Tobacco Documents Online

" ® ro, ~.:..:e.._ JACOBS SUCHARD . 9-9 I wo~~ .~~ a~•9z-MiW9- About the cover: Philip Morris markets over 3,000 products to millions of consumers around the world. ' Germany is ouriargest and most profitable European market; in this photograph, store windows in reunified Berlin display some of our cigarettes, coffees, cheeses, dressings, and chocolates.

, We are a global consumer products company, manufacturing and marketing tobacco, food, and beer brands around the world. Our broad- based operations generate strong and growing returns for investors by answering consumer needs with low-priced, high-volume, quality products. We are committed to the highest standards of ethics and fairness in all our activities and operations. Contents Financial Highlights Letter to Stockholde.rs. Philip Morris Product Profile Business Review Food Beer Financial Services artd_.Real_Estate. Financial Information Board of Directors Officers Statement on Corporate Responsibility 7o General Corporate Information 57 _y __- :1. - , - m_a: _ : vm ,,... ~~ ,...~ ~~ .__ . _~: . -......2 0 1 S' 1 f11 5 5 43 4

P+I+Ft I a 4; tl•ritr see 11,I11 ':ne4 7 ~s1j~ rc: ff. arav~t 1 j wrr"~~ua~, ~~.rL_z z,~. .+r44 - iI ylNN+I~I,tiJ'l44~:} ~ ~ C'e un formWgio cremoso che fa sentke un frutto appena colto. 201 Ciockwrse from top left, a sample of our wortdwrde advertrsrnq: Parirament r Japan, Maxim in Korea. Marlboro Lrghts rn Germany, Miller Genuine Draft in ; United States, Phrtade!phra Brand in Italy. and Tobieror.e in Switzerland

Financial Highlights i in millions of dollars. except per share data i 1990 1989 1988 1987 1986 Operating revenues $51,169 $44,080 $31,273 $27,650 $25,542 Net earnings 3,540 2,946 2,337 1,842 1,478 Net earnings per share 3.83 3.18 2.51 1.94 1.55 Dividends declared per share 1.55 1.25 1.01 .79 .62 Percent Increase Over Prior Year Operating revenues 16.1 % 41.0% 13.1 n/o 8.3% 58.1 % Net earnings 20.2% 26.1 % 26.9% 24.7% 17.7% Net earnings per share 20.4% 26.7% 29.4% 25.0% 18.3% Dividends declared per share 24.0% 23.8% 28.6% 27.3% 23.8% Operating Revenues Domestic tobacco $10,370 $ 9,474 $ 8,491 $ 7,640 $ 7,053 International tobacco __1_0,720 8,375 8,085 7,004 5,638 Food 26,085 22,373 10,898 9,481 9,372 Beer 3,534 3,342 3,177 3,037 3,005 Financial services and real estate 460 516 622 488 474 Total operating revenues - - $51,169 $44,080 $31,273 $27,650 $25,542 Operating Companies Income Domestic tobacco $ 4,206 $ 3,606 $ 3,087 $ 2,715 $ 2,366 International tobacco 1,394 1,007 774 582 492 Food - 2,648 2,138 849 773 741 Beer 285 226 190 170 154 Financial services and real estate 197 173 163 68 32 Other - 20 (10) Operating companies income 8,730 7,150 5,063 4,328 3,775 Gain on sale of Rothmans International p.l.c. 455 Restructurings of food operations (179) (348) (71) Amortization of goodwill (448) (385) (125) (105) (112) Unallocated corporate expenses (336) (252) (193) (162) (126) Interest and other debt expense, net (1,635) (1,731) (670) (646) (772) Earnings before income taxes $ 6,311 $ 5,058 $ 3,727 $ 3,344 $ 2,765 Compounded Average Annual Growth Rate 1990-1985 1990-1980 1990-1975 Operating revenues 25.9% 17.9% 19.3% Net earnings 23.0% 20.5% 20.6% Net earnings per share -- 23.9% 21.4% 20.6%) Certain prior years amounts have been reclassified to conform -with the current years presentation. See Note 2 of the notes to consolidated financial statements regarding the acquisition of Jacobs Suchard AG in 1990 and Kraft, Inc. in 1988. Consolidated results of the company include the operating results of these companies since their acquisition. See Note 3 of the notes to consolidated financial statements refiardmg 19t<ta and 19Yfb restructuring charges of food operations and the 1989 sale c>f thr companys equity investment in Rothmans International p.l.c. _ See Note_10 of the notes to con_solid-atedJi-nancial statements regarding the company's 1986 adoption of the method of accounting for income taxes prescn<bt, Statement of Financial Accounting Standards No, 96. In 1986. operating companies income for financial services and real estate «< reduced by S71 million resulting from the effects of the Tax Reform Act of 1986 r certain related leveraged lease renegotiations. 2

Dear Stockholder: Your company-is continuing its solid growth in a rapidly and radically ~ changing world. Political and economic developments are creating new opportunities for us. The borderless Euro- pean Community planned for 1992, together with Eastern European countries now experimenting with free market systems, will constitute a larger market than North America. We are well positioned to prosper from these changes. We have had a major international tobacco presence for more than 20 years. We have been the largest cigarette company in Europe since 1983, and in 1990 we widened our lead. We took an important step to strengthen our competitiveness in European food markets by acquir- ing Jacobs Suchard AG, a Swiss-based coffee and confectionery company. This $4.1 billion purchase makes us the third-largest food company in Europe, and brings us brands and distribution channels in countries where we needed to broaden our business. The consolidation of European markets is not the only key to our growth. Although the cigarette market in the United States is declining slightly, we continue to gain volume and share. Our business in Asian cigarette markets, particularly Japan, is building rapidly. And in September 1990, we reached a major agreement to export cigarettes to the Russian Republic, the largest republic in the world's third-largest cigarette market-the Soviet Union. Both developments add impetus to the continued expansion of our international tobacco operations. We are devoting ever increasing resources to the building of our food businesses. By pooling the research and talents of people in different parts of Kraft General Foods and applying them to a shared challenge, weaccelerated the introduction of fat free foods in seven categories this past year. We have announced introductions in still more categories in 1991. In 1990, we increased our dividend by 25.1%, to an annualized rate of $1.72 per share, marking the 23rd consecutive year of dividend increases. Through our stock repurchase program, we spent $221 million in 1990 to repurchase Philip Morris common stock, at an average price of $38.88 per share. 1990 Results Consolidated operating revenues of $51.2 billion were 16.1% higher than in 1989. Our 1990 perfor- mance includes operating results from Jacobs Suchard since its acquisition. Our operating companies income grew 22.1% to $8.7 billion. Net earnings were $3.5 billion, up Phdio Morris managerr ent visiting Masuo Fukuiin, a Tokyo retailer. Left to right, harht5'h Maxwe]f. Michiko Egawa (Phi9o M+orr s Japanl. Michael Mtles, William Murray. Nicotaas Kuijpers (Kraft General Foods International), Mr. Fukupn and John Keenan 20.2%, and net earnings per share reached $3.83, 20.4% higher than in 1989. Our tobacco operations enjoyed continued sales and profit growth. We sold one billion more cigarettes in the United States in 1990 than in 1989, while U.S. industry volume, based on shipments, declined 1.8 billion units. Outside the United States, we sold 368.1 billion units. 15.5% more than in 1989, bringing our tobacco factory utilization rates around the world close to full capacity. At Kraft General Foods. volume grew by 6.5% for the year. Excluding Jacobs Suchard, volume grew by 3.3%, while revenues and operating companies income continued to grow strqrigly, and operating margins also improved. Including a full year of 1990 Jacobs Suchard results on a pro forma basis. our food companies -vvould have con- tributed approximatelv 52%t of our revenues and 31% of our operating companies income, while employing 66°10 of our work force. Miller Brewing Companti• volume was up b' v 1.6 million barrels, or 3.8%, and operating companies income advanced b' v 26°b. Five Years of steady growth. fueled by successful new product introduc- tions, have helped Miller build its position as a major competitor in the consolidating beer industry. !l9anagement and Board of Directors In April, Richard D. Parsons. Chairman and Chief Executive Officer of the Dime Savings Bank of New York, FSB, joined the Philip Morris Board of Directors. Also in April, two members of your Board. Howard L. Clark and William P. Tavoulareas. retired in accordance with our policies. Each had served with distinction on the Board of the General Foods Corporation prior to its acquisition by Philip Morris in 1985. Their wisdom. experience, and insight", Operating Revenu Bdlions of Dollars  Domestic Tobacco  Internat onal Tobacc. Food [ Beer E Financial Services & Real Estate V K: F;G Operating Compar Income Billions of Dollars  Domestic Tobacco  internationajTooaccc Food r Beer i F nanc al Services, & Real Estate {}iher 1W 2

have contributed great value to_ Philip Morris_during their years of service on your Board. Social and Legislative Issues We market more than 3,000 products to millions of consumers around the world. Our activities involve us in a host of public policy issues in every country in which we do business. Among all these social issues, the relationship between smoking and health is the most controver- sial. We have acknowledged that smoking is a risk factor in the development of lung cancer and certain other human diseases, because a statistical relationship exists between smoking and the occurrence of those diseases. Accordingly, we insist that the decision to smoke, like many other life- style decisions, should be made by informed adults. We believe that smokers around the world are w•ell aware of the potential risks associated with tobacco use, and have the knowledge necessary to make an informed decision. _ The U.S. cigarette industry is both mature and highly competitive. Outside the U.S., most ciga- rettes are made and sold by government-owned enterprises; we are competing-for instance- against the elected governments of Japan, Italy, and France. Our competitors throughout the world are just as eager to attract our customers as we are to attract theirs. It is against this competitive background that we engage in marketing programs designed to persuade existing smokers to use our brands. We believe that such programs affect brand choices, but not the decision to smoke. Many experts and studies - including those cited by the U.S. Surgeon General and the U.S. Environ- mental Protection Agency- remain divided over the relationship between environmental tobacco smoke and human health. We favor policies which accommodate and, if necessary, segregate non- smokers and smokers in the workplace and in confined public spaces. We do not believe that the prohibition or unreasonable regulation of cigarette use in such places is justified, and we will, there- fore, continue to oppose such proposals. Cigarette product liability is the most publicized legal issue we face. By the end of 1990, the num- ber of product liability cases pending against the U.S. cigarette industry dropped to 51, continuing a decline from a peak of 151 in 1986. We view this trend as a positive development for both your com- pany and the U.S. tobacco industry. The Outlook c)ur goal is to be the world's mostt successful consumer packaged products company. We will con- tinue to judge that success not only against our own past performance but against that of our competitors. Moreover, we will measure success not merely in terms of income and volume growth and in overall returns to our stockholders; we also aim to be the best in anticipating and providing for the needs of our consumers and customers and in accepting and fulfilling our responsibilities to the communities in which we live and work and to the environment in general. No company can take these for granted. The war in the Persian Gulf, together with slowing eco- nomic growth in many countries, added to the risks and uncertaintigs of doing business. Fortunately, our products are consumer staples, and our businesses are relatively resilient. a6 improve our effectiveness in each of our core businesses, we will continue to expand and fill in gaps while taking advantage of manufacturing, marketing, and distribution synergies. Acting on this strategy in 1990, we purchased a cigarette manufacturer from the former East German state; announced a marketing and manufacturing joint venture with the largest Hungarian coffee and con- fectionery producer, BEV; and acquired majority ownership of Negroni S.p.A., a specialty meat company in Italy To assure consistency, quality, and availability of our brands, we are investing in our production processes. In 1990, our capital expenditures set a new record of $1.4 billion. We anticipate that from 1991 to 1995 they will amount to another $9.0 billion. We are also addressing increasingly urgent ,,nvironmental concerns, even as we continue to find new ways of satisfying consumer desires for xivenience, nutrition, and variety. Our greatest competitive assets are not manufacturing facilities or brand franchises, however, but the talents, energies, and dedication of all our employees. 'Ale are only as strong as our employees are ambitious for our businesses. We thank them for all their past contributions and we count on their continued efforts to help us realize our potential to be the best consumer packaged products company in the world. (::J-(s- ; A,` Hamish Maxwell I irman of the Board and Chief Executive Officer Net Earnings - BfHions of Dollars ill :. 87 ss Dividends Declared Per Share Dollars 1.75 1.50 1 .z5 ,.W 'S 50 35 0 - Cash Flow Per Share From Operating Activities  Net Earnings Per Share Dollars 3

1 . r IN This is Philip Morris Philip Morris U.S.A. Philip Morris International Inc. r ~~ ~-m- . ~.+~ irmtiie: , Rice ~ ~ b ~~ CABIN b4ri Maxwell ' 's - ~,,; a+m~ ~crc~ ~_ House i_ Y nr~., s` rw; '~ AT BRAN nn ?~l~lYf11I 6 JEL, AT xBa Kraft USA rN~unFVxw . e ® Teheeta C!e z e Potatoes & Cheese .~ I~tGIOR'VO Kraft General Foods International 4 Operating companies incorne excludes Kraft General Foods, Inc:s headquarter items. Kraft General Foods International includes the operating results of Jacobs Suchard since acquisition. Volume and market share at Philip Morris U.S.A. have grown in each of the past 30 years, and Marlboro now accounts for 26% of all cigarettes sold in the United States. The company is expanding production capacity to han- dle increasing demand. Strong international brands, led by Marlboro, Philip Morris, Merit, and Parliament, combine with regional favorites like Lark, Muratti, and Peter Jackson to make us the world's fastest- growing international cigarette company. Millions 1990 1989 Operating Revenues $10,720 $8,375 Operating Companies Income $ 1,394 $1,007 Enjoying an outstanding year in 1990, General Foods USA has 30 leading brands, including Maxwell House cof- fees, Post cereals, Entenmann's bakery products, Kool-Aid powdered bev- erages, and Jell-O desserts. Millions 1990 1989 Operating Revenues $ 5,078 $4,817 Operating Companies Income $ 629 $ 433 The Kraft name now appears on both traditional and fat free cheese, mayon- naise dressing, and salad dressings. Other leading brands include Philadel- phia Brand cream cheese and Cheez Whiz pasteurized process cheese spread. Millions 1990 1989 Operating Revenues = 4,783 $4,415 Operating Companies income $ 842 $ 763 The acquisition of Jacobs Suchard brings to KGF International such lead- ing Jacobs coffees as KrBnung and Night & Day, together with chocolates such as Milka, Toblerone, and CBte d'Or. KGF International is now Europe's third-largest food company. Millions 1990 1989 Operating Revenues $ 6,061 $3,656 Operating Companies Income $ 672 $ 376 2046`165541 Millions 1990 1989 Operating Revenues $10,370 $9,474 Operating Companies Income $ 4,206 $3,606

kraft General Foods Canada With a host of popular Kraft General Foods retail brands and a large food- service business, KGF Canada is Canadas largest packaged foods company Millions • 1990 1989 Operating Revenues $1,327 $1,251 Operating Companies Income $ 235 $ 187 Oscar Mayer Foods Already the leader in luncheon meats and bacon, Oscar Mayer also markets hot dogs, Louis Rich turkey products, Louis Kemp seafood products, Claus- sen pickles, and new Lunchables and Lunch Breaks lunch combinations. Millions 1990 1989 Operating Revenues $2,520 $2,270 Operating Companies Income $ 145 $ 168 Kraft General Foods Frozen Products nC'~~nnt.vrl ~~ ltcst ~;~ ~ ~Frcc .~ ~ ~ 114MI ~SD iil.~i}i{l 11\\tF,~ 13 R E Y E R S . ,~ JELLO. ~jn9' ift 4M ~~9~~~L®( bna~k ~ © ~ u 1 0 ~ a ' SvN ^ ~ ® Kraft General Foods Commercial Products ?^~-F~7 FqE Millions 1990 1989 Operating Revenues $2,155 $2,103 Operating Income $ 169 $ 169 Companies KGF Commercial Products has two divisions. Kraft Foodservice is the second-largest foodservice distributor in the United States. Kraft Food Ingre- dients is the country's leading processor of edible oils. Millions 1990 1989 Operating Revenues $4,161 $3,861 Operating Companies Income $ 118 $ 160 Miller Brewing Company Miller is the second-largest brewer in the world. Miller markets four of the top ten beers in the U.S. market: Miller Lite, Miller High Life, Milwaukee's Best, and Miller Genuine Draft. Other brands -lncluite S#rarp's, the country's leading nort-aicoholk brew :: - ii ~ 1990 1989 Mlllions ` Operating Revenues = $3,534 _ $3,342 Operating Companies = 285 $ 226 .~ Income , - Operating companies income is income before amortization of goodwill, unallocated corporate expenses and interest and other debt expense, -t and in 1989, gain on sale of the company's equity investment in Rothmans Intemational p.l.c. and restructuring of food operations. Eating Ri ht frozen entrees, and Budget KGF Frozen Products, the largest frozen food manufacturer in the world, intro- duced Sealtest Free nonfat frozen desserts, Breyers frozen yogurt, Kraft ~- -£---- Gourmet Light and Healthy Dinners -- =--in-1990. - 5

1

'TobaCCO rrc the largest. most .rt)ntable, and fastest- _t't)wiflg international crga- - -rtte company in the world. `.tost of our gains over the : ,a,st decade have come from .rt1mium-priced brands in ;, itr~trialized nations. Our ; market positions in countries provide a hase for continued protit ,rotti'th. In 1990, as the worldwide cigarette industry expanded hv 1.5"'0, to reach 5.4 trillion i Inits. our total unit volume 11 r •hed 9.3"l0. Volume for i, moro, the world's best- _ 'Ciling consumer packaged product, rose 6.8%, to reach :i-14 billion units. Our U.S. business set new records. Volume, based on ,liihments, grew by one bil- ';.)n cigarettes, or 0.4%, in a I that declined by apprc~x'sttl~atet~' 1.~ bittic~n units. Philip 11()rriti l'.S.A.'s t>perating revenues grew 9.5"o, and operating com- panies income climbed 16.Ei"n. The lklarlboro brand farn- ilv now accounts for 2b"n of the U.S. market, or nearlv one-third of all full-priced cigarettes sold. Marlborc~ has ranked first in the U.S. cigarette industry for 16 consecutive years, and its large share of adult smokers under age 35 is a strong plat- form for further share gains. Among our other full- priced brands, Virginia Slims,-Merit, and Benson & Hedges remained leaders in their categories. We also continued to develop low smoke and low nicotine formulations to satisfy changing consumer demands. Acting on our determina- -nove Marlboro is the best-selling con- ,mPr packaoed product in the world. In _ "+ncp Marlboro is the countrys bestr_ =-,nr] brand I aided by Lonabeach 40s. '•lr4boro tiqhts up the rTi'(3ht sky'TfY- °'-'bove: Merit held its feaa as the beSt-sel+inq tree-stdnotng iow t1r , ;:amere it leads the maketwitn.. cigarette in the United States. _ .__ _ - -- .,.-. -•- - - -- . -.- rnira ot att c garette saies. tlon tt> ctMlpete successtllllY in every protitable segment (,f the U.S. market. we expanded our share of the discount category to ..?5.`3"o, aided by the national introduction of Bucks and the continuing 5uccess of.Cambridge and Bristol. Uur sales force has been reorganized and expanded. enabling us to improve the presentation and availability of our products at the point of sale. Unit volume growth at Philip Morris U,S.A. increased its market share by 0.3 share points to 42.'?r"o This increase is understated ......_ _......_.__ .._...... ..__.~__._ _. due to changes in competi- tors trade inventory prac- tices. which depressed their 1989 volume while exag- gerating Philip Morris U.S.A.'s 1989 share. Conse- quently, our 1989 market share rose an inflated "'-Left: Philip Morris became the =~ industry teader in Australie U.S. Cigarette Industry Unit Sales Basea on 5~inme-sr ° A U.S. Cigarette Industry Unit Sales  Philip Morris Share of the U.S. Industry, 2.6 share points. Th e more meaningful indicator of underlying share growth is our average annual gain of 1.5 share points over the two-year period. Outside the United States, Philip Morris International's Operating Revenues tYe•c@ni or Totar 4)pelat:n(7 kevenues~