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Table of Contents t' Financial Highlighis 2 Review of the Year 12 Phiifp Morris 11.S.A. 14' PhHip Morris Internationa! • 16, MNier Brewing Company 1$ TlSR Seven-Up Company 2¢ Philip Morris Industrial . 227 MlsalgaYtejo Campan}t Ftrfancia/ R9vieHC. ' ted F~rianc7ai _Data , ' ,. 1 Mana4ement VlaEUSSion and' . ,- A~3 pj,.Flttartda! Condlili~, PhiNp V otris incnrporaied~ a feaaf/rig . On the cover: company in thre8 iarg6 industrlas;- pictured Is a vase uneartPiitl iri Ma* clgarettes, beer The vase dates 'and aoft drlnks~ttiat '' Campeche Mexlco , . , prortde sltnI*pleaserres #o mNfons. frorn A.t7 6D0-900-at least SCttYeara" ofpeople everY d8y. t,f 7982; tfte soro"-, ;. . before Columbus came to the lFeW ' , pany n&tered 1ts 2Sth; consecutfftiibrid-and is the oldest knowrr =' ` grow;i1 fttoparoiFng r~venuesn : depictlon of the smoking of tobacctx: year ol ; nete~g~;'ari~~rat~fgs (~t sitiat~ As part of our ongoing support of - aarts; rnis vase was presenzea +vy , ;, Phltlp Morris Inc. to the Museum ie.american Indian In y973.

Nineteen eighty-two was the 29th consecutive year Philip Morris reported record operating revenues and profits. Your company continued to make significant gains during this period of worldwide recession. Financial High7ights Operating Revenues by Product Line Operating Profit by Product Line 0 1650 ^_- -~ 10.0 1500 9.0 1350 8,0 1200 7 0 1050 5 0 900 SA 750 ' a.0 jQ 600 3.0 C!1 0 450 ; 2.0 O O 300 + 10 F- Q 150 0 C11 Among the highlights of 1982: . Operating revenues increased 7.6% to S11.7 billion. „ Operating income increased 17.9% to S1.7 billion. a Net earnings increased 18.5% to $781.8 million. it Earnings per share increased 18.0% to S6.23.  Philip Morris U.S.A. outperformed its competition for the 16th consecu- tive year. . Philip Morris International achieved record profits. . Our export sales of cigarettes advanced 4.0% to a new high level. 78 79 80 ® Marlboro's worldwide sales exceeded 237 billion units. s Miller Brewing increased operating income 37.3%, reversing a two-year decline. a Seven-Up showed the largest per- centage gain in unit volume in the U.S. soft drink industry. 81 82 78 79 80 81 82

d In February, 1982, Philip Morris again raised the dividend on its common stock, increasing the declared annual dividend rate by 20% to S2.40 a share. This was the 17th increase in the last 15 years and the 55th consecutive year in which we have paid dividends. Over the past ten years our dividends have increased at an average annual rate of 22.5%. Our investment in Rothmans International plc has been through its first full year and is working out well. This investment represents a positive move for your company. Reported earnings for Philip Morris were affected by your com- pany's adoption last March of Financial Accounting Standards Board State- ment No. 52, which set new accounting rules regarding foreign currency fluctuations. To show the trend of year-to-year earnings on a comparable basis, we have restated the 1980 and 1981 earnings in conform- ity with FASB No. 52. This reduced Net Earnings 1980 net earnings by S27. 7 million and S.22 per share and 1981 net earnings by S76.5 million and S.13 per share. For the last five years, Philip Morris earnings have increased at a compound rate of 18.5% annually. For the last ten years, the compound rate of increase was 20.2%; for the last 20 years, 19.6%. We believe the strength of our results and the consistency of our growth reflect our dedication to antici- pating and matching consumer de- sires with superior products. All of our marketing, operations, and financial strategies are dedicated to this goal. Today, Philip Morris is a world class company operating mainly in three major agriculturally based indus- tries-cigarettes, beer, and soft drinks -supplying pleasurable, low-priced consumer products. These are high- turnover, high-volume industries with Earnings Per Share Dividends Declared Per Share annual retail sales, in the United States alone, in excess of S20 billion each. Our diversification, both geographi- cally and in product lines, enables us to grow in recessionary times. It en- ables us to nurture businesses over the long term, with our gains in one area compensating for losses in an- other. Thanks to the superior skill and dedication of our 72,000 employees, managers, and executives in 1982, we succeeded in showing technological, marketing, and financial gains in most of the areas of the world in which we operate. Without question, 1982 was an extremely difficult year in which to record market gains. High unemploy- ment in the industrial heartland of America and the recessions in Europe and throughout much of the world had adverse effects on our sales. Never- theless, our tobacco and beverage operations proved that if they were not recession proof they were at least re- cession resistant. Capital Expenditures 1.11 yyU - 700 6.00 -- 200 900 _ 630 ---' 5 40 7.80 810 560 4.80 7.60 720 490 4,20 1.40 630 420 3, 60 1.20 540 ~t f - 350 300 1,00 450 d ~ ~ , 280 2.40 ,80 360 s-~ O , 270 1.80 .60 270 ~j W 140 1.20 .40 180 Q~ 70 .60 .20 90 0 0 0 0 3

For example, while sales were flat for the U.S. cigarette industry as a whole, Philip Morris U.S.A. outper- formed its competitors for the 16th straight year, increasing unit sales 2.5%. Our share of the U.S. market is now 32.8%. In the United States, we intro- duced Benson & Hedges 100's Deluxe Ultra Lights, a cigarette of only 6 milli- grams of tar yet rich enough to be called deluxe. Its distinctive packaging and graphics reinforce the brand's image of richness and quality. Con- sumer response was excellent. Our exports of cigarettes from the United States reached an all-time high level, advancing 4.0%, an out- standing achievement considering the strength of the U. S. dollar. These and other export sales again made a sub- stantial contribution to the U.S. bal- ance of payments. Philip Morris' total export sales in 1982 were approxi- mately $1 billion. Philip Morris International increased its operating income by 12.5%, a commendable performance under difficult circumstances. Many of our international brands feature high- quality American tobacco and sell at the high end of the price scale over- seas. Inevitably, in difficult economic times some consumers switched to local cigarettes priced below our ma- jor, high-quality brands. This impaired our sales in some markets. In brewing, industry sales were off, and Miller Brewing's volume was also down. However, two of Miller's three major brands showed increases; Lite beer from Miller continued its dominance of the low-calorie segment and is the third-largest seller among all brands, while super-premium Lowenbrau achieved a sales increase. Miller is well positioned in the pre- mium category, but its sales in 1982 - were adversely affected by the recession. In soft drinks, our 7UP and Diet 7UP brands reached an all-time high in sales. By creating an entirely new 4 segment based upon its "No Caf- feine" campaign, Seven-Up registered a 20.9% increase in unit volume, the highest percentage gain in the indus- try. Consumers continue to respond strongly to our "No Caffeine" cam- paign, which we expanded with the introduction of LIKE, a 99% caffeine- free cola. LIKE is now moving into national distribution, and Sugar Free LIKE is also being introduced. Consistent with our overall strategy of investing in new products to establish long-range market posi- tions, Seven-Up incurred an operating loss in 1982. Our other businesses-indus- trial products and housing- felt the impact of the weak economy: While both showed a profit, Philip Morris Industrial and Mission Viejo reported lower operating revenues. A longer commentary on the individual operating companies ap- pears later in this report. Financial Activities Philip Morris' strong cash flow resulted in a $57.5 million reduction in total debt outstanding at year-end 1982 versus year-end 1981. This marked the first such reduction in 11 years. As a result, our debt/equity ratio improved to 1.02 to 1 on December 31, 1982, com- pared with 1.18 to 1 in 1981 and an aver- age of 1.07 to 1 over the last five years. During 1982, Philip Morris' new borrowings exceeded S437 million, the majority of which were denominated in Swiss francs or Deutsche marks. These foreign issues range in maturity from seven to twelve years and carry an average coupon rate of 7%. 1n addi- tion to providing funds at interest rates well below rates on equivalent term U.S. obligations, these foreign borrow- ings are fully hedged on the balance sheet by assets denominated in the same currencies. Approximately 80% of our total debt at year-end consisted of fixed- rate obligations with an average inter- est rate of approximately 9%. Philip Morris also has short- term credit facilities with a number of financial institutions totaling about $1.9 billion. These facilities and a light repayment schedule allow Philip Morris considerable flexibility in struc- turing its debt during 1983. Perennial Problems Legislative initiatives designed to re- strict or regulate consumer usage of our main products plus the levying of higher excise taxes continue to affect our business. On January 1, 1983, the federal excise tax on cigarettes went up from S.08 to S.16 a pack. All 50 states and the District of Columbia now impose cigarette excise taxes, ranging from 5.02 to S.25 a pack. In 1982 alone, nine states in- creased their cigarette taxes, the largest number to do so since 1973. Some 369 cities and counties levy additional excises of their own-from S.01 to $.15 a pack. These taxes on cigarettes are in addition to the sales taxes imposed by many states and municipalities and amount to an in- creasingly heavy and unfair burden on consumers. The total of these taxes-fed- eral, state, local, and sales-averaged $.34 per pack nationwide as of Janu- ary 1, 1983. Smokers will be paying in taxes almost as much as they do to the cigarette producers. To look at cigarette taxes another way, in fiscal year 1982, U. S. smokers paid $2.5 billion in federal taxes and nearly S5 billion in state and local taxes. In fiscal year 1983, tax rev- enues generated by cigarettes will be more than five times greater than the total revenues from tobacco of those farmers who sell their crops for do- mestic cigarette production. Excise taxes are regressive taxes, imposed without reference to income or ability to pay. That smokers are being unfairly exploited was re- cently recognized by Senator Howard M. Metzenbaum of Ohio, in the excise- tax debate on the Senate floor: "l am opposed to increasing federal reve- nues by singling out one class of citi- zens-in this case the cigarette smokers in the country-and making them pay a disproportionate share of the tax burden." Philip Morris opposed the dou- bling of the federal excise tax because we consider it harmful both to the U.S. cigarette industry and to the country. In 1982, several hundred non- tax legislative bills relating to our r,7 tn 0 O 0 ~ O ~ w J

businesses were introduced at the federal, state, and local levels. Most of the major issues-pertaining to health warning labels for cigarettes and alco- hol, plus forced deposit legislation and foreign trade restrictions-con- tinue to be debated. However, in New York and Massachusetts new laws calling for deposits on beverage con- tainers will go into effect in 1983. But, when put to a direct vote of the people in 1982 through referenda, every bottle bill and restrictive ciga- rette measure was defeated. The company continues to chal- lenge the assertions that there is con- clusive medical proof of a cause-and- effect relationship between cigarette smoking and disease. Our viewpoint was reconfirmed last year when the federally funded Multiple Risk Factor Intervention Trial (MRFIT) Report was published. In 1972, the National Institutes of Health had initiated a study of 12,000 men assumed to be at high risk of heart disease because of their smoking habits, high blood pressure, and elevated serum cholesterol levels. For the next ten years, half of the group were given counsel to help change their smoking and diet habits, along with special treatment for high blood pressure. The other half received no such help. In September, 1982, after $115 million in federal funds had been spent on the project, the MRFIT con- clusions were published. These failed to demonstrate that reduction in ciga- rette smoking, blood pressure, and serum cholesterol reduces the risk of dying from coronary heart disease. Thus, the study did not demonstrate one of the key assumptions it was specifically designed to prove: that cigarette smoking is a risk factor in heart disease. Regrettably, some public health officials and researchers who partici- pated in the study have chosen to disregard the scientific evidence which they themselves developed. Despite the failure of this huge effort to prove a link between smoking and heart disease, they continue to assert that there is one. Similarly, with respect to lung cancer, there is insufficient evidence to establish a causal connection with cigarette smoking and important facts concerning the occurrence of the dis- ease are inconsistent with the smok- ing hypothesis. Cancer of the lung occurs among nonsmokers. The distri- bution of lung cancer cases geograph- ically and between sexes and races does not correlate with the incidence of cigarette smoking, and lung cancer of the type predominantly found in humans has not been produced in experimental animals with cigarette smoke in the numerous laboratory attempts to do so. As a stockholder of Philip Morris, you should know that: No one knows what causes cancer or other chronic diseases claimed to be related to smoking; A developing body of scientific litera- ture now asserts that numerous other factors-such as occupational envi- ronments, industrial pollution, toxic waste, heredity, emotional health, stress-play major roles in the devel- opment of these same diseases; Scientists have been unable to prove that the healthy nonsmoker is harmed by his neighbor's smoking; No company in the cigarette industry has ever lost or settled out of court a case brought against it on smoking and health grounds. ' We expect that further legisla- tion designed to curb the sale and use of our products will be introduced at both the national and state levels. Such legislation, even when well meant, challenges the rights and free- doms of consumers to purchase prod- ucts they desire. We believe that much more than our industry's interests are at stake in the introduction of legislation based on assumptions which have not been scientifically proven. There is real dan- ger to our society when, on the prem- ise that answers have already been found, we substitute legislation for scientific inquiry. If you agree, we urge you to make your views known to those who represent you. Tobacco is America's oldest industry and, according to the Whar- ton School, supplies or supports some 2 million jobs paying S30 billion in wages and adds over $2 billion an- nually to the U.S. balance of payments. As the ancient figure on the cover of this annual report demon- strates, the enjoyment which the smoking of tobacco uniquely provides has been a part of the human scene for at least a thousand years. Over the centuries, smoking has been vilified, taxed, and regularly blamed for almost every ailment known to mankind. In fact, since the first settlers began planting crops at Jamestown, Virginia, in 1604, tobacco has been subjected to tax, health, and crop control legislation. Yet over the long term, the rec- ord is clear. The people who enjoy smoking have steadily prevailed over those who oppose it, and the industry which serves them has continually grown and prospered. Cultural and Social Programs Long-time readers of the annual re- ports of Philip Morris are aware that your company operates in the belief that: our business activities must make social sense, and our social activities must make business sense. Over the years, we have contrib- uted to health, educational, and cul- tural institutions in the communities, all over the world, in which we operate. While the bulk of our giving goes to health and educational institu- tions, 1982 marked the 25th year of our sponsorship of the arts. It was particularly fitting that in 1982, a milestone year, Philip Morris announced a $3 million grant to help underwrite one of the most important art exhibitions ever held in the United States. Entitled "The Vatican Collec- tions: The Papacy and Art," it is the first major show of art from the Vatican to travel outside Rome and will num- ber 237 objects, ranging from the Apollo Belvedere to works by Giotto, Leonardo da Vinci, and Raphael. The exhibition will travel to The Metropolitan Museum of Art in New York (February 26-June 12, 1983), The r11 cn 0 C 0 N 0 ~ w OJ 5

Art Institute of Chicago (July 23-Octo- ber 16, 1983), and the M.H. de Young Memorial Museum in San Francisco (November 19, 1983-February 19. 1984). The Philip Morris grant ~ras characterized by Douglas Dillon, chair- man of the board of The Metropolitan Museum, as "truly a landmark grant in the realm of giving to the arts in America." The PM Arts Grant, established in 1973 to support innovative art and artists in Australia, has grown to 1,400 works including paintings, photo- graphs, lithographs, sculpture, ce- ramics, video, and crafts. It is the largest collection of Australian art in existence. In 1982, Philip Morris donated the collection to the Australian peo- ple. Received by Australian Prime Min- ister, the Rt. Hon. Malcolm Fraser M.P., on behalf of the nation, the collection is now in the Australian National Gallery. Among numerous other social and charitable programs, your com- pany continued to match employee gifts to educational and cultural institutions, hospitals and social service agencies, and conservation organizations. This program is now 23 years old. We have established a Career Scholarship Program to provide finan- cial assistance to men and women in Richmond, Milwaukee, and St. Louis who wish to study for college degrees while working at full-time jobs. Our expanded Vocational/Tech- ; ical Career Scholarship Program ,yelps residents of Louisville and Mil- ;vaukee ;vho have dropped out of high school and hold full-time jobs to com- plete their high-school educations and thereby qualify for a wider range of employment. In New York City, a gift from Philip Morris renovated and improved the Fort Apache Youth Center in the Bronx. The center was founded by two New York City police officers in an abandoned post office to encourage cultural and social understanding among young people. This summer, Philip Morris will manage the Summer Jobs/'83 Pro- gram sponsored by the New York City Partnership Inc. In its third summer, the jobs program is run by a different corporation each year and thus far has generated 35, 000 private-sector job pledges for youths in New York City. In a unique partnership of edu- cation, industry, and the farming com- munity, your company made important grants in 1982 to North Carolina State University, the University of Tennes- see, and the University of Kentucky College of Agriculture. >'Je believe these programs will benefit the farm- ing community and your company. Through American Corporate Aid to Lebanon, Inc., Philip Morris made a gift of $100,000 to help relieve the suffering of the Lebanese people. We are pleased to note that Jacques G. Maisonrouge, Senior Vice President of IBM Corporation, has rejoined your company's Board of Directors. Mr. Maisonrouge previously served as a Director of Philip Morris from 1974 to 1980. Another addition to the Board is Hans G. Storr, vice president and chief financial officer of Philip Morris Incorporated, who was elected a Director in October, 1982. Philip Morris U.S.A. Philip Morris U.S.A. again in 1982 led the industry in unit sales gains and market share growth as it has for each of the past 16 years. Unit sales were up 2.5% over 1981, reaching 204.4 billion. Market share grew to 32.8%, from 31.8% in 1981. Operating revenues rose 15.1% over 1981, while operating income increased 21.6%. Marlboro, the largest-selling cigarette in the United States and the world, once again set all-time sales Philip Morris U.S.A. Philip Morris U.S.A. Philip Morris U.S.A. U.S. Cigarette Industry oporating Revenues Operating Income ' Cigarette Unit Sales Unit Sales Over the last ten years, Philip Morris Philip Morris US.A.'s operating ' Total unit sales of Philip Morris U.S.A. In 1982, total U.S. cigarette industry ', U.S.A.'s operating revenues have income has risen at an average have grown at an average annual , unit sales declined 0.540. Our market . , increased at an average annual annual compounded rate of 19.0% compounded rate of 6.4% during share increased to 32.84o in 1982, compounded rate of 14, 0% for the last ten years. the past ten years. MII1lonsofDollars - MillionsofDollars BillionUnlts B111ionUnits 630 40.5% 4000 1000 200 560 36.0 3500 875 175 490 31.5 3000 750 150 420 27.0 2500 625 125 350 22.5 2000 500 1o0 280 18.0 1500 375 75 N U 210 O 13.5 - 1000 250 50 ~ O 140 9'a -~ 50o 125 25 N O 70 . 4.5 0 0 0 J W ~ 0 ~ 0 73 74 75 76 77 78 79 80 81 82 73 74 75 76 77 78 79 80 81 82 73 74 75 76 77 78 79 80 81 82 73 74 75 76 77 78 79 80 81 82  US Cigarette Industry Unit Sa/es - Philip Morris Share of U S. lndusiry (o/o) 4500 1125 225 6

records, reaching 119.D :~il)]on units and gaining 19.2°% of :he total U.S. cigarette market. ?rlari:coro L;rhts con• tinued its vigorous qro rvth ;nd i,.as J achieved in eaca,s o11. _j'o .:, .: jJ.$. ;Il:ri+et. Convincod ?; _i :ne ,,r.ar~ct woutd readily accept ~~ new nigh-qual- ity, elegantly packaged, ~,itra-iow tar cigarette, Benson & Hedges 100's De- luxe Ultra Lights was made available nationally at mid-year. The brand quickly achieved significant consumer acceptance, and the total Benson & Hedges brand now ranks as the sixth- largest-selling brand in the industry. our other two principal brands, Merit and Virginia Slims, both per- formed well. All of these gains were achieved in a marketplace characterized by more turmoil than in any other year in recent memory. The pressures of a poor economy, numerous state excise tax increases, and a major inventory liquidation by wholesalers seeking to minimize the effect of the January 1, 1983, federal excise tax increase on their inventories resulted in added complexities for an intensively com- petitive industry. To meet growing domestic and export demand, Philip Morris U.S.A. last year continued its long-term up- grading and expanding of its facilities. The Cabarrus County, North Carolina, -,manura+;turi,^,g iacliitv began initial crod~~ction of ci'garettas in January, ?83, ,:s sc'r,eduled. ~rclund svas „roken last spring r~?; '. JGO-=qu ~re-r ot primary to- ^cassing ? :oit;on to , ^e ~~:"arris iJ. S.A. :sctory in L ouis- ,;iie, Xentucky. The S25 million exten- sion is scheduled for completion in earl y 1985. In 1982, Philip Morris U.S.A. occupied its Richmond Operations Center on a 58-acre site adjacent to the ,Ylanufacturing and Research cen- ters. The Operations Center replaces leased and crowded space and now is headquarters for most of the com- pany's administrative and technical departments. lt also contains a pilot production facility for the develop- ment of quality cigarette products. The United States is fortunate in having excellent soil and climatic con- ditions for growing high-quality tobac- cos along with an intelligent and dedicated group of producers. To help ensure future availability of first-quality tobaccos, Philip Morris U.S.A. made three important grants in 1982: The Philip Morris Agricultural Leadership Program, a two-year program at North Carolina State University to further the education of tobacco farmers; a r,saarch grant :o the University of :ennessee to r.e1p improve 'r;,a state's tobacco production efficiency: and a jrant to the University of Kentucky tioiiege of Agricuitura 'oprcmore the treLhanizetion ol rurey rcbacco i;ro- -uction. ;,'~ese grants ara part oi a continuing, long-term effort to aid tobacco producers. Philip Morris International Philip Morris International again achieved records, with operating reve- nues and operating income up 4.8% and 12.5%, respectively. Our operating income was significantly reduced by the weakness of some major curren- cies against the strong U.S. dollar. Unit sales declined 2.7Rio to 242.7 billion, due to substantial excise tax increases in a number of major markets, and recessionary con- ditions, which adversely affected consumer spending in some markets. Volume of licensed brands in Eastern Europe declined as a result of hard currency shortages. For the sixth consecutive year, Philip Morris continued as the leading cigarette exporter from the United States. Our cigarettes, which feature high-quality American bright and bur- ley leaf, clearly appeal to the tastes of a growing number of foreign smokers. Philip Morris International Operating Revenues Philip Morris International Operating Income Philip Morris International Cigarette Unit Sa/es World Cigarette7ndustry Unit Sales Esc/udng U.S,A, Total operating revenues (consolidated srd unconso)ydated) or Philip Moms nternauonal have ,ncreased at an average annual comoounded rate . G(25 . 7~~~ over the past ~ten years. _ During the last ten years, Philip Morris International's operating ,ncome has grown at an average __ annual compowded rate of 18.2?io. - - Total unit sales of Phillp Morris International's aCiliates, licensees, 3nd exports declined 2, 7% M 1982. _ in 1982, worldw[de c,garette unit sales -,creases were concentrated in markets where Phrlip Morr,s does not have slgniricant representation Our market share declined to =_oout 6 2% last year 'ddlions o7 Dollars Millions of Dollars Billion Units 81,7ion Unts 3825 9 i 2?N 3Th ~ 2O 1700 . 4 73 74 75 76 77 78  Consolidated  Unconsolldated 7 79 80 81 82 73 74 75 76 77 78 79 80 81 82 75 76 77 78 79 80 87 82 73 7 7275 425 j 850 73 74 75 76 77 78 79 80 81 82  World Cigarette Industry Unit Sales (Exducing U S.AJ - Ph,Op MOrns Share o7 World ,blarket (%) 3 2 7 0 ~= --

Export sales rose 4.04lo to 47.4 billion units, reaching a new high, while total U.S. industry exports declined. Marlboro strengthened its posi- tion as the world's best-selling ciga- rette by increasing its market share in several key countries. Among our other international brands, Merit and Chesterfield showed especially good volume growth. Europe/Middle East/Africa Early in 1982, the Europe/Middle East/ Africa Region was split into two smaller, more efficient regions-the EEC Region and the EFTA, Eastern Europe, the Middle East & Africa Re- gion. This increased our ability to re- spond to changing conditions in local markets. We gained market share in both Great Britain and West Germany, two markets which faced unusually high increases in excise taxes. In France, where the market was flat, Philip Morris registered an overall gain, due to the strong performance of Marlboro and Philip Morris Super Lights. We now have an 11. 8% market share. Unit sales also increased in the Benelux countries, where Marlboro is now a leading brand in all three countries. In Italy, substantial price in- creases by the state cigarette monopoly adversely affected unit sales. Philip Miller Brewing Company Operating Revenues Morris nevertheless has five of the country's top ten brands. Our Swiss affiliate, Fabriques de 7abac Reunies S.A., consolidated its leading position and opened its new r?search and development facility in NeuchateL Marlboro continues as the country's leading brand. Our Swiss operation is a major user of Maryland tobacco. In Greece and Finland, Philip Morris increased market share. In the Middle East and Africa, sales were at record levels, especially for Marlboro. Strong performances by Marlboro Lights and Merit reinforced our lead in the low-tar segment. Latin America/fberia In the region, Philip Morris achieved record operating income. Operating revenues were down slightly due to currency translations and trading down by consumers, particularly in Brazil. The company maintained its position as the leading U.S. cigarette exporter to Latin American markets. Throughout the region, we bene- fited from the growing consumer de- mand for low-tar brands. Marlboro Lights was introduced in Ecuador, the Dominican Republic, and Panama, and showed excellent growth elsewhere. In the large and important Bra- zilian market, we increased our market share at year end and now dominate Miller Brewing Company Miller Brewing Company Operating Income Barrel Shipments the growing low-tar segment. Our losses in 1982 were in line with those of 1981. We discontinued local manufac- turing operations in Chile but contin- ue to supply that market through imports. Our Argentine affiliate, Massalin Particulares S.A., reported strong profits on lower unit sales. The conver- sion of the Merlo plant in Buenos Aires to a modern cigarette manufacturing facility will give us greater economies of scale when completed in 1983. In the Dominican Republic, Marlboro led the solid unit volume growth as E. Leon Jimenes C. por A. became the industry leader. Asia Operating revenues, operating income, and unit volume all set new records. Marlboro is now the leading imported brand in h'ong Kong and Singapore. Philip Morris is the leading U. S. exporter to Japan, chiefly with our Lark brand. Negotiations between the governments of Japan and the United States have produced an agreement to expand the number of retail outlets in Japan which are allowed to carry im- ported cigarettes. By the spring of 1985, all retail outlets will be allowed to carry imported cigarettes. Negotia- tions continue towards eliminating During the last ten years, Mil/er's After two years of declines, Miller's Barrel shipments declined in 1982 operating revenues have increased at operating income increased 37.3% due to the disproportionate an average annual compounded rate in 1982. impact of the recession in those areas of 30.1 1/o. - in which Miller High Life has its strongest bases. Mdlions of Dollars Millions of Dollars Millions of Barrels 73 74 75 76 77 78 79 80 81 82 73 74 75 76 77 78 79 80 81 82 73 74 75 76 77 78 79 80 81 82 r U.S. Beer Industry Barrel Shipments Including Imports The U.S. brewing industry had its first non-growth year in 25 years in 1982, as a result of the receasion. Millions of Barrels 180 27% a US. Beer Industry Barrel Shipments - Miller Share of U S. Industry (/o) s

S. tariff discrimination against imported cigarettes. As of April 1, 1983, the stat- utory tariff rate will be lowered from 35% to 20%. We see new opportuni- ties in these developments. In Malaysia, Philip Morris ap- pointed Rothmans of Pall lYlall to im- port and distribute Marlboro, with encouraging initial results. Godfrey Phillips (India) Limited recorded strong sales gains. Australia Measures taken to protect margins and reduce costs led to improved operat- ing results for Philip Morris (Australia) Limited, following declines in recent years. Our subsidiary Lindeman (Hold- ings) Limited continued as Australia's leading wine producer. It achieved increased volume and operating in- come, but profits were depressed by price competition. Canada In a generally stable market, unit sales of Benson & Hedges (Canada) Inc. showed a 3.8% decline. Philip Morris' indirect investment of 22% in Rothmans International plc continues to be beneficial to your company. The March 31, 1982, year- end results of Rothmans showed sub- stantial improvement over the previous year, and the six-month results ending September 30, 1982, also showed improved income. Objections raised against the arrangement between Philip Morris and the Rembrandt Group by the Bun- deskartellamt of the Federal Republic of Germany and the Commission of the European Communities are be- ing contested. We believe thata satisfactory outcome of these pro- ceedings can be achieved in time. ,lJ ifer t3rewM g Gompany In 1982, Miller posted a substantial increase in operating income-up 37.3% to $158.8 million-after two years of declines. This reflects major gains in operating efficiencies, along with lower commodity prices. Miller is the second-largest brewer in the world with the second- and third-largest brands in the United States: Two of our three major brands, Lite and Lowenbrau, recorded volume gains in a difficult market in which industry barrel sales were essentially flat. In the /ow-calorie segment, which was created by Lite beer from Miller, we successfully overcame aggressive efforts by our competitors, and our Lite brand sustained its expected barrelage growth through- out 1982. The Seven•Up Company 7he Seven•Up Company Operating Revenues Operating tncome The Seven-Up Company's operating The cost of bringing new products revenues have grown at an average to market produced an operating loss annual compounded rate of 17.1% for Seven-Up in 7982. This loss was, over the past ten years. . however, reduced from 1981. Lowenbrau, which is positioned at the high end of the price range for super-premium brands, continued to grow. S-hipments of Miller High Life, the nation's second-largest-selling brand, suffered during 1982 and ended below the previous year's. High Life's decline was largely due to reces- sionary pressures on its strongest markets. Overall, Miller in 1982 increased its operating revenues by 3.2%, al- though shipments declined by 2.5%. Our market share also declined slightly. We are encouraged by the per- formances of our Lowenbrau and Lite brands. In October, adjustments and refinements of Miller High Life adver- tising were introduced. The Seven-Up Company During 1982, we achieved further progress in the long-term rebuilding of this company. Operating revenues increased 22.8%, exceeding S500 million for the first time. Early in the year, we launched our "No Caffeine" marketing campaign, which resulted in immediate sales and market share gains. Full-year sales increases for 7UP were the largest in 13 years. Diet 7UP reached an all-time high in market share. In April, we launched LIKE cola in test markets with the advertising theme, "You don't need caffeine, and PAillions olDollars Millions of Dollars 540 480 20 42 36 30 4A N) 9

neither does your cola." The success of these tests led to expanded LIKE distribution during the summer and fall. LIKE is now available in approxi- mately 40% of the United States. Seven-Up's Packaged Beverage Division, consisting of company- owned bottling operations, had, an excellent year in sales and profits. Two major operations, each with a full line of franchised soft drink brands, were acquired in San Antonio, Texas, and Ottawa, Canada. The company now has nine facilities in the United States and three in Canada. The Food Products Division's operating revenues increased over 1981. Warner-Jenkinson, the industry leader, achieved record sales and profits in the food color business. Oregon Freeze Dry Foods gained in revenues, won government contracts for military provisions, and introduced several new products. Ventura Coastal increased its capacity to service the frozen orange juice business by ac- quiring Southern Gold, a Florida proc- essing plant. Sever.-Up International, which is under the direction of Philip Morris International, slightly increased vol- ume overall despite instability in one of its most important markets, Argen- tina, where industry sales of soft drinks fell 30%. Unit sales, excluding the Argentine market, increased ap- proximately 10%. In Great Britain, the division entered into a franchise agreement with Beecham Group Ltd., a leading consumer-goods company, for distri- bution of all Seven-Up products. A new franchise agreement was also signed in Venezuela. Ongoing momentum is good, providing opportunities for growth in present markets and successful entry into new areas. Philip Morris Industrial In 1982, Philip Morris Industrial con- tinued with its plan to concentrate on the tissue, paper, and packaging markets. As part of this strategic re- structuring, the companies which made up the Chemical Group were divested on July 31, 1982. Wisconsin Tissue Mills results were impacted by pricing pressures and start-up costs associated with a major expansion to enable the com- pany to become a full-line supplier to its markets. The start-up, still in progress, to date has been timely and successful. New converting facilities, an automated warehouse, and a new paper machine are all now operating. Nicolet Paper Company and Plainweil Paper Company had a diffi- cult year attributable to reduced de- mand and severe pricing pressures. Koch Label Company and Colo- nial Heights Packaging reported im- proved results due to greater volume and increased efficiencies. :Ylission Viejo Company In the worst housing market since World War 11, Mission Viejo operated profitably, outpacing most of the na- tion's homebuilders in 1982. Operating revenues, however, declined 20.4a/o. Although Mission Viejo was one of the few homebuilders in the nation to record a profit in 1982, operating in- come declined 74.0% from 1981. In Mission Viejo, California, the company offered prospective home buyers a variety of new financing pro- grams designed to cushion the effect of high interest rates. A 73-acre site was sold for development as a busi- ness park within the 10, 000-acre com- munity, and construction began on a 94,000-square-foot commercial center on the shore of Lake Mission Viejo. In Colorado, the New Town of Highlands Ranch, a 12,000-acre planned community, is being built on the historic 22,000-acre Highlands Ranch near Denver. The Highlands Medical Center commenced opera- tions, and construction began on the first retail center. Ultimately, 30,000 homes will be built on the ranch, with approximately 60% of the property preserved for non-urban uses. The first residents of Aliso Viejo, a 6,600-acre planned community near Mission Viejo, moved into their new homes during 1982. In its first phase, Aliso Viejo is offering houses designed and priced for first-time homebuyers. Philip Morris /ndustrial - - Philip Morris Industrial ~ Mission Viejo Company Operating Revenues Operating Income Operating Revenues While Philip Morris Industrial's Philip Morris Industrial's operating M.ssion Vie1o Company's operating operating revenues decreased income from continuing operations revenues declined in 1982 due to in 1982. rts revenues ;rom declined 57 7/a in 1982. adverse conditions in the conrmung operations increased homebuilding market. 12.61,b Over 1981 Millions of Dollars MilliorLs of Dollars Millions of Dollars 270 18 240 16 210 14 180 12 150 10 120 90 60 4 30 2 0 0 73 74 75 76 77 78 79 80 81 82 10 80 Mission Viejo Company Operating Income 'Nhile Mission Viejo Company had a substantial operating income reduction in 1982 from 1981, it wes one of the few companies in the homebuilding industry which showed a profit in 1982. Millions of Dollars 36

The Outlook We expect Philip Morris to post con- tinued earnings gains in the future based on the growth potential in our establisan~ businesses. sha eeof markets believe we can exp through our present lineup of brands and by the introduction of new prod- ucts. Moreover, your company is well positioned to take advantage of changes in market structure, tech- nology, and general economic conditions, in 1982, we completed con- struction of our largest international cigarette plant, in Bergen op Zoom, the Netherlands, and began building a major addition to our Louisville plant. We started operating our new cigarette manufacturing facility in Cabarrus County, North Carolina, in January 1983. Construction will continue in 1983 on another Miller brewery, the company's seventh, in Trenton, Ohio. By the end of 1983, fully four-fifths of all Philip Morris plant and equipment will be eight years old or less. Few of our world :;ompetitors are so well positioned. As 1983 begins, we still face uncertain times. We believe we have the momentum to cope with all eco- nomic conditions. We have demonstra- ted a consistent record and believe our dedication to excellence in every- thing we do is appreciated by a stead- ily widening group of consumers. We are motivated to be the best-in technology and manufac- turing, as well as in finance and mar- keting-and to having the best people. We are net exporters to the world while facing little or no foreign competition in our major market-the United States. The steady improvement in per- formance by our brands will lead to higher profit margins. The installation of technologically advanced equip- ment will produce productivity gains. The adoption of LIFO accounting resulted in reduced earnings but enhanced our cash flow. A rising level of internally generated funds will allow us to further reduce debt resulting in a stronger balance sheet overall. Such fundamental improvements offer the best means of ensuring the future. Philip Morris has a record of thriving under adverse and highly competitive conditions. Our results for 1982 were in keeping with that record. Our industries will not become any easier to succeed in, but we confi- dently expect that Philip Morris-with its dedication to quality; an enthusi- asm for innovative research, manufac- turing, and marketing; and total commitment to excellence-will con- tinue to thrive. We think it is worth repeating that our achievements would not have been possible without the great dedi- cation and skill of all our employees around the world. They are the future of your company. George Weissman Chairman of the Board and Chief Executive Officer Ross R. Millhiser Vice Chairman of the Board Clifford H. Goldsmith President George Weissman, chairman of the board and chief executive officer (seated center), meets with other members of the Office of the Chairman (left to right): Ross R. Millhiser, vice chairman; Hugh Cuilman, group executive vice president; John A. Murphy, group executive vice president; Clifford H. Goldsmith, president; Hamish Maxwell, executive vice president. 11

Phellp Morris U, SsAo In millions Operating Operating Revenues Income 1982 S4,330.1 S1,101.6 1981 $3,761.6 S 905.7 1980 53,272.1 S 786.1 1979 S2,767.0 $ 701.3 1978 $2,437.5 $568.1 As taxes and business factors drive up the retail price of our products, Philip Morris U.S.A. is committed to attaining even higher quality standards than those for which we have traditionally been recog- nized. Company and consumer alike benefit from the relationship between highly developed brand identification and consistent product excellence. A singular brand personality-Merit's rich taste and low-tar delivery; Virginia Slims' appeal to women; Benson & Hedges' length and distinctive packaging; Marlboro's unique personality and rich flavor-motivates the smoker to try the first pack. Unsurpassed quality builds loyalty through repeat sales.

Hugh Cu//man Chairman and Chief Executive Officer Shepard P. Pollack President and Chief Operating Officer V/. Wallace McDowell Executive Vice President, Operations James J. Morgan Executive Vice President, Marketing R. Nelson Beane Senior Vice President, Finance and Administration - Fred J. Laux Senior Vice President, Personnel James A. Remington Senior Vice President, Manufacturing Albert J. Bissmeyer III Vice President, Merchandising W. John Campbell Vice President, Plant Operations Hawes B. Coleman Vice President, Field Sales Robert H. Cremin Vice President, Sales O. Witcher Dudley Vice President, Leaf Robert A. Fitzmaurice Vice President, Brand and Promotion John J. Gillis Vice President, National Accounts Dr. Max Hausermann Vice President, Research and Development Alexander Holtzman Vice President and General Counsel J. Paul Jeb Lee Vice President, Marketing Services F. Robert Kurimsky Vice President, Information Services William G. Longest Vice President, Leaf Operations Richard D. Robertson Vice President, Environment and Ecology Stanley S. Scott Vice President, Public Affairs George W.B. Taylor Vice President, Engineering James L. Thompson, Jr. Vice President, Media Harry G. Steele Controller Douglas H. Nelson Treasurer and Director of Finance

Philip Morris Internati®nal In millions Operating Operating Revenues Income 1982 $3,563.7 $446.0 1981 $3,400.3 $396.6 1980 $3,205.4 $318.0 1979 32,581.3 $260.6 1978 $1,810.9 $188.6 Philip Morris International provides the finest quality cigarettes for its discerning smokers worldwide. Through a broad range of international, regional, and national brands, a selection of which is illustrated on these pages, we are able to satisfy many different taste pref- erences around the world. High-quality tobaccos go into the manufacture of our brands which are produced on equipment incorporating state-of-the-art technology. The company's products are manufactured and marketed in more than 170 countries and territories through subsidiaries and affiliates, licensed or other contractual arrangements, and area export sales organizations. .-.

Hamish Maxwell President and Chief Executive Officer R. William Murray Executive Vice President Carlos E. Salguero Executive Vice President Richard L. Snyder Senior Vice President, Administration Geoffrey C. Bible Vice President Aleardo G. Buzzi Vice President William 1. Campbell Vice President Mary W. Covington Vice President Andreas Gembler President, Seven-Uplnternational John G. Gibson Vice President Marc Goldberg Vice President Staffan Gunnarsson Vice President Ehud Houminer Vice President Richard A. Hutchinson, Jr. Vice President Thomas M. Kearns Vice President, Finance Lee Pollak Vice President, Planning George 0. Riemer Vice President, Personnel Walter Thoma Vice President Jose de la Torrlente Vice President William H. Webb Vice President Andrew Whist Vice President, Corporate Affairs

Miller Brewing Company In millions Operating Operating Revenues Income 1982 $2,928.6 $158. 8 1981 82,837.2 5115.6 1980 $2,542.3 S144. 7 1979 $2,236.5 $181.0 1978 $1,834.5 $150.3 16 In 1982, the brewing industry failed to grow for the first time in 25 years. In this recessionary climate, Lite, which dominates the low-calorie segment, and Lowenbrau, Miller Brewing's super-premium price product, both registered volume increases. And, while Miller High Life had a decline in volume, High Life and Lite maintained their respective positions as the second- and third-largest-selling brands in the United States.

John A. Murphy Chairman and Chief Executive Officer William K. Howell President and Chief Operating Officer Lauren S. Williams Executive Vice President Thomas B. Shropshire Senior Vice President and Treasurer Dr. Vincent S. Bavisotto Vice President, Brewing and Research William W. Catlin Vice President, Brand Management Warren H. Dunn Vice President and General Counsel Alan G. Easton Vice President, Corporate Affairs Thomas A. Fulrath Vice President, Personnel Leonard J. Goldstein Vice President, Sales Larry K. Neuman Vice President, Material Flow William A. Saupe Vice President, Planning and Development Allen A. Schumer Vice President, Plant Operations Georgy L. Tarala Vice President, Engineering Charles A. Whipple Vice President, Director of National Retail Sales Ronald R. Strain Controller Raymond E. Jones, Jr. Associate General Counsel and Secretary William G. Schmus Assistant Secretary Carroll A. Bodie Assistant Secretary

The SevensUp Company h In millions Operating Operating Revenues Income 1982 5530.6 S(1.2) 1981 S432.1 S(1.7) 1980 $353.2 S(7.1) 1979 $295.5 $ 7.0 1978 S274.8 $40.3 The Seven-Up Company's brands achieved increases in both sales and market share in the soft drink industry. Through the dramatic "No Caffeine" theme, 7UP and Diet 7UP gave con- temporary meaning to a traditional product attribute-and saw sales move up to an all-time high in response. The introduction of LIKE, a 99% caffeine-free cola, was a major event in the soft drink industry last year. Following an outstanding reception in test markets, LIKE began moving into national distribution-and Sugar Free LIKE was introduced as a line extension.

or- Edward W. Frantel President and Chief Executive Officer Gerard J. Martin Executive Vice President J. Stewart Bakula Vice President, General Counsel and Secretary Edward P. Callahan Vice President, Administration William A. Fagot Vice President. Corporate Planning and Development Arnold F Larson Vice President, Packaged Beverage Division George R. Lewis Vice President, Finance Charles W. Schmid Vice President, Franchise Division Guy L. Smith IV Vice President, Corporate Affairs

Philip Morris Industrial In millions Operating Operating Revenues Income 1982 $232.9 S 7.6 1981 5291.1 $18.9 1980 S276.5 $16.9 1979 S268.8 $18.3 1978 S237.2 $15.0 Philip Morris Industrial continued its strategic change in direction, placing major emphasis on the tissue, paper, and packaging markets. Wisconsin Tissue Mills, for example, is nearing completion of a program to expand its product line. Industrial's new computer controlled paper machine will produce tissue at speeds of up to 6,000 feet per minute-one of the world's fastest. Colonial Heights Packaging Company produces packaging mate- rials for Philip Morris U.S.A.

William D. McCoy President and Chief Executive Officer James B. Kurtzweil Executive Vice President Alan G. Wernick Senior Vice President James E. Asmuth President, Wisconsin Tissue Mills and Vice President, Philip Morris Industrial Thomas J. Contrucci Co n troller

Mission Viejo Company In millions Operating Operating Revenues Income 1982 $130.2 S 6.0 1981 5163.6 522.9 1980 $172.8 S30.6 1979 S153.8 S22.4 1978 S125.9 519.8 22 In 1982, Mission Viejo Company with- stood the industry-wide upheaval caused by the fourth consecutive year of the housing recession and main- tained its position as one of the strongest homebuilding companies in the country. Mission Viejo's innovative land planning, community concepts, and value-oriented designs continued to appeal to all segments of the home- buying market: young singles through growing families to those who are retiring. In California and Colorado, Mission Viejo Company is an industry leader in building communities that are in balance with the environmental, social, and economic needs of our society.

finaraciai Review 1982 I In 1982, Philip Morris achieved its 29th consecutive year of revenues and earnings growth. Despite the difficult economic environment, Philip Morris' revenues advanced 7.6% from 1981 and net earnings increased 18.5%. During 1982, Philip Morris adopted Statement No. 52 of the Financial Accounting Standards Board for for- eign currency translation. The earnings for 1981 and 1980 were restated and prior periods remain as reported (Chart 1). In February, 1982, the Board of Directors declared a 20% increase in the common stock dividend to an annual rate of $2.40 per share. This rep- resented the 15th consecutive year of increase and our 55th consecutive year of dividend payments. Over the last decade, dividends per share in- creased 22.5% annually, while net earnings per share increased 18.2% (Chart 2). In 1982, capital expenditures totaled $921 million. Over the past five years, we have spent nearly $4 billion Operating Revenues Net Earnings on additions to our fixed assets in con- trast to $1.1 billion spent during the previous five years. Almost half of the amount spent over the past five years was for Miller Brewing and most of the remainder for our domestic and inter- national tobacco operations. At year- end 1982, approximately 70% of our fixed assets were less than five years old. We estimate capital expendi- tures of $700 million in 1983 and ap- proximately $3 billion in the five-year period 1983 through 1987. Over 80% of these expenditures will be for fore- casted capacity needs and productiv- ity improvements. They will be continually monitored to insure high returns and a close correlation with demand for our products. In 1982, our funds from opera- tions increased 16.9% to $1.2 billion (Chart 3). Over the last ten years, in- ternal funds generation increased 22.9% annually. During the same pe- riod, net earnings advanced 20.2% annually (Chart 4). The difference re- Primary Earnings Per Share Funds from Operations Dividends Declared Per Share Capital Expenditures Chart 1 Chart 2 Billions of Dollars Millions of Dollars Dollars 11.7 810 6.3 10.4 720 5.6 9.1 630 4.9 7.8 540 4.2 6.5 450 3.5 5.2 360 2.8 3.9 270 2.1 2.6 180 1.4 1.3 90 .7 0 0 0 73 74 75 76 77 7879 80 81 82  Operating Revenues ~ Net Earnings 73 74 75 76 77 78 79 80 81 82 Chart 3 Millions of Dollars 080 960 840 720 600 80 360 240 120 0 73 74 75 76 77 78 79 80  Primary Earnings Per Share  Funds from Operations ~ Dividends Declared Per Share - Capital Expenditures lates to rapidly increasing depreciation and deferred income taxes, which, in turn, are generated largely by capital expenditures. To this extent, our ex- panding fixed-asset base is providing an increasing source of funds for fur- ther capital expansion. Total assets were $9.7 billion at year-end 1982. This.was nearly six times greater than our asset base ten years earlier and $512 million higher than 1981. The 1982 increase was due primarily to capital expenditures. Our net return on average total assets was 9.7%, slightly above last year's 9.5% (Chart 5). Stockholders' equity was more than five times greater than ten years ago, reaching $3.7 billion at the end of 1982. Our net return on average stock- holders' equity was 22.7%, up from 21.7% in 1981 (Chart 6). The particu- larly high level of return on our stock- holders' investment is, in part, a reflection of Philip Morris' prudent use of debt in financing growth. Stock- holders' equity as shown on the bal- Funds from Operations Net Earnings Chart 4 Millions of Dollars 080 960 840 720 600 480 rQ 360 ~ 0 240 0 ~ 120 d 0 81 8 J 2 CJ1 73 7 4 75 76 77 78 7 9 80 81 82  Funds from Operations - Net Earnings 24

I ance sheet now includes an additional section for currency translation adjust- ments in accordance with Financial Accounting Standards Board State- ment No. 52. Total debt at year-end 1982 was 53.7 billion, a 558 million decrease from a year earlier. Our debt-to-equity ratio was 1.02 to 1, compared with 1.18 to 1 in 1981 and an average 1.09 to 1 over the last ten years (Chart 7). During 1982 our strong world- wide reputation permitted us to bor- row overseas at very favorable rates. We completed four separate Swiss franc and three Deutsche mark loans, the proceeds of which approximated $347 million. These issues range in maturity from seven to twelve years and carry fixed-interest rates averaging about 7%. As a result of these and other recent financings, fixed-interest obli- gations were approximately 80% of total debt at the end of the year com- pared with 60% in 1977. This trend is particularly important in view of the high short-term interest rates in recent years. The fixed-interest portion of our debt, totaling $2.9 billion at year-end, carries an average annual interest rate of approximately 9%. Additionally, during the third quarter of 1982, 345,552 shares of common stock were issued in exchange for debentures valued considerably below their aggre- gate face amount. Currently, Philip Morris has short-term credit facilities with a num- ber of financial institutions totaling approximately $1.9 billion, reduced from $2.2 billion at year-end. Of this amount, approximately $600 million is in revolving credit agreements and other arrangements with both U.S. and European banks. These facilities, which comfortably exceed our ex- pected needs in 1983, provide support for our commercial paper borrowings and other credit activities. Philip Morris continues to maintain the high- est ratings in the commercial paper market and a solid "A" credit rating for longer-term obligations. Total Assets (Year-End) Stockholders' Equity (Year-End) Total Debt (Year-End) Net Return on Net Return on Ratio of Total Debt Average TotalAssata AverageStockholders'Equ(ty to Stockholders'Equlty Chart 5 Chart 6 Chart 7 Billions of Dollars Billions of Dollars Billions ofDollars 9,9 3.6 27% 3,6 6.8 16 3.2 24 3,2 7.7 14 2.8 21 2.8 6.6 12 2.4 18 2.4 5,5 10 2.0 15 2.0 4.4' 1.6 12 1.6 3.3 2.2 Interest expense in 1982 totaled $267.2 million, compared with $258.5 million in 1981 (Chart 8). The increase was due to higher average debt levels. Earnings coverage of interest expense strengthened. Our effective income tax rate was 40.0% in 1982 and 38.9% in 1981. Early in 1982, Philip Morris Credit Corporation was formed. This subsidiary will provide financial ser- vices for Philip Morris and its customers. In summary, 1982 was an excel- lent year for Philip Morris. Strong earn- ings gains and cash flow momentum provide a solid basis for continued growth. We feel this growth can be accommodated through internal cash generation and our credit availability. Our financial condition is sound and will remain strong in 1983 and beyond. Interest€xpense Interest Coverage Chart 8 Ratio Millions of Dollars Coverage 1.8 270 9 1.6 240 8 1.4' 210 7 1.2 180 6 1.0 150 5 .8 120 4 .o" 90 3 N 4 cn so fl .2 73 74 75 76 77 78 79 80 81 82 73 74 75 76 77 78 79 80 81 82 - 73 74 75 76 77 78 79 80 81 82 : Total Assets (Year-End)  Stockholders' Equity (Year-End)  Total Debt (Year-End) h'et Return (Before Net Interest) on - Net Return on - Ratio of Total Debt - Average Total Assets (o/o) Average Stockholders' Equity (a1o) to Stockholders' Equity (Year-End) 25 Lo 73 74 75 76 77 78 79 80 81 82  Interest Expense - Interest Coverage (Earnings Before Interest and Taxes Divided by Interest) 0

_ .. ~.~ - . . 1' 1 s i. Total Debt Deterred fncomA Taxes. SYockholders' Equit1a . Dhridends Deelered Per Commaiii Sfiaie:L : Funds Fronr Operafforra'" Capifal Expenditrrretr=; " r a: z5UV::. a't5.0° 205.5 741K i79>~: , 133.9 2,447.8. 5, 88& Z i47. (in millions of dollars, except per share data) ' ~ for years ended December 31' Operating Revenues Interest Expense Depreciation Expense Net Earnings Earnings Per Common Share Total Rasets Long-Term Debt rhe aooft :okcted MWKW a.a d ~ ~ P se~`~ faries for the fi~a yam er~ded Decemtdk 7 Jnncifon with fhs consoNdai®d fhwnciaf siaitmerO arid oluded in thfs report ks 19OZ tft compsr~i adoFrta"t6 3tandards Board 3tatemenf Ha 3JiF~yq CusrnM shrted consondated fk~anclat stai~+f~nts Tor• 798f aai drCreased net earnings and eamJnpifp.I shii: 5.73 pef sftarr. r~s~ectivety and7lt 1~U.b~.1~7 7ti~ $T~,885.9~$9, 822 3 $$302.9 $8,G3Z a49:1~' 507.9 4081 , , .. ~ ww.:A 8~' 4.D8 30• psi.8F ' ` $;378.9 -r

in 1982. funds from operations of St.2 biliion provided ap- utable to price increas:=_s and S94 mrllion to increased ciga- proximately 89Qb of the S?.3 billion ot total funds used by the rette unit volume. The :;igarette price increases =n '982 company compared with 440'o in 1921 and 610 a in 1980. The reflect increases rn an'icipation of the January 1, ?983 federal increase of S17i rr,il-lion or 16.9% of funds from operations excise tax increase. Philip Morris lrrternational revenues in- over 7981 was due to a higher level of earnings coupled with creased 5.2Wo over 1981 with S489 million due to price in- increases in depreciation and deferred taxes related to capi- creases, including substantial excise tax increases in a: tal expenditure programs. number of markets, reduced by $230 million attributable t6r: . Of the total funds used, capital expenditures ac- currency translatlon and $88 million to a decline in unit vop- eounted for approximately 69% In 1982, compared with 44% ume. The decline in unit volume is attributable principalty im- in 1981 and 56% in 1980. Capital expenditures for 1982 were the substantial excise tax increases, a worldwide recession, slightly below the record spent in 1981 and are estimated and the strong U S. dollar. at $700 million in 1983 and $3 billion for the years 1983 iIn 1982, operating revenues from beer operations in~, through 1987. creased 3.2%re8ecting an increase of $164 million due to Total debt at December 31, 1982 was a3.7 billion, price Increases reduced by S73 million attributable to a 2.5~'1~ a $58 million decrease from a year earlier. At year-end 1982;. decrease in the volume of beer sales, the company's debt to equity ratio was 1.02 to 'I compared Cost of sales in 1982 (which includes cost of products with 1.78 to 1 at December 31,198'f The decrease was mainly sold and federal and foreign excise taxes) was S305 million attributable to the increasedearnTnys for'1982 coupled with (4.0%) higher than 1981. Thls increase was attributable prf- reduced Inventories and capital expenditures. manly to increases in the cost of tobacco, S356 million, and Tlflo company anticipates funds from operations will decreases In the cost of sales of beer, S35 million. Philip meef its needs In y983 Flow+ever, credit facilities maintained Morris tt.S`:lt. accounted for $277 million of the tobacco in- ~ iiWough revolving credit agtieements.and bank lines of cnediF; crea8s with $221 million attributable to cost increases and' wiif provld. extensive crpdl; should the neecfarlse: longer: , S58"m)llhan. to Yotume increases. Philip Morris lnternational'= (8rm ffnar.cing needs ai+e expeeted'ttl, be met throttgl7 tor4k ' accounted for $79 miliron of the tobacco increase with $3M' ' d8~a»d oiherllrsattcingas!lryultec~~„ ;; : milllon atfilbutabfe to cost and excise tax increases reduced . s ;~, Flxiil=l~t~esi ii~b#svaa 78'!. i of tota! debi ae1~Jecember by S`.133 mllllon due to volume decreases and $142 million to ' ,i9~2comperad wlt>~71aii'arid lil'~~f.Deceriib8r31; 3981 ' ct~ttenayirarta/atlon. The decrease in cost of sales of bees * , debilr$d Brf averaqs rtiteresi rat6 wag d3 te t4' 0olume decreases, $59 million, and cost in- €19 msliactlVe* T11O a ~~ ~t3ei~~798~, a slg~lIf+rant far~• creases of $24 million. ji ~ s~ ` ~ rqteresrexpe~taq ` o~~ fi,Wion {~~orr b©ir.owtngaR tnt9i'es€c~plfaftz~ ~rted witi}d~ fliinfJfPi rpari co tiv~ TI' and 'J9$~,. r+~speaie #t: capltaUzed lrf 1982 antt '19&4 re at~ti: . rj tea and hH~Sed` f G~IS~J7JC l ': In.1982, the conrpart~lt»p, `' CumenC~r 7lrartslat~ `= ` 3sJatlno fnr~l~t c'ti~Mrfcl{ I t~r~anclan statatnents~ _. , e ta.xes';1>~earrtin ItltotY' ~ gl1ii1111on .. by, 1oi1982; flperating income of consolidated conrpanleii~: yMaa'S23Sini1lion ('t7.0%) higher than in 1981, due mainly tat ' z:,cco operat%ns. Tobacco products operating incorts~' ":' sed;22'1 million (17.6a). from 1981 due to volume ant!'` 4rcteases af/set by currency translatlon of $6t) iniAlori:" ' Mon'f># (J1.$'A operating income was up $196 miill'oQ „ y ra)~tlt7a~ plfltip Morris lntemational was up $25 mlltlo_ ,.. ~fj ~o~3era~tfng Income increased $45 rnilll`on- °r g 1f8)oxet 798~ dtie to price increases and cost saxl'ag*, ~, 3 L ~~U0's 198~'rlperating loss of $1.2 million Is pri»clpa!!~2 ~ttab* tp kcteased marketing expenditures. Tobacrq : ~q~Cfs cctnfrlbcifed 89% and beer 10% of cansolldaic~ H F le o~era~rr~or»e~'tar 1982.. . itiEi~t earnings of unconsoltdateif sut~ldl~~ 'F 1ncneased $22 million over 19&t Th~ ~ trtabie prlncipally to increased earnlftgs~~ ; +~m~~4 )nvest ~ment: W 1$1lt~; C~solidated operating revenvss were~'l;U~ I~gfier than In 1980, attributable principaq; riEteA of $676 million from tobacCo and S344i incnease iri tobacco revenues I~ atti ses; $707 million, and inbreassd 3 mil/fon, reduced by 5414 iniAfori a'~ iicy translation. The increese fn rjee.r, 7 ble to increased v.olume,$207, nffi ' $'1 0 1~ 01 rrrlllion: f ~~ i'tx 19$?: (which includes cost o f foreTi` yf, excise taxes) wa"s; $BS,f W ft Ina980 attributable priman7y to lra:.._ as~~ , of tobacco, $348 million, and incleaserl~~~- ' ier :S26B'million The incse Jnt~; ~,.rea~ 2500010760

bacco is attributable to cost increases, S342 million, volume increases, $285 million, and the extension of the LIFO method, S19 million, decreased by translation of foreign currencies, S298 million. The increase in beer is attributable to increased volume, S176 million, cost increases, S81 ml!- ;ion, and to the adoption of the LIFO method, S9 million. In 1981, operating income of consolidated companies was S151 million (12%) higher than in 1980, due principally to tobacco products. Tobacco products operating income in- The following current cost information is presented in accord- ance with the requirements of the Financial Accounting Stan- dards Board (FASB). The current cost method reflects the effect of changes in the specific prices of the resources used in the company's operations. This method measures the resources and their consumption based on the current cost of replacing them with like resources, rather than in terms of the historical cost amounts actually expended to acquire them. These values do not consider technological improvements and efficiencies associated with the normal replacement of productive capac- ity. Adjustments for changes in specific prices of property, plant, and equipment are principally based on external price indexes specifically or closely related to the resources being measured, or internally developed indexes and, in the case of inventories and cost of sales, on recent purchases and pro- duction costs. The U.S. Consumer Price Index is used to mea- (in millions of dollars, except per share data) creased S184 million (17%) from 1980 due to volume and price increases offset by unfavorable currency translation of $61 million. Beer operating income declined S30 million (210ib) from 1980 due to increased marketing programs and an imbalance between cost and price increases resulting from the intense competitive environment in the industry and to the adoption of LJFO in 1981. Tobacco products con- tributed 89% and beer 8% of consolidated operating income for the year. sure the effects of general inflation for the translated current cost information. The current cost method involves the use of assump- tions, approximations, and estimates and, therefore, the resulting measurements should be viewed in that context and not as precise indicators of the effects of inflation. The results do not necessarily represent amounts for which the assets could be sold or costs which will be incurred in future periods, or the manner in which actual replacement of assets will occur. Schedule I presents earnings and other data for 1982 as reported and as adjusted for changing prices. Schedule If covers the five-year period to show the trends in key financial data restated in terms of average 1982 constant dollars mea- sured by the U.S. Consumer Price Index. Data for 1981 and 1980 have been restated to reflect the company's adoption in 1982 of FASB Statement No. 52, "Foreign Currency Translation." As Reported in the Adjusted for Changes Primary Statements in Specific Prices (Historical Cost) (Current Cost) Operating revenues $11,716.1 Deductions from operating revenues: Cost of sales, excluding depreciation expense 7,814.3 Depreciation expense 251.9 Other, net .1~ .._ 2,347.6 Earnings before income taxes ~ 1,302.3 Provision for income taxes'(A) = - ~ - 520.5 Net earnings ~ . 781.8_ Earnings per common share = - , -4_ 6.23 Gain from decline in purchasing power of net amounts owed Inventories and property, plant, and equipment: - ~ Increase in specific prices (current cost) (e) Increase in general price level ' Excess of increase in specific prices over increase in general price level Translation adjustment Stockholders' equity S 3,662.9 $11,716.1 7,840.5 344.3 2,347.6 1,183.7 520.5 $ 663.2 $ 5.28 r7 $ 193.2 J ~ e $ 427.5 ~ 378.3 ~ o, $ 49.2 $ (73.3) $ 5,466.0 (A) tnacCardance with FASB requirements, intlation-adjusted amounts (B) AtDecember 31, 1982, the current costof inventorles was $3;791.6 million, do not reflect any adjustments in the provision for income taxes, and the current cost of property, plant, and equipment, net of accumuFated Consequetttty, effecthra tax rates are: depreciation, was $5,337.2 millfon. As reported in the Primary Statementa` 40.0% Current Cost 44.09. 28 =

311,553.2 511,505.8 S11,041.2 S9,812.9 4,952.2 4,593.6 4,154.7 Cash dividends declared per common share $ 2.123 Market price per common share at year-end $ 50 Average Consumer Price Index 272.4 (A) Restated in average 1982 constant dollars. (B) Restated for the effects of FASB Statement Nos. 52 and 70. ings before income taxes by $26.2 million, reflecting the fact The increase in stockholders' equity of $1.8 billlan as The cost of sales adiustment for 1982 decreased eam~ ` decrease in eamings before income taxes of 9.1%, ingly have not been adjusted. cost amounts. The result of both inflation adjustments Is a-_~ ered to reflect average price levels for the year, and accord- - measured under the current cost method over historical dollacn~ Revenues, labor, and other costs and expenses are consid- uation of the company's property, plant, and equipment - statements that have been adjusted into average 1982 dollars. $92.4 million. This adjustment reflects the increase in the val- cost of sales are the only amounts reported in the primary tion adjustment decreased earnings before income taxes by ' expense and the raw materials and supplies components of of current costs with current revenues results. The deprecia- ~ $ 1.874 $ 1.662 $ 1.517 1 $ 483/a S 45114 S 50114 246.8 217.4 195.4 In arriving at current cost net earnings for 1982, depreciation inflation-adjusted information since a more effective matching- rnarnnrraruon nas exceeaea rne overarr rare or increase in rne comparea wtrn rne amounr reporreo in rne pnmary state-__- ~-, erations. This reduces the disparity in reported earnings with - _7 included in its U.S. and U.S. export operations, and beer op- _ the decline In the purchasing power of net amounts owecf. -~~- ing the leaf and non-leaf tobacco components of inventories _ally, stockholders' equity is increased by gains resulfiCrg frorrt ; - -~- - The company uses the last-in, first-out (L1F0) method of cost- and property; plant, and equipment due to inflation. Addn.-~ historical cost of the company's raw materials and supplies. - ments is attributable mainly to the appreciation of inverifoHes

~ (in millions, except per share amounts) ~ Operating revenues 10,885.9 9,822.3 8,302.9 6,632.5 Cost of sales: Cost of products sold .. 5,149.1 4,579.5 3,778.7 3,072.1 ~ Y Federal excise taxes 1,168.5 1,105.3 1,036.8 960.8 Foreign excise taxes 1,410.8 1,388.7 1,122.0 702.8 Operating income 1,458.0 1,289.2 1,190.6 968.1 ~ ~ Interest expense 258.5 215.0 205.5 149.8 Earnings before income taxes- 1,079.6(A) 939.7(A) 905.4 745.5 Pre-tax profit margins 9.9% 9.6% 10.9% 11.2% Provision for income taxes { 419.9 ' 390.6 397.5 336.9 Net earnings ~ + --- 659.7(a) 549.1(A) 507.9 408.6 _ Primary earnings per common share ~ 5.28(A) 4.41(A) 4.08 3.38- : ~ Fufly diluted earnings per common share 5.28(A) 4.41(A) 4.08 3.38 Dividends declared per common share _ 2:00' 1.60 1.25 1.025 Weighted average shares-primary +` 124.9 124.6 124.5 120.7 Weighted average shares-fully diluted 124.9 124.6 124.5 120.7 Capital expenditures , ~ 1,021.6 755.7 632.0 566.2 _ .~.. _e ------- Annual depreciation - --- -- - - - -- - -- 3- -- - --- 212.6 179.7 ; - 133.9 105.5 - - Property, plant, and equipment (gross) - -- - '• 4,537.8 3,599.1 2,825.1 2,217.3 - - py, Pro erf , plant, and equipment (net) t~ 3,600.0 2,825.1 2,229.5 1,737.6 Inventories . ~~ 3.159.1 2,690.6 2,371.3 2,188.6 - ~__ Current assets - ~ d 3,977.9 3,389.0 3,028.3 2,756.8 - - - Working capital ---- --- 2,022.0 1,827.2 1,833.2 --- 1, 585. ; ~.; ----_ T , y - - ._..., Total assets ~ 9,180.0 7,361.6 G,378:9 5,608.2 _ Totaldebt - ~.~~. = ~- 3,806.8 2,801.1 2,516.4 -- - 2,372.2 - -- - - Stockholders' equity - - --- - = -- - 3,233.7 2,837.0 2,47l. 0 - 2,114.7 - - Nefearningsreinvested Y'. 407.8 350.3 352. r. 283.8 Common dividends declanecd as % of net earnings - ---- 37. 94k 36:3~r6 .: 30.6 :: ~:~ --- 0 30.6D,b - --- - - Book value per common share' ~ ~ 25.79 22.74 i9.8' ~" 17.00 - Market price of common share high-low ~ ~ = 5511a-42 481/z-29i/e 38sfa-31 ~ ~ - - ~; 381%48 Closingpriceyear-end +~. - - 48T/a - 43114 3 c~s 351/, P•rlce%amings ratio year-end - -- - -- - ~ . 9 - - 9 -- 10 ' --------- - - - Numbel°of commonr shares-actual year-end 125.4 ° 124.8 12~i. 124.3' (A) br9982, ths:campariy adopted Financial Accounting Standards Board belnrn Incom e taxes, nnt earnings and eamingapershare i rbyS22.5 StatementNd: 52; P'oreign Currency Translation, and restated consolidattr{ e mi/liorr, $16.5 mfliion and S.13 per share, respectlve(~, and7t1198tkhg 530.1 1 on d $ f 0 2 ha t financial statements for 1y? I and 1980. This change decr ased earningr million, $27.,7 98 millf an rr , . 2 per s re, respectiYety; E taat(ve h h f - I ' 0 t he cam pan y rdo p teJ t e la st-i e ng t n, first out (L cosf FO) m8fhad af 3

31 307fa 26112 - 24 ~~_ 283/4 29gfe 175fs 11 13 14 - :!is`- - 21, _w -,25 _. -17 119.8 119.0 118.7 --114 _ 110 8 ~ 108. s1041-7 1,509.5 1,142.4 1,019.8 577.1 454.7 409.9 77.5 58.3 48.9 .84 .64 .55 .71 .60 .53 91.2 89.1 87.7 113.2 - - 39.6 99.1 23.6 90.1 26.4 17.7 13.5 12.1 394.1 237.0 219.3 728.8 575.0 561.7 347.7 315.9 312.4 1,239.4 976.5 786.6 557.7 490.4 354.8 452.8 355.8 314.5 52.2 35.7 29.2 12%-7 91f8-67f4 8518-5112 1231s 9 8 13 14 96.6- 90.3 88.8 leaf tobacco components of inventories used in its U.S: and U.9. export earn/nga-, nef~eernings and earnings per share by $121.7 million, $61.8 million Philip Morris Incorporated and Consolidated Subsidiaries 5,202.0 4,293.8 3,642.4 3,011.0 2,602.5 2,131.2 1,852.5 2,401.7 1,966.9 1,656.8 1,290.3 1,060.8 832.9 700.0 862.1 778.2 686.3 619.5 558.9 494.8 441.1 490.4 • 381.1 392.1 349.4 334.5 228.2 201.4 782.7 634.5 492.8 403.6 329.5 287.5 241.1 101.6 102.8 99.0 82.7 51.0 37.9 35.5 625.5 471.9 360.8 297.5 255.6 229.6 189.8 12.0% 11.0% 9.9% 9.9%. 9.8% 10.8% 10.2% 290.6 206.2 149.2 122.0 107.0 105.2 88.3 334.9 265.7 211.6 175.5 148.6 124.5 101.5 2.80 2.24 1.81 1.58 1.35 1.17 1.00 2.80 2.24 1.81 1.53 1.30 1.09 .91 119.6 118.8 116.9 111.3 109.6 106.0 100.3 119.6 118.8 116.9 114.7 114.6 114.5 113.1 --- - a~°- _ - _ - 279.8 220.2 244.5 215.8 174.7 120.0 ~ 68.0 78.5 64.9 49.9 38.0 30.2-,-- -,-~~--26.6 =, .. 21.5.. 1,594.9 1,323.9 1,129.8 899.8- -;,-__728.7 --- 571.1 _ 447.1 2,221.0 2,005.7 1,788.1 ~ -- 1, 557.9~~1,245 9 _~ ,_ 989,7 826.5 1,415.9 1,202.2 890.8 ` 725 0~" 515 3_~,~ 24.8 _,417.6 4,048.0 3,582.2 3,134.3 2,653 3~08 4=__ 1,701:5 1,392.0 1,563.5 1,525.6 1,443.3 1,239.3 ;-~x- 947 4 681.0, _ 553.9 1,690.1 1,430.0 1,227.8 974. 7 815.0 _ - 695.5 , 579.1 253.7 197.2 157.1 131.9 ~4- 89.9 a_--69.7 32112-25314 315/a-247/a 295/8-207/2 303/4-171/a 34~fs-243fs 7 295/s>17 173f4-113f4 31 ?'•~?~=~ ~ m111ton and S 12 respectively operations. Effective in 1981 use of the LIFO method was extended to cevel` r and $,49, respectively. The 1981 change to LIFO decreased 1981 pre- _ additional inventories. The 1980 change to LIFO decreased 19$0 pre-ttz ` tax earnings, net earnings and earnings pershare by 828.2 milliont $14.4

(in millions of dollars) December 31, 1982 and 1981 Cash and cash equivalents Receivables, net Inventories: Leaf tobacco Other raw materials Finished goods and work in process Housing programs under construction Prepaid expenses Total current assets Property, plant, and equipment, at cost: -- Land and land lmprovements Buildings and building equipment Machinery and equipment Construction in progress 3,977.9 - 7,008.5 7Z,_. 2;338.4 MaTz M~-_ - 4,537.8 Less, Accumulated depreciatJon = 937.8 Land and offtract improvements ~,.. ~ - ,-~ _ ~ 3s600.0 ~- _ ~?55.2 Investments in unconsolidated subsidJaries and aHJii ta es ~~,~ Brands, trademarks, patents, and goodwill,at cosf, net Other assets See notes to consolidated financial statements. 237.3 4_~C' 3,159.1 M1 (Restated) $ 45.8 736.7 2,082.4 329.0 510.4 ~V' = 36.3 =1ft 680.8 ~634.7 =_~1320-. 89,480.0- _

philip Morris Incorporated and Consolidated Subsidiaries (Restated) Employees' retirement and profit-sharing plans Other Additional paid-in capital $ 301.2 6.6 610.5 265.0 106.9 369.0 234.0 62.7 ~ ;~~~~ 1,955.9 3,499.0 x - _._- 455.1 36.3 __ - 7 T -7:5,946.3 Eamings reinvested in the businessL- ~ ~ ~_~ ~2;7f9.4 Currency translation adjustments :(26.8) _ Total stockholders' equity "-~ _- - ~

~ (in millions of dollars, except per share data) for the years ended December 31 (Restated) (Restated) Operating revenues $10,885.9 $9,822.3 Cost of sales: Cost of products sold 5,149.1 4,579.5 Excise taxes on products sold 2,579.3 2,494.0 Gross profit 3,157.5 2,748.8 Marketing, administration, and research costs 1,746.5 1,488.9 Operating income of consolidated companies 1,411.0 1,259.9 Equity in net earnings of unconsolidated subsidiaries and affiliates ~; 47.0 29.3 Operating income of operating companies 1,458.0 1,289.2 Corporate expense 103.5 86.4 Interest expense 258.5 215.0 Other deductions, net ~% 16.4 48.1 Earnings before income taxes + 1,079.6 - 939.7 Provision for income taxes 419.9 390.6 Net earnings $ 659.7 $ 549.1 Earnings per common share 5.28 $ 4.41 See notes to consolidated financial stafements A- - 4-77 ~ ,- - Cn ~- F - f ~~ CD ~ . ~V.1 ~`~ JY~ 10 _ _ - ~ "=- - - - ~-

(in millions of dollars, except per share data) for the years ended December 31 Balance, December 31, 1979, as reported _._----------- .__._.___ Currency translation adjustments Balance, December 31, 1979, as restated Net earnings, restated Exercise of stock options and stock units Issued for acquisition Cash dividends declared on ~ common stock, $1.60 per share Currency translation adjustments~mm ~ Balance, December 31, 1980 Additional Common Paid-in Stock Capital Earnings Currency Total + Reinvested Translation Cost of Stock- I in the Adjust- Treasury holders' ; Business ments Stock Equity :` $124.6 $385.1 $1,961.3 $2,471.0 $ 57.9 57.9 --.-:~ 124.6 385.1 1,961.3 57.9 2,528.9 0.1 3.1 0.1 0.8 124.8 389.0 (46.3) (46.3); 549.1 549.1 3.2 ' 0.7 1.6 ~ ~ (199.5) ~» W (199.5) :"J, 2,311.6 11.6 2,837.0 659.7 659.7 Exercise of stock options and stock units lssued for acquisitions Issued in exchange for debentures reacquired Cash dividends declared on - -- - - ---- - ---- common stock,. $2.00 per share Currency translation adjustments Net earnings Balance, December 31, 1981 Exercise of stock options and stock units` Issued in exchange for debentures reacquired Adjustment of prior-year acquisition Cash dividends declared on y-` Currency translation adjustments w Balance, December 31, 1982 :(, ) Denotes deduction See notes to consolidated financiaf statements.

~ (in millions of dollars) for the years ended December 31 ~Y (Restated) (Restated) _..._..__.__...~... Operations: ~ Net earnings $ 659.7 $ 549.1 Depreciation and amortization 240.1 196.6 Deferred Income taxes 145.0 83.0 Equity in undistributed net earnings of ~ unconsolidated subsidiaries and affiliates (35.2) (17.0) Funds from operations 1,009.6 817.7 Decreases (increases) in: Cash and receivables ~ (107;6) (3J 0) Inventories ( (468.5)' (291.9) , Total funds provided ~ 433.5 480.8 Decreases (increases) In accrued liabilities and other payables ~ (289.3) (232.6) Increases In prepaid expenses ( - - 12.8 --- --- 2.4 - Lancdand offtract impr+ovements t - 27.4 - 24.3 Rothmans investment 346.4 - Capital expenditures ---- - 1,021.6 ---- 755.7 ~ Dividends declared ~ 250.0 -- - 199.5 _ Currency translation adjustments affecting working capital 1.3 33.3 --- --~ Other, net _ -- -- - _ - ~ - - -- 79.5- - (7.3) - - 4 Total funds used a~ 1,449.7 775.3 , - - Net financing requirements ~ _ - -- ~- ~ i: - ! -- -- - S1,016.2 - ~ - - 294.5 - - -- - (Decreases) lncn:ases tn current notes payable ?(-~ ~ 104.8 S -- 134.4 Long-term debt Issued - -- ~ 1,004.9 : -- -- 363.1 - -- ,..... - -- Long-term debt retired - r w R (114.7) (206.2) , r Sale of shares 21.2 - 3.2 ~ - -- Funds from financing f_~ f ~ S 1, 016.2 294 5 - - S 794. $ S (33.7) ~ : _ - S2,022,0 S1,827.2 .. < =a , -- - - - -- - ' ( )-Denotes deduction -- ---- --- - _ _ _ -- ~~ ~~ _ E See,notes to consolidated financial statements. ~' 36 ~.~

Consolidation: The consolidated financial statements include the accounts of the company and all wholly-owned subsidiaries except a pPomestic~ credit corporation formed in 1982. Investments In unconsolidated subsidiaries and affiliates, including the credit corporation, are sta- ted at cost adjusted for equity In undistributed net earnings since the dates of acquisition. Inventories: lnventories are stated at the lower of cost or market. The company uses the last in; first-out (UFO) method of costing Inventories used in its U.S. and U.S. export tobacco operations, and beer operations. The cost of inventories used in tobacco rrtanttfacturlrag outside the United States is determined an the average cost ratetibodaarcP, in general, the cost of other Inventories Is detet'n7inscd on the ffrst-in, first-out (FlFO) method. It is a generally recognized induatry prac- tice to classify the total am+cauntof /eaf tobacco invetttory as a cur- rent asset although part of such inveaattsfyz because of the duration ` of the aging process, ordinarily would not be utilized within one year Real estate operations: The cost of land, including offtract improvements; interest and property taxes, Is reported as a nancurrent asset unt,Ua designated alteis placed Into development. tAfftracfimprovements are access roads, utilities, ancl_othet Improvements, which are essentfal to the development df a community but nat directly attributable to rlevel- ln 7952, the.company acfcpted Financial Accounting Standards Board Statement No, 52, P'orciqn t;urrencc y Translation, and restated consolidated financial statements for r58t and 1980, The principal effects of the change are that assets and flabiHties are translated at current exchange rates rather than at current snd hiatorical rates, and the related trattslatitsn adjustments are repvrted an a sreparate At December 31,1982, approximately B8n4 o! lnvrntonea wero cost- ed on the LlFt7 method consparaoxith 850,1t at ae~.Qmbcr 31, 1961. Earnings percorrrrtron share are catcuiatsed on the weighted aver- age number af shares of comrnan stock outstancftng tot each year, opment of a particular site. The cost of these improvements is alfo- cated to the salable acreage remaining in each project and charged to cost of sales as acreage Is sold. Income taxes: Certain itenas~ of (ncome and expense included in the financial atate- ments; principally depreciation, are reported In different years in the tax returns In accordance with applicable Income tax laws. The resulting difference between the financial statement income tax provision and Income taxes currently payable is reported in the financial statements as deferred income taxes. Investment ta.ar credits~ are recognized currently as a reduction in the provision for incotxae taxes. Provision Is also made for federal income taxes on the portion of dndlstribuEed earnings of subsidiaries andd affiliates expected to be remitted. Property, plant, and equipment: Maintenance and repaira are charged against Income, antf expers- ditures for ranewals attditnprrsvsteaents are capitalixetf. The capital- izerf costot !ac)lities tnctudesirnterast and real estate taxes incurred during the constrttctfon periodl drtdustrial development incentive grants are included in lncorne as rsalfsedo- Provfsion for depreciation of assets is recorded by a charge against income at rates considered adequate to atttOrtizs the cost of such assets c ver their usefuldives computed on the straigfrt-ilnQ method. cornponon t of s tockholders' equity and not included Fn the determi- aation of not earn ingss This change decreased earnings before trt- cvrne taxes, net samings and earnings per share In 1981 by 522.5 miltion, $16.5 rnlllinn and S. 13 per share, respectively, and ttr 1980 by 13a:9 rrtil4lnn. 527, 7 mfttian and S,22 per share, respectivety. LJFO hrventory cost was $680 million and S440 miFtion lower than current co.at at December 37, ;9E2 and 1981, res'pecttvety, wttlch wers 725,565,555,;'724;924,808, and 724,842,.^2't for the yaArs::.. 1982, 1981. aand 1980, rrespectively.

Motes• cor^ttnued PrincipaP financial data of subsidiaries and wFfAriiates cutsade the United States are as follows: (in mr`c'fions~ Consolidated (Whofly-iryvned) Unconsolidated (Partially-Owned) $1.481.9 S1,404. s - current $2,393.4 $ 797.5 _ _ _ _ ~_ __~.. _...._... ~ _ -.__......_ _._............ ---__ e~ _-. - _......_ -noncurrent 1,084.8 298.4 - .~.~ _ ._....Liabi+Ftge~_._____~___ 811.7 813.6 -current 1,612.8 612.8 588.4 -~--- -noncurrent 912.0 90.3 Net assets 670.2 590.9 953.4 417.2 Company's equity 670.2 590.9 ~ ~ 513.4 262.5 --- Glperating revenues 2,576.9 2,506.5 4,045.6 2,188.3 Gross profit - _ 638.3 ~ 311.9 - _...._~_~...Y.__.._..-.._.._.._....._.._......_... .........~..._......~. Fre-tax earnings _ - ~ 148.7 ~~ 76.8 - Metearnir~gs 84.0 ~ 65.5 101.5 w 62.9~ ~ Company's equity ta. 84.0 65.;3 47.0 29.3 ~ ~W At December 31. 1982, investments in unconsolidated subsidiaries December 81, 1982 incfutfe approximately $175 million of undis> and affiliates exceeded •equity in net assets by approximately $161 tributed earnings of unconsolidated subsidiaries and.afffllates. million, of which $156 million is being amortized. . Federal Income tax has not been provided an approximately Unconsolidated subsidiary and affiliate financial data include $870 million of accumulated earnings of subsidiaries and affiliates the accounts of Rothmans International pic (Rt). The company outktde the United States which Is expected to be permanentl y obtained an approximate 22% indirect equity interest In RI in 1981. inve.sted atiroad Consolidated earnings reinvested In the business at December 31, 1982, this account Included approzimatel y$-0s 1 R4tC opinion of management, the related trrvestntents have not experi- million which is being amortized on a straight-line basis; principally enced any diminution in value. Accumulated amortization was over 40 years. Cost in excess of net assets of companies acquired $60.7 million and $49:6 million at December 31, 1982 and 1981, prior to November 1, 1970, is not being amortized because, in the respectively. At December 31, the company's short-term borrowings and related average interest rates consist of the following: _. _....... _ (in millions of dollars) -----~- - - k ~_-_ - _......... _ ,.- _ _~ _....... _ -- -- Amount Average ~~ , .~ ~ Outstanding Interest Rate Bank loans r $; 232.4 14,1010 `0 Commercial paper obligations ~ 953.7 12. 7% Amount reclassified to long-term debt ------.- - - - ;. (884.9) ~- _ -r. --~ -------~----_____.__ __^_ _ _ _ --_....___~-- -•- _ ~-~ $30t,2 The company has credit facilities with atnumber otlending #nstitu- are paid to the banks as compensation lor $1.1 billion of th tions amounting to approximately $2.2 billion at December 31, 1982. unused facilitiea, Approximately $2.0 billion of these facilities remained unused at The company's credit facilities inclucfe_revolving aredit December 31, 1982. These facilities are primarliyP maintained to sup- agreements and other arrangements which m8ture after 12 mo7ths, port the company's commercialpaper borrowintls.,The company and prvvkle the a6Nity to refinance $793.2 million of short-term bor- mafntains bank balances of approximately $50 million to support rowfngs and $59.9 million o€ current portion of tong-term debt at o-300 million of the unused facilities and compensate the banks for DecQmtrer, 31, 1982 and $884.9 million of short-term borrowings at services. Commitment fees, ranging from 1/4 to 318 of one percent, December 31, 1981. Since management Intends to refinance this ctebt, these amounts hgve been classified as long-term debt. 38 f ,

(ln millions) Interest expensed tnterest capitalized 39 ` Interest Incurred $258.5 $215. . 110.0- W. $368.5 Gutstanding at December 31, exclusive of amounts due Mthin one year: ffn millions) Short-term debt, reclassified IFofes; 1W 1 a 0'a. payable "1991 . ~ 14€: a 0•®. payable 1988 ..~_..~.._....._ _..-.____..___...._._. 10% payable 1991 ~~ 9,55qa,payable 1986..~.___..__._..._._. __ __ _ __._..~. .~.......~,. _ _ Mmm ~ 8.65%, payable 1984 8a4q1b®8%'a%, payable through 1998 ~ 5.1501b, payable through 1989 Banls term loan agreement: ~ Interest at 8$12Q%e until 1985 and at a fluctuating rate thereafter, payable 1985 to 1988 Purchase money obligations: ~ Interest principally from 6®iv to 71vz%, payable through 2014 Original issue discounts relating to the $250 million and $200 mif- lion 6% debentures are being amortized over the lives of the issues using the interest method, which results in effective interest rates of 15.2% and 14.1%, respectively. Total interest incurred on long-term debt, excFuding interest on short-term debt classified as long-terrn debt, was_$263 million, Certain agreements covering long-term debt contain restrictions with respect to payment of cash dividends on common stock and purchase, redemption or retirement of capital shares. At December 31, 1982, approximately $2.3 billion of consolidated earnings rein- vested in the business was free of such restdctions.' Debentures: mm~~ ~~ Sinking fund, interest from 65'e4~"~ to 9FJse,r'o, payable through 2004 $250 million (original issue discount), interest at 6%, payable 2001 $200 million (original issue discount), interest at 6%, payable 1999 Other currencies: 975 million Swiss franc loans, interest from 5114% to 83~SQla, payable 1985 to 1994 ; 357.1 450 millfon Deutsche mark loans, interest from 6?rs% to 911%, payable 1984 to 199{? 5 884.9 150.0 125.0 125.0 250.0 mm- 200.0 400.0 31.6 332.1 44.1 81.7 _.._~..~~.~ $3,499.0 _.........~~.....~..~. ~.. $210, million, and $155 million for the years 1982, 1981, and 1980, respectively. Aggregate maturities of long-term debt, excluding short- term debt classlfteef as_long-term debt, in each of the following pey riorfs ares 1989, 32!36:3'mlltion, 1985, $293.6 million; 1986, $379.1 millioet, 1987, $148.9 milltun; 1988-1992, $1,047.5 million; and 1993- 1997, $312: 9 rtrilllESn. Other debt agreements sphclfy atfninlum amounts of work- ing capital and limit the amount of senlordebt which may be is- sued. At December 31, 1982, the:company was in compliance with these agreements.

htates continued Philip Morris Credit Corporation (;cMCD,)< awholly-omwned uncon- solidated subsidiary of the cornpany, was cncorporated in February 1982 primarily to provide financing for customers of Philip Morris and its operating companies. The company's investment in PMGC is accounted for by the equity rnethcd, and PMCC`s earnings are included in equity in net earnings of unconsolidated subsidiaries and affiliates in the consolidated statements of earnings. Pursuant to a Support Earnings for the period February 2, 1982 to December 31, 1982 (in millions) Financing revenues Expenses ~ Earnings before income taxes Provision for income taxes Rtet earnings ~ The company and certain of its seabsfdFarfes have pension plans ` over periods of up to 30 years. The company makes annual contr3- covering substantially all their employees, Including certain emp;uy- buttons to the plans equal to the amounts accrued for pension ex- ees in countries outside the United States. TotaP pension expense pense. The plans are generally funded with Irtdependent trustees. ; for't982, 1981, and 1980 was $89.7 mflltan, $77.1 million, and $66.5 A com pari$orr of sccunwdstetd plan benefits rt!tftt net assets for million, respectively, including amortization of prlnr service costs defined benefif plans follows: on millions) Actuarial present value of accumulated plan benefit Tbtai Liabilities and Stockholder aEquity $345.5 lvet assets available for benefits $433.8 ' _ .:~.._._._.. In 1982, the company changed the assumed rate of retum used In ' refiect inttatlonary expectations. The changs In assumptions re- determining the actuarial present value of accumulated plan bena- '' duced the actuarlat present'vallle of accumulated plan benefits at Tats for the majority of its plans to 7<594r as compared with 6.50+ Jantwy 1, 1982 by approximately $44 million. TPte-change had no used In 1981. In addition the salary assumption rate was changed material effect on the company's annual pension expense. from 4.5% to 6.5% in 1982. These assrrmptiorss "re changed to (in millions) Depreciation expense ` $212.6 $179,7 -.--._ --- FteRtatexpense ~. S 52.6 S 47.6 Commitments for p!^Opertyr pfant, and equlpmant Agreement between the company and PMCC, the company has agreed to retain ownership of 1Qta®,o of the voting stock of PMCD and to make periodic payments to PMCC to the extent necessary to ensure that its quarterly earnings available for fixed charges equal at least 1.25 times its fixed charges. No such payments were required in 1982. PPrincipal financial data from the financial statements of PMCC are as foltows: Financial position at December 31,1982 (ln millions) Assets Total Assets Liabilities and Stockholder's Equity Deferred charges and other assets Notes payable Deferred taxes and other accruals Long-term debt Stockholder's Gau#

(in millions) pre-tax earrsings; United States S 928.4 :a3~~2.2 Outside United States ................ ._._._.~.._....._........__.~._ 151.2 .__ _._._... 107.5 Total $1,079.6 $939. 7 Provrsion for incor~ae taxes: ~ United States federaf: ~~ Current $ 204.2 $235.4 Deferred 24. _ 65.5 ___ 328.4 300.9 State and focaf 45.7 44.6 Total United States 374.1 345.5 Outside United States: Current 25.0 27.6 Deferred ~ _..__... 20.8 ~ 17.5 Total outside United States 45.8 45.1 Total provision for income taxes $ 419.9 $390.6 Deferred tax expense Fs primarily attributable to the tax benefit derived from the excess of tax over book depreciation. The effective income tax rate on consolidated pre=tax earnings dif- ~ fers from the U.S. federal statutory rate for the following reasons: (in millions of dollars) Provision computed at U.S. federal statutory rate Amount OlotoPre-tax of reported pre-tax earnings $496.6 Increases (decn:ases) In the provision resulting fromo Investment tax credit (66.4) Inclusion of equity in net earnings of unconsolidated subsidiaries and affiliates in pre-tax earnings (21.6) Income taxed at other than U.S. federal statutorjr rate and not expected to be sub/ect'' ` ta U.S. tax fn the foreseeable future 22.0) State and local income taxes, net of fi rat tax benefit 24.7 Other 8.6 Provision as reported $419.9 Currency translation adjustments fncfude translation gains (losses) as follows: (in millions) Translation adjustments $(32.2) Related income taxes (6.2) Netchan 41 $(38: Amount %toPre-tax (2.0) (13.5) (1.4) 2.Q) (15.9) (1.7) 2.3 24.1 2.6 0.8 22.2 2.3 A 38.95'0 $390.6 ~ 41,61 t;. r.;Fg $(44.1) (2.2) J .~ ~ $(46.3) ~ 4 ~

42 Tobacco Beer Beer $6,406.5 $1,070.8 114.1 144.3 29.5 32.0 1,398.2 1,247.1 2,542.3 873.5 47.0 29.3 12.8 12.8 S 1,458.0 $t;289.2 u._......_..._........ ...... .._.... ...._._ ~ _ 78.3 $ 71.4 :108.4^A 87.2 .•-.•.•.`~....-._ - --- --- -. ..-. _-_ ~ S 4,781.1 $3 918' 2 .......... 2,022,1 1,798.5 1,481.0 ~ 1,250.5 8,284.2 6,967,2 680.8 288.3 215.0 106.1 - _.....~~~.- .............. 79,180_4 $7,361.6 .......................... 556.6 $ 377.9 .......... -..... . .. 304.7 299.3 Notes continued l-1/6, rfefwide tobacco and doraresrr'c beer represent the primary seg- errerpts of the company's operations. Other ' products include soft ~'ranks, industrial procPcacts, ano+lard arvaxoprrserat operations. : he c:oaapt r:ys operations ocr'ts;•'~e the United States, a+fnrctr are ork:dG°f784r+c3rst$y in the tobacco bZfs€f'.G'ss, are organized into geo- y,r •plalcaF regions tor €sRar~ageer~ent responsibility, avstha Europe t":e:ong the most significant. nnterso-;.grrerrt trarasact€orrs are not reported separately since they are r:ot.!+rateria1. operatirag profit caacutated for purposes of segment report- Data _ _..._. _.._.. -m _.. _.. _w___ .._..~-~ _. _._-°___.._.- ._.._._.. __. .... Data by Product Line for the years ended December 31 (in millions) ._.. ~.~_____.._.__..~....~_. Operating revenues: Tobacco Beer ~ Other T ' Operating profat: Tobacco Tobacco Beer Equity in net earnings axf unconsolidated ~~ ............ .- .. _ subsidiaries and affiliates Amortization of goodwill and trademarks : Operating income of flperatirrg companies Depreciation expense: Investments rattrrtcansclicfatecY subsidiaries and -iffiliates Corporate assets Total assets €rsg is operating income of operating cp,*rrpan¢es less equity in net earnings of unconsolidated s rbsdeliaries and affiliates and reduced by the amounts of amortization of r.~coctwrllar'a' trademarks in- cluded in other deductions. net in trre consolidated statements of earnings. Pderrtc'fabPe assets by segment are those assets that are used in the corrrparly's operations in each segment. Reportable segment data reconciled to the consolidated financial statements are pre- sented below. $ 7,082.3 2,850.2 953.4

----____...... _............ _.._._......... __ Data by Geographical Region for the years ended Decem&e,° 31 (ira mitticras) Cperatirrg revenues United State 8-Domestic -E:cport 7.4M5 833.5 36, 613.4 702.4 Europe 2,056.4 2,118.3 Other 520.5 ~ 388.2 ~ $10.885.9 $9,822.3 Operating profit ~ United States $ 1,264.2 $1,129.1 Europe p 137.9 125.2 Other (3.9) 7.2) 1,398.2 1,24 .1 Reconciliation: Equity in net earnings of unconsolidated ~ subsidiaries and affiliates 47.0 29.3 Amortization of goodwill and trademarks 12.8 12.8 Operating income of operating companies ~y $ I 58.0 $1,289.2 Identifiable assets: United States ~ $ 6;8a4.3 $5,585.0 Europe - 1,271.5 1,232.5 Other 178.4 149.7 S:284.2 6,967.2 irrvestrrtertt.s in unconsolidated subsidiaries and atHfiateg ................................... , Corporate assets 680.8 - ........................................................... 215.0 288.3 t'08:1 :. Total assets S 9,180,0 ,~..~•..... $7,361.6 Shares of common stock authorized, Issued and outstanding svere; _.._.._.. . ....._ Authorized Issued Treasury Outstanding Balance, January 1, 1980 ~~ Exercise of stock optioras and stock units ----~---~ ._..- Issued for aeduisition Balance, December 31. 1980 ^ Exercise of stock options and stock units Issued for acquisitions - ___._ _._ .._._....._. _ , _. ~..._ Issuet(Ira exchange for deberetures reacquired Balance, Deaemiser 31, 1981 _ ~ .......... _.... ................... ........ _... Adjustment of prior-year acquisition Exercise of stock options and stock units ~ . ._ . ....... ......... Issued In exchange fpt debentures reacquired ......... ._..,_ ~ Balance, December 31, 1982 200,000, 000 124, 544,090 124,544,090 118;569 118,56s --_ _...... _ ......... _.... ......... _._... __ -- . 90;392 90,392 At December 31, 1982, 4,295,416 shares of common stock were reservtr€i for stock options and stock units, and 10,000,00 200,000,000 124,753,051 124,753,051 __...... ................... ............. .-.... f 18;517 118,517 -.......... _._..._ . . -- -- 'f 90,456 190>46+5 339,316 339,37s 200,000,000 125,401,350 125,401,350 ~+ _....... shares of Serial Prefeirred Stock were au,horizad, none of which have been issuetl- 43

Notes ccrst€nued Under stockhc+ider-approved stock option and unit pians, 1, 734.543 ,,hares of common stock of the company remain available to be granted to employees. Under the option plans, common stock of parry has been made available for purchase by employees rhe corn at market prices on dates of grant. Under the unit piara, a holder rnay elect to purchase shares of common stock at 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 grant) in the form of stock or stock and cash. Appreciation value may be received with respect to the equivalent of 500-a of the units granted. At December 31. 1982, ooptions and units for 1, 521216 shares were exercisable. Exercised Per Share Price Range ~ Under Option, ~ End of Year Per Share Price Range ~~ Units 33,808 $30. 03=$32.56 1,902,685 $30. 03-$51.81 Options 89,966 $25.25-$30.97 526,210 $22.22-$30.97 Units 18,190 $30.03-$32.56 1,217,854 $30. 03-$32.56 Options 102,665 $22.22-$28.06 618,926 $22.22-$30.97 (in millions, except per share amounts) For quarter endedr Mar. 31 June 30 - Sep€. 30 Dec. 31 Year Operating revenues ~ Gross profit Net earnings Per share: Earnings Dividends paid Market price highdo -- --- --- _.:._- ,_..-_ _. ---~--- - Operating revenues $2, 509. 9 32, 885. 3 $2, 917.7 $2, 573.0 $10,885,9 Gross profit 713.2 820.9 ` 858,8 _ 764.6 3,157.5 Net earnings 136.4 154.2 207.9 , 161.2 659.7 Per share: ~ Earnings (A) 1.09 1.23 1.66 1.29 5.28 Dividends pak{ .400 50Q .500 .500 1,900 Market price high-low 53lfi-42 54484 50 i-44 5b!1b-4631s 55i1i-42 ~A} The sum of quarterly amounts does not equal the yearly amount due to rounding. The principal stock exchange on which the company's common stock (par value $1 per share) Is listed fs the New'f®rk Stock N Exchange. At,January 31, 1983, there were 30;534 it~ o€recnrd of the company's common stock. 6`.a en

To the Board of Directors and Stockholders of Rhilip R?orris Incorporated: We have examined the consolidated balance sheets of PHILIP MORRIS INCORPORATED and CcnsoBidated Subsidiaries as of De- cember 31, 1982 and 1981. and the related consolidated statements of earnings, stockhofders° equity and changes in financial position for each of the three years in the period ended December 31, 1982. Our examinations were made in accordance with generally ac- cepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary In the circumstances. In our opinion, the financial statements mentioned above present fairly the financial position of Philip Morris Incorporated and consolidated subsidiaries at December 31, 1982 and 1981, and the results of their operations and the changes in their financial position for each of the three years in the period ended December 31. 1982, in conformity with generally accepted accounting princi- ples applied on a consistent basis after restatement for the change, with which we concur, in the method of accounting for currency translation as discussed in the notes to consolidated financial statements. Coopers & Lybrand, New York, New York January 25, 1983 The consolidated financial statements and all related financial infor- mation herein are the responsibility of the company. The financial statements, which include amounts based on gwo'gments, have been prepared in accordance with generally accepted accounting principles. These principles have been consistently applied except for the change in the method of accounting for currency translation as described in the notes to consolidated financial statements. Other financial information in the annual report is consistent with that in the financial statements. The company maintains a system of internal controls which it believes provides reasonable assurance that transactions are executed in accordance with management 's authorization and property recorded, that assets are safeguarded, and that account- ability for assets is maintained. The system of internal controls is characterized by a control-oriented environment within the com- pany which includes written policies and procedures, careful selec- tion and training of personnel, and examinations by a professional staff of internal auditors. Coopers & Lybrand, independent certified public accoun- tants, have examined and reported on the company s consolidated financial statements. Their examinations were performed in accord- ance with generally accepted auditing standards and included studies and evaluations of internal accounting controls to the ex- tent deemed necessary by them. The Audit Committee of the Board of Directors, composed of five non-management directors, meets periodically with Coopers & Lybrand, the company's internal auditors and management repre- sentatives to review Internal accounting control, auditing and finan- cial reporting matters. Both Coopers & Lybrand and the internal auditors have unrestricted access to the Audit Committee and may meet with It without management representatives being present.

Thomas F Ahrensfetd •s 5e:neor 4"ice Preyadent and Generai Counsel `..rrie: s C. EowlirFq s ,..::.•€?683r Vice President, Assistant ~ the Fahairrvar, of the Board, wesca Director of Corporate Affairs Alfred 5ritlain III Chairman of Bankers Trust Company, New York. NY Dr. Jose Antonio Cordido-Freytes Member of Betancourt, Cordido and Associates, Caracas, Venezuela, Attorneys, and President of C.,4. Tabacaiera Nacional Hugh Cullman =.205 Group Executive Vice President and Chairman and Chief Executive officer, Philip Morris U.S.A. Joseph F Cullman 3rd',s Chairman of the Executive Committee William H. Donaldson ts2.3 Chairman and Chief Executive Officer of Donaldson Enterprises Incorporated, New York, NY, management corporation T.,Justsn Mocre. Jr. ° fr'A Chairman of lfirgrnia Electric and Power Company, Richmond, VA :an n n'. 11 errchy ?.za ,!rwu.fs C.ecut€ve Vice President md Chairman and Chief Executive t3fe`.~cer, <NtiPter Erewing Company Sheiaard P Poflack 4 Vice President and President and Chief Operating Officer, Philip Morris U.S.A. John S. Reed',2,3 Vice Chairman of Citicorp and Citibank, ht.A., New York, NY Hans G. Storr2 Vice President and Chief Flnanciat Officer George f+Yeissman L5,6 Chairman of the Board and Chief Executive Officer Margaret B. Young 3, $ Chairman of the Whitney M. Young, Jr. Memorial Foundation, New York, NY, Consultant to the Company George V Comfort Paul W. Douglas } President and Chief Executive Director Emeritus Officer of Freeport-MeMoRan, Inc., " Edward Lasker a=3 ' New York, NY Director Emeritus natural resources Jane Evans Executive Vice President, Fashion of General Mills, lnc.; New York, NY, consumer products Clifford H. Goldsmith 7,2•5,6 President Robert E. R. hluntley?,3=4 Professor of Law, School of Law of Washington and Lee University, Lexington, i0 John fi Landry ¢ Senior Vice President and Director of Marketing Jacques G. Malsonrouge 4 Senior Vice President of IBM Corporation Armonk, NY Id. Rotrert Marschalk t=a=s Director of Richardson-' ` Vicks fnc., VYiltori, CT, pharmaceuticals manufacturer Hamish Maxwell t,4.5 Executive Vice President and President and Chief Executive Officer, Philip Morris lnternatfonai Ross R. Millhfser F.Z5.e Vice Chairrriart of the Board 6 Richard 14R: Dammapnn Mernber,_ Advisory Board T. Newman Lawler Member, Advisory Board' 7 Member of Executive Committee Joseph F. Cullman 3rd, Chairman atNemberof Finance Commiitee RoSS R. Mflfhl8er, Chairman 3Mer»berof ttirdFt Committee Robert E, R. Nu, Xey, Chairmari 4 Member of Committrre on Aubtic Affatrsand 5ocla#Responsibility Jafiies C. Bbwffitg, Chairman g Memherof Office of the Chairman George Weissman, Chairman George Weissman Clifford tf.Goldsmftfr r-: Ross R. Millhiser . Joseph f Cullman 3rd 0 John A. Murphy d Hamish hh ki * s

0 RnFarr Mamctaafk Alfred Brittain fit Dr. J<;:>e 4n tc7nFo Gordtdw-F-, ?s James C. Bowling h~ ..~. JIM M4r „ 4},:.-tMO1 . ' = w4'6-a~._'.Yr..-:1. ~ i Pottack Paul W fiavgias Jene Eaae,S Nens G: Svorr 39 2 'argarnt B Young John T. Landr, 1 a T. Jcratdn Alocrre, Jr. John S. Reed -- ,... FFtssnass FAPPreeasfetI d Jacques G. Maisanrauge Rohe•rt E: R. NuntlOy William N.f>onatdsan 4 8 M M

George Weissman Chairman of the Board and €: hEet Executive Offscer Poss R. Millhiser Vice Chairman of the Board !"'itford H. Goldsmith President Hugh Cullman Group Executive Vice President and Chairman and Chief Executive Officer, Philip iDtorrs°s U.S.A. John A. Murphy Group Executive Vice President and Chairman and Chief Executive Officer, Miller Brewing Company Hamish Maxwell Executive Vice President and President and Chief Executive Officer, Philip Morris International Thomas F Ahrensfeld Senior Vice President and General Counsel James C. Bowling Senior Vice President, Assistant to the Chairman of the Board, and Director of Corporate Affairs John T. Landry Senior Vice President and Director of Marketing Robert H. Cremin Vice President and Vice President Sales, Philip Morris U.S.A. Eugene J T Flanagan Vice President, Secretary, and Associate General Counsel Edward iW: Frantef Vice President and President and Chief Executive Officer, The Seven-Elp Company William K. Howell Vice President and President and Chief Operating Officer, Miller Brewing Company Jetson E. Lincoln Vice President, Planning William D. McCoy 6 Vice President and President and Chief Executive Otficer, ( Philip Morris lndustrial 48 tt. Wallace McDowell George P Hibbard 'V€ce President and Executive Deputy Treasurer °d ice President, Operations, Ph;:dp'•frarris U.S.A. Herbert Millington, Jr. Deputy Treasurer Bruce S. Brown ,^:;r~es J. ~tearr}an Staft'lice President ce Frcsrc:ent and Executive Norman J.Treasnran and Director, Taxes z'rce Prssicent, Marketing, .Deputy Treasurer Philip Morris U. S.A. Michael A. DeMita Eric G. DairynPple Staff Vice President, R. William Murray Assistant Treasurer Washington Relations Vice President and Executive Vice President, Edward G. Silcock Wallace G. Lloyd Philip Morris International Assistant Treasurer Senior Vice President and Technical Director, William J. O'Connor John C. Leno Tobacco Technology Group Vice President, Administration Assistant Controller and Human Resources Donal P. O'Brien Horace W. Pierpoint Vice President, Shepard P Pollack Assistant Controller lnternational Services, Vice President and President Tobacco Technology Group and Chief Operating Officer, Robert H. Souther Philip Morris U.S.A. Assistant Controller Arthur R. Pasquine Executive Vice President, F Harrison Poole Robert A. White Tobacco Technology Group Vice President and Treasurer Assistant Controller Frank A. Saunders Philip J. Reilly Bernadette T. Fee Staff Vice President, Vice President and President, Assistant Secretary Corporate Relations and Mission Vieja Company Communications Anthony W, Glraldl Frank E. Resnik Assistant Secretary Dc Robert B. Seligman Vice President Vice President, and President, Research and Development, Tobacco Technology Group Tobacco Technology Group Carlos E. Salguero Vice President and Executive Vice President, Philip Morris fnternational Thomas B. Shropshire Vice President and Senior Vice President and Treasurerr- Mlller Brewing Company William K.7Fansue Staff Vice President, Personnel John van Harrt Vice President, Leaf, Tobacco Technology Group Richard L. Snyder Vice President and Senior Vice Preside4 Administration, Philip Mortfs fiiternational Harrs G. Storr` Vice President and Chief Financial Officer Lauren S. Williams Vice President and Executive Vice President,. MillerBrewing Company' Alexander Holtzman . Associate General Counsel and Vice President and General Counsel, Philip Morris USA

Corporate Headquarters: Philip Morris Incorporated 120 Park Avenue >G°esv York, New York 10017 i212) 3.30-5000 Operating Company hleadquarters: Philip Morris U.S.A. __....__. ___W ...._.......___. ~ 120 Park Avenue New York, New York 10017 Philip Morris International 12Q Park Avenue ~ New York. New York 10017 Regional Neadquarters: Philip Morris EEC Brillancourt 1006 Lausanne Switzerland Philip Morris EFTA, Eastern Europe, the Middle East & Africa Place Chauderon 4 1000 Lausanne 9 Switzerland Philip Morris Latin Amertcallberlla Centre Colon Marques de fa Ensenada, 18 Madrid 4 Spain Philip Morris Asia 25th Floor, United Centre 95 Queensway, Central Hong KotV Philip Mortis (Australia) Limited One Little CoW s Street Mefboume; Vfetoria 3000 Australia Benson & htedgas (Canada) inc: Place du Canada, Sufte 800 1010 Lagauchetivre Street, West Montreal, Quebec H3B 2P4 Canada Seven-Up;tn terna t ion n l 120 frark .Qvenue New York, New Yrrh 10017 il7illgr 9rewfnV Compaarr 3339 West Wighluid Boulevard Miiwauked, Wisconsrn 53'2C11 The 5ev8n-Up Ccmpany 121 Svuth MeramFrc 5t: Louis, Mlssourl83105 Philip Morris lndustrlal t0A Park .4venur3 New York, New York?rJ0?7 Mission Virjo Corr faat7~ -- - - - 28137 La F,0 Rzted Miesfon lrie/o, C.aHfornia 92BBt Rhrtip M(arsiii Cr4rJlt Corporatfort 100 Park Avenue New YUrh, Fk}w 9trrk 10017 Annual Meetlng° 7°he annual meeting Of 3tockhotcters of Philip Morris Incorporated will be held on April 2f'. 1963t at the Philip Morris Manufacturing Center, 3601 Commerce Rcad. Rich mond< Virginia. Form 10-K: The cornpany`s annual report on Form 10-K, which will be filed with the Securities and Exchange Commission, will be available to stockholders In April upon wrlttea7 request to: Eugene J.T. Flanagan, Secretary Philip Morris Incorporated 120 Park Avenue New York, New York 10017 Transfer Agents and Registrars: Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 United Virginia Bank Box 26665 Richmond, Virgfnda 23214 Dividend Reinvestment Agent: Tr t Compan Mo G nt y rgan uara us y of New York ~ Dividend Reinvestment Plan PCt. Box 3506,Church Street Station New York, New York 10008 Stock Exchange Listingse New York Amsterdarn Basel Frankfurt Geneva Lausanne Paris Zurich NY Stock Exchange Symboi, MO Auditors: Coopers & Lybrand 1251 Avenue t aTthe Ameriras New York, Neav York 1002? AnnualR'eport Paper: Papersto!ck used in this report ls made by. : PlainwaGf Paper Compsny a division of Ph 71p Morris Indus t ria1. Cover: Kashm)r Gloss 80 r Text. Kashmir Gloss i0ow Credits: Design: Chermayeff & Geismar Malor Photographyr Peter Kane Other Photography: Carble C+,trtwr:- Bill Keily, Jordan hfelick, Munroe Studios tns. Printerl in U.S.A, by Case N.,

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