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" ® 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

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'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~

record volume of 368.1 bil- lion units represented a gain of 15.5% over 1989-our highest percentage increase in 18 years. Our U.S. cigarette export unit volume grew nearly 25%. Our tobacco exports made a gross contribution of nearly $3 billion to the U.S. balance of payments, and our share of total U.S. ciga- rette exports reached 59%. The U.S. trade deficit would have been more than $5 bil- lion higher without the industry's tobacco exports. Marlboro further widened its lead as the world's best- selling cigarette with a 13% sales gain overseas. Among its 1990 successes, Marlboro became the top brand in Mexico and the best-selling international brand in the former East Germany. Its successes in Europe included volume gains of 28% in Spain, 17% in the Netherlands, 7% in the for- mer West Germany, and 7% in Belgium. Marlboro is growing throughout Latin America, and now accounts for 7% of all cigarette sales in this region. Marlboro Lights, the world's best- selling international light cigarette, increased volume by 21%. Approximately half our volume outside the United States comes from our many strong and growing interna- tional trademarks such as Lark, Parliament, Virginia Slims, Merit, L&M, Chester- field, and the Philip Morris brand, as well as from local brands such as Muratti, Mult i-Fi lter, and Peter Jack- son. This diversified brand portfolio gives us a broad base for future expansion. In the European Commu- nity, our aggregate market share increased to more than 22%. In the reunified German market, we led the industry with a market share of 32%. In Italy, we increased volume and achieved a 40%o market share. Volume in France grew 7%, and we now account for almost a quarter of the market. Our volume in Spain climbed 27%, and our market share rose to 13%. We also posted volume gains in Belgium, Luxembourg, and the Netherlands. Elsewhere on the Euro- pean continent, our market share reached nearly 42 % in Switzerland, and we registered higher volume in Austria and Sweden. We continued to perform well in the Middle East, particularly in Turkey, where our volume increased 33%. Eastern Europe and the Soviet Union together repre- sent the second-largest cigarette market in the world. Throughout the region, consumers have come to know-and want- Marlboro, and our other international trademarks have significant potential. We are planning aggressive expansion of our business in this part of the world. In 1990, we agreed to supply more than 20 billion cigarettes to the Russian Republic. We also doubled our business in both Poland and Yugoslavia. In addition, Merit is the most popular light cigarette in Italy, where our share of the market is 40%. 8

Philip Morris shipped more than 97 billion cigarettes from the United States in 1990, making a gross contribution of nearly $3 billion to the U.S. balance of payments. Clockwise, from top right: Lark and Merit both increased volume in Japan; a record-breaking trade agreement is bringing Marlboro to Moscow; low tar, low smoke Virginia Slims Superslims is the newest member of the Virginia Slims brand family. Philip Morris U.S. Cigarette Export Volume ~ 9

,..t r negotiated joint venture , id licensee agreements for -he production of Marlboro .tnd other brands in several Eastern European countries. In Asia, our total volume ;rew almost 18% -the largest increase for any of our regions. Much of this ,~rowth was driven by strong ..tins in Japan, where our volume rose more than 22%. All seven of our top brands posted volume increases, bringing our share of the Japanese market to nearly I1%-up from 9% last year, and more than all other for- ined. eign competitors combined. In Australia, Longbeach -10s, introduced in 1989, pushed our market share above 36%, making Philip Morris the industry leader. In Latin America, volume grew by more than 17%. We are well positioned to profit further from our large and growing.volume base in in the United States, and to Latin America when the supply quality leaf at com- local economies improve. petitive prices to the To satisfy expanding expanding global market. worldwide demand for Philip We also supported federal Morris brands, we continued legislation to increase pro- to modernize our Richmond duction of burley tobacco, and Louisville facilities, which is in short supply while investing in additional around the world. capacity internationally. Because the social Early in 1991, we announced plans to spend more than $400 million to expand our plant in Cabarrus, North Carolina. We expect to spend in excess of $2 billion over the next five years on ` further capacity improve- environment in many coun- tries is becoming hostile to cigarettes, we are actively arguing for tolerance, and we oppose neo-Prohibitionism. Budget deficits at all levels of government in the United States are prompting many ments and expansions. attempts to increase excise Quality tobacco is a key taxes on cigarettes. The 1990 factor in the worldwide pref- erence for American ciga- rettes. Our emphasis on purchasing domestically grown tobaccos has helped American leaf tobacco growers both to increase their share of tobacco sold Left: Benson & Hedges maintained its lead as the best-selling free-standing 100mm cigarette in the United States, Congressional budget agree- ment calls for an additional four cents per pack in 1991, and another four-cent hike in 1993. We are campaigning vigorously against further excise tax increases,which are regressive and discrimi- Lll 0 Left Our U.S. tobacco business continues to grow. In 1990. we sold one billion inore cigarettes than the -ar before. Right: Marlboro more than doubled its share in the growing Mexican market over the past seven years, and became the country's leading cigarette brand in 1990, ,9= PR ® 0 PARLIAMENT Above: In Turkey, Parliament and other Philip Morris brands have won nearly 90% of the market for imported cigarettes. Philip Morris International Operating Revenues ( by Geog rapnic Reg on ) 11 World Cigarette industry Unit Sales (Excsud ng U.S.A.j _  World Cigarette Industry Unit Sales  Philip Morris Share of the World Market i°a) ~ ,on un« 3000 1000 0 86 87 88 89 90 nate against consumers with lower incomes. In 1990, of the 139 state and local pro- posals to increase excise taxes, 115 were defeated or tabled. We are also combating attempts to restrict our mar-

keting activities. As industry analysts have pointed out, the elimination of cigarette advertising would do little to discourage smoking. It would, however, reduce competition, and make it dif- ficult for companies to introduce new products that might address the concerns of both smokers and non- smokers. We believe that efforts to restrict our market- ing are not consistent with free enterprise systems. We are supporting indus- try and trade initiatives to discourage underage con- sumers from using our products. We also are sup- porting legislation to establish a minimum age of 18 for the purchase of tobacco products in states currently without such a law. Over the past ten years, worldwide cigarette industry volume increased 20%- Operating Revenues (Percent of Total Operating Revenues) during the same period our cigarette volume grew by 53%. Our 1990 volume gain is the largest we've ever had, and gives us the momentum to continue building our share of the growing world- wide cigarette market. The expertise we first acquired in the United States has helped us satisfy millions of consumers with a wide range of local, regional, and global brands. We are already a major force in most of the world's important tobacco markets, and developments in Europe and Asia offer even greater expansion opportunities. Weenvision large and profit- able growth for many years to come. Food In 1990, Kraft General Foods, Inc. continued to build on its brand and other marketing Kraft Free Singles and other cheeses were the first fat free cheeses available in the United States, strengths. Of our food oper- ating revenues, 72% came from number one or two brands in their category, and our revenue and income growth put us among the top companies in the food industry. For the year, volume grew 6.5%, while operating reve- nues were up 17%, and operating companies income increased 24%. Excluding the acquisition of Jacobs Suchard, volume rose by 3.3%, operating rev- enues by 10%, and operating companies income by 18%. The diversity of our food operations yielded solid benefits, as superior per- formance in most of our businesses more than offset softness in a few segments. Our unique combination of strong brands in growing markets, rapid product development, cost savings and business opportunities realized through synergies, and technological creativity fueled steady growth even a~ we invested for the future. The acquisition of Jacobs Suchard was consistent with our strategy of building an ever stronger portfolio of brands and markets, whethe through development or acquisition-and whether inside or outside the United States. Including a full year of results from Jacobs Suchard on a pro forma basis, approximately 32% of KGF's 1990 revenues would have been generated outside the United States. With Jacobs Suchard, we are now Europe's leader in roast and ground coffee, the coffee segment with the greatest growth potential. Jacobs Suchard also increases our distribution capacity, while its Milka, The success of Post Honey Bunches of Oats helped bring Post cereals' category share back over 11 °ro. Consumer creativity making Jell-O Jigglers, a gelatin finger food, 12 2G~~~16 5~4J RightWith the acquisition of Jacobs Suchard, a Swiss coffee and confectionery company, Kraft General Foods tnterna- tional is now the leader in Germany's coffee market

, ~ .i i I I I i t Toblerone, Suchard, and Cote d'Or brands bring us a new core business in confectionery. In 1990, KGF Interna- tional's other core busi- nesses in coffee, cheese, and viscous dressings all showed volume growth, boosted by geographic expansion and line exten- sions for key brands. Successful new product introductions included Foods USA turned in an out- standing performance. Maxwell House and our other coffees returned to profitability, with continued quality and advertising improvements helping to build the business. Post cereals increased volume 10%, bringing category share back over 11%. The improvements were due to superior marketing of core Post brands such as Grape- Cheddarie spread, Vitalite Nuts, Pebbles, Honey Light margarine, and Max- Bunches of Oats, and the well House Classic premium introduction of Marsh- freeze-dried coffee in the mallow Alpha-Bits. United Kingdom; HAG Kool-Aid brand powdered Colombian Supremo coffee beverage volume grew 3%, in Germany; Kraft MayOliva maintaining an 80% share of mayonnaise and Saimaza the powdered soft drink cat- Premium soluble coffee in egory. The Jell-O Jigglers Spain; Kraft cholesterol free promotion helped to spur the mayonnaise in Belgium; largest gelatin category Gevalia Premium soluble gains in over 25 years. The coffee in Norway; Vegemite expansion of Entenmann's singles in Australia; and new fat free and cholesterol free flavors of Philadelphia Brand bakery line helped to cream cheese in several increase bakery volume countries. nearly 9% in 1990. Strong We also widened some of volume gains from Stove Top our major regional busi- stuffing, Shake 'n Bake, and nesses, bringing Miracoli Log Cabin syrup, as well as Italian sauces to Germany the regional introduction of and our Maxpax coffee vend- Kraft Microwave Entrees, ing system to Spain. New also contributed to General product development, dis- Foods USAs performance. tribution and marketing synergies, the continuing integration of European At Kraft USA, new product introductions helped to increase the appeal of lead- Foods o eratin~ companies Volume for Philadelphia Hn appecizira spreao nraTt s assorcej creeses se~•,~a 4ti•~ih osca~ P ~ ticaver ara E.oWs R.c^ urcr.eon meats on the Continent. General Brand cream cheese also > Among the Kraft General and Kraft Light Naturals. remain in North America. such as Kraft Light Singles ZK6111, markets, and increasing ing brands. In cheese, vol- prosperity in the Pacific Rim ume grew with the introduc- will drive KGF International's tion of such new ~ products further growth. as Spreadery spreadable Most of KGF's food vol- cheese. Cracker Barrel fla- ume, sales, and profits vors, and low fat cheeses f (t I~ 2V4S.i.v5 5 Ji

,', (wneral Foods can fill a fam- S K tchen with more number one _ and number two brands than any ;tner food company in the Jnited States. We have fat free foods in more categories than any other company: Sealtest Free nonfat frozen desserts, dessert bars, and frozen yogurts are part of this growing-but fat free-portfolio. i Kraft General Foods, Inc. Volume = ""n5 ot Pnunds Our Invernizzi cheese distributors deliver to food stores throughout Italy. 15

tnc:reased. Following suc- ~,siul test marketing, Kraft's hrst nonfat process cheese product, Kraft Free Singles, has begun to expand geographically. The national introduction of Kraft Free nonfat salad dressings boosted the entire Kraft pourables line, build- ,;t~,, shareto414io;inarare__ new product achievement, the Kraft Free line included three of the five best-selling products in the entire pour- able dressing category. Both Miracle Whip salad dressing and Kraft mayon- rnaise increased their shares. '.t'e expect improvements from the introductions of .. Miracle Whip Free nonfat dressing and Kraft Free non- fat mayonnaise dressing, two fat free products announced in early 1991. Volume and share for Kraft tcl Parkay tablespreads . Oscar Mayer Zappetites microwave continued to grow, led by strong advances in the cultured products and top- pings categories. New products such as Sealtest Free nonfat frozen dessert, Breyers frozen yogurt, Cool Whip Lite whipped topping, and Light rf Lively Free non- fat yogurt all helped generate category share gains for the dairy division. - - _ All American Gourmet built its volume in 1990 by introducing Kraft Eating snacks continued to hit the target in 1990. Right frozen entrees and Budget Gourmet Light and Healthv Dinners, while Birds Eye improved its product mix by emphasizing its vegetable-and-sauce offer- ings. Aided by the introduc- tion of "soft" bagels and other marketing.effortss.._._. Lender's volume grew al- most 9%, with category . share climbing to i i%. Tombstone pizza continued to increase volume while expanding geographically, and is now sold in 25 states. Tombstone is the leader in the frozen pizza markets it now serves. Kraft General Foods Canada posted strong results across most of its major product lines, with volume gains helped by new product launches. Lunchables lunch combina- tions, Maxwell House Filter Packets, Cheese Pot cheese ~ Vegemite continues to be one of Australia's most popular products, and fat free products are also being offered. tou can nave your cake and eat it too-w+thout fat or cholesterol, from Entenmann's. also rose, and Touch of Oscar Maver introduced tur- Butter expanded nationallv. key bacon, and a range of Butter Volume for Kraft side dishes light, thin-sliced, and low- and dinners grew by 5°'o: salt meats. We look to these new shapes and flavors. as and other product introduc- well as microwave offerings, tions for future growth. are being tested for intro- Kraft General Foods duction in 1991. Frozen Products defended olume_.._.and built on its franchises. Total Oscar.Mayer v rose due to new products Volume for dairy products, such as Lunchables lunch which contributed more - - -- - combinations and Louis than half the group's operat- Kemp surimi seafood. ing revenues and income, Partially due to higher red meat commodity costs, oper- ating companies income declined. Oscar Mayer brand's num- b..er one position, together with Louis Rich's leadership position in the growing tur- key segment, accounted for 34% of the market for lun- cheon meats and a record 14% for bacon. We also. have . an 18% share of the hot dog market. To address changing consumer preferences, '~-''ocoiate from Jacobs Suchard y-ag c on a discerning consumer . IZ.erland. 17

spread, Honey Bunches of Oats cereals, Kraft Free salad dressings, and the Jell-O Jigglers promotion all con- tributed to volume and share growth in key categories. Kraft packaged dinners, the best-selling dry grocery item in the country, introduced Super Mario Bros. Pasta and Cheese in the children's seg- ment, and achieved a 14% volume improvement. Coffee volume grew almost 6%, aided by successful launches of General Foods International Coffees and Maxwell House 1892. KGF Canada also expanded its successful regional direct foodservice business to a leading position with the acquisition of Groupe Cafe in March 1990. Volume increased in both divisions of Kraft General Foods Commercial Products. Kraft Food Ingredients bene- fited from strong perfor- mances in the oil products and Specialty Ingredients businesses. Kraft Foodser- vice volumes for cheeses, oils, shortening products, and sauces also grew. Future foodservice performance gains will depend on an improved food-away-from- home market, greater pen- etration of new accounts, and further efficiencies from broadline distribution operations. Our strong overall perfor- mance at KGF was made possible by a broad array of shared innovations and mar- keting strategies to meet changing consumer tastes. Our established products still have significant growth 18 potential, as shown by the improvements at Maxwell House and Post. In addition, the Jell-O Jigglers promo- tion, one of the largest gelatin promotions ever, made Jell-O desserts a "top- of-mind" snack for children, boosting U.S. sales by 13% in 1990. As we develop and launch new products and promo- tions, we are benefiting from a unique set of synergies. Most of our savings through these synergies and productivity improvements were reinvested; for our goal is not to avoid spending, but to spend wisely. Our most important synergies create incremental business. Our fat free products are a good example of how we are becoming more than the sum of our companies. We recognize that lower fat and cholesterol now head the list of consumers' dietary con- cerns. And nearly every one of the KGF operating com- panies is replacing fats with other natural ingredients in at least one of its products - from cheeses and pourable salad dressings to cakes and frozen desserts. These inno- vative fat free products alone accounted for more than $275 million in revenues in -1990. We first introduced fat replacement technology in our U.S. markets, and now we are pooling our experi- ence to bring new fat free products to Canada, Europe, and Australia. We had fat free products in more categories than any other company in 1990, and we are Phitadefphia Brand cream cheese is one of our strongest international brands, sold in the United States. Germany-and35 other countries around the world 204S:LG555i

® U m m O NOW ...... . ........ ._ . , ® ® ® ® ~t q !C! - y ~: ..~. ~ EE ~ d)EE .- n~. ~. `_ ' 3~.~~ 'EE tiB£E iEE ® 0 N ~ ! ,. .~ ~oi ~ ~Ih > ® G s72g 1 a S~ ~ ° Mazwell House~ TjIterPa` OEM :;roducts on sale in Korea ,~ Maxim and other ~es as well as Post cereals, above: Oscar Mayer applied the Luncnables concept to develop new Lours Rich Luncn Breaks, popular and convenient for parents and chil- dren alike. Top right'our foodservice division supplies US. restaurants, ^ospitals, and other institutions witn Kratt General Foods and Qther pi_Qd_,_ .rcts- Right. convenient Maxwe i House Fiiter Packs heiped our . U S, coffee busmesS reiu.rn t4 Frqfitabti tY. ... .. .,..

developing still more fat free products this year. In fact, crossing operating company borders to find synergies, KGF answered demand for nutrition, conve- nience, and variety by intro- ducing more than 300 new products in the United States during the year, and was named the new product company of the year by Prepared Foods Magazine. We bolstered our brands with double-digit increases in marketing expenditures in 1990 and plan similar increases in 1991. Our Holi- day Homecoming promotion in the United States, featur- ing 34 of our leading brands in December 1990, was another notable example of how our companies are working-and spending- together to build our business. We are backing up our investments in new markets, products, and packagings by investing in our people. We are enlisting all our employ- ees in a drive for continu- ous improvement in every company process, from pur- chasing and research to manufacturing and market- ing, to serve both customers and consumers better. Only by aiming for excellence in each aspect of our business can we lead our competition and begin to satisfy our own high standards. Kraft General Foods recorded solid business gains in 1990. We are deter- mined to deliver steadily bet- ter operating results over the years to come. Beer In 1990, for the fifth consecu- tive year, volume growth at Miller Brewing Company outperformed the U.S. brew- ing industry. Our total ship- ments of 43.5 million barrels, including Sharp's and exports, were up nearly 4% for the year. Our share of __ _ the total U.S. malt beverage industry grew to a record 22%. Our export volume rose more than 6%. Operating revenues and operating companies income also set new rec- ords. Growth in premium- priced brands helped boost revenues 6%, and lower costs contributed to a 26% gain in operating companies income. Shipments of Miller Genuine Draft grew by almost 30%, consolidating the brand's ninth-place posi- tion among U.S. beers. Combined with Miller High Life, Genuine Draft's contin- ued success gave Miller 16% of the more profitable full- calorie premium segment. Miller Lite, the country's second-best-selling beer, continued to gain volume, and accounted for more thai 45% of the premium low- calorie segment. We added to our presence in this seg- ment by bringing Miller Genuine Draft Light into ten western states. In the above-premium segment, the company is represented by Lowenbrau, and we brought both Miller Reserve, an all-barley pack- aged draft product, and Miller Reserve Light, a low- calorie line extension, into test markets in 1990. In the below-premium category, volume gains by Milwaukee Best made it the sixth-most- popular beer in the country. Miller Sharp's, first intro- duced in December 1989, fueled the growth of the non alcoholic brew segment, which nearly doubled its Operating Revenues tPercent of Total OpeaUno Revenues ~~n~rx.»~ Above: The full rich taste of Milter Sharp's benefited from an innovative technology, and Sharps became the country's best-selling non-..'.: : a alcoholic brew. Right: Miller Genuine Draft Light. a iow-caforie ffne exten- sion of Miller Genuine Draft, joined the Miller family in 1990. Far right M iier Genuine Draft, the countrv's ninth-most-popular beer. andonp pf tne fastest-growing premwm beers in the United States._ _ ------ ___ ..r 20

U.S. Nlalt Beverage Industry Barrel Shipments IC U.S. Malt Beverage Industry Barrel Shipments  Miller Share of U.S. Malt Beverage Industry (°o) M ..;^s pf Barre.c Miller Lite is the second-moE popular beer in the United S and t continues to be the co best-selting light beer. Mirier ext3orts to many countries around tne world Oi'erino a wide variety ofi brews. Miuer increased ts snare ot tr:e US maa oeveraae rndustrs ~ .- , .r A (~ / '+,

r Financing from Philip Morris Capital Corporation helps Miller distributors ^eep stores well stocked, volume during 1990. Sharp:s tinished the year in a leadership position, with 27,1 of the market for non-alcoholic brews. Our steady progress enabled us to announce the reopening of our Trenton, Ohio, brewerv in 1991. Federal legislation passed in 1990 doubled the federal excise tax on beer, from $9 to $18 per barrel, or from 16 cents to 32 cents per six- pack, effective January 1, 1991. In spite of this discrim- inatory tax increase, we are determined to continue our solid growth in volume, rev- enues, and profitability. Financial Services and Real Estate Consolidated operating com- panies income from Philip Morris Capital Corporation's financial services and real estate businesses rose 13.9%, despite a 10.9% drop in operating revenues, as Mission Viejo Company con- tinued to wind down its homebuilding activities. Revenues from PMCC's financial services operations grew 19.2%, while operat- ing companies income increased 27.4%. In 1990, PMCC expanded its financ- ing programs for customers and suppliers of Philip Morris operating companies. The company also increased its investment in leasing transactions, building on its position as one of the coun- try's major equipment lessors. PMCC has a strong capital position, and its debt is com- paratively small when set against the financial position of its parent, Philip Morris Companies Inc. In addition, PMCC's assets do not reflect significant exposure to highly leveraged companies or troubled industries. Although the current eco- nomic downturn introduces some uncertainties, we expect the company to con- tinue its pattern of sound revenue and income growth. As Mission Viejo phased out homebuilding, operating revenues declined 27.2%. Operating companies in- come, derived from land planning, development, and sales, increased 1.1%. The Colorado residential real estate market showed signs of improvement, with Mis- sion Viejo's Highlands Ranch planned community achiev- ing the highest market share for new home sales in the Denver area. 23 ?r!~-

Management's Discussion and Analysis of Financial Condition and Results of Operations Operating Results Operating Revenues - Operating Income (in millions) 1990 1989 1988 1990 1989 1y Tobacco $21,090 $17,849 $16,576 $5,596 $5,063 $3,F Food 26,085 22,373 10,898 2,205 1,580 Beer 3,534 3,342 3,177 285 226 Financial services and real estate 460 516 622 196 172 Operating Profit 8,282 7,041 4,F orate expenses Unallocated cor (336) (252) (1 I i p Total $51,169 $44,080 $31,273 $7,946 $6,789 $4,3 0 ¢ 0 0 is On August 16, 1990, the company's wholly-owned subsidiary, Kraft General Foods, Inc., purchased Colima Holding AG, the principal asset of which was a controlling interest in Jacobs Suchard AG, a Swiss-based coffee and confectionery company. In September 1990, a tender offer was completed for substantially all of the remaining publicly held interests of Jacobs Suchard. The pur- chase price of Colima and the remaining publicly held interests of Jacobs Suchard totaled $4.1 billion. On December 7,1988, Kraft, Inc. became a wholly-owned sub- sidiary of the company. The purchase of outstanding Kraft shares, retirement of employee stock options and other related payments totaled $12.9 billion. The acquisitions have been accounted for as purchases and, accordingly, operating results of Kraft and Jacobs Suchard have been included in the consolidated operating results of the com- pany since acquisition. 1990 Compared with 1989 Operating revenues for 1990 increased $7.1 billion (16.1%) and operating profit, as defined for segment reporting purposes (oper- ating income excluding unallocated corporate expenses), increased $1.2 billion (17.6%). The inclusion of Jacobs Suchard since acquisition resulted in $1.4 billion (20.0%) of the increase in operating revenues and $89 million (7.2%) of the increase in operating profit. Amortization of goodwill increased 16.4% to $448 million in 1990, due primarily to goodwill arising from acquisitions, $33 mil- lion of which related to Jacobs Suchard. Interest and other debt expense, net, decreased $96 million in 1990 compared with 1989, due primarily to lower rates, lower average outstanding debt dur- ing the year and higher interest income. Net earnings increased in 1990 by $594 million (20.2%), due to increased operating profit ($1.2 billion), partially offset by a higher income tax provision ($659 million). Interest and goodwill amortization arising from the acquisition of Jacobs Suchard exceeded that company's income contribution in 1990, resulting in a dilution in earnings of approximately $.03 per share. 1989 Compared with 1988 Operating revenues for 1989 increased $12.8 billion (41.0°lo) and operating profit increased $2.5 billion (53.4%). The inclusion of Kraft for the full year of 1989 resulted in approximately 90% of the increase in operating revenues and $904 million (36.9%) of the 24 increase in operating profit. The remainder of the increases resulted primarily from tobacco operations. In 1989, General Foods Corporation was combined with Kraf form Kraft General Foods, Inc., and the company charged $179 million against pretax income, primarily for costs associated w this merger. In addition, the company sold its equity investmen Rothmans International p.l.c. for &610 million of 10'/4% notes maturing in 1994, generating a pretax gain of $455 million. The notes were subsequently sold with recourse for approximately $850 million. The net impact of these items was an increase in earnings before income taxes, net earnings and earnings per share of $276 million, $152 million and $.16, respectively. The company's 1988 results included restructuring costs at General Foods. As a result of this restructuring, certain facilitie were combined and overhead costs were reduced to achieve operating efficiencies. This restructuring reduced earnings bef income taxes, net earnings and earnings per share by $348 mil- lion, $212 million-and $.23, respectively. Amortization of goodwill increased to $385 million in 1989, c primarily to goodwill arising from the acquisition of Kraft. Intei and other debt expense, net, increased $1.1 billion in 1989 com pared with 1988, due primarily to higher amounts of outstandii debt resulting from the acquisition of Kraft. Earnings before cumulative effect of accounting change increased in 1989 by $882 million (42.7%), due to increased operating profit ($2.5 billion), partially offset by higher interest expense ($1.1 billion) and a higher income tax provision ($449 million). Recent Developments Effective January 1, 1991, the federal excise tax on beer increas from $9 per barrel to $18 per barrel, and the federal excise tax c cigarettes increased from $8 per thousand to $10 per thousand. Under existing legislation, the cigarette excise tax will further increase to $12 per thousand, effective January 1, 1993. In addi. tion, legislation is periodically proposed which would further curtail the advertisement and use of our tobacco and beer proc ucts. Some or all of the foregoing may have an adverse impact the company's operating revenues and operating profit. The company believes that any interruption of business resu ing from the military conflict in the Middle East will not have a significant impact on consolidated operating results. 2~ 1~ 1 f; 5 ~~G.1

Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than `ensions," issued in 1990, requires companies to accrue the cost <f such benefits during the employee's period of service. Currently, ne company expenses such costs generally as they are incurred. 'pon adoption, which must occur no later than January 1, 1993 for ')perating Results by Business Segment domestic plans, the additional liability may be recognized either immediately or prospectively over not more than twenty years. The company intends to adopt SFAS 106 prospectively in 1993 and estimates that adoption will increase annual expense, the amount of which has yet to be determined. robacco Operating Revenues Operating Profit in millions) 1990 1989 1988 1990 1989 1988 'M U.S.A. $10,370 $ 9,474 $ 8,491 $4,206 $3,606 $3,087 PM International 10,720 8,375 8,085 1,390 1,457 759 Total $21,090 $17,849 $16,576 $5,596 $5,063 $3,846 "fe following discussion of results excludes PM International's ;ain on sale of investment in Rothmans in 1989 ($455 million) and amortization of goodwill. 1990 Compared with 1989 In 1990, Philip Morris U.S.A.'s operating revenues increased 9.5% due to price increases ($1.0 billion) and volume increases ($43 rnillion), partially offset by unfavorable product mix. Volume increases in 1990 resulted from new product introductions. Philip %iorris U.S.A.'s domestic volume (based on shipments) increased hillion units to 220.5 billion units. This unit volume growth uicreased Philip Morris U.S.A.'s share (based on shipments) to 12.2%, up 0.3 share points over 1989. The domestic cigarette industry's volume decreased approximately 0.3% in 1990 as com- pared with a 6% decline in 1989. The industry decline in 1989 reflected, in part, a decision by Philip Morris U.S.A.'s competitors to reduce trade inventories by limiting shipments. Philip Morris U.S.A.'s 1990 increase in market share is understated due to these changes in competitors' trade inventory practices, which lepressed their 1989 volume while inflating Philip Morris U.S.A.'s -'9 share. Consequently, Philip Morris U.S.A.'s 1989 market share rose 2.6 share points and 1990 market share rose 0.3 share points. However, in the opinion of management, a more meaningful indicator of underlying share growth is Philip Morris U.S.A.'s aver- age annual gain of 1.5 share points over the two-year period. Marlboro continued to be the number-one-selling cigarette in the United States, with a 26% share of the market. In 1990, Philip Morris U.S.A.'s operating profit increased 16.6%, reflecting higher qross profit ($914 million), partially offset by higher marketing "»nses ($309 million). The increase in gross profit was due pri- ...Ai iiv to price increases ($1.0 billion) and cost savings, partially offset by unfavorable product mix ($216 million). Philip Morris International's operating revenues increased 28.0%, due primarily to increases in unit volume ($1.4 billion), price increases ($331 million) and currency translation ($897 mil- lion), partially offset by the deconsolidation of certain operations. Unit volume of Philip Morris International for 1990 increased 15.5% over 1989, reflecting significant increases in Europe and Asia. Philip Morris International's operating profit increased $388 million (38.7%), due primarily to higher gross profit ($648 mil- lion), offset by higher marketing, administration and research costs ($260 million). The increase in gross profit was due to price and cost increases ($148 million), volume increases ($469 mil- lion) and currency translation ($127 million), partially offset by the deconsolidation of certain operations. The company has negotiated an agreement to export to the Rus- sian Republic over 20 billion cigarettes by year-end 1991. The company has taken measures to minimize risk of loss on ship- ments thus far and intends to do so for future shipments. 1989 Compared with 1988 In 1989, the 11.6% increase in Philip Morris U.S.A.'s operating reve- nues was due primarily to price increases. Philip Morris U.S.A.'s domestic unit volume (based on shipments) increased 247 mil- lion units to 219.5 billion units. The 16.8% increase in Philip Morris U.S.A.'s operating profit in 1989 reflects higher gross profit ($731 million), substantially all of which was related to price increases, partially offset by higher marketing expenses. Philip Morris International's 3.6% increase in operating reve- nues was due primarily to increased unit volume ($694 million) and price increases ($561 million), partially offset by currency translation ($480 million) and the deconsolidation of a subsidiary, the operations of which were merged into a joint venture. Unit vol- ume of Philip Morris International in 1989 increased 9.7% over 1988, reflecting growth in Europe and Asia. Philip Morris Interna- tional's operating profit increased $233 million (30.2%), due primarily to higher gross profit ($318 million), partially offset by higher marketing, administration and research costs ($85 mil- lion). The increase in gross profit was due to price increases ($254 million) and volume increases ($199 million), partially off- set by currency translation ($92 million) and the deconsolidation of a subsidiary. 204 ~~C4 5 6 25

Food Operating Revenues Operating Profit (in millions) 1990 1989 1988* 1990 1989 19 General Foods USA $ 5,078 $ 4,817 $ 4,695 $ 629 $ 433 $ 3 Kraft USA 4,783 4,415 4,082 842 763 5 KGF International 6,061 3,656 3,875 672 376 ` 3 KGF Canada 1,327 1,251 1,355 235 187 1 Oscar Mayer Foods 2,520 2,270 2,170 145 168 1 KGF Frozen Products 2,155 2,103 2,017 169 169 1 KGF Commercial Products 4,161 3,861 3,714 118 160 1 KGF Corporate Total $26,085 $22,373 $21,908 (605) $2,205 (676) $1,580 (6 $1,0 *Kraft was purchased in December 1988, and merged with General Foods in 1989 to form Kraft General Foods ("KGF"). To facilitate year-to-year analysis, the 1988 amount: shown above are the combined full year results of Kraft and General Foods. The following discussion of results by KGF operating unit excludes KGF headquarter expenses, restructuring charges and amortization of goodwill, all of which are included in KGF Corporate. 1990 Compared with 1989 In 1990, General Foods USA's operating revenues increased 5.4%, due primarily to price increases ($98 million) and volume increases ($226 million), partially offset by the net impact of dis- positions and acquisitions. Volume increased in baked goods, beverages, coffee, cereals and dinners. General Foods USA's oper- ating profit increased 45.3% due to higher gross profit ($360 million), resulting primarily from price increases and cost savings ($229 million) and volume increases ($142 million), partially off- set by higher marketing, administration and research costs ($164 million), approximately 86% of which related to higher marketing expenses. Kraft USA's operating revenues increased 8.3% due primarily to price increases ($364 million). Kraft USA's volume increased slightly due to increases in specialty cheeses and grocery prod- ucts, which were offset by volume decreases in retail cheese products. In 1990, Kraft USA's operating profit increased 10.4%, due primarily to higher gross profit ($292 million), partially offset by higher marketing, administration and research costs ($213 mil- lion), approximately 85% of which relqted to higher marketing expenses. The increase in gross profit was due primarily to price and cost increases. Operating revenues for KCFlnternational in 1990 increased 65.8%, due primarily to the acquisition of Jacobs Suchard ($1.4 billion), volume increases ($153 million), currency translation ($340 million), other acquisitions ($197 million) and a change in reporting periods to conform all operations. Volume growth occurred primarily in Europe and the Pacific area. KGF Interna- tional's operating profit increased 78.7% in 1990. Excluding Jacobs Suchard, operating profit increased $173 million (46.0%) due to higher gross profit ($391 million), partially offset by higher marketing, administration and research costs ($218 million), sub- stantially all of which related to marketing expenses. The increase in gross profit resulted primarily from volume increases ($60 mi lion), currency translation ($116 million), other acquisitions ($46 million) and a change in reporting periods to conform all operations ($137 million). KCFCanada's operating revenues increased 6.1% in 1990 due to volume increases ($34 million), currency translation ($22 mil• lion) and the net impact of acquisitions and dispositions ($20 million). Operating profit increased 25.7% due primarily to high gross profit ($65 million) resulting from increased margins and volume, partially offset by higher marketing expenses ($8 million). OscarMayerFoods' operating revenues increased 11.0% in 1990 due primarily to price increases ($198 million) and volume increases ($52 million). Increased volume from new product introductions more than offset volume declines in luncheon meats and hot dogs. Operating profit decreased 13.7% due to higher marketing, administration and research costs ($72 mil- lion), which more than offset an increase in gross profit ($49 million). The increase in marketing, administration and researcl costs primarily reflects plant closing costs in 1990 ($25 million) and higher marketing expenses related to new product introduc tions ($51 million). Operating revenues of KCFFrozen Products increased 2.5% ii 1990 due primarily to price increases ($38 million) and volume increases ($14 million). KGF Frozen Products had volume increases in frozen desserts, Lender's bagels and Tombstone pizza, partially offset by volume decreases in Birds Eye and froz dinners. KGF Frozen Products' operating profit remained flat in 1990 with higher gross profit ($58 million) resulting primarily from increased margins, offset by higher marketing, administra tion and research costs ($58 million), of which approximately 85% related to higher marketing expenses. ))) ~ 26

KGFCommercial Products' operating revenues increased 7.8% in 1990, due primarily to volume increases ($117 million), price increases ($107 million) and the net impact of acquisitions and dispositions ($76 million). In 1990, KGF Commercial Products' operating profit decreased 26.3%, reflecting lower margins and higher marketing costs at the foodservice division. 1989 Compared with 1988 To facilitate a year-to-year analysis of food operations, the follow- inq discussion addresses changes in the results of KGF for 1989 compared with the full year combined results of Kraft and General Foods for 1988. General Foods USA's operating revenues increased 2.6% in 1989 due primarily to price increases ($138 million). Volume decreases in cereals, beverages and baked goods offset volume increases in coffee and desserts. General Foods USA's operating profit increased 41.0% in 1989, due primarily to higher gross profit ($179 million) resulting primarily from price increases, partially offset by higher marketing expenses ($70 million). Kraft USA's operating revenues increased 8.2% due primarily to I ,t ic.e increases ($329 million) and volume increases ($53 mil- lion), partially offset by the disposal of a business. Volume increases were due primarily to process cheese products. In 1989, Kraft USA's operating profit increased 40.5%, due primarily to higher gross profit ($249 million) resulting from price increases ($167 million), volume increases ($40 million) and cost savings. Operating revenues for KGFInternational decreased 5.7% in 1989, due primarily to currency translation ($243 million), the impact of conforming reporting periods of KGF's international •thsidiaries ($206 million) and the deconsolidation of certain .,Dsidiaries, partially offset by price increases ($203 million), vol- ume increases ($78 million) and acquisitions ($41 million). KGF International's operating profit increased 13.6% due to higher gross profit ($76 million), resulting primarily from pricing, par- tially offset by the impact of the deconsolidations and change in Kraft International's year-end. After excluding the 1988 revenues ($180 million) and the operating profit impact ($30 million) of a business which was exchanged for an interest in a joint venture, KGF Canada's operat- iL! revenues and operating profit increased from 1988. Operating t:venues increased $76 million, due primarily to price increases ($43 million), currency translation ($41 million) and acquisitions ($18 million), partially offset by decreased volume ($26 million). Operating profit increased $43 million, due primarily to higher gross profit, resulting from a $55 million increase due to pricing and lower costs, partially offset by decreased volume. OscarMayerFoods' operating revenues increased 4.6% in 1989 due to volume increases ($57 million) in Louis Rich brands and from new product introductions and price increases ($43 million). '89, Oscar Mayer Foods' operating profit increased 3.7%, due primarily to higher gross profit ($14 million), partially offset by higher marketing, administration and research costs ($8 million). The increase in gross profit reflected volume increases of $28 mil- lion, partially offset by higher costs. Operating revenues of KGFFrozen Products increased 4.3% due primarily to price increases ($78 million), with the remainder attributable to increased volume. KGF Frozen Products had vol- ume increases in frozen dinners, Lender's bagels and Tombstone pizza, partially offset by volume decreases in Birds Eye and frozen desserts. KGF Frozen Products' operating profit increased 27.1% in 1989, reflecting higher gross profit ($48 million), substantially all of which related to price increases, partially offset by higher mar- keting expenses ($10 million). KGF Commercial Products' operating revenues increased 4.0% in 1989 due to volume increases in foodservice operations ($147 million) and net acquisitions ($58 million), partially offset by price decreases ($58 million). In 1989, KGF Commercial Products' operating profit increased 41.6%, reflecting higher gross profit ($73 million, approximately 64% of which related to lower costs, with the remainder principally attributable to volume increases), partially offset by higher marketing, administration and research costs. Beer 1990 Compared with 1989 Operating revenues in 1990 increased 5.7% due to volume increases ($127 million) and price increases ($65 million). The increase in volume was attributable, in part, to the introduction of new products, including Sharp's non-alcoholic brew. Market share of the domestic beer and non-alcoholic brew industry rose to 22.1% from 21.9% in 1989. Operating profit in 1990 increased 26.1% from higher gross profit ($108 million), due to price and cost increases ($55 million) and volume increases ($53 million), par- tially offset by higher marketing, administration and research costs ($49 million), approximately 90% of which related to mar- keting keting expenses. 1989 Compared with 1988 Operating revenues in 1989 increased 5.2% due to increases in unit volume ($121 million) and prices ($44 million). Market share of the domestic beer and non-alcoholic brew industry rose to 21.9% from 21.2% in 1988. Operating profit increased 18.9% in 1989 resulting from higher gross profit ($64 million) due in equal amounts to volume and pricing, partially offset by higher market- ing, administration and research costs ($28 million). Financial Services and Real Estate 1990 Compared with 1989 Operating revenues from financial services in 1990 increased $35 million (19.2%) over 1989, and operating profit increased $23 mil- lion (27.7%) due primarily to increased investments in finance assets, partially offset by higher interest expense resulting from higher commercial paper balances. Operating revenues from real estate operations in 1990 decreased $91 million (27.2%), and oper- ating profit increased $1 million (1.1%) from 19891evels9 reflecting 27

the continued impact of a 1988 change in business strategy in California from residential homebuilding to land planning, development and sales. While there is demand for the company's California properties, recent developments in the domestic bank- ing industry have reduced the financing options available to prospective purchasers. 1989 Compared with 1988 Operating revenues from financial services in 1989 increased $16 million (9.6%) over 1988, and operating profit increased $20 million (31.7%), due primarily to increased investments in finance assets and interest savings from debt refinancings under- taken during 1988. Operating revenues from real estate operations in 1989 decreased $122 million (26.8%), and operating profit decreased $10 million (10.1%) from 1988 levels, reflecting the change in business strategy referred to above. Financial Review Cash Provided and Used In 1989, cash provided by investing activities included $992 million received from the divestiture of the company's equity investment in Rothmans and several food operations. In 1990, the company invested $523 million in finance assets a compared with $481 million in 1989 and $495 million in 1988. Leasing investments accounted u_ nt_ed for 699'0, 65% and 39% of these amounts, respectively. Net Cash Provided by (Used in) Financing Activities Consumer Products Debt During 1990, total consumer products debt increased by $2.3 bil- lion. The increase represented $3.6 billion of debt issued, $1.1 billion of debt assumed in the acquisition of Jacobs Suchard and currency translation of $250 million, partially offset by $2.7 billio of debt repayments. At December 31, 1990, the company's ratio of consumer prod- ucts debt to total equity was 1.44, down from 1.56 at December 3' Net Cash Provided by Operating Activities Cash provided by operating activities of $5.4 billion increased in 1990 by $1.7 billion (46.7%). The increase was related primarily to higher earnings ($594 million) and to less cash used for working capital items in 1990. Cash provided by operating activities decreased in 1989 by $1.4 billion (27.8%). The decrease is related to the large amount of cash provided by working capital items in 1988, which was gener- ated principally by a designed reduction of accounts receivable and increase in accounts payable, as well as an increase in accrued liabilities. This increased cash flow was used to fund part of the Kraft acquisition. Net cash used for working capital in 1989 was principally due to the reversal of the amount provided in 1988. Partially offsetting the change in cash attributable to work- ing capital items was an increase of $926 million (26.3%) in other operating cash flows, attributable primarily to higher earnings. Net Cash Used in Investing Activities In 1990, the company paid $3.1 billion for the purchase of Jacobs Suchard, net of $825 million of acquired cash. In 1988, the com- pany paid $11.4 billion for the purchase of Kraft, net of $866 million of acquired cash. In 1990 and 1989, the company paid an additional $11 million and $388 milliori, respectively, for pre- viously untendered shares of Kraft common stock. Capital expenditures were $1.4 billion in 1990, approximately 63% of which related primarily to expansion and modernization of manufacturing and processing facilities of food operations. In 1989, capital expenditures increased $222 million over 1988 due primarily to the inclusion of Kraft for a full year in 1989. Capital expenditures are estimated to be $1.7 billion in 1991 and a total of $9.0 billion for the five-year period 1991-1995, of which approx- imately $1.1 billion and $6.1 billion, respectively, are projected for food operations. ,° c 28 1989. Fixed rate debt comprised approximately 73% and 66% of consumer products debt at December 31, 1990 and 1989, respec- tively. The average interest rate on total consumer products debt, was approximately 9.2% and 9.5% during 1990 and 1989, respec- - Total Debt (Year-End  Consumer Product Debt (Year-End) B&tlans of Dollars 20

f tivelv. At December 31, 1990, the average interest rate on total con- sumer products debt, including the impact of interest and cur- rency swap agreements discussed below, was approximately 8.8%. During 1989, total consumer products debt decreased by $1.6 billion. The decrease represented $4.0 billion of debt repayments and currency translation of $62 million, partially offset by $2.5 bil- lion of domestic debt issued to refinance commercial paper and bank borrowings arising from the acquisition of Kraft. During 1988, total consumer products debt increased by $10.1 billion, which represented $10.0 billion of debt issuances and $.9 billion of Kraft debt assumed at acquisition, partially offset by $.9 billion of debt repayments, as well as foreign currency translation. Total Debt The company's credit ratings were upgraded by Moody's in 1990 to "P 1" in the commercial paper market and "A2" for long-term obli- gations, as compared with ratings of "P-2" and "A3," respectively, at December 31, 1989. The company's credit ratings by Standard & Poor's remained at "A-1" in the commercial paper market and "A" for long-term debt obligations. .\t December 31, 1990, the company's total debt-to-equity ratio was 1.57, down from 1.72 at December 31, 1989. Total debt was $18.7 billion at December 31, 1990, compared with $16.4 billion at December 31,1989. At December 31, 1990, the company had interest rate swap agreements with an aggregate notional principal amount of $2.4 billion and a weighted average maturity of 1.2 years. These agree- ments provided a weighted average interest rate of 9.0%. In addition, the company has entered into currency and related inter- ost rate swap agreements to manage interest rate and currency .osure on certain long-term debt obligations. The aggregate 1louonal principal amount of these swap agreements outstanding at December 31, 1990 was $1.5 billion, of which $721 million related to consumer products debt. The company expects to continue to refinance long-term and short-term debt from time to time. The nature and amount of the company's long-term and short-term debt and the proportionate amount of each can be expected to vary as a result of future busi- ness requirements, market conditions and other factors. The company's percentages of fixed rate debt and average inter- - rates for 1990 and 1989 relative to total debt were approxi- fnately the same as those previously discussed for consumer products debt. At December 31,1990, the company's credit facilities amounted to approximately $17.2 billion, including a $12.0 billion revolving bank credit facility expiring in 1993, of which approximately $15.5 billion were unused. These facilities were used to support the company's commercial paper borrowings. The company expects that cash from operations and available "dit facilities will continue to be sufficient to meet the future :s of the business. The company continually monitors its foreign currency exposure. It acts to manage such exposure, when deemed pru- dent, through various hedging transactions. Foreign currency denominated debt for which the company has not entered into currency swap agreements is maintained primarily to hedge the currency exposure of its net investments in foreign operations. Equity and Dividends In 1989, the company announced its intention to spend up to $1.5 billion to repurchase common stock in open market transac- tions at prevailing prices from time to time over a two-year period commencing in 1990. In 1990, the company repurchased 5.7 mil- lion shares at an aggregate cost of $221 million. The share repurchase program was temporarily suspended in 1990 due to the Jacobs Suchard acquisition. Dividends paid in 1990 increased 22.7% over 1989, reflecting the increase in dividends declared to $1.55 per share in 1990 from $1.25 per share in 1989. The quarterly dividend rate established in August 1990 is at an annual rate of $1.72 per share, an increase of 25.1% over the annual rate of $1.375 established in August 1989. Return on average stockholders' equity was 32.9% in 1990 and 34.2% in 1989. y Ratio of Total Debt to Stockholders' Equity (Year-End)  Ratio of Consumer Products Debt to Stockholders' Equity (Year-End) 2.5 86 87 88 89 90 2.0 5 0  Stockholders' Equity (Year-End)  Return on Average Stockholders' Equity (%) Billions of Dollars_ % 12 ~ 60 10 8 50 40 6 4 2 30 20 0 10 86 87 88 89 90 29

Selected Financial Data- Fifteen-Year Review (in millions of dollars, except per share data) 1990 1989 1988 1987 1986 Summary of Operations: Operating revenues $ 51,169 $ 44,080 $ 31,273 $ 27,650 $ 25,542 United States export sales 2,928 2,288 1,863 1,592 1,193 Cost of sales 24,430 21,868 13,565 12,183 11,901 , Federal excise taxes on products 2,159 2,140 2,127 2,085 2,075 Foreign excise taxes on products 4,687 3,608 3,755 3,331 2,653 Operating income 7,946 6,789 4,397 3,990 3,537 Interest and other debt expense, net (consumer products) 1,635 1,731 670 646 772 Earnings before income taxes and cumulative effect of accounting change 6,311 5,058 3,727 3,344 2,765 Pretax profit margin 12.3% 11.5% 11.9% 12.1% 10.8% Provision for income taxes $ 2,771 2,112 $ 1,663 $ 1,502 $ 1,287 Earnings before cumulative effect of accounting change __ 3,540 2,946 2,064 1,842 1,478 Cumulative effect of accounting change 273 Net earnings 3,540 2,946 2,337 1,842 1,478 Earnings per share before cumulative effect of accounting change 3.83 3.18 2.22 1.94 1.55 I Per share cumulative effect of accounting change .29 . 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 Weighted average shares (millions) 925 927 932 951 954 .Capital expenditures (consumer products) $ 1,355 $ 1,246 $ 1,024 $ 718 $ 678 Depreciation (consumer products) 876 755 608 564 514 Property, plant and equipment, net (consumer products) 9,604 8,457 8,648 6,582 6,237 Inventories (consumer products) 7,153 5,751 5,384 4,154 3,836 Total assets 46,569 38,528 36,960 21,437 19,482 Total long-term debt 16,121 14,551 16,812 5,983 6,887 Total debt-consumer products 17,182 14,887 16,442 6,355 6,889 I -financial services and real estate 1,560 1,538 1,504 1,378 1,141 I Total deferred income taxes 2,083 1,732 1,559 2,044 1,519 Stockholders' equity 11,947 9,571 7,679 6,823 5,655 Common dividends declared as a % of net earnings 40.5% 39.3% 40.3% 40.6% 39.9% t ; Book value per common share $ 12.90 $ 10.31 $ 8.31 $ 7.21 $ 5.94 t Market price of common share-high/low 52-36 45'/z-25 25'/2-20'/8 31'/8-18'/s 19'/2-11 ~ Closing price of common share at year-end 513/4 415/8 25'/2 213/8 18 Price/earnings ratio at year-end 14 13 _ _ 10 11 11 i Number of common shares outstanding at year-end (millions) 926 929 924 947 951 Number of employees 168,000 157,000 155,000 113,000 111,000 _ _._ Operating income isin.come before interest and other e t expense, net._ Certain prior years' amounts have been reclassified to conform with the current year's 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 • • - --•-- - eir acquisition. See Note 3 of the notes to consolidated financial statements regarding 1989 and 1988 restructuring charges of food operations and the 1989 sale of the company's investment in Rothmans International p.l.c. See Note 10 of the notes to consolidated financial statements regarding the company's 1988 adoption of the method of accounting for income taxes prescribed by Statement of Financial Accounting Standards No. 96. G7 3fl 20 -gCS' 1G50 ~

1985 1984 1983 1982 1981 1980 1979 1978 1977 1976 158 16 $ 14,102 $ 13,256 $ 11,720 $ 10,886 $ 9,822 $ 8,303 $ 6,633 $ 5,202 $ 4,294 * 923 925 970 978 834 702 521 424 316 211 6,709 5,840 5,665 5,532 5,253 4,675 3,857 3,134 , 2,455 2,018 2.0.19 2,041 1,983 1,180 1,169 1,105 1,037 961 862 778 1,635 ~~ 1,527 ~ 1,435 1,411 1,389 1,122 703 490 381 ,,Ue.} 1,908 1,840 1,547 1,312 1,144 1,096 883 721 569 311 276 230 244 232 205 190 137 95 97 2,353 1,632 1,610 1,303 1,080 939 906 746 626 472 14.6% 11.6% 12.1 % 11.1 % 9.9% 9.6% 10.9% 11.2% 12.0% 11.0% 1,098 $ 743 $ 706 $ 521 $ 420 $ 390 $ 398 $ 337 $ 291 $ 206 1,255 889 904 782 660 549 508 409 335 266 1,255 889 904 782 660 549 508 409 335 266 1.31 .91 .90 .78 .66 .55 .51 .42 .35 .28 1.31 .91 .90 .78 .66 .55 .51 .42 .35 .28 .50 .43 .36 .30 .25 .20 .16 .13 .10 .07 959 981 1,008 1,005 999 997 996 966 957 951 $ 347 $ 298 $ 566 $ 918 $ 1,019 $ 751 $ 629 $ 566 $ 280 $ 220 341 294 250 211 178 133 105 78 64 4,014 4,381 4,178 3,583 2,806 2,214 1,723 1,188 981 3,827 2,653 2,599 2,834 2,922 2,499 2,235 2,077 1,728 1,594 18,712 9,880 9,908 9,756 9,180 7,362 6,379 5,608 4,048 3,582 8,035 2,239 2,549 3,776 3,499 2,598 2,448 2,147 1,427 1,248 7,887 2,566 3,054 3,728 3,804 2,800 2,507 2,365 1,547 1,514 944 436 141 83 3 1 9 7 17 12 1.233 907 825 627 455 327 234 150 104 78 P' 4,093 4,034 3,663 ----- ___3,234 2,837 2,471 2,115 1,690 1,430 38.1 % 46.8% 40.5% 38.6% 37.9% 36.3% 30.6% 30.6% 27.9% 25.7% $ 4.96 $ 4.21 $ 4.03 $ 3.64 $ 3.22 $ 2.84 $ 2.48 $ 2.13 $ 1.76 $ 1.50 11'/s-9 103/s-73/4 9-63/4 8'/z-5'/E 67/8-5'/4 6'/9-35/s 4T/8-3~/s 43/4-3'/2 4-3'/4 4-2'/s 11 101/s 9 7'/z 6'/s 53/s 4'/z 43/a 37/s 3 8 11 10 9 9 9 8 10 11 13 955 971 1,000 1,007 1,003 998 996 994 959 952 "''}~~ 68,000 68,000 _ 72,000_ 72,000____ __ 72,000 65,000 60,000 53,000 51,000 31

Consolidated Balance Sheets (inmillionsofdollars) 4 I ff(ff I at December 31, 1990 1989 Assets Consumer products Cash and cash equivalents $ 146 $ 118 Receivables, net 4,101 2,956 Inventories: Leaf tobacco 2,458 2,202 Other raw materials 1,934 1,521 Finished product 2,761 7,153 2,028 5,751 Other current assets Total current assets 967 12,367 555 9,380 Property, plant and equipment, at cost: Land and land improvements 664 611 Buildings and building equipment 4,004 3,554 Machinery and equipment 8,480 7,305 Construction in progress 1,133 14,281 887 12,357 Less accumulated depreciation 4,677 9,604 3,900 8,457 Goodwill and other intangible assets (less accumulated amortization of $1,178 and $745) 19,037 15,682 Other assets Total consumer products assets 1,675 42,683 1,569 35,088 Financial services and real estate . .. Finance assets, net y 3,220 2,845 Real estate held for development and sale 418 383 Other assets Total financial services and real estate assets 248 3,886 212 3,440 -~ TOTAL ASSETS $46,569 $38,528 See notes to consolidated financial statements. 32

Philip Morris Companies Inc. and Subsidiaries 1990 1989 Liabilities Consumer products Short-term borrowings $ 1,034 $ 489 Current portion of long-term debt 863 752 Accounts payable 2,462 1,917 Accrued liabilities: Taxes, except income taxes ~ 851 596 Employment costs 832 805 Other 3,553 2,876 Income taxes 1,366 1,190 Dividends payable 399 318 Total current liabilities 11,360 8,943 Long-term debt 15,285 13,646 Deferred income taxes 1,316 897 Other liabilities 3,499 2,622 Total consumer products liabilities 31,460 26,108 Financial services and real estate Short-term borrowings 724 633 Long-term debt 836 905 Deferred income taxes 1,382 1,111 Other liabilities 220 200 Total financial services and real estate liabilities 3,162 2,849 Total liabilities 34,622 28,957 Contingencies (Note 13) Stockholders' Equity Common stock, par value $1.00 per share (935,320,439 shares issued) 935 935 ~ Earnings reinvested in the business 10,960 9,079 Currency translation adjustments 561 143 12,456 10,157 i Less cost of treasury stock (9,101,348 and 6,790,848 shares) 509 586 Total stockholders' equity 11,947 9,571 F TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $46,569 $38,528 2 0•1U ~- 33

t a ! i [f8' f i Consolidated Statements of Earnings (inmillionsofdollars,exceptpersharedata) for the years ended December 31, 1990 1989 1988 Operating revenues $51,169 $44,080 $31,273 Cost of sales 24,430 21,868 13,565 Excise taxes on products 6,846 5,748 5,8. ~ Gross profit 19,893 16,464 11,826 ~ Marketing, administration and research costs 11,499 9,290 7,304 ; Amortization of goodwill 448 385 125 Operating income 7,946 6,789 4,397 Interest and other debt expense, net 1,635 1,731 670 Earnings before income taxes and cumulative effect of accounting change 6,311 5,058 3,72" Provision for income taxes 2,771 2,112 1,663 Earnings before cumulative effect of accounting change 3,540 2,946 2,064 Cumulative effect of change in method of - _ --- accounting for income taxes 273 Net earnings $ 3,540 $ 2,946 $ 2,337 Per share data: Earnings before cumulative effect of accounting change $ 3.83 $ 3.18 $ 2.22 Cumulative effect of accounting change .29 Net earnings $ 3.83 $ 3.18 $ 2.51 See notes to consolidated financial statements. : , , .. _. .. . , . , : ..,. ,. . ... , ..,_:.. ~ - ' - - ' - ... . . :.... ... ..: ......:.. .. . . . .... "" - - --- -- - - -- t , ., :.. .r ,1r'y.. . ,... . _. , , -- - 34 t`~

Consolidated Statements of ,Stockholders' Equity (in millions of dollars, except per share data) Balances, January 1, 1988 Net earnings -ise of stock options/units ,ash dividends declared $1.01 per share Currency translation adjustments (including income tax provisions of $26) Stock purchased Earnings Currency Total Additional Reinvested Translation Cost of Stock- Common Paid-in in the Adjust- Treasury holders' Stock Capital Business ments Stock Equity $240 Ra lances, December3l, 1988 240 irnings Exercise of stock options/units and issuance of other stock awards prior to stock split Cash dividends declared $1.25 per share Four-for-one stock split , of stock options/units ot tu issuance of other stock awards after stock split Currency translation adjustments (net of income tax NF•t -,rnings E... of stock options/units and issuance of other stock " awards Cash dividends declared $1.55 per share _ *k:urrency translation adjustments r ..: ~ (inrluding income tax Z 5 of $17) ~tock purchased $935 $272 $ 6,437 $,146 $(272) $ 6,823 2,337 2,337 (20) 48 28 (941) * (941) (29) (29) 252 7,833 117 . (539) (763) (539) , 7,679 2,946 2,946 (35) 87 52 (1,159) . ,.m, (1,159) (217) (478) (63) . . 90 ..., 27 9,0.79 26 .~1,4.~ .. (586) 26 9,571 3,540 3,540 .,-. 298 80 Ai~m _(1,432) 418 (221) (221) $ - (9) $10,960 $561 $(509) (9) $11,947 I no es to consohdated St-tAme 695 provisions of $4) Balances, December 31, 1989 935 2~4 3 165 :)7 f' 35

1990 1989 1988 Cash Provided By (Used In) Financing Activities Consumer products Net issuance (repayment) of short-term borrowings $ (994) $(2,990) $ 8,761 Long-term debt proceeds 3,562 2,534 1,212 Long-term debt repaid (1,776) (1,014) (881) Purchase of treasury stock (221) (539) Dividends paid (1,351) (1,101) (895) Issuance of shares 80 79 28 Other (85) Financial services and real estate Net issuance (repayment) of short-term borrowings 91 60 (20) Long-term debt proceeds 201 Long-term debt repaid Net cash provided by (used in) financing activities (182) (791) (20) (2,452) (32) 7,750 Effect of exchange rate changes on cash and cash equivalents Increase (decrease) in cash and cash equivalents 100 28 (19) (50) (44) 78 Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 118 $ 146 168 $ 118 90 $ 168 Cash paid: Interest-Consumer products -Financial services and real estate Income taxes $ 1,511 $ 100 $ 2,027 $ 1,711 $ 90 $ 1,303 $ 589 $ 88 $ 1,088 . . , 37

d H I A a iF f . . ... . ... .. ~.,, _ ... . . ,.. F. . .. ., .. . , . .... . Consolidated Statements of Cash Fiows (inmil>>onsofdollar5) ~ . . . , . , p,,, ,,.,,-vtLm. . 4^ for the years ended December 31, 1990 1989 1988 Cash Provided By (Used In) Operating Activities . .. .... . Net earnings-Consumer products : 3,400 $ 2,817 $ 2,173 -Financial services and real estate Net eatnin s g . . ....u.. 140 _..,.~ 540 ~ . . .. ...:. 129 2,946~ ...,.. . 164 ' ' 2,337 Adjustments to reconcile net earnings to operating cash flows: - . Consumer products .. Depreciation and amortization ~1,367 __ 1,194 779 Deferred income tax provision 108 ~. 154 (43) Restructuring charges 179 348 Gain on sale of investment in Rothmans International p.l.c. _ -- --- ~.__ __- -- (455) - Gains on sales of bustpesses Cumulative effect of change in method of accounting for income taxes (232) Cash effects of change s, net of the effects from acquired companies: Recetvables ~,. _ . , net - _ (249) (718) 601 Inventories (699) (431) 2 -Accounts payable 100 171 408 . . .- ... „ , „, ~~ Other working capital items .,., r . .r @...... , . .,~. ~ ~ .. ~.,~.., . , 730 ae~ m M 203... . " . . 55 . 6 Other , . . .. ... . ... .. .. ... . ....~ .... ..... ...... . 378 .... .. , . 201 ._~. _. 9 Financial services and real estate Deferred income tax provision 277 217 178 Cumulative effect of change in method of accounting for income taxes (41) Decrease in real estate receivables 32 22 13 Decrease (increase) in real estate held for development and sale (41) (7) 108 Other Net cash provided by operating activities (54) „ 5,385 (4) 3,672 65 5,088 M4..M " .. r .ar , -„[51rr. r Cash Provideduu~m By (Used In) Investing Activiti ~ es ^ _- Consumer products Purchase of Jacobs Suchard AG, net of acquired cash of $825 (3,116) Purchase of Kraft, Inc., net of acquired cash of $866 in 1988 (11) (388) (11,363) Purchase of other businesses, net of acquired cash (160) (400) Proceeds from sales of investments and businesses 159 992 44 Capital expenditures (1,355) (1,246) (1,024) Other 246 82 52 Financial services and real estate Investments in finance assets (523) (481) (495) Proceeds from other finance assets 111 190 69 Other Net cash used in investing activities Net cash provided by (used in) operating and investing activities See notes to consolidated financial statements. 36 (17) 1 (4,666) (1,251) (12,716) $ 719 $ 2,421 $ (7,628) 2a4j

Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies: Basis of presentation: The consolidated financial statements include all significant subsidiaries: ; Balance sheet accounts are segregated by two broad types of businesses. Consumer products assets and liabilities are classi- fied as either current or non-current, whereas the accounts of financial services and real estate are unclassified, in accordance with respective industry practices. Certain prior years' amounts have been reclassified to conform with the current year's presentation. Cash and cash equivalents: Cash equivalents include demand deposits with banks and all highly liquid investments with original maturities of three months or less. Inventories: Inventories are stated at the lower of cost or market. The last-in, first-out ("LIFO") method is used to cost substantially all domes- tic inventories. The cost of other inventories is determined by the tic average cost or first-in, first-out methods. It is a generally recog- nized industry practice to classify the total amount of leaf tobacco inventory as a current asset although part of such inventory, because of the duration of the aging process, ordinarily would not be utilized within one year. Income taxes: Effective January 1, 1988, the company prospectively adopted the method of accounting for income taxes prescribed by Statement of Financial Accounting Standards No. ("SFAS") 96, "Accounting for Income Taxes:" See Note 10. Depreciation and arnortization: Depreciation is recorded by the straight-line method. Substan- tially all goodwill and other intangible assets are amortized by the straight-line method, principally over 40 years. Note 2. Acquisitions: On August 16,1990, the company's wholly-owned subsidiary, Had the acquisition occurred at the beginning of 1990 and 1989, Kraft General Foods, Inc. purchased Colima Holding AG, the prin- pro forma operating revenues, net earnings and earnings per cipal asset of which was a controlling interest in Jacobs Suchard share would have been approximately $52.7 billion, $3.4 billion AG, a Swiss-based coffee and confectionery company. In Septem- and $3.74, respectively, for the year ended December 31, 1990 and ber 1990, a tender offer was completed for substantially all of the $47.8 billion, $2.7 billion and $2.89, respectively, for the year remaining publicly held interests of Jacobs Suchard. KGF retained ended December 31, 1989. certain coffee and confectionery operations of Jacobs Suchard On December 7,1988, Kraft, Inc. became a wholly-owned and sold to the former owner of Colima certain assets which would not fully integrate into the KGF structure, including the industrial chocolate business, the Canadian coffee business, por- tions of the U.S. confectionery business and interests in three foreign banks. The acquisition has been accounted for as a pur- chase and, accordingly, operating results of Jacobs Suchard have been included in the consolidated operating results of the com- pany since acquisition. The aggregate purchase price, net of amounts received for businesses sold, was $4.1 billion which was financed with the company's credit facilities, internally generated funds and a SFr 250 million note payable. The estimated fair value of assets acquired and liabilities assumed totaled $3.0 billion and $2.4 billion'respectively. The excess of the purchase price over the estimated fair value of the net assets purchased was approximately $3.5 billion and such excess is being amortized over 40 years by the straight-line method. The allocation of the purchase price is based upon pre- liminary estimates and assumptions and is subject to revision once appraisals, evaluations and other studies of the fair value of the acquired assets and liabilities have been completed. subsidiary of the company. The purchase of outstanding shares, retirement of employee stock options and other related payments totaled approximately $12.9 billion. The acquisition has been accounted for as a purchase and, accordingly, operating results of Kraft have been included in the consolidated operating results of the company since acquisition. The purchase price exceeded the fair value of the net assets acquired by $12.2 billion and such excess is being amortized over 40 years by the straight-line method. The fair value of tangible assets acquired totaled $5.5 billion and long-term debt and other liabilities assumed totaled $4.8 billion. Had the acquisition of Kraft occurred at the beginning of 1988, pro forma operating revenues, net earnings and earnings per share would have been approximately $43.0 bil- lion, $1.5 billion and $1.63, respectively. Pro forma results are not necessarily indicative of what actually would have occurred if the acquisition had been consummated at the beginning of each year, nor are they necessarily indicative of future consolidated results. 38

Note 3. Restructurings and Divestiture: In 1989 General Foods Corporation was combined with Kraft to form KGF. The company charged $179 million against pretax income which was primarily for costs of this merger. In addition, the company sold its equity investment in Rothmans International p.l.c. for £610 million 10%496 notes maturing in 1994, generating a pretax gain of $455 million. These notes were subsequently sold with recourse for approximately $850 million. The net impact of these items was an increase in earnings before income taxes, net earnings and earnings per share of $276 million, $152 million and $.16, respectively. In 1988 the company provided for restructuring costs at General Foods. As a result of this restructuring, certain facilities were combined and overhead costs were reduced to achieve operating efficiencies. This restructuring reduced earnings before income taxes, net earnings and earnings per share by $348 million, $212 million and $.23, respectively. r Note 4. Inventories: The cost of approximately 56% of inventories in 1990 and 60% of and $770 million lower than the current cost of inventories at inventories in 1989 were determined using the LIFO method. The December 31, 1990 and 1989, respectively. stated LIFO values of inventories were approximately $880 million Note 5. Short-Term Borrowings and Borrowing Arrangements: At December 31, the company's short-term borrowings and related average interest rates consisted of the following: 1990 1989 (in millions) Amount Outstanding Average Year-End Rate Amount Outstanding Average Year-End Rate Consumer products: Bank loans $ 1,661 9.2% $ 435 11.6% Commercial paper 4,576 8.4% 6,106 . 8.6% Amount reclassified as long-term debt (5,203) (6,052) $ 1,034 $ 489 Financial services and real estate: Commercial paper $ 724 8.2% $ 633 8.5% The company maintains credit facilities with a number of lend- ing institutions, amounting to approximately $17.2 billion at December 31, 1990. Approximately $15.5 billion of these facilities were unused at December 31, 1990. These facilities are used for acquisitions and to support the company's commercial paper bor- rowings and are available for other corporate purposes. The company's credit facilities include a revolving bank credit agreement expiring in 1993 for $12.0 billion which enables the company to refinance short-term debt on a long-term basis. Accordingly, short-term borrowings intended to be refinanced have been reclassified as long-term debt. Certain of these facilities limit payment of cash dividends and the purchase, redemption or retirement of capital shares and/or require maintenance of a fixed charges coverage ratio. At Decem- ber 31, 1990, approximately $2.0 billion of earnings reinvested in the business was free of such restrictions. 39

Noto 6. Lone-7hrm Dobte _„_ At Decembef$i, theornpar~'s long-term debt consisted of the followf ng: m ~, - - , - Consumer products: Short-term borrowings, reclassified Notes, 7% to 13.8% (average effective rate 9.22%), due through 2000 Debentures, 3% to 10.75% (average effective rate 10.1596), $1.7 billion face amount, due through 2017 Foreign currency obligations: Swiss franc, 33/496 to 89/s96, due through 2005 Deutsche mark, 2~1496 to 6%, due through 1997 Japanese yen, 53A96 and 6'96, due 1992 and 1991 Other Other Less current portion of long-term debt, net of $1.0 billion reclassified as long-tenn debtin 1989 ; 5,203 7,518 $ 6,052 5,497 1,354 - 1,211 828 491 435 304 249 239 240 272 321. 16,148 332 14,398 (863) (752) =15,285 Financial services and real estate: Notes, 9.25% to 12.25% (average rate 9.84%), due through 1993 -- 125 Zero coupon bonds,13.3g5 effective rate, $200 million face amount, due 1994 130 Foreign currency obligations: Swiss franc, 4~/496 and 49/496, due 1993 and 1996 285 Sterling,ll ~/e9b, due 1995 149 Other 147 836 The company has entered into currency and related interest rate swap agreements with third parties to manage exposure to inter- est rate and currency movement on certain obligations. As a result, the effective interest rates and currency denominations may differ from those set forth in this note. The aggregate notional principal amount of these swap agreements outstanding at December 31, 1990 was $1.5 billion. The aggregate maturities of the notional amounts of these arrangements are as follows (in mil- lions): 1991-$154; 1992-$729; 1993-$408 and1996-$196. Market value gains and losses on these swap agreements are recognized and offset the related foreign exchange gains and losses on the foreign currency denominated debt. In addition, at December 31, 1990, the company had interest rate swap agreements with an aggregate notional principal amount of $2.4 billion. These arrangements, with a weighted aver- age maturity of 1.2 years, provided a weighted average interest rate of 9.0%. The differential to be paid or received on these swap agreements is included in interest and other debt expense, net as interest rates change over the lives of the respective agreements. 40 $13,646 $ 200 115 230 120 240 905 The company is exposed to credit loss in the event of non- performance by the other parties to the swap agreements. However, the company does not anticipate nonperformance by the counterparties. Aggregate maturities of long-term debt, excluding short-term borrowings reclassified as long-term debt, are as follows: (in millions) Consumer products Financial services and real estate 1991 $ 863 $ 13 1992 1,628 12 1993 975 405 1994 951 200 1995 1,480 149 1996-2000 - 4,186 127 2001-2005 584 then outstanding mature. The revolving credit facility under which the short-term debt was reclassified as long-term debt expires in 1993 and any amounts

Note 7. Capital Stock: - Effective September 15,1989, outstanding shares of common stock were split four-for-one. All references tn the financial nancial state- ments to weighted average numbers of shares and related prices, Balances, January 1,1988 _ __ Exercise of stock options/units Purchased Balances, December 31,1988 Exercise of stock options/units and issuance of other stock awards prior to split Four-for-one stock split ' ; Exercise of stock options/units and issuance of other stock awards after split == Balances, December 31,1989 Exercise of stock options/units and issuance of other stock awards At December 31, 1990, 31,369,642 shares of common stock were reserved for stock options, stock units and other stock awards and 10,000,000 shares of Serial Preferred Stock, $1.00 par value, were authorized, none of which have been issued. _. In 1989 the company distributed rights for each outstanding share of its common stock. The rights are not exercisable and trade automatically with the common stock until ten days after public announcement that any person has acquired 10% or more of the company's common stock or ten business days after any person announces a tender offer for 10% or more of the com- pany's common stock. e _ - When exercisable, unless a person has acquired 10% or more of the company's shares, each right entitles the holder to buy from the company one share of common stock for the exercise price (currently $150). If the company is thereafter involved in a business combination, the rights will entitle holders to buy Note a St k PIana . , _ .. . .:.... . , w. .~ ._ .,, . . oc per share amounts and stock plan data have been restated to reflect the split. Shares of authorized common stock are 4 billion; issued, treasury and outstanding were as follows: Issued Treasury Outstanding 239,618,948 (2,992,463) 236,626,485 661,760 661,760 ~ 239,618,948 (6,257,300) (8,588,003) (6,257,300) 231,030,945 869,552 869,552 695,701,491 695,701,491 927,603 .,. 927,603 935,320,439 (6,790,848) 928,529,591 3,384,700 3,384,700 (5,695,200) 935,320,439 ,a (9,101,348) y (5,695,200) 926,219,091 shares of the acquiring company having a value of twice the exer- cise price. If any person acquires 10% or more of the company's common stock, the rights will entitle holders (other than such person) to buy shares of the company's common stock having a market value of twice the exercise price. Following the acquisi- tion by any person of more than 10% but less than 50% of the company's shares, the company may exchange one share of common stock for each right (other than rights held by such person). The company may redeem the rights for $.01 per right before any person acquires 10% or more of the company's common stock. The rights expire on October 25, 1999 unless earlier redeemed or exchanged. At December 31, 1990, 963,401,420 shares of common stock were reserved for issuance upon exer- cise of the rights. ... ... ..,. ~ . Under the 1987 Philip Morris Long Term Incentive Plan, the com- market prices on dates of grant or to receive the appreciation pany can grant to eligible employees stock options, stock value (the excess of the market price at the date of exercise over appreciation rights, restricted stock, deferred stock, stock pur- the market price at the date of grant) in the form of stock or stock chase rights and long-term performance awards. Such grants and cash. Appreciation value may be received with respect to the may be for cash and up to 32 million shares of common stock. equivalent of 50% of the units granted. .:• ;, °-; Under previous oPh'onplans-.., : eligible e,mployees were granted At December 31, 1990 and 1989,'options and units ~+ere exer- options to purchase comrriort stock of the company at market cisable for 16,177, i SO shares and 12,5600164 shares, respec- prices on dates of grant: Under one such plan; units were granted = tively. Shares available to be granted at December 31,' 1990 and which permit the holder to purchase";shares of common stock at 1989 were 9,021,081 and 15,085,712, respectively. 2 0 4S 165 -1-77 41 i

Notes (continued) -- Nots 8. Stock P1ans (continued): ._ Optionslunifs acttvrt~was as follows for the years ended December 31, - _ _- - - _- Y ~ ~ - 1990 -- Balance, heginnlitg ofyear; Granted_` Exercised Cancelled Balance, end of year Range of exercise prices at year-end Grant prices 19,942,060 6,200,846 (3,619,610) (174,735) ~-~ 1989 1988 ," 16,817,528 15,105,184 „- 7,226,076 4,973,652 (3,821,384) (3,017,284) (280,160) (244,024) 19,942,060 ~' -16,817,528- 56.43 $22.38 ~ $4.07-$22-.38-. - - $35.42 and $39.88 $20.92 an -$20.99 22,348,561 E6.43-;35.42 0 $46.94 and $47.00 In 1990,1989 and 1988, the company granted 75,000 shares, _ 592,000 shares and 33,332 shares, respectively, of restricted stock to officers and key employees, giving them in most instances all of the rights of stockholders, except that they may not sell, assign, Note 9. Earnings per Share: Earnings per common share have been calculated on the weighted average number of shares_of common stock outstanding for each pledge or otherwise encumber such shares, and such shares are subject to forfeiture in certain events. At December 31, 1990, restrictions on 616,334 shares remain, net of forfeitures, and will lapse in varying amounts through 1996. year, which was 925,190,833, 926,520,510 and 931,948,304 for 1990,1989 and 1988, respectively. Note 10. Pretax Earnings and Provision for Income Taxes: Effective January 1, 1988, the company prospectively adopted the provisions of SFAS 96 and changed its method of computing deferred income taxes from the deferred method used in prior years. The adoption of SFAS 96 increased 1988 net earnings and earnings per share by $213 million and $.23, respectively. The cumulative effects as of January 1, 1988 of adopting SFAS 96 were decreases in deferred income taxes of $736 million and goodwill of $463 million, and an increase in 1988 net earnings and (in millions). - Pretax earnings: United States Outside United States Total pretax earnings Provision for income taxes: United States federal: Current Deferred State and local - --------- ----- Total United States Outside United States: Current Deferred - Total outside United States Total provision for income taxes earnings per share of $273 million and $.29, respectively. Pur- suant to the provisions of SFAS 96, such cumulative effects at adoption included $105 million of excess deferred tax benefits, which have subsequently reversed. Application of SFAS 96 during 1988 decreased earnings before cumulative effect of accounting change by $60 million ($.06 per share), resulting primarily from the reversal of the aforementioned excess deferred tax benefits recorded upon adoption of SFAS 96. 1990 1989 1988 $4,743 $4,080 $3,167 1,568 $6,311 978 $5,058 560 $3,727 $1,481 $1,089 $ 935 350 1,831 323 1,412 203 1,138 332 2,163 282 1,694 191 1,329 573 370 402 35 608 $2,771 48 418 $2,112 (68) 334 $1,663 42 2048IMJ7g

At December 31,1990 applicable United States federat income abroad. If these amounts were not considered permanently rein- taxes and foreign withholding taxes have not been prnvided on vested, additional deferred taxes of approximately $130 million approximately $1.8 billion of accumulated eamings of foreign would have been provided. subsidiaries that are expected to be permanent.ly reinvested The effective income tax rate on pretax earnings differed from the U.S. federal statutory rate for the following reasons: -------. . 1990 1989 1988 (in millions) Amount % Amount % Amount % Provision computed at U.S. federal statutory rate ,= $2,146 34.0% $1,720 34.0% $1,267 34.0% Increases (decreases) resulting from: ~., State and local income taxes, net of ' federaltax benefit 215 3.4 191 3.8 126 3.4 Repatriation of foreign earnings = 62 1.0 54 1.1 77 2.1 Excess deferred tax benefits - 38 0.6 (7) (0.1) 74 2.0 Rate differences-foreign operations 66 1.1 28 0.5 48 1.3 Goodwill amortization 146 2.3 128 2.5 43 1.1 Other 98 1.5 (2) 28 0.7 Provision for income taxes M~ E2,771 43.9% $2,112 41.8% $1,663 - 44.6% Deferred income tax assets (liabilities) included in the consolidated balance sheets were as follows: Consumer products Financial services and real estate December 31, December ber 31, (in millions) 1990 1989 1990 1989 Other current assets 619 $ 287 = - $ - Income taxes : = (4) (11) Deferred income taxes (1,316) (897) (1,382) . . (1,111) $ (701)...._._ $(621) ;(1'38 2) $(1,111) The major types of temporary differences that give rise to de- the book and tax bases of property, plant and equipment, invest- ferred income tax assets and liabilities are differences between ments in finance leases and accrued liabilities. -, 43

~~,- -- , _ - Notes (continued) Tobacco, food, beer, and financial services and real estate are the r..~, . The company's ° .y _ g z ~ _ _~rations ~ -* clonsolidate~~ r atiats-ts ottPts de the p -p nnct ally in the tobacco and food businessest are organi d into , S g P g by g Europe most g In erse$ment tran actions are not rePo rted separately since they nt. are not material. For purposes of segment reporting, operating profit is operat- See Note 2 regardmg tht acluisitio~n.,.~ of Kraft and certain opera- ttons of Jat~bs Sucttard and Nv6e ~ str~rings ~~ Y ~S~i ~ nS ~ ~u~st~nt m~R~ Substantial~1 goodwilm~ ~$M Cf;a#tnbut- ` arllortt~att~ g -, ~ Ident fiabloe a sets a~refthose assets applicable to the respective industry segments. Reportable segment data reconciled to the consolidated financial statements were as follows _~ ing income exclusive of certain unallocated corporate expenses. ~ Data by Segment for the years ended December 31, (in millions) 1990 1989 '`'` LL` 1988 '' ., Operating revenues: ° ... ,. -~ .~, :.: - -- - 16 576 Tobacco =21,090 - $17,849 n .. , $ Food - 26,085 : . <. . . 22,373 .° 10,898 . _ . Beer 3.534 3,342_.: 3,177 . Financial services and real estate ._.=,_460~._. ,7 ~; 622 _ Tobacco Food Beer Financial services and real estate Total operating profit Unallocated corporate expenses Operating income Identifiable assets: Tobacco Food Beer . Financial services and real estate Corporate assets Total assets Depreciation expense: Tobacco Food Beer Financial services and real estate Capital additions: Tobacco Food Beer 44 $ 5,596 _ - $ 5,063 2,205 1,580 285 226 196~_-- 172 8,282 ' 7,041 - 336 252 : 7,946} - $ 6,789 $ 7,644 $ 6,780 $ 3,846 392 190 ~ 162 4,590 - 193 ~ $ . 4,397_ $.6,001 _ 32,336 - 25,983 24,870 1,612 1,556 1,623 3,886 3,440 3,169 45,478 37,759 35,663 1,091 76 .._,.~.....__. ~- -- 1,297. :46,569~~ $38,5 8 ,960 $ 282 246 237 438 356 221 141 137 136 0 2 4' $ 324 $ 422. $ . 467 860 733 466 _ 99

Data by Geographic Region for the years ended December 31, Cn millions) : . .. Operating revenues: United States-domestic Europe Other Total operating revenues Operating profit: United States Europe - Other ~ Total operating profit _ Unallocated corporate exj ~ Operating income Identifiable assets ' United States - - -- Note 12. Retirement Benefit Plans: Pension Plans The company adopted SFAS 87 for its U.S. pension plans in 1986 and for its non-U.S. plans in 1989. = =. The company and its subsidiaries sponsor noncontributory defined benefit pension plans covering substantially all U.S. employees. The plans provide retirement benefits for salaried employees based generally on years of service and compensation during the last years of employment. Retirement benefits for hourly employees generally are a flat dollar amount for each year of service. The company funds these plans in amounts consistent with the funding requirements of federal law and regulations. U.S. Plans - Net pension cost consisted of the following components: (in millions) t._-. Service cost-benefits earned during the year .; -Interest cost on projected benefit obligation _ ~-- ;-. ~Return on.assets- ±ctuai , ~ 77 re e ° r dgain_(loss) LL f -..; . _,r. Amartizattof tiet gain upon adc~' tion of SFAS 87 ~~ ~ Net pensin cost 1990 1989 1988 $33,086 $30,890 : $20,617 2,928 2~288 . 1,863 12,474 8,160 - -- -- 7,078 ~,. 2,681 :51,169 742 $44,080 _ m1,715 ^ ~$31~273 $ 6,715 , S 6,061 $ 3,975 1,173 692 449 394~~ 8,282 7,041 W 166 4,590 ~ 336 ~~~. y ~ 252 ~ 193 i 7,946 ~ 6 789 _$ 4,397 $32,968 $32,045 - $30,638 !~,:. _.. . Pension coverage for employees of the company's non-U.S. sub- sidiaries is provided, to the extent deemed appropriate, through separate plans, many of which are governed by local statutory requirements. The plans provide pension benefits that are based primarily on years of service and employees' salaries near retire- ment. The company provides for obligations under such plans by depositing funds with trustees or purchasing insurance policies. The company records liabilities for unfunded foreign plans. - = ~-- , - • 1990 1989 ..,; 1988 45

Note.12. Retirement Beneflt Plans (oontinusd).- The funded status of tl S. plans at December 31 was as fol (in millions A ctuarial present value of accumulated benefit obllgation-vested -nonvested Benefits attributable to projected salaries __ ,..,.... .. . Projected benefit obligatiori" ~ Plan assets at fair value :, Excess of assets ovei'prolected benefit )bligation Unamortized net gain upon adoption of SFAS 87 Unrecognized prior service cost Unrecognized net (gain)- loss from experience differences Prepaid pension, cost _' The projected benefit obligation at December 31,1990,1989 and 1988 was determined using assumed discount rates of 8%, 8% and 81/246, respectively, and assumed compensation increases of 6% to 7%, 6% to 7% and 6% to 7%z%, respectively. The assumed long-term rate of return on plan assets was 9% at December 31, 1990,1989 and 1988. Plan assets consist principally of common stock and fixed income securities. 16 1990 898 WNW "~' 4,076 4,684 608 (289) 167 1989. The company and certain of its subsidiaries sponsor deferre profit-sharing plans covering certain salaried, nonunion and union employees. Contributions and costs are generally deter- mined as a percentage of consolidated pretax earnings, as defined by the plans. Certain other subsidiaries of the company also maintain defined contribution plans. Amounts charged to expense for defined contribution plans totaled $209 million, $180 million and $136 million in 1990,1989 and 1988, respectively. Non-U.S Plans Net pension cost in 1990 and 1989 consisted of the following components: (in millions) Service cost-benefits earned during the year Interest cost on projected benefit obligation Return on assets-actual -deferred gain (toss) Amortization of net gain upon adoption of SFAS 87 Net pension cost 1989 $33 63 (92) The effect of the adoption of SFAS 87 for non-U.S. plans was not significant. Pension cost for 1988 was $35 million. r .

The funded status of the non-U.S. plans at December 31 was as follows: v A%jets Exceed Accum.tlated Benefits Accumulated Benefits Exceed Assets (in millions) 19" 1989 1990 1989 Actuarial present value of accumulated benefit obligation-vested $ 7SS $452 $460 $ 209 -nonvested :'s 8N 34 486 44 504 20 229 Benefits attributable to projected salaries Projected benefit obligation 2t0 1,116 194 680 106 610 53 282 Plan assets at fair value Plan assets in excess of (less than) projected benefit obligation 1,1r4 5S 836 156 48 (562) 25 (257) Unamortized net (gain) loss upon adoption of SFAS 87 (2i) (34) 8 7 Unrecognized net (gain) loss from experience differences Prepaid (accrued) pension cost The assumptions used in 1990 and 1989 were as follows: 3$ $ :'0 (60) $ 62 27 $(527) 4 $(246) 1990 1989 Discount rates 6.0% to 11.0% 4.5% to 10.0% Compensation increases 3.0°r6 to 8.096 3.0% to 9.5% Long-term rates of return on plan assets 5.0% to 11.096 5.0% to 11.096 Plan assets consist primarily of common stock and fixed income securities. Other Postretirement Benefits The company and its domestic subsidiaries provide certain health care and other benefits to substantially all retired employees. The costs of such benefits are expensed generally as incurred, although liabilities for vested benefits were recorded in connec- tion with the acquisitions of General Foods and Kraft. Amounts charged to expense related to such benefits have not been significant. Statement of Financial Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits Other Than PenskVrs," was issued in 1990 and requires companies to accrue the cost of such benefits during the employee's period of service. The startdard must be adopted no later than 1993 for domestic plans and 1995 for foreign plans. Upon adoption, companies may recopize the additional liability either immediately or prospec- tivelv over not more than twenty years. At present, the company plans to adopt SFAS 106 prospectively in 1993. The company cur- rently estimates that adoption of the standard will increase annual expense, the amount of which has yet to be determined. Note 13. Contingencies: , There is litigation 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 Incorporated, a wholly-owned subsidiary of the company, is a defendant in some of these actions. It is not possible to pre- dict 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 PM Inc. An adverse development in pending litigation could encourage the commencement of addi- tional similar litigation. All such actions are and will be vigor- ousls• defended. However, management does not believe that this litigation will have a material adverse effect upon the financial condition of the company. The company is contingently liable for payment of 1~610 million notes maturing in 1994, sold with recourse in 1989. 2045IG55C3 47

(in mill~ons~ ~ Interest and other debt expense; net: Interest expense Interest income Interest expense of financial services and real estate operations-included in cost of sales AtDecember3l: Accrue marketin costs _, . g -, Note 15. Financial Services and Real Estate Operations: Philip Morris Capital Corporation is a wholly-owned subsidiary of the company. PMCC invests in third-party leveraged and direct finance leases and securities of third parties and engages in vari- ous financing activities for customers and suppliers of the com- pany's subsidiaries. Additionally, PMCC is engaged through its wholly-owned subsidiary, Mission Viejo Company, in land plan- Condensed balance sheet data at December 31 follows: (in millions) r Assets Finance leases Other investments Less unearned income and allowances Finance assets, net Real estate held for development and sale Goodwill, net of accumulated amortization Other assets Total assets Liabilities and stockholder's equity Short-term borrowings Long-term debt Deferred income taxes Other liabilities Stockholder's equity Total liabilities and stockholders equity 48 $1,746 $1,789" $739 _ (111) . ., .. . (58Y (69) . i1,G35_ $1,731 $670 93 91 $ 98 =1,398,, ning, development and sales. Pursuant to a support agreement, the company has agreed to retain ownership of 100% of the voting stock of PMCC and make periodic payments to PMCC to the extent necessary to ensure that earnings available for fixed charges equal at least 1.25 times its fixed charges. _ 1990 1989 -=- $3,526 $2,723 1,208--- 1,166 4,734- 3,889 1,449 1,000 3,285 2,889 418 383 39 39 209 220 $3,951 $3,531 : 724 $ 633 836 905 1,382 1,111 225 200 784 682 =3,95 $3,531 2~~~~1G55~~

The amounts shown abo`ve include recbles acrd payables with other subsidiaries of the company as follows: (in millions) Finance assets, net Other assets - - ~ ~~. Other liabilities - 1990 1989 - $65 $44 - $47 $ 5 These amounts were eliminated in the company's consolidated balance sheets. ' Finance leases consist of investments i0 ttansportation, telecom- Other investments consist primarily of preferred stock and real munications, commercial equipment'aruZ facilities. Rentals estate and commercial receivables. receivable for leveraged leases represerit unpaid rentals less prin- cipal and interest on third-parfy nonrecburse debt. :- Condensed income statement data follows for the years ended December 31, (in millions) Revenues: Financial services Real estate Total revenues *~ Expenses: -~x.. Financial services Real estate Total exDens~es - „ r~ . Earnings before income taxes and cu ' mulative effect of accounting change Provision for income taxes A-C-:2_ L_ Earnings before cumulative effect bf accounting change (in millions, except per share data) Net eami__ s Dividends declare et price =high -iow + 1990 1989 1988 $223 $186 $168 '. "243 466 _333-_ 519 456 624 113 100 107 1990 Quarters lat 2nd $11,388 $12,740 ' $ 4,345 i 5,113 _775 _ --__ _848 ; . 43'/4 . 3 47% 6 $ 39 a 46 37 129 123 3rd 4th 937 #_'430 ~_ $ .4ao $ 50Tifi ' = i 52 0

Notes .. .. ..i, ..., .:...~ .-~~~ ,y. ,~,~..t . . .. . .~„~ ..., ..,, ,.. ~ h;~, =~~~ ~.: Note 16 Quarterfy Financialbata (Unaudited) (ioontinued)3 , (in millions; except per share data)'` _.~..~:.~., ..~ ~.~ g.. x 1st, , , " $11,420 _- $11,086 $10,964 1j4,356--4- E 4,181~~ $-4,073LL- _ 745 $ ` 748 ,, .344 v Y 451h See Note 2 regarding the_ acquisition of certain operations of Jacobs Suchard in the third quarter of 1990. See Note 3 regarding restructuring charges primarily in the fourth quarter of 1989 and the sale of the company's investment in Rothmans in the fourth quarter of 1989. The principal stock exchange on which the company's common stock (par value $1 per share) is listed is the New York Stock Exchange. At January 31,1991 there were approximately 99,200 holders of record of the company's common stock. 4 SQ

To the Board of Directors and Stockholders Philip Morris Companies Inc.: We have audited the accompan_ying consolldated balance sheets of Philip Morris Companies Inc.Rand subsidiaries ais of December 31,1990 and 1989, and the related consolidated statements of earnings, stockholders' equity and cash flaws Eor each of the three years in the period ended December $1,1990. These financial statements are the responsibility of the compan}`s management. Our responsibility is to express an opinion on these financial statements based on our audits. - We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about -- --, - whether the financial staterrients are free pf material misstate- ment. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial state- ments. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above pre- sent fairly, in all material respects, the consolidated financial position of Philip Morris Companies Inc. and subsidiaries at December 31, 1990 and 1989, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1990, iri conformity with generally accepted accounting principles. As discussed in Notes I and 10 to the consolidated financial statements, the company adopted in 1988 the method of account- ing for income taxes prescribed by Statement of Financial Accounting Standards No 96 _ New York, New York January 28,1991 Company Report on - - Financial Statements- The consolidated financial statements and all related financial Information herein are the responsibility of the company. The financial statements, which include amounts based on judgments, have been prepared in accordance with generally accepted accounting principles. Other financial information in the annual report is consistent with that in the financial statements. The company maintains a system of internal controls which it believes provides reasonable assurance that transactions are executed in accordance with management's authorization and properly recorded, that assets are safeguarded, and that account- ability for assets is maintained. The system of internal controls is characterized by a control-oriented environment within the com- pany which includes written policies and procedures, careful selection and training of personnel, and audits by a professional staff of internal auditors. Coopers & Lybrand, independent accountants, have audited and reported on the company's consolidated financial statements. Their audits were performed in accordance with generally accepted auditing standards. The Audit Committee of the Board of Directors, composed of seven non-management directors, meets periodically with Coopers & Lybrand, the company's internal auditors and manage- ment representatives to review internal accounting control, auditing and financial reporting matters. Both Coopers & Lybrand and the internal auditors have unrestricted access to the Audit Committee and may meet with it without management representa- tives being present. - 51

Dr. Eilubeth E. Bailey':~ ? Professor of Industrial Administration, Camegie-MellonUniversity, and Visiting Scholar, Yale School of Organization and Management MurrayH.Bri~ne Sen ior Vice Pres ident and General Counsel, . . Alfred Brittain IHgs.i Former Chairmart of the Board of Banher$ltast NewYork Corporation and Bankera'hust Company, NewYasrk,NY Dr. Harold Brown2•4•s•B•7 Chairman of the Foreign Policy institute, School of Advanced International Studies, The Johns Hopkins University, Washington, DC Dr. Josf Antonio Cordido-Freytes+.5 Member of Betancourt, Cordido and Associates, Caracas, Venezuela, Attorneys, and President of C.A. Tabacalera Nacional William H. Donatdson«~-5•7 Chairman and Chief Executive Offic.er, New York Stock Fxchange, Inc., NewYork, NY Paut W. DougtaslA Chairman and Chief Executive Officer of The Pittston Company, Greenwich, CT Jane Evans4.5 Presidentand Chief Executive Officer Interpacific Retail Group, San Francisco, CA Robert E. R. Huntleyzs.4 Counsel, Hunton & Williams, Richmond, VA Hamisb Matwellr-2 Chairman of the Board and Chief Executive C+fficer Dr. EBzabetb J. McC.ormack*,5.6 Advisor to members of the Rockefeller Famity, NewYork, NY Michaei A. Mtlen=A Vice Chairman of the Board and Chairman and Chief Executive Officer of Kraft General Foods, Inc. 2048165588

0 Committe.s 1Member of Executive Committee Hamish Maxwell, Chairman 2Member of Finance Committee John A. Murphy, Chairman 3Member of Audit Committee Robert E. R. Huntley, Chairman 4Member of Committee on Public Affairs and Social Responsibility John A. Murphy, Chairman sMember of Nominating Committee T. Justin Moore, Jr., Chairman 6Member of Compensation Committee John S. Reed, Chairman 7Member of Corporate Employee Plans Investment Committee William H. Donaldson, Chairman Joseph F. Cullman 3rd Chairman Emeritus T. Justin Moore, Jr.z.as Counsel, Hunton & Williams, Richmond, VA Rupert Murdoch4s Chief Executive of The News Corporation Limited, New York, NY John A. Murphy'.2•4•r President William Murray2.4 Vice Chairman of the Board Richard D. Paraons',3.4 Chairman and Chief Executive Officer, The Dime Savings Bank of New York, FSB, NewYork, NY John S. Reed'•z.3ssa Chainnan of Citicorp and Citibank, N.A., New York, NY John M. Richman1.as.7 Counsel, Wachtell, Lipton, ~ Rosen & Katz, ~ Chicago, IL ~ Hans G. Storr2.7 Senior Vice President and Chief Financial Officer Margaret B. Younga.+s CIO ~ Chairman of the Whitney M. Young, Jr. Memorial Foundation, New York, NY ,O

Officers Philip Morris Corporate Staff: O. Witcher Dudley Geoffrey C. Bible Companies inc. Dr. Kenneth S. Houghton President and Chief Vice Presidents: Ellen Merlo Administrative Officer Hamish Maxwell Michael C. Moore Stephanie T French Martin D.J. Buss Chairman of the Board and . John R. Nelson David M Kirby Senior Vice President Chief Executive Officer . Steven C. Parrish , George L Knox III Strategy and Development . William P. Taylor John A. Murphy F. Robert Kurimsky Calvin J. Collier President Kathleen M. Linehan Philip Morris Senior Vice President Herbert Millington , Michael A. Miles James J. Morgan International Inc. General Counsel and Secretary Vice Chairman of the Board Dr. Thomas S. Osdene Daniel M Dressel William Murra D. Eric Pogue Aleardo G. Buzzi . Senior Vice President, y Vice Chairman of the Board Rosemary Ripley President and Human Resources William C. Smiy Chief Executive Officer Murray H. Bring Timothy A. Sompolski Salguero Carlos E Joseph P. Durrett Senior Vice President and Charles R. Wall . Executive Vice President Senior Vice President, General Counsel David Zelkowitz Sales Snyder Richard L Marc S Goldber . J. Bruce Harreld . g Senior Vice President, Philip Morris U.S.A. Executive Vice President Senior Vice President and Corporate Planning Walter Thoma Chief Information Officer William I. Campbell Executive Vice President Hans G. Storr President and Alan J. Lacy Senior Vice President and Chief Executive Officer William H. Webb Senior Vice President, Chief Financial Officer Executive Vice President Finance Mark A. Serrano John J. 'Ihcker Executive Vice President Dinyar Devitre Robert G. McVicker Senior Vice President, , Operations Senior Vice President and Senior Vice President, Human Resources and Chief Administrative Officer Technology, Quality Assurance, Administration David E.R. Dangoor and Scientific Issues Senior Vice President Vincent J. Buccellato Bruce S. Brown , Marketing Senior Vice President Thomas D. Ricke Vice President Senior Vice President, , Taxes Fred J. Laux Thomas M. Keams Corporate Affairs Senior Vice President Senior Vice President Donald Fried , Human Resources Edward W. Smeds Vice President, Vice Presidents: Senior Vice President, Associate General Counsel, Harry G. Steele Bernard Beaurpere Operations and Logistics and Secretary Senior Vice President, Andreas Gembler Strobel Eric C Finance and Administration John Kramer . Senior Vice President David I. Greenberg Moreno Francisco J , Vice President Michael E. Szymanczyk . Corporate Marketing , Government Affairs Senior Vice President, Lee Pollak Sales Peter Schreer Corporate Staff: George R. Lewis Vice Presidents: Vice President and . Lawrence S. Wexler Philip Morris Products Inc. Treasurer Senior Vice President, Donald R. Abel Planning and W. John Campbell John P. Amboian B. Jack Miller Information Systems President Deborah A. Becker Vice President and David K Braun Controller Andrew Whist Tobacco Technology Group . Richard B Burgess Senior Vice President . , Guy L. Smith IV , External Affairs Donald W. Carlin Vice President George Karandjoulis Gary Conte , Corporate Affairs Vice Presidents: Vice President William Cunningham Davis Philip J Alfonso L. Camey, Jr. David R. Beran Kraft General Foods, Inc. . William J. Dowd Bloom Ste hen J Assistant Secretary p . Duesler Thomas F Barry J Case . Patricia A. Malzacher . Charles Dr James L Michael A. Miles Richard R. Floersch d . . Chairman and Enrique J Guardia Assistant Secretary Darrah Stephen C . ~ . Chief Executive Officer i-- 7 C3~ ~ 54

Larry Gundrum Raymond J. Herrmann John L. Hogan E. Boyd Hollingsworth, Jr. PaulJackson Adrienne M. Johns John E. Kelly William Kiedaisch Paul Liska Darrell G. Medcalf John F. Mowrer III Michael S. Mudd David Olsen Robert V. Richards Rick Stuedemann Thomas Taylor Victor Tinucci Scott Wallace J. Douglas Wert Carolyn Yoch General Foods,USA Richard P. Mayer ~ President Officers: John D. Bowlin David J. Driscoll J. Mark Harran Sylvester T. Hinkes Thomas J. Hoeppner Randy D. Kautto Gregory B. Murphy John E. Nevins William A. Paterson Charles A. Phillips Stephen I. Sadove Lorraine Scarpa Douglas A. Smith Paula A. Sneed Kraft USA „ James M. Kilts President Officers: Richard E. Bailey Lani L. Beach Robert A. Eckert Seth A. Eisner Ronald D. Harris Charles F. Martin III Thomas J. Mason William Morris David Rickard Mitchell Wienick Kraft General Foods Intemational John M. Keenan President Officers: Charles A. Adamo Bernard D. Balas Eugene E. Jarrel Dr. Nicolaas F.M. Kuijpers Brian A. Mciver Edward J. Moy John G. Plackett Frank T. Toscano Raymond G. Viault Jacobs Suchard AG (Zurich, Switzerland) Raymond G. Viault President Officers: Walter Anderau Volker Brinkmann Alan M. Cox. . . Hans Herzog Arne Jurbrandt Gunter Krochmann Baudouin Michiels Gotz Michael Miiller Kurt Orgler Hermann H. Pohl Frank Schiesser Luc E. Vandevelde Charles J. Winterroth Gerhard Zinser Kraft General Foods Canada Robert S. Morrison President Officers: Daniel S. Antonelli Richard A. Bailey George W. Beal William B. Chiasson Derek J. Hall J. Robert Hall Gary K. Harmon Mark M. Leckie Jean Paul Martineau Carl A. Nanni J. Bernard Sabourin Ronald A. Tomlinson Jeremy D. Young Oscar Mayer Foods James W. McVey President Officers: Alan G. Becker Terry M. Faulk Joel W. Johnson Ronald S. Kelly Patrick J. Luby Paul G. Roehrig Thomas J. Ryan Gene G. Suess Bjorn J. Thompson Paul J. Tiller Richard J. Waldrop Raymond G. Winbum Kraft General Foods, Frozen Products Thomas Herskovits President Officers: John S. Craig Roger K. Hove Charles F. Marcy Stephen L. Puente Harold E. Reinhart Ellis Reynolds Fred Sherriff Kathleen K. Spear Danny L. Strickland Ernest W. Townsend David D. Weick Kraft General Foods Commercial Products George F. Goebeler President Officers: Frederick F. Avery William E. Beedie Daryl D. Boddicker Anthony F. Bonadonna John M. Cabot Edward Dudley Robert L. Herst Gary Karp James A. Miller Jack A. Peterson Leroy E. Radtke Harry B. Smith BillyJ. Strong Thomas L. Thomas Richard E. Thompson Miller Brewing Company Leonard J. Goldstein President and Chief Executive Officer Warren H. Dunn Executive Vice President Billy R. Apple Senior Vice President, Operations Charles W. Schmid Senior Vice President, Marketing Allen A. Schumer Senior Vice President, Administration Vice Presidents: Rodney J. Blucher Virgis W. Colbert Frank L. Donnelly Leonard H. Jacob Thomas A. Koehler Paul R. Mollomo ArthurJ. Rehberger George_D. Riemer Kathleen D. Ryan William A. Saupe William G. Schmus Robert L. Smith Ronald R. Strain Richard F. Strup Philip Morris Capital Corporation Hans G. Storr Chairman and Chief Executive Officer Norman J. Treisman President Vice Presidents: Dennis J. Floam Michael J. Kinney Mission Viejo Company James G. Gilleran President and Chief Executive Officer Craig McCallum President-Colorado Division James L. Huesman Executive Vice President and Treasurer Van Stevens Executive Vice President Vice Presidents: Danette S. Fenstermacher William K. Smith Robert P. Swank 20 19 Z, i~~J01 ?~ 55

Corporate Responsibility - ---- - In the and se products rvices are also concerned with the in our em- effects of h erand mal- we buy and sell, ~g ployment policies, and in our nutrition. Among our many"' sources and uses of invest- initiatives in 1990 was a ment capital, we hold our major grant to the Food products, people, and prac- Research and Action Center tices to the highest standards. for a public education cam- Our position as a major paign to explore the impact manufacturer and marketer of poor nutrition on edu- of packaged goods makes cation, and to alleviate us particularly sensitive to childhood hunger. We are environmental issues. Each also working with the U.S. of our operating companies Department of Housing and is active in source reduction Urban Development and the efforts, recycling, and has U.S. Department of Agricul- established task forces and ture to develop nutrition senior management com- education programs for low- mittees to improve the income residents of public environmental impact of its housing facilities in eight operations. The United States American cities. Congress has passed legisla- Our cultural activities tion requiring the U.S. Food included the sponsorship of and Drug Administration to "Kazimir Malevich, 1878- adopt federal regulations 1935" at the National Gallery regarding health and nutri- of Art in Washington, D.C., tion labeling. We strongly and the sponsorship of support efforts to achieve "Craft Today USA;" an national uniformity of envi- exhibition touring 12 cities ronmental regulations. outside the United States, One key to any society's including Frankfurt, Mos- future economic vitality cow, and Warsaw, as an is education. In 1990, official presentation of the we joined with the Pew United States Information Charitable Trusts and the Agency. We also testified Philadelphia Mayor's before a commission estab- Commission on Literacy lished by the U.S. Congress to launch the Gateway Pro- in support of the National gram, an ambitious adult Endowment for the Arts, and literacy campaign designed in favor of continued public to serve as a national model. funding for challenging and In addition, we supported innovative art. the Milwaukee County To help bring the promise Youth Initiative, a program of social and economic to encourage families' justice closer to reality for involvement in their chil- people throughout the dren's education. United States, we continued As one of the world's our strong support of U.S. largest food companies, we organizations such as the President George Bush with students and celebrities as he announces the launch of StarServe, a Points of Light Initiative exclusively underwritten by the Kraft General Foods Foundation. National Urban League, the National Puerto Rican Coali- tion, the National Women's Political Caucus, the United States Hispanic Chamber of Commerce, Women Involved in Farm Economics, and the National Minority Suppliers Development Council. Philip Morris has responded to the needs of victims of disease and natu- ral disasters. Our 1990 relief efforts included sending food and water to earth- quake victims in Iran and the Philippines and to several orphanages in the Soviet Union near Chernobyl. We were one of the first major corporations to fund pro- grams for AIDS-related re- search and for treatment of the disease's victims; our cumulative AIDS funding now amounts to more than a million dollars. We are continuing to mark the bicentennial of the U.S. Bill of Rights with an extensive educational cam- paign. The national tour of this document is scheduled to end in December 1991. Kraft General Foods Foundation is the exclusive underwriter of StarServe, an innovative program designed to help teachers engage the nation's youth in community service activi- ties. StarServe has been recognized by the Points of Light Foundation, headed by Honorary Chairman President George Bush, as a Points of Light Initiative. We act in the interests of our constituencies to bring about responsible public policies that address issues affecting our business such as product liability; the environment; excise taxes; labeling and advertising; and restrictions on market- ing and product use. For more information on our positions on these and other business issues, please write to our Corporate Affairs Department, whose address is given on the facing page. 2a~~SIC5502

General Corporate information Headquarters Addresses: Philip Morris Companies Inc. 120 Park Avenue New York, New York 10017 (212) 880-5000 Philip Morris Incorporated 120 Park Avenue New York, New York 10017 Philip Morris U.S.A. 120 Park Avenue New York, New York 10017 Philip Morris International Inc. 800 Westchester Avenue Rye Brook, New York 10573 Regional Headquarters: Philip Morris EEC Brillancourt 4 Case Postale 1001 Lausanne Switzerland Philip Morris EFTA, Eastern Europe, the Middle East, & Africa Avenue de Cour 107 Case Postale 1001 Lausanne Switzerland Kraft Goneral Foods, Inc. Kraft Court Glenview, Illinois 60025 Operating Unit Headquarters: General Foods USA 250 North Street White Plains, New York 10625 Kraft USA Kraft Court Glenview, Illinois 60025 Kraft Generat Foods International 800 Westchester Avenue Rye Brook, New York 10573 Kraft General Foods Canada 95 Moatfield Drive Don Mills, Ontario M3B 3L6 Oscar Mayer Foods 910 Mayer Avenue Madison, Wisconsin 53704 Kraft General Foods Frozen Products Kraft Court Glenview, Illinois 60025 Kraft General Foods Commercial Products I Parkway North Deerfield, Illinois 60015 Philip Morris Latin America 800 Westchester Avenue Rye Brook, New York 10573 Philip Morris Asia, Inc. 23rd Floor, Two Pacific Place 88 Queensway Hong Kong Philip Morris (Australia) Ltd. 252 Chesterville Road Moorabbin, Victoria 3189 Australia Daign: E(eenman 6 Enock luc. Pholopraphy: Vkkars 6 BeOehbr. Chda Copine. Peul Puaco. 9urt attnn, Esther Hallo. Rkhard Aleom. AMn MacWeeney Typography: Grid Typographic Services. Inc.. . Printed In U.S.A. by Laaky C•ompany . . Miller Brewing Company 3939 West Highland Boulevard Milwaukee, Wisconsin 53201 Philip Morris Capital Corporation 800 Westchester Avenue Rye Brook, New York 10573 Mission Viejo Company 26137 La Paz Road Mission Viejo, California 92691 Annual Meeting: The annual meeting of stockholders of Philip Morris Companies Inc. will be held on April 25,1991, at the Philip Morris Manufacturing Center, 3601 Commerce Road, Richmond, Virginia. Form 10-K: The company's annual report on Form 10-K, which A+ill be filed with the Securities and Exchange Commission, will be available to stockholders in April upon written request to: Donald Fried, Secretary Philip Morris Companies Inc. 120 Park Avenue New York, New York 10017 Transfer Agent and Registrar: First Chicago Trust Company of New York 30 West Broadway New York, New York 10007-2192 Shareholders may call the company about their accounts, certificates, or dividends using the toll-free telephone number 1-800-446-2617 Dividend Reinvestment Agent: First Chicago Trust Company of New York Dividend Reinvestment Plan P.O. Box 3506 Church Street Station New York, New York 10008-3506 Stock Exchange Listings: New York Amsterdam Antwerp Basel Brussels Frankfurt Geneva Lausanne London Luxembourg Paris Tokyo Zurich NY Stock Exchange Symbol: MO Independent Accountants: Coopers & Lybrand 1301 Avenue of the Americas New York, New York 10019 Public Policy Issues: Inquiries about our positions on public policy issues involving the company and its products should be directed to: Corporate Affairs Department Philip Morris Companies Inc. 120 Park Avenue New York, New York 10017 Shareholder Publications: Written requests should be directed to: Financial Communications Dept. Philip Morris Companies Inc. 120 Park Avenue New York, New York 10017 or you may cal l tol l-free: 1-800-367-5415

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