulton, New York; Fort Worth, Texas; Eden, North Carolina; Albany, Georgia; Irwindale, California; and Chippewa Falls, Wisconsin. A brewery in Trenton, Ohio, completed in 1984, will not begin production until such time as unit volume for Miller products increases sufficiently to justify such action. Miller owns five can-making plants and a glass-making plant which supplies Miller's breweries with a portion of their bottle needs. Miller also owns a malting facility, a hops extract facility and a can and bottle carrier facility. Miller owns or leases warehouses in several locations. Financial Services and Real Estate Reference is made to "Financial Services and Real Estate" under Item 1 for information regarding Mission Viejo's properties. 10

General The plants and properties owned and operated by the Company's subsidiaries are maintained in good condition and are believed to be suitable and adequate for present needs. Item 3. Legal Proceedings. Reference is made to "Tobacco Products-Smoking and Health and Related Matters" under Item 1 for a description of certain litigation relating to smoking and health. Item 4. Submission of Matters to a Vote of Security Holders. None. Executive Officers of the Company The following are the executive officers of the Company as of March 1, 1990 (a): Name offi« An Hamish Maxwell ........... Chairman of the Board and Chief Executive Officer 63 John A. Murphy ........... President 60 Michael A. Miles ........... Vice Chairman of the Board and Chairman and Chief Executive Officer of KGF 50 William Murray ............ Vice Chairman of the Board 54 Frank E. Resnik ............ Chairman of Philip Morris U.S.A. 61 Geoffrey C. Bible ........... President and Chief Administrative Officer of KGF 52 Aleardo G. Buzzi ........... President of Philip Morris International 60 Leonard J. Goldstein ........ President of Miller 63 Ehud Houminer ............ President of Philip Morris U.S.A. 49 Murray H. Bring ........... Senior Vice President and General Counsel 55 William I. Campbell ........ Senior Vice President 45 Hans G. Storr .............. Senior Vice President and Chief Financial Officer; Chairman and Chief Executive Officer of PMCC 58 John J. Tucker ............. Senior Vice President 49 Donald Fried .............. Vice President, Associate General Counsel and Secretary 54 George R. Lewis ........... Vice President and Treasurer 48 B. Jack Miller .............. Vice President and Controller 45 Guy L. Smith IV ........... Vice President 40 (a) Set forth as part of Part I pursuant to General Instruction G(3) to Form 10-K and Instruction 3 to Item 401(b) of Regulation S-K. All of the above-mentioned officers, with the exception of Messrs. Miles, Bring, Fried, Miller and Tucker, have been employed by the Company in various capacities during the past five years. Mr. Miles was a Group Vice President of Kraft from 1983 until October 1986, when he became President and Chief Operating Officer of Kraft. Mr. Miles became President and Chief Executive Officer of Kraft General Foods Group effective March 1, 1989 and assumed his current position on December 30, 1989. Mr. Bring was a partner in the law firm of Arnold & Porter, Washington, D.C., from 1967 until January 1988, when he became Associate General Counsel of the Company. He assumed his current position in July 1988. Mr. Fried was a partner in the law firm of Conboy, Hewitt, O'Brien & Boardman, New York, New York, from 1968 until January 1986, and was a partner in the law firm of Hunton & Williams, New York, New York, from January 1986 until January 1988, when he became Associate General Counsel of the Company. He became Secretary in March 1988 and Vice President in July 1988. Mr. Miller had various financial responsibilities at Eli Lilly & Company from June 1968 until March 1988, when he became Staff Vice President, Pension and Employee 11

Benefit Investment Funds. He assumed his present position on December 20, 1989. Mr. Tucker was Senior Vice President, Human Resources and Administration for Kraft, Inc. from 1985 until February 1, 1990, when he assumed his present position. PART II Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. Item 6. Selected Financial Data. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. The information called for by Items 5, 6 and 7 is hereby incorporated by reference to the following captioned paragraphs (at the pages indicated) in the Company's annual report to stockholders for the year ended December 31, 1989 and made a part hereof: Item Paragraph caption in annual report Pages fl snnuai report 5 Quarterly Financial Data (Unaudited) .................................. 49-50 5 Short-term Borrowings and Borrowing Arrangements ..................... 39 6 Selected Financial Data .............................................. 30 7 Management's Discussion and Analysis of Financial Condition and Results of Operations ................................. 24-29 Item 8. Financial Statements and Supplementary Data. The information called for by this Item is hereby incorporated by reference to the Company's annual report to stockholders for the year ended December 31, 1989 as set forth under the caption "Quarterly Financial Data (Unaudited)" on pages 49 and 50 and in the Index to Consolidated Financial Statements and Schedules (see Item 14) and made a part hereof. Item 9. Changes in and Disagreements with Accountants on Accounting and F'inancial Disclosure. None. PART III Item 10. Directors and Executive Officers of the Registrant. Item 11. Executive Compensation. Item 12. Security Ownership of Certain Beneficial Owners and Management. Z\z Item 13. Certain Relationships and Related Transactions. ~ _ hA Except for the information relating to the executive officers of the Company set forth in Part I of this QO Report, the information called for by Items 10, 11, 12 and 13 is hereby incorporated by reference to the l--t Company's definitive proxy statement in connection with its annual meeting of stockholders to be held on CID April 26, 1990, filed with the Securities and Exchange Commission and made a part hereof. CA~d C.>^• 12 ~ ~

PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. (a) Index to Consolidated Financial Statements and Schedules Reference Form 10-K Aanaai Report Page Maini Report to Stockbolders Page Data incorporated by reference to the Company's annual report to stockholders for the year ended December 31, 1989: Consolidated Balance Sheets at December 31, 1989 and 1988. - 32-33 Consolidated Statements of Earnings for the years ended December 31, 1989, 1988 and 1987 .................... - 34 Consolidated Statements of Stockholders' Equity for the years ended December 31, 1989, 1988 and 1987 .......... - 35 Consolidated Statements of Cash Flows for the years ended December 31, 1989, 1988 and 1987 .................... - 36-37 Notes to Consolidated Financial Statements ............... - 38-50 Report of Independent Accountants ...................... - 51 Data submitted herewith: Report of Independent Accountants ...................... S-1 - Financial Statement Schedules: VII- Guarantees of Securities of Other Issuers ........ S-2 - VIII- Valuation and Qualifying Accounts ............. S-3 - IX- Short-Term Borrowings ...................... S-4 - X- Supplementary Income Statement Information .... S-5 - Schedules other than those listed above have been omitted either because the required information is contained in notes to the consolidated financial statements or because such schedules are not required or are not applicable. (b) Reports on Form 8-K: The Company filed a Current Report on Form 8-K dated November 8, 1989. (c) The following exhibits are filed as part of this Report: 3.1. Restated Articles of Incorporation of the Company. 3.2. By-Laws, as amended, of the Company. 4.1. Plan of Exchange and Articles of Incorporation. (1) 4.2. Amended and Restated Agreement of Merger dated as of October 30, 1988 by and among the Company, Subsidiary Corp. and Kraft, Inc. (2) 4.3. Indenture between the Company and Bankers Trust Company, Trustee (Chemical Bank, Successor Trustee), dated as of December 1, 1985. (3) 4.4. Tripartite Agreement dated as of February 19, 1986 among the Company, Bankers Trust Company and Chemical Bank. (3) 4.5. First Supplemental Indenture dated as of August 1, 1986 to the Indenture dated as of December 1, 1985 between the Company and Chemical Bank, Successor Trustee. (4) 4.6. Second Supplemental Indenture dated as of November 1, 1986 to the Indenture dated as of December 1, 1985 between the Company and Chemical Bank, Successor Trustee. (5) 4.7. Amended and Restated Indenture, dated as of April 1, 1988 between the Company and Chemical Bank, as Trustee. (6) 4.8. First Supplemental Indenture dated as of December 1, 1988 to the Amended and Restated Indenture, dated as of April 1, 1988, between the Company and Chemical Bank, as Trus- tee. (7) 13

4.9. Loan and Guaranty Agreement dated as of December 1, 1988 among the Company, the Banks named therein and Citibank, N.A., as Agent. (2) 4.10. Rights Agreement, dated as of October 25, 1989, between the Company and First Chicago Trust Company of New York. (8) 4.11. Copies of other instruments defining the rights of holders of long-term debt of the Compa- ny and its subsidiaries are not filed herewith because the aggregate amount of securities authorizedd under each of such other instruments is less than 10% of the consolidated assets of the Company and its subsidiaries. The Company hereby agrees that it will furnish to the Securities and Exchange Commission a copy of each such other instrument upon the Commission's request. 10.1. Incentive Compensation Plan of Philip Morris Incorporated and the Company. (9) 10.2. Amendments, as of October 25, 1989, to the Incentive Compensation Plan of Philip Morris Incorporated and the Company. (8) 10.3. Financial Counseling Program of Philip Morris Incorporated and the Company. (9) 10.4. Benefit Equalization Plan of Philip Morris Incorporated, as amended, and the Com- pany. (9) 10.5. Amendments, as of October 25, 1989, to the Benefit Equalization Plan of Philip Morris Incorporated, as amended, and the Company. (8) 10.6. Automobile Policy of Philip Morris Incorporated and the Company. (9) 10.7. Amended and Restated Directors' Deferred Compensation Plan. (9) 10.8. Pension Plan for Directors of the Company, effective July 1, 1989 (as amended December 20, 1989). 10.9. 1977 Stock Unit Plan, as amended. (9) 10.10. 1982 Stock Option Plan, as amended. (9) 10.11. The Philip Morris 1987 Long Term Incentive Plan. (10) 10.12. Kraft General Foods Annual Incentive Plan. (11) 10.13. Kraft, Inc. Special Award Plan. 10.14. Form of Executive Master Trust between the Company, Chemical Bank and Handy Asso- ciates. (8) 10.15. Philip Morris Supplemental Management Employees' Retirement Plan, as amended. 10.16. Amendment to the Philip Morris Supplemental Management Employees' Retirement Plan, effective February 1, 1990. 10.17. Agreement, dated November 1, 1989, between the Company and Murray H. Bring. (8) 10.18. Agreement, dated November 1, 1989, between the Company and Donald Fried. (8) 10.19. Deferred Incentive Payment Agreement between the Company and Michael A. Miles, dated March 8, 1989. (11) 10.20. Amendment, dated November 1, 1989, to the Deferred Incentive Payment Agreement between the Company and Michael A. Miles, dated March 8, 1989. (8) 10.21. Agreement, dated November 1, 1989, between the Company and Michael A. Miles. (8) 10.22. Formm of Employment Agreement between the Company and each of its executive officers. 10.23. Agreement, dated January 29, 1990, between the Company and John J. Tucker. 12. Statements re computation of ratios. 13. The Company's annual report to stockholders for the year ended December 31, 1989, but only to the extent set forth in Items 1, 5, 6, 7, 8 and 14 hereof. With the exception of the aforementioned information incorporated by reference in this Annual Report on Form 10-K, the Company's annual report to stockholders for the year ended December 31, 1989 is not to be deemed "filed" as part of this Report. (12) 22. Subsidiaries of the Company. 24. Consent of independent accountants. 25. Powers of attorney. 28.1. Entenmann's Employee Savings Plan Annual Report on Form 11-K for the year ended December 31, 1989. 14

28.2. General Foods Corporation Employee Thrift-Investment Plan Annual Report on Form 11-K for the year ended December 31, 1989. 28.3. General Foods Corporation Employee Thrift-Investment Plan for Salaried Employees An- nual Report on Form 11-K for the year ended December 31, 1989. 28.4. Philip Morris Deferred Profit Sharing Plan Annual Report on Form 11-K for the year ended December 31, 1989. 28.5. Philip Morris Incorporated Deferred Profit Sharing Plan Annual Report on Form 11-K for the year ended December 31, 1989. 28.6. Salary Reduction and Voluntary Investment Plan for Salaried Employees of Oscar Mayer Foods Corporation and Subsidiary Companies Annual Report on Form 11-K for the year ended December 31, 1989. (1) Incorporated by reference to the Company's Registration Statement on Form S-14 (No. 2-96149) dated March 1, 1985. (2) Incorporated by reference to the Company's Form SE dated December 7, 1988, constituting a part of the Company's Current Report on Form 8-K dated December 2, 1988. (3) Incorporated by reference to the Company's Registration Statement on Form S-3 (No. 33-6525) dated June 13, 1986. (4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended June 30, 1986. (5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 1986. (6) Incorporated by reference to the Company's Registration Statement on Form S-3 (No. 33-21033) dated Apri1 7, 1988. (7) Incorporated by reference to the Company's Registration Statement on Form S-3 (No. 33-25906) dated December 8, 1988. (8) Incorporated by reference to the Company's Current Report on Form 8-K dated November 8, 1989. (9) Incorporated by reference to the Company's Registration Statement on Form 8-B dated July 1, 1985. (10) Incorporated by reference to the Company's Proxy Statement dated March 10, 1987 for the Annual Meeting of Stockholders to be held April 30, 1987. (11) Incorporated by reference to the Company's Form SE dated March 30, 1989, constituting a part of the Company's Annual Report on Form 10-K for the year ended December 31, 1988. (12) Incorporated by reference to the Company's Form SE dated March 30, 1990, and made a part hereof. ~ ~ Uo ~ 15 ~ ~ c.:r

SIGNATURFS Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. PHII,IP MoRRIS COMPAPtIES INC. By. /S/ HAMISH IVIAXWELL aiauniA Mazwell, Chalrnmaa of the Board) Date: March 30, 1990 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated: Slgneton lrtle Date /s/ HAMISH MAXWELL Director, Chairman of the March 30, 1990 /s/ (-Iamisb Maxwell) HANs G. STORR Board and Chief Executive Officer Director, Senior Vice arch 30, 1990 /S/ (Hans G. Storr) B. JACK MILLER President and Chief Financial Officer Vice President and arch 30, 1990 (B. Jack Miller) Controller *ELIZABETH E. BAILEY, MURRAY H. BRING, ALFRED BRTITAIN III, HAROLD BROWN, HowARD L. CLARK, J.A. CoRDIDO-FREYTES, WILLIAM H. DONALDSON, PAUL W. DOUGLAS, JANE EVANS, ROBERT E. R. HUNTLEY, ELIZABETH J. MCCORMACK, MICHAEL A. MILES, T. JUSTIN MOORE, JR., RUPERT MIJRDOCH, JoHN A. MURPHY, WILLIAM MURRAY, JoHN S. REED, JoHN M. RICHMAN, MARGARET B. YOUNG, *By /s/ DONALD FRIED Donald Fried (Attoraey-iu-fact) Directors 16 March 30, 1990

REPORT OF INDEPENDENI' ACCOUNTANT5 Our report on our audits of the consolidated financial statements of Philip Morris Companies Inc. has been incorporated by reference in this Form 10-K from the 1989 annual report to shareholders of Philip Morris Companies Inc. and appears on page 51 therein. In connection with our audits of such financial statements, we have also audited the related financial statement schedules listed in the index in Item 14(a) on page 13 of this Form 10-K. In our opinion, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information required to be included therein. CoorBRS & LYBRAND New York, New York January 29, 1990 ~ ~ 00 ~ ~ s-1 ~„ ~.~ ~

PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES SCEIEDULE VII - GUARANTEES OF 3ECURTTIES OF OTHER ISSUERS As of December 31, 1989 (ii niDio.a) CoLA CoLB CoI.C(a) CoLF Name of 7ssus Title of Amount of Sumities SecariHea Nature of Guaranteed Guaranteed Guaranteed OutgtandIng Guarantee CONSUMER PRODUCTS: Compagnie Financiese £610 million $976 $976 Guarantee of Richemont AG 101/.% principal and Sterling interest Notes maturing in 1994 Other (b) Various notes 32 32 Primarily INANCIAL SERVICES AND REAL ESTATE: Various water and san- arious 109 109 guarantees of principal and interest Generally, itation districts of letters of guarantees of Highlands Ranch, credit principal and Douglas County, covering 210 days of CO in connection general interest with development of Mission Viejo Company proper- ties. obligation bonds Notes: (a) None of the above securities were owned by the Company, held in treasury of the applicable issuer, or in default. Accordingly, columns D, E and G have been omitted from this Schedule. (b) Primarily guarantees of debt of former subsidiaries of the Company.

PHILIP MORRIS COMPANIES INC. AND SUBSIDIARIES SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS For the Years Ended December 31, 1989, 1988 and 1987 (.ia niIllons) CoL A Col. B CoL C Coi. D CoL E Additiona (1) (2) Balance at Ciarged to CLargtd to Balaace at Beginning Costs and Other Eed of Description of Period Expenses Accourta Dednctioea Period 1989: CONSUMER PRODUCTS: (a) Allowance for discounts .............. S 15 $421 S - $420 S 16 Allowance for doubtful accounts ....... 113 13 - 7 119 Allowance for returned goods ......... 0 48 - 41 7 $128 $482 $ - $468 $142 FINANCIAL SERVICES AND REAL ESTATE:(b) Provision for losses .................. S 35 $ 10 S - S - S 45 1988: CONSUMER PRODUCTS: Allowance for discounts .............. S 20 $399 $ - $404 $ 15 Allowance for doubtful accounts ....... 45 14 64(c) 10 113 S 65 $413 $ 64 $414 $128 FINANCIAL SERVICES AND REAL EsTATE:(b) Provision for losses .................. S 28 S 7 S - $ - S 35 1987: CONSUMER PRODUCTS: Allowance for discounts .............. S 13 $367 S - $360 S 20 Allowance for doubtful accounts ....... 38 13 - 6 45 S 51 S380 S- $366 $ 65 FINANCIAL SERVICES AND REAL F.STATE:(b) Provision for losses .................. S 18 $ 10 $ - $ - S 28 Notes: (a) Represents charges for which allowances were created. (b) The Company's Financial Services and Real Estate subsidiaries, previously accounted for by the equity method, have been consolidated in 1988 and 1989 in accordance with Statement of Financial Accounting Standards No. 94. (c) Related to the acquisition of Kraft, Inc.

PHILIP MORRIS COMPANIFS INC. AND SUBSIDIARIES SCf-IIDULE IX - SHORT-TERM BORROWINGS For the Years Ended December 31, 1989, 198 8 and 1987 (in millions) CoLA CoL B CoLC CoL D CoLE CoLF Weighted Weighted Average Maximum Average Average Interest Amount Amount Interest Balance at Rate at Outstanding Outstanding Rate Category of Aggregate End of End of During the During the During the Short-Term Borrowings Period Period Period Period Period (a) (b) (c) 1989: CONSUMER PRODUCTS: Bank loans ............................. S 435 11.6% $6,363 $2,363 10.3% Commercial paper ...................... 6,106 8.6% 9,438 7,202 9.2% Amount reclassified to long-term debt ...... (6,052) S 489 FINANCIAL SERVICES AND REAL F.SrATE:(d) Commercial paper ...................... S 633 8.5% S 633 S 491 9.2% Amount reclassified to long-term debt ...... (310) S 323 1988: CONSUMER PRODUCTS: Bank loans ............................. $5,443 9.8% 55,443 $ 680 9.5% Commercial paper ...................... 4,118 9.4% 4,118 677 8.3% Amount reclassified to long-term debt ...... (9,128) S 433 FINANCIAL SERVICES AND REAL ESrATE:(d) Commercial paper ...................... S 574 9.5% S 616 S 515 7.5%a Amount reclassified to long-term debt ...... (310) S 264 1987: CONSUMER PRODUCTS: Bankloans ............................. $ 277 8.5% S 747 S 353 8.1% Commercial paper ...................... 414 7.9% 1,668 915 6.7% S 691 FINANCIAL SERVICES AND REAL ESrATE:(d) Commercial paper ...................... S 594 7.8% S 594 S 285 6.8% Amount reclassified to long-term debt ...... 310 S 284 Notes: (a) The Company's credit facilities include a revolving bank credit agreement expiring in 1993 for $12 billion which enables the Company to refinance short-term debt on a long-term basis. Accordingly, short-term borrowings in 1989, 1988 and 1987 intended to be refinanced were reclassified to long-term debt. (b) The average amount outstanding was computed primarily on a daily average basis. (c) The weighted average interest rate is based on the total interest incurred for the period divided by the average amount outstanding during the period and computed in (b) above. ' ~ (d) The Company s Financial Services and Real Estate subsidiaries, previously accounted for by the ~ equity method, have been consolidated in 1988 and 1989 in accordance with Statement of Financial ~ Accounting Standards No. 94. ~ S-4 h-~ ~ C.~

PHILIP MORRIS COMPANIFS INC. AND SUBSIDIARIES SCHEDL3LE R-S[3PPLENCEI3'fARY INCOME STATIIIIEN'r INFORMATION For the Years Ended December 31, 1989, 1988 and 1987 (in miIlions) Colunn A ColUM- B Item Charged to Cotts and FXpeU9ea(2) 1989 1968 1987 1. Maintenance and repairs ................................. S 766 S 647 $ 595 2. Advertising costs ....................................... $2,363 $1,960 $1,687 Note: (a) The Company's Financial Services and Real Estate subsidiaries, previously accounted for by the equity method, have been consolidated in 1988 and 1989 in accordance with Statement of Financial Accounting Standards No. 94.

EXPIIBTT 22 SUBSIDIARIFS OF THE COMPANY Certain active subsidiaries of the Company and their subsidiaries as of December 31, 1989 are listed below. The names of certain subsidiaries, which considered in the aggregate would not constitute a significant subsidiary, have been omitted. Name Ajinomoto General Foods, Inc . .................................. Alfred Bird and Sons (Ireland) Limited ............................ Alimentos Kraft de Venezuela, C.A . .............................. American Fruit and Produce Co . ................................. Anderson Clayton/Humko Products, Inc ........................... Battery Properties, Ine . ......................................... Birds Eye de Mexico, S.A. de C.V ................................. Boboli Co . .....................:.............................. Carroll Shelby's Original Texas Chili Company ..................... Charles Freihofer Baking Company, Inc . .......................... Chiffon Corp . ................................................. Churny Company, Inc . ......................................... Coffee HAG (UK) Ltd . ......................................... Comercial Sa;maza Sociedad ..................................... Comercial Sa;maza, Sociedad en Comandita ........................ Commerciale Osella S.p.A . ...................................... Craig Distributing Company ..................................... Cresset Ltd . ................................................... Culinova Group, Inc . ........................................... D&K Export Inc . .............................................. Dart Products National Limited .................................. Di Giorno Foods Co . ........................................... Entenmann's, Inc ............................................... Fabriques de Tabac Reunies S.A . ................................. Franklin Baker Company of the Philippines ........................ Fromagerie Soulie .............................................. Frostex Foods, Inc . ............................................ Frusen Gladje, Ltd . ............................................ Gardners Good Foods, Inc ....................................... General Foods A/B ............................................ General Foods Bakery Companies, Inc . ............................ General Foods Caribbean Manufacturing Corporation ............... General Foods de Colombia S.A. ................................. General Foods Espafia,S.A . ..................................... General Foods Foodservice Bakery Corporation ..................... General Foods France, S.A . ..................................... General Foods, Inc . ............................................ General Foods Italia S.p.A ....................................... General Foods Limited ......................................... General Foods de Mexico, S.A. de C.V . ........................... General Foods (Northern Europe) Limited ......................... General Foods (U.S.A.) Pte. Ltd . ................................. Genfo AG ..................................................... State or Country of Organ~ Japan Ireland Venezuela Minnesota Delaware Delaware Mexico Delaware Texas New York Delaware Delaware United Kingdom Delaware Spain Italy Missouri Ireland Delaware U.S. Virgin Islands Canada Delaware Delaware Switzerland Philippines France Texas Delaware New Jersey Sweden Delaware Delaware Colombia Spain Delaware France Puerto Rico Italy United Kingdom Mexico Delaware Singapore Switzerland

Name Genfoods (Asia) Limited ........................................ Grant Holdings,Inc . ........................................... HAG GF Aktiengesellschaft ..................................... HAG Versicherungsvermittlung G.m.b.H . ......................... HAG GF Vertriebs G.m.b.H .................................... H.F. Behrhorst & Son, Inc . ...................................... HNB Investment Corp . ......................................... Holleb & Company ............................................. Hostess Food Products Limited ................................... Hudson Commercial Corporation ................................. I. Feldman & Co., Inc ........................................... Industry Foodservice,Inc ........................................ Kaffee Handels Gesellschaft m.b.H . ............................... Kenco Coffee Company Limited .................................. Kibon S.A. (Industrias Alimenticias) .............................. Kraft Enterp rises, Inc . .......................................... Kraft Europe G.m.b.H . ......................................... Kraft Food Ingredients Corp . .................................... Kraft Foods Invest A/S ......................................... Kraft Foods Limited ............................................ Kraft Foods Limited ............................................ Kraft Foods de Mexico, S.A. de C.V . ............................. Kraft Foods S.A . .............................................. Kraft General Foods A/S ........................................ Kraft General Foods Canada Inc . ................................ Kraft General Foods G.m.b.H . ................................... Kraft General Foods Holdings Ltd. ............................... Kraft General Foods, Inc . ....................................... Kraft General Foods (Ireland) Ltd . ............................... Kraft General Foods Ltd . ....................................... Kraft General Foods (Philippines) Inc . ............................ Kraft Holdings Limited ......................................... Kraft Holdings Limited ......................................... Kraft International, Inc . ........................................ Kraft-Leonesas, S.A . ........................................... Kraft S.p.A .................................................... Krema Limited ................................................ Lindeman (Holdings) Limited .................................... Massalin Particulares S.A ........................................ Maxpax (UK) Limited .......................................... Maxwell House, Inc . ........................................... Miller Brewing Company ........................................ Mission Viejo Company ......................................... Mueller Food Service Corp . ..................................... National Dairy Products Corp .................................... N B P Marketing,Inc . .......................................... N.V. Kraftco S.A . ............................................. NeuCow, Inc . ................................................. North Street Capital Corporation ................................. ONKO Grossroesterei G.m.b.H . ................................. Oroweat Bakers Limited ......................................... Oscar Mayer Foods Corporation .................................. State or Country of Organiatioa Hong Kong Pennsylvania Federal Republic of Germany Federal Republic of Germany Federal Republic of Germany Pennsylvania Delaware Illinois Canada Delaware District of Columbia Delaware Federal Republic of Germany United Kingdom Brazil Delaware Federal Republic of Germany Delaware Denmark Australia United Kingdom Mexico Panama Denmark Canada Federal Republic of Germany United Kingdom Delaware Ireland United Kingdom Philippines Australia United Kingdom Delaware Spain Italy Ireland Australia Argentina United Kingdom Delaware Wisconsin California W isconsin Delaware Delaware Belgium Delaware Delaware Federal Republic of Germany Canada Delaware

t Name Phenix Leasing Corporation ...................................... Phenix Management Corporation ................................. Philip Morris Asia Corporation ................................... Philip Morris Belgium S.A . ...................................... Philip Morris Capital Corporation ................................ Philip Morris Europe S.A ........................................ Philip Morris G.m.b. H . ......................................... Philip Morris Holland B.V . ...................................... Philip Morris Incorporated ....................................... Philip Morris International Finance Corporation .................... Philip Morris International Inc . .................................. Philip Morris Kabushiki Kaisha .................................. Philip Morris Limited ........................................... Philip Morris Limited ........................................... Philip Morris Management Corp .................................. Philip Morris Marketing S.A . .................................... Philip Morris Products Inc ....................................... Plantagengesellschaft m.b.H ..................:................... PMCC Leasing Corporation ...................................... Pollio Dairy Products Corporation ................................ Porta Pack Corporation ......................................... Rexall Realty Corporation ....................................... Ridg's Finer Foods, Inc . ........................................ Rye Ventures, Inc . ............................................. Saimaza, S.A . ................................................. SANKA Bruecke AG ........................................... Seven Seas Foods, Inc . .......................................... Simmenthal S.p.A . ............................................. Skandinavisk Kaffekompagni A/S ................................. S. S. Pierce Company ........................................... The All American Gourmet Company ............................. The Raupach Company ......................................... Thomas Garraway, Ltd . ........................................ Tombstone Pizza Corporation .................................... Venezolana Empacadora, C.A . ................................... Vict Th. Engwall & Co., Inc . .................................... State or Coa.try of Organiaatlon Delaware Delaware Delaware Belgium Delaware Delaware Federal Republic of Germany Netherlands Virginia Delaware Delaware Japan Australia Delaware New York Delaware Virginia Federal Republic of Germany Delaware New York Delaware Delaware Delaware New York Spain Switzerland Delaware Italy Denmark Delaware Delaware Delaware Delaware Delaware Venezuela Delaware

CONSENT OF INDEPENDENT ACCOUNTANTS EXHIBPT 24 We consent to the incorporation by reference in post-effective amendment nos. 1 and 4 to the registration statement of Philip Morris Companies Inc. (the "Company") on Form S-14 (File no. 2-96149) and in the Company's registration statements on Form S-3 (File no. 33-25906) and Form S-8 (File nos. 33-1478, 33- 1479, 33-1480, 33-10218, 33-13210, 33-14561 and 33-17870), of our reports dated January 29, 1990 (included or incorporated herein) on our audits of the consolidated financial statements and financial statement schedules of the Company, which are included or incorporated by reference in this annual report on Form 10-K dated March 30, 1990, as indicated in item 14(a) herein. CooPERS & LYBxArrD New York, New York March 30, 1990