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Table of Contents 1 Financial Highlights 2 Review of the Year 12 Philip Morris U.S.A. 14 Philip Morris International 16 Miller Brewing Company I8 The Seven-Up Company 20 Philip Morris Industrial 22 Mission Viejo Com pan y 24 Financial Review 26 Selected Financial Data 27 Management Discussion and Analysis of Financial Condition and Results of Operations 30 Fifteen-Year Financial Review 32 Consolidated Financiaf Statements ~l6 Board of Dlrec tors 48 Officers Philip Morris Incorporated is a leading company in three large industries-- cigarettes, beer, and soft drr"nks-that provide simple pleasures to millions of people every day. In 1982, the corrr- pany registered its 29th consecutive year of growth In operating revenues, net earnings, and earnings per share. Founded more than a century ago and Incorporated in Virginia in 1919, the company has long been a major cigarette r»anufscturer:'Toetaiyr. Iit is the second-largest cigarette com pan y in the U, S: market and the largest U. S.- tr.rsed irtterhatlarral cigarette compan y. The corporation acqutred full control of the Miller Brewing Com pany in 1970. At that time, Miller was the seventh-largest breruer in the U_S.Today, Miller is the second-Iargest. The Seven-Up Cornpany, acquiredirt19T8, is the third-largest soft drink manulacturQr In the worlcf. Philip Morris has also diversified Into the ananutacture of specialty pa- pers, tissues, and packaging materials, as well as into communfty de+reloprnent. These bttsfnesses arecanductedbysix operating companies: Philip Morris f1.S.A., Philip Morrisinter-nationAl; Miller Brewing Company, I~t~r Morris The 5even-(!p Company, lndustrial. and Mission ill4_tvo*t,party s tontiers of Ftritlp Morris (ncorparat operating Corrtpanloi. 1982 to provide ffriancing fa..du Corporattorl commEance" In addition, hhilip;: Orr the cover: Pictured is a vase unearthed in Maya, Campeche, Mexico. The vase dates from A.13 80tT-8Q+8-af least 600 years before Columbus came to the New World-and Is the oldest known depiction of the smoking of tobacco. As part of our ongoing support of the arts, this vase was presented by _ Philip Morris Inc. to the Museum of the,drnerican Indian In 1973.

(in millions of dollars, except per share amounts) ~ ~ ~ Operating Revenues $10,885.9 S9,822.3 $8,302.9 $6£&32.5 -~et Earnings ~ 659®7(A) 549.1(a) ~ 507.9 408.6 Eare~Jngs Per Common Share 5.28(a) 4.41 (A) 4.08 3.38 ~~ Dividends Declared Per Common Share ? 2.()0?.6d 1.25 I.EP2 s Operating Revenues ~ ~P Net Earnings Earnings Per Common Share Dividends Declared Per Common Share Philip Morris U. S. 04,~ Philip Morris Internationat Arfiller Brewing Company ` Mission VieJa Company Tire Severt-Ifp Company ~ Philip Morris industria/ C~aisciidateef operating Revenues Philip Morris U.S.A. Philip Morris internationai - Miller Erewirtg Company The Seven=tIP Company Philip Morris tndustriat Mission Viejo Company- - P14[. _Creclit Corporation _ Consolidated Operating Income Operating Revenues Net Earning~ _ :- Prirr#ary Earnings Per Share _ (A) fn 1982; the cctmpony adbpter! F/nancJalAcccrun(ing Srandardx t3turd State» lreentW -52, Foreign Currency Trans#atton, and reatnhct costaollcfeted Mtarr ora# statements for 198F and 19W. This change decroased net aamingn strrW eamhrgs share In 1981 by $'#6.5 r~ri91lan and $.13 per shata, re~specKvety, and F!r 1by $27:7 Pnl###rNt ins1 $.2a per share, respecttve#y. lrtfaeflve in 198l1; ttre company adopfed the tast-in, #(rst-uuf (LIFC7) '"t#od'p# caalNyV f 0.8~t~'a 18.3or'o 25.2% 27.5% 20< 1 °fo(A) 8.1 %(A) 24.30N® 22. 0% 19:7%(A) _ 8.1 %(A) 20.7% 20.9% 21(?% 28.0~'`0 22 0% 31.2% - ~ $ 3,761.6 $3:272.1 $2,767.0 $2, 437. 5 3,4t3t#-3 3,205.4 2,581.3 - ~ 1,810.9 2;837.2. - 2,54Z3 2,236.5 1,834.5 - 432.1 353.2 295.5 ---- 18E.5 291.1 276.5 268.8 237.2 ~ 163.6 172.8 153.8 125.9 . $10,885.9 0,822.3 $8, 302. 9 $6, 632.5 905.7 786.1 701.3 S 569. f ? 396.6 318.Q 260.6 188.s 115.6 144.7 181.0 150.3 (1.7) M 7:0....._ 26.3 18 9 16 9 18:.3 15.0 . . -~._..__. _....... ~_ 22.9 30.6 22.4 19.8 .......... _. ........... __. &_},458.f1' $1,2892 $1,1913.6 $ 968.1 17.6% 18',6~'a ~ 18.6g'o ~ ~ 14.Ofl,b 18.5% ZO.Z~r'c 21.2% 16.4% 1 7. 3% 18:2% 18.5% 15.04Ic the Ieaf totyecca components of ittventforles usect fn kts U.S. and i3.S export opetrwLkynv&tieatiw in 1981. use ot thrr; LfFO r1r®tTlocf w8s extenrlgd to cavet addttfana! /ryventExlFes. The 1990 charrge to LIFO tfocreased.198tT tret sarRhtgs snd ertrrl pdr shorn by SBt. 8 mifftar and $ 49 per sfs¢rra, respecttv~ly and Trt t981 !W :4 m Nk nind S.12 per share, r@epactive#y. r4

~ Review of the Year , i 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. I Financial Highlights Among the highlights of 1982:  Operating revenues increased 7.6% to 511.7 billion.  Operating income increased 17.9% to 51.7 billion.  Net earnings increased 18.5% to S781.8 million.  Earnings per share increased 18.0% to $6.23.  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.  Marlboro's worldwide sales exceeded 237 billion units.  Miller Brewing increased operating income 37.3%, reversing a two-year decline.  Seven-Up showed the largest per- centage gain in unit volume in the U.S. soft drink industry. Operating Revenues by Product Line Operating Profit by Product Line I PhJip Morns lncorporafed B1llions of Dollars Md6ons of Dollars 11.0 1650 10,0 1500 9.0 1350 8.0 1200 7.0 1050 6.0 900 5.0 750 :,0 _ ~ 600 t € 3 0 ~ 45 0 ~ 2.0 a i..a 300 ! 1 0 ~1 150 00 2 78 79 81  Otber  Beer  TobaCCo 80 82 78 79 80 8 82

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 Earnings Per Share 1980 net earnings by S27.7 million and S.22 per share and 1981 net earnings by S16.5 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 Dividends Declared Per Share annual retail sales, in the United States alone, in excess of $20 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 770 660 2.20 990 700 6.00 2.00 900 630 5.40 1.80 810 - 560 4. 80 760 720 +90 4 20 J 40 630 420 3.60 7 20 540 350 3 00 7.00 450 ~~ CJI 280 2.40 80 360 ~ d 270 7.80 60 270 ~ J 740 7.20 40 180 ~ ~ 70 60 20 90 i l l cD i 0 0 0 0 m

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 segment based upon its -No Caf- feine" campaign, Seven-Up registered a 20.94% 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 $437 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%. In 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 S1.9 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. Al150 states and the District of Columbia now impose cigarette excise taxes, ranging from 5.02 to 5.25 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 $.01 to S.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 S.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 52.5 billion in federal taxes and nearly $5 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: "I 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 2500010789 4

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 S2 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 r~n ID 0 0 ~ 0 ~ ~ 0 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 was 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 1000 Morris U S d Phili . . p . Philip Morris U.S.A. Operating Revenues Operating Income Ctgarette Unit Sales Unlt Sales ~ Over the last tan years, Philip Morris Philip Morris U.S.A.'s operating Total unit sa!es 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 5P/o. Our market increased at an average annual annual compounded rate of 19.0QPo compounded rate of 6.4 i° during share increased,'o 32..8% in 1982. compounded rate of 14.0%, for the last ten years. the past ten years. Millions of Dollars Millions of Dollars Billion Units Bdlion Units 4500 _ 1725 4000 3500 3000 2500 2000 1500 1000 500 0 8 75 750 625 500 375 250 125 Richmond, Milwaukee, and St. Louis who wish to study for college degrees while working at full-time jobs. Cur expanded Vocational/Tech- nical Career Scholarship Program ~elps residents of Louisville and Mil- waukee who 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 I 73 74 75 76 77 78 79 80 81 82 73 74 75 76 77 78 79 80 87 82 University, the University of Tennes- see, and the University of Kentucky College of Agriculture. We 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. - U.S. Cigarette Industry 225 630 40 200 175 150 125 700 75 50 25 0 73 74 75 76 77 78 79 80 81 82 73 74 75 76 77 78 79 80 81 82  U.S. Cigarette Industry Unit Sales ~ Philip Morris Share of US (ndustry(/o) 560 490 420 350 280 I ~ 210 t.n ~ C 140 0 70 I--~ 5~0 360 375 270 22.5 8.0 135 9,0 45 0 6

I records, reaching 119.6 billion units and gaining 19.2°,% of the total U.S. cigarette market. Marlboro C:,hts con- tinued its vigorous yrowth and has ,1oY'v aC17it.."JeC7 in ?xCeSS JT rJ.G?'7 svl` :i?e U:5. ., ar!cet. Convinced :;~at :;7e market :vould readily accapt a naw high-qual- ity, elegantly packaged, ultra-low 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 an y 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, manufacturing facility began initial production of cigarettes in January, )383, as scheduled. 3roUnd was broken last spring `^r a 214,CLD-square-root Primary 'o- ::cco processmg adaition to the =~:;lip ,,lorrls U. S.A, f.3ctory in Louis- :ille, Kentucky. The S25 million exten- sion is scheduled for completion in early 1985. In 1982, Philip Morris U.S.A. occupied its Richmond Operations Center on a 58-acre site adjacent to the Manufacturing 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. It 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 research grant :o the University of :ennessee to help improve the state's #obacco production efficiency; and a _;rant to the University of Kentucky :,'.,/7ege of Agriculture to promote the rechanization of burley tobacco pro- •Juction. These grants are part of 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 2.7% 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. d W ~ - Phl/ip Morrls /nternat on~ rls ln ernat ona phil p or Operating Revenues Operating Income :otaf operating7evenues(cons~o ltlato3 buring the lasf ten yeai-s, i ip and unconsolidated) of Philip Morris lnternational's operating income Intemahonal have increased at has grown at an average _ an average annual compounded rate annual compounded rate of 18.2?1a.- of 25 7W, over the past ten years. ' MilGons of Dollars Millions ofDollars ustry orld Cigarette In Phijp Morr(s internatronal Cigarette Unit Sa/es Unit Sa/es Ezcludmg US.A. unit safes of PTiXp Morris -- In 7932, worldwide cigarette unit sales International's aBiLates. licensees, increases were concentrated in markets and exports declined 2.7% in 1982. where Philip Morris does not have - - -- - - -sign~cant7epresehtabon.Ourmarket -- _ =5ha7e dectined to about , 2 ast yeac Billion Units 9900 50 225 8800 400 200 7700 350 175 6600 300 150 5500_ - 250 125 4400 200 100  Consolidated  Unconsolidated Billion Units 3825 3400 2975 2950 2,25 1700 N Ul 0 C) 0 ~ 73 74 75 76 77 78 7980 81 82 --  World Cigarette Industry - -~ --- Unit Sa/es (Ezcfuding U.S.A.) -~ Philip Morris Share of World Market !°k) 1275 850 425 3 2 1 0 7

Export sales rose 4.0% 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 Morris nevertheless has five of the country's top ten brands. Our Swiss affiliate, Fabriques de Tabac Reunies S.A., consolidated its leading position and opened its new research and development facility in 1Veuchatel. 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/Iberia 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 Barrel Shipments M,l;ions of Barrels Barrel shipments declined in 1982 due to the disproportionate impact of the recession in those areas in which Miller High Life has rts strongest bases. 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. porA. became the industry leader. Asia Operating revenues, operating income, and unit volume all set new records. Marlboro is now the leading imported brand in Hong 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 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 recession. 2400 2100 1800 1500 200 900 600 300 0 73 74 75 76 77 78 79 80 81 82 160 140 120 too 80 60 0 20 l 35 30 25 20 5 10 73747576777879808182 73747576777879808 82 160 I J 1 1 24 21 78 40 120 100 80 40 20 74 1 5 Mlllions of Barrels  U S, Beer Industry Barrel Shipments ~ Miller Share of U.S. industry (%) Miller Brewing Company Miller Brewing Company I" Operating Revenues Operating Income Durmg the last ten years. Miller's After two years of declines, Miller's operating revenues have increased at operating income increased 37.3% an average annual compounded rate in 1982. 0130,1%. MillionsofDollars Millions of Dollars

ts. ~10 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 Mall 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. 'rfiiiar Brewing Company 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 low-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 The Seven-Up Company Operating Revenues Operating /ncome 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 17.1wo for Seven-Up in 1982. This /oss was, over the past ten years. however, reduced from 1981. Millions of Dollars Millions of Dollars 540 42 480 420 360 300 240 180 { 120 ~ so 0 36 30 24 18 12 6 0 -6 -12 73 74 75 76 77 78 79 80 81 82 . 73 74 75 76 77 78 79 80 81 82 9 Lowenbrau, which is positioned at the high end of the price range for super-premium brands, continued to grow. Shipments 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 $500 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 O -