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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.