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On the ®@ver. The cover of this report is a graphic ret3resentation cf the growth of P97ilip f.torns Pncarpsarated trons 1974 tto 1983. PPrimary Earnings Psr Share Primary earnings per common share have increased to $7,17, an average annual compounded growth rate of i8.F6?o during this ten-+Fear period. Net Eam"Ss Net earnings have increased to $903.5 rnilEisn, an average annual compounded yrowth rate of t9.$% during this ten•year peti<.d. Operatfe+g Rave+tves Operating revenues have increased to $1 3 ,0 bsit6on, an average annual crampnunded growth rate of tT4% during this tean-ye&tr periczr,4. Philip Morris Incorporated is a leading company in three large indus- tries-cigarettes, beer, and soft drinks- that provide simple pleasures to millions of people every day. In 1983, the company registered its 30th consecutive year of growth in operating revenues, net earn- ings, and earnings per share. Founded more than a century ago and incorporated in Virginia in 1919, the cam-- paFiy has long been a major cigarette manufacture.r. Today, it is the largest U.S.- based international cigarette company. The corporation acquired full control of the Miller Brewing Company in 1970. At that time, Miller was the seventh-largest brewer in the United States. Today, Miller. is the seCand-latgest.; The Seven-LTp. Company, acquired in 1978, is the third-largest soft drink martn._ Philip Morris has also diversified ii facturer in the wo.rid;;; provide financing for customers of Philip In addition, I'Isilip: Nlorris Cre€f it Corpo- ration commenced operations in 1982 to > Group Inc. The Seven-Up t:.ompany, Philip Morris In.dustrial, and; Mission Viejo Realty national, Miller Brewing Compariy, six operating companiest Philip Morris U:.S;A_; Philip Morris tissues, and packaging materia.Es; as well.l as into community development. These businesses are conducted by ` the manufacture of specialty papers.;.. Morris Incorporated's ctpe: companies. Table of Contents: 1 Financial Highlights 2 Highlights of 1983 3 Review of the Year 4 Philip Morris U.S.A. 6 Philip Morris International 8 Miller Brewing Company 10 The Seven-Up Gcampany' 12 Philip Morris Industrial 14 Mission Viejo Realty Group Inc. 20 Financial Review 22 Selected Financial Data 23 Management Discussion and Analysis of Financial Condition and Results of Operations 26 Fi€teen Year Financial Review 28 Consolidated Financial Statements 44 Board of Directors 46 Officers 48 General Corporate Information

~ ph;(ip Morris incorporated Financial Highlights ti_n_millions of dollars _except per share amounts) _ ' 1983 _ 1982 1981 1980 1979 Operating Revenues ~_ _~_ $12,975.9 $11,586.0 $10,722.3 $9,649.5 $8,149.1 Net Earnings 903.5 781.8 659.71"' 549.11"' 507.9 Earnings Per Common Share 7.17 6.23 5.28(A) 4.41("' 4.08 Dividends Declared Per Common Share 2.90 2.40 `2.00 1.60 1.25 Funds From Operations Per Common Share 9 0.70 9.24 7.81 6.29 5.65 percent Increase Over Prior Year Operating Revenues 12.0% 8.1% 11.1% 18.4% 22.9% Net Earnings 15.6% 18.5% 20.1%I"' 8.1%I"' 24.3% Earnings Per Common Share 15.1% 18.0% 19.7%(^' • 8.1%("' 20.7% Dividends Declared Per Common Share 20.8% 20.0% 25.0% 28.0% 22.0% Operating Revenues _ Philip Morris U.S.A. $ 5,519.9 $ 4,330.1 $ 3,761.6 $3,272.1 $2,767.0 Philip Morris International 3,646.7 3,563.7 3,400.3 3,205.4 2,581.3 Miller Brewing Company 2,922.1 2,928.7 2,837.2 2,542.3 2,236.5 The Seven-Up Company 649.9 530.6 432.1 353.2 295.5 Philip Morris Industrial 237.3 232.9 291.1 276.5 268.8 Consolidated Operating Revenues $12,975.9 $11,586.0 $10,722.3 $9,649.5 $8,149.1 Operating Income Philip Morris U.S.A. $ 1,337.8 $ 1,101.6 $ 905.7 $ 786.1 $ 701.3 Philip Morris International Miller Brewing Company The Seven-Up Company Philip Morris Industrial 366.0 446.0 396.6 318.0 260.6 227.3 158.8 115.6 144.8 181.0 (10.8) (1.2) (1.7) (7.1) 7.0 13.6 . 7.6 18.9 16.9 18.3 Mission Viejo Realty Group Inc. * P.M. Credit Corporation* Consolidated Operating Income Compounded Average Annual Growth Rate . Operating Revenues Net Earnings Primary Earnings Per Share During 1983, the company's real estate operations were reorganized under Mission Viejo Realty Group Inc., and are accounted for on the equity method. Rea1 estate operations were previously consolidated. Prior-year amounts have been restated, where applicable. The company believes the equity method of accounting for the reorganized real estate operations provides a more meaning- ful presentation of financial results. . Operating companies' income is income before corporate expense, interest, and other non-operating income and deductions. The amortization of previously capitalized interest is included in operating companies' income. 19.8 2.0 11.1 14.7 11.2 4.5 0.9 $ 1,958.0 $ 1,715.7 $ 1,446.2 $1,273.4 $1,179.4 1983-1978 1983-1973 1983-1968 1983-1958 14.4% 17.4% 18.5% 14.2% 17.2% 19.8% 21.5% 16.8% 16.2% 18.2% 18.7% 15.4% (A) Effective in 1980, the company adopted the last-in, first-out (LIFO) method of costing the leaf tobacco components of inventories used in its U.S. and U.S. export operations. Effective in 1981, use of the LIFO method was extended to cover additional inventories. The 1980 change to LIFO decreased 1980 net earn- ings and earnings per share by $61.8 million and $.49 per share, respectively, and in 1981 by $14.4 million and $.12 per share, respectively. *Represents equity in net earnings of these unconsolidated subsidiaries. N cn O O O #

Highlights of 1983 Among the highlights of 1983:  Operating revenues increased 12.0% to $13.0 billion.  Operating income increased 14.1% to $2.0 billion.  Pre-tax income increased 21.9% to $1.6 billion.  Net earnings increased 15.6% to $903.5 million.  Earnings per share increased 15.1% to $7.17.  Declared dividends increased 20.8% to $2.90 a share. • Cash flow per share increased 15.8%.  Our debt to equity ratio at 0.76 to 1 reached its lowest level in 17 years. 0 Philip Morris U.S.A. increased its market share for the 21st consecutive yean ` ~ Philip Morris International achieved gains in most of its _ major markets.  For the seventh consecutive year, Philip Morris was the leading exporter of cigarettes from the United States.  1Vlarlboro's worldwide sales exceeded 235 billion units.  Milier Brewing increased its operating income 43.1%. n Seven-Up gained market share for the second straight year: ~ Mission Viejo had its best year in history.  Plans for an-orderly succession in top management were announced. a oa,er Beer t ToGacco Operatlnq Ravenu.s by Product LIn.

Reviev+ of the lrear . Nineteen eighty-three was the 30th con- secutive year Philip Morris reported record operating revenues and profits. Philip Morris continued to perform well even as each of our major industries was beset by problems. These are difficult times. Increased excise taxes worldwide coupled with the strength of the U.S. dollar affected our ability to increase cigarette sales. Anti- smoking and anti-drinking campaigns and restrictions are on the rise. In 1983, consumption patterns in our major industries did not mirror those of the 1970s-a decade of greater than ordi- nary growth for us. In the United States, unit sales of the cigarette industry were down, the brewing industry's shipments were flat, and soft drinks were up by a lesser percentage than in the past. In spite of these conditions, we con- tinue to do well. Our earning power flows from an array of strengths that begins with our well-positioned quality products and includes a solid share of most key markets, plus the creativity of our people. For the last five years, Philip Morris earnings have increased at a compound rate of 17.2% annually. For the last ten years, the compound rate of increase was 19.8%; for the last 30 years, 15.7%. We have paid dividends for 56 consecu- tive years and increased dividends:18 times in the last 16 years. Over the past ten years, our dividends have increased at a compounded annual rate of 24.0%. In 1983, a substantial increase in Philip Morris' strong cash flow enabled us to re- duce total outstanding debt by $671 mil- lion during the year. As a result, our debt/equity ratio reached its lowest level in 17 years, improving to 0.76 to 1 at year- end 1983, compared with 1.02 to 1 in 1982 and an average of 0.99 to 1 over the last five years. In November, the Board of Directors authorized the repurchase of up to 4 million common shares. The acquired shares will be used in connection with the exercise of options and stock units and for other corporate purposes. The repurchase program was completed in February of1984: We have invested nearly $3.9 billion in capital expenditures duringg the five-year period 1979 through 1983, of which $566.2 million was spent in 1983. A full report on financial activities begins on page.20: N.t Famfngs

In a market disrupted by the effects of sharp tax increases, Philip Morris U.S.A. increased its unit volume marginally and its share of the market significantly. Sales reached. 204.7 billion units, compared with 204.4 billion in 1982. Philip Morris U.S.A.'s market share grew from 32.8% Iastyear to 34.4% in 1983. According to The Maxwell Report issued by Lehman Brothers Kuhn Loeb, Philip Morris U.S.A. became the leading cigarette company in the U.S. market in 1983. Industry volume dropped 4.5%, largely as a result of actions related to the federal. excise tax being doubled from 8 cents to 16 cents per pack at the beginning of the year. Cigarette taxes also were raised in a number of states and localities. Largely as a result of tax increases in 1983, the nationwide average retail price of a pack of cigarettes increased by more than 28% to 93 cents. Additionally, the year-to-year unit sales comparison was distorted by competitive moves during 1982 that were related to the then pending excise tax increase. These actions resulted in heavy loading at the wholesale and retail levels during 1982's last quarter. Thus, some of the in-~ began in the Cabarrus County, North Carolina, plant, the world's newest and Over the fastten most technologically advanced cigarette rs Ph;,,P Morr,$ in ~s.AS °Parat'"g manufactu facilit r g y - revenues hava In Louisville, the first phase of the- increased at an t Phlltp Morrls U.S.A. OpAratlny R.vonuos 4500 average annua 214,000-square-foot primary tobacco pro- ~~~ ded rate 37~ cessing plant expansion was completed 3000 on schedule. This expansion is expected to be operational in early 1985. 2250 The supply of U.S. leaf tobacco-the ,5W . cornerstone of our quality products-was adversely affected by severe drought 750 during the tobacco-growing season. How- o ' - ever, Philip Morris was able to obta121: 74 75 7s 7778 79 80 818283 adequate amounts of quality U.S. leaf to- bacco from the 1983 crop and from farmer cooperatives" inventories of earlier crops. oPn"';, 0 To ensure tbe future availability of Pn,ip MorFis u.s.At r ~ ' operaGngincome Mdlionsof Dollars U.S.-gI'ow22 leaf tobacco-the'world s has nsen at an aver- , best--Phili p Morris U.S.A. continued last agean"ual°°`n- pounded rate of 1200 ear to €und educational and research- 'g-4°° far u,e'ast y . - tenyears; t~p i ral oll d`ext t fo g lt a gran r a r eges n en~ s. cu u c sion services in the tobacco-growing states._ dustry's sales apparently lost in 1983 irt. -= fact had been already recorded in 1982.- IVlarlboro, the largest-selling cigarette, in the United States, and the world, led the industry with 120 billion units in the United States, while increasing its market share to 20.1%a. Demand for full-flavor and low-tar brands has stabilized. Into this market Philip Morris U.S.A. introduced Players, elegantly packaged in black and gold, ` following up our successful launch in 1982 of Benson & Hedges 100's Deluxe= Ultra Lights. ~ Advertising for Merit, the leading free- standing low-tar brand, was repositioned to appeal more to smokers seeking rich flavor and low tar. Philip Morris U.S.A. continues to ex pand and improve its manufacturing ca- pacity. In January 1983, initial production 150 30 It I I -I a 111 =a a 74 75 7877 78 79 80 5182 ~_' - u. CTpa..tts Indusiry _ unlt SaNs - In 1983. totsi U.S - - clgaratia"rndustry Bi_l,'on UFtih3 . unitsatesd~lined = 4.5%.6ur market --~--_ : sharaincreased `~ `..=_to34.d°lain1983.._ 45Q.. ~ 1J.S: Cigarette~ Indushyunitsates-3~ a Philip Mords Share Q ' ofU.S.lnd"Ttrv(° ~ 270 lEJ 600 400 200 o_. 1111111 74753877787980-8T82E3 - PhtlipMcrrlsu.B.A. Cfparetb Unft 3ales TotaE unit sates of PhdfRMOrrisu.8.a . -61llionUdds- . grewmodestty in 5983_ 180 - _ 74 75-787?78798^~8182 Pa.. . . ,I 2

Inmilions Operating Revenues Operating Income 1983 $5,519.9 .$f,337.8 1982 $4,330.1 $1,101.6 1981 $3,781.8 $ 905.7 1980 $3,272.1 $ 786.1 1979 $2,767.0 $ 701.3 PLAYLRS ® © VIRGINIir$LIMS LOW TAR - FiLTER M Ee5~ Marlboro LIGHTS LOWEREOTARL1ICOTINE __ MERIT r-Ultra Lights--1 MENTHOL 100's ULTRA LOW TAR 'Pariiament LOW TAR LOW NICOTIYE LTER CIGARETTES 1IarlIioro MERIT Filter , ~i~. LOW TAR-ENR:CNED FLAVOR' _... - . . .i- " ~{

Facing difficult conditions in almost all of its markets, Philip Morris International succeeded in increasing total unit volume to 244.8 billion units. Excluding the United States, Philip Morris International has a 6.2% share of the world market. For the seventh consecutive year, Lights, increasing substantially. Our mar- ket share is now above 14%. Elsewhere in Europe, we increased our share of several markets, including Switzerland, Spain, the Benelux coun- tries, Finland, and Greece. In total, in Western Europe we are now Philip Morris was America's leading ciga- the largest cigarette manufacturer, and rette exporter. Although the volume of our newly expanded plants in Bergen op . export sales dipped in 1983, we main- tained our 58% share of this market. Although we showed market share gains in most of the world's largest mar- kets, Philip Morris International's re- ported operating revenues were up only 2.3% and operating income declined by 18.0%. This decline was basically due to intense pricee competition irr a number of markets, import restrictions, price con- trols combined with inflation-particularly in Latin America-andd the strength of the U.S. dollar. The continuing buoyancy of the dollar affects Philip Morris International in two ways. It reduces the dollar value of sales Zoom, the Netherlands, and West Berlin rank among the most efficient in the world. In the large Japanese market, we ex- panded sales of our Lark and Parliament brands, the two leaders in the import seg- ment. After inter_ government negotia- tions, the state monopoly expanded distribution of foreign products. Imports, however, stilt account for only 2% of this market. We continue active negotia:--s tions to eliminate the remaining tariff and non-tariff barriers that restrict penetra- , tion of the Japanese_ market. In both Singapore and Hong Kong, _ two important export markets, Marlboro reached aa market share at year-erid priced. in foreign currencies and makes in excess of 18%: This was despite atetn-- our dollar-priced exports less competi- porary disruption in Hong I£ong caused tive. Even so, Philip Morris increased by a large duty increase and competitive its share in several key export markets, price cutting. . ~,__a. ,_ . __,~ , notably in the Middle East, Africa, In Brazil, the largest market in Latin and Asia. America, we; gained market share, with In the important West German market, Galaxy, a low-tar, higher-priced brand, . a price war erupted following a sharp in- improving its position. This was agamst . crease in the government excise tax the dominant trend toward the lower which had reduced consumption in 1982. ' priced, Iower-margin brands which'all-a- ~ Philip Morris successfullyiaunched its manufacturers introdhced in response to - L&M brand as a high-quality international the sharp decline in consumer spend- brand to supplement. Marlboro, our major ing power. brand in the German market. By yeai- Philip Morris (rlustsalia`, Limited intro- end; Philip Morris had the best market- ducedits Ieading Peter Jaci~son brand place performance of the five major in a new 3Q s packmg with encouragr~tg- competitors with our share up by almost two points to an all-time high. However, _ the general reduction in margins pIus in- cremental marketing expenses sharply reduced our operating income. In Italy, with five of the country's seven leading brands, Philip Morris ac- counts for every fourth cigarette sold. Last year, our share of the foreign brand segment increased with Merit and Multi- filter 100's showing good growth. Pricing was also a problem in France where manufacturers' price increases, fixed by the government, have badly lagged inflation while, as in Italy, the ex- ' cise tax system creates a pricing dispar- ity between local and international products. Still, our French sales were: good with unit volume of our principal brands, Marlboro and Philip Morris Super Phltip Mort{s~ Int.m.Honai . Opertttng Ravenues Total operafing rev- enues (consolidated and unconsolidated) of Phdip Mortis- International have increased at an. . averageannua6 compounded rate of 23.00so over the pastten years. 6000 a Consolidated Phfl(p Mor# Inbmatlontt Op.raUny Incom. Philip Morris Inter- national'soperating , Millionsoi©olfars income:dedined ~ . . - - _. . . . . 18.0% in 1983. 390 : results. The affiliate's wine company, Lindeman (Holduigs) Limited, increased ,, volume in an environment marked by overcapacity an€3.price cutting. Our Atis- ' trahan affiliate announced a net profit growth af 43 3°l~'at the end of its June 30, ~,_ ,__ .~. WoddCtqarattstr.dastry 1983 fiscal year_ , ~_. _ unn~rs~ ,u.sa. Beiison& Hedges (Ganada) Inc. I ;;,9M;,,orkt,t„e increased, market share and improved ~~; ~~ ear~ unir profitability: ,sazs.o f~rte< . share of 6:256 3600 . Philip Morris Internatiorial's continuing ~~~ 3000 , ssz success is based upon i~nprovements, in market share, in;_tttis respect;I983 was ',o~dc 2o an outstanding year. We expect profitabil- tn~, ~u~ es (Exctuqina us.n.) 7 saa ity to improve as'the world's economies Phai Mo~~are recover and currencies stabilize.. ~d Market t%Y

WM. 1nG LTY /Y c L 1 MarkTe Peter 0 Bpl-w-derc) EXTRA DOUCE DAN II .. ® ® SUAVE Fortuna eHuUPm,owz,S ~ ~ ';JPERLY,'HM BARONET ' MERIT Ir Galaxg ® MURATTI AMBASSADOR ~ a~Y ,.T_ ~. .~. ® ~olUr~ Marlboro- cn ~ in n,pqrs Operating Operating Revenues Income 1983 $3,646.7 $366.0 1982 $3,563.7 $446.0 1981 $3,400.3 $396.6 19g0 $3,205.4 $318.0 1979 $2,581.3 $260.6

Mtller Brarring Company OpAnrting Inoams Miller's operating -~ - - - - income increased- MiGions of Dollars 43.145fn1983 - follo,vinga37.336 - . irraease the year . 180 .- - . before. - - Fc=t~ s_zcond ;ea~ ':n a rav, the ccr.nes~6rewing r~ rdvstrywasunabfe to shav artyeappre~ : - _ U1 cableganiR Q wlume 125 - ,~-- O Q ~ U.S Beer tncfi stry 100 Harre! SFipments `~' . Mfi'sr8.hafeaf 75 . ~ --- 24, 12 U.S Brerlndustry Barr.! Shipmsnts Ind4Wg lmccas MilCwn of Barrqs 1 25 74757677787980 818283 74 7576 77 78 79 E.~ 81 8283 747576 I I i i G i i 7 79 79 80 81 6c&3 For the second year in a row, the domes- tic brewing industry was unable to show any appreciable gain in volume. Although Miller Brewing's operating revenues were down. 0. 2%, our operating income rose substantially, up more than 43.1%. This gain reflected selling price increases, lower material costs, and improved operating efficiencies and cost controls. As a result, Miller was able to increase its marketing effort even as it improved profitability. Miller Brewing is the second-largest brewer in the United States with fine products in all market segments. Lite im- ' proved, Lowenbrau maintained its seg- ment share, Meister Srau is performing well, and Miller High Life declined. Miller's barrel shipments were down for much of the year. During the year, it was decided to delay the planned opening date of our,new brewery in ' Trenton, Ohio. Price-discounting in the brewing indus- - try try continues to be widespread, and ' competition is at its fiercest level since - Philip Morris first entered the brewing ` industry in 1969. With the popular-price category show- ing growth, Miller-introduced Meister_ Brau nationwide in October to capitalize on this opportunity. Sales of Lite beer from Miller continue to grow. Lite is by far the number one low-calorie beer. This category is one of the few within the total industry show- 4 ing continued growth. For the second con- secutive year, viewers voted Lite beer ; commercials the outstanding television campaign - Lowenbrau maintained market share in the super-premium segment, which declined overall, in an economic environ- ment that was not conducive to sales of higher-priced beers. Magnum Malt Liquor is being distrib- uted in a number of markets, while Miller's Special Reserve was reintroduced in test markets as a super premium. In 1983, Miller further expanded its product line by introducing into test mar- kets Calgary Beer from Canada: At the same time, Miller High Life is now being brewed and sold under license in Canada, where it has quickly gathered a 10% market share. Mlll.r Brewing Company Operating Revenues 1140 760 Mftl.r Bnnving Gampatry Barrst Sl~ipm.nts ~ -- -- -~ - - -- :_ Miiler'sdec~nein-- 6anet shipments in Mill`ions of Harrefs 1associated 983 wasprimanly wHh . . the_Milter Higti Life 3fi _

bLl/ENB1Z-AU IOILBL4IM~ m a Inmill'rors Operating Operating Revenues Income 1983 $2,922.1 $227.3 1982 - $2,928.7 $158.8 1981 $2,837.2 $115.6 1980 $2,542.3 $144.8 1979 $2,236.5 $181.0

The Seven-Up Company achieved an all- time record in revenues and unit volume sales in 1983. This was achieved in the face of strong product and pricing compe- tition within the industry. Qperating revenues were the strongest in its history; climbing 22.5% to $649.9 million, a compounded average annual in- crease of 18-.8% in the last five years. As we have stated previously, we are invest- ing in Seven-Up for future growth-a strategy similar to that employed in build-- ing our cigarette and beer brands on a world basis. In 1983, both 7UP and Diet 7UP con- tinued to increase volume. 7UP was the only regular major soft drink to increase its market share, while Diet 7UP was the only established diet soft drink brand to gain market share. LIKE Cola and Sugar Free'LIKE are now in distribution in approximately 50% ofthe~ United States. LIKE has'establisheda beachhead in the cola category despite the introduction of no-caffeine products by every other major competitor. We moved quickly to enhance the taste of our diet drinks by introducing NutraSweet into both Diet 7UP and Sugar Free LIKE after this new artificial sweetene.r. was approved for soft drinks by the Food and Drug Administration. In consumer taste tests, our new prod- ucts performed well. During the year, Seven-Up success- fully expanded its original no-caffeine ad- vertising by introducing the "Freedom of Choice" campaign. This campaign iux- formed consumers that 7CIPt unlike most other soft drinks, does not contain artifc- : cial flavors or artifcial colors: The company-owned bottling opera- ' tions completed plans for regional - operation. and successfully integrated acquisitions in Ottawa, Toronto, and Bos- ton. Unit volume of our company-owned plants grew faster than Seven-Up's aggregate volume growth rate. The Foods Group had a sizable in- crease in its operating revenues during- 1983. Oregon Freeze Dry Foods gained a substantial-new private-label order for' individually packaged diet entrees, while continuing to experiment with a wide variety of new products. In the citrus business, Ventura Coastal Corporation reported higher operating ' revenues, but an abundant lemon crop, the third in a row, and increased competi- tion from regional frozen juice packers The Seven•Up Corn- pany's operating revenues have grown at an aver- ageannuatcorn-pounded rate of S7.t% over the past ten years.. .. The Sav.n-Up CompanY Operating Fiwenu.s MAlions of doltars 540 reduced ar ins and ofits io;°~"`~ " ~ m g pr c ~ ° .nn. ~ ~w Seven-Up International, which.is under com,nued-neavy the direction of Philip Morris International, fn ~ MitionsoEDo ars showed some unit sales growth in 1983. ~~'a"ng'°~ for 3s ~-se~ uw~R~sas , ~ We are now selling in 85 countries around f the world and continue to- open new 2T markets. , a The expansions made in recent years , by Seven-Up in countries such as Italy and the United Kingdom-indicate a strong ° potential for our beverages outside the United States. Seven-Up is an interna- tional franchisewith an_-internationally - , recognized brand narne, 74757677787980 &18283- .

® _ a I~r ~.._.~ ~ _. _. - - - _ - - =- r.~ar~a;~+-,,s , N cn O a 0 ~ 0 f . Seven ll/i 1 Cola ~ ~ z Operating Operating Revenues 9ncome 5649.9 $(10.8) $530.6 $ (1.2) $432.1 $ (1.7) $353.2 S (7.1) $299.5 $ 7.0

Philip Morris Industrial had operating revenues of $237.3 million and operating income of $13.6 million. Our income grew 79.0% over that of 1982, which had been adversely affected by start-up costs of a new tissue machine at Wisconsin Tissue Mills, the completion of a paper machine rebuild at Plainwell Paper Company, and the impact of the recession, particularly on our paper business. Wisconsin Tissue Mills Incorporated dedicated its new Number Three ma- chine, which produces 6,000 feet of paper per minute, and automated warehouse in June. Moreover, we have added state- of-the-art converting machines and ware- housing and shipping facilities. These investments enabled Wisconsin Tissue Milfs to expand beyond its traditional high-.quality, specialty printed and non- printed napkirtlines and enter the tissue' and towel segments of the industry, mak- ing us a full-lineindustrial tissue supplier. The penetration of these segments proceeded according to our plans. In ad- dition, record levels were obtained in the sale of napkins to restaurants and fast food chains, and to other customers for our specialty printed and non-printed napkins. Nicolet Paper Company, which pro- - duces glassine, greaseproof, and release backing papers, achieved improved results through leadership in its market segments and by realizing more efficient production schedules. Plainwell Paper Company, producer of fine printing pa- pers, release backing papers, and techni- cal specialties, also reported improved results through product improvements and a broad product mix, as did Koch La- bel Company, a producer of quality labels and beverage carriers. Photo Captions: 1 Plainwell Paper Company's Kashmir printing paper is used in the Philip Morris and other annual reports. 2 Koch Label Company makes carriers for many different beers, including Meister Brau, Miller Brewing Company's newest brand. 3 Wisconsin Tissue Mills produces a fiill line of branded tissue, towels, and napkins. 4 NicoIet Paper Company uses the latest computerized process controls in operating its supercalender. Philip Morris Indus- trial's operating revenuesincraased 1.9% over 1982. Phlllp Morrls Indaatriat Opaating Rswnuos M0lions of Dolfars 240

For our real estate operations, 1983 was a year of recovery. Housing starts, sales, and profits were all up strongly. Operating revenues at $258.5 million and operating income at $40.5 million were the highest in the company's history. During the year, Philip Morris made a number of strategic changes in its real estate operations designed to expand prof- its in both the short and the long term by forming Mission Viejo Realty Group Inc. ("Realty Group"), a wholly-owned sub- sidiary of Philip Morris Incorporated. Realty Group will have its own subsidi- aries: Mission Viejo Company, which will continue to be responsible for devel- opment, residential construction, and- sales at Mission Viejo and Aliso Viejo in California, and Mission Viejo. and High- lands Ranch in Colorado; and Continental Equity Investments Inc., a new corpora= tion responsible for the development and operation of investment properties. When mortgage rates declined and buyers returned to the marketplace in 1983, the Realty Group had homes that `_; were ready to be occupied. Residentia2 -. closings were strong throughout the year. The Realty Group continues to meet community that will eventually supply some 30,000 housing units on 22,000 acres for the burgeoning Denver market. In Colorado, as in Southern California, we offer a total living environment where families can take-advantage of planned ' communities built around high-quality housing, schools, parks, recreational facilities, andcommercial and industrial parks.The Realty Group continues to be a leader in building-communities that are in balance with the environmental;, social, and economic needs of our society. Photo Captions:_ 1 Olympic Swim Team Coach, Mar'~i Schubert, prepares Mission Viejo swimmers for 1984. The U.S. National Swim Team will train at Mission Viejo, which will also be the site of the first Olympic event: Iong-distance cycling road races. 2 The new Stratton,Ridge homes in Highlands _ Ranch,-Cotorado; offer elegant, spacious living.. ' 3 Residents gather for the anaual HighIands Ranch Spring Roundup and barbecue. 4 Lake Mission Viejo, California. the changing needs of the housing market with a variety of new housing plans. In.-re- cent years, dramatic shifts have occurred in the housing market. As interestt rates climbed, demand shifted.from larger too smaller houses. The Realty Group re- sponded by offering new houses designed to appeal to first-time home buyers. For example, Mission Viejo, California, opened its Evergreen program, which featured moderately priced, single-family, detached homes-designed for young faini- lies. At nearby Aliso Viejo, there are now_ four lower-priced programs, while„_ t our Highlands Ranch just south of F3eFiver Colorado, we are offering competitively priced housing in. all of the major market segments. Highlands Ranch is a: planned 14 " . MVRG Opsratinq R.vsnuss 105 70 35 747578 7778 79 8E1-8182 S' MYRG O p. ratln¢ lncomt MVR(z7ecarded a._.. --. t00+%gair,in' 'Mr~ccso4Ddlars - operating income- 25 20 .,'6r,'s79eo3'9233

I,fr;uwS ®perat9ng Operating Revenues Income $258.5 $40.6 $i30:2, ~ 6.0

Corporate Management Succession In November, George Weissman, who will step aside on August 1, 1984, as Chair- man and Chief Executive Officer upon reaching age 65, announced that at that time the Board of Directors intends for tively and smoothly. Almost the entire senior management team has worked closely together for 20 years or more. Board of Directors At the annual meeting in 1983, Dr. Harold . him to be succeeded in. those positions by Brown, Visiting Professor at The Johns> Hamish Maxwell, age 57, formerly Presi- Hopkins University, was elected a mem- dent of Philip Morris International. ber of our Board of Directors. Dr. Brown As the first in several moves to imple- has ann outstanding background in busi- ment the plan of orderly succession, the ness, government, and education, includ- Board elected Mr. Maxwell President and ing service as Secretary of Defense and Chief Operating Officer of Philip: Morris President of the California Institute of ' Incorporated effective December 1, 1983. The Board also stated its intention to elect as of the August 1, 1984, date John ` Technology. H. Robert Marschalk, a director of Richardson-Vicks Inc., has retired after A. Murphy, age 54, President and Chief serving as a director for 17 years. We Operating Officer of the Corporation with deeply appreciate the value of his counsel all operating companies reporting to him. and guidance, and are pleased that he rphy will. continue ; continues as a Director Emeritus. Until August, Mr. Mu as Group Executive Vice President with __ the Miller Brewing Company, The Seven- The Public Interest Up Company, and the Mission Viejo As the leading I7:Sr exporterof tobacco Realty Group Inc. reporting to him. _ The Board also plans to elect Hugh Cullman; age 61, as a Vice Chairman effective August 1,1984. Mr. Culhnanis Group Executive Vice President and _ChairmanC and Chief Executive Offrcer of Philip Morris U.S.A. To facilitate the transition, the Board elected Clifford H. Goldsmith, President, since 1978, Vice Chairman and Chairman of the Corporate Products Committee. Ross R. Millhiser continues as Vice Chairman and Chairman of the Finance products, and with interests in the inter- national-beer and soft drink industries, Committee. Philip Morris supports policies designed to promote free`and-fair trade. In.1983; Phdip Niorris made a'net posi- tive contribution of $1 ljbillion to the U.S. balance of trade through. the export. af cigarettes; tobacco, beer, soft drink ex- tract, and other products: ,-- Our products are inanufactured and marketed abroaii bymore+than300 affili-~ ates, licensees, and franchised bottlers<- Phihp Morris cofttributes positively to the economies of the countries in which we The Offce.of the ChiefExecuti.ve now operate by purchasmg-materials and ser- consists of George Weissman, Chairman vices localIs- and by generating large tax of the Board and Chief Executive Offtcer; revenues, and by_ training thousands of Hamish Maxwell, President and Chief employees. Operating Officer; and John A. Murphy, Group Executive Vice President. - It was also announced that the.Board _-.. intends to elect Mr. Weissman, who has been Chairman and Chief Executive Offi- cer cer since 1978, Chairman of the Execu- tive Committee of the Boardon_Apri125, ' man 3rd, 1984, succeeding Joseph F. Cull who in turn will become Chairman Emeritus of the company. - Another major promotion was that of R. William Murray,, formerlyExecutive Vice President of Philip Morris Fnterna tional, to President and Chief Executive Officer, Philip Morris International; _s replacing Mr. Maxwell. . The new management team, which in- cludes other management promotions on both corporate staff and operating com- pany levels, is moving into place effec- 16 Together, Philip Morris and its affiliatess employ nearly 28,000 people abroad. Our involvement overseas significantly helps the I7 S. economy in addition to the local economies in which we operate. About 17% of all the jobs in our domestic ciga- rette operations are directly linked. to our~ foreign business. Moreover, our exports increase employment among our domes- tic suppliers. At Philip Morris, good corporate citi- zenship is not an afterthought but an active concern in everything we do. Our achievements grow out of a corporate philosophy that values quality people and quality products, individual excellence and achievement, efficient use of re- sources,, and a sense of social responsibil- ity. At all times, our business activities must make social sense, and our social' activities must make business sense. ~ek teie W maehisconunitmnt for-a -var of reasons: We want others to think welF

of us as a company and of all our employ.- ees. We believe a company should return somethmg to the society which gives it so much. Uitimately, we beIieve any corporanon-to survive-must interact in a 1esponsible manner with the society from which it draws its charter and strengths. The primary focus of our philanthropic giving historically has been in the area of education, which in 1983 accounted for over a third of our overall contributions budget. We donate money to various indepen- dent coltege funds and make direct-grants to educational institutions located in those communities in which we maintain major operations. In addition, we have an active and extensive program of matching emplopee gifts to institutions through- out the country. In other words, our em- ployees helped shape our overall contriba- _- . _ tions policy.. We-also establish and fund innovative programs that address the specialized needs of both the traditional and non- traditional student. Children of our em- ployees benefit both from our College Scholarship Program and our ten-year-old Vocational/TechnicaI Scholarship Award Program which provides scholarship grants to post-secondary students. In major plant communities, our Career Scholarship Program for men and women returning to: college and our -Vocational/Technical Career Scholarship Program for adults completing high school or vocational training have been successful. ' In April, `Agriculture in the Twenty-First Century," the third symposium inaseries funded by Philip Morris, was held at the Manufacturing Center in Richmond, Vir- ginia. ginia. Arturo R. Tanco, Jr., Minister of --- Agriculture for the Republic of the PhiIip- pines, was the keynote speaker at the two-day event. The national tour of "The Vatican Collec- -tions: The Papacy and'Art;" sponsored by Phdip Morris, was a major event as it moved from New York to Chicago and San- Fi'ancisco. By the end of the tour in Feb- ruary 1984; more than 2 million• people . had; seen.the exhibition. - Our involvement with the arts cort- tinues to be eclectic, ranging from "The Precious Legacy: Judaic Treasures From e Czechoslovak State Collections." to "Painting in the South," a comprehensive study of Southern painting, to "Dimen- sion IV," a competition for young West German artists, to an exhibition of Guate- malan Indian textiles. We renewed a five-year grant to sup- port innovative Australian artists, and helped fund the Alvin Ailey 25th Anniver- sary National Tour, the Joffrey Ballet National Tour, and a 28-city tour for chamber music groups from the Marlboro School of Music in Vermont. In April, we opened the Whitney Museum of American Art at Philip Morris in our New York World Headquarters. Philip Morris received The Architectural League's award for our 25-year support of the arts and architecture. Too date, in ex- cess of 300,000 people have visited the" Museum. Our social commitment is equally broad. As leadd company for the New York City Partnership's Summer Jobs '83 Program, we helped find work in the private sector for 19,798 disadvantaged youngsters. - Alongside these activities, Philip_; Morris continued to deposit funds in ' minority-owned banks, award numerous : contracts to minority-owned businesses, and underwrite and publish directories and. other aids for black, Hispanic, and women's organizations. Psrenntal~ Problems _ Government taxation and restrictions designed to limit consumer usage of our _ main products continue to increase. In 1983, consumers in our most-impor- tant cigarette marke.t;=the United States, faced the largest federal cigarette tax in- crease in the history of the country. In addition, some 27 states, cities, and counties also increased their cigarette taxes. Taxes have also increased in many of our major international-markets. Since 1979, taxes imposed by alI levels - of government have risen over 50%. To- day, nearly half of the price of a pack of cigarettes in major localities such as New York and Chicago is attributable to taxa- tion. These are regressive taxes which unfairly penalize consumers with lower in- comes. All told, federal, state, and Iocal, governments in the United States collect about $10 billion annually from smokers. The 1983 federal excise tax increase is due to be rescinded in October1985 under a sunset provision enacted by : Congress. In the past, governments facing un- funded budgets have imposed taxes with relative ease on the products we produce. Today, however, governments that heavily

tax cigarettes and beer are finding that extra taxes do not yield as much revenue as anticipated. Governments abroad, too, are begin- ning to reconsider the efficacy of sky-high taxation. In Uruguay, the fiscal authorities re- duced the excise tax on a trial basis in an effort both to stimulatee sales and. increase government revenues. Similarly in Argen- tina, the government agreed to eliminate a 5% cigarette excise tax surcharge. In two of Canada's provinces, Ontario and New Brunswick, taxes have been reduced. homes, businesses, and throughout our communities about drinking. entific studies; Philip Morris, working directly and There through its trade associations, will con- tinue to urge governments, wherever we healthy non-smoker is harmed by his neighbor' do business, to lower the unfair and dis- s smoking; criminatory tax burden on our products, Only further research can provide valid and reduce unnecessary and restrictive answers about the effects of smoking. has contributed The tobacco industry legislation. The political action committee of the almost $111 million to fund independent research people of Philip Morris is PHIL-PAC. Our on smoking and health. We will to fund such research. continue nonpartisan, issue-oriented PAC con- tinues to play an important role in our Government issues also affect our bever- Voter Involvement Program and an impor- United States alone;, nearly 400 pieces of Seven-Up have encouraged recycling is no scientific proof that the At the same time, anti-smoking forces are age operations. There has been an in- tant role in our ongoing government rela- gaining in influence. Virtually everywhere crease at the state level in forced-deposit tions. PHIL-PAC's theme is "Democracy we do is not a spectator sport:' In 1983, more_ business, we are challenged by legislation, and the possibility exists of a than 2,000 employees and stockholders restrictive legislation. Last year in the federal forced-deposit law. Miller and agreed with that message and supported by anti-smoking legislation were proposed choice. Miller distributors operate alumi- corporate PHIL-PAC. A survey showed at the state and local levels, however, num reclamation centers, which last year _ that our contributors are better citizens- most were defeated when logic prevailed. paid the public more than $11.4 million for they register, they vote, and they give of More are ex 1384. 46 million pounds of aluminum cans. We their personal time to civic interests. ' ~' In stralia, legislation to an clga- also support "Keep America Beautiful:' a' rette advertising and sports promotion non-profit organization devoted to educat- ~ failed to pass in Western Australia follow- ing the public about fitter problems: f ing an intense media campaign publicizing The problems associated with alcohol -: the detriment re ere ssions the bill abuse at all ages are gaining national at= ( Id cause. The rights of smokers to tention. For many years, Miller has sup- smoke ' vernment offices in Canada ported a number of alcohol education were defended by;the industry through programs and works closely with. research which illustrated the unfeasibil- BACCHUS (Boost Alcohol Consciousness ity and costliness of such restrictions. Concerning the Health of University Stu- Smoking aboard aircraft is yet another dents). AIM (Alcohol Information from area subject to government intrusion,. Miller) is the latest extension of the The Civil Aeronautics Board is currently Miller Brewing Company's commitment seeking a complete ban on smoking, on to alcohol education and to the promotion flights lasting two hours or less. Nearly of responsible use of its products. We can one-third of all U.S. airline passengers help solve the problems of alcohol abuse' _ will be affected. Yet an independent study by fostering; responsible attitudes in-our shows that 83%a of surveyed airhne pas- sengers are satisfied with_the present smoking regulations. The Scandinavian Airlines System abandoned its trial non-smoking flights between Oslo and Stockholm after a pas- senger survey showed that smoking on aircraft was not a serious- enough matter of public concern to warrant such a ban. Philip Morris continues to challenge the assertion that there is conclusive proof of a cause-and-effect relationship between cigarette smoking and chronic diseases We remind ouratockholders that: No one knoars what causes cancer or other chronic diseases_ claimed to be ~ related to smoking; ; '' Numerous factors, including,occupa- ional environments,-industrial pollution,- toxic waste, heredity, and stress, seem to affect the frequency of occurrence of these complex diseases, according to sci-

George Weissman, chairman of the board and chief executive officer (front), meets with other members of the Office of the Chairman Qeft to right): John A. Murphy, group executive vice president; Hugh Cullman, group executive vice president; Hamish Maxwell, president and chief operating officer; Ross R. Millhiser, vice chairman of the board; Clifford H. Goldsmith, vice chairman of the board. ~. The OutEook But our greatest resource is our peo-- ~_ We operate in highly competitive indus- ple. Thanks to the skill, productivity, ~ tries-as we have historically-at a time dedication, and continued loyalty of our :_ when_manyof the world's economies are 68,000 employees around the world, we: . G.^. . . . . .. . °= still struggling out of recession. We make have produced an unbroken record of 30. , years of growth and can face the future products whose use gives pleasure to 90 ~ million people every day. with optimism. ~' It is evident that our cigarettes and; y= beverages serve_ a basic need acknowl- edged ' r edged bymankind for thousands of years: The record is clear. The people who enjoysmoking-and drinking have prevailed George Weissman over those who oppose these customs. Chairman of the Board and The industries whichh serve them have_._ Chief-EXecutive Officer grown and prospered. ' _ We are realistic about the problems our industries face;, but we look forward to - !_ the continued growth of our companies x~ ~ ~; within those industries. The challenges F are° opportunities: ~= From a strong domestic market where Ross R.;Millhiser we face little foreign competition, we . Vice Chairman of the Board ~ reach out into I70 countries and territo- _ ries. Outside the United States, our` `share of the world's cigarette market is stil only 6.2°Id; and we are only just start- ing to tap many of the major foreign mar- bets for our beverages. Clifford-_IH. Goldsm.ii h. Rinanciallp and physically, Philip Vice Chairman of the Board - Morris has never been in better shape. -4ur current and projected cash flow; is `nfficient to meet our needs and to main- nurr plants as the most efficient the world.

Financiai Review 1983 _~M Nineteen eighty-three marked the 30th consecutive year of growth for Philip Morris. Operating revenues were $13.0 billion, an increase of 12.0% from 1982. Net earnings rose 15.6% to $903.5 million. Earnings per share reached $7.17, a gain of 15.1% (Chart 1). During 1983, the company's real estate operations were reorganized under Mission Viejo Realty Group Inc., and are accounted for on the equity method. Real estate operations were previously consolidated. Prior-year amounts have been restated, where applicable. In February, 1983, the Board of Directors declared a 20.8% increase in the common stock dividend to an annual rate of $2.90 per share. This represented the 16th consecutive year of increase and our 56th consecutive year of dividend payments. Over the last decade, dividends per share increased 24.0% annually, while net earnings per share increased 18.2% (Chart 2). In 1983, capital expenditures totaled $566 million. Over the past five years, we have spent nearly $3.9 billion on additions to our fixed assets compared to $1.5 billion spent during the previous five years. A third of the amount spent over the past five years was for Miller Brewing and most of the remainder for our domestic and international tobacco operations. At year-end 1983, approxi- mately 90% of our fixed assets were less than ten years old. We estimate capital expenditures of $500 million in 1984 and approximately $2.1 billion in the five-year period 1984 through 1988. Over 80% of these expenditures will be for forecasted capacity needs and productivity improvements. They will be con- tinually monitored to insure high returns and a close correlation with demand for our products. In 1983, our funds from operations increased 16.3% to $1.3 bil- lion (Chart 3). Over the last ten years, internal funds generation increased 22.4% annually. During the same period, net earnings advanced 19.807o annually (Chart 4). Approximately 35% of 1983 funds from operations are represented by depreciation and deferred income taxes which are primarily related to our fixed- asset base. Total assets were $9.7 billion at year-end 1983. This was nearly five times greater than our asset base ten years earlier. Our net return on average total assets was 10.6%, which was the highest in the company's history (Chart 5). Stockholders' equity has increased nearly five times during the past decade, reaching $4.0 billion at the end of 1983. Our net return on average stockholders' equrty was 23.5% in 1983, up from 22.7% in 1982 and set a new high (Chart 6). Total debt at year-end 1983 was $3.1 billion, a $671 million decrease from a year earlier. Our debt-to-equity ratio improved to .76 to 1, compared with 1.02 to 1 in 1982 and an average 1.05 to 1 over the last ten years (Chart 7). During the year, we prepaid three Swiss franc loans amounting to $132 million, and repurchased $56 million of 14%, 141/s%, and .151/ao7o notes. We expect a further decline in our debt over the next five years. On December 9, 1983, Philip Morris began a 4,000,000 share common stock repurchase program. By year-end, approximately Chart 1 ! Operating Revenues Net Earnings Chart 2 s Primary Earnings Per Share Dividends Declared Per Share Operating Revenues Nat Earnings Billions of Dollars 12 Primary Earnings Per Share Dividends Declared Per Share Dollars Funds from Operations Capital Expenditures Millions of Dollars Chart 3 0 1200 Funds from p Operations 1000 7Capital Expenditures 800 600 400 74 75 76 77 78 79 80 81 82 83 Funds from Operations Not Earnings Millions of Dollars Chart 4 . 1200 Funds from Operations Net Earnings 1000 800 600 74 75 76 77 78 79 80 81 82 83 20

1.4 million shares were accumulated. The repurchase program was completed in February, 1984. The reacquired shares are to be used for the exercise of employee stock options and for other corporate purposes. At year-end 1983, fixed-rate obligations were approximately 87°Io of total debt compared with 68% in 1978. The fixed-interest portion of our debt, totaling $2.7 billion at year-end, carries an average annual interest rate of approximately 9.5%. Currently, Philip Morris has short-term credit facilities with a number of financial institutions totaling approximately $1.4 billion. Of this amount, approximately $350 million is in revolving credit agreements and other arrangements with both U.S. and Euro- pean banks. These facilities, which comfortably exceed our expected needs in 1984, provide support for our commercial paper borrowings and other credit activities. Philip Morris con- tinues to maintain the highest ratings in the commercial paper market and a solid `tY' credit rating for longer-term obligations. Interest expense in 1983 totaled $233.9 million, compared with $267.2 million in 1982 (Chart 8). The decrease was due prin- cipally to lower outstanding debt. Interest capitalized in 1983 was $128.8 million compared with $162.6 million in 1982. The reduc-. tion of interest capitalized in 1983 was attributable to lower inter- est rates and reduced plant construction. Earnings coverage of interest expense continued to improve during the past year reaching 7.78 times interest expense for 1983 compared with 5.87 for 1982. Our effective income tax rate was 43.0% in 1983 and 39.9% in 1982. Lower investment tax credits during 1983 were the primary reason for the higher effective tax rate. In summary, 1983 was a good year for Philip Morris. Strong earnings gains and cash flow momentum provide a solid basis for continued growth. We believe this growth can be accommodated through internal cash generation and prudent use of credit facili- ties. Our financial condition is stronger than ever and is expected to remain strong in 1984 and beyond. Total Assets (Year-End) Net Return on Average Total Assets _ _____Billions of Dollars __ ~ Chart 5  9.0 Total Assets (Year-End) 7 5 Net Return 2% (Before Net Interest) 6.0 _ 8 on Average Total Assets (%) 6 0 4 s ?0 :iitiii 74 75 76 77 78 79 80 81 82 83 Stockholders' Equity (Year-End) Net Return on Average Stockholders' Equity Billions of Dollars Chart 6 . Stockholders' Equity (Year°End) Net Return on Average Stockholders' Equity (%) Chart 7 f Total Debt (Year-End) Ratio of Total Debt to Stockholders' Equity (YearEnd) Chart 8 i Interest Expense Interest Coverage (Earnings Before Interest and Taxes Divided by Interest) s./b N~ 20 3.00 - 16 ------ 2.25 12 1.50 8 OS LJl ~_ 0 Total Debt(Year-End) Ratio of Total Debt to Stockholders' Equity Billions of Dollars Ratio 74 75 76 77 78 79 80 81 82 83 Interest Expense Interest Coverage 74 75 76 77 78 79 80 81 82 83 .

Seiected Financial Data (in millions of dollars, except per share data) for years ended December 31 1983 1982 1981 1980 19791 4. Operating Revenues $12,975.9 $11,586.0 $10,722.3 $9,649.5 $8,149.1 J -------------- United States Export Sales 969.5 978.0 833.5 702.4 521.2 ' Interest Expense 233.9 267.2 258.5 215.0 205.5 Depreciation Expense 293.8 249.9 210.5 178.0 132.6 Net Earnings 903.5 781.8 659.7 549.1 507.9 Earnings Per Common Share 7.17 6.23 5.28 4.41 4.08 Total Assets 9,667.0 9,622.1 9,115.1 7,301.7 6,322.1 Long-Term Debt 2,514.7 3,745.8 3,498.2 2,597.2 2,446.7 Total Debt 3,074.9 3,745.8 3,804.2 2,800.1 2,507.1 Deferred Income Taxes .6 737.3 564.5 411.3 302.9 219.6 Equity 4,033.7 3,662.9 3,233.7 2,837.0 2,471.0 Dividends Declared Per Common Share 2.90 2.40 2.00 1.60 1.25 Funds From Operations 1,348.4 1,159.8 976.3 784.2 702.9 Capital Expenditures 566.2 918.2 1,018.5 750.8 629.4 The above selected financial data of the company and consolidated subsidiaries tobacco-related products, soft drink ingredients and beer, and subsidiaries and for the five years ended December 31, 1983, should be read in conjunction with affiliates purchase tobacco grown in the United States. In 1983, the value of the consolidated financial statements and notes thereto included in this report. by Philip Morris International amounted to all exports from the United States During 1983 the company's real estate operations were reorganized under $1.084 billion. Mission Viejo Realty Group Inc., and are accounted for on the equity method. Effective in 1980, the company adopted the last-in, first-out (LIFO) method of Real estate operations were previously consolidated. Prior-year amounts have costing the leaf tobacco components of inventories used in its U.S. and U.S. been restated, where applicable. The company believes the equity method of operations. Effective in 1981, use of the LIFO method was extended to export accounting for the reorganized real estate operations provides a more meaning- additional inventories. The 1980 change to LIFO decreased 1980 net earn- cover ful presentation of financial results. ings and earnings per share by $61.8 million and $.49 per share, respectively, In addition to cigarettes, Philip Morris International exports tobacco and nd in 1981 by $14.4 million and $.12 per share, respectively. t 1 ~ 22

`aW-. 14anagernent Discussion and Analysis of Fenancial Condition and Results of Operations General i_ In 1983, funds from operations of $1.3 billion exceeded total funds used by $179.5 million. This compares with a funds requirement after funds from operations of $156.3 million and $1.3 billion for 1982 and 1981, respectively. The increase in funds from opera- tions of $188.6 million (16.3%) in 1983 over 1982 was due to higher earnings coupled with increases in depreciation and deferred taxes. Of the total funds used, capital expenditures accounted for approximately 48% in 1983, compared with 70% in 1982 and 44% in 1981. Capital expenditures of $566 million for 1983 were below the previous two years and are estimated at $500 million in 1984 and $2.1 billion for the years 1984 through 1988. Total debt at December 31, 1983, was $3.1 billion, a $671 mil- lion decrease from a year earlier. At year-end 1983, the com- pany's debt-to-equity ratio was .76 to 1, compared with 1.02 to 1 at December 31, 1982. The decrease was mainly attributable to increased earnings for 1983 coupled with a reduction in capital expenditures and working capital. The company anticipates that funds from operations will exceed the needs of the business in 1984. However, credit facili- ties maintained through revolving credit agreements and bank lines of credit will provide extensive credit should the need arise. Longer-term financing needs are expected to be met through long-term debt and other financing as required. During 1983, the company prepaid three Swiss franc loans aggregating $132 million and repurchased $56 million of bank term notes bearing interest at 14% to 151/4%. After these and other transactions, fixed-interest debt at December 31, 1983, was 87% of total debt compared with 78% and 71% at December 31, 1982 and 1981, respectively. This debt had an average interest rate of approximately 9.5% at December 31, 1983. In December, 1983, the company purchased 1.4 million shares of its common stock under an announced program to reacquire up to 4 million shares for treasury. The repurchase program was completed in February, 1984. The treasury shares are to be used for the exercise of employee stock options and other corporate purposes. In 1983, interest expense was $233.9 million, a decrease of $33.3 million (12.5%) over 1982 due principally to a decrease in average borrowings resulting from lower capital expenditures and an increase in internally generated funds. Interest capitalized in 1983 was $128.8 million, compared with $162.6 million and $110.0 million for 1982 and 1981, respectively. The reduction of interest capitalized in 1983 was attributable to lower interest excise taxes and selling prices reduced by $179 million due to cur- rency translation; cigarette unit volume of both Philip Morris U.S.A. and Philip Morris International was virtually unchanged from 1982. The decrease in beer revenues was attributable to a decrease in volume partially offset by price increases. As a result of lack of growth in the beer industry, Miller has delayed produc- tion at its Trenton, Ohio, brewery. In 1983, operating income of consolidated companies was $231 million (14.0%) higher than in 1982, due mainly to domestic tobacco products. Tobacco products operating income increased $171 million (11.6%) from 1982 due to price increases offset by currency translation of $59 million. Philip Morris U.S.A. operat- ing income was up $236 million (21.4%) while Philip Morris Inter- national was down $65 million (17.3%). Despite a reported 4.5% domestic cigarette industry decline, Philip Morris U.S.A. increased its unit volume marginally and its market share signifi- cantly. In addition to the adverse effect of currency translation, Philip Morris International operating income was affected by price competition in a number of markets and reduced exports due to a stronger U.S. dollar. Beer operating income increased $68 million (42.9%) over 1982 due to price increases and cost savings. Seven-Up's 1983 operating loss of $10.8 million was attributable to increased marketing expenditures. Tobacco prod- ucts contributed 88% and beer 12% of consolidated operating income for 1983. Equity in net earnings of unconsolidated subsidiaries and affili- ates in 1983 increased $11.4 million over 1982. The increase was attributable principally to increased earnings from real estate operations. In 1982, consolidated operating revenues were $864 million (8.1%) higher than in 1981, attributable principally to increased revenues of $740 million from tobacco, $91 million from beer, and $99 million from Seven-Up. The increase in tobacco revenues was attributable to increases in selling prices and cigarette unit vol- ume, reduced by $230 million attributable to currency translation. The increase in beer revenues was attributable to price increases, partially offset by a decrease in volume. In 1982, operating income of consolidated companies was $256 million (18.5%) higher than in 1981, due principally to tobacco products. Tobacco products operating income increased $221 rates and reduced plant construction. During 1983, the company's real estate operations were reorganized under Mission Viejo Realty Group Inc., and are accounted for on the equity method. Real estate operations were r 1 previously consolidated. Prior-year amounts have been restated, , ~ where applicable. 0 Operating revenues net earnings and earnings per share for 0 , 1983 increased 12.0%, 15.6%, and 15.1%, respectively, over 1982. O ~ In 1983, consolidated operating revenues of $13.0 billion were 10 $1.4 billion or 12.0% higher than in 1982 attributable principally ~ , 0 to increased revenues of $1.3 billion from tobacco, and $119 mil- lion from Seven-Up. Beer revenues decreased by $6 million. The increase in tobacco revenues was attributable to increases in

million (17.6%) from 1981 due to volume and price increases off- set by unfavorable currency translation of $60 million. Beer operating income increased $45 million (39.2%) over 1981 due to price increases and cost savings. Seven-Up's 1982 operating loss of $1.2 million was principally attributable to increased marketing expenditures. Tobacco products contributed 90% and beer 10% Inflation•Adjusted Information The following current cost information is presented in accordance with the requirements of the Financial Accounting Standards 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 ex- pended to acquire them. These values do not consider technolog- ical improvements and efficiencies associated with the normal replacement of productive capacity. 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 production costs. The U.S. Consumer Price Index is used to measure the effects of general inflation for the Schedule I (in millions of dollars, except per share data) Operating revenues Deductions from operating revenues: Cost of sales, excluding depreciation expense Depreciation expense Other, net Earnings before income taxes Provision for income taxes«' - - Net earnings Earnings per common share Gain from decline in purchasing power of net amounts owed Inventories and property, plant, and equipment: Increase in specific prices (current cost)"' Increase in general price level of consolidated operating income for the year. Equity in net earnings of unconsolidated subsidiaries and affiliates in 1982 increased $13.1 million over 1981. The increase was attributable principally to increased earnings from the Rothmans investment offset by profit declines incurred by real estate operations. translated current cost information. The current cost method involves the use of assumptions, ap- proximations, and estimates and, therefore, the resulting mea- surements should be viewed in that context and not as precise indicators of the effects of inflation. The results do not necessar- ily 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 1983 as re- ported and as adjusted for current cost. Schedule II covers the five-year period to show the trends in key financial data restated in terms of average 1983 constant dollars measured by the U.S. Consumer Price Index. During 1983, the company's real estate operations were reorganized and are accounted for on the equity method. Real estate operations were previously consolida- ted. Prior-year amounts have been restated, where applicable. As Reported in the Primary Statements (Historical Cost) Adjusted for Changes ' in Specific Prices (Current Cost) $12,975.9 $12,975.9 : 8,599.3 8,633.3 : 293.8 392.3 ~ 2,498.0 2,498.0 ~.` 1,584.8 1,452.3 681.3 681.3 ~ e 771.0 $ 7.17 r1l) $ 6.12 t . ~ $ 173.9 a ~ ~ $ 430.4 a 356 3 ~ . $ 74 1 . ~ $ (69.4) $ 4,033.7 $ 5,826.4 Excess of increase in specific prices over increase in general price level Translation adjustment Stockholders' equity (A) In accordance with FASB requirements, inflation-adjusted amounts do not reflect any adjustments in the provision for income taxes. Consequently, effective tax rates are: As reported in the Primary Statements 43.0% Current Cost 46.9% (B) At December 31, 1983, the current cost of inventories was $3,460.6 million, and the current cost of property, plant, and equipment, net of accumulated depreciation, was $5,412.1 million.

Sche (in millions of dollars, except per share data) 1983 19821^' 19811"' 1980"' 19791"' pperating revenues $12,975.9 $11,958.7 $11,745.7 $11,667.0 $11,185.4 Current cost information: Earnings before income taxes $ 1,452.3 $ 1,219.6 $ 1,043.6 $ 1,036.2 $ 1,037.9 Net earnings 771.0 684.5 596.1 582.4 507.1 Earnings per common share 6.12 5.45 4.77 4.67 4.07 Gain from decline in purchasing power of net amounts owed 173.9 186.1 371.6 450.0 477.6 Excess of increase in specific prices over increase in general price level 74.1 50.8 (25.8) (38.1) (312.8) Translation adjustment (69.4) (75.6) (44.8) (75.3) Stockholders' equity at year-end 5,826.4 5,641.9 5,111.5 4,741.3 4,288.4 Cash dividends declared per common share $ 2.90 $ 2.477 $ 2.191 $ 1.935 $ 1.716 1Viarket price per common share at year-end $ 7011z(`) $ 611/4 $ 515/s $ 50 $ 463/a Average Consumer Price Index 298.4 289.1 272.4 246.8 217.4 (A) Restated in average 1983 constant dollars. In arriving at current cost net earnings for 1983, depreciation expense and the raw materials and supplies components of cost of sales are the only amounts reported in the primary statements that have been adjusted into average 1983 dollars. Revenues, labor, and other costs and expenses are considered to reflect average price levels for the year, and accordingly have not been adjusted. The cost of sales adjustment for 1983 decreased earnings before income taxes by $34.0 million, reflecting the fact that infla- tion has exceeded the overall rate of increase in the historical cost of the company's raw materials and supplies. The company uses the last-in, first-out (LIFO) method of costing inventories used in its U.S. and U.S. export tobacco operations, and beer operations. This reduces the disparity in reported earnings with inflation- adjusted information since a more effective matching of current costs with current revenues results. The depreciation adjustment decreased earnings before income taxes by $98.5 million. This adjustment reflects the increase in the valuation of the company's property, plant, and equipment measured under the current cost method over historical dollar cost amounts. The result of both inflation adjustments is a decrease in earnings before income taxes of 8.4%. The increase in stockholders' equity of $1.8 billion as com- pared with the amount reported in the primary statements is attributable mainly to the appreciation of inventories and prop- erty, plant, and equipment due to inflation. Additionally, stock- holders' equity is increased by gains resulting from the decline in the purchasing power of net amounts owed. rQ 0 a 0 ~ 0 `0 0 rIJ k

Fifteen-Year Financial Review , (in millions of dollars, except per share amounts) 1983 1982 1981 1980 1979 ~ Sumr~ary of operations: - • - - Operating revenues $12,975.9 11,586.0 10,722.3 - 9,649.5 8,149.1 Cost of sales: ~ Cost of products sold 5,342.8 5,315.4 5,024.2 4,446.7 3,655.5 Federal excise taxes 1,983.3 1,180.0 1,168.5 1,105 3 1,036.8 Foreign excise taxes 1,527.0 1,434.5 1,410.8 1,388.7 1,122.0 . Operating income - 1,958.0 1,715.7 1,446.2, 1,273.4 1,179.4 Interest expense 233.9 267.2 258.5 215.0 205.5 Earnings before income taxes 1,584.8 1,300.2 1,068.1 924.4 894.5 Pre-tax profit margins 12.2% 11.2% 10.0% 9.6% 11.0%o- Provision for income taxes $ 681.3 518.4 408.4 375.3 386.6 Net earnings - 903.5 781.8 659.7 549.1 507.9 Primary earnings per common share 7.17 = 6.23 5.28 4.41 4.08 Fully diluted earnings per common share 7.17 6.23 5.28 4.41 4.08 Dividends declared per common share 2.90 T 2.40 2.00 1.60 1.25 Weighted average shares-primary 126.0 125.6 124.9 124.6 124.5 Weighted average shares-fully diluted 126.0 125.6 124.9 124.6 124.5 Capital expenditures $ 566.2 918.2 1,018.5 750.8 629.4 Annual depreciation 293.8 249.9 210.5 178.0 132.6 Property, plant, and equipment (gross) 5,698.7 5,284.2 4,513.6 3,573.8 2,803.9 Property, plant, and equipment (net) 4,381.2 4,178.1 3,583.2 2,806.4 2,214.0 ~ Inventories 2,599.2 2,833.8 2,921.8 2,499.2 2,234.8 1 Current assets 452.8 3 3 598.8 733.1 3 189.3 3 2 881.3 1 Working capital 1,116.5 1,989.2 1,797.5 1,662.0 1,727.7 Total assets 9,667.0 9,622.1 9,115.1 7,301.7 6,322.1 Total debt 3,074.9 3,745.8 3,804.2 2,800.1 2,507.1 . Stockholders' equity 4,033.7 3,662.9 3,233.7 2,837.0 2,471.0 Net earnings reinvested 538.1 480.3 407.8 350.3 352.3 Common dividends declared as % of net earnings 40.5% 38.6% 37.9% 36.3% 30.6% Book value per common share $ 32.27 29.10 25.79 22.74 19.84 Market price of common share high-low 723/a-54 673/a-441/s 551/s-42 481/a-291/s 385/s-311/s Closing price year-end 71314 60 483/a 431/4 36 Price/earnings ratio year-end 10 9 9 9 8 Number of common shares-actual year-end 126.4 125.9 125.4 124.8. 124.5 During 1983, the company's real estate operations were reorganized under Operating companies' income is income before corporate expense, interest, Mission Viejo Realty Group Inc., and are accounted for on the equity method. and other non-operating income and deductions. The amortization of previously Real estate operations were previously consolidated. Prior-year amounts capitalized interest is included in operating companies' income. have been restated, where applicable. The company believes the equity method of accounting for the reorganized real estate operations provides a more meaningful presentation of financial results. 2.50001 0g d3 26

Philip Morris Incorporated and Consolidated Subsidiaries 1978 1977 1976 1975 1974 1973 1972 1971 1970 1969 632.5 6 5,202.0 4,293.8 3,642.4 3,011.0 2,602.5 2,131.2 1,852.5 1,509.5 1,142.4 , 2,401.7 1,966.9 1,656.8 1 290.3 1 060.8 832 9 700 0 577 1 454 7 3 , , . . . . 960.8 862.1 778.2 686.3 619.5 558.9 494.8 441.1 372.1 319.1 7E 8 490.4 381.1 392.1 349.4 334.5 228.2 201.4 147.1 54.2 - g816 782.7 634.5 492.8 403.6 329.5 287.5 241.1 203.2 153.2 41 98 101.6 102.8 99.0 82.7 51.0 37.9 35.5 35.4 28.6 5 625.5 471.9 360.8 297.5 255.6 229.6 189.8 150.0 115.6 ~ - ,207, 12.0% 11.0% 9.9% 9.9% 9.8% 10.8% 10.2% 9.9% 10.1% 336.9 290.6 206.2 149.2 122.0 107.0 105.1 88.3 72.5 57.3 408.6 334.9 265.7 211.6 175.5 148.6 124.5 101.5 77.5 58.3 3.38 2.80 2.24 1.81 1.58 1.35 1.17 1.00 .84 .64 3.38 2.80 2.24 1.81 1.53 1.30 1.09 .91 .71 .60 1.025 .781 .575 .463 .388 .337 ` .316 .303 .263 .244 120.7 119.6 118.8 116.9 111.3 109.6 106.0 100.3 91.2 89.1 120.7 119.6 118.8 116.9 114.7 114.6 114.5 113.1 113.2 99.1 566.2 279.8 220.2 244.5 215.8 174.7 120.0 68.0 39.6 23.6 105.5 78.5 64.9 49.9 38.0 30.2 26.6 21.5 17.7 13.5 2,217.3 1,594.9 1,323.9 1,129.8 899.8 728.7 571.1 447.1 394.1 237.0 1,737.6 1,202.4 993.9 851.1 659.5 510.3 373.4 274.1 236.7 147.4 2,188.6 1,817.6 1,657.5 1,448.4 1,269.2 1,009.4 801.1 670.2 568.4 447.3 2,756.8 2,221.0 2,005.7 1,788.1 1,557.9 1,245.9 989.7 826.5 728.8 575.0 1,585.1 1,415.9 1,202.2 890.8 725.0 515.3 524.8 417.6 347.7 315.9 5,608.2 4,048.0 3,582.2 3,134.3 2,653.3 2,108.4 1,701.5 1,392.0 1,239.4 976.5 2,372.2 1,563.5 1,525.6 1,443.3 1,239.3 947.4 681.0 553.9 557.7 490.4 2,114.7 1,690.1 1,430.0 1,227.8 974.7 815.0 695.5 579.1 452.8 355.8 283.8 253.7 197.2-- 157.1 131.9 111.4 89.9 69.7 52.2 35.7 30.6% 27.9% 25.7% 25.7% 24.8% 25.0% _ 27. 2% 30.6% 31.6% 37.4% 17.00 14.08 12.00 10.32 8.48 7.33 6.28 5.36 4.47 3.70 383/8-28 321/2-253/4 315/8-247/8 295/8-201/2 303/4-171/s 341/4-243/8 295/s-17 173/4-113/4 125/8-7 91 /s-61/4 351/4 31 307/s 261/2 24 283/4 295/s 175/s 123/s 9 10 11 13 14 15 21 25 17 14 13 124.3 119.8 119.0 118.7 114.5 110.8 108.9 104.7 96.6 90.3 cn ~ 0 0 O G

Consolidated Balance Sheets (in millions of dollars) December 31, 1983 and 1982 1983 Assets Cash and cash equivalents $ 29.8 Receivables, net 781.8 Inventories: Leaf tobacco 1,775.0 Other raw materials 331.2 Finished goods and work in process 493.0 2,599.2 Prepaid expenses 42.0 Total current assets 3,452.8 Property, plant, and equipment, at cost: Land and land improvements 250.1 Buildings and building equipment 1,590.3 Machinery and equipment 3,036.1 Construction in progress 822.2 5,698.7 Less, accumulated depreciation 1,317.5 Investments in unconsolidated subsidiaries and affiliates Brands, trademarks, patents, and goodwill, at cost, net Other assets See notes to consolidated fmancial-statements. 559.9 89.0 $9,667.0 1982 i (Restate ~$ 2,052 p: ~ 313.8 468,0 ~ 2,833.8ti 34,8 j 3,598.8 -- ~ 214.8 ~ 1,276.6 2,612.5 1,180.3 -_~ 5,284.2 1,106.1 28

Philip Morris Incorporated and Consolidated Subsidiaries 1983 1982 _ _ (Restated) _ Liabilities Notes payable $ 293.9 $ - Current portion of long-term debt 266.3 Accounts payable 437.3 416.4 Accrued liabilities: Taxes, except income taxes 368.8 300.2 Employees' retirement and profit-sharing plans 130.7 120.5 Other 430.7 387.7 Income taxes payable 317.0 309.3 Dividends payable 91.6 75.5 Total current liabilities 2,336.3 1,609.6 Long-term debt 2,514.7 3,745.8 Deferred income taxes - 737.3 564.5 Other liabilities 45.0 39.3 Totalliabilities .5,633.3 5,959.2 Stockholders' Equity Common stock, par value $1 per share ----- 126.4 125.9 Additional paid-in capital 446.0 435.9 Earnings reinvested in the business 3,737.8 3,199.7 Currency translation adjustments (176.7) (98.6) 4,133.5 3,662.9 Less, cost of treasury stock 99.8 - Total stockholders' equity 4,033.7 3,662.9 $9,667.0 $9,622.1 k

Consolidated Statements of Earnings (in millions of dollars, except per share data) for the years ended December 31 1983 1982 (Restated) Operating revenues $12,975.9 $11,586.0 Cost of sales: Cost of products sold 5,342.8 5,315.4 Excise taxes on products sold 3,510.3 2,614.5 Gross profit - 4,122.8 3,656.1 Marketing, administration, and research costs 2,247.4 2,011.6 Operating income of consolidated companies 1,875.4 1,644.5 Equity in net earnings of unconsolidated subsidiaries and affiliates 82.6 71.2 Operating income of operating companies I 958.0 1,715.7 Corporate expense - 128.8 112.8 Interest expense 233.9 267.2 Other deductions, net 10.5 35.5 Earnings before income taxes 1,584.8 . 1,300.2 Provision for income taxes 681.3 518.4 Net earnings 903.5 $ 781.8 Earnings per common share 7.17 $ 6.23 See notes to consolidated financial statements. 1981 $ (Restated) j $10,722.3 ~ 5,024 2,579.3 F 3,118.8 f-. ~, 1,730.7 Y 1,388.1 258.5 16.1 1,068.1 408.4 $ 659.7 $ 5.28 30

Consolddated Statements of Stockholders' Equity (~ millions of dollars, except per share data) for the years ended December 31 -- - Common Stock Additional Paid-in Capital Earnings Reinvested in the Business Currency Translation Adjust- ments Cost of Treasury Stock Total Stock- holders' Equity Balance, January 1, 1981 $124.8 $389.0 $2,311.6 $ 11.6 $2,837.0 Net earnings 659.7 _ 659.7 Exercise of stock options and stock units 0.1 3.2 - 3.3 Issued.for acquisitions 0.2 5.9 (1.9) 4.2 Issued in exchange for debentures reacquired 0.3 17.6 17,9 Cash dividends declared on _ common stock, $2.00 per share - (250.0) (250.0) Currency translation adjustments _ (38.4) _ (38.4) Balance, December 31, 1981 125.4 415.7 2,719.4 (26.8) 3,233.7 Net earnings 781.8 - - 781.8 Exercise of stock options and stock units _ 0.2 4.0 $ 0.9 5.1 Issued in exchange for debentures reacquired 0.3 16.2 16.5 Adjustment of prior-year acquisition (0.9) (0.9) Cash dividends declared on common stock, $2.40 per share (301.5) (301.5) Currency translation adjustments (71.8) (71.8) Balance, December31, 1982 125.9 435.9 3,199.7 (98.6) - - 3,662.9 Net earnings - 903.5 903.5 Exercise of stock options and stock units 0.4 10.0 0.6 11.0 Issued for acquisition 0.1 0.1 0.4 0.6 Adjustment of prior-year acquisition (0.2) (0.2) Cash dividends declared on _ common stock, $2.90 per share (365.8) (365.8) Currency translation adjustments (78.1) (78.1) Common stock purchased (100.2) (100.2) Balance, December 31, 1983 $126.4 $446.0 $3 737.8 $(1 76.7 $(99.8) $4 ,033.7 ( ) Denotes deduction .---. ' See notes to consolidated financial statements. I

Consolidated Statements of Changes in Financial Position (in millions of dollars) for the years ended December 31 1983 1982 119811 (Restated) (Restated) Funds Provided By Operations: - Net earnings - Depreciation and amortization ----- 327.0 281.0 ~~.~ 237,3 Deferred income taxes 173.5 146.2 125,6' Equity in undistributed net earnings of unconsolidated subsidiaries and affiliates . (55.6) (49.2) (46,3)' Funds from operations 1,348.4 1,159.8 976,3 Increases (decreases) in accrued liabilities and other payables - 166.5 (20.0) 305.2~ Decreases (increases) in inventories 234.6 88.0 (422.6 Other, net _ 34.6 (26.2) (136.1). Total funds provided 1,784.1 1,201.6 722.8- Funds Used For - Increases (decreases) in: - Cash and receivables _ 81.4 (47.7) 109.1 Prepaid expenses 7.2 1.4 12.1 Rothmans investment - - 346.4 Capital expenditures 566.2 918.2 1,018.5 Dividends declared 365.8 301.5 250.0' Currency translation adjustments affecting working capital 48.1 48.8 1.3 Purchase of treasury stock 100.2 - Total funds usqd 1,168.9 1,222.2 1,737.4 Net funds provided (required) $ 615.2 $ (20.6) $(1,014.6 Financing Increases (decreases) in current notes payable $ 560.2 $ (306.0) $ 103.1 ~ Long-term debt issued 91.1 437.8 1,004.9 4, Long-term debt retired (1,277.5) (132.8) (114.6)~ Sale of shares 11.0 21.6 21.2 1 (Decreases) increases in funds fromfmancing $(615.2) $ 20.6 $ 1,014.6 (Decreases) Increases in Working Capital $ (872.7) $ 191.7 $ 135.5 Working Capital at Year-end $1,116.5 $1,989.2 $ 1,797.5 ( ) Denotes deduction See notes to consolidated financial statements. ~ a ro t 10 ( 32

Notes to Consolidated Fanaracial Statements gpmmary of Significant Accounting Policies: Consolidation: The consolidated financial statements include the accounts of the com- pany and all wholly-owned subsidiaries except for real estate operations which were deconsolidated during 1983 and a credit corporation formed in 1982. Investments in unconsolidated subsidiaries and affiliates, includ- ing the real estate operations and the credit corporation, are stated at cost adjusted for equity in undistributed net earnings since the dates of acquisition. Inventories: - Inventories are stated at the lower of cost or market. The company uses the last-in, first-out (LIFO) method to cost inventories used in its U.S. and U.S. export tobacco operations, and beer operations. The cost of in- ventories used in tobacco manufacturing outside the United States is de- termined by the average cost method and, in general, the cost of other inventories is determined by the first-in, first-out (FIFO) method. It is a generally recognized industry practice to classify the total amount of leaf tobacco inventory as a current asset although part of such inventory, be- cause of the duration of the aging process, ordinarily would not be uti- lized within one year. Change in Accounting Method: During 1983, the company's real estate operations were reorganized un- der Mission Viejo Realty Group Inc. and are accounted for on the equity method. Real estate operations were previously consolidated. Prior-year Income taxes Certain items of income and expense included in the financial state- ments, principally depreciation, are reported in different years in the tax returns in accordance with applicable income tax laws. The resulting dif- ference between the financial statement income tax provision and in- come taxes currently payable is reported in the financial statements as deferred income taxes. Investment tax credits are recognized currently as a reduction in the provision for income taxes. Provision is also made for federal income taxes on the portion of undistributed earnings of sub- sidiaries and affiliates expected to be remitted. Property, plant, and equipment: Maintenance and repairs are charged against income, and expenditures for renewals and improvements are capitalized. The capitalized cost of facilities includes interest and real estate taxes incurred during the con- struction period. Industrial development incentive grants are included in income as realized. Provision for depreciation of assets is recorded by a charge against income at rates considered adequate to amortize the cost of such assets over their useful lives computed on the straight-line method. amounts have been restated, where applicable. The company believes the equity method of accounting for the reorganized real estate opera- tions provides a more meaningful presentation of financial results. inventories: At December 31, 1983, the cost of approximately 72% of inventories was determined by the LIFO method compared with 71% at December 31, 1982. The stated LIFO value of inventory was $803 million and $680 million lower than the current cost of inventory at December 31, 1983 and 1982, respectively. 4

Notes continued Subsidiaries and Affiliates Located Outside the United States: Principal financial data of subsidiaries and affiliates located outside the United States are as follows: Consolidated (Wholly-Owned) Unconsolidated (Partially-Owned) Unconsolidated (Partially-Owned) Greater than 50% ownership 50% ownership or less (in millions) 1983 1982 1981 1983 1982 1981 1983 1982 1981 Assets $1,359.7 $1,472.0 $1,481.9 -current $291.7 $ 345.3 $ 414.9 $1,829.6 $1,953.2 $1,978.5 -noncurrent 234.5 214.6 203.2 961.3 842.8 881.6 Liabilities 721.8 868.3 811.7 -current 181.2 202.8 255.1 1,160.4 1,353.6 1,357.7 -noncurrent 21.6 10.7 33.7 922.9 784.3 878.3 Net assets 637.9 603.7 670.2 323.4 346.4 329.3 707.6 658.1 624.1 Company's equity 637.9 603.7 670.2 244.8 260.1 245.4 278.9 276.5 268.0 Operating revenues 2,703.3 2,600.3 2,576.9 869.8 1,105.6 1,492.3 6,144.6 5,963.3 2,553.3 Gross profit 123.7 136.5 175.8 1,198.9 1,093.3 462.5 Pre-tax earnings 37.8 57.2 49.2 196.1 206.6 99.5 Net earnings 30.1 63.9 84.0 19.9 38.2 36.8 136.4 126.8 64.7 Company's equity 30.1 63.9 84.0 18.1 27.9 22.6 40.3 40.4 24.4 At December 31, 1983, investments in unconsolidated subsidiaries and affiliates located outside the United States exceeded equity in net assets by approximately $153 million, of which $148 million is being amortized. Unconsolidated financial data include the accounts of Rothmans In- ternational plc (RI). In 1981, the company obtained an approximate 22% indirect equity interest in RI. Consolidated earnings reinvested in the business at December 31, 1983 include the company's equity of approximately $230 million in un- distributed earnings of unconsolidated subsidiaries and affiliates located outside the United States. Federal income tax has not been provided on approximately $905 million of accumulated earnings of subsidiaries and affiliates located out- side the United States, which is expected to be permanently invested abroad. Philip Morris Credit Corporation: Philip Morris Credit Corporation (PMCC), a wholly-owned unconsolida- ted subsidiary of the company, was incorporated in February 1982 primarily to provide financing for customers of the company and its operating companies. The company's investment in PMCC is accounted for by the equity method, 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" Kgreement between the company and PMCC, the company has agreed to retain ownership of 100% of the voting stock of PMCC 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 1983. Condensed financial statements of PMCC at December 31, 1983, in millions of dollars, follow: Financing revenues - = S 24.1 Assets Expenses 15.4 Receivables $223.1 Earnings before income taxes 8.7 Investments 48.4 Provision for income taxes - _ _ 4.2 Deferred charges and other assets 4.6 Net earnings $ 4.5 Total assets $276.1 Liabilities and stockholder's equity r\) Notes payable r-n $ 84.4 Deferred taxes and other accruals 17.4 G Long-term debt 54.1 Capital notes due parent 87.1 Stockholder's equity 33.1 Total liabilities and stockholder's equity $276.1 34

I Reai Estate Operations: ~-. lylission Vielo Realty Group Inc. ("MVRG"), a wholly-owned unconsoli- dated subsidiary of the company, was incorporated in 1983 when the company reorganized its real estate operations. MVRG comprises two subsidianes: Mission Viejo Company, engaged in community develop- ment, and the newly-formed Continental Equity Investments Inc., engaged in commercial and industrial development activities. The company's investment in MVRG is accounted for by the equity method, and at December 31, 1983, exceeded equity in net assets by approximately $44 million, of which $19 million is being amortized. MVRG's earnings are included in equity in net earnings of unconsolidated subsidiaries and affiliates in the consolidated statements of earnings. Condensed financial statements of MVRG at December 31, 1983, in millions of dollars, follow: operating revenues $258.5 Assets Costs and expenses 218.4 Real estate held for sale and investment $225.3 Earnings before income taxes 40.1 Land and offtract improvements 170.2 provision for_ income taxes 20.5 Other assets 55.0 Netearnings S 19.6 Total assets $450.5 Liabilities and stockholder's equity Payable to parent $121.7 Deferred income taxes 81.0 Other liabilities 25.3 Stockholder's equity 222.5 Total liabilities and stockholder's equity $450.5 Brands, Trademarks, Patents, and Goodwill: At December 31, 1983, this account included approximately $399 million which is being amortized on a straight-line basis, principally over 40 years. Cost in excess of net assets of companies acquired prior to November 1, 1970, is not being amortized because, in the opinion of Short Term Borrowing Arrangements: management, the related investments have not experienced any diminu- tion in value. Accumulated amortization was $68.3 million and $56.6 mil- lion at December 31, 1983 and 1982, respectively. At December 31, the company's short-term borrowings and related average interest rates consist of the following: I (in millions of dollars) Bank loans . Commercial paper obligations Amount reclassified to long-term debt The company has credit facilities with a number of lending institutions amounting to approximately $1.4 billion at December 31, 1983. Approxi- mately $1.2 billion of these facilities remained unused at December 31, 1983. These facilities are primarily maintained to support the company's commercial paper borrowings. The company maintains bank balances of approximately $60 million to support $300 million of the unused facilities and compensate the banks for ser.vices. Commitment fees, ranging from 1/4 to 3/a of 1 percent, are paid to the banks as compensation for $400 million of the unused facilities. 1983 1982 Amount Outstanding Average Interest Rate Amount Outstanding Average Interest Rate $199.7 8.9% $193.6 10.4% 160.1 _ 10.0% 596.8 9.3% (65.9) (790.4) $293.9 $ - The company's credit facilities include revolving credit agreements and other arrangements which mature after 12 months and enable the company to refinance short-term borrowings on a long-term basis. Accordingly, $65.9 million of short-term borrowings at December 31, 1983, and $850.2 million of short-term borrowings and current portio; of long-term debt at December 31, 1982, intended to be refinanced, have been reclassified to long-term debt. N Ln O 0 0 N 0 ~ N ti

Notes continued Long Term ®ebt: ^- - At December 31, the company's long-term borrowings, exclusive of amounts due within one year, consist of the following: (in millions) 1983 1982 Short-term debt, reclassified $ 65.9 $ 850.2 Notes: - 14%-151/a%, payable through 1991 319.5 400.0 9.55%, payable 1986 250.0 250.0 8.65%, payable 1984 - 200.0 81/a%-87/s%, payable through 1998 386.7 393.3 5.15%, payable through 1989 26.4 29.0 Bank term loan agreement: Interest at 81/2% unti11985 and at a fluctuating rate thereafter, payable 1985 to 1988 160.0 160.0 Debentures: Sinking fund, interest from 65/s% to 91/s%, payable through 2004 300.5 302.0 $250 million (original issue discount), interest at 6%, payable 2001 110.5 108.9 $200 million (original issue discount), interest at 6%, payable 1999 98.1 96.4 Other currencies: 700 million Swiss franc loans, interest from 51/4% to 63/4%, payable 1987 to 1994 318.2 475.6 430 million Deutsche mark loans, interest from 67/s% to 91/2%, payable 1984 to 1990 155.2 181.5 Purchase money obligations: Interest principally from 6% to 71/z%, payable through 2014 184.2 174.7 Other 139.5 124.2 $2,514.7 $3, 745.8 Original issue discounts relating to the $250 million 6% debentures and Aggregate maturities of long-term debt, excluding short-term debt $200 million 6% debentures are being amortized over the lives of the classified as long-term debt, in each of the following periods are: 1984, issues using the interest method, which results in effective interest $266.3 million; 1985, $238.5 million; 1986, $362.3 million; 1987, rates of 15.2% and 14.1%, respectively. $102.5 million; 1988, $199.6 million; 1989-1993, $836.7 million; and Total interest incurred on long-term debt, excluding interest on short- 1994-1998, $261.2 million. term debt classified as long-term debt, was $257 million, $263 million, and $210 million for the years 1983, 1982, and 1981, respectively. Restrictions: Certain agreements covering long-term debt contain restrictions with Other debt agreements specify minimum amounts of working capital respect to payment of cash dividends on common stock and purchase, and limit the amount of senior debt which may be issued. At December redemption or retirement of capital shares. At December 31, 1983, ap- 31, 1983, the company was in compliance with these agreements. proximately $2.7 billion of consolidated earnings reinvested in the business was free of such restrictions. Intereat: N) (in millions) Interest expensed Interest capitalized Interest incurred ~ 0 1983 1982 1981 0 p $233.9 $267.2 $258.5 N a 128.8 162.6 110.0 NO $362.7 $4 9~ $368 5 W . 36

apital5toc9c: Sh es of common stock authorized, issued and outstanding were: Authorized Issued Treasury Outstanding Balance,lanuary 1,1981 200,000,000 124,753,051 ^ 124,753,051 Exercise of stock options and stock units 118,517_ 118,517 Issued for acquisitions 190,466 190,466 issued in exchange for debentures reacquired 339,316 339,316 Balance, December 31, 1981 200,000,000 125,401,350 125,401,350 Adjustment of prior-year acquisition (16,401) (16,401) Exercise of stock options and stock units 148,348 16,401 164,749 issued in exchange for debentures reacquired 345,552 345,552 Balance, December 31, 1982 200,000,000 125,895,250 - 125,895,250 Adjustment of prior-year acquisition (4,340) (4,340) Exercise of stock options and stock units 423,786 11,890 435,676 Issued for acquisition 52,738 - 52,738 Purchased (1,396,600) (1,396,600) Balance, December 31, 1983 200,000,000 126,371,774 (1,389,050) 124,982,724 At December 31, 1983, 3,699,128 shares of common stock were re- served for stock options and stock units, and 10,000,000 shares of Serial Preferred Stock were authorized, none of which have been issued. Currency Translation Adjustments: Currency translation adjustments include translation losses as follows: ~ (in millions) 1983 1982 1981 ~ Translation adjustments $60.1 $46.6 $32.2 Related income taxes 18.0 25.2 6.2 Net change $78.1 $71.8 $38.4 ~7

Notes continued Stock Plans: Under stockholder-approved stock option and unit plans, 1,279,295 shares of common stock of the company remain available to be granted to employees. Under the option plans, common stock of the company has been made available for purchase, by employees at market prices on dates of grant. Under the unit plan, a holder may elect to purchase shares of common stock at market prices on dates of grant or to receive 1983: 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 50% of the units granted. At December 31, 1983, ~ - options and units for 1,882,911 shares were exercisable. Per Share Under Option, Per Share Exercised Price Range End of Year Price Range $30.03-$51.81 1,429,989 $30.03-$51.81 ~' $22.22-$51.44 989,844 $22.22-$58,Og ~ Units 324,801 Options 204,021 1982: Units 121,542 Options 51,450 1981: Units 33,808 Options 89,966 Earnings per Share: Earnings per common share are calculated on the weighted average number of shares of common stock outstanding for each year, which was Pre Tax Earnings and Provision for Income Taxes: (in millions) Pre-tax earnings: United States Outside United States Total Provision for income taxes: United States federal: Current Deferred State and local Total United States Outside United States: $30.03-$51.81 1,754,790 $30.03-$51,81 $22.22-$30.97 806,083 $22.22-$51.44 $30.03-$32.56 1,902,685 $30.03-$51.81 $25.25-$30.97 526,210 $22.22-$30.97 126,044,770, 125,565,555, and 124,924,608 for the years 1983, 1982, and 1981, respectively. Current 31.4 19.4 Deferred 2.7 23.0 Total outside United States 34.1 42.4 Total provision for income taxes $ 681.3 $ 518.4 38 1

Deferred tax expense is 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 differs from the U.S. federal statutory rate for the following reasons: 1983 1982 1981 (in millions of dollars) Amount %to Pre-tax Amount %to Pre-tax . Amount - %to Pre-tax Provision computed at U.S. federal statutory rate of reported pre-tax earnings $729.0 46.0% $598.1 46.0% $491.3 46.0% Increases (decreases) in the provision resulting from: __ Investmenttax credit (39.5) (2.5) (70.3) (5.4) (66.3) (6.2) Inclusion of equity in net earnings of unconsolidated subsidiaries and affiliates in pre-tax earnings (38.0) (2.4) (32.8) (2.5) (26.7) (2.5) Income taxed at other than U.S. federal statutory rate and not expected to be subject to U.S. tax in the foreseeable future 1.8 0.1 (12.0) (0.9) (22.0) (2.1) State and local income taxes, net of federal tax benefit 32.6 2.1 33.1 2.5 23.5 2.2 Other (4.6) (0.3) 2.3 0.2 8.6 0.8 Provision as reported $681.3 43.0% $518.4 39.9% $408.4 38.2% ~ ~ ~ ~ ~ 3

Notes continued ----- - _ Segment ReportLng: - Worldwide tobacco and domestic beer represent the primary segments of the company's operations. Other products include soft drinks and in- dustrial products. The company's operations outside the United States, which are predominantly in the tobacco business, are organized into geographical regions for management responsibility, with Europe being the most significant. Intersegment transactions are not reported sepa- rately since they are not material. Operating profit calculated for purposes of segment reporting is Data by Product Line for the years ended December 31 (in millions) Operating revenues: Tobacco Beer Other Operating profit: Tobacco Beer Other Reconciliation: Equity in net earnings of unconsolidated subsidiaries and-affiliates Amortization of goodwill and trademarks Operating income of operating companies Depreciation expense: Tobacco Beer Identifiable assets: Tobacco Beer Other Investments in unconsolidated subsidiaries and affiliates Corporate assets Tota1 assets -- Capital additions: Tobacco Beer operating income of operating companies less equity in net earnings of unconsolidated subsidiaries and affiliates and reduced by the amounts of amortization of goodwill and trademarks included in other deductions, net in the consolidated statements of earnings. Identifiable assets by segment are those assets that are used in the company's operations in each segment. Reportable segment data recon- ciled to the consolidated financial statements are presented below. 1983 1982 1981 $ 9,094.9 $ 7,821.8 $ 7,082.3 2,935.5 2,941.3 2,850.2 945.5 822.9 789.8 $12,975.9 $11,586.0 $10,722.3 $ 1,647.0 $ 1,475.7 $ 1,254.6 227.1 159.0 114.1 (10.9) (2.4) 7.2 1,863.2 1,632.3 1,375.9 82.6 71.2 58.1 12.2 12.2 12.2 $ 1,958.0 $ 1,715.7 $ 1,446.2 124.7 $ 97.7 $ 78.3 130.5 122.3 108.4 $ 5,114.3 $ 5,070.7 $ 4,781.1 2,138.9 2,113.7 2,022.1 1,007.3 979.4 958.1 8,260.5 8,163.8 7,761.3 1,184.1 1,197.1 1,138.8 222.4 261.2 215.0 ~ $ 9,667.0 $ 9,622.1 $ 9,115.1 ~ $ 319.9 $ 498.9 $ 556.6 174.6 286.3 304.7 U1 0 40

Data by Geographical Region for the years ended December 91 ~~ millions) 1983 1982 1981 Operating revenues: United States -Domestic ~-- -Export Europe - Other Operating profit: United States $ 9,303.1 969.5 2,170.7 $ 8,007.7 978.0 2,033.6 $ 7,311.9 833.5 2,056.4 532.6 $12,975.9 $ 1,804.2 566.7 $11 586.0 $ 1,513.4 520.5 $10,722.3 $ 1,241.9 Europe Other Reconciliation: Equity in net earnings of unconsolidated subsidiaries and affiliates Amortization of goodwill and trademarks Operating income of operating companies Identifiable assets: United States Europe Other Investments in unconsolidated subsidiaries and affiliates Corporate assets Total assets 67.3 125.0 137.9 (8.3) (6.1) (3.9) 1,863.2 1,632.3 1,375.9 82.6 71.2 58.1 12.2 12.2 12.2 $ 1,958.0 $ 1,715.7 $ 1,446.2 $ 6,928.5 $ 6,678.3 $ 6,311.4 1,162.1 1,304.2 1,271.5 169.9 181.3 178.4 8,260.5 8,163.8 7,761.3 1,184.1 1,197.1 1,138.8 222.4 261.2 215.0 $ 9,667.0 $ 9,622.1 $ 9,115.1 cn a a a ~ 0 ~0 ~ m

Notes continued Pension Pians: The company and certain of its subsidiaries have pension plans covering substantially all their employees, including certain employees in coun- tries outside the United States. Total pension expense for 1983, 1982, and 1981 was $94.0 million, $88.1 million, and $75.6 million, respec- tively, including amortization of prior service costs over periods of up - F' to 30 years. The company makes annual contributions to the plans equ~ ' to the amounts accrued for pension expense. The plans are generally ~ funded with independent trustees. A comparison of accumulated plan benefits with net assets for defined benefit plans follows: ~ (in millions) January 1, January 1, _ 1983 1982 Actuarial present value of accumulated plan benefits: Vested $388.9 $331.4 Nonvested 74.3 65.3 $463.2 Net assets available for benefits $614.8 The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was principally 7.5% for both 1983 and 1982. - Additional Information: $396.7 $487.7 (in millions) 1983 1982 1981 Depreciation expense $293.8 $249.9 $210.5 Rental expense Commitments for property, plant, and equipment Quarterly Financial Results (Unaudited): (in millions, except per share amounts) $ 64.4 $ 59.4 $ 50.6 $160.0 For quarter ended: Mar. 31 June 30 Sept._ 30 Dec. 31 Year 1983 Operating revenues $3,021.3 $3,399.6 $3,464.1 $3,090.9 $12,975.9 Gross profit 907.8 1,065.6 1,147.7 1,001.7 4,122.8 Net earnings 186.0 220.2 285.9 211.4 Per share: Earnings (A) Dividends paid 1.48 1.75 2.27 1.68 .600 .725 .725 .725 Market price high-low 6431.-54 673/.-557/a 671h-571h 7231a-6631s 1982 903.5 Operating revenues $2,773.6 $3,023.5 $3,096.3 $2,692.6 $11,586.0 Gross profit 838.8 937.6 984.6 895.1 3,656.1 Net earnings 167.7 189.4 250.0 174.7 781.8 Per share: - Earnings Dividends paid Market price high-low 1.34 1.51 1.99 1.39 .500 .600 .600 .600 503/s-44i/s 535/s-47 59-441/2 673/4-535/s The principal stock exchange on which the company's common stock (A) The sum of quarterly amounts does not equal the yearly amount (par value $1 per share) is listed is the New York Stock Exchange. At due to rounding. January 31, 1984, there were 30,783 holders of record of the company's 2500010919 common stock. 42

Aeport of independent Certified Public Accountants: To the Board of Directors and Stockholders of philip Morris Incorporated: We have examined the consolidated balance sheets of PHILIP MORRIS INCORPORATED and Consolidated Subsidiaries as of December 31, 1983 and 1982, and the related consolidated statements of earnings, stockholders' equity and changes in financial position for each of the three years in the period ended December 31, 1983. Our examinations were made in accordance with generally accepted 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 consolida- ted subsidiaries at December 31, 1983 and 1982, 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, 1983, in conformity with generally accepted accounting principles applied on a consistent basis after restatement for the change, with which we concur, in the method of accounting for real estate operations as discussed in the notes to consolidated financial statements. Coopers & Lybrand New York, New York January 24, 1984 Company Report on Financial Statements: The consolidated financial statements and all related financial informa- tion herein are the responsibility of the company. The financial state- ments, which include amounts based on judgments, 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 real estate operations 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 properly recorded, that assets are safeguarded, and that accountability for assets is main- tained. The system of internal controls is characterized by a control- oriented environment within the company which includes written policies and procedures, careful selection and training of personnel, and examinations by a professional staff of internal auditors. Coopers & Lybrand, independent certified public accountants, have examined and reported on the company's consolidated financial state- ments. Their examinations were performed in accordance with generally accepted auditing standards and included studies and evaluations of internal accounting controls to the extent 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 representatives to review internal accounting control; auditing and financial reporting mat- ters. Both Coopers & Lybrand and the internal auditors have unre- stricted access to the Audit Committee and may meet with it without management representatives being present. 43

Board of Directors Thomas F. Ahrensfeld 4 Senior Vice President and General Counsel James C. Bowling4 Senior Vice President, Assistantt to the Chairman of the Board, and Director of Corporate Affairs Alfred Brittain III Chairman of Bankers Trust Company, New York, NY Dr. Harold Brown Visiting Professor of National Security Affairs, The Johns Hopkins University School of Advanced Tnternational Studies, ' Washington, DC . Shepard P. Pollack 4 John'£ Landry4 Senior Vice President and Director of Marketing_ Jacques G. Maisonrouge 3•4 - Senior Vice President of IBM Corporation, Armonk, NY Hamish Maxwell 1,2,4,5,6 President and Chief Operating Officer = Ross R. Millhiser i,ti,s Vice Chairman of the Board T. Justin Moore, Jr. 1,2,4 Chairman of Dominion Resources, Inc., Richmond, VA . John A: Murphy 1,2,5,6 Group Executive Vice President and Chairman and Chief Executive Officer, Miller Brewing Company Dr. Jose Antonio Cordido-Freytes 4 Vice President and President Member of Betancourt; Cordida and Chief Operating Officer, and Associates Caracas, - Philip Morris U.S.A. , Venezuela, Attorneys, and - John S. Reed-?•?,3 President of C.A. Tabacalera Vice Chairman of ' Nacional Citicorp and Citibank, N.A_ Hugh Cullman I•z,' New York, NY _ ident - Group Executive Vice Pres Hans G, Storr z__ __. and Chairman and Chief Executive Vice President and ' Officer, Philip Morris U.S.A. Chief Financial Officer s~`~ Joseph-F. Cullman3rdr•z George Wetssmanr s- Chairman of the Executive Chairman of the-Board and _-_ _ Committee Chie€Executive Officer `_ _ William H. Donaldson 1.2.3 Margaret B. Young 34 ~- Chairman and Chief Executiye Chairman of the WhitneyM. Officer of Donaldson Enterprises Young, Jr. Memorial Foundation, Incorporated, New York, NY New York, NY Paul W. Douglas 1' --- ,- George V. Comfort Chairman and Chief Executive Director Emeritus - Officer of The Pittston Company __, H. I{obert Marschalk 2,3 Greenwich, CT Director_Emeritus Jane Evans Richard W. Damniann- Executive Vice President, Mem6er,-Advisory Board Fashion of General Mills, Inc., New York, NY _-- = Edward ~asker - - Clifford H. Goldsmith F,z,s Member, Advisory Board Vice Chairman of the Board - Robert E.R. Huntleyz,3=4 1 Member of Executtve Committee Executive Vice President of Joseph E Cullman 3rd Chan-marr.v_ Best Products Co., Inc., --_ZMember of Finance Committee _ _ Richmond, VA - Ross R. Millhiser, Chairman 3 Member of Audit Committee ii Ross R. M'illhiser Robert E. R. Huntfey, Chan man 4 Member of Committee on Public Affairs and Social.Resgonsibility James C. Bowling, Chairman 5 Member of Office of the• Chairman George Weissman, Chairman - - ° Member of Office of the Chief Executive

- - -- > - A3fred BrittaiaIII Dr. Jose Antonio Cordido-Freptes _. James C. Bowling Margaret B: Youn John T.Landry T. Justin Moore, Jr. h Jacques G. Maisonrouge Rohert-E.R Huntley William R Do~aIdson _Shepard P: Pollaek r 0 O O ~ N Paul-W_.:DouBlas Jane Evans -Hans G. Storr Dr. Harold &rown John S. Reed Thomas F. Ahrensfel ® ®

Officers Officers of the Carparatioa George Weissman Shepard P. Pollack Chairman of the Board and Vice President Chief Executive Officer F. Harrison Poole Clifford H. Goldsmith Vice President and Treasurer Vice Chairman of the Board Philip J. Reilly Ross R. Millhiser Vice President Vice Chairman of the Board James A. Remington Hamish Maxwell Vice President President and Frank E Resnik Chief Operating Officer . Vice President Hugh Cullman Carlos E. Saiguero Group Executive Vice President Vice President John A. 1L~l~urphg: Shropshire Thomas B Group Executive Vice President . Vice President Thomas F. Ahrensfeld William C. Smiy Senior Vice President and Vice President and Controller General Counsel Richard L. Snyder James C. Bowling Vice President Senior Vice President, Assistant to the Chairman of the Board, Hans G. Storr and Director of Corporate Affairs Vice President and Chief Financial Officer John T. Landry Senior Vice President and Lauren S. Williams Director of Marketing Vice President William 1. Campbell Alexander .Holtzman Vice President Associate General Counsel Robert H. Cremin George P. Hibbard Vice President Deputy Treasurer Eugene J.T. Flanagan Herbert Mi.llington_ Vice President, Secretary, and Deputy Treasurer Associate General Counsel Norman J. Treisman Edward W. Frantel Deputy Treasurer Vice President Eric G. Dairpmple William K. Howell Assistant Treasurex Vice President Edward G.-Silcdck.: Jetson E. Lincoln Assistant Treasurer Vice President, Planning John G< Lino William D. McCoy Assistant Controller Vice President Harace W. Pierpoint R. William Murray Assistant Controller Vice President :If: Sou[her W&lha2n J. O'Connor t CcYnttYrller Vice President, Administration Robert A and Human Resources Assistant- ntroller James T. Breedlove Assistant Secretary Bernadette T. Fee Assista.nt Secretary Officers of the Corporate Staff and of the Tobacco 'ti'chnoIogy Group Bruce S. Brown Staff Vice President and Director, Taxes Michael A. DeMita Staff Vice President, Washington Relations Wallace G. Lloyd Senior Vice President and Technical Director, Tobacco Technology Group Donal P. O'Brien Vice President, International Services, Tobacco Technology Group Arthur R. Pasquine Executive Vice President, Tobacco Technology Group Frank E. Resnilt President, 'Ibbacco Technology Group Frank A. Saunders Staff Vice President; Corporate Relations and. CtllnmuniCation9 - Dr. Robert B. Seligman Vice Presidentg Research and. D,evelopment, Tobacco 'I~chnology Group William K. Tr.ansue Staff Vfce• President, Personnel ., John.van Flarn Vice President, Leaf, Tobacco Technology Group- Philip Morris U.S.A. Hugh Cultman Chairman and Chief Executive Officer Shepard P. Pollack President and Chief Operating Officer Williarn I. Campbell Executive Vice President, Marketing James A. Remington Executive Vice President, Operations R. Nelson Beane Senior Vice President, Finance and Administration Fred J. Laux Senior Vice President, Personnel Albert J. Bissmeyer III Vice President, Merchandising Vincent J. Buccellato Vice President, Sales W. John Campbell Vice President, Plant 4perations, Hawes B. Coleman Vice President, Field Sales 0. Witcher Dudley Vice President, Leaf Robert A. Fitzmaurice Vice President, Brand and Promotion John J. Gillis Vice President, National ,Accour Dr. Max Hausermann. Vice President, Research and Development Alexander Holtzman Vice President and General Counsel J. Paul Jeb LeeVice President; Marketing Services F: Robert Kurfmsky Vice President, Information Services Stanley S. Scott - Vice President, Public Affairs George W. I3;. Taylor Vice President; Engineering and Pianninq James L. Thompson, Jr.- Vice President, Media ,: Douglas H.. Nelson Treasurer and Director of Finance Harry G. Steele Controller

Philip Morris International R. William Murray President and Chief Executive Officer Geoffrey C. Bible Executive Vice President Carlos B. Salguero Executive Vice President Richard L. Snyder Executive Vice President Aleardo G. Buzzi Vice President Mary fF: Covington Vice President Andreas Gembler President, Seven-Up International John G. Gibson Vice President Marc Goldberg Vice President Staffan Gunnarsson Vice President Ehud Haunainer Vice President Richard A. Hutchinson, Jr. Vice President Thomas M. Kearns Vice President, Finance Lee Pollak Vice President George D. Riemer Vice President, Personnel Walter Thoma Vice President Josd de la Torriente Vice President Williarn H. Webb Vice President Andrew Whist Vice President. Corporate Affairs Paul Tiller Controller Miller Brewing Company 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. Puirath Vice President, Personnel Leonard J. Galdstein.. Vice President, Sales Larry K. Neuman Vice President, Material Flow William A. Saupe. Vice President, Planning and Development Allen A. Schumet'. Vice President,_ Plant Ctperations Ronald R. Sfirain' Vice President and::. Contrmller Georgy rit. ',Parala . Vice President, Engineeri Charles A. Whippte --Vice President, t3irecttrr af National Retail Sales Raymond E. Jones, Jr. Associate General Counsel. and Secretary Carroll A. Bodie Assistant Secretary' William G. Schmus Assistant Secretary The Seven-Up Company Edward W. Frantel President and Chief Executive Officer Gerard J. Martin Executive Vice President, Foods Group Charles W. Schmid Executive Vice President, Soft Drink Group Edward P. Callahan Senior Vice President, Administration J. Stewart Bakula Vice President, General Counsel and Secretary Arnold F. Larson Vice President, Packaged Beverage Division George R. Lewis Vice President, Finance Guy L. Smith IV Vice President, Corporate Affairs s Industrial William D. McCoy President and Chief Executive f) Alan G. Wernick Senior Vice President Thomas J= Contrucci . Controller Mission Viejo Realty Group Inc. Philip J. Reilly President and Chief Executive Officer James G. Gilleran Executive Vice President Jack G. Raub Executive Vice President James G. Toepfer Executive Vice President James L. Huesman Senior Vice President and Treasurer William K. Smith Vice President and Secretary Robert P. Swank Vice President Danette S. Fenstermacher Controller Philip Morris Credit Corporation Hans G. Storr President Norman J. Treisman Senior Vice President James T Breedlovu Vice President and Secretary George P. Hibbard Vice President Dennis J. Ploam Director of Finance Eric G. I7alrymple Treasurer-Credit Edward G. Silc€ack- Treasurer-Finance Katherine P: Wickham Controller

4116'enera! Corporate Information Corporate Headquarters: Philip Morris Incorporated 120 Park Avenue New York, New York 10017 (212) 830-5000 Operating Company Headquarters: Philip Morris LF.S.A. 120 Park Avenue New York, New York 10017 Phiiip Morris International 120 Park Avenue New York, New York 10017 Regional Headquarters: Philip Morris EEC Brillancourt 1006 Lausanne Switzerland Philip Morris EFTA, Eastern Europe, the Middle East & Africa Place Chauderon 4 10€10 Lausanne 9 Switzerland Philip Morris Latin America/Iberia Centro Colon Marques de €a Ensenada, 16 Madrid 4 Spain Philip Morris Asia, Inc. 25th Floor,l.Tnited Centre 95 Queensway, Central Hong Kong Philip Morris (Australia) Limited One Little Collins Street Melbourne, Victoria 3000 Australia Benson & Hedges (Canada) Inc. 600 Rue de Lagauchetiere, West Suite 2800 Montreal, Quebec H3B 4M1 Canada Seven-Up International 120 Park Avenue New York, New York 10017 Miller Brewing Company 3939 West Highland Boulevard Milwaukee, Wisconsin 53201 The_Seven-Up Company 121 South Meramec St. Louis, Missouri 63105 Philip Morris Industrial 100 Park Avenue New York, New York 10017 Mission Viejo Realty Group Inc. 26137 La Paz Road Mission Viejo, California 92691 Philip Morris Credit Corporation 100 Park Avenue New York. New York 10017 Annual Meeting: The annual meeting of stock- holders of Philip Morris Incor- porated will be held on April 25, 1984, at the Philip Morris Manufacturing Center, 3601 Com- merce Road, Richmond, Virginia. Form 90•K® The company'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 written request to: Eugene J.T. Flanagan, Secretary Philip Morria lncorporat.ed 120 Park Avenue New York, New York 10017 'ifranster Agents and Registrars: Morgan Guaranty Trust Company of New York 30 West Broadway New York, New York 10015 United Virginia Bank Box 26665 Richmond, Virginia 23261 Dividend Reinvestment Agent: Morgan Guaranty Trust Company of New York Dividend Reinvestment Plan P. f?. Box 3506 Church Street Station New York, New York 10008 Stock Exchange Ustingss New York Amsterdam Basel Frankfurt Geneva Lausanne Paris Zurich NY Stock Exchange Symbol: IviO Auditors: Coopers & Lybrand 1251 Avenue of the Americas New York, New York 10020 Annual Report Paper: Paper stock used in this report is made by Plainwell Paper Company, a division of Philip Morris Industrial. Cover: Kashmir Gloss 80# Text: Kashmir Gloss 100# Design: Chermayeff & Grasmar Associates Principal Photngraphyr Carofe Cvtner, Peter Kane, Bill Kelly. Printeet in CF.S.A. by Case-Hrryt.

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