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PI{1LIP MORRIS INCORPORATED 1979 Philip Morris Incorporated is now_a leading company in three large industries-ciga- rettes, beer, and soft drinks-that provide - simple pleasures to tens of millions of peo- -- ple every day. In 1979, the company regis- tered its 26th consecutive year of growth in operating revenues, net earnings, and earn- ings per share. Founded more than a century ago and __ incorporated in Virginia in 1919, the company has long been a major cigarette manufact- urer. Today, it is the second-largest ciga- rette company in the U.S. market and the largest U.S.-based international cigarette company, selling its 160 brands in more than 170 countries and territories. The corporation acquired full control of the Miller Brewing Company in 1970. At that time, Miller was the seventh-largest brewer in the U.S. Today, Miller is the second-largest. In 1978, the company expanded its operations with the purchase of The Seven- Up Company, the third-largest soft drink pro- ducer in the world. Philip Morris has also diversified into the manufacture of specialty papers, flexible packaging materials, and specialty chemi- cals as well as into community development and homebuilding. These businesses are conducted by six operating companies: Philip Morris U.S.A., Philip Morris International, Miller Brewing Company, The Seven-Up Company, Philip Morris Industrial,and Mission Viejo Company. i L f i Table of Contents 1 Financial Highlights 4 Review of theYear 14 Philip Morris U.S.A. 18 Philip Morris International i`3 Cti 22 Miller Brewing Company 26 The Seven-Up Company 0 30 Philip Morris Industrial Q ~ 32 Mission Viejo Company ~ 34 Financial Review QN 38 Fifteen-Year Financial Review - ~i W 54 Board of Directors 56 Officers

FINANC/AL HIGHLIGHTS 1979 1978 1977 1976 1975 (dollar amounts, except per-share amounts, _ _ expressed in thousands) Operating Revenues - $8,302,892 $6,632,463 $5,201,977 $4,293,782 $3,642,414 Net Earnings 507,881 408,581 334,926 265,675 211,638 Earnings Per Common Share 4.08 3.38 2.80 2.24 1.81 Dividends Declared Per Common Share 1.25 1.025 .781 .575 .463 Percent Increase Over Prior Year Operating Revenues 25.2% 27.5% 21.2% 17.9% 21.0% Net Earnings 24.3% 22.0% 26.1 % 25.5% 20.6% Earnings Per Common Share 20.7% 20.9% 25.3% 23.5% 14.9% Dividends Declared Per Common Share 22.0% 31.2% 35.9% 24.3% 19.4% Operating Companies Revenues Philip Morris U.S.A. $2,767,035 $2,437,465 $2,160,362 $1,963,144 $1,721,549 Philip Morris International 2,581,270 1,810,861 1,349,280 1,083,970 1,040,002 Miller Brewing Company 2,236,481 1,834,526 1,327,619 982,810 658,268 The Seven-Up Company 295,480 186,494 Philip Morris Industrial 268,847 237,165 216,699 169,096 151,960 Mission Viejo Company 153,779 125,952 1,48,017 94,762 -70,635 Consolidated Operating Revenues $8,302,892 86,632,463 $5,201,977 $4,293,782 $3,642,414 Operating Companies Income Philip Morris U.S.A. $ 701,340 $ 568,145 $ 474,400 $ 401,426 $ 337,314 Philip Morris International 260,620 188,561 153,791 130,104 112,975 Miller Brewing Company 180,984 150,300 106,456 76,056 28,628 The Seven-Up Company 6,985 26,291 Philip Morris Industrial 18,268 15,024 14,860 10,620 8,052 Mission Viejo Company 22,437 19,761 33,225 16,333 5,875 Consolidated Operating* Income $1,190,634 $ 968,082 $ 782,732 $ 634,539 $ 492,844 Compounded Average Annual Growth Rate 1979-1974 1979-1969 1979-1964 1979-1954 Operating Revenues 22.5% 21.9% 18.6% 13.5% Net Earnings 23.7% 24.2% 23.1 % 15.8% Primary Earnings Per Share 20.9% 20.4% 20.5% 14.4% Consolidated operating revenues and operating income include the results of the company and all wholly-owned subsidiaries (The Seven-Up Company and its subsidiaries since June 1, 1978). Effective Jan- uary 1, 1979, Philip Morris International assumed responsibility for the operations of Seven-Up Interna- tional and Philip Morris International's 1979 operating results include those of Seven-Up outside North America. Only North American operations are included in The Seven-Up Company. Corporate expense, interest expense, and other items which are not directly attributable to the operat- ing companies are not allocated to them. In the opin- ion of management, any allocation thereof would be arbitrary and would diminish the accuracy of meas- urement of their performances. 1

FINANCIAL HIGNLIGHTS Operating Revenues by Operating Company Operating Income by Operating Company rs~nons of Ooi~a's _ 9000 M,n~ons oi pa'.ars _ 8750 - - iL00 - 8500 1360 - - 8250 !320 8000 1280 7750 t240 7500 1200 7250 1120 1080 6500 . . ~ 1 1040 1000 920 4500 - °- '_-~ 720 4000 680 640 3-U 0 600 3500 = 560 3250 _ '- 520 3000 480 2750 2500 2250 2000 1750 1500 1250 1000 750 500 250 0 440 400 360 200 160 120 80 40  Philip Morris U.S.A.  Philip Morris International -~_ Miller Brewing Company  The Seven-Up Company  Philip Morris Industrial ~ Mission Viejo Company

Net Earnings h4a6ons or poilars 540 525 3,75 3.00 2 85 2.55 2.40 2.25 1 95 1.65 1 50 1,35 1 20 1 05 90 75 60 45 30 15 95 90 85 80 70 65 40 35 30 15 10 05 500 450 425 400 375 350 325 300 250 200 175 150 125 100 65 2.70 2,10 1 80 77 78 79 1.25 625 1,20 600 1 15 ~ 575 3 30 ~~ 1 10 ~ 550 3.15 1.05 _.. ~ 525 1 00 75 55 275 45 25 375 360 345 330 315 300 285 270 255 240 225 210 195 180. 165 150 135 120 105 90 75 60 45 30 15 0 Earnings Per Share Doflars 5,40 525 Dividends Declared Capital Expenditures Per Share Dollars 1.80 1.75 5.10 1.70 850 4.95 1.65 825 4 80 1.60 800 4 65 1.55 775 4 50 1,50 750 4.35 1 .45 725 420 - 1.40 700 405 1,35 675 3.90 1 30 650 M,Ilions of Dollars 900 8 75

REVIEW OF THE YEAR Geor.ge We ssman, cha rman of the board and ch ef execut ve officer (standing), meets w th the other members of the Office of the Chairman (left to right); Hugh Cullman, group executive vice president, Ross RMillhiser, vice chairman; Clifford H. Goldsmith, president: and John A. Murphy, group executive vice president. Philip Morris Incorporated We started the 1970s as a large U.S. and international cigarette company with partial ownership of a relatively small beer com- pany. We end the decade as a larger, more successful U.S. and international cigarette company, the world's second largest brewer, and an important entrant in the large soft drink industry. Our industrial and real estate activities have also prospered. Most of the quality products we sold in 1979 were made on machines or in factories that did not exist in 1970. Neither did many of the brands. From 1970 to 1979, the worldwide unit sales of our cigarette products grew by a compounded 10%, spurred by the suc- cesses of our principal brands. But, while tobacco contributed 85.1% of Philip Morris' revenues in 1970, by 1979 that percentage- even while cigarette units grew from 177 bil- lion to 402 billion-had been reduced to 63.8% as we broadened our base through the acquisition and grobvff of non-tobacco businesses. Our growth continued throughout the decade, without interruption, and shows every sign of continuing momentum as we move into the 80s. In fact, one of the com- pany's primary needs now is to expand its production facilities to meet the current and projected demand for its products. Nineteen seventy-nine was the 26th con- secutive year in which our performance resulted in record operating revenues, net earnings, and earnings per share. Operating revenues were $8.3 billion, an increase of 25.2% from 1978; net income rose 24.3% to $507.9 million; and earnings per share reached $4.08, a gain of 20.7%- even though there were 3.7 million addi- tional average shares outstanding. The company declared dividends of $1.25 per share, an increase of 22.0% over the previous year. This was the 14th time in the last 12 years that the company has raised its dividend and the 52nd consecutive year in which dividends were paid. Our worldwide cigarette business accounted for the majority of the company's revenue and earnings gains for the year. Philip Morris U.S.A:s cigarette unit sales increased 5.0% over the prior year to 177 billion, and increased the company's share of the U.S. market from 27.8% to approxi- mately 29% in 1979. Philip Morris Interna- tional had a notably successful year with cigarette unit sales increasing 12.0% to 225 billion units. Our share of the estimated 3.7 trillion unit world market, excluding the United States, rose to about 6% from 5.5%. The continued growth of our brewing operations provided the other major ingre- dient in our 1979 success. The Miller Brew- ing Company shipped 35.8 million barrels in 1979, an increase of 14.5%. Miller's market share moved up from 18.9% to about 21 %. 4

I For The Seven-Up Company, 1979 was a difficult year of transitlon. We restructured the Seven-Up organization, adding new per-_ sonnel to strengthen both our marketing and research capabilities and our relationships with bottlers in the United States, Canada, and Puerto Rico. In addition, Seven-Up International was integrated into Philip Morris International in order to take full advantage of the latter's long experience in the worldwide marketplace. Worldwide extract sales for Seven-Up were up slightly over the previous year but earnings were impacted by the moves which were designed to build a stronger Seven-Up for the future. As in the early stages of our Miller acquisi- tion, we do not expect Seven-Up to be a significant contributor to our profits for a few years. But, we do not believe that this will adversely affect the trend lines of the cor- poration's overall performance. Philip Morris Industrial and the Mission Viejo Company both had a good year with their 1979 revenues increasing 13.4% and 22.1 °o, respectively, over 1978. In 1979, Philip Morris' capital expenditures totaled $632 million for new production facil- ities and the installation of new capital equipment. During the year, construction began on a new cigarette manufacturing facility in North Carolina, and plans were announced for a new Administration and Technical Center in Richmond, Virginia, which will support our worldwide tobacco operations. Internationally, cigarette manu- facturing plants are being constructed or expanded in several locations, including West Berlin, Germany, and Bergen op Zoom, the Netherlands, In NewYork, prog- ress was made on the erection of a new corporate headquarters building at Park Avenue and 42nd Street. A new Miller brewery in Albany, Georgia, began production late in the year. Another brewery in Irwindale, California, commenced production in January-ot 1980. Other Miller facilities were expanded or improved, and plans for a new brewery near Trenton, Ohio, were announced during the year. Capital expansion programs will result in the expenditure of about $850 million in 1980, and from 1980 through 1984, capital expenditures are projected to be approxi- mately $3.5 billion. During the year, three new members were elected to the Board of Directors: William H. Donaldson, Dean of the Graduate School of Organization and Management, Yale Univer- sity; Jerry Apodaca, former Governor of New Mexico and now Chairman of the Presi- dent's Council on Physical Fitness and Sports; and Shepard P. Pollack, vice presi- -dent of Philip Morris Incorporated and presi- dent of Philip Morris U.S.A. Richard W Dammann, a member of the Board for more than 20 years, retired as a director in 1979. We are deeply indebted to him for his contributions over the years. He is now a Director Emeritus and continues in that capacity to advise the company. Dr. John C. Sawhill resigned as a director during the year to become Deputy Secretary of the U.S. Department of Energy. , Philip Morris U.S.A. Philip Morris U.S.A. in 1979 achieved nota- ble progress on many fronts. Setting new records, revenues increased 13.5% over 1978, and operating income grew 23.4% over the previous year. Ciga- rette unit sales reached a new high of 177 billion, an increase of 8.5 billion units over 1978 sales. Our market share also set a new high of approximately 29% in 1979, up from 27.8% in 1978. Nineteen seventy-nine was the 13th consecutive year in which Philip Morris U.S.A. led the industry in unit gains and market share growth. Marlboro strengthened its position as the best-selling cigarette brand in the United States and the world; Benson & Hedges 100's maintained its ranking as the leading 100mm cigarette; and Merit became the leader among low-tar brands-the fastest- growing cigarette category. Merit has continued to grow steadily from its introduction four years ago to a level that enabled this brand to contribute $355 million to our operating revenues in 1979. A new brand extension, Virginia Slims Lights in a crush-proof purse pack, was successfully introduced in the fourth quarter. With Virginia Slims already the top-selling cigarette made especially for women, Virginia Slims Lights appeals to the growing number of women smokers with a preference for low- tar cigarettes. Philip Morris U.S.A. produces six major brands in the low-tar category: Merit, Benson & Hedges 100's Lights, Marlboro Lights, Parliament Lights, Saratoga 120's, and Virginia Slims Lights. The Philip Morris Research Center in Richmond continued its many programs dealing with tobacco science. Virginia Slims Lights, Regular and Menthol, are additional 5

examples of our capabflity to develop low-tar products with taste that earn rapid consumer acceptance. Construction commenced on the central power plant and leaf tobacco warehouses for our new cigarette manufacturing facility in Cabarrus County, North Carolina. It is expected to begin production in early 1983 by which time our present facilities will be insufficient to meet the projected demand for our products. We continue to purchase the most modern, high-speed cigarette making and packing equipment for our Richmond and Louisville manufacturing facilities. This will increase the productivity of our people and our plants. Late in the year, we announced plans to construct a major Administration and Techni- cal Center adjacent to our Richmond facili- ties. This project is a result of rapid growth in the size and the technical complexity of our worldwide cigarette business over the last decade and the associated growth of a highly skilled staff. These investments reflect the continuing confidence of Philip Morris in the cigarette industry and our ability to make further prog- ress in this industry. All ten labor union locals at our Richmond and Louisville manufacturing facilities signed an innovative nine-year master agreement which stipulates that binding arbitration will be used to settle any dif- ferences which cannot be resolved through negotiation. The chief purpose of the agree- ment is to avert possible work stoppages, thereby assuring the company and its employees stable and undisturbed produc- tion and employment. The result should be substantial gains in productivity, with increased wages and benefits for employ- ees as a consequence. Energy conservation continued to have high priority at our Richmond and Louisville plants. Our new facilities are being designed from the ground up to be highly energy-efficient and will use coal as their basic fuel. Philip Morris U.S.A. made a five-year grant to Virginia Polytechnic Institute to support advanced training for state agricul- tural extension agents, reflecting our convic- tion that excellence in tobacco products begins with the grower. Philip Morris International Operating revenues and operating income again advanced to record levels, respec- tively up 42,5% and 38.2% over 1978. Cigarette unit sales reached 225 billion units, an increase of 12.0% against an _ increase of approximately 3% for the inter- national market as a whole (excluding the U.S.). Export sales increased 16.7%, and we maintained our position as the leading ex- porter of cigarettes from the United States. During 1979, Philip Morris marketed more than 160 different cigarette brands in more than 170 countries and territories through 27 manufacturing and marketing affiliates, 36 licensees, and regional export sales organi- zations. With unit sales continuing to grow rapidly, our market share has reached 15% or higher in over 20 countries. With about 6% of the total 3.7 trillion unit international mar- ket, Philip Morris has substantial opportuni- ties for future growth. Marlboro continued to grow, strengthen- ing its position as the world's best-selling cigarette. International unit sales of Merit increased 34% in 1979. Sales of the brands for which Philip Morris purchased overseas rights in 1978 from the Liggett Group also showed good volume growth. A broad range of national as well as regional brands attuned to differing taste preferences around the world accounted for about half of Philip Morris International's unit volume. Philip Morris Europe/Middle East/Africa posted record unit sales, operating reve- nues, and operating income. In West Ger- many, unit volume of Philip Morris GmbH increased 31 % versus 1.5% for the industry, and Marlboro, moving from third to second place among the country's best-selling brands, had a market share of close to 12% by year's end. Marlboro also had strong sales gains in virtually all European markets and in several countries of the Middle East. Merit achieved excellent sales increases in France, Italy, Norway, and Belgium. We continued to make progress on our major capital expansion programs at Ber- gen op Zoom, the Netherlands, and in West Berlin, to help meet the fast-growing demand for Philip Morris products in Europe. Modernization of our facilities in Brussels and Munich will also provide needed capacity increases. Our Swiss affiliate, Fabriques deTabac Reunies S.A., is the leading tobacco com- pany in Switzerland. FTR's low-tar brands- Muratti 2000, Muratti Extra Mild, and Brun- ette Extra-performed well in this segment. 6

In Italy, several major Philip Morris brands -Marlboro, Merit, Muratti Ambassador, Philip Morris Multifilter 100's, Diana-recorded strong volume growth, increasing the com- pany's overall market share. The Latin Americalberia region set new records in unit sales, operating revenues, and operating income. Marlboro achieved significant unit gains in Mexico, the Dominican Republic, Argentina, and export markets. A licensing agreement for the production of Marlboro in Portugal was signed with Tabaqueira E.P In Brazil, unit volume and market share increased, and operating losses were reduced. Galaxy, the country's first low-tar brand, and Monterey posted particularly good gains. Philip Morris continues to improve its position in the higher priced seg- ments of the market. We expect that with our basic infrastructure in place, profitability in time will be achieved in this large market. Lark, acquired in the 1978 purchase of the overseas business of the Liggett Group, continued its growth trend in Ecuador, main- taining its position as that country's best- selling brand. Our affiliate, Tabacalera Andina S.A., completed construction of a new and larger stemmery in Guayaquil. In Argentina, our affiliate, Massalin y Celasco S.A.C.e I., announced its intention to merge with Manufactura de Tabacos Imparciales S.A.I.C.A. and Manufactura de Tabacos ParticularVF. Grego S.A. Comple- tion of the merger is expected during 1980, subject to government approvals. Our Panamanian affiliate, Tabacalera Nacional S.A., closed its old facility in Pan- ama City and began production in its new cigarette plant inTocumen. In Spain, Fortuna, a blended cigarette jointly developed by Philip Morris and Taba- calera S.A., the state tobacco company, posted record sales in 1979 and achieved a 12% share of the total market. In 1979, Philip Morris Asia achieved rec- ord unit sales, operating revenues, and operating income. _: Record export sales to Asian markets included major volume gains by Marlboro in Hong Kong and Singapore. Philip Morris continued to be the largest exporter of ciga- rettes to Japan, with Lark the leading imported brand in that country. Our licensee in the Philippines posted record sales of locally produced Marlboro. In India, to comply with that country's Foreign Exchange Regulations Act, Philip Morris reduced its equity holding in Godfrey Phillips, India, Ltd., to 40%. In a related move, the Modi Group, an Indian company, became a stockholder of Godfrey Phillips. Philip Morris and Modi will work together to expand and modernize the company's operations. Operating revenues and unit sales of Ben- son & Hedges (Canada) Inc. exceeded those of the previous year, aided by the growth of MarkTen Lights which achieved wider distribution throughout Canada. Ben- son & Hedges 100's Lights was introduced to take further advantage of the growing mild segment of the market. In Australia, cigarette unit volume and operating revenues increased as new mar- keting strategies, including the introduction of new brands and line extensions, success- fully countered price competition. Peter Jackson 25's moved into second position in the rapidly growing segment featuring 25 cigarettes to a pack. To further improve our position in this segment, we introduced a new brand, Longbeach25's. Lindeman (Holdings) Limited, the wine- making subsidiary of Philip Morris (Austra- lia) Limited, increased sales and strength- ened its position as the country's leading wine company. Philip Morris International entered the soft drinks business in 1979 as Seven-Up Inter- national became an operating division of Philip Morris International. Seven-Up International now markets the 7UP brand in more than 90 countries out- side the United States, Canada, and Puerto Rico. Product distribution and sales are achieved through franchised bottlers and distributors. - The 7UP brand showed strong market volume growth overall in international mar- kets, with particularly significant gains in Mexico, Argentina, and the Philippines. Encouraging progress was also made in several new markets, including Greece and Egypt. Seven-Up offers significant growth potential internationally as the worldwide consumer demand for high-quality soft drinks increases. Although uncertainties persist in interna- tional trade and monetary affairs, the pros- pects for Philip Morris International remain excellent. Our unit sales continue to gain in country after country. With the advantages of experienced management and geographic- ally well-situated operations, we are in a good position to capitalize on the steadily rising demand for our products. 7

Miller Brewing Company In 1979, the Miller Brewing Company also set new records. Operating revenues increased 21.9%, and operating income rose 20.4% over 1978. Including imported brands, the U.S. brew- ing industry sold about 172 million barrels during the year, an increase of 3.9%. Of this total, Miller sold 35.8 million barrels, an increase of 14.5% over 1978. Continued strong consumer demand caused retail sales of Miller products to increase at an even higher rate. Miller continues to rank a strong second among U.S. brewers, with a market share of about 21 %, up from 18.9% in 1978. Miller High Life maintained its position as the country's second-largest-selling beer. Lite, which dominates the lowered-calorie segment, continued its success story. Lowenbrau further solidified its position in the super-premium segment, ending the year with an improving sales trend. The growing demand for Miller products has led to a formidable program to expand brewing capacity. During the year, construc- tion continued on a 10 million barrel brewery at Albany, Georgia, and a 5 million barrel brewery at Irwindale, California, which will replace the 2 million barrel brewery in Azusa. Albany began production late in 1979, and Irwindale commenced production in January 1980. Expansion of the Fulton, NewYork, and Eden, North Carolina, breweries, each to 10 million barrels of capacity, moved toward completion. For the past seven years, Miller has been unable to meet demand for its products on a continuing basis. With the Albany and Irwin- dale breweries coming on-stream, we can adopt more orderly and efficient production schedules. Production began at the new can manu- facturing plant at Reidsville, North Carolina. The plant of our Central New York Bottle Company at Sennett, New York, was expanded to an annual-capacity of 990 mil- lion units. In December, Miller announced that Tren- ton, Ohio, will be the site of a new $412 mil- lion, 10 million barrel brewery, with construc- tion to begin in 1980. The sum expended through 1979 to expand and modernize Miller's facilities totaled more than $1.3 billion. Legislation regulating container use and disposal continued to be proposed in vari- ous jurisdictions across the country. Miller considers most such proposals seriously inadequate in that they address no more than 20°% of the litter problem and much less of the solid waste problem and yet mislead the public to believe that both problems will be largely solved. The Seven-Up Company For The Seven-Up Company, 1979 was a sig- nificant year, prncipally characterized by a major restructuring program designed to posi- tion the Seven-Up organization for the future. Seven-Up International moved to Philip Morris International (see footnote page 1); The Seven-Up Company is now responsible for operations within the United States, Canada, and Puerto Rico. This reorganiza- tion was largely accomplished in 1979, and a substantial investment was made in ex- panded marketing, research, and person- nel programs. As a result of this investment spending, The Seven-Up Company's operating income was reduced. Advertising was the principal component of Seven-Up's enlarged marketing program. The campaign-"America'sTurning 7UP"- was intended not only to improve the awareness and product positioning of 7UP but also to assist our bottlers in improving distribution and retail availability of our prod- ucts. The campaign, now featuring endorse- ments by such prominent athletes as Earvin "Magic" Johnson, Larry Bird, John McEnroe, and Earl Campbell, has created substantial consumer awareness. It has also helped to strengthen our relationship with our bottlers. In addition, Seven-Up has restructured and increased its staff-particularly its field sales force-and has substantially improved its product research activities. In March, William E. Winter, previously president, became chairman, and Edward W Frantel, previously vice president-sales of Miller, was appointed president and chief executive officer of Seven-Up. During the remainder of the year, a number of other organizational changes were made to establish the marketing, distribution, quality control, finance, and planning organizations needed for further growth consistent with Philip Morris' long-term objectives. To the extent that new senior positions could not be filled by existing Seven-Up personnel, they were largely filled by people from other divisions of Philip Morris. Also during the past year, a sweeping graphics design program was begun, and the resulting new graphics will be introduced in the spring of 1980. In addition, a new 8

distribution planning department was established to assist bottlers. Seven-Up's own bottling operations in Phoenix, Houston, Norfolk, and Toronto reg- istered a sharp improvement in 1979. The Seven-Up Company has a variety of subsidiaries that offer interesting potential for the future: Warner-Jenkinson Company is the country's leading producer of food color- ings, with major food processors as its prin- cipal customers. The Ventura Coastal Corporation is a processor of lemon products, including lemon oil used in Seven-Up products and about half of all frozen lemonade produced in the United States. Its reconstituted lemon juice is marketed under the Golden Crown label. In addition, Ventura owns and operates lemon ranches. Oregon Freeze Dry Foods, Inc. is one of the country's leading producers of freeze- dried foods. It produces foods for consumer use in leisure activities and ingredients for the food industry. In addition, the company makes products for use by the crews of nuclear submarines and manned space missions, and as a replacement for the tradi- tional U.S. Army "C" rations. A second plant is under construction in Oregon. Marbert Incorporated is fundamentally a manufacturer of flavors, and its operations will soon be merged with those of Warner- Jenkinson. Philip Morris Industrial Philip Morris Industrial completed the best year in its history in both operating revenues; which rose 13.4%, and operating income, up 21.6%. The four groups which make up Philip Morris Industrial-Chemical, Paper, Tissue, and Packaging-each contributed to this performance. The Chemical Group, which makes spe- cialty chemicals for the graphic arts and textile industries as well as powder coating for metals, achieved its increase in income as a result of the performances of Wikolin- Polymer Chemie GmbH in West Germany, Polymer Industries' Adhesives and Liquid Coatings division, and the Armstrong Products Company. The Paper Group, which produces fine printing, technical specialty, and glassine papers, generated a substantial increase in income due to the continued strong demand for the products of the Plainwell Paper Com- pany and the Nicolet Paper Company. TheTissue Group, following a record year in 1978, continued to solidify its position in the rapidly growing food service industry. Start-up costs of a new de-inking facility, which will enable the group to use 100% recycled paper as its major raw material, impacted earnings in 1979; however, signifi- cant benefits from this facility are expected in 1980. The Packaging Group's increase in income reflects results at the Fort Atkinson, Wisconsin, plant, which produces bottle carriers for the brewing industry, and at the Colonial Heights, Virginia, plant, which makes cigarette packaging materials. Both facilities are new, with 1979 the first year of operations unimpeded by start-up costs. The group's flexible packaging division, which had experienced severe pricing pres- sures in 1978, also showed improvement. Mission Viejo Company Mission Viejo Company recorded its second best year ever in 1979, exceeded only by 1977. Operating revenues and income increased 22.1 % and 13.5%, respectively, over 1978. Even though interest rates on home mortgages reached unprecedented highs during the year and the money supply remained tight, sales of homes by the com- pany totaled 1,497. Of particular note was buyer acceptance of three new neighborhoods surrounding the new 124-acre Lake Mission Viejo in California: Mallorca, a medium-density con- dominium project; Galicia, single-family detached homes for growing families; and Andalusia, single-family residences for families with older children. Plans for the development of Aliso Viejo, our 6,619-acre ranch near Mission Viejo, California, were approved by the Orange County Planning Commission. Zoning approval was granted in January 1980, and initial development is scheduled for later in the year, with first home deliveries planned for 1982. A construction program of 20,000 residential units, as well as industrial and commercial development, will extend beyond the year 2000. In Colorado, our 22,000-acre Highlands Ranch just south of Denver received zoning approval for 30,000 homes and industrial and commercial development covering approximately 900 acres. Shortly thereafter, the company exercised its option to pur- chase the property. Initial infrastructure work is scheduled to begin in late 1980. Deliveries of homes will begin in 1981 and continue over the next 25 years. ra cn ~ 0 a ~ ca0:) N 9