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Financial Highiights (in millions of dollars. except per share data) . 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% 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 10,720 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 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 their 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 equity investment in Rothmans International p.l.c. 2060566937 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. In 1986, operating companies income for financial services and real estate was reduced by $71 million resulting from the effects of the Tax Reform Act of 1986 and certain related leveraged lease renegotiations. 1

` 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 competit iveness 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, we accelerated 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 'hilip Morris management visiting Masuo Fukujin, a Tokyo retailer. .eft to right: Hamish Maxwell, Michiko Egawa (Philip Morris apan), Michael Miles, William Murray, Nicolaas Kuijpers (Kraft aeneral Foods International), Mr. Fukujin, and John Keenan. 20.'2'!4>, 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 strongly, and operating margins also improved. Including t full year of 1990 Jacobs Suchard results on a pro forma basis, our food companies would have con- ributed approximately 52% of our revenues and 31% of our operating companies income, while mploying 66% of our work force. Miller Brewing Company volume was up by 1.6 million barrels, or 3.8%, and operating companies ,icome advanced by 26%. Five years of steady growth, fueled by successful new product introduc- ions, have helped Miller build its position as a major competitor in the consolidating beer industry. lanagement and Board of Directors 1 April, Richard D. Parsons, Chairman and Chief Executive Officer of the Dime Savings Bank of few 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 ccordance with our policies. Each had served with distinction on the Board of the General Foods orporation prior to its acquisition by Philip Morris in 1985. Their wisdom, experience, and insights Operating Revenues Billions of Dollars  Domestic Tobacco I International Tobacco Food 7 Beer • Financial Services & Real Estate ill 86 87 88 89 90 Operating Companies Income Billions of Dollars  Domestic Tobacco .1 International Tobacco Food I Beer ' Financial Services & Real Estate 7 Other g.o 75 N 55 ~ 50 45 40 35 30 25 Ii

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- sialpJe 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 well aware of the potential risks associated with tobacco use, and have the knowledge necessary to make an informed decision.l 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 Our goal is to be the world's most 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 uncertainties of doing business. Fortunately, our products are consumer staples, and our businesses are relatively resilient. To 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 environmental concerns, even as we continue to find new ways of satisfying consumer desires for convenience, 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. We 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. Net Earnings Billions of Dollars 88 89 90 3.5 3.0 2.5 2,0 1.5 ,o 0 Dividends Declared Per Share Dollars 1.75 86 87 88 89 90 Cash Flow Per Share From Operating Activities 7 Net Earnings Per Share Dollars 6 5 4 3 2 , - _. 0 86 87 88 89 90 Hamish Maxwell 3 Chairman of the Board and Chief Executive Officer

) This is Philip Morris Philip Morris U.s.A. Philip Morris International Inc. Craft USA Craft General Foods International ® 1talianl ® 0 .~,~+a8,n ~ Nmew ~'x i fheese . def;Pu/Ied€= Mgpshmallo~ Crat:lmr 6arrel h~~'ee~x~1l~~~~ ~lYZ. ' T~CHaBi~ DIrJIORt(iCt ~+4Y. ~ s±nuo,mwa rai tvnbiaf,CM s KRONUM. ® S(titliette xlyono fll{lAl1EiPNlA . „.,.,,.. ~ 0 ~ MN(IM - -- F.~ WHY `~s FIN _ lit ~~~ ~dI1J!@a EEI ® M erating companies income excludes Kraft General Foods, Inc:s headquarter items. 3ft 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, Entenmanris bakery products, Kool-Aid powdered bev erages, and Jell-0 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 Kronung and Night & Day, together with chocolates such as Milka, Toblerone, and Cdte 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 Millions 1990 1989 Operating Revenues $10,370 $9,474 Operating Companies Income $ 4,206 $3,606

Kraft General Foods Canada Oscar Mayer Foods Kraft General Foods Frozen Products Kraft General Foods Commercial Products With a host of popular Kraft General Foods retail brands and a large food- service business, KGF Canada is Canada's largest packaged foods company. Millions 1990 1989 Operating Revenues $1,327 $1,251 Operating Companies Income $ 235 $ 187 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 KGF Frozen Products, the largest frozen food manufacturer in the world, intro- duced Sealtest Free nonfat frozen desserts, Breyers frozen yogurt, Kraft Eating Right frozen entrees, and Budget Gourmet Light and Healthy Dinners in 1990. Millions 1990 1989 Operating Revenues $2,155 $2,103 Operating Companies Income $ 169 $ 169 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 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 include Sharp's, the country's leading non-alcoholic brew. N Millions 1990 1989 Operating Revenues $3,534 $3,342 Operating Companies Income $ 285 $ 226 Operating companies income is income before amortization of goodwill, unallocated corporate expenses and interest and other debt expense, net and in 1989, gain on sale of the company's equity investment in Rothmans International p.l.c. and restructuring of food operations. • 5

,,Ve are :he !argest. °nost orontabie. and tastest- ;rowin-i international ciQa- rette c:ompam• in ,he svorld. Most vf our cains over the past,.'ecade have come from premium-priced 'arands in industrialized nations. Our Strona market positions in these countries provide a 5ase for continued profit Qro~~th. ln 1990, as the %vorldwide cigarette industrv expanded b~- 1.5',~, to reach 3.-1 trillion units, our total unit volume climbed 9.3"o. ~olume ,`or Marlboro. the xorld's best- selling consumer packaged Lroduct, rose h3"o. to reach 3-1-1 billion units. Our !-.'.3. business set nex records. `'olume, based on shipments. :;rew 5vone bil- lion ci;arettes, or 0.-l'';, in a market that declined by Above 'vlarboro s the best-se'lir.g ,:,or- sumer packagea product :n the vor!o r =rance. `,!ar boro s the country s oest- seiiing o,arl- r '.1orris _....A.J .'p~'ral.. _ _.='rt~.ie.~. ar.c :-Pertir., panies !r.c:[::e '7.7~.. ;iy .^.,Dw =„ _,:'unts ,.., : JI :he ..~. ~ ar'iCt. ~r :'';t~ Dne-:::irc' -_,r aii ruil-_r:ced :.ijare[.es ;~Did. Mar.- oro `tas =,rst in ... _.~. conse _vears. ~.L .:.. !ar, adui. z~mol:ers unCe." a;? ., is a SL":rl,'Jlat- c, r[:: :(Dr .--: er shar- ;ains. .yr.:ci. _ :1r )ther :! Drice.. _-ra::cs. Vir ::ia Slti:«. ,.iCr::, and 3C:-.,`.'J;t u' -ie~4- . _r-:ai:?ed ._-.:ers in t! ei. - -a:- - r:es. `:;~c u.~0 ~zmoii2 _--:~C ow nic~: ".: re ;orr a:, ns :o sa~, ~har.,;-< _nsume- dema:.~_. tl~~n In eveY" z 'ro:itaiJle ~Z -.'-.F'::: or the L'.5. :~tar':cet, espande_~ our :hare :: :-:e disc,-,unt catemx, : _._. ' . aided by :i,.e natior:a: introduc::on o( Buc::_'z the continuing succ._s _)f Cambrid,~e and 3r: s:-_ i. Our sales torce `.-:as '-_ern reoraanized and enablin(~ us to impr,_%= :::e presentatlon aP.d d%"a:.a=liii~, ot our } roducts at t: ~ ~'~ LC [ of sale. Unit volume grow:` at Philip Morris U.3. a.. increased its marke': ~::are by 0.3 share points This increase is unce:stat_ due to caan~es in tors' trade intientor. ::ac tices, .vhich de,-~resse~_:`?e!:- 1989 volume while aerating Philip `.lorr: _ U.3..a.'s 198 9 share. _- quentlv• ! _, ur 198 9 mar,:~t share rose an inr?ate,_- ~a't ?i~'BC U.S. Cigarette Industry Unit Sales 3 U.S. Cigarette Industry Unit Sales ?1 Philip Morris Share of the U.S. Industry ': .-.arp p:)ints. T~e more e i :n~[Lt lndlcator -( :vin _hare ;th ;s :r a%zra,e annual ;ain' )f ' ...are ^r?Ints ~Jver the ; .rsr neriod. t. ide the r"nited _,~tatew: ='hi:iz '•.Iorris lnternati _na~'s Operating Revenues Left `,,~3•~.~,~"' jntS ;Q S~y r ,. -. , , = : ^0' : •: -_ 7 a9 're Dest-:e'hn j `'F°-a3r;..r'_ ::~ ' ~ :rrj .'o^ g ,.p'Frc r -31Jn ,: ; i^a:r,.et n .. . . - - _ . ? . . . ?S "C'= a' a . . i' ;:are,te >3 ^

r:r, „ttt: renre~e~.te~; a ;ain %-er ;9S'?-our ni ghe,,t i;ercentage increase -ri:r' ~. ::aarette export init . i!:me '7re,•v near!y ' ir t()bacco rxp(Drts :rae t ,ross contrbution .)r e::rI• ~Diilion to the r_'.S. ai,ar.t - f aayments, and ;ur totai L'.S. ,ette t,`pi ,rts reached .59'~. 't'r.e'..~e trade de~-,c:t %could :-tave ~-en more than ~5 bif- ir~n hi,_,ller,.eithout :he nci~rr~' tobacco exports. MuriN)no further %videned ts :e~ttl,t~ :he'.e'nrld•s best- ,el1,n cI,arette'.~'lth a ;3)'n <a:e,~ ;n t i n overseas. Among ,,uccesses, Marlboro ti'e'.nD brand in .irvt, 1 tnd 'he best-selling nt-:r rrt )nal brand in the 1jr-r;r r E.-,st German`•. 1ts in Europe nc:ta a,d volume ,ains of n. i ~ ^,, in the ^i1 ~eth<r'.,tnu;. D in the'or- nerCermanv, and ;'i n 3e:,ium. Marlboro is .~„t,, thrnuahout Latin \meric.i. and now accounts Or ' if all ci;arette sales n : Marlboro ii the "iorlu•s best- el;in, international liaht A;arette, increased volume A'_' i zimatelv half (Dur outside the United ,tate- .•i)mes from our many .tr, )c, .tnd grovving interna- iuna! rrademarks such as .ark. i,.trliament, Virginia ;lims. Mzrit, L&ti1• Chester- ie1,• ind the Philip Morris )ran"'.. its I.Ve1l as frr>m local ,ran-,'.s such as Muratti, .lulti-Filter. and Peter.lack- il.r;. .."iinr•rl .:rar:d .:J a .rclal:. -ase or ut;~re _r[)ansir:n. 1n une - _urc;Cean <<ommu- nit-v ; ':,ur a4gre;ate rnariiet share ir.cre: se _' .:') more thar. 22 '.. `n '::e reunir ed Germar, ,ve !ed `;-;e industrv -A-it`: a market share o f .3'2 .. .-; itaiti•• '.~e increased •.•ci'tirne ar.d ac'.;ieve,r a . _ . market share. `roiu:;re :n France -re,x ~ ., anc ac::IDUnt ror aimost a quarter of the rnar!:c,. '_'ur •.olume ~ ~ in S pain c:irr. ~,_ '?7 , and Dur ;narkc' share rose ;ro i,i'',. "Ve dso posted ,•(Diu:ne aair,s :r: 3e!,ium. ! u\e:T!Cou:'_ =.:.e :`:e Ner!;erLar.(:;. E:se%~i,ere :..:^e pear continen:. )ur mark-et share -eac:-,e:_- ::e3r'.• in S%~itzerlur.c. . ^.Cl `.vr.' re,7isterec ti; . r .oiur e in Austria anc `'.? L!) ntrnLC'_ o ',.')eroli irlil we1'. !n the % iic t:e East• particu!arly in -urkeE•. .~1:ere our •.•nlume inc°_ased 33 ~ ~. C."S ieril E:1." e anUti:e ;c:,viet L'nion :, „ether repre- sent ~he sec_)nc-!argest cigarette market in the world. Throu~;!:out the region, consumers have come t(D know -and want- 1•tarlboro, and J,ur other international trauemarks have sicinitcar.t -otential. `A'e are plartri:-., a~;ressi~-e erpansicin of -Jur business in this part,)( :^e •.vorld. 1n 199). %ve a;reed to supply more than 30 billion cigarettes tc the Russian Republic. We a:so doubled our business i:; both Poland and Y!l,oslavia. In addition, Ment s tne rrost pcpuiar yr; c,.:rette ri ita ,. vnere our snare :` tre market s _0"0

Philip Morris sn,oped more than 97 bi,hon o.garettes `•c^ tne United States in 1990, mak ng a^ross c~n.r'b~t neany 53 btlLor to the U S oaiance oi oayre^ts .,_•: se ..., .cc r Lark ard cctr , ,. _,aac c ..^-e r ,.car 's .. C Va' cc'G ;a' _, _"'?Ke'. ~ t _ J,:C?"_ _ ~ Philip Morris U.S. Cigarette Export jJolume

anci ;icrr:s2e a,reer"enti~ . :r .ne product:un r '.iariu r _ i anG ~'ther ~C~u"'.Cs i:~ s2`,'e'"a i.i Eastern ;vurr.'pean c-•)untr.es. in Asia. Our oxat volume ,rew almost IS '. -the :ar;est ~r:crease lor anv,)r •Dur re,i,Dns. .`•lluc~t ;r~j«til `.ba5 Qri~en .~• Jtr VnD aains in 1'aL,an. -.~ ~ere '_,ur volume rose more :han 2' All seven of our top brand= UOs teC: vol urne : ncreases, brim?in'g -,ur share of :he Japanese market to neari%; II'.-up from'.;''^ last vear. and more than all other'vr- eign competitors c,_mbineC_'. In Australia. L_ngbeac:: -k0s. introduced in pushed our market share above 36'., makinc, PhilipNiorris he industry ieader. In Latin.~me;ica.':olu, .e ~re'.v by more than :7). `.Ve are ~xell aos:ti,.med to pront 'urther from,,Jur lar,e _=rt o.:r 'J... 'cbacca ,us,ress :en! rues 'o yrcN '99G : e 3ad ~_re b.,r.cr ^,ore c:eareaas :ra^ 're /ear bB`_re a,g^t Var bcro more "'ar. Ceub'~eC ts share r t" e y-owir, ',1er~can mr',ot ;ver tre past sever• Years, ard becar^e ;he ,.ountr'/'s ead ry .:.,garette brand ~ 990 z:._- .....- a-,; ~:n Z.. _~er'lan.c ;L)r `!-:iliD ic ..5 ~. _::cs. -.ve c .~ntinued to :-_-,(ternize cur yic:<<:,ond 1i.... ie .'aCiilties. ...es:in, :n aCdit;onal ca~aca~.' :^ter~ailUnatl.. E,.. ... . ~i. .~e ar,ou::ced plw.., ._ '-_end more than ...:.::(Jn _,, expand .,Dur ',t-e expect to sE e:~ d .•. et:cess :,f ~'2 biaion ,,~er ::;e ::etit i4Xe vears •)n :apac::V !mprove_- T.e : ~ etpanslons. _. :-bacco is a ';el.• ;ac' _r .-: :::e .~ ,r:dti~ ide ref er=-.ce ..r ~.merican ci;a- „r =.=rasls 'Jn r : acc .'s nas :eai :Dbacco -rs -~!-)th ,o increase tef." ~,•are Df _,lhacco sold a .~ .... 's ~,- -- - - - - - supplti 'luaiit_, euf _. _:... pecitive prices ~.-D -.he `vVe also Jupp_'r:ec !es jisiation :o ~-.crease ~ _ duction of 5ur.e,; tobac :_. 6Vhlcl'i is in sl':ort around the sror;cBecause tC':e soc:ai environment ic ^;acr ~ ~-.- tries is becomina D cigarettes, %ve are aca-.-.i..- arrjulna for :oterar:ca. a.nc •'.e oppose neo-?-ohibic,.nis :-•. BudQet de^c:ts at a.. 'eV-.., of;overnme.^.t :n the States are JrCmDtln; .i an '•' attempts to Increase taxes on ci;aret:es. . ~e Concressional 'oud;e: ment calls for ;n four cents per ~.adk :., . -.. and another f~ur-cent ;;i;;e .., 1993. `FVe are _-amQai':.r.l. = viaorouslv a~zainst :ur:I ner excise tax increases.-•v::ic- are regressive and :- above !n Turkev. ?ar'ia-ert =_rd ctrer ~Ihiiip',1orr s brarCs rave vcr ^ea' •, 70-~: .f the market fcr rrpcr,ec v;(,,areres 'Nor1d Cigarette Industry Unit Sales J World Cigarette Industry Unit Saies 2 Philip Morris Share of the World Market ' ..:..... .::Rdt,-:Ji :« r tnc:~mes. :n .. :t _ia:e 3i.1: z, ais to increase exc:se .aaes. verF' ~,'e are -,lso .1t:empts 'o Philip Morris International Operating Revenues

;etinq activities. As industry inalysts have pointed out, '.he-elimination of cigarette idvertising would do little to jiscottrage smoking. It ,voultl. however, reduce ,ompc~tition, and make it dif- icult f()r companies to ntroditce new products that night address the concerns )f both smokers and non- ;mokers. We believe that ~fforts to restrict our market- ng are not consistent with ree enterprise systems. We are supporting indus- ry and trade initiatives to liscourage underage con- ;umers from using our )roditcts. We also are sup- )orting legislation to ~stablish a minimum age of :8 for the purchase of obacco products in states :urrently without such a law. Over the past ten years, vorldwide cigarette industry -olume increased 20°l0- Operating Revenues 'erce•' A loaal 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. We envision 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 Consumer creativity. making JeA-O Jigglers, a gelatin finger food. 3 and business opportunities realized through synergies, and technological creativity fueled steady growth even as 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, whether 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%. Right: With the acquisition of Jacobs Suchard, a Swiss coffee and confectionery company, Kraft General Foods Interna- tional is now the leader in Germany's coffee market.

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)bier"ne. 3,..:churc. and te brands t-rrng '1s a v core business ;n )nfectioner,,. In 199(l), KGF (nterna- )na('sother core busi- ,sses in coffee, cheese, :d viscous lressin;s l showed volume ;rowth. )osted by geographic :pans inn and ' i r.e e titen- ms for key brands. tccessfut new product troductions included ieddarie spread. vitalite ;ht maraarine, and Max- ell House Classic premium ~eze-dried coffee in the -tited Kingdom: HAG )lombian Supremo cDffee Germanv; Kraft y,1a%,Oli%-a ayonnaise and Saimaza emium soluble coffee in )ain: Kraft cholester_4 free avonnaise in Beljium: ~vaiia Premium soluble )ffee in Norwav: Ve-,emite nales in Austraiia: and ::e,,v wors of Philadelphia Brand eam cheese in several )untries. We also widened some Dt ;r major regional busi- ~sses, bringing Miracoii tlian sauces to Germanv .d our y,iaxpat coffee vend- Q system to Spain. New oduct development, dis- bution and marketin; nerQies, the continuing te;ration of European arkets, and increasing osperity in the Pacifi+_ Rim ill drive KGF International's rther orowth. Most of KGF's food ': ol- ne, sales, and proFtts main in North America. non; the Kraft General ods operating companies i the Continent, General Fi"DC':s in r; )Irt- ,~tanci;:~ -erft-,rmanw. ~.lati.~e:: '"'.r-:,z' ,1r~(i )ur ~tf:er c:oifees :eturnt: l to protaaiJii;t,.; cnntinued ~~l:alrt~~ anQ aC'.?'rtisi f`,l improve::-;e.n,ts ::eipir :; to buI1C7 .i:e _-uslr'.ess. f )tit cereais :~creas e, v( )I Ime " share ^aci er .1 ,. T he irn:rcve-:ents -.vere at.re :o superior -:;aricetina )f core Post *:Draf.--s :uc:: as ;rape- `+uts, Pea:D;es. ~c,ney Bunc:~:es ,r Dats. 3nci the introduc:ion -D(`.larsn mailow. ~ha-3its. Kc~ei .-.ic: bra~,; p( ),.%dered .~'ie`..-. ;. Jru,me ~ . ' ,l are ot maitaai-:7 an the ~c ~ v e 7._~t drink cat- e'~~r` pr,rct:: e!~e t , ,uur the iar;est -e:a;in catep)ry 3ains in _,ver ' .ear,. The exDansiCr, of E-trnm,tnn's fat :ree a-:c c::,_~iester,)I tree baKer`- .I:-:e aelz _._, r, ) increaSc _-alier',.. ,Jlitlne neari,.-?=- in i,17,-,.](). itr))ng -oi.:::;e ;alns ;r"M ~ hke Top -;tut=:n;. ~~:akc'., Bake, and L ~ Cabi: syru-. as well as the e7ic ,a! ir•)tr -,du(~t.ion ,f Kraft .':licrnwave Entrees, also cOntriDuteQ to General Foods L'S.A's per.`_~rmance. At Kraft L:SA, new product introduc`ions iZe!ped to increase : ;e appeal 4 lead- ing Drar.cs. ':n c!:eesz, vol- ume _re°.v -.vith ~`e intn.duc- tior. : f s 7 net.~, prodlucts aJ Spreacerv Jr r :ad able cheese. Cracker Barrel fla- vors, arr1 :-.v [a,-=heeties such as Kraft Light Singles and Kraft Light tiaturals. Volume for Philadelphia Brand cream cheese also 'r accet~-, _oread Krait s assorted cneeses. se,•.ed Oscar b'a~er ard L;L,s RIc- Urcrecr, ^-eats.

-<ra": 3a^era, =oocs can fiIl a `a^^- „ { tcrer .. ;r ^,cre ^umGer ore ., c ^-be, ,,rvo crards than arn.- -tre''.:OG{ ccrDar,~ n the . -^!te, :~tates. Ne ^aVe 'at '-_._ tCcs r^'CrF cateyOries than any otrer cCr^Gaf y J2a':est r'ee`-.Ze^ -~esserts. ~essert bars, arC `roZer, ycy:."s are cart --f r s; rr~g-t :`at `ree-ccrtfo!io i ~ Cur .em,z_ :~eese ::,str!CUtcrs -ei,ver '.o 'OCc stores "'rGUC'?C,~! aiy. ; .i

0 ~ z~699soqoz .~ 0 mwF m r ® m r" . J 4 ;. 11 t%e 4. 0 a w ® 0 0 0 0 p j,e

increased. Following suc- cessful test marketing, Kraft's first 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- ing share to 41%; in a rare new product achievement, the Kraft Free line included three of the five best-selling products in the entire pour- able dressing category. Both Miracle "Nhip salad dressing and Kraft mayon- naise increased their shares. We 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 1{r-aft and Parkay tablespreads M Oscar.Mayer introducec: tur- key bacon, and a range of light, thin-sliced, and `.ow- salt meats. We look to these and other product introduc- tions for future growth. Kraft General Foods Frozen Products defended and built on its franchises. Volume for dairy products, which contributed more than half the group's operat- ing revenues and income. continued to grow, led 'ov strong advances in the cultured products and top- pings categories. New products such as Sealtest Free nonfat frozen dessert. Brevers frozen yogurt, Cooi Whip Lite whipped topping, and Light ri Lively Free non- fat yogurt all helped generate category share gains for thte dairy division. Al l :american Gourmet built its volume in 1990 bv introducing Kraft Eating Csca. a.er =acpet :as T,crowa•e snac.Ks ::raruec to r -.:ne :arget in 1990. 0 -'X_1_5o- 1 1. ?M ::~igr,t :rozen entrees and Buc,et Gourrnet Light and ;'-'ealthv Dinners, while Birds Eye improved its product mix w emphasizing its ve?etable-ar,d-sauce offer- !ngs. Aided by the introduc- :ion of "soft" bagels and Dther markecing efforts, -ender's volume grew al- :nost 9°,0, with category share :.limbing to 1 ~0,6. Tombstone pizza continued :o increase volume while expanding ;eograp,icallv, and :s ;;ow Sold ;n'?5 --:,tes. :ombstone is the leader in _he frozen pizza markets it now serves. :<raft General Foods Canaca posted strong :esuits across most of its major product lines, with oiume gains helped by ^ew product launches. Lunchables lunch combina- :ions, Maxwell House Filter Packets, Cheese Pot cheese f -,.:Az;: ~ -,.- ~/3t~;,°~ VeGemite cOnt~nues tc Oe ~-re :' -~~stra,,a s most ooou.ar C'_cUcts 3rd fat free products are aiso teirg o"ereo ® You can have your cake and eat !t too-without fat or cholesterol, from Entenmann's. also rose, and TOUc~ st Butter e>::~andeC nationally. ~olume'cr Kraft side ishes and dinr.ers g ret.v by 3 -`9; new shaces and t1avors. as well as microwave offerin,s, are being 'ested for intro- duction irt :991. Totai --scar Mayer •.'olume rose due _o new products such as '_::nc:-tables :unch combinat:ons and Louis Kemp surimi seafood. Partially .:ue to higher red meat com:roditv costs, oper- ating companies income declined. Oscar ',laver brand's num- ber one _-_~sition. to~iether with Louis Rich's leadership position ::? _he growing tur- key segn:erlt, accounted for 3-k'1o of the market for lun- cheon meats and a record I4°,o for ^acon. We also have an 18'~ s^are of the hot dog market. To address c!-tanging consumer -.references, Left: Chocolate from Jacobs Suchard works its magic on a discerning consumer n Bern Swltzerlard 2060-1566953 17

,pread, Honev Bunches of )ats cereals, Kraft Free salad Iressings. and the Jell-O igglers promotion all con- ributed to volume and share rowth in key categories. ~raft packaged dinners, the )est-selling dry grocery item n the country, introduced uper Mario Bros. Pasta and :heese in the children's seg- nent, and achieved a 1-1?b olume improvement. Coffee olume grew almost 6',~, ided by successful iunches of General Foods iternational Coffees and laxwell House 1892. KGF anada also expanded its uccessful regional direct )odservice business to a ,adin6 position with the cquisition of Groupe Cafe 1 March 1990. Volume increased in both ivisions of Kraft General )ods Commercial Products. raft Food Ingredients berie- ted from strong perfor- iances in the oil products -id Specialty Ingredients usinesses. Kraft Foodser- ce volumes for cheeses, ils, shortening products, Id sauces also grew. Future )odservice performance ains will depend on an nproved food-aw•ay-from- )me market, greater pen- ration of new accounts, id further efficiencies from -oadline distribution )erations. Our strong overall perfor- ance at KGF was made )ssible by a broad array of tared innovations and mar- ~ting strategies to meet tanging consumer tastes. Our established products ill have significant growth potentiai. as shi)wn by the improvements at Maxwell House und Post. In addition, the Jell-O Jigglers promo- tion, one of the largest gelatin promotions ever, made desserts a "top- of-mind" snack tior children, boostinz r_'.S. sales by 13°0 in 1990. As we deveop and laund~ new products and promo- tions, .ve are '-.enefiting from a unique set of svnergies. Most of our savings through -hese svnergies and productivity improvements ,.vere reinvested: for -aur goal is not to avoid `;pending, but to spend •.visely. vur most importan: synero;ies create incremental business. Our `at ;ree products are a good etiample of how we are becor:-Eina mure than the sum of our comuanies. We recognize :hat ,onv-er fat and cholesterol ncw head the list of consumers' r. tetarV con- cerns. and nearly evers one of the KGF operatina com- panies is replacing fats with other naturai in •redients 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 S2; S million in revenues in 1990. We first introduced fat replacement technology in our U.S. markets, and now vce are pooling our experi- ence to bring new• fat free products to Canada. Europe, and Australia. %tie had fat free products in more categories than any other company in 1990, and we are F.'~ 1 r41L ~411ApEIrHL( MiuAELwi ~ttaat ~.~ Philadelph a Brand cream cheese is ore of cur strcngest nterna[honai tDrands, sold in the Un ted States, Gerrnany-ar.d 35 otFer countr,es around the world

Our `ood oroducts on sale !n Korea -c:ude biaxim and other ..o'r`ees, as .vell as Post cereais. Above. Cscar'Aayer appieC 7re Linchables conceot to develop new Louis R cr ;.,.nch Breaks, cco,:ar and convenient for parents and chil- dren alike, cp right our'cccsernce division supplies U S restaurants, hosp tals, ard 3ther nsht ;.e s;nt i Kraft General Foods and other orod- uc;s Rigrt cerven,ert Pvtaxr:e "ouse Filter ?acks heiped our U S :ot`ee cus ness etur- ;_. _`,tao i,ty

veloping still more `at free -.)ducts this year. In fact, crossing operating mpany borders to nnd nergies, KGF answered mand for nutrition, conve- ~nce, and variety by intro- 'cing more than 300 new -)ducts in the United States ring the year, and was med the new product mpany of the year by ?pared Foods.Nagazine. We bolstered our brands th double-digit increases marketing expenditures in 30 and plan similar :reases in 1991. Our Holi- y Homecoming promotion the United States, featur- ; 31 of our leading brands December 1990, was other notable example of w our companies are irking-and spending- ;ether to build our siness. We are backing up our Investrnents in new markets, products. and packs~ings by investing in our reople We are eniisting all our employ- ees in a drive :or continu- ous improvement in every company :~rocess, trom pur- chasing and research to manufacturing and market- ing, to ser;e both customers and consumers better. Only by aiming for excellence in each aspect of our business can we !ead our competition and begin to satisfy our own high standards. Kraft General Foods recorded solid business gains in 1990. `.be are deter- mined to deliver steadily bet- ter operating results over the years to come. Beer in 1990, for ,he hfth consecu- tive vear, volume ~Iruwth at ,Miller Bre,,ving Company outperformed the U.S. brew- ing industry. Our .otai ship- ments of 43.5 million barre!s, including Sharp's and exports, were up nearly 1 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 64'0, and lower costs contributed to a 2616 gain in operating companies income. Shipments of Miiler Genuine Draft grev by almost 30%, consolidating the brand's ninth-place posi- tion amonQ U.S. beers. Combined with Miller High Life, Genuine Draft's contin- ued success gave Miller i6'o of the more profitable full- calorie premium segment. Miiler L ite, the countr,: s second-best-selling beer. continued to gain volume, and accounted for more than ~60% of the premium low- calorie segment. We added to our presence in this seg- -rent by bringing Miller Genuine Draft Light into ten western states. In the above-premium se,iment, the company is represented by Lowenbrau, and we brought both Miller Reser~e, 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 categor,; volume gains by tiiilwaukee's Best made it the sixth-most- popuiar beer in the country. Miller Sharp's, nrst intro- duced in December 1989, :ueled the growth of the non- . alcoholic brew se~ment, which nearly doubled its Operating Revenues ve: The fuil r ch taste of Miller Sharp s cereftec `r~c 3n r.rc,,au\,e inology, and Sharp s became the courtry s best-se !'^g nor- ,holic brew. ?ight: Miller Genuine Drar! Lgrt, a cw-ca ore re exten- of M lier Genuine Draft, joined the Mii;er `amuy r'99C ~:ar • y^t ?r Genuine Draft, the country's ninth-rrost-pcc.,iar beer anc zre of :astest-yrowng premium beers :n the United S'ates

U.S. Mait Severage ind.aatsy $aree( Shipments 3 U.S. Malt Beverage Industry Barrel Shipmenta a Miiler Share of U.S. Malt Beverage industry ?5 : 38 39 1.rhiler exports to many countries around tre wond. Offering a,vide vanety cf crews, Mider increased its share of the U.S. malt be',eraye ndustry, ',iiller L:e s the second-n":ost- coculflr C°-ef !n :~e United States, and t c-crtnues :o oe the country's cest-3e,ra :Icnt DeeC

Financ~rg `rom Phiiip Morris Cap tai CorFerancr -e ps Miiler e str c;crs keep stcres well stocked. volume during i940. 3ha: :Ds finished the vEar in a leadership position, .citi,: 27116 of the market 'or non-alcoholic brews. Our steady progress enabled us to announce .'ze reopening of our Trenton, Ohio, brewery in 1991. Federal legislation passed in 1990 doubled the federal excise tax on beer, from S9 to 818 per barrel, or :rom 16 cents to 32 cents per six- pack, effective Januan- t. 1991. In spite of this discrim- :natorv tax increase, -,ve are determined to continue our solid growth in volume. rev- enues, and profitabiiity. Financial Services and Real Estate Consolidated operating oom- panies income from Philip Morris Capital Com-oration's financial services and real estate businesses rose 13.9°'0, despite a 10.9°,o drop in operating revenues, as Mission Vieio Company con- tinued to wind down its homebuildinc activities. Revenues from PNiCC's financial services operations crew 19.'?"o, while operat- ing companies income increased 27.-1"%. In 1990, PN1CC 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- ara[uve:y smail xr.en set a,a!nsz -ne ~nancial position o[ !ts parent. Phiiip.Morris GDmoar.:es Inc. In aadition, ?'.ICC's assets do not reflect si.-nincant exposure to iV.everaaed companies or ~rouc:eu industries. .ait iou,n he current eco- nornic cownturn introduces some .:::certaintiesr we F::r,ect ::;e company to con- :inue its oattern of sound revenue : nd income ;rowth. As Mission Vie;o phased out hor;:enuildinQ, operating -D reti-enues deciir.ea 2'7.20%. Operat:::a companies in- corr.e,,_-'e~-:ved from iand plannir.,. deti•elopment, and sa'.es, ir.creased 1.10%0. The Coloraco residential real estate market showed si6ns of :mprf:%ement, with Mis- sion Vie;,Ds Hi3hlands Ranch piannet. ,_om.munitv achiev- ina .he hi,hest market share for ne,,v :;ome sales in the Denver ti: ea. 23

Management's Discussion and Analysis of Financial Condition and Resuits of Operations )Qerating Resuits Operating Revenues Operating 'ncome ,n millions) 1990 1989 1 1988 1990 1989 1388 obacco $21,090 S1",349 ,316.376 S5,596 55.:63 ;3,,_~46 od 26,085 22,373 10,398 2,205 1.580 392 eer 3,534 3,342 3,177 285 226 ;90 inancial services and real estate Operating Profit 460 316 622 196 8,282 1,72 i, 04 l :62 -1,5 90 nallocated corporate expenses Total $51,169 344.080 331,273 (336) $7,946 ;°52) a6,789 ;193) ;4,397 )n.august 16, 1990, the company's wholly-owned subsidiary,'.Craft :eneral Foods, Inc., purchased Colima HoldingAG, the principal sset of which was a controlling interest in Jacobs Suchard AG, Swiss-based coffee and confectionery company. !n September 990, a tender offer was completed for substantially all of the emaining publicly held interests of Jacobs Suchard. The pur- hase price of Colima and the remaining public!y '-Leid interests of acobs Suchard totaled $4.1 billion. On December', 1988, Kraft, Inc. became awhoi'y-owned sub- idiarv of the company. The purchase of outstanding Kraft shares, ~tirement of employee stock opticns and other reiated payments )taled 512.9 billion. The acquisitions have been accounted for as purchases and, ccordingly, operating results of Kraft and .:acobs Suchard have een included in the consolidated operating results of the com- anv since acquisition. 990 Compared with 1989 )perating revenues for 1990 increased $7.1 biilion ~;16.1ao) and perating profit, as defined for segment reporting purposes (oper- ting income excluding unallocated corporate expenses), tcreased $1.2 billion (1 7.6~'0). The inclusion of Jacobs Suchard nce acquisition resulted in $1.4 billion (20.0°,b) of the increase i operating revenues and $89 million (7.2°!o ) of the increase in perating profit. Amortization of goodwill increased 16.4% to $4-18 million in 390, due primarily to goodwill arising from acquisitions, $33 mil- on cf which related to Jacobs Suchard. Interest and other debt ,cpense, net, decreased $96 million in 1990 compared with 1989, ue primarily to lower rates, lower average outstanding debt dur- ig the year and higher interest income. Net earnings increased in 1990 by 5594 million ;20.2°io), due to ~creased operating profit ($1.2 billion), partially offset by a igher income tax provision ($659 million). Interest and goodwill -nortization arising from the acquisition of Jacobs Suchard Kceeded that company's income contribution in 1990, resulting i a dilution in earnings of approximately 5.03 per share. ?89 Compared with 1988 perating revenues for 1989 increased $12.8 billion ;-11.0%) and Derating profit increased $2.5 billion (53.4%). The inclusion of raft for the full year of 1989 resulted in approximately 90% of the .crease in operating revenues and $904 million (36.9%) of the increase in operating profit. The remainder of the increases resulted primarily from tobacco operations. in 1989, General Foods Corporation was combined with Kraft to form Kraft General Foods, !nc., and the company charged 5179 million against pretax income, primarily °or costs associated with this merger. in addition, the company sold its equity investment in Rothmans International p.l.c. for H10 miilion of 10'/a'?% notes maturing in 1994, generating a pretax gain of 5455 million. The notes were subsequently sold with recourse for approYimate!,v $850 million. The net impact of these items was an increase in earnings before income taxes, net earnings and earnings per share of 3276 million, 5152 million and.S.16, respective!y The company's 1988 results included restructuring costs at General Foods. As a result of this restructuring, certain taciiities 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 ,'S3-18 mil- lion, 5212 million and 5.23, respectively. Amortization of goodwill increased to S385 million in 1989, due primarily to goodwill arising from the acquisition of Kraft. Interest and other debt expense, net, increased $1.1 billion in 1989 com- pared with 1988, due primarily to higher amounts of outstanding debt resulting from the acquisition of Kraft. Earnings before cumulative effect of accourLting change increased in 1989 by $882 million (-12. °%), due to increased operating profit (52.5 billion), partially offset by higher :nterest expense ($1.1 billion) and a higher income tax provision ($449 million). Recent Decelopments Effective January 1, 1991, the federal excise tax on beer increased from 39 per barrel to $18 per barrel, and the federal excise taY on cigarettes increased from .S8 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 prod- ucts. Some or all of the foregoing may have an adverse impact on the company's operating revenues and operating profit. The company believes that any interruption of business result- ing from the military conflict in the Middle East will not have a significant impact on consolidated operating results. 4

Statement of Financial Accounting Standards No. 106. 'Emplovers Accounting for Postretirement Benefits Other T han Pensions," issued in 1990, requires companies to accrue :he cost Df such benefits during the employee's period of service. Currently, he company expenses such costs generally as they are incurred. upon adoption, which must occur no later than January l, 1993 for Operating Aesuits by Susiness Segment domestic plans, the additional liability may be recognized either immediately or prospectively over not more than twenty years. The companv intends to adopt SEAS 106 prospectiveiv in 1993 and estimates that adoption will increase annual expense, the amount of which has yet to be determined. Tobacco Operating Revenues Operating Profit in millions) 1990 1989 1988 1990 1989 1988 :M t;.S.A. $10,370 S 9,474 S 8,491 $4,206 53,Su6 $3,087 „vi International 10,720 8,3 75 8,085 1,390 1,457 759 Total $21,090 317,849 516,5?6 $5,596 35,063 $3,846 The following discussion of results excludes PNi International's gain on sale of investment in Rothmans in 1989 ($455 million) and amortization of goodwill. 1990 Compared with 1989 in 1990, Philip :1%lorris US_4.'s operating revenues increased 9.5`•~ due to price increases ($1.0 billion) and volume increases ($43 million), partially offset by unfavorable product mix. Voiume increases in 1990 resulted from new product introductior.s. Philip Morris U.S.A.'s domestic volume (based on shipments;, increased ':.0 billion units to 220.5 billion units. This unit volume growth !ncreased Philip Morris U.S.A.'s share (based on shipments) to -12.2°6, 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 rei;=,cted, in part, a decision by Philip Morris U.S.A.'s competitors to reduce trade inventories by limiting shipments: Philip Vorris U.S.A.'s 1990 increase in market share is understated due to these changes in competitors' trade inventory practices, which depressed their 1989 volume while inflating Philip Morris U.S.A.'s 1989 share. Consequentlv, Philip Morris U.S.A.'s 1989 mar:,et share rose 2.6 share points and 1990 market share rose 0.3 share points. However, in the opinion of management, a more meanir.g`ui indicator of underlying share growth is Philip Morris L'.S.A..'s aver- age annual gain of 1.5 share points over the two-year per;cd. Marlboro continued to be the number-one-selling cigare::e in the United States, with a 26°1° share of the market. In 1990, P::::ip .Morris U'.S.A.'s operating profit increased 1b.b"-o, reEectir., higher gross profit ($914 million), partially offset by higher mar'.;eting expenses (5309 million). The increase in gross profit was Jue pri- maria. to price increases ($1.0 billion) and cost savings, partiav offset by unfavorable product mix ($216 mi;lion'. Philip tiforris International's operating revenues increav vd '-S.0°:, due primarily to increases in unit VDiurne ;S'.-1 ~' ::on. price increases (5331 million) and currenc, : translation :':97 mil- lion), partiail}• offset bv the deconsolidaticn or certain oc:rations. Unit volume of Philip Morris International for 1990 increased 15.5% over 1989, reflecting significant increases in Europe ar,d Asia. Phiiip Morris International's operating profit increased $388 million (38.74%), 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 (S127 miiiion), 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 Philrp :1'forris CS.-1.'s operating reve- nues was due primar,lY 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°%a 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 Lforrr•s 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 currencv translation (5=180 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. Phiiip Morris Interna- tional's operating profit increased S233 million (30.2°,~-), due primariN• to higher gross proEt (5318 millien;, partially offset by higher marketing, administration and research costs i S87 mil- lion). The increase in gross profit was due to price increases (5254 miiiionj and volume increases ;:199 million), partialIyoff- set by currency translation (S92 million; and the deconsolidation of a subsidiar.: r.

continued impact of a 1988 change in business strategy in :ifornia from residential homebuilding to land planning, :elopment and sales. While there is demand for t::e company's ifornia properties, recent develcpments in t^e dcrnestic bank- industry have reduced the financing options available to )spective purchasers. ,'9 Compared with 1988 erating revenues from financial services ;n :989 increased creased million (9.6%) over 1988, and operating profit id ) million (31.7%), due primarily to increased investments in mce assets and interest savings from debt .*e8nancings under- en during 1988. Operating revenues from real estate operations 989 decreased $122 million (26.346), and operating profit :reased $10 million (10.1%) from 1988 levels, reflecting the :nge in business strategy referred to above. aanciai Review sir Provided and Used Cash Provided by Operating Actic•ities ;h provided by operating activities of $5.1 biilicn :; creased in 0 by 817 billion (-16.719%). The increase was relater primarily to ,~er earnings ($594 million) and to less cash usec,`or working ,ital items in 1990. :ash provided by operating activities decreased in :989 by $1.4 ion (27.8%). The decrease is related to the :arge amount of h provided by working capital items in 1988, w;:ica was gener- d principally by a designed reduction of accounts receivable i increase in accounts payable, as weil as an increase in rued liabilities. This increased cash flow was used to fund t of the Kraft acquisition. Net cash used for working capital in 9 was principally due to the reversal of the amount provided in 8. Partially offsetting the change in cash attributabie to work- capital items was an increase of $926 million ,;26.3%) in other rating cash flows, attributable primarily to higher earnings. Cash Used in lncesting Actieities 990, the company paid $3.1 billion for the purchase of Jacobs hard, net of $825 million of acquired cash. In 1988, :he com- .y paid $11.4 billion for the purchase of Kraft, net of 5866 lion of acquired cash. In 1990 and 1989, the company paid an itional $11 million and $388 million, respectively, for pre- isly untendered shares of Kraft common stock. apital expenditures were $l.-1 billion in 1990, approximately ) of which related primarily to expansion and mccernization of Zufacturing and processing facilities of food operations. In 9, capital expenditures increased $222 million over 1988 due narily to the inclusion of Kraft for a full year in 1989. Capital enditures are estimated to be $1.7 billion in 1991 and a total of ) billion for the five-year period 1991-1995, of which approx- tely $1.1 billion and $6.1 billion, respectively, are projected for j operations. In 1989, cash provided by investing activities inciuded $992 million received from the divestiture of the comoanv's equity investment in Rothmans and several food operations. In 1990. the company invested S523 miilion in finance assets as compared with 5481 million in 1989 and $-495 million in 1988. Leasing investments accounted for 69%, 65 ~6 and 399% of these amounts, respectively. .Uet Cash Provided by (Used in) Pinar,cin,g Acticities Consumer Products Debt During 1990, total consumer Lroducts uebt :ncreased by S2.3 bil- lion. The increase represented $3.6 billion of debt issued. $1.1 billion of debt assumed in the acquisition of `acobs Suchard and currency translation of $250 million, parttaily offset by '12.7 billion of debt repayments. At December 31, 1990, the company's ratio of consumer prod- ucts debt to total equity was 1.-1-1, down from 1.36 at December 31, 1989. Fixed rate debt comprised approximately 73% and 66916 of consumer products debt at December 31, 1990 and 71989. respec- tively. The average interest rate on total consumer products debt was approximately 9.2% and 9. 516 during 1990 and 1989, respec- : Total Debt ("ear-Ena) -1 Consumer Produc3a Debt ()-ear-E^d) Botlqrs ot .^,cilars 36 87 08 39 3C ao s - ,, J

;ivelv. At December 31. 1990, :::e average ...teres- rate on total ccr.- sumer products debt, including the impact of :r::erest and cur- rency swap agreements discussed beiow, was approximately During 1989, total consumer products debt ~ecreased by 31.6) billion. The decrease represented 54.0 biilien cr cebt repa~r:er:;s and currenc;, translation of 862 million, par*.iai:v Dffset bv 52.5 bi;- :ion of domestic debt issued to rennance ccmr^ercial paper and bank borrowings arising from the ac~uisiticn i tiraft. During 1988, total consumer preducts debt :ncreased by,'s'10.1 billion, which represented 310.0 biilion of 1debt :ssuances and ~.? billion of Kraft debt assumed at acquisition, par::aiiy offset by S. ; billion of debt repayTnents, as •,ve!l as foreigr, c::rrenc.• translatior.. Total Debt The company's credit ratings were upgraded by `.1oody's in 1;;9u to "P-t" in the commercial paper market and "A2-.`or ;onc-term obii- gations, as compared with ratings of "P-?" and "A3," respectivei'.; ~ at December 31, 1989. The company's credit ra: r.ss by Standard Poor's remained at "a: i" in the commercial paper :narket and "A" for !ong-term debt obligations. At December :31, 1990, the company's total debt-:o-equitv rarC was 1.3 7, down from 1.72 at December 31. 1989. 7ctal debt was 3187 billion at December 31, 1990, compared 31b.- biilion at December 31, 1989. At December 31. 1990, the company `iad interest rate swap agreements'.vith an aggregate notional prir.cipa: amcunt of ;?., billion and a weighted average :naturitv of 1.? ;:ears. These agree- ments provided a weighted average interest rate --f 9.9^'i. in addition, the company has entered into currency and related inter- est rate swap agreements to manage ;nterest ra:e and currer:c'; exposure on certain long-term debt Obligatior.s. :"he aggregate notionai principal amount of these s.vap agreer-:ents ,outstandin, at December 31. 199iJ',vas $1.5 billion, of'.V<<ic`: 5-21 mii:ion related to consumer products debt. The company expects to continue to reftnar.ce :ong-terrn and short-term debt from time to time. The nature and amount of the company's lcng-term and short-term debt and :`e proportionate amount of each can be expected to vary as a res',~it of future bus;- ness requirements, market conditions and other factors. The company's percentages of fixed rate det: and average :nter- est rates for 1990 and 1989 relative to total debt %vere approxi- mately the same as those previously discussed fcr consumer products debt. At December 31, 1990, the company's credit fac!lities amountec to approximately 517.2 billion, inc!uding a 312.-" 'oiilior, reveivino bank credit facility expiring in 1993, of which approximatea. 813.5 billion were unused. These facilities '.vere,.ised to support the company's commercial paper borrowings. The company expects that cash from operat',_r.s and avai:abie credit facilities will continue to be sufilcient to .<<eet the future needs of the business. The company continually monitors its foreigrr currer:c'r exposure. It acts to manage such exposure, w"en deemed rru- dent, through'rarious hedging transactions. Foreign currency denominated debt for which the companv has r.ot entered into currency swap agreements is maintained pr.mar:iy to ;-iedge the currency exposure of its net investments in fore.5n operaticns. Lqu<i •; 1nd 3 ic rde,rids In 1989, the compan°. announced as :ntenticn'.o sper.d !p to 51_5 billion `.o repurchase common Stec:; ,n open market transac- tions at prevailing prices from :ime :o 'ime over a~.vo-; ear period commencing in 1990. In i490, :he ccmt;an'." repurcnased 5.7 mil- iion shares at an aggregate cost tDf 3?21 :,iilicn. The share repurchase program sas temporari': susper:ded in 10190 due to the 7acobs ~ucnard acquisition. Dividends paid in 1990 :ncreased 33.7~ over 1989, reflecting the increase !n dividends declare^ _o 3L;,5 per share :n 1990 from .31.?5 per share in 1989. The quarter: di':ider.d rate estab!ished in .august 1990 is at an annual rate of 31.-? :er ahare. an !ncrease of 35.110% over the annual rate or 51.3''5- estabiished in :?uQust 1989. Return on average stockholders ecuin- -,~as 32.9°,~ in :990 and 31 ' ''1,~ in 1989. Ratio of Total Debt to 2 Stockholders' Equity Stockholders' Equity ~agr-~^d) ] Ratio of Consumer Products Debt to Stockholders' Equity ~'-ear-E^a; A Return on Average Stockholders' Equity '.

~elected Financial Data '11teen-Year Reyiew . a .-.uars ?Yc,~:t ::er 3nare :ata.' ;ummary of Operations: 'perating revenues 1990 :'_3 89 1988 198 "1 1986 $ 51,169 3 1-1.;80 ;1._ ?7,o3t) 3 _- ;.}? nited States export saies 2,928 363 1.892 1,193 i ost of sales 24,430 ?;.363 1'3.3b5 L 2,183 L l.901 ~ -~deral exc;se taxes on products 2,159 ? 1-L0 2.. 27 2,085 ?,J; 5 ~ reign excise taxes on prcducs 4,687 3,608 3,755 _ 3,331 ?,033 ~ )perating income 7,946 5,789 -4.v9',' 3.--' 90 3.63~ :terest and other debt eapense. net consumer procucts 1,635 l."31 670 646 2 ~ arnings before income taxes and cumuiatr:e ~ effect of accounting change 6,311 6..i6u 3,727 3.3µ-1 2."66 retax proftt margin 12.3% 1;.6=ro i 1.9", ''. i°~ 1'J.3°o rovision for income .a.res $ 2,771 3 _.:? 1,663 : 302 3 l,?81 arnings before cumulative effect c•i ucc u~.:`.ng c::anQe 3,540 ::.3-16 '.,J6-1 1,842 1,478 umulative effect of accountin7 c~an?e 273. et earnings 3,540 ?.---46 '?,33" - 1,3-42 1,478 arnings per share before cumulat:ve ef:ec: cr acc:ng change 3.83 3.15 ' i.?-k 11.55 ~r share cumulative effect of acc--untir.s .:^ar.,e et earnings per share 3.83 :'..1 3 '3.J 1 -1 1.JJ ividends declared per share 1.55 1.01 .19 .62 eighted averaQe shares `miiiions' 925 92- 9'~''_ )31 95 1 ~ apital espenditures (,consumer procuca 8 1,355 : 1,'-16 3 1.0'?4-_ 5 T :> 5 o1-8 epreciation iconsumer products', 876 -166 608 561 514 roperty, plant and equipment. e: cr r.sun.rr croc' cts, 9,604 =6 3.648 3,562 6.'_'3 tventor',es ~'consumer produc:s" 7,153 5,731 8.33-1 a.131 3,336 Dtal assets 46,569 38.~23 36.'?6U 7 .9 -182 )tai iong term debt 16,121 :~,361 16,312 6,983 6.387 )tal debt-consumer products 17,182 11 4 7 3J7 Lti.:-1" 0,3:,3 . 0,389 -financial services and reai es-ate 1,560 1,638 1,604 ~ i 37, 8 1.1-iL Dtal deferred income taxes - 2,083 i, 732 1.669 '_',,)-1-1 1,319 .ockhoiders' equity 11,947 3:~ - 1 ;,h ~ 9 6,323 J.oJJ Dmmon dividends dec:ared as a'a oi ne: earnings 40.5% J9.JO'o -10.3'~o - -10 33.1~'?•b ook value per common share 5 12.90 5 1 U.31 5 3.31 -.'? 1 5 3.91 arket price of common share-hi;."1iio',v 52-35 IJ' _ ~J 2Jt'~-2u;1a 3 i 3-153 19' _-1 I losing price of common share at vear-end 513ja -11- e ?D ' z ^ 1= s 18 -ice.-earnings ratio at',Par-end 14 13 10 '; 11 umber of common shares outstan-~ing ?t vear-end :miliions} 926 9?'3 924 _ 247 361 umber of employees 168,000 13 7,')00 153,000 , .:3,Q)00 11 1,000 Operating income is income before lnterest anc a::er cebt esper.se. ~et. Certain prior years' amounts hase :;een rec:assi5ed :o conform wh the current ar's presentation. See Note 2 of the notes to consoliciatec iranc:ai :.atements regarcing the quisition oF.acobs Suchard AG in ;'adr, ar•.c Kraft, :ac. :n ;955. ._-:,csofilated ,utts of the company include the •)perattng resuas a these ccmpanies since eiracquisition. See Note 3 oF the notes to consoridated 'inancial _tatements regar,v;ng :-39 and 1988 restructurmg charges •J:ood ooerat:ons and t:x :369 aaie of ;`e c~mcarn's investment !n Rothmans tnternational p.Lc. ~ See Note IO of the notes to consotidated "nnanc:a: s:atements regardtng :^e ~ company's i9?8 adopt:on of the rr:etr.od ?t account:ng 'Or ::c:•me :axes :__ _r!bec bvStatement of Financ!alAccounttng 5tannards No. :h. C (.)1 ~ ~ ~ t a

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.onsdrdatad Balance Sheets n ~„ ~;onsof:ol I ar5, Cecember31, 1990 !9Rs 'SS83s onsumer products Cash and cash equivalents $ 146 S '. 13 Receivables, net 4,101 ?•?50 Inventories: Leaf tobacco 2,458 •?,?~)'2 Other raw materials 1,934 • 1,521 Finished product 2,761 7,153 2,!)?3 5,'3 i Other current assets Total current assets 967 12,367 9 Property, plant and equipment. a: cost: Land and land improvemer;ts 664 61 ; Buildings and building aquipment 4,004 3,SS-l ytachinery and equipment 8,480 ~•305 Construction in progress 1,133 14,281 387 i2,3S7, Less accumulated deprec:ation 4,677 9,604 3.301} 3,-t5 7 Goodwill and other intangible assets f less accumulated amortizaticc or :1, :-h -w.c : 7-kS 19,037 13,53? Other assets Total consumer products assets 1,675 -12,683 1,569 35,038 ,nancial services and real estate Finance assets. net 3,220 `?•S-lS Real estate held tor developmer,: and sa!e 418 383 Other assets Total financial services and real estate assets 248 3,886 ? i'3 3,440 TOT.aLASSETS $46,569 ~35,333 e notes to consolidated "hnanctal ~tateme^ts.

Philip'vtorris Companies inc. and Subsidiaries 1990 1989 iabi8ities =onsumer products Short-term bon-owings Current portion of long-term debt Accounts payable Accrued liabilities: Taxes, except income taxes - - - Employment costs Other Income taxes Dividends payable Total current liabilities Long-term debt Deferred income taxes Other liabilities Total consumer products liabilities 'inancial services and real estate Short-term borrowings Long-term debt Deferred income taxes Other liabilities Total financial services and real estate liabilities Total liabilities :ontingencies (Note 13) =tociChoiders' Equity :ommon stock, par value $1.00 per share (935,320.439 shares issue::: amings reinvested in the business urrency translation adjustments Less cost of treasurti• stock (9,101,348 and 6.790.848 shares; Total stockholders' equity TOTAL LIABILITIES.kND STOCKHOLDERS' EQ,UITy' $ 1,034 ,"s 489 863 752 2,-#62 1,917 851 596 832 805 3,553 2,376 1,366 i,i90 399 318 11,360 8,943 15.285 13,646 1,316 897 3,499 2,622 31,460 26,108 724 633 836 905 1,382 1,111 220 200 3,162 2,849 34,622 28.957 935 935 10L960 _ 9,079 561 143 12,456 10,157 509 586 11,947 9,571 - - o $46,569 838,528 33

a,onsolidaied Statements of Earning.'a :n mUltcns ot coliars. exceot yer ~nare :ata r the ; ears ended December 3 I. 1990 ~y49 :988 ~perating revenues $51,169 :a l,~ 80 531.273 ost of saies 24,430 3t:8 13,;;65 xcise taxes on products Gross profit 6,846 19,893 5,'18 16,464 3,382 11,326 larketing, administration and researc^ c:,sts 11,499 a,^90 7,304 mortization of goodwill Operating income 448 7,946 385 h, i 59 125 -k,39 iterest and other debt espense, net Earnings before income taxes and cumuiatice 1,635 '3 i 670 effect of accounting change 6,311 ;,,?5 n 3.-2 rovision for income taxes Earnings before cumulative effect c;f accountir.x :.nange 2,771 3,540 2,~~~1b --h3 ..,!:~-1 umulative effect of change in method .-)f accounting for income 'a.Yes Net earnings 3,540 _. ' ''7 3 5 er share data: Earnings before cumulative effect of acc ur.t'rr.r --aange $ 3.83 ; 3.: 8 3?.2`_' Cumulative effect of accounting change Net earnings $ 3.83 : .3. 1 S 'Q 5 2.51 -e notes to consolidated 5nanc'.ai >tatennents. t

Consolidated Statements of Stockholdersj Equity r~ ': aiars ~.tce:t -er snare :a:a. Additional Commcn Paid-in 3tcck Capital Earnings Currency Reinvested Translation ;n the Adiust- Business rne.n,is Cost ~r Treasury S toct; Totai 3tock- `;oiders' =.zutt,. Baiar,ces. ~ar.uarv L 1983 $ 5240 32"2 36.13 ~ lµ6 3 3~,323 Net earnings 2,337 •'.33 ~ `rYercise cf stock opticrs, units ;20) _ 48 ? q Cash dividends dec!ared : 1. 01 per share - ;y-1 i. .94 1.. Currer;cy transiation adjustments :includin, inccme tax provisions of .526~ 29:~ ?9 Stock purchased Balances, December 31, '.?kx _'-'.~? ;"•833 117 703 -37a Net earnings •_'.'.346 Etercise of stock options, uniis and issuance of cther stock awards prior;o stock split - - :35j Cash dividends ceclared Sl.?5 per share ;.159) Four-for-one stock split ,_? t;,, .4 ; .,_, Exercise of stock epticns,un<<s and issuance of other siock awards after stock split .63) Currency translation adjustments r.et of :ncome tax provisions of 3-1) Balances, December 31, 1'?39 ---- - ~ 933 - - _.. . _ - _ 36 9,079 143 - - . - - 3 c: ~=-- - 6 - i --_ Net earnin;s 3,5-40 3.540 Exercise of stock options, units and issuarice of other stock awards (218) 298 80 Cash dividends declared - ~- - - - -- `;1.36 pershare ~ (1,-13..) ~ (1,432) Currenc•: translation adiustments (:inc!udin; income tax beneFtts of 31 7) 418 418 Stock purchased - - - L2°_ 1) (221) Other Balances, December31. 1990 $935 $- (9) $10,960 $561 $(509) (9) $11,9-17 i~ee notes to consol!dated ;inancial staterrents. 31-5

Consolidated Statements of Cash Flows rthe ;:ears ended December 3 f, 1990 1989 1988 :ash Provided By (Used tn) Operating Activities ~et earnings-Consumer products b 3,400 S?.3 i > 2.: 7 3 -Financial services and real estate Net earnings 140 3,540 129 3,'?16 164 ::.337 ~djustments to reconcile net earnings :o _perating cash rlows: I onsumer products Depreciation and amortization 1,367 1,194 7 ; 9 Deferred income tax provision 108 13s -iJ; Restructuring charges 179 3-18 Gain on sale of investment in Rothrr.ar,s in.terr.a::onai p.l.c. ;;-135:, Gains on sales of businesses (104) Cumulative effect of change in method cf acc~.u~aing for income taxes ..?32 ,, Cash eifects of changes, net of the e:fec:s :rom ac-,,jired companies: Receivables. net (249) 7i 3;. 601 Inventories (699) 1131; ~ Accounts payable 100 : 7 1 -lU6S Other working capital items 730 203 330 Other 378 201 0 'inancial services and real estate Deferred income tax provision 277 217 175 Cumulative effect of change in :r.et`:od vi acc: ur.t'.ng ;or income taxes Decrease in real estate receivables 32 •, 2 13 Decrease (increase) in real estate he:d :or ,:eve:,;pment and sale (41) ;7~• 1n8 Other. Net cash provided by operating ac::%-::;es (6-1) 5,385 (-l) 3,672 83 5.ii83 :ash Provided By (Used 9n) lnvesting Activities :onsumer products Purchase of Jacobs Suchard AG, net _f 3cu::ired cash of •3823 (3,116) Purchase of Kraft, Inc., net of acquire:: cash ~f in :988 (11) (?85j i I.36S' Purchase of other businesses, net of acquire.-4 cash (160) Proceeds from sales of investments :.r:c busir.esses 159 J9'? 44 Capital expenditures (1,355) (L2-46~1 J1.02-l) Other 246 3'? ~_ inancial services and real estate Investments in financeassets (523) (-141) Proceeds from other finance assets _ 111 190 69 Other Net cash used in investing activities Net cash provided by i_used in;" operating ar.d investing activities (1~) (4,666) $ 719 (1,251; S 2,-1? 1 1 ;1•?.7 lb' 8 ~7b28) •e notes to consolidated financial statements. j

1990 ;9 9 1'?88 Cash Provided By (Used In) Financing Activities Consumer products Net issuance i;repayment) of short-term borr aings $(99~ ;~,~90) .5 3, 761 Long-term debt proceeds 3,5% - ', 3-I 1,21'? Long-term debt repaid I-1~ ~36i; Purchase of treasury stock l ~ --~. ,,,_ tJJ I Dividends paid ~;0 I; -895) Issuance of shares 3Qf J Other Financial services and real estate Vet issuance (repayment) of short-term borr.:,Jngs 91 ~ oii (2U) Long-term debt proceeds ~ 201 Long-term debt repaid Net cash provided by (used in'l nnar.c::a ;c:i,;ties (182) (791) .,,. ^., .~: 7,750 Effect of eschange rate changes on cash ;r.c c:a:i equiva.ents Increase (decrease) in cash and cash eaui<.ate:::s 100 • •-' 8- .luJ ~d; ~1a'r 73. Cash and cash equivalents at beginning of _:ear Cash and cash equivalents at end of,, ear 118 146 i68 lx ao Cash paid: Interest-Consumer products ~ -Financial services a;.d re-z: _s:ate ~ Income taxes 6 1.511 100 . 2,027 , `-' o i-3_13 J 3 J7y 1.~)?3 37

i©tes to Consolidated Financial Statements ote 1. Summary ot Significant Accounting Po7icies: 7sis of presentation: :e consolidated financial statements inc!ude all signiFicant :bsidiaries. Balance sheet accounts are segregated by t•,vo broad types of isinesses. Consumer products assets and :iabilities are classi- :d as either current or non-current,'whereas :he accounts of :ancial sen•ices and real estate are unc'.assifled, in accordance :th respective industry practices. Certain prior jears' amounts have been rec!assined to conform th the current year's presentation. rsh and cash equicalents: ish equi-Yalents include demand deposits with banks and all ghly liquid investments with original maturities of three onths or less. :-entories: ventories are stated at the lower of cost or_market. The last-in. st-out ("LIFO'), method is used to cost substantiallv all domes- ate 2. Acquisitions: i August 16, 1990, the company's whollv-owned subsidiar4•, aft General Foods, Inc. purchased Colima Hoiding.iG. the prin- )al asset of which was a controlling interest in 1'acobs Suchard ;, a Swiss-based coffee and confectionery. company. In Septetn- r 1990, a tender offer w•as completed for substantially all of the -naining publicly held interests -of ;acobs Suc: ard. KGF retained rtain coffee and confectionery operations of Jacnbs Suchard d sold to the former owner of Colima certain assets which >uld aot fully integrate into the KGF structure, inc!.:ding the Justrial chocolate business, the Canadian coffee business, por- ns of the U.S. confec:ionerv business and interests in three eign banks. The acquisition has been accounted for as a pur- ase and, accordingly, operating results of Jacobs Suchard have en included in the consolidated operating results or the com- ny since acquisition. The aggregate purchase price. net of lounts received for businesses sold,,.vas S-l.: billicn which .vas anced with the company's credit facilities, internal lv generated Zds and a SFr 250 million note payable. The estimated fair value of assets acquired ar.d liabilities sumed totaled 53.0 billion and $2.4 billion, respective!y. The cess of the purchase price over the estimated fair vaiue of the t assets purchased was approximately S3.5 bi1'ion and such -ess is being amortized over 40 years by the straight-line ~thod. The allocation of the purchase price is based upon pre- linary estimates and assumptions and is subject to revision ce appraisals, evaluations and other studies of the fair value of , acquired assets and liabilities have been compieted. tic inventories. The cost of other inventories :s determined by the average cost or nrst-in, first-out methods. :t `.s a generally recog- nized industry practice to classify the total araount of :eai tobacco inventory as a current asset aithough part of such im•entor-,; because of the duration of tl e aging process, ordinarilywould not be utilized within one year. Income taYes: Effective January 1, 1988, t111e company prospectively adopted the method of accounting for inccme ;axes prescribed wStatement of Financial .-~ccounting Standards No. ;"SF-.S"': 96, '.-\ccounting for Income Taxes." See Note 10. Deprec.'ation and amortizat:on.: Depreciation is recorded bv t;;e straight-'ine method. Substan- tiaily all goodwill and other :r:tangible assets are amortized by the straight-line method, principa!1y over -i0 ;:ears. Had the acquisition occur.red at the beginning of i990 and 1989, pro forma operating revenues, net earnings and earnings per share •.vould have been apprcximatei;:• 5-4=.7 biilion, 33.-: biilion and 53. 7-1, respectively, for the year ended December 31, 1990 and 547.8 billion, .52.7 billion and S2.K9. respectiveic, :or the year ended December31, 1989. On December 7, 1988, Kraft. Inc. became a•.d hcily-owned subsidiary of the company The purchase of autstanding shares, retirement of employee stock options and otl:er related payments totaled approximate!yS1`'.'9 billion. The acquisition has been accounted for as a purchase and, acccrdingly. operating results of Kraft have been included :n the consolidated operating results of the company since acquisition. The purchase price exceeded the Pairvalue of the net assets acquired by 512.2 bil!ion and such excess is being amortized over -l00 years bv :i,e straight-line method. The tair ~.alue of tar:::bie assets accu:red totaled 35.3 billion and long-term debt and other ;iabiiiti.es assumed totaled :5-1.-3 billion. Had the acquisition of Kraft occurred at the beginning of 1988, pro forma operating revenues, net earnings and earnings per share wouid have been apprc:ximateiv 5-13.0 bil- lion. 31.5 billion and $L63, respecti,:e!y'. Pro forma results are not r.ecessari!y:ndicative of what actuall~would have occurred if the acquisition had been consummated at the beginning of each year, nor are they necessarily indicative of future consolidated results.

Note 3. Restructurings and Divestiture: In 1989 General Foods Corporation was combined with {rait to form KGF. The company charged 5179 miilion against pretax income which was primarily for costs of :.'~tis merger. In addition, the company sold its equity investment !,-, Rothmans International p.l.c. for ~610 million l0"4?o notes maturing in 1994, generating a pretax gain of .3455 million. These ::otes were subsequently sold with recourse for approximate!y 8830 mil.ion. The net impact of these items was an increase in earnings before income taxes, net earnings and earnings per share of 5276 tillion, 5152 million and S.16, respectively: In 1988 the company provided for restructuring costs at General F oods. As a result of this restructurtng, 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 bv 33-18 million, $212 million and 8.23, respective!y: Note 4. lnveniories: The cost of approximately 56°% of inventories in 1990 and 60"'0 of and $770 million lower than `.he current cost of inventories at inventories in 1989 were uetermined lsing :he LiFC. method. Tne December 31, 1990 and 1989, respec:iveiy, stated LIFO values of inventories were approximatelv,5880 million Note S. Short-Term Borrowings and Borrowing Arrangements: At December 31, the company's short-term oorrowings and -elated average interest rates consisted `f the following: 1990 ;in millions) Arr.our t 4utstandir.g A%,erage Year-End Rate -kmount Outstanding Average Year-E: d Rate Consumer products: Bank loans 3 1,661 9.2vo Commercial paper 4,576 8.4% ^' v1~ 3 Amount reclassified as :ong-term debt (5,203) c 1,034 Financial services and real estate: Commercial paper $ 724 8.2% 3 i33 S.4'0 The compan,; maintains credit facilities with a number of :end- ing institutions, amounting to apprcximately 517.2 billion at December 31, 1990. Approximately S13.3 biilion of these facaties were unused at December 31, 1990. These facilities are used icr acquisitions and to support the company's commercial paper bcr- rowings and are available for other corporate purposes. The company's credit facilities include a revolving bank credit agreement expiring in 1993 for .312.0 billion which enables the companv to refinance short-term debt on a!or•.g-tertn basis. Accordingly, short-term borrowings intended to be rennanced ha~e been reclassified as long-term debt. Certain of these facilities limit payTnent 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 32.0 biilion of earnings reim•ested `.n the business was free of such restrictions. 3 '

lotes conttnued; ote 6. ;l.ang-Term Debt: December 31, the company's leng-term debt :-_nsisted of the following: 1 millions'i 1990 i989 ,nsumer products: Short-term borrowings, reclassified $ 5,203 ~ 7.)52 Votes,'"0o to 13.3^6 (average effective ra;e ;.'?O1o.,, due through'3000 7,518 5,-49" Debentures, 3% to 10. 5'-0 ;average effecr.e rate :...;'-) 1, $1.7 billion face amount, due through 2017 1,354 Foreign currency obligations: Swiss franc, R{°tii to 8? s1~, due :hrough 2005 828 491 Deutsche mark, 2'4ao to 6°-0, due :hrough 199" 435 3C-1 Japanese yen. 5?q?~o and 6' 2°/0, Jue 1992 and i' 9: 249 239 Other 2.}0 Other 321 16,148 332 i-1,3 98 Less current portion of long-term 1~ebt, net ;,f ;i.0 -1.ti!ion reclassified as !ong-term debt in 1989 iancial ser:ices and real estate: (863) $15,285 52; 5 i3.6-16 Vctes, 9.25?~ to 12.35°0 (average -ate due :nrcugh 1993 $ 125 ~ ^00 Zero coupon bonds, 1'3.3"~ effecti~e rate, :_')0 rnii;:on ace amount. due 1991 130 1 15 Foreign currency obligat;.ons S w i s s franc, -1'.'a?'o and -4' ;=o, due : y93 .,r:d 1991~ 285 _30 Steriing, 11' e°6, due 1995 149 :20 Other 147 $ 836 ^_-l ) ~ u05 ~e company has entered into currenc.; and related interest rate ;ap agreements with third parties to manage exposure to inter- t rate and currency movement on certain -obligations. As a sult, the effective interest rates and currency denominations av differ from those set `-orth in this note. The aggregate notional incipal amount of these swap agreements outstanding at ~cember 31, 1990 was $1.5 billion. The ag;regate maturities of > notional amounts of these arrangements are as follows (in mil- 'ns): 1991-$13-1: 1992-$729: 1993-7-103 and 1996-7196. Market lue gains and losses on these swap agreements are recognized d offset the related foreign exctiange gains and losses on the -eign currency denominated debt. In addition, at December 311, 1900. the company had interest :e swap agreements with an aggregate notional principal .IOunt of 52.-1 billion. These arrangements; with a weighted aver- e maturity of 1.2 years. 7,rovided a weighted average interest :e of 9.0°%. The differenttal to be paid or received on these sw*ap reements is included in interest and other debt expense, net as :erest rates change over the lives of the respective agreements. The company is exposed to credit loss in the event of r,on- performance by the other parties to the swap agreements. However, the company does not anticipate nonperformance by the counterparties. Aggregate maturities of lon;-term debt, excluding short-term borrowin;s rec!assified as long-termdebt, are as follows: (in millions) 1991 1992 1993 1994 1995 1996-2000 2001-2V05 Consumer products Financial services and real estate 8 863 S 13 1,628 12 975 405 951 200 1,480 149 -4,186 127 58-1 The revolving credit facility under which the short-term debt was reclassified as long-term debt expires in 1993 and any amounts then outstanding mature.

Note 7 Capital Stock: Effective September 15, 1989, outstanding shares of common stock were split four-for-one. All references in the financial state- ments to weighted average numbers of shares and related prices, 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 Treasurt- Outstanding Balances, Januan• 1, 1988 239,618,948 (2.992,463', 236.626,485 Exercise of stock options/units 661,760 661.760 Purchased Balances, December 31, 1988 239,618,948 (6,257,300) (8,588,003) ;6,257,300) 231,030,945 Exercise of stock options/units and issuance of other stock awards prior to split 869,552 869,552 Four-for-one stock split 695,701,491 695,; 01,491 Exercise of stock options/units and issuance of other stock awards after split Balances, December 31, 1989 935,320,439 927,603 (6,790,848; 927,603 928,529,591 Exercise of stock options/units and issuance of other stock awards 3,384,700 3,384,700 Purchased Balances, December 31, 1990 935,320,439 (5,695,200) (9,101,348) (5,695,200) 926,219,091 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, 31.00 par,,,alue. 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. When exercisable, unless a person has acquired 10a6 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 S. Stock Plaris: tnder the 1987 Philip biorris Long Term Incentive Plan. the corr.- ,anv can grant to eligible employees stock options, stock jppreciation rights, restricted stock, deferred stock, stock pur- _hase rights and long-term performance aw-ards. Such ;rants ciay be for cash and up to 32 million shares of ciommon s-Lock. Under previous option plans, eligible employees -,:e.re Jranted )ptions to purchase common stock of the companyat marKe: >rices on dates of irant. Under one such plan. units .vere raraed • hich permit the holder to purchase shares of common st~,c:; at shares of the acquiring company having a value of twice the exer- cise price. If any person acquires 100ob 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 5.01 per right before any person acquires l00'0 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,=101,=120 shares of common stock were reserved for issuance upon exer- cise of the rights. market prices on dates of grant or to receive the appreciation value (the excess of the market price at the date of exercise over the market price at the date of grar.: : in the form of stock or stock and cash. Appreciation value may he received with respect to the equivalent of 50°0 of the units grar.,ed. At December 31, 1990 and 1989. opt:ons and units were exer- cisable for 16,177.150 shares and '. 2.56! _I,1 611 shares. respec- tivelv. Shares available to be granted at December 31. 1990 and 1989 were 9.021,081 and 15,1185.7 12. respec.ivelv. -1;

btes continued) )te 8. Stock Plans (continued): tions/units activitv was as follows for the years ended December 31, ance, beginning of year Granted Exercised Cancel led ance, end of year ige of exercise prices at year-end .nt prices 1990 !'? a 1988 19,942,060 1 b,31 7,JZS :5, 105,184 6,200,846 , _' "6, ) 7 6 -1,3 73.052 (3,619,610) 3,01~.33-1! (17-4, 735) °-t-1.02-l 22,348,561 19.31'~,3r;0 ;6,317, 52 3 $6.#3435.-12 ;6.43->2'_.;,8 :-I.,Y"-32^_.33 $46.94 and $-§7.00 :35.-2 and ;3,..38 ana 3^_0.?9 1990, 1989 and 1988, the company granted 75,000 shares, pledge or otherwise encumber suc: shares. and such shares are ?,000 shares and 33,332 shares, respectivei..; of re_tric:ed stock subject to.forfeiture in certain events. At December 31, 1990. )fficers and key employees, giving'.h,em in :; ost'.::stances all of restrictions on 616,33-1 shares re.main, ;,er =; :vrfe::ures. :,r:d will rights of stockholders, except :hat :he1 mal: :~ot _zeil, assign. Iapse' in varying amounts through 1996. )te 9. Earnings per Share: 'nings per common share have been calculated cn tce weig'nted year, •,vhich •.Vas 925,190,333, 926.520,510 a.... 'a31.348,30 ! for ,rage number of shares of common stock outstar.c:ng ror each 1990, 1989 and'.988, respective11.-. )te 10. Pretax Earnings and Provision for 3ncome Taxes: active January 1, 1988, the company prospectivei,.' acopted the wisions of SFAS 96 and changed its method of c-- rr:puting erred income taxes from the deferred method used ir. prior trs. The adoption of SF.a,S 96 increased 1988 ret _araings and nings per share by 5213 million and .8.23, respec_iveiy. ['he cumulative effects as of Januar: 1, 1988 of adcptmg SF.1J were decreases in deferred income :a:{es of 57316 miiiion and Awill of ,5-163 million, and an increase in 1988 ;:e: earnings and millionsj tax-earnings: United States Outside United States Total pretax earnings vision for income ta_xes: United States ;ederal: Current Deferred State and iocal Total United States Dutside United States: Current Deferred Total outside United States Total provision for income taxes earnings per share of $2 73 million and ':.213.: es,-ecriveiy. Pur- suan to the provisions of SF.aS 963, such cu:-:uiative effects at adoption included 3105 million cf excess ~_e:erred tax benents, which have subsequently reversed. Applica:'.on c,r SF.a.S Oh uring 1988 decreased earnings before cumulative eifec: Df accounting change by 360 million (3.06 per .:hare;, res'.::ting primartll: frem the reversal of the aforementioned excess ~ererred :aa benetits recorded upon adoption of.SF.aS 96. 1990 i'?4,~ $1,713 :-l.' _ >3.io7 1,568 $6,311 ? -. ~~..-_ $1,-#81 :I S 935 350 1,831 3 1.13~ 332 2,163 15' ,,6-. lai 1.3_,a 573 „-. -1(12 35 608 $2,771 n~ 414 52,1 '.'_' ~c5) 334 31,663

kt December 31, 1990 applicable United States :ederai income abroad. If these amounts were not considered ; ermar:ently rein- taxes and foreian withhoiding taxes have not been provided on vested, additional deferred ta.Yes of approximately 3i-30 million approximate!v `5L3 bi;lion of accumulated ear^ings oi foreign would have been provided. subsidiaries that are expected to be permianenf:., reinvested The effective income tax rate on pretax -~rnin~s differed from :~ e C;.S. federal statutony rate for the foliowing reascns: 1990 I'~2'S9 ia-8 $ in millions) Ariount 'lb Amount ? :ar,:ount 'l Provision computed at U.S. `ederal statutorl: rate $2.146 34.0% ;i.;''0 3-l.J"10 51,_'6" ?1 )Oo ,nceases decreases) resulting from: State and bcal income taxes, net :,f federal ta.e benetit 215 3.4 1?1 3. l-, b 11.> Repatriation of foreign earnings 62 1.0 5 1 .. i 7 l t Excess deferred tax benetits 38 0.6 ', u. i; ~ ?. ; Rate differences-foreign operations 66 1.1 _'3 ?.3 L,~ Good,.viil amortization 146 2.3 l~s '.S 43 Other 'rovision for incame tases Deferred income tax assets liabilities! ir.cluded in the 98 S2,7 71 1.5 -13.9% 3'.; :_ -i1.3?- .31.303 -4-k.^= consolidated balance sheets were as ;aiiows: in miilionsl Dther current assets ncome taxes Deferred income taties Cc;nsumer products Financiai services and real es;ate December 3 t. December 31, 1990 i989 1990 1989 } £ 619 S '3; $ (1) J i l (1,316) "8a7) (1,382) 1,111' ~ (-,01) $(1,382) 3(1.111 The major types of temporary differences that give rise to de- the book and tax bases of property, plant and equipment, invest- 'erred income tas assets and liabilities are differences bet~~een ments in finance leases and accrued liabilities. 43

J©teS continued: )te 11. Segment Reporting: bacco, food, beer, and F~nancial sen,ices and reai estate are the yor se,rnents of the company's operattcns. "`:e ;^mpany's nsolidated operations outside the C.'nitec States. -.vhich are ncipallv in the tobacco and food busit,.esses. are xganized into Dgraphic °egions by segment. with Europe *he most significant. ersegment transactions are not reported separateiy since they not material. =or purposes of segment reporting, Doeratin; pr,ht is operat ; income exc!usive of certain unailocated ccrpcrate expenses. See Note _ regarding the acquisitions of Kraft ar,d certain opera- tions of Jacobs Suchard and Note 3 regarding food restructurings and the sale 5v the companvs tobacco business of its investment in Rothmans. Substantiallvall coodwiil amortization is attribut- able to the food segment. Identifiable assets are those assets appiicable to the respective industry segments. Reportable segment,;ata reconciled to the consolidated financial statements were as rollows: :a by Se3ment'or '~e }'ears ended December 31, in -:::iions) 1990 1 '3K9 1968 ?rating revenues: Tobacco $21, 090 5 17.34"9 31, c.579 Food 26,085 iC. 9g Beer 3,534 .3,34' 3 3.:7' Financial services and real estate Total operating revenues erating profit: 460 351,169 34-1.`)hC1 531.?"3 Tobacco $ 5,596 ; Jr3 5 3.3-4ti Food 2,205 1,5c ; 30 7 Beer 285 2 2 3 ic0 Financial services ar:d real estate Total operating profit 196 8,282 1-3 i.u4i :53 4,15 ~ 0 C.'nallocated corporate expenses Operating income ntifiable assets: 336 $ 7,946 '35? 3 5,759 5 -1.,:9- Tobacco $ 7,6-14 S 3,7=0 Food 32,336 ?55 .9b 3~ _'a, S"-) Beer 1,612 1, .5 c~ i3 Financial services and real estate 3,886 45,478 3.-1-1: 37,753 3. i h? 35.e~:3 Corporate assets Total assets )reciation expense: 1,091 $46,569 769 538,32k l.I, u- 53ti.1•rJ Tobacco $ 282 3 246 .5 =1; - Food 438 356 Beer 141 137 13t~ Financial services and real estate 1 )ital additions: Tobacco 324 3 42 , 3 4r7. Food 860 7 3 3 ;~a Beer 99 8o ;6 oC

Data by Geographic Region for the years encec December 31, •;in :r.iilions) 1990 i? G 1988 uperating revenues: United States -domestic $33,086 , s30.S9t7t. 320,61 -export 2,928 ','88 _ 1,363 Europe 12,47-1 3,/60 „, 7,078 Other Total operating revenues Operating profit: 2,681 $51,169 2,'42 ;-!-k,ub0 1,'15 .531,273 United States $ 6,715 -_3 ,.;6i ..- S 3,:175 Europe 1,173 392 :<: •149 Other 394 '~'8 166 Total operating profit 8,282 ~ C 1' . -1,390 Unailocated corporate expenses 336 ~5 z 193 Operating income $ 7,946 3, _9 3 4,397 [dentifiable assets: . United States $32,968 ~53'2,u#S , S30,638 Europe 10,906 1,210 _. 3,604 Ot1:er 1,604 i,5~) k 1,421 45,478 3#,;. 0 . _ 35,663 Clorate assets 1,091 '09 1.'2a" TOtalassets $46,569 8. 38 336,960 Note 72. Retirement Benefit Plans: Pens;'on P!ans The company adopted SPAS 8 7 for its U.S. per:sicr. plans in 1986 and for its non-U.S. plans in 1989. The company and its subsidiaries sponsor,er.contributor: defined benefit pension plans covering substantially all (.'.S. employees. The plans provide retirement benents `or saiar:er employees based generally on years of service and compensation durin; :he :ast years of empiovment. Retirem.ent tenents for hour:%- employees generally are a flat dollar amour.t for each•.ear of service. The company funds these plans in amounts consistent with 'he funding requirements of federal la,.v and regulations. Pension coverage for employees of the compancs non-U.S. sub- sidiaries is provided, to the ex,e:;t ceemed sppropriate, through separate plans, many of ,rhich are ;overned bv local statutorv requirements. The plans provide cension benetits that are based primarily on years of service and cmplovees salaries near retire- ment. The company provides rcr obli;ations under such plans by depositing funds With trustees or purchasing insurance policies. The company records iiabilities :cr snfunded foreign plans. L:S P'ans Net pension cost consisted of the following ccmpenents: (in millions), Service cost-benefits earned during the yesr Interest cost on projected benefit obiigation Return on assets-actual -deferred gain tloss'; amortization of net gain upon adoption of SFa.S ~" Net pension cost 1-990 1983 $ 141 S L•_'? ~ 102 315 _, .303 216 263 ~~ 38' ~ t3"2) (6Fi) ~v8 108 (28) l•~5 ~281 b 20 's 33 S '26 -~tJ

WeS e--2nunue,;. ate 12. Retirement Benefit Plans (continued): e funded status of l.3. plans at December 31 •.vas as `oi!ows: millions: tuar.al Gresent':aiue ,.,t acc'lmuiate,> >ene.^,t ~cil~at7:n-':ested -ncm•ested aents attributabie to proiected saiaries >iected benent ~Ibligation n assets at 'airvalue _ess of assets cver projected 'oenent ociigaticn amortized net 3ain upon adooticn or`SFaS 8z recognized prior service cost recognized net ;8ain) ioss trom experier.ce r.'i[ferer.c=s Prepaid pension cost e proiected be.^.eht,)bli,gation at .'~'~ecember,3l, .:-`~.'''). pUu9 and 38 was deterrined using assumed discount rates ,-~i J 81respec:it'elV, and assume'd --Cmpensancn ;::cre,ases Jc to 7'o, 60'a to 7''6 and 6"'9 to 7- , rPspectiveiv. TI-.e assumed tg-term rate of return on plan assets was 9"o at December 31. 30. 1989 and :988. Plar: assets consist princ:pai:,, if c•-mmcn :ck and ftxed income securities. 1990 $?.948 230 3,178 _, 898 4,076 4,68-1 608 (289) 167, 53 ~ 539 The company and certain )F;,s =uc,sidiar:es sponsor deferred profit-sharing plans coverin, _e..,.l., Sa;ar:ed, n onunion and 1nI0n employees. rontriblltlcns an G C^sts are gene."ailv deter- mined as a percentage of cl-nsciidated pretax earnings, as denned bv the plans. Certain otner subsi4iaries of the company also maintain dehned contribution ;:,ians..-:rr,ounts cha ,ed to expense ior de!lned contributtnn pians totaled '`209 mlllion, 3180 million and 3136 miil',cn ;n 1990, :989 and 19 8• respectively. n-L:S. Plans t pension cost in 1990 and 1989 ccnsisted of th e:ci:;;vtiing c,~_mponents: mtutons P vice cost-benettts earned during :he :.ear -rest cost on.::roiected ber.etit ob!igation urn on assets-actual -deferred gain ,loss' ortizaticn of r.et ;ain upon adoption .r SF.aS 5" Net oe.^.sion cost 1990 $ 41 8? ~3 25 (100) e effect of the adoption of SF.aS 57 for ncn-[.'.5. p:ans •.vas ~ict significant. Pension cost for 1988 was 535 miliion.

The runded status of t;;e non-L:.S. plans at Decen;ber Ol was as follows: in ^iillions~ _ -kctuarial present :aiue ot accumulated benen; ;biixation-•:ested -nonves ted Benefits attributabie :o proiected salaries ?roiected lenetit obligation Plan assets at'air value Plan assets in excess of i less ['nan i proiected bene^t :,iigation L.'namortized r.et ~'gain) loss upon adoDtion of 5GAS ~' Unrecognized net +:gain) :oss from experience -:ii:ere::ces Prepaid !accrued' pension cost The assumptions used in 1990 and 1989 were -as `Oilo~vs: Discount rates Compensation increases Long-term rates of return :n plan assets Plan assets consist primarilv o(common ;tc,c:-: `ixed inc.:-rr.e securities. Other Postretirement Benefits The company and its domestic subsidiaries rro•::ce certain':ealth care and other benents to substantiaily ail retirel.: empioyees. The costs of suc ~ benefits are expensed ,er.era::: as i^.curre , although liabilities forvested bener,ts were rec-c-rced !n connec- tion with the acquisitions of General Foods and tiaft. a.mounts charged to expense related to such benefits ;~a~.e not been significant. Statement of Financial .accounting 3tandarl's `~a 106, "Employers'Accounting for Postretirement Eer.e^ts Other T!:an Note 13. Contingencies: There is litigation pending against the •.eading United States ~:igarette manufacturers seeking compensatory and, in some _ases. punitive damages for cancer and other heaith ef;ects alleged to have resulted from cigarette smok,ing. Philip Morris incorporated, a whollv-Owned subsidiary o(t`!e c~,mpar.y. is a defendant in some of these actions. it is not possible to pre- -lict the outcome of this litigation. Litigation is sub;ect :o manv .tncertainties and it is possible that some of these actions could Assets Exceed Accumulated Ber:ents .Accumuiatec 9enents ,_4cceed Assets ~ - 1990 1989 _ 100 -ut's9 758 54.;2 0 3 :~9 78 34 44 836 486 !i9Y Tl~ 280 194 106 1,116 -6 SO 6.10 6.` 1,174 336 48 58 IJ6 ("asi2) (26) 3Y; ~ ~ ; 38 ,60) 27 8 70 5 62 5(.J2) 5, .:-r0' 1990 '989 6.0% -to 1 5.0% to, 1.1.Q1~'o j ) J, Pensions," ~.vas issued in i990 and requires c~-mpan:es to accrue the cost of such benefits during :he employees oeri•:)d )f service. The standard must be adopted <<o ;ater tt an :99, `or ~omestic plans and 1995 for foreign plans. Cpon accp::- r•.. .:mpanies mav recognize the additional liability either immediate:yor prospec- ticely over not more than twenty years. At ~~resent. :he company plans to adopt SF:,S 106 prospecti~~e1~: in :~- :3. T';e compan~~ cur- rendv estimates that adoption ot the star.dar"- ::;c°ease annua': eYpense, the amount of a•hich has yet to oe --~e:er^;tnea. be decided unfavorably to PM Inc. An adverse deve:co•ment ;n pending litigation could encourage the commencerne:a of addi- tional similar litigation. All such actions are and .viii be vigor- ousl•y defended. However, management dcps -:ot'cetieve that this litigation w•ill have a material adverse effec: :pon 'he nnancial condition of the company. The company is cont'sngently iiable for pa,:,;,er:: of ~010 millicn notes maturing in 1994, sold with recourse :n 1959.

iotes conunued; ate 14. Additional Information: ! millions) irs ended December 31: preciation expense ntexpense search and development expense erest and other debt expense, : et: Interest expense Interest income erest expense of financial services and real estate operations included in cost of 3a.es December 31: crued marketing costs 1990 19k9 1-1188 S 877 5 i„- ;6i? S 283 3 2U9 3i_'0 $ 344 3 313 Z-1-'.5 $1,746 31,739 57 .9 (111) tSn, ;~r i1,535 3 1,7 31 ~ 93 $1,398 5 9Sl ote 15. Financial 5ervices and Real 5state Operations: ilip Morris Capital Corporation is subsidiary of e company. PMCC invests in third-par:.; `.evera'ged :,d direct iance leases and secur;ties of third par.ies ar:d en~a~es in t:ari- is financing activities for customers .3r.c suppiiers of the com- ,nv's subsidiaries. :\dditionallv, PMCC is engazed :i;rough its lolly-owned subsidiary, Mission Viejo Ccmpany, in and plan- nina, dese?opment and sales. Pursuant to a support agreement, the cor.pari,t has agre_d to retain ownersi-tip of'.00°io o(t:`;e voting stock Df PMCC and make periodic payments to PMCC o the extent necessar; to ensure that earnincs available for ciYed caarges ea,ual at :east'..'?S times ;ts fixed charges. )ndensed balance sheet data at December3; ;oilo,.~-s: i millions) 1990 sets Finance leases $3,526 ;,, _.,, Other investments 1,208 4,734 i.:-'6 3.~ y Less unearned income and allowances Finance assets. net - - - °-__ - -- . _ ... 1,449 3,285 .~ - -=_ ;ta - - Real estate held for development and sale 418 Goodwill, net of accumulated amortizati_n 39 ~~ Other assets 209 _ I Total assets $3,951 S3.ci; i ibilities and stockholder's equity Short-termborrow•ings $ --72-4 ~~,~ S '~" Long-term debt 836 J Deferred income taxes 1,382 1.7 11 Other liabilities 225 Stockholder's equity 784 Total liabilities and stockholder's equity $3,951 $3,531

The amounts shown above include rece::abies 'na F,ay-ables with other subsidiaries of :he :;ompanvas follows: in Tullions! .. - ~990 .~.. :989 Finance assets, net $65 S-1-k Other assets 5-}7 Other Jabilities These amounts were eliminated ;n he ccrrtpan%.'s consolidated balance sheets. $ 5 Finance leases consist of investments in :ranspcraticn. :elecom- Other !nvestments ccnstst primarily Df ~referred stock and resi munications, commercial equipment ar:C "aciii:ies. Rentals estate and commercial receivables. receivable for leveraged leases represent -inpaid rentals :ess pr:n- cipal and :nterest on third-party nonrecourse ~:,e~'t. Condensed income statement data follows :c,r t`e :ears ended December 31, '~- 'in millionsj 1990 i:,'88 Revenues: W - Pinanciai services _42_23 i..h Z"08 Real estate Total revenues ? 3 6 3JJ 456 Expenses: ~~--. Financial services ~13 L)0 iJ7 Real estate Total expenses Earnings before income taxes ar,a c--:r.,aacve e:;ec; of sccouraing change 153 266 2.00, ._'1-4 344 E.,2 JJ7 a4 [d0 Provision for income .ases Earnings before cumulative effect i accoun:ing c a~e 60 .140 46 _'9 ~.. :_3 Cumulative effect of change in method )f acco::ncns ~ r:r.come :a::es Net earnings $140 ,1"9 -! 1 3Io-k Note 16.'tituarteriy Financ9a9 Data (Unaudi3ed); ~ 1990 Quarters t:in millions, e.r•cept per share data) lst - 2nd 4th Operating revenues $11,388 $12,740 $12,818 S 1-4.323 Gross profit S 4,345 35,113 $ 5,086 $ 5.349 Net earnings $ 775 $ 948 $ 937 is 880 Per share data: ~ Net earnings $ .84 S 1.03 S 1.01 $ .95 Dividends declared S .344 $ .344 $ .430 5 .-130 Market price-high $.-4V'+.._ $.#i";a-. .F. $ $ 52 -low 36 $ 39 $ 41 44 49

A©teS :.cnciuaedl ote 16. Quarteriy i:inancial Data (Unaudited) (continued): :989 Quar.ers : miilions, except per share dataj ,erating revenues ossprotit t earnings r share data: Net earnings Dividends declared Market price-high -low 'st 2^c ;rl 4th 31'),610 3, ;11 • : xh ; 3,35-I 3 4,356 , 1•'=. S 4.;73 3 590 3 ,.; 5 .64 3 ^G . .3: S 33 S.391 3 =3 i _ 344 S.3-k1, S 30: ; S '_ ; ?•5 S 25 S_'9 3;9 = e Note 2 regarding the acquisition of certain opera.:ons of Jacobs Suchard in the :hird quarter of ~e Note 3 regarding restructuring char~es ~:rimar.i%!n :he tourth quarer ~~i i?89 and the sale of t::e _ -:.^.pan~:'. :;:•,'estment in Rothmans the iourth quarter of 1989. ie principal stock exchange on %V hich :he corr:par:•.'s ccrnmon stoci; ;par vaiue 31 per share; is iistec a:he Ne,.v Yo r: S toc; ExchanQe. January 31, 1991 'here were approximateiv ?U.=i :;:-iders oi rec ord a the companv's common Stocl;. i

Report of Independent Accountants To the Board of Directors and Stockholders ~i Phiiip.titorris Companies Inc.: s,Ve have audited the accompam~in8 ccnsoiica:ed `~aiance sneets of Philip Morris Companies incd and subsidiar:_s as of 'Decemcer 31, 1990 and 1989, and :he related consolidated aatements ~_f earnings, stockholders' equitv ar.d cash r1ows `:r eac:: ci ::;e :hree years in the period ended December 31,'.?9u. "=ese Rnanciai statements are the responsibiiity of the compar..: s management. Our responsibility is to express an opinicn cn :::ese ananc:ai statements based on our audits. We conducted our audits in accordance vVit`: ;enerailv accepted auditing standards. Those standar;s require that we plan and perform the audit to obtain reasonab:e assurance abcut whether the Financial statements are free of mazerial missta:e- ment. An audit includes examining, on a tes- zaSIs, evider.ce supporting the amounts and disc;osurea in the ':nanc:ai state- ments. An audit also inc,udes assessing .he 1c:ounting prnr:cit;:es used and significant estimates made by mana;emer t. as .•.eil as evaluating the overall `inanciai statement prese:aaticn. `,G'e ceiieve that our audits provide a reasonable basis rcr . ,~r opinion. In our opinion, the nnancial statements referred to above pre- sent fairlv in all material respects, the consc:;'_atec ananc:ai posiuon of Philip Morris Companies [nc.::r:d s::csidiaries at December 31, 1990 and 1989, and the consoiiCat=d results --f ::,eir operations and their cash flows for each of :he ::-.ree hears `.n _he period ended December 31, 1990, in conform;:. •ti ith ,;enerai:_v accepted accounting principles. As discussed in Notes I and 10 to the conso! ;tated inar.c:al statements, the company adopted in 19:K3 the ~:e:.~od of acc•_ur,t- ina for income taxes prescribed by Staterr.era .i =ir:anciai Accounting Standards No. 96. COOPERS & LYBRAND New Vork, iVe%v York Januarv •?8• 1991 Company Report on Financial Statements The consoiidated financial statements :,r.C all reiated ;inancial information herein are the respcnstbility .f the compam;: The financial statements, which include amounts based cn;ud;ments, have been prepared in accc.rdar:ce wit:: ;enera:iv accepted accounting principles. Other anariciai intormaticn fn the annual report is consistent sti'ith that in the-Sr:anc:ai state:nents. The company maintains a S_:stem of internal controls which it believes provides reasonabie assurance ti~,Iat rransac.'.ons are executed in accordance .vith rnanagement's authorization and properly recorded, that assets are safe8uarded. ar.d :hat account- abilitv for assets is maintair.ed. 7he svstem or'.nternai controls is characterized by a control-•3 rien:ed environment n ithir, :he com- panvwhich includes written polic°es and ;,rocedures. carefui selection and training oi perscnnel, and audits "1v a ~;rofessional staff of internal auditors. Coopers & Lybrand, indeper:Cent accountants. :nave audited and reported on the company's consolidatec tinancia! ;taternents. Their audits were performed :n accorcar.ce T.vith ;er,erally accepted auditing standards. The Audit Committee of the 'doard of Directors. composed of seven non-mangement direc.ors, meets :)eriodicsiiv ",vith Coopers ~ Lybrand, the companv's internal auditors ,znd manage- ment representatives `o revie%ti :nternai •,cc.unting control. auditing and';nancial reporting matters. 3oth ,_-;;,::pers & Lhbrand and the internal auditors have unrestricted access :o the Audit Committee and ma,; :r;eet %vith :t •.vithout management represertta- tives being present. 51

Board of Directors Dr. Elizabeth E. Bailey3' Professor of Industrial Administration, Carnegie-Mellon Gniversity, and Visiting Scholar, Yale School of 0 rganization and :btanagement Murray H. Bring4 Senior Vice President and General Counsel Alfred Brittain III> 6•' Former Chairman of the Board of Bankers Trust New York Corporation and Bankers Trust C,)mpany, New Y-ork, NY ~ rl . Dr. Harold Brown=; 5.5 - C`tatrman of r.; e Foreign Polir: :nsUtute, SchoolofAdvanced International Studies, The Jonns Hopkins L'niversir:, ;Vashir.gton, DC Dr. JoseAntonio Cordido-Freytes; s Member of 3etancourt, Cordido and Associates, Caracas, Venezuela, Attornevs, ;nd President of C..a. Tabacalera Nacion.al William H. Donaldsoni = 3 = - Chairman ano Chief Executtve Officer, NewYork Stock Exchange, Inc , Ne•.v'r'orK, NY Paut W. Douglasl6 Chairman and Chief Executive Officer )f The Pittston Company, Greenwich, CT Jane Evans' 5 President and Chief Executive Officer Interpacific Retail Group, San Franc;sco, CA Robert E. R. Huntley= -' 4 Counsel, Hunton & bVilliams, Richmond, VA Hamish Ma;twell = Chairman )f :.^,e Board and Chtef Esecut•:e Of' cer Dr. Elizabeth J. SicCormack;' 7 Advisor to members of the Rockefeiler Famv, ^JewYork, NY J4ichae i A. `f iles=•1 Vice Chatrman of :h.e Board and Chairman anc Chief Exer.:nve ,)fficer of Kraft Generai F o,Dds, Inc.

~ :. .,~ .~ ® 0 ® Committees %temoer ~i --xer..,ive Commutee ~4amisn .%taxr.veil. Chairman =Sfemoer -f =inance Comrr.ittee ;onn A. '.turonv C;tairman i4lemoer ~.f Aadu ,--3mmutee Robert E. :?. "untlev, :;:airman °Sfember oi ;::,mmtttee on Public?.ffatrs anc Sociai Responsibility ;onn A. .'•turrnv. ..tiai rman =?Aemoer of ':ominattnst Commtttee T. ~ustin'doore.:r.. Chatrman ~Member Df C;rncensation i. .mmatee John S. Reec, C: ainr,an "Member oi C:,r;,crate EmpicvFe ?'_,._ 'nvestment Commtttee William H. Donatdson, C`tairman Joseph F. Cullman 3rd C:latrman ?mertus William `turrav=•4 Vice Chairman :)t :he Board Justin Moore T Ja=; 5 Richard D. Parsons[ 3 4 ~ Richman1 ; 3 " John M . , Chairman and C`:ier Executive Officer . ~ Counsel, Hunton & Williams, , Counsel, Wachtell, Lipton, ^v1 VA Richmond The Dime ~avtnKs Bank Rosen & Katz , of New York, FSB. , IL ~ Chicago Rupert Nurdoch+ b Vew `:'orx, NY , C~1 Chief Executive of Reed' -'=3 5' John S Hans G. Storr=' ~ The News Corporation Limited, . Senior Vice President and ~ New York NY Chairman of Chief Financial Officer , Citicorp and Citibank, V.A., ~ JohnA.4turphy' ~-; % New York, NY Margaret B. YoungJ ' s ~ President Chairman of ~ the Whitney S1. Young, Jr, Memorial Foundation, New York, NY 53

Micers hilip Morris ompanies Inc. imish Ma.r,vell lairman of the Board and ilef Executive Officer hn A. Murphy esider,t ichael A. Miles ce Chairman of the Board illiam Murray ce Chairman of the Board .irray H. Bring nior Vice President and 2neral Counsel arc S. Goldberg nior Vice President, >rporate P!anning ins G. Storr nior'•r ice President and tief Financial Jfficer hn J. Tucker nior Vice President, !man Resources and iministration uce S. Brown ce President, xes mald Fried ce President, csociate General Counsel, d Secretary ivid I. Greenberg ce President, wernment Affairs ~orge R. Lewis ce President and easurer Jack Miller ce President ond )ntroller Iv L. Smith IV ce President, >rporate Affairs fonso L. Carney, Jr. ;sistant Secretary .tricia A. Malzacher ;sistant Secretarv ,)rporate 'ta;f: 0. Witcher Dudley !3ecffrey C. Bible Vice Presidents: JteDhanie '7. `rer.ch David w'I. {:rCv Georxe L. :C:.ox ;;I F. Robert lC..rms:cv Kathleen M. ir.ehan Herbert Miaington James J titcr<an Dr. Kenneth S. Houghton Ellen Merio Michael C. Moore John R. Nelson Steven C. Parrish William P. Taylor PlailiQ Morris Interna#ionai Inc. President and Chief Administrative Officer Mar*.in D.J. Buss JeniorVice President, Strategy and Development Calvin J. Collier Senior Vice President, General Counsel and Secretary . Dr. Thomas S. -Jsdene D. Eric Pogue Rosemary °ipiev William C. Emiv Timothy A. Scmpoiski C;-tarles R. '.Va1l David Zelkowitz Philip Morris U.S.A. Aleardo G. Buzzi President and Chief Executive Officer Carlos E. SalQuero Executive'vice President Richard L. Snyder Executive Vice President Daniel M. Dressel Senior Vice President, Human Resources Joseph P, Durrett Senior Vice President, ~ales J. Bruce Harreld ~enior Vice President and I,Villiam 1. Camobeil President and G-iief Exec:aive , ;fficer Mark A. Serr=_r.o Executive'.'`.ce President. Operations David E.R. ,angcor Senior `r'ice P-eside.n.t. Marketing Fred J. :.aux Senior `dice :-resu~ent, Piuman Rescurces Harrv G. Stee.e 5enior Vic=_ Preside.^.t. Finance and Administration Michael E. Sn-rnanczyk Senior Vice President, Sales Walter Thoma Executive Vice President William H. Webb Executive `r'ice Pres ident Dinvar Devitre Senior Vice President and Chief Administrative Officer Vincent J. Bucceliato Senior Vice President Thomas M. Keams Senior Vice President Vice Presidents: Bernard Beaurpere Andreas Gembler John Kramer Francisco J. Moreno Lee Pollak Peter Schreer C`:ief information Officer ~anJ.'ac.; -enior'iice President, -inance Robert G. .~tc`,'icker ~enior Vice President, "'ecnnology Qluality Assurance, and Scientific Issues Thomas D. Ricke "enior Vice President, Corporate A.ffairs Edward W. Smeds Senior Vice President, Operations and Logistics Eric C. Strobel Senior Vice President. Corporate Marketing Corporate Staff: Law•rence S.'.Vex:er Philip Morris Products Inc. Vice Presidents: Senior Vice P-eside.n,t, Planning and Information Szvste.ms Andrew W ^'.st SeniorYice President W. John Campbell President Tobacco Technology Group Donald R. Abel John P. Amboian Deborah A. Becker David K. Braun Richard B. Burgess , External Ai`a:rs Vice Preside::ts: David R. Beran George Karandjoulis Vice President tCraft General Foods, Inc. Donald bV. Carlin Gary Conte 'aVilliam Cunningham Philip J. Davis %Villiam J. Dowd Stephen J. Bloom Barry J. Case - Michael A. Miles Thomas F. Duesler Richard R Floersch ~ Dr. James L. ~ har:es Stephen C. Darrah Chairman and Chief Executive Officer . Enrique J. Guardia © ~ O C~t

Larry Gur,drum Raymond J. Herrmann John L. Hogan E. Boyd Hollingsworth, Jr. PauiJackson Adrienne M. Johns John E. Kelly William Kiedaisch Paul Liska Darrell G. Medcalf John F. Mowrer III Michael S Mudd Officers: Charles .-.. .-.damo Bernard D. ?aias Eu2ene E. "arrei Dr. Nicoiaas F.M. Kuiipers Brian A. Mc.°ver Edward J. .'.iov John G. P:ac!{ett Frank T. Toscar.o RatiTnor.d G. Viault Joei W. Johnson Ronald S. Keliv Patrick J. Luby Paul G. Roehrig Thomas J. Ryan Gene G. Suess Biorn J. Thompson Paul J. T iller Richard J. `.Valdrep RarTnond G. °:v inbum Kraft General Foods 3ii:v R. .-~ppie aer.ior `,'ice President, Cperations -har!es '.V. "-ci-tmid ~enior'iice President, `vlarketir,g a.::en .;. Schumer Se.^.:or'a Ice President. Ac;ninistration Vice Presidents: . Jacobs Suct:ard .-kG Frozen Products David Olsen Robert V. Richards Rick Stuedemann Thomas Taylor Victor Tinucci Scott Wallace J. Douglas Wert Carolvn Yoch General Foods USA (Zuric,-,, -Swttzer!and) Raymond G. 'a iault President Cfficers: Waiter .ancerau Volker Brinkmann Alan M. C,3x H :-I Thomas Herskovits President Officers: John S. Craig Roger K. Hove Charles F. Marcy ~teohen L. Puente Harold E. Reinhart Pecnev J. Blucher `.'i rx is '.L', Coibert Frank L. Donnelly Leonara H. Jacob hcmas A. Koehler Pa,:! ?. .',!ol!omo A.r-nurJ. Rehberxer Ceorxe '. Riemer iCatnieen. D. Ryan Richard P. Mayer President Officers: John D. Bowlin David J. Driscoil J. Mark Harran Sylvester T Hinkes erzoQ ans Arne Jurt rar.dt Gunter Krcchmann Baudouin !.lic!:ie!s Gdtz.%Iic!:ae! `.luller Kurt Crgler Hermanr, H. Poh! Frank Scniesser E!lis Reynolds ; red Sherriff Kathleen K. Spear Danny L. Strickland Ernest W. Townsend David D. Weick Kraft General Foods ," ia<i:A. S auoe '.i.'i;:;am G, Schmus Ro';e^ L. ~;mith Ro::aid R. Strain Ric:-.ard i•. Strup Philip Morris Capital Corporation . Thomas J Hoeppner Luc E. Vanceveice ' Commercial Products . Randy D. Kautto Gregory B. Murphy John E. Nevins :V in terroth Charles J. Gerhara Z:1-.ser Kraft Ger.er al Foods Canada George F. Goebeier President Officers: Ha::s C. .;torr !:a:rman and C`:ef Executive Officer William A. Paterson Charles A. Phillips Stephen 1. Sadove Lorraine Scarpa Douglas A. Smith Paula A. Sneed Kraft USA Robert 3. Morrison President Officers: Daniel S. .Aantor.eili Richard.`,. Bailey George'.b'. Beai Willi Chi B Frederick F. :,very William E. Beedie Daryl D. Boddicker Anthony F. Bonadonna John M. Cabot Edward Dudley Robert L. Herst Nor-ran .i. Treisman PresiCent Vice Presidents: Dennis J. Floam :Ll;c:-ae! J. Kinnev ' ` James M Kilts am . asson v N I ti:: ion ie;o Comoanv . President Officers: Richard E. Bailey Lani L. Beach Robert A. Eckert Seth A. Eisner Ronald D. Harris Charles F. Martin III Thomas J. Mason Derek J. Ha!l J. Robert Hail Gary K. Harmon hlark M. L eckie Jean Paul Martineau Carl A. Nanni J. Bernard Sabourin Ronaid A. Tomlinson Jeremy D. 7our.g . Oscar `.tave.r Foods 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 James G. Giileran Presicent and C;:iet ---xecutive Officer Crai2 McCallum Pre4ident-Colorado Division James L. Huesman Executive Vice President anc ;reasurer William titorris James `.V. Mc~.'ev Van 5tevens ~ David Rickard President Leonard J. Goldstein Executive Vice President ~ Mitchell ~b'ienick President and ~ Officers: Vice Presidents: ,--. Kraft General Foods Chief Executive Officer C~3 International Alan G. Becker Terry M. Fa.:!k Warren H. Dunn Danette S. Fenstermacher Wiiliam K. Smith ~ ^ John .M. Keenan President Executive Vice President Robert P. Swank ~ 0C ~ DJ

Drparate Responsibiiity -te products and services buy and sell, in our em- ,Tnent policies, and in our rces and uses of invest- it capital, we hold our ducts, people, and prac- s to the highest standards. )ur position as a major zufacturerand marketer ackaged goods makes )articularly sensitive to ironmental issues. Each ,ur operating companies ctive in source reduction rts, recycling, and has iblished task forces and ior management com- tees to improve the ironmental impact of its •rations. The United States igress has passed legisia- t requiring the U.S. Food Drug Administration to ,pt federal regulations arding health and nutri- t labeling. We strongly ,port efforts to achieve ional uniformity of envi- mental regulations. )ne key to any society's ire economic vitality ducation. In 1990, joined with the Pew iritable Trusts and the ladeiphia 1;iayor's nmission on Literacy aunch the Gateway Pro- m, an ambitious adult racy campaign designed erve as a national model. tddition, we supported Milwaukee County tth Initiative, a program !ncourage families' olvement in their chil- n's education. ~s one of the world's lest food companies, we are also concerned svith the effects of hunger and mal- nutrition. Among our many initiatives in 1990 was a rnajor grant to the Food Research and action Center for a public education cam- paign to explore the impact of poor nutrition on edu- cation, and to alleviate childhood hunger. `Ne are also working with the U.S. Department of Housing and Urban Development and the U.S. Department of.A.gricul- ture to develop nutrition education programs for :ow- income residents of public housing facilities in eight American cities. Our cultural activities included the sponsorship of "Kazimir ),lalevich, :8; 3- . i935" at the :Vationai Gallery of Art in washington. D.C., and the sponsorship of "Craft Today USA;" an exhibition touring 12 cities outside the United States, inciuding Frankfurt, Mos- cow, and Warsaw, as an official presentation of the United States Information Agency: We also testified before a commission estab- lished by the U.S. Congress in support of the National Endowment for the Arts, and in favor of continued public funding for challenging and innovative art. To help bring the promise of social and economic justice closer to reality for people throughout the United States, we continued our strong support of U.S. organizations such as the ?•esident George Bush with students and ce,ecrt:es as -e anrcurces :r.e aunch of StarServe. a Points of L:ght Iritiat;ve excusive.y _....er.vn;;en Kraft General Foocs Foundation. National Urban League, the National Puerto Rican Coali- tion, the National Womeris Political Caucus, the United States Hisoanic 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 :s scheduie:: to end in December 1991. Kraft General :'oods Foundation'.s :he exclusive underwriter of StarServe, an innovative Drogram . designed to ~teip teachers engage the nation's•:outh in communitv Service activi- ties. StarServe has been recognized -•v the Points of Light Foundation. headed by Honorar: Chairman President George 3ush, as a Points of Light lnitiative. 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.

Generai Corporate Infcarmati+on Headquarters Kraft General Foods, inc. Annual Meeting: Stock zxcnange Addresses: ;Craft Court The annual meeting of Listings: Gienview, illinois 60025 stockhoiders of PhiiiD.Morris Net.v York Philip Morris Companies Inc. •,vill be arr:sterdam Companies Inc. Operatir:g ~nit Headquarters: aeld on April '5, 1991, at the Antwerp 120 Park Avenue Philip ?,lorris `,tanufacturing Basel Net.v York, New York'.001 7 General Foods L'SA Center, 3601 Commerce Road, Brussels i212i880-5000 250 tiorth :treet Richmond `dirginia. Frankfurt White ?!ains, tiew":ork i0625 , Geneva Philip Morris Form 10-K: Lausanne Incorporated :~iait _Jr The company's annual report L ondon 120 Park Avenue Kraft Court on Form 10-K, which will be Wrembour New York, New York /001 7 Glenview, ![linois 60025 nled with the Securities and g Paris Philip Morris t'.S. a. Kraft General Foods Exchange Commission, will Toicv o 120 Park Avenue Inter::ationai be available to stockholders Zurich New York, New York 1001 300 `rVestc::ester .,venue in April upon,,vritten Rve Brook. New York 10573 request to: NY Stock Exchange Philip Morris ;~nool: >d0 fnternational Inc. :C:aft General Foods Donald Fried, --'ecretarv 800 Westchester Avenue Canada Philip Ntorris Companies ,nc. Independent New York 10573 Rye Brook 95 `aoatfteld Drive 120 Park:~.venue Accouniants: , Don `,liiis, i-Dntario New York, `[et,v York 10017 ~'JCCers & L - ibrand uarters: ional Head Re sLo ' • 1301.;venue of the A:-:-:ericas q g i ransfer Agent and itiet.v`r"r•rk" N et,v`orK :Cj t-!19 Philio ,~torris EEC Oscar `.taver Foods Registrar: Briilancourt 4 3,10 `,layer.,:denue First C;itca8o Public Policy Issues: Case Postale %[adison, ',Visconsin 53 i?4 Trust Company of Net,v York [nquiries about our rositions 30 West Broadway .-in public policy issues 1001 Lausanne Kraft C:enerai Foods `dew York New York 1000 7-2:92 ; nvoivingthe company a.nd as Switzerland , Frozen Products products should be,"irected to: Philip %iorris EFTA, Eastern Kraft Cour Shareholders may call the the.)yliddle East, Europe Gienview, Illinois 60025 company about their accounts, Corporate Affairs Department , & Africa certificates or dividends using Philip ,~lorris Companies [nc. Kraft General Foods , 120 Park Avenue Avenue de Cour 10 the toll-iree telephone Case Postale Commercial Products number : 300 116 26i; New'r'ork, New York ,(;01 I Park•,vac North 1001 Lausanne Shareholder alinois 60015 Deerneld Dividend Reinvestnaent Switzerland , Pubiications: Agent: Philip Morris Latin America 11Ailler Brewing First Chicago Written requests should be 800 ',Vestchester Avenue Company Trust Company of New York directed to: Rye Brook, New York 105 73 3939 West Hignland Boulevard Dividend Reinvestment Plan Financial Communications Dept. ',tih+.•aukee. °.4isconsin 53201 P.O. Box 3506 Philip >,lorris Companies ;nc. Philip Morris Asia, Inc. Church Street Station venue 120 Park? Two Pacific Place 23rd Floor Philip Morris Capital , , New York, New York i0008-351)6 0017 New York 1 Vew York 88 Queensway Corporation . 1 Hong Kong 300 Westchester Avenue or vou may call toll-free: Rye Brook. New York 10573 1-800-36 7-5-11 5 Philip Morris (Australia) Ltd. 252 Chesterville Road `1lisson V iejo Company ,~loorabbin, Victoria 3189 26137 La Paz Road Australia ~fission Vie;o, California 92691 DesiqnEisenman & Enock Inc. Photography Vicsers & Beacnler. Chns Collins, Paul Fusco, BurtGlinn. £sther Maho, Richard Alcorn..tlen MacWeeney ar notetl in U.S A~y Typographic Companyces.'nc '(

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