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i PM-U.S.A. Morning Newsbriefs; 07/13/94 (c) Copyright 1994 INFORMATION, INC. This service may be reproduced for internal distribution. HEADLINE SUMMARIES: "Philip Morris Posts Income Gain in Quarter" "Philip Morris Reports Higher Earnings For Second Quarter, But Its Stock Falls" "U.K. Clears B.A.T.'s Acquisition of American Tobacco" "John J. Tucker To Retire From Senior VP Position at PM" "Universal Corp. Plans Restructuring" "Suing Tobacco Firms Said to Be Not Worth the Trouble [Study]" "More States Plan to Sue for Costs of Smoking" "Editorial: ToFsacco'Criminals"' "Business Roundup: Food Lion Irks Cigarette Makers With Employee Smoking Ban" "Company News: American Brands to Sell Dollon & Aitchison" "B.A.T. PLC Up on Philip Morris Q2 Figures" "Croatia Produces Marlboro Cigs Under License" "Marion Merrill Dow Launches Nicorette in Japan" "Cigarette Companies Try to Strike a Match in Asia" "Kuwaiti Proposal Would Ban Smoking In Public" "Philip Morris Posts Income Gain in Quarter" New York Times (07/13/94) P. D4; Collins, Glenn Philip Morris Cos. yesterday announced its first quarterly increase in earnings since it cut cigarette prices in April 1993. The company reported strong performance from its domestic and international tobacco business, and large gains in the sale of its Marlboro cigarette brand. Earnings climbed 17.6 percent to $1.2 billion, or $1.42 a share. Operating income for Philip Morris rose 14 percent to $2.7 billion, on revenues of $16.4 billion. Despite the positive earnings reported, shares of Philip Morris fell yesterday 75 cents to $53.125 on the New York Stock Exchange. Diana K. Temple, an analyst who follows the company for Salomon Brothers, thinks that "continuing concern about litigation, especially the proliferation of state lawsuits, is restraining the stock." Roy D. Burry, an analyst who follows Philip Morris for Kidder, Peabody & Company, said, "Given all that the company has been through, the positive picture is a surprise." The retail share for Marlboro cigarettes reached 28.5 percent, the A.C. Nielsen Company reported yesterday. Philip Morris' other premium brands as a group posted a retail share of 9.1 percent, up from a low of 8.3 percent in August 1993, when the company realigned its wholesale list prices. International tobacco sales grew in the second I

quarter as well, with revenues advancing 6.8 percent, to $4.3 billion, and with operating income climbing 19.2 percent, to $688 million. Volume was up 16.3 percent over a year ago to 128 billion units. "International is the crown jewel in Philip Morris," Ms. Temple of Salomon Brothers said. The positive earnings report may give Mr. Murray and Mr. Bible a lift the next time they meet with the company's large institutional shareholders, many of whom continue to press for a corporate firewall around the company's tobacco opera- tions. A meeting was scheduled for today, but was postponed after Philip Morris could not assure the shareholders that directors who are not part of the company's management would be able to attend. No new date has been set. Related Stories: Financial Times (07/13) P. 1; New York Times (07/13) P. D4; Investor's Business Daily (07/13) P. A7; USA Today (07/13) P. 3B; Wall Street Journal (07/13) P. B2. [see next story] "Philip Morris Reports Higher Earnings For Second Quarter, But Its Stock Falls" The Wall Street Journal (7/13/94) P. B2; Shapiro, Eben Philip Morris Cos.' second-quarter profit rose nearly 18%, propelled by strong cigarette sales at home and abroad. But its stock fell yesterday, indicating that in the current antitobacco climate, strong earnings alone won't lift the company's depressed share price. The company also disclosed that it has been aggressively repurchasing its stock, heightening speculation on Wall Street that Philip Morris will unveil a massive new share-repurchase program next month. PM has just under $600 million left in an existing buyback program. Marc Cohen, an analyst with Goldman Sachs, calls the stepped-up stock buying "very bullish. This stock is trading at unprecedented low levels." Although Philip Morris' earnings were at the high end of analysts' expectations, the company's shares fell 75 cents to $53.125 in New York Stock Exchange composite trading after a run-up in recent weeks in anticipation of a strong quarter. Some big share- holders pointed to the stock market's negative reaction as further proof that PM should break up into separate food and tobacco businesses, a strategy the new management has ruled out for the time being. "it highlights the problem," says Bruce Gregory, a port- folio manager with Progressive Partners, a large shareholder pushing for a split-up. "The numbers are good, but the market is not willing to pay for" the stock. Gary Black, an analyst with Sanford C. Bern- stein & Co. said, "You need a catalyst. Superior earnings growth is not enough to keep the stock moving." Large, vocal shareholders are continuing to push for a meeting with Philip Morris directors to explore a breakup. A meeting with top management had been set for today, but when no nonmanagement directors were scheduled to appear, the large institutional shareholders declined to meet. Yesterday, the shareholder group threatened to vote out the board if it wouldn't meet. ~