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P~~©r~~neor~ j. agee and~ ~'1lC00F~~1ffi )~~~ ~TQ11~~ICen~nt~oE C~gat~ ba~ed~nteinatlOnal.> ~ oIBIf' ~"-- :'--: Tlie-cotgoratiot~ aeqtt~red:fi¢I>; conthe Mili~er Brewing Com "_ pang fuE I9~~~ ~f tfia~_tim~, Milter~ tl~ seventti-largest brewec ; i~a the~ IJnited ~tates~_=~o+~P~b~ill+er ~tlte seeotrd-largest.- ` . £ TheSevem ~lp~Compan~ acq%ti~~_ I&7~; is tho tIiird largest soft e. drn~ ~nattuf`scttireriz~ thewort . Philig Moiris has alsadiQersifierl intci thermariufacture of spe--: ciattg Paper~~tissueer aAdpackagin~ materiatsr.as well.as into com- _ • ... . - - : munity. deeelopmenfr : a These_husinessea at*condueted Itysix operating companies: PhiliprNlorris LT S A:, Pliilip Morris International, Miller Brewing. (iompuoy, The Seven-Up' Company, Philip Morris Industrial, and Mission-Vieio Realtg Group Inc.- '. Philip Morris Credit Corporation completed its first full year of operations:°iu 1983. PMCcprovidea financing for customers of Philip Morris Incorporated's operating companies and invests in third-party leveraged leasing activities and other financial services. are -tvPo vieWs of the company's cigarette manufacturing facility, _ the world's most technologically advanced; in-Cabarrus County, North.Caroiina: The-company commenced production there-in- Januaryr 1983, 1- Financial Highiights. 3 '-Review of=the Year 12_ Philip: Morris tT.S.A. 14 PItft111orris:International- - 16 Miller Brewing Company 18 - The Seven-Up Company . . ' 20 Philip Morris Industriat=, a1 Mission Viejo Realty Group Inc. 22 Financial Review 24 Selected Financial Data = 25 14lanagement's Discussion and AnaIysis of Financial Condition and - ltesuIWof Operations 28 Fifteen Year Finahcial Seview° - 30 Consolidated Financial Statements " -. 48= Board of_Directors =: _ . 50, Officers 52= General Corporate Information

Financial Highlights (in millions of dollars, except per share amounts) 1984 1983 1982 1981 1980 OperatingRevenues $13,813.7 $12,975.9 $11,586.0 $10,722.3 $9,649.5 Net Earnings 888.5 903.5 781.8 659.7 z - 549 1 Earnings Per Common Share 7.24 7.17 _ 6.23 5.28 4.41 Dividends Declared Per Common Share 3.40 2.90 2.40 2.00 1.60 Funds From Operations Per Common Share 12.61 10.70 9.24 7.81 6.29 Percent Increase Over Prior Year Operating Revenues 6.5% 12.0 % 8.1 % 11.1 % 18.4% Net Earnings (1.7%) 15. 6% 18.5 % 20.1 % 8.1 % Earnings Per Common Share 1.0m/o 15.1% 18.0% 19.7% 8.1% Dividends Declared Per Common Share 17.2% 20.8% 20.0% 25.0% 28.0% Operating Revenues Philip Morris U.S.A. $ 6,133.3 $ 5,519.9 $ 4,330.1 $ 3,761.6 $3,272.1 Philip Morris International 3,741.0 3,646.7 3,563.7 3,400.3 3,205.4 Miller Brewing Company 2,928.2 2,922.1 2,928.7 2,837.2 2,542.3 The Seven-Up Company 734.0 649.9 530.6 432.1 353.2 Philip Morris Industrial 277.2 237.3 232.9 291.1 276.5 Consolidated Operating Revenues $13,813.7 $12,975.9 $11,586.0 $10,722.3 $9,649.5 Operating Income Philip Morris U.S.A. $ 1,745.2 $ 1,337.8 $ 1,101.6 $ 905.7 $ 786.1 Philip Morris International 42®.9 366.0 446.0 396.6 318.0 Miller Brewing Company . 116.2 227.3 - 158.8 115.6 144.8 The Seven-Up Company 5.3 .(10.8) (1.2) (1.7) (7.1) Philip Morris Industrial 29.5 13.6 7.6 18.9 16.9 Mission Viejo Realty Group Inc. * 17.2 19.6 2.0 11.1 14.7 P.M. Credit Corporation* 11.3 4.5 0.9 Consolidated Operating Income $ 2,345.6 $ 1,958.0 $ 1,715.7 ffi 1,446.2 $1,273.4 Compounded Average Annual Growth Rate 1984-1979 1984-1974 1984-1969 1984-1959 Operating Revenues 11.1 % 16.5 % 18.1 % 14.2 % Net Earnings -- 11.8 % 17.6 % 19.9 % 16.5 % Primary Earnings Per Share 12.2 % 16.4 % 17. 6% 15.2 % Operating companies' income is income before corporate expense, interest, and Trenton, Ohio, reduced 1984 net earnings and earnings per share by $145.6 million other non-operating income and deductions. The amortization of previously capital- and $1.19, respectively. ized interest is included in operating companies' income. A write-down of the completed but inactive Miller Brewing Company facility in *Represents equity in net earnings of these unconsolidated subsidiaries.

In 1984: ~ Operating revenUes .il:-CreLlUzci tu ~3 13.8_ billion. * Operating income increased 19. 8% to $2 . 3 billion.  Net income decreased 1.7% to 8888.5 million _ due to a write-down of Miller Brewing's facility in Trenton, Ohio.  Earnings per share increased 1. 0% to $7.24.  Declared dividends increased 17.2 % to $3.=10 a share.  Funds from operations per share increased 17.9%.  Our debt to equity ratio at 0.63 to 1 reache.d its lowest level in 22 years.  Our worldwide cigarette unit volume increased by more than 20 billion units. Operating Revenues Billions of Dollars 80 81 82 83 84 Operating Profit Billions of Dollars 80 81 82 83 84

Review of the Year In 1984, Philip Mlorri,s' cioarerte =aie5 v.gain increased in_ _ volume and market sli are, both in ti:e t: nite{.l States and internationally. Our cigarette operations continue to_gen- erate most of the corporation's earnings and growth. The overall results of our non-tobacco businesses _ have not yet matched our ambitions for them,__but they showed progress in 1984. Miller Brewing Company's bar- rel sales were up slightly over 1983, the first increase in three years. Seven-Up volume also improved, and the company had an operating profit for the first time since 1979. Philip Morris Industrial and the Mission Viejo Realty Group Inc. had good years. Over the last two years, programs have been under- taken to simplify and restructure management functions in the operating companies and in the corporate staff, in order to improve productivity. These programs, which were completed in 1984, reduced a significant number of management and staff positions and are contributing to management effectiveness as well as lowering overhead expenses. The corporation's operating income increased 19.8 % over 1983 but net income was down as a result of the decision reached in November to write-down Miller's completed but inactive Trenton, Ohio, brewery to net realizable value; this resulted in a charge of $280.4 mil- lion to pre-tax income and $145.6 million to the net income of the corporation. A strong increase in cash flow in 1984 enabled us to reduce total outstanding debt by $486.3 million and to complete the repurchase, authorized by the Board of Directors in late 1983, of 4 million common shares. In May, 1984, a further purchase of 4 million common shares was authorized, and at year-end 1.5 million had been purchased. Capital expenditures in 1984 amounted to $298 million. In 1984, Philip Morris raised the divi- dend declared on its common stock by 17.2 % to an annual rate of $3.40 per s_hare. N.t Earnings 80 81 82 83 84 Earnings Per Share 80 81 82 83 84 In nlid-year, a new Mit)i_",ement team a,~sitmed responsibility for the company anri for the commitments that have characterized Philip Morris' ~uccess over the past generation: -A"e are conimitted -.,j ma',<z Ls:it at<trket hroducts of the highest +iuality and h, develop new products that satisfy consumers' present demands and anticipate their needs. To do that, we will continue to invest in the best and most productive facilities, machinery, and equipment as well as in research and develop- ment activities oriented to the marketplace; - We are committed to profitable growth. We intend to continue to gain sales and market share through innovative marketing, and to broaden the base of our business through investment or acquisition in fields compatible with our experience. We will use our growing financial strengths and resources to improve the value of our stockholders' investment; -- We are committed to defending the legitimate inter- ests of our businesses against discriminatory taxation and critics' proposals to impose unreasonable restric- tions on the use of our products and on some of our competitive marketing tools; - We are committed to continue our programs in the public interest and to recognize our obligations to the society that supports us, in particular, to the com- munities where we work and invest. These commitments require another-that of a dedi- cated and superior team of management and employees. We intend to preserve and enhance the quality of our people's performance by making sure Philip Morris remains a lively, friendly, and stimulating company for which to work. We are committed to encouraging sensi- ble and confident risk-taking, to rewarding merit and achievement, and to seeing that occasional mistakes are treated as learning experiences. Dlvidsnds Declared Psr Share Dollars Capital Expenditures Millions of Dollars ~".~

Philip Morris U.S.A. V. VIRGINu SLIh1S -_ ./y/iG- Marloro LIGHTS 258 0 MERIT ,Ultra Ughts-,, EN50N5HEDG65 iuov wa-4195r In 1984, cigarette sales in the United States increased to approximately 600 billion units, showing some recovery from 1983 when sales levels were depressed by the effects of greatly increased taxation. Philip Morris U.S.A. unit volume increased 3.4% to 211.6 billion units, and market share improved to 35. 3%. The Marlboro brand enjoyed a particularly good year as volume increased 7.4%. Marlboro Red remains by far the largest-selling brand in the market; Marlboro Lights consolidated its position as the leading low-tar cigarette. During the year, 25's packs of King Size Marlboro Red and Lights were successfully test marketed, and this convenience package became available nationally early in 1985. Merit low-tar king size in a box was also intro- duced nationally in 1984; among our other brands, Benson & Hedges 100's and Virginia Slims held their leading positions in their categories. Philip Morris U.S.A.'s strong brand performance was enhanced by a sales force redeployment that resulted in a significant improvement in both product and package distribution. The increase in distribution was partially a result of the introduction of a new 3ene-ration of carton and pack- age display units, which heightened Philip Morris L'.S. A.'s share of in-store merchandising space. Special promo- tions such as the `rlarlboro t'OUntr`- Music Concerts and ,he Vir,;inia Slims women's professionai t,~nnis tourna- ments, aiong with a variety of consumer promotions. contributed to brand voiume and share increases. In 1984, lower-priced brands, principally generic and private-label products, achieved a share of about 5.5 % of the U.S. market. Philip Morris U.S.A. did not compete in this segment in 1984. However, we have broad and suc- cessful experience in price segmentation marketing in other countries and are prepared to enter the segment in the United States, if appropriate. The quality of our products remains our great com- petitive strength. That quality is based on exacting manufacturing standards and high-quality tobacco. Our overall facility improvement and modernization program is continuing. Production increased in our new plant in Cabarrus County, North Carolina, the world's most mod- ern and technologically advanced cigarette factory, and we have realized significant productivity gains there. By the end of 1984, our new primary tobacco processing plant forr our Louisville factory, which represents a sub- stantial investmerit, was almost complete. We made large purchases of the 1984 U.S. flue-cured and burley tobacco crops, and quality American tobacco leaf remains the mainstay of our products. In recent years, U.S. leaf has lost its price competitiveness in the world market, surpluses have accumulated, and uncer- tainties have arisen about the future of the tobacco pro- gram. Philip Morris is the largest buyer of U.S. tobacco, both for its U. S. and internationally manufactured brands, and we intend to continue to depend principally on U.S.-grown tobacco. We will support programs to in- sure adequate supplies of quality tobacco at prices which, while competitive, allow a fair return to U.S. growers.  U.S. Cigarette Industry Unit Sales - Philip Morris Share of U.S. Industry (%) Philip Morris U.S.A. Operating Revenues Millions of Dollars Philip Morris U.S.A. Operating Income Millions of Dollars 5100 - / 1 1500 4250 1250 75 767778798081828384 0 Marlboro 0 75767778 798081828384 Philip Morris U.S.A. Cigarette Unit Sales Billion Units 180 150 120 90 60 30 0 75 76 77 78 79 80 81828384 - N (I1 O 0 a ~ O ~ CA) W U.S. Cigarette Industry Unit Sales Billion Units 540 . 450 360 270 180 90 0 75 76 7778 7980 81828384 42% 35 28 21 14 7 0

philip Morris International Marlboro LIGHTS „X,;,M"ryns, Mar oro Philip Morris International had a good year, with operat- ing income increasing 15.0% to S420.9 million. Even more encouraging, total unit volume increased 5.5 % to 258.2 billion, showing that excellent growth potential for Philip Morris remains in our international markets. _ Results were particularly strong in the developed markets of Western Europe and in the Middle East. In West Germany, where a punitive tax increase in 1982 had depressed total market demand and encouraged price cut- ::, aCionai -intl international proi"iucts, in the i:nited king- r,,,m, ;i,e Rai'fles brand ;vas launched nationaliv in Asu;;?l~t, ~f)llowino a -~uC'cesAful : Est in Che south. iill> :?CriOn has t'C'tlvelv tii.r11o1e,1 uLlr !?iarket share in i . ~. `? 1~)Ifi1t j ,: ts t;i `t1Y 'tiCi(,).le C,a,_A l'?intintle to reore:;ellt a1T :.:"pwr._tnt ~~ource of income, in the Gulf, Marlboro Red, Marlboro Lights, and Merit are three of the top six brands. In Egypt, Marlboro sales were well up over last year. In the Turkish domestic market, a new source of export business in 1984, JMarlboro became the top- selling imported brand. The international segment still only accounts for approximately 2°o of the large Japanese market, due in part to restrictions on distribution as well as high tariff and tax barriers. The restrictions have been modified as a result of negotiations between the Japanese govern- ment and the Japan tobacco monopoly on the one hand and the U.S. government, especially the Office of the Special Trade Representative, on the other. These conces- sions, together with our intensified marketing efforts in Japan, helped to increase our sales in 1984 while our Lark and Parliament brands remained the two lead- ing imports. We continue to work for elimination of the remaining barriers to free and fair trade with Japan and the further development of the import segment. In Hong Kong, the market stabilized after a large duty increase and consequent price cutting. Marlboro again strengthened its position and is the leading brand ting, consumers began to turn back to mainstream __ - in the market, with a share of 26 %. Iri Malaysia, sales of -- - - = - brands. Marlboro did especially well, growing 32.3% in Marlboro by our licensee increased strongly during the volume, helped by the successful introduction of year, which also saw the beginning of licensed manufac- Marlboro 100's early in the year. ture of Marlboro in Indonesia. In spite of economic diffi- In Italy, we had good growth for our leading brand, culties in the Philippines, we experienced only a modest Marlboro, and especially strong performances by Merit decline in our licensed sales volume. and Multifilter. In France, our unit volume grew by 16 %, and our market share increased to 15.8 %. Profitability in this market remains depressed due to government price controls and a tax system that discriminates between ei Unconsolidated  Consolidated Philip Morris International Operating Revenues Millions of Dollars 9000 7500 6000 4500 2000 1500 0 757677787980 818283 84 Philip Morris International Operating Income Philip Morris International 1bta1 Cigarette Unit Sales Millions of Dollars Billion Units 390 325 260 195 130 65 75767778 79 8081828384 210 175 140 105 70 35 0 75 767778 79 8081828384  World Cigarette Industry Unit Sales (Excluding U.S.A.) ~ Philip Morris Share of World Market (%) World Cigarette Industry Unit Sales Excluding U.S.A. Billion Units 75 76 77 78 79 80 81 82 83 84

The economy in Latin America has placed our busi- nesses there under pressure. Consumers have switched virtually everywhere to lower-priced brands. This trend has reduced margins, as have price controls, which con- tinues to make it difficult to recover cost incr-eases. To counteract this situation, our policy has been to concentrate on volume and market share gains. We have launched new, free-standing brands into growing seg- ments. Among the many launches made, L&M Lights in Argentina, Lider in Ecuador, and Casino in Uruguay were particularly successful. Marlboro is gaining market share almost everywhere in the region, and this despite its relatively high price. It has performed notably well in Brazil, where the market as a whole shows signs of recovery, and in Mexico and the Dominican Republic where our affiliates achieved record sales volumes in 1984. Philip Morris (Australia) Limited had a good year, led by the success of Peter Jackson 30's. Packaged in a four- row hinge-lid box, the brand increased its share of market from 7.5 % to 13.1 %, and contributed to the com- pany's overall improvement, which brought it to 29.4 % of market, up from 27.0 % in 1983. Philip Morris (Austra- lia) Limited's wine company, Lindeman (Holdings) Lim- ited, achieved a 14% increase in sales and remains a leader in its industry. The strength of the U.S. dollar continued to reduce the value of foreign sales and income when expressed in dollars. It also makes U.S. exports less price competi- tive in foreign markets. In 1984, our cigarette export vol- ume declined slightly from 19831evels, but our share of the total U.S. cigarette export trade again improved, to about 60 % . Rothmans International p.l.c. (London), in which your company has an investment, had another good year in 1984. During the year, we restructured our investment, bringing our equity in Rothmans International to slightly over 30 % and our voting rights to just under 25 %. The restructuring settled objections raised to the original transaction by the Commission of the European Commu- nities but complainants are appealing. The matter also continues to be the subjectof litigation in Germany. . Miller Brewing Company Although the U.S. beer industry showed an estimated 0.7 % decline in volume in 1984, Miller Brewing Company was able to achieve a slight gain in volume and in share of market. However, the changing mix of Miller's prod- ucts reduced its operating income. We are planning for future sales volume and income improvement by devel- oping new products and by creating new programs to revitalize Miller High Life. Meister Brau and Milwaukee's Best were successfully introduced nationally into the popular-priced segment within the past 15 months. As a result, we have been able to maintain brewery utilization, to satisfy the vol- ume requirements of our distributors, and to safeguard shelf and cooler space within retail outlets. Although the Mllisr ®rswinp Company Op.ratins Rw.nu.s Miller Brewing Company Op.ratiny Income

margins on these brands are relatively low, we have two premium-price biands ir+ test niarkets and oth.ers under development. Lite is che secontl-be~t--.eil.in~g brand of beer in,the C.S. market, t " I ,r dt,i?Ilhwta_ pr)sIt1oC1 iI1__1_he__ gI'oLb"1lla (1o'i1T w`,i;~' '.si,1?l <<_1t1~ a .imall ° V"olUnle increase. The super-prelnium segment of the market in which Lowenbrau competes has been adversely affected by imports, made relatively cheaper by the strength of the U.S. dollar, This, together with the general consumer movement to popular-priced beers, resulted in a decline in Lowenbrau sales in 1984. Miller High Life is the third-best-selling brand in the U.S. market, but its sales decline, which continued in 1984, remains a major concern. Rectification of High Life's sales trend is a top priority. Our product testing program indicates that High Life beer is preferred or at least equal to any competitive pre- mium beer when compared on taste. Unlike most other beers on the market, it is made without additives or pre- servatives. We have undertaken several marketing initia- tives to correct the sales problems of High Life. Among .them is a new advertising campaign (begun in February, 1985) which will improve the brand's presentation.and image. High Life sales responded well in 1984 to the introduction of the new 32-ounce King Kan. The brand has also continued to do well in the Canadian market where it is made. under license. We are optimistic that the corrective steps that are being taken will result in an improvement in its sales performance. The slowdown in industry beer sales over recent years, together with the decline in Miller High Life vol- ume and improved productivity in our other breweries, resulted in a recognition that we could not set a date_for the opening of our completed but inactive brewery in Trenton, Ohio. Since we could not forecast the time when this brewery's capacity will be needed, a decision to write the _asset down to its net realizable value was made in November. a U.S. Beer Industry Barrel Shipments - Miller Share of U.S. Industry (%) Miller Brewing Company Barrel Shipmsnts Millions of Barrels 75 76 77 78 79 80 81 82 83 84 U.3. Beer Industry Barrel Shipments Including Imports 7576 7778798081828384 The Seven-Up Company In 1984, The Seven-Up Company again achieved year-to- year revenue and unit volume growth and was profitable for the first time in five years. The increase in our soft drink revenues for 1984 brought Seven-Up's compound average annual increase to 20,0% over the past five years. Our brands 7UP and Diet 7UP again had record sales performances. We moved to a 100 % NutraSweet for- mulation for Diet 7UP and Sugar Free Like in response to consumer preferences. The Sswn•Up Company Tha Ssvsn•Up Company Operating Revenues Oporattng Income Millions of Dollars 600 500 400 300 200 100 0 Millions of Dollars 36 27 18 9 0 -9 -18 I 75 76 7778 79808182 75767778798081828384 ?!~~m!

Oar cnntinued success Y0"1l ;Jeoend in large part on :aaintaining a strong network of protitable, independent :ottlers. We intend to continue t~> r~perate bottling ~cllltleS and to iTl~linLlin ~{.~uit~" F;'i iCion3 in i)t~ttlina- '~'r~3tit)ns, r1iarions where port ---'t~e; r:~ i;, 4~:r}a rp,,{uire our Philip Morris Industrial 'rect support. _ ~ In 1984- _ :ve_re+_ rganize.d the Seven-[: p Foods Group ;nto two divisions: the Citrus Products Division will c_on- ~inue to produce private-label products but will put ;ieater emphasis on more profitable branded products, lncluding Juice-Up Lemonade and Lemon Juice, which will be marketed nationally in 1985. The Freeze-Dried Division will continue to market its products in the tradi- tional outdoor and specialty segments. It will also intro- duce consumer retail products in 198.5 as well as supply the food service industry. For Seven-Up International, which is under the direction of Philip Morris International, volume sales increased by 5.2 % in 1984. Good progress was made in the Europe/Middle East/Africa Region, including a, successful introduction_ of 7L'P in France during the year. Sales in Latin America recovered from the depressed lev- els of 1983. In Asia, 7UP was introduced successfully in the South Korean market- in_the_middle of the year. - Andreas Gembler, who has successfully led Seven-Up International since.1979, has returned to Philip Morris International's EEC Region as Area Vice President and has been succeeded by Gabriel Bechaalany as President of Seven-Up International. Philip Morris Industrial Philip Morris Industrial Opsntlng Rsvsnu.s Opsntlny Inoom. Millions of Dollars Millions of Dollars 240 24 200 20 160 16 120 12 ~ 80 8 , 40 4 I I 0 0 Philip Morris Industrial operating revenues increased 16.8 % over 1983 to $277.2 million, and operating income increased 100.0+% to $29.5 million. All of Industrial's divisions contributed to 1984's record-setting results. Wisconsin Tissue Mills Inc. increased its share of the tissue and towel markets through its traditional channels of distributiori. In addition, it expanded its share of high- quality, specialty printed and non-printed napkin lines. Nicolet Paper Company continued its leadership sta- tus in glassine and greaseproof papers. It made substan- tial share gains in the release backing market. Plainwell Paper Co., Inc. continued to improve its position in fine printing papers, release backing papers, and technical specialties. It successfully introduced "Solitaire," a premium printing grade. Koch Label Company is the leading U.S. producer of labels for beer. It also produces several other products and is a leader in the technology of printing on metal foil and printing in-mold labels. As this Annual Report goes to press, we are actively considering offers to buy the companies that make up Philip Morris Industrial. While well and profitably man- aged, Industrial's operations do not fit our long-term strategic objectives. 7 75767778798081828384 75 76 77 78 79 80 81 82 83 84

IVlission Viejo Realty Group Inc. Mission Viejo Realty Group's operating revenues of $237.7 million and operating income of $36.1 million were the second highest in the company's history. Our housing sales were strong in the first half of 1984, but slowed in the'second half as mortgage rates rose. Sales-.of land for business properties- remained strong. In 1984, we opened six new housing projects. In Mission Viejo, we opened the Briarwood and Stoneybrook neighborhoods and in neighboring Aliso Viejo, California, we introduced Aspen Creek. Our new, 22,000-acre planned community of Highlands Ranch, Colorado, added Sugarmill, Chalet, and Remington Bluffs, bringing its total product array to 11. Highlands Ranch eventually will supply some 30,000 housing units for the growing Denver market and provide business opportunities to a wide range of enterprises. Our communities are built around schools, parks, re- creational facilities, and retail, commercial, and business parks. On July 29, 1984, much of the world alimpsed those advantages when Mission Viejo played host ro. tlZe first event of the Los Angeles Olympics-the c.ycling ro ad races. Through the course of the games, swimmers and divers trained at Mission Viejo won nine gold medals. During the year, we assigned responsibilit y for -_ ur commercial properties to two wholly-owned entities: Continental Equity Investments Inc. will develop or acquire income-producing properties to be held for the long term; IVO, Inc. will handle short-term sales. Mission Viejo Company continues to operate the community and residential development business. MVRG Operating Revenues MVRO Operating Incoms Millions of Dollars Millions of Dollars 210 36 iti) C.rt 0 175 30 ~ ~ 140 24 ~ 105 18 r/ I Q 10 {t7 70 i 12 ' I Oo 35 0 71, 6 0 A i I 75 767778798081828384 . 75 76 7778798081828384

Management and the Board of Directors At its June meeting, the Boarcl tif Diroc•ttlrs of Philip llorris Incorporated ete(-a-d Il~uii±,h _~1a•,:yell io,uccee-d (reorge Weissman. effectike Julv 1. i'),~', Lts t'hairman and Chief Executive Officer of the company. The Board also elected John A. Murphy President and Chief Opera- ting Officer of Philip Morris Incorporated, and Hugh Cullman Vice Chairman and Chairman of the Finance Committee of the Board. At the same time, Frank E. Resnik was appointed President and Chief Executive Officer of Philip Morris U.S.A., and William K. Howell was named President and Chief Executive Officer of Miller Brewing Company. Pre- unrestricted basic grants to selected organizations. pro- viding funds over several years to help recipients projeet their revenues and formulate long-range plans. We support federated charitable organizations such as the United Way of America. In addition, we fund creative programs for inner-city neighborhoods and IfrOup5 With special problems. We continue to do business with some 60 minority-owned banks and to encourage minority- owned vendors to work with us. We try to be creative in all of our corporate contribu- tions, and this is most visible in the arts. Indeed, our art support program has become an important symbol of Philip Morris' sense of corporate social responsibility. We continue to sponsor a variety of projects. Some of these are historic, such as the traveling exhibition that opened in 1984 at the Museum of Modern Art in New York, titled "Primitivism in 20th Century Art: Affinity of the Tribal and the Modern." It examines the debt that modern art owes to African, North American, and Oce- anic art. Several other nationally recogni.zed shows trav- eled - - --- eled in the United States under our sponsorship. Many of our cultural affairs projects are less publi- cized, covering support for various institutions in our operating companies' home towns-libraries, museums, and performing arts centers among others. We continue to match employee gifts to institutions, thus encouraging our employees to help shape our contributions policy. In 1984, we supported 209 arts organizations, includ- ing the Joffrey Ballet, the Alvin Ailey American Dance Theater, the Western States Art Foundation, and the American Association of Museums. In New York, we fund a branch of the Whitney Museum of American Art in our Headquarters building; the branch has attracted thousands of visitors since its opening in 1983. We believe that onr corporate involve- ment with the arts helps to encourage our own employees' creativity and enhances the quality of their lives. viously, Mr. Resnik had been President of the Tobacco Technology Group and Mr. Howell had been Miller's President and Chief Operating Officer. At a subsequent meeting, Messrs. Resnik and Howell together with R. William Murray, President and Chief Executive 4fficer of Philip Morris International, were elected to the com- pany's Board of Directors, effective October 1, 1984. Mr. Weissman continues as Chairman of the EYecu- tive Committee and a member of the Office of the Chair- man. The former Chairman of the Executive Committee, Joseph F. Cullman 3rd, has been named Chairman Emeritus. In 1984, Clifford H. Goldsmith retired as Vice Chair- man of the Board and as a director on reaching the age of 65. From 1978 to 1983, Mr. Goldsmith was President of the corporation. James C. Bowling and John T. Landry also retired as officers and directors-of the-corporation. We are grateful for their long and distinguished service and for the fact that all three remain consultants to the corporation. The Public Interest Philip Morris operates in some 170 countries and terri- tories around the world. The company derives $1.1 bil- lion in export revenues through the sale of cigarettes, ~tobacco, beer, soft drink extract, and other products. Philip Morris recognizes its responsibility to those Ilocations in which we do business and seeks to improve % society in the countries where we operate, and especially in the communities where we have plants and offices. In 1984, our Corporate Contributions Committee made 1,066 grants, mostly in the general categories of education; health and welfare; conservation and environ- ment; and culture and the humanities. The recipients included 213 educational organizations as well as 530 children of our employees who were aided by our College Scholarship and Vocational/Technical Scholarship Award Programs. In all categories in 1984, we began making Social and Legislative Issues Philip Morris did well in 1984 for one basic reason: peo-. .ple liked our products well endugh to purchase more of them than ever before. But it was also more difficult to use them, because restrictions and regulations have appeared that previously did not exist. Virtually all businesses can complain about special fees or taxes or controls, and for many, such obstacles are

;enerate+t by antagonists who use legisiative processes ` --- for their uwn ends. For Philip tiIurrls. there are restrictions and controls +-~n IminN' areas tllat affect Our bnsines~es-including 'ei'[1JLIlg •1nr.i t.ii~rril{,Itit+n; theie ale ;.ilso t}I,erou>>ne i ~ (lL ' dia~ tl? ..i:'.`~1 _~t)4"°1'11i1;E nt il'rlUlls: --- ~'1'tl i(l it'~. Ia : (t+. LreilteCl iail'I~.". UI1CUI'Clliti~t{?14' the 1t"e iltil; pI tt be ' - t record shutivs -I lack +, fairness, particularLy as our ~ 1lnttigonists and ~letr~tctors continue to press for new reaulations to restrict our marketing activities and for increased taxes on our products. __ ~j'e oppose increased excise taxes because they are unt'air. regressive, and disruptive of natural market forces. Such taxes fall most heavily upon the economi=-_ cally disadvantaged who must pay a disproportionate per- centage of their disposable income for products so taxed. ~ Beyond taxation, emotional campaigns are being tsaged to restrict advertising and use of our products. In connection with cigarettes, such campaigns are fueled by claims based largely on statistical data regard- ing smoking and health. Since 1954, Philip Morris and the tobacco industry have contributed more than $120 million to fund independent research on smoking and health. We continue to believe that the results of scientific investigations to date fail to demonstrate a cause-and-effect relationship between smoking and chronic diseases. We also believe that the preponderance of scientific evidence indicates that the presence of cigarette smoke causes no health impairment to a healthy non-smoker. Simultaneously, in the area of alcoholic beverages, a similar outcry is raised because alcohol has been abused by some. As a brewer of beer, the traditional drink of moderation, Miller believes that responsible attitudes toward drinking are necessary, and the company is dedi- cating significant resources to campaigns promoting such responsible attitudes by all consumers of its products. Hamish Maxwell past, we will find new opportunities in change and that we will successfully manage and overcome whatever difficulties we encounter. We intend to maintain good rates of growth in sales, market shares, and income. We are gaining high produc- tivity through our capital investments, we have the best products available in our industries, and we have the resources to achieve our goals and to broaden our base of business. We have momentum. Above all, Philip Morris retains a talent for attracting unusually able employees and bringing out their best. The commitment, drive, and initiative of our 68,000 em- ployees are the strongest guarantees that we will maintain that momentum. It should be noted that in both the cigarette and the beer industries stringent advertising codes have been in _ h_ _--_-: place for years-codes designed to avoid promoting such products among youth, to emphasize the qualities of individual brands, and n_ot_to encourage the use of either product. Although the external pressures on our principal businesses have intensified, we are confident that we can resist them successfully and, therefore, we remain opti- mistic about the future. The Outlook We face the usual uncertainties about the future in all our businesses, both in the United States and interna- tionally. Included among them are tax changes, volatile conditions and economic difficulties in some overseas markets, currency fluctuations, and the future of the. U.S. tobacco program. We are confident that, as in the Hamish Maxwell Chairman of the Board and Chief Executive Officer John A. Murphy President and Chief Operating Officer N cn Q 0 0 ~ © o ~ a

In.1984..Philip 3forris L'.S..-1. intro- - dnced several new packings and dezel- ,ped a new generation of carton and package display units that improt•ed uur product distribution. [Villiaml. Cantpbell (R). Executive Viee Pre.sident, ,1Lirkeling;-Vineent I Buccellato (C), I'iee President, Sales; and Rosenzarie Gullo (L), Assistant Division .llan- ager all nfPhilip Morris Z:S..-l., are reviewing one of the units used in the national introduction of the.ilarlboro )5's pack. Virtually all data pertaining to Philip Morris U.S.A.'s operations are proc- essed at our James River Center in Richmond. Here, Harry G. Steele (C), Vice President, Finance and Adminis- tration, and F Robert Kurimsky (R), Vice President, Information Services, review with Dorothy McDaniel (L), Manager, Data Center Gperations, one of the programs used to monitor our production processes. Philip Morris U.S.A. In millions Operating Operating Revenues Income 1984 $6,133.3 $1,745.2 1983 $5,519.9 $1,337.8 1982 $4,330.1 $1,101.6 1981 $3,761.6 $ 905.7 1980 $3,272.1 $ 786.1 Consistent product quality is partially a result of exacting manufacturing standards continually reviewed by our senior operations management. Mark A. Serrano (2nd from L), Executive Vice President, Operations; W John Camp- bell (2nd from R), Senior Vice President, Plant Operations; and Newton Fowler (R), General Manager of our Cabarrus facility, discuss with Perry C. Bostic (L), one of our technicians, the effi- ciency of our production equipment at Cabarrus. 2500010942

Philip Morris International In millions Operating Operating Revenues Income 1984 $3,741.0 $420.9 1983 _ $3,646.7 $366.0 1982 $3,563.7 $446.0 1981 $3,400.3. $396.6 1980 $3,205.4 $318.0 In the high-potential Japanese market the best-selling import is Philip :Yforris' Lark brand. Here, Lark point of sale is being examined by Dinyar Devitre (znd from R), President, Philip Morris Asia, and, from Philip Morris Asia's Japan branch, Hikojiro Yokota (L), Director, Key Accounts & Sales Planning; Yutaka Suzuki (2nd from L), Marketing Manager; and Shinsuke Katayama (R), Brand Manager. in 19•3~. consamers in i~est Germany relurned to tualnstream brands after a p,rnitire ta.r increase in 1982 had cnused a.shift to lower-priced ciga- rel tes. .ll<u•lhoro eujoyed particular succe.ss in this market, helped by the intruduction of 1larlboro 100'.s early in 19,0. Gfinler iVille/Ll, Managing Dfl•ector,f Philip .Vlorris GmbH, is reriercing an wutdoor placenaent for Marlboro 100's with Knut Fockler (C), .Vlarketing.Vlanager., and Hans-Jochen Richter (R), Product Manager. Our long-term success in Latin Amer- ica depends on the introduction of new brands, one of which is California in Brazil. Examining California on the production line are Lauro Peuckert (L), Vice President, Operations, and Salva- dor Rivera (C), Director of Manufactur- ing, both of Philip Morris Brasileira, S.A., and Gustavo Mario Montes (R), Production Manager of our Curitiba plant.

A neticork of strong, well-managed, and aggressive distribulors,has been essential to 3liller Breicing Cornpany's ,uccess over the years. Here, Leonard J. Goldstein (L), Vice President, Sales, of Ifiller Brewing, discusses with hirby tif. Laiclis (R), President of }1iller Brands in i6auuatosa, U, .11il1- er's date coding systern which ensures the f reShness of -tifiller's prod u cts. State-of-the-art production equipment and techniques have allowed Miller to both control its costs and meet demand from our current breweries. Here, Allen A. Schumer (R), Senior Vice President, Operations; Billy R. Apple (C), Vice President, Plant Operations; and Georgy N. Tarala (L), Vice Presi- dent, Engineering, are inspecting a filler line at Miller's Milwaukee brewery. Miller Brewing Company In millions Operating _- - Revenues Operating Income 1984 $2,928.2 $116.2 1983 $2,922.1 $227.3 1982 $2,928.7 $158.8 1981 $2,837.2 $115.6 1980 $2,542.3 $144.8 In order to improve its margins, Miller has several premium-priced brands in various stages of development. Here, . Robert A. Toledo (R), Vice President, Br.and :Ytanagement, discusses with Brand Managers William H. Barrett (L) _ and Jerome F. Schmutte (C) commercial ; story boards for one of our brands in test market. i 2500010946

The Seven-Up Company In millions Operating Operating Revenues Income 1984 $734.0 $ 5.3 1983 $649.9 $(10.8) 1982 $530.6 $ (1.2) 1981 $432.1 $ (1.7) 1980 $353.2 $ (7.1) Seven-Up's continued success will depend on maintaining a strong net- work of profitable, independent bot- tlers. Charles W Schmid (R), Executive Vice President of The Seven-Up Com- pany, is responsible for that network whick includes Bart Brodkin (L), Presi- dent of Westinghouse Beverage Group. >r e+-j'n'a rr,lume la!ns (tre partially +! ;'vs,!)l „f'iniloP(1LlI'!! j)QChilf)!1lf~. r.Sl,rarvl i{: Fr•ants•l iR). Presideut and r'hivf E.rerntire Qfjicer uf The Seren- 1tt C'nurpany, rvrirn•s the new •3-liter ,-CP h.,ttle +ritlt Rfv,re Jinl„ns (L). NP Brau l.tLutnyer, and Lev Becktnan (C), Dirrrtf,r q'Finiwwv anll c)pe'ratiuns ~5uppurt u,j lhe Pcu•kutled Bet'erage °Dirision. Gabriel F N. Beehaalany (R), Presi- dent, and Marc de Petter (L), Manager, France, both of Seven-Up Interna- tional, are shown reviewing advertis- ing materials used in 7UP's mid-1984 launch in France.

Philip Morris Industrial In millions Operating Operating Revenues Income 1984 $277.2 $29.5 1983 $237.3 $13.6 1982 $232.9 $ 7.6 1981 $291.1 $18.9 1980 $276.5 $16.9 At:VicoletPaper, quality control is a key factor in industrial's continued grouth. :Vor6ert Lepak (L), Janaes R. Frawley (C), and A'orbert Beining (R) ensure that paper rolls meet customer specifications. In 1984, Wisconsin Tissue :Yfills set a new world output reeord for the con- tinuous operation of a paper machine. This record is emblematic of the pro- ductivity increases that have charac- terized our tissue operation. William D. McCoy (L), President and Chief Executive Officer of Philip ;Ytorris Industrial, and George Mueller (R), President of Wisconsin Tissue:Yfills, are discussing that record in the com- puter roam from which tiie #3 machine is controlled.

SIVRG opene!l three new housing proj- ects in 1984 at its California communi- ties-Slission Viejo and Aliso Viejo. flere, the California Division's Curt R'est (L), Generalllanrc.ger of Con- struction, and 6ance Kxoicltun (R), Project Superintendent. are rerieuing blueprint.s,/ur the construction ~f lhe Stoneybrook project at .llission Viejo. In addition to developing communi- ties, a1VRG has become increasingly involved in commercial real estate. Here, Philip J. Reilly (R), President and Chief Executive Officer of MVRG, _ and Jack Hoppe (L), Senior Vice Presi- dent, Planning and Engineering, Jack G. Raub Co., discuss one of the busi- ness properties planned for Mission's Highlands Ranch, Colorado, project. Mission Viejo Realty Group Inc. In millions Operating Operating Revenues Income 1984 $237.7 $36.1 1983 $258.5 $40.5 1982 $130.2 $ 6.0 1981 $163.6 $22.9 1980 $172.8 $30.6

In 1984, operating revenues were S13.8 billion, an increase of 6.5°6 from 1983 and operating income increased 19.8% to S2,3 billion. Net earnings decreased 1.7 % to $888.5 million in 1984. Net earnings were reduced by $145.6 million or 51.19 per share by the write-down of the completed but inactive Trenton brew- ery to net realizable value in the fourth quarter (Chart 1). Earnings per share reached $7.24, up 1.0% from 1983, due to a reduction of outstanding shares. The write-down was due to the continuing slowdown in consumer demand in the brewing industry and for some Miller products as well as efficiency gains at other Miller breweries. In contrast to 1982 and 1983, Miller volume and market share were up slightly in 1984, but Miller still has excess capacity in relation to its near- term projections. In light of recent trends in the industry, a date for commencement of production at Trenton could not be set and, therefore, the carrying value was reduced. In February 1984, the Board of Directors declared a 17.2 % increase in the common stock dividend to an annual rate of $3.40 per share. This was the 17th consec- utive year of increase and our 57th consecutive year of dividend payments. Over the last decade, dividends per share increased 24. 3% annually, while net earnings per share increased 16.4% (Chart 2). In 1984, capital expenditures totaled $298 million. Over the last five years, we have spent nearly $3.6 billion Chart 1 Chart 2 . Operating Rsvenues  Primary Ean+ings Per Share ~ Het Earnings ~ Divldsnds Deolared Per Shars Billions of Dollars Millions of Dollars Dollars 18 900 7.50 15 / 750 6.25 12 3 0 600 5.00 450 3.75 300 2.50 150 1.25 0 0 75 76 77 78 79 80 8182 83 84 75767778798081828384 on additions to our fixed assets compared with ~1.9 bil- lion spent during the previous five years. Approximately 55 % of the amount spent over the past five years was for domestic and international tobacco operations and most of the remainder for Miller Brewing Company. We estimate capital expenditures of $325 million in 1985 and approximately 51.7 billion in the five-year peri- od 1985 through 1989. Over 80% of these expenditures will be for forecasted capacity needs and productivity improvements. In 1984, our funds from operations increased 14. 7% to $1.5 billion (Chart 3). Over the last ten years, internal funds generation increased, 22.1% annually. During the same period, net earnings advanced 17.6 % annually (Chart 4). Total assets were $9.3 billion at year-end 1984. This was almost four times greater than our asset base ten years earlier. Our net return on average total assets was 10.9%, up from 10.6% in 1983 (Chart 5). Stockholders' equity has increased over four times during the past decade reaching $4.1 billion at the end of Chart 3 a Funds from Operations - Capital Expenditures Millions of Dollars 1200 1000 800 600 400 200 YN N 0 h 75 76 7778 79 80 81 82 83 84 Chart 4 S Funds from Operations . Het Earnings F~ 9 11. 1. 11: 11 141141111 . 75 76 77 78 79 80 81828384

198-1• Our net return on average stockholders' equity was in 1984, down from 23.5% in 1983 (Chart 6). Total debt at year-end 1984 was 82.6 billion, a S.186.3 million decrease from a year earlier. Our debt to equity ratio improved to .63 to 1, compared with .76 to 1 in 1983 and an average .99 to 1 over the last ten (Chart 7 yea During the, year, we repurchased $ 94 million of 14 % to 151/4% notes. The long-term portion of the $160 mil- lion 81/2% bank term loan amounting to $133 million will be prepaid in 1985 and has been classified as a current liability. The interest rate on the 81/2 % bank term loan would have increased to a premium rate above prime commencing in 1985 and therefore led us to the decision for its early retirement. In addition, $150 million 81/2 % notes will also be retired during 1985 as scheduled. We expect a further decline in our debt over the next five years. During 1984, the company purchased 4.1 million shares of its common stock under two announced com- mon stock repurchase programs at an average cost of $75.91 per share. The repurchased shares will be used for the exercise of employee stock options and other cor- porate purposes. At year-end 1984, fixed-rate obligations were approx- imately 89 % of total debt compared with 72 % in 1979. The fixed-interest portion of our debt, totaling $2.3 bil- lion at year-end, carried an average annual interest rate of approximately 9.5 %. Currently, Philip Morris has short-term credit facili- ties with a number of financial institutions totaling Chart 5 Chart 8 approximately 81.7 billion. Of this amount, approxi- mately $350 million is in revolving credit agreements and other arrangements with both U.S. and European banks. These facilities, which exceed our expected needs in 1985, provide support for our commercial paper borrow- ings and other credit activities. Philip Morris continues to maintain the highest ratings in the commercial paper market and a solid "A" credit rating for long-term obligations. Interest expense in 1984 totaled 5299.1 million, compared with $233.9 million in 1983 (Chart 8). The increase in interest expense was due principally to lower capitalized interest during 1984 arising from the com- pletion of facilities, partially offset by lower interest in- curred due to reduced borrowings. Interest capitalized in 1984 was $14.0 million compared with $128.8 million in 1983. Earnings coverage of interest expense declined to 6.37 times interest expense for 1984 from 7.78 in 1983. The write-down of the Trenton brewery, which adversely im- pacted pre-tax earnings by $280 million, was the primary reason for the decline in the earnings coverage for 1984. Our effective income tax rate was 44. 7% in 1984 and 43.0 % in 1983. Lower investment tax credits and equity earnings during 1984 were the primary reasons for the higher effective tax rate. Chart 7 Chart 8 I Total Ass.ts (Year-End)  Stockholders' Equity (Year-End) [> Total Debt (Year-End)  Int.rast Expsnse . N.t Return (Before Net Interest) on - N.t R.tum on ~ Ratio of ibtal Debt to - Intanst Cov.ny. (Earnings Before Avaraye Totst Asssts (36) Average Stookhold.n' Equity (45) Stookhoidsn' Equity (Year-End) Interest and Taxes Divided by Interest) B illions of Dollars Billions of Dollars Billions of Dollars Ratio Millions of Dollars Coverage 9.0 12% 4.50 24°Po 3.6 1.2 270 9 0 7.5 10 3.75 I 20 3.0 1.0 225 . 7.5 Ul 6.0 8 3.00 - 16 2.4 180 0 l9 6 4.5 6 2.25 12 1.8 L] Q, .6 135 . 4.5 0 3.0 ~ 4 1.50 8 1.2 .4 90 Q 3.0 l (J'7 1.5 2 .75 4 .6 ni H .2 45 N (~ 1.5 ~ 0 0 0 0 0 0 0 0 75 76 77 78 79 80 81 82 83 84 75 76 77 78 79 80 81 82 83 84 75 76 77 78 79 80 81 82 83 84 75 76 77,78 79 80 81 82 83 84-

Selected Financial Data (in millions of dollars, except per share data) for years ended December 31 1984 1983 1982 1981 1980 Operating Revenues $13,813.7 $12,975.9 $11,586.0 $10,722.3 $9,649.5 United States Export Sales 924.3 969.5 978.0 833.5 702.4 - Interest Expense 299.1 233.9 267.2 258.5 215.0 Depreciation Expense 340.5 293.8 249.9 210.5 178.0 ' Net Earnings 888.5 903.5 781.8 659.7 549.1 _~ Earnings Per Share 7.24 7.17 6.23 5.28 4.41 Total Assets 9,339.2 9,667.0 9,622.1 9,115.1 7,301.7 Long-Term Debt 2,059.5 2,514.7 3,745.8 3,498.2 2,597.2 Total Debt 2,588.6 3,074.9 3,745.8 3,804.2 2,800.1 Deferred Income Taxes 783.7 737.3 564.5 411.3 302.9 Stockholders' Equity 4,092.9 4,033.7 3,662.9 3,233.7 2,837.0 Dividends Declared Per Common Share 3.40 2.90 2.40 2.00 1.60 Funds From Operations 1,546.8 1,348.4 1,159.8 976.3 784.2 Capital Expenditures 298.1 566.2 918.2 1,018.5 750.8 The above selected financial data of the company and consolidated subsidiaries for all exports from the United States by Philip Morris International amounted to the five years ended December 31, 1984, should be read in conjunction with the $1.053 billion. consolidated financial statements and notes thereto included in this report. A write-dow n of the completed but inactive Miller Brewing Company facility in In addition to cigarettes, Philip Morris International exports tobacco and Trenton, Ohio reduced 1984 net earnings and earnings per share by $145 .6 million tobacco-related products, soft drink ingredients and beer, and subsidiaries and and $1.19, respectively. affiliates purchase tobacco grown in the United States. In 1984, the value of (\i ~ Q O O 0 10 cn w ~

Management's Discussion and Analysis of Financial Condition and Results of Operations Gereeral Funds from operations of $1.5 billion and $1.3 billion for the years 1984 and 1983, respectively, exceeded total funds used for the respective years by $589.3 million and $279.7 million. In 1982, total funds used exceeded funds from operations by $156.3 million. Capital expenditures accounted for only 31% of the total funds used in 1984 compared with 48 % in 1983 and 70 % in 1982. Capital expenditures of $298 million for 1984 were below the previous two years and are estimated at $325 million in 1985 and $1.7 billion for the years 1985 through 1989. Total debt at December 31, 1984 was $2.6 billion, a $486.3 million decrease from a year earlier. At year-end 1984, the com- pany's debt to equity ratio was .63 to 1, compared to .76 to 1 at December 31, 1983. The decrease was mainly attributable to an early retirement of debt made possible by increased cash flow. The company anticipates that funds from operations will exceed the needs of the business in 1985. In addition, available credit facili- ties of $1.5 billion at December 31, 1984 are maintained through revolving credit agreements and bank lines of credit. Long-term financing needs are expected to be met through long-term debt and other financing when required. During 1984, the company repurchased $94 million of bank term notes bearing interest at 14% to 151/a% . Since the interest rate on the 81/z % bank term loan would otherwise increase to a premium rate above prime in 1985, the outstanding balance of $160 million will be paid in 1985. In addition, $150 million 81/2 % notes mature and will be paid in 1985. Fixed-interest debt at December 31, 1984, was 89% of total debt compared with 87 % and 78 % at December 31, 1983 and 1982, respectively. This debt had an average interest rate of approximately 9.5% at December 31, 1984 and 1983. During 1984, the company purchased 4.1 million shares of its common stock under two announced common stock repurchase pro- grams at an average cost of $75.91 per share. The repurchased shares will be used for the exercise of employee stock options and other corporate purposes. In 1984, interest expense was $299.1 million, an increase of $65.2 million (27.9%) over 1983 due principally to lower capitalized interest during 1984 arising from the completion of facilities, parti- ally offset by lower interest incurred'due to reduced borrowings. Interest capitalized in 1984 was $14.0 million, compared with $128.8 million and $162.6 million for 1983 and 1982, respectively. In 1984, consolidated operating revenues of $13.8 billion were $0.8 billion or 6.5 % higherr than in4983, attributable principally to increased revenues of $0.7 billion from tobacco and $84.1 million from Seven-Up; beer revenues were up slightly. The increase in tobacco revenues was attributable to increases in unit volume and selling prices, reduced by $275 million due to currency translation. The slight increase in beer revenues was due to volume increases for popular-priced brands partially offset by volume reductions in premium-priced brands. In 1984, operating income of consolidated companies was $416.5 million (22.2%) higher than in 1983 due mainly to domestic tobacco products. Tobacco products operating income increased $494 million (30 %) from 1983 due to volume and price increases, partially offset by the $38 million negative effect of a stronger U.S. dollar on foreign currency denominated earnings. Philip Morris U.S.A. operating income was up $408 million (30.5 %) and Philip Morris International was up $86 million (28%). Domestic cigarette industry volume rose to an estimated 600 billion units, a 0.6% increase from 1983. Philip Morris U.S.A. increased its unit volume 3.4% and market share to 35.3%. Philip Morris International total unit volume increased 5.5 %. The income gains for Philip Morris International were based primarily on particularly strong unit performances in the developed markets of Western Europe and the Middle East. Beer operating income decreased $111 million (48.8%) from 1983 due primarily to lower profit margins on popular-priced brands and increased market- ing expenditures. Seven-Up's 1984 operating income of $5.3 million was due primarily to volume and price increases. Tobacco products contributed 94 % and beer 5% of consolidated operating income for 1984. In 1984, net earnings were reduced by $145.6 million or $1.19 per share by the write-down of the completed but inactive Trenton brew- ery to net realizable value in the fourth quarter. The write-down was due to the continuing slowdown in consumer demand in the brewing industry and for some Miller products. In contrast to 1982 and 1983, Miller volume and market share were up slightly in 1984, but Miller still has excess capacity in relation to its near-term projections. Equity in net earnings of unconsolidated subsidiaries and affili- ates in 1984 decreased $29 million due primarily to the write-down of certain investments in developing countries. In 1983, consolidated operating revenues of $13:0 billion were $1.4 billion or 12.0% higher than in 1982, attributable principally to increased revenues of $1.3 billion from tobacco, and $119 million from Seven-Up. Beer revenues decreased by $6 million. The increase in tobacco revenues was attributable to increases in excise taxes and selling prices reduced by $179 million due to currency 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 off- set by price increases. 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 transla- tion of $59 million. Philip Morris U.S.A. operating income was up $236 million (21.4%) while Philip Morris International was down $65 million (17.3%). Despite a reported 4.5% domestic cigarette N) ~ 0 0 0 ~ a o ~ .~ E

Management's Discussion continued industry decline, Philip Morris U.S.A. increased its unit volume mar- ginally and its market share significantly. 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 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 expended to acquire them. These values do not consider technological 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. 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 general price level Increase in specific prices (current cost)(B) Excess of. increase in general price level over increase in specific prices • 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 44.7% Current Cost 49.7% million was attributable to increased marketing expenditures. Tobacco products contributed 88 % and beer 12 % of consolidated operating income for 1983. Equity in net earnings of unconsolidated subsidiaries and affiliates in 1983 increased $11.4 million over 1982. The increase was attributable principally to increased earnings from real estate operations. Consumer Price Index is used to measure the effects of general inflation for the translated current cost information. The current cost method involves the use of assumptions, approxi- mations, and estimates and, therefore, the resulting measurements should be viewed in that context and not as precise indicators of the effects of inflation. The results do not necessarily represent amounts for which the assets could be sold or costs which will be incurred in future periods, or the manner in which actual replacement of assets will occur. Schedule I presents earnings and other data for 1984 as reported 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 1984 constant dollars measured by the U.S. Consumer Price Index. As Reported in the Primary Statements (Historical Cost) Adjusted for Changes in Specific Prices (Current Cost) $13,813.7 $13,813.7 8,900.9 . 8,952.8 340.5 449.3 2,965.4 2,965.4 1,606.9 1,446.2 718.4 718.4 $ 888.5 $ 727.8 $ 7.24 ~ $ 5.9a CI't O $ 169.9 O ~ p $ 339.1 ~ Ctt 222.2 crf--~ $ 116.9 $ (89.9) $ 4,092.9 $ 5,812.2 (B) At December 31, 1984, the current cost of inventories was $3,505.5 million, and the current cost of property, plant, and equipment, net of accumulated depreciation, was $4,963.5 million.

Schedule II (in millions of dollars, except per share data) operating revenues Current cost information: Earnings before income taxes Net earnings Earnings per common share Gain from decline in purchasing power of net amounts owed Excess of increase in general price level over increase in specific prices '1~ranslation adjustment Stockholders' equity at year-end Cash dividends declared per common share Market price per common share at year-end Average Consumer Price Index (A) Restated in average 1984 constant dollars. In arriving at current cost net earnings for 1984, 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 1984 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 1984 decreased earnings before income taxes by $51.9 million, reflecting the fact that inflation 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 to cost 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 informa- 1984 1983(A) 1982(A) 1981(A) 1980(A) $13,813.7 $13,528.1 $12,467.6 $12,245.6 $12,163.5 $ 1,446.2 $ 1,514.1 8 1,271.5 $ 1,088,0 $ 1,080.3 727.8 803.8 713.7 621.5 607.2 5.93 6.38 5.68 4.97 4.87 169.9 181.3 194.1 387.4 469.2 116.9 (77.3) (52.9) 26.9 39.7 (89.9) (72.3) (78.9) (46.7) (78.5) 5,812.2 6,074.4 5,882.0 5,329.0 4,943.1 $ 3.40 $ 3.023 $ 2.583 $ 2.284 $ 2.017 $ 79'!hW $ 731/2 $ 637/s $ 537/s $ 52 311.1 298.4 289.1 272.4 246.8 tion since a more effective matching of current costs with current revenues results. The depreciation adjustment decreased earnings before income taxes by $108.8 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 10.0%. The increase in stockholders' equity of $1.7 billion as compared with the amount reported in the primary statements is attributable mainly to the appreciation of inventories and property, plant, and equipment due to inflation. Additionally, stockholders' equity is increased by gains resulting from the decline in the purchasing power of net amounts owed. 2T

i:if#een Year Financial Review (in millions of dollars, except per share amounts) 1984 1983 1982 1981 1980 Summary of operations: Operating revenues $13,813.7 12,975.9 11,586.0 10,722.3 9,649.5 Cost of sales: Cost of products sold 5,516.6 5,342.8 5,315.4 5,024.2 4,446.7 Federalexcise taxes 2,040.9 1,983.3 1,180.0 1,168.5 1,105.3 Foreign excise taxes 1,635.0 1,527.0 1,434.5 1,410.8 1,388.7 Operating income 2,345.6 1,958.0 1,715.7 1,446.2 1,273.4 Interest expense 299.1 233.9 267.2 258.5 215.0 Earnings before income taxes 1,606.9 1,584.8 1,300.2 1,068.1 924.4 Pre-tax profit margins 11.6% 12 .2 % 11.2 % 10. 0% 9. 6% Provision for income taxes $ 718.4 681.3 518.4 408.4 375.3 11 Net earnings 888.5 903.5 781.8 659.7 549.1 Primary earnings per common share 7.24 7.17 6.23 5.28 4.41 Fully diluted earnings per common snare 7.24 7.17 6.23 5.28 4:41 Dividends declared per common share 3.40 2.90 2.40 2.00 1.60 Weighted average shares-primary 122.7 126.0 125.6 124.9 124.6 Weighted average shares-fully diluted 122.7 126.0 125.6 124.9 124.6 Capital expenditures $ 299.1 566.2 918.2 1,018.5 750.8 Annual depreciation 340.5 293.8 249.9 210.5 178.0 Property, plant, and equipment (gross) 5,580.5 5,698.7 5,284.2 4,513.6 3,573.8 -1 Property, plant, and equipment (net) 4,013.9 4,381.2 4,178.1 3,583.2 2,806.4 Inventories 2,653.5 2,599.2 2,833.8 2,921.8 2,499.2 Current assets 3,640.1. 3,452.8 3,598.8 3,733.1 3,189.3 Working capital 1,288.6 1,116.5 1,989.2 1,797.5 1,662.0 Total assets 9,339.2 9,667.0 9,622.1 9,115.1 7,301.7 Total debt 2,588.6 3,074.5 3,745.8 3,804.2 2,800.1 Stockholders' equity 4,092.9 4,033.7 3,662.9 3,233.7 2,837.0 Net earnings reinvested 472.3 538.1 480.3 407.8 350.3 - Common dividends declared as %-df net earnings 46.8% 40.5% 38.6% 37.9% 36.3% Book value per common share ~ 33.72 32.27 29.10 25.79 22.74 Market price of common share high-low 831/4-62114 72a/s-54 673/4-441/a 551/s-42 481/z-291/s Closing price year-end 80% 713/4- 60 483/4 431/4 Price/earnings ratio year-end i1 10 9 9 9 Number of common shares-actual outstanding year-end .121.4 125.0 125.9- 125.4 124.8 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. A write-down of the completed but inactive Miller Brewing Company facility in Trenton, Ohio reduced 1984 pre-tax earnings, net earnings and.earnings per share by $280.4 million, $145.6 million and $1.19, respectively.

1979 1978 1977 1976 1975 1974 1973 Philip Morris Incorporated and Subsidiaries 1972 1971 1970 ~ ,149.1 6,632.5 5,202.0 4,293.8 3,642.4 3,011.0 2,602.5 2,131.2 1,852.5 1,509.5 ,655.5 3,072.1 2,401.7 1,966.9 1,656.8 1,290.3 1,060.8 832.9 700.0 577.1 ,036.8 960.8 862.1 778.2 686.3 619.5 558.9 494.8 441.1 372.1 122.0 702.8 490.4 381.1 392.1 349.4 334.5 228.2 201.4 147.1 ,179.4 968.1 782.7 634.5 492.8 403.6 329.5 287.5 241.1 203.2 205.5 149.8 101.6 102.8 99.0 82.7 51.0 37.9 35.5 35.4 894.5 745.5 625.5 471.9 360.8 297.5 255.6 229.6 189.8 150.0 4.08 3.38 2.80 2.24 1.81 1.58 1.35 1.17 1.00 .84 4.08 3.38 2.80 2.24 1.81 1.53 1.30 1.09 .91 .71 1.25 1.025 .781 .575 .463 .388 .337 .316 .303 .263 124.5 120.7 119.6 118.8 116.9 111.3 109.6 106.0 100.3 91.2 124.5 120.7 119.6 118.8 116.9 114.7 114.6 114.5 113.1 113.2 629.4 566.2: 279.8 220.2 244.5 215.8 174.7 120.0 68.0 39.6 132.6 105.5 78.5 64.9 49.9 38.0 30.2 26.6 21.5 17.7 ,803.9 2,217.3 1,594.9 1,323.9 1,129.8 899.8 728.7 571.1 447.1 394.1 3,214.0 1,737.6 1,202.4 993.9 851.1 659.5 510.3 373.4 274.1 236.7 :,234.8 2,188.6 1,817.6 1,657.5 1,448.4 1,269.2 1,009.4 801.1 670.2 568.4 3,881.3 2,756.8 2,221.0 2,005.7 1,788.1 1,557.9 1,245.9 989.7 826.5 728.8 1,727.7 1,585.1 1,415.9 1,202.2 890.8 725.0 515.3 524.8 417.6 347.7 6,322.1 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 2,507.1 2,372:2 1,563.5 1,525.6 1,443.3 1,239.3 947.4 681.0 553.9 557.7 2,471.0 2,114.7 1,690.1 1,430.0 1,227.8 974.7 815.0 695.5 579.1 452.8 352.3 283.8 253.7 197.2 157.1 131.9 111.4 89.9 69.7 52.2 30.6% 30.6% 27.93ii 25.7% 25.7% 24.8% 25.0% 27.2% 30.6% 31.6% 19.84 17.00 14.08 12.00 10.32 8.48 7.33 6.28 5.36 4.47 5/s-31i/s 383/s-28 321/2-25s/4 316/s-247/s 296/s-201/z 30s/4-171/8 341/4-24ss 2 9 6/s-17 17 s/4-113/4 12 6/s-7 36 351/4 31 307/s 261/a 24 283/4 296/s 175/8 123/s 8 10 11 13 14 15 21 25 17 14 124.5 124.3 119.8 119.0 118.7 1.14.5 110.8 108.9 104.7 96.6 N UT 0 co Eil

Consolidated Balance Sheets (in millions of dollars) December 31, 1984 and 1983 1984 1983 Assets Cash and cash equivalents $ 93.7 $ 29.8 Receivables, net 854.3 781.8 Inventories: Leaftobacco 1,796.2 1,775.0 Other raw materials 359.3 331.2 Finished goods and work in process 498.0 493.0 2,653.5 2,599.2 Prepaid expenses 38.6 42.0 Total current assets 3,640.1 3,452.8 Property, plant, and equipment, at cost: Land and land improvements 267.0 - 250.1 Buildings and building equipment 1,772.7 1,590.3 Machinery and equipment 3,315.9 3,036.1 Construction in progress 224.9 822.2 5,580.5 5,698.7 Less, accumulated depreciation 1,566.6 1,317.5 4,013.9 4,381.2 Investments in unconsolidated subsidiaries and affiliates 1,054.0 1,184.1 Brands, trademarks, patents, and goodwill, at cost, net 547.1 559.9 Other assets 84.1 89.0 $9,339.2 $9,667.0 See notes to consolidated financial statements. t~l N 0 0 0 ~ 0 ~t? cn ~ 4T.W

Philip Morris Ineorporated and Subsidiaries 1984 1983 Liabilities Notes payable $ 171.6 $ 293.9 Current portion of long-term debt 357.5 266.3 Accounts payable 471.9 437.3 Accrued liabilities: Taxes, except income taxes 409.7 368.8 Employees' retirement and profit-sharing plans 129.2 130.7 Other 463.3 430.7 Income taxes payable 244.8 317.0 Dividends payable 103.5 91.6 Total current liabilities 2,351.5 2,336.3 Long-term debt 2,059.5 2,514.7 Deferred income taxes 783.7 737.3 Other liabilities 51.6 45.0 Total liabilities 5,246.3 5,633.3 Stockholders' Equity Common stock, par value $1 per share 126.4 126.4 Additional paid-in capital 427.0 446.0 Earnings reinvested in the business 4,210.1 3,737.8 Currency translation adjustments (296.2) (176.7) 4,467.3 4,133.5 Less, cost of treasury stock 374.4 99.8 Total stockholders' equity 4,092.9 4,033.7 $9,339.2 $9,667.0 M

Consolidated Statements of Earnings (in millions of dollars, except per share data) for the years ended December 31 1984 1983 1982 Operating revenues $13,813.7 $12,975.9 $11,586.0 , Cost of sales: Cost of products sold 5,516.6 5,342.8 5,315.4 Excise taxes on products sold 3,675.9 3,510.3 2,614.5 Gross profit 4,621.2 4,122.8 3,656.1 Marketing, administration, and research costs 2,329.3 2,247.4 2,011.6 Operating income of consolidated companies 2,291.9 1,875.4 1,644.5 Equity in net earnings of unconsolidated subsidiaries and affiliates 53.7 82.6 71.2 Operating income of operating companies 2,345.6 1,958.0 1,715.7 Corporate expense 138.1 128.8 112.8 Interest expense 299.1 233.9 267.2 Facility write-down 280.4 Other deductions, net 21.1 10.5 35.5 Earnings before income taxes 1,606.9 1,584.8 - 1,300.2 Provision for income taxes 718.4 681.3 518.4 Net earnings $ 888.5 $ 903.5 $ 781.8 Earnings per share $ 7.24 $ 7.17 $ 6.23 See notes to consolidated financial statements.

Consolidated Statements o Stockholders' Equity (in 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, 1982 $ 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, December 31, 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, 198a 126.4 446.0 3,737.8 (176.7) (99.8) 4,033.7 Net earnings 888.5 888.5 Exercise of stock options and stock units J (19.0) 33.8 14.8 Cash dividends declared on common stock, $3.40 per share (416.2) (416.2) ; Currency translation adjustments (119.5) (119.5) Common stock purchased (308.4) (308.4) Balance, December 31, 1984 $126.4 $427.0 $4,210.1 $(296.2) $(374.4) $4,092.9 ( ) Denotes deduction . See notes to consolidated financial statements. N C!7 Q a ~ 0 ~ m N

Consolidated Statements of Changes in Financial Position (in millions of dollars) for the years ended December 31 Funds Provided By Operations: Net Earnings $ 888.5 Depreciation and amortization 375.5 Facility write-down 280.4 Deferred income taxes 36.5 Equity in undistributed net earnings of unconsolidated subsidiaries and affiliates (34.1) Increases (decreases) in accrued liabilities and other payables 46.3 Decreases (increases) in prepaid expenses 3.4 Other, net 90.2 Total funds provided 1,686.7 Funds Used For Increases (decreases) in: Cash and receivables 136.4 Inventories 54.3 Capital expenditures 298.1 Dividends declared 416.2 Currency translation adjustments affecting working capital 52.5 Total funds used J 957.5 Net funds provided (required) $ 729.2 Financing Activity (Decreases) increases in current notes payable $ (31.1) Long-term debt issued 35.1 Long-term debt retired (439.6) Purchase of treasury stock (308.4) Issuance of shares 14.8 $ 903.5 $ 781.8 327.0 281.0 173.5_ 146.2 166.5 (20.0) (7.2) (1.4) 34.6 (26.2) 1,542.3 1,112.2 81.4 (47.7) (234.6) (88.0) 566.2 918.2 365.8 301.5 48.1 48.8 826.9 1,132.8 $ 715.4 $ (20.6) $ 560.2 $ (306.0) 91.1 437.8 (1,277.5) (100.2) (132.8) 11.0 21.6 (Decreases) increases in funds from financing activity $ (729.2) $ (715.4) $ 20.6 Increases (Decreases) in Working Capital $ 172.1 $ (872.7) $ 191.7 Working Capital at Year-end $1,288.6 $1,116.5 $1,989.2 ( ) Denotes deduction See notes to consolidated financial statements. ~ -~ ~ 0 i 0 0 N 0 ~ at w M"

Notes to Consolidated Financial Statements Summary of Significant Accounting Policies: Consolidation: The consolidated financial statements include the accounts of the company and all wholly-owned subsidiaries except for real estate operations and a credit corporation formed in 1982. Investments in unconsolidated subsidiaries and affiliates, including 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 tobacco used in products manufactured outside the United States is determined by the average cost method and, in gen- eral, 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, because of the duration of the aging process, ordinarily would not be utilized within one year. Facility Write-Down: A write-down of the completed but inactive Miller Brewing Company facility in Trenton, Ohio, reduced 1984 pre-tax earnings, net earn- ings, and earnings per share by $280.4 million, $145.6 million, and $1.19, respectively. Miller has excess capacity in relation to its present and near-term requirements. In view of continuing slowdown in consumer demand inventories: At December 31, 1984 and 1983, the cost of approximately 70% of inventories was determined by the LIFO method. The stated LIFO value of inventory was $777 million and $803 million lower than the 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 difference between the financial statement income tax pro- vision and income taxes currently payable is reported in the finan- cial 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 subsidiaries expected to be remitted. Property, plant, and equipment: Maintenance and repairs are charged against income, and expendi- tures for renewals and improvements are capitalized. The capitalized cost of facilities includes interest and real estate taxes incurred dur- ing the construction 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. in the brewing industry, commencement of production at the Tren- ton brewery cannot presently be foreseen. The facility has been placed on inactive status pending an increase in demand, and man- agement believes it appropriate to reduce the cost to reflect the esti- mated impairment in value. current cost of inventory at December 31, 1984 and 1983, respec- tively.

Notes continued Subsidiaries and Atfiliates 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 of dollars) 1984 1983 1982 1984 1983 1982 1984 1983 1982 Assets $1,481.2 $1,359.7 $1,472.0 -current $198.1 $291.7 $ 345.3 $1,616.2 $1,829.6 $1,953.2 -noncurrent 164.5 234.5 214,6 946.8 961.3 842.8 Liabilities 667.4 721.8 868.3 -current 109.4 181.2 202.8 1,071.8 1,160.4 1,353.6 -noncurrent 2.1 21.6 10.7 738.4 922.9 784.3 Net assets 813.8 637.9 603.7 251.1 323.4 346.4 752.8 707.6 658.1 Company's equity 813.8 637.9 603.7 208.7 244.8 260.1 266.5 278.9 276.5 Operating revenues 2,855.4 2,703.3 2,600.3 902.2 869.8 1,105.6 5,571.6 6,144.6 5,963.3 Gross profit 129.0 123.7 136.5 1,105.6 1,198.9 1,093.3 Pre-tax earnings (1.6fl 37.8 57.2 177.2 196.f 206.6 Net earnings 86.6 30.1 63.9 (15.8D 19.9 38.2 112.2 136.4 126.8 Company's equity 86.6 30.1 63.9 (13.4D 18.1 27.9 38.6 40.3 40.4 At December 31, 1984, investments in unconsolidated subsidiaries and affiliates located outside the United States exceeded equity in net assets by approximately $140 million, of which $135 million is being amortized. Economic conditions have impaired the company's investments in certain greater than 50 % owned unconsolidated subsidiaries. Conse- quently, the company's 1984 net earnings include a charge of $41 million representing a write-down of such investments. These opera- tions are now being accounted for on the cost method of accounting. Consolidated earnings reinvested in the business at December 31, 1984, include the company's equity of approximately $300 million in undistributed earnings of unconsolidated subsidiaries and affiliates located outside the United States. Federal income tax has not been provided on approximately $1.02 billion of accumulated earnings of subsidiaries located outside the United States, which is expected to be permanently invested abroad. X"

phiiip Morris Credit Corporation: Philip Morris Credit Corporation (PMCC), a wholly-owned unconsoli- dated subsidiary of the company, is engaged in financial service activities, including financing for customers of the company and its operating companies. Pursuant to a Support Agreement between the company and pMCC, the company has agreed to retain ownership of 100% of the voting stoclc 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 1984 or 1983. Condensed financial statements of PMCC at December 31 and for the year then ended, follow: (in millions of dollars) 1984 1983 1984 1983 Assets Financing revenues $52.1 $24.1 Finance assets $611.1 $271.5 Expenses 35.2 15.4 Other assets 13.7 4.6 Earnings before income taxes 16.9 8.7 Total assets $624.8 $276.1 Provision for income taxes . 5.6 4.2 Liabilities and stockholder's equity Net earnings $11.3 $ 4.5 Notes payable $232.7 $ 84.4 Deferred taxes and other liabilities 34.0 17.4 Long-term debt • 201.4 54.1 Capital notes due parent 90.0 87.1 Stockholder's equity 66.7 33.1 Total liabilities and stockholder's equity $624.8 $276.1 N CFi 0 0 ~ ~ 0 ~ CN E

Notes continued Real Estate Operations: Mission Viejo Realty Group Inc. ("MVRG"), a w solidated subsidiary of the company, is engaged mercial, and industrial real estate development The company's investment in MVRG at Decem holly-owned u in community activities. ber 31, 1984, ncon- , com- exceeded equity in net assets by approximately $43 million, of which 819 million is being amortized. Condensed financial statements of MVRG at December 31 and for the year then ended, follow: (in millions of dollars) 1984 1983 1984 1983 Assets Operating revenues $237.7 $258.5 Real estate held for sale and investment $237.1 5239.8 Costs and expenses 202.4 218.4 Land and offtract improvements 170.8 155.7 Earnings before income taxes 35.3 40.1 Other assets 56.4 55.0 Provision for income taxes 18.1 20.5 Total assets $464.3 $450.5 Net earnings $ 17.2 $ 19.6 Liabilities and stockholder's equity Payable to affiliates $ 87.3 $121.7 Deferred income taxes 91.9 81.0 Other liabilities 45.4 25.3 Stockholder's equity 239.7 222.5 Total liabilities and stockholder's equity $464.3 5450.5 Brands, Trademarks, Patents, and Goodwill: At December 31, 1984, this account included approximately $387 opinion of management, the related investments have not experi- million which is being amortized on a straight-line basis, principally enced any diminution in value. Accumulated amortization was $78.9 over 40 years. Cost in excess of net assets of companies acquired million and $68.3 million at December 31, 1984 and 1983, respec- prior to November 1, 1970, is not being amortized because, in the tively. N cn 0 0 0 ~ 0 10 ot v _38

Short Term Borrowing Arrangements: At December 31, the company's short-term borrowings and related average interest rates consist of the following: (in millions of dollars) Bankloans Commercial paper obligations Amount reclassified to long-term debt The company has credit facilities with a number of lending institu- tions amounting to approximately $1.7 billion at December 31, 1984. Approximately $1.5 billion of these facilities remained unused at December 31, 1984. These facilities are primarily maintained to sup- port the company's commercial paper borrowings. The company maintains bank balances of approximately $40 million to support $300 million of the unused facilities and compensate the banks for services. Commitment fees, ranging from 1/4 to 3/s of 1 per- 1984 1983 Amount Outstanding Average Interest Rate Amount Outstanding Average Interest Rate $196.5 8.4% $199.7 8.9% 39.8 9.9% 160.1 10.0% (64.7) (65.9) $171.6 $293.9 cent, are paid to the banks as compensation for $700 million of the unused facilities. The company's credit facilities include revolving credit agree- ments and other arrangements which mature after 12 months and enable the company to refinance short-term borrowings on a long- term basis. Accordingly, short-term borrowings intended to be refi- nanced have been reclassified to long-term debt. LM]

Notes continued i.ong Term Debt: At December 31, the company's long-term borrowings, exclusive of amounts due within one year, consist of the following: (in millions of dollars) Short-term debt, reclassified Notes: 14%-151/4%, payable 1988 to 1991 9.55 %, payable 1986 8'/4 % and 87/s %, payable through 1998 5.15%, payable through 1989 Bank term loan agreement: Interest at 81/2% Debentures: Sinking fund, interest from 65/s % to 9'/s %, payable through 2004 $250 million (original issue discount), interest at 6%, payable 2001 $200 million (original issue discount), interest at 6%, payable 1999 Other currencies: 700 million Swiss franc loans, interest from 5'/4 % to 63/4 %, payable 1989 to 1994 400 million Deutsche mark loans, interest from 67/s % to 91/z%, payable through 1990 Purchase money obligations: Interest principally from 6% to 71/z %, payable through 2014 Other 1984 1983 $ 64.7 $ 65.9 250.0 319.5 250.0 250.0 230.0 386.7 23.8 26.4 - 160.0 299.0 300.5 112.3 110'.5 100.0 98.1 280.0 318.2 131.8 155.2 183.7 184.2 134.2 139.5 $2,059.5 $2,514.7 Original issue discounts relating to the $250 million 6% debentures debt classified as long-term debt, in each of the following periods and $200 million 6% debentures are being amortized over the lives are: 1985, $357.5 million; 1986, $309.0 million; 1987, $54.0 million; of the issues using the interest method, which results in effective 1988, $129.3 million; 1989, $140.5 million; 1990-1994, $705.6 mil- interest rates of 15.2 % and 14.1 %, respectively. lion; and 1995-1999, $397.4 million. Aggregate maturities of long-term debt, excluding short-term Restrictions: Certain long-term debt agreements restrict payment of cash divi- Other debt agreements specify minimum amounts of working cap- dends and purchase, redemption or retirement of capital shares. At ital and limit the amount of senior debt which may be issued. At December 31, 1984, approximate3y $2.9 billion of consolidated earn- December 31, 1984, the company was in compliance with these ings.reinvested in the business was free of such restrictions. agreements. Interest: (in millions of dollars) Interest expensed Interest capitalized Interest incurred 1984 1983 N 1982 $299.1 $233.9 Q $267.2 14.0 128.8 0 162.6 $313.1 $362.7 t~--~ O~ $429.8 Ot

Currency '1ranslation Adjustments: Currency translation adjustments include translation losses as follows: (in millions of dollars) 1984 1983 1982 ~ Translation adjustments $ 95.5 $60.1 $46.6 Related income taxes 24.0 18.0 25.2 Netchange $119.5 $78.1 $71.8 Capitai Stock: Shares of common stock authorized, issued and outstanding were: Authorized Issued Treasury Outstanding Balance, January 1, 1982 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)-1 Balance, December 31, 1983 200,000,000 126,371,774 (1,389,050) 124,982,724 ~ Exercise of stock options and stock units 472,166 472,166-~ 3 Purchased (4,059,600) (4,059,60014 Balance, December 31, 1984 200,000,000 126,371,774 (4,976,484) 121,395,290 4 At December 31, 1984, 3,092,893 shares of common stock were Serial Preferred Stock were authorized, none of which has been reserved for stock options and stock units, and 10,000,000 shares of issued.

Notes continued Stock Plans: Under stockholder-approved stock option and unit plans, 884,186 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 mar- ket 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 1984: grant or to receive the appreciation value (the excess of the market price at the date of exercise over the market price at the date of grant) in the form of stock or stock and cash. Appreciation value may be received with respect to the equivalent of 50% of the units granted. At December 31, 1984, options and units for 1,590,433 shares were exercisable. Per Share Under Option, Per Share Exercised Price Range End of Year Price Range Units 349,877 830.03-551.81 1,057,038 $30.03-551.81 Options 230,784 $22.22-$69.38 1,151,669 $22.22-$69.38 1983: Units 324,801 $30.03-$51.81 1,429,989 $30.03-$51.81 Options 204,021 $22.22-$51.44 989,844 $22.22-$58.06 1982: Units 121,542 $30.03-$51.81 1,754,790 $30.03-$51.81 Options 51,450 $22.22-$30.97 806,083 $22.22-$51.44 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 122,675,079, 126,044,770, and 125,565,555 for the years 1984, 1983, and 1982, respectively. Pension Plans: The company and certain of its subsidiaries have pension plans covering substantially all their employees. Total pension expense for 1984, 1983, and 1982 was $96.3 million, $94.0 million, and $88.1 million, respectively, including amortization of prior service costs (in millions of dollars) Actuarial present value of accumulated plan benefits: Vested Nonvested Net assets available for benefits The assumed rate of return used in determining the actuarial present value of accumulated plan benefits was principally 7.5 % for both 1984 and 1983. - over periods of up to 30 years. Generally, the plans are funded with independent trustees. A comparison of accumulated plan benefits with net assets for defined benefit plans follows: January 1, January 1, 1984 1983 5453.7 $388.9 84.0 74.3 $537.7 $463.2 $745.1 $614.8 I

Pre Tax Earnings and Provision for Income Taxes: (in millions of dollars) 1984 1983 - 1982 Pre-tax earnings: United States $1,488.2 $1,471.7 $1,166.5 Outside United States 118.7 113.1 133.7 Total $1,606.9 $1,584.8 $1,300.2 Provision for income taxes: United States federal: Current $ 572.8 $ 416.0 $ 291.5 Deferred 11.3 170.8 123.2 584.1 586.8 414.7 State and local 84.2 60.4 61.3 Total United States 668.3 647.2 476.0 Outside United States: Current 24.9 31.4 19,4 Deferred 25.2 2.7 23.0 Total outside United States 50.1 34.1 42.4 Total provision for income taxes $ 718.4 $ 681.3 $ 518.4 Deferred tax expense is primarily attributable to the excess of tax The effective income tax rate on consolidated pre-tax earnings over book depreciation, reduced in 1984 by the tax benefit attribut- differs from the U.S. federal statutory rate for the following reasons: able to the facility write-down. 1984 1983 1982 % of % of % of (in millions of dollars) Amount Pre-tax Amount Pre-tax Amount Pre-tax Provision computed at U.S. federal statutory rate of reported pre-tax earnings $739.2 46.0% $729.0 46.0 % $598.1 46.0 % Increases (decreases) in the provision resulting from: Investment tax credit (20.2) (1.3) (39.5) (2.5) (70.3) (5.4) Inclusion of equity in net earnings of unconsolidated subsidiaries and affiliates in pre-tax earnings (24.7) (38.0) (2.4) (32.8) (2.5) Income taxed at other than U.S. federal statutory rate and not expected to be subjecti`o U.S. tax in the foreseeable future (20.4) (1.3)- 1.8 0.1 (12.0) (0.9) State and local income taxes, net of federal tax benefit 45.4 2.8 32.6 2.1 33.1 2.5 Other (0.9) - (4.6) (0.3) 2.3 0.2 Provision as reported $718.4 44.7% $681.3 43.0% $518.4 39.9% Lial

Notes continued Segment Reporting: Worldwide tobacco and domestic beer represent the primary seg- ments of the company's operations. Other products include soft drinks and industrial products. The company's consolidated opera- tions outside the United States, which are predominantly in the tobacco business, are organized into geographical regions for man- agement responsibility, with Europe being the most significant. Investments in unconsolidated subsidiaries and affiliates located out- side the United States principally represent certain tobacco opera- tions located in Europe, Australia and Latin America. Intersegment transactions are not reported separately 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 of dollars) 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 Total 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 applicable to the respective industry segments. Assets of the beer segment include a brewery with a net realizable value of approximately $190 million which was completed in 1984 and has been placed on inac- tive status pending an increase in demand. Reportable segment data reconciled to the consolidated financial statements are presented below. 1984 1983 1982 $ 9,801.7 $ 9,094.9 $ 7,821.8 2,940.3 2,935.5 2,941.3 1,071.7 945.5 822.9 $13,813.7 812,975.9 $11,586.0 $ 2,140.8 $ 1,647.0 $ 1,475.7 116.4 227.1 159.0 23.0 (10.9) (2.4) 2,280.2 1,863.2 1,632.3 53.7 82.6 71.2 11.7 12.2 12.2 $ 2,345.6 $ 1,958.0 $ 1,715.7 $ 150.8 $ 124.7 $ 97.7 144.5 130.5 122.3 $ 5,149.4 $ 5,114.3 $ 5,070.7 1,892.3 2,138.9 2,113.7 1,017.5 1,007.3 979.4 8,059.2 8,260.5 8,163.8 1,054.0 1,184.1 1,197.1 226.0 222.4 261.2 $ 9,339.2 $ 9,667.0 $ 9,622.1 $ 163.1 $ 319.9 $ 498.9 93.6 174.6 286.3 W

Data by Geographical Region for the years ended December 31 (in millions of dollars) 1984 1983 1982 Operating revenues: United States -Domestic $10,034.0 $ 9,303.1 S 8,007.7 -Export 924.3 969.5 978.0 Europe 2,372.1 2,170.7 2,033.6 Other 483.3 532.6 566.7 $13,813.7 $12,975.9 $11,586.0 Operating profit: United States $ 2,149.7 $ 1,804.2 $ 1,513.4 Europe 134.0 67.3 125.0 Other (3.5) (8.3) (6.1) 2,280.2 1,863.2 1,632.3 Reconciliation: Equity in net earnings of unconsolidated subsidiaries and affiliates 53.7 82.6 71.2 Amortization of goodwill and trademarks 11.7 12.2 12.2 Operating income of operating companies $ 2,345.6 $ 1,958.0 $ 1,715.7 Identifiable assets: United States $ 6,615.7 $ 6,928.5 $ 6,678.3 Europe 1,286.v 1,162.1 1,304.2 Other 157.0 169.9 181.3 8,059.2 8,260.5 8,163.8 Investments in unconsolidated subsidiaries and affiliates 1,054.0 1,184.1 1,197.1 Corporate assets 226.0 222.4 261.2 Total assets $ 9,339.2 $ 9,667.0 $ 9,622.1 -p

Notes continued Litigation: There is litigation pending against the leading United States ciga- rette manufacturers seeking damages for cancer and other health effects alleged to have resulted from cigarette smoking. The com- pany is a defendant in some of these actions. The company and the other cigarette manufacturers have successfully defended all similar prior litigation and have not made any payments in settlement. An Additional Information: (in millions of dollars) Depreciation expense Rental expense Quarterly Financial Reaults (Unaudited): (in millions of dollars, except per share amounts) For quarter ended: 1984 Operating revenues Gross profit Net earnings (A) Per share: Earnings (A) Dividends paid Market price high-low 1983 Operating revenues Gross profit Net earnings Per share: Earnings (B) Dividends paid Market price high-low adverse development in pending litigation might encourage the com- mencement of similar litigation. It is not possible to predict the out- come of pending litigation; however, management does not believe that the pending actions will have a material adverse effect upon the financial condition of the company. The company will vigorously defend all such actions. 1984 1983 1982 $340.5 $293.8 $249.9 $ 69.3 $64.4 $ 59.4 Mar. 31 June 30 Sept. 30 Dec. 31 Year $3,249.3 $3,608.6 $3,666.4 $3,289.4 $13,813.7 1,020.7 1,202.7 1,292.9 1,104.9 4,621.2 205.1 257.3 321.6 104.5 888.5 1.67 2.10 2.62 .85 7.24 .72a .85 .85 .85 3.275 751/a-621/2 70-62'la 79-671/s 831/.-737fa 8311+-621/a. $3,021.3 $3,399.6 $3,464.1 $3,090.9 $12,975.9 907.8 1,065.6 1,147.7 1,001.7 4,122.8 186.0 220.2 285.9 211.4 903.5 1.48 1.75 2.27 1.68 7.17 .600 .725 .725 .725 2.775 643/4-54 673/4-557/8 671/2-571/2 723/8-663/s 723/s-54 The principal stock exchange on which the company's common stock (par value $1 per share) is listed is the New York Stock Exchange. At January 31, 1985, there were 30,408 holders of record of the company's common stock. (A) A write-down during the fourth quarter of the completed but inactive Miller Brewing Company facility in Trenton, Ohio, reduced 1984 net earnings and earnings per share by $145.6 million and $1.19, respectively. (B) The sum of quarterly amounts does not equal the yearly amount due to rounding.

Report 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 subsidiaries as of December 31, 1984 and 1983, 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, 1984. 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 circum- stances. In our opinion, the financial statements mentioned above present fairly the consolidated financial position of Philip Morris Incorpo- rated and subsidiaries at December 31, 1984 and 1983, and the con- solidated results of their operations and the changes in their financial position for each of the three years in the period ended December 31, 1984, in conformity with generally accepted account- ing principles applied on a consistent basis. Coopers & Lybrand New York, New York January 29, 1985 Company Report on Financial Statements: The consolidated financial statements and all related financial infor- mation herein are the responsibility of the company. The financial statements, which include amounts based on judgments, have been prepared in accordance with generally accepted accounting princi- ples, applied on a consistent basis. 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 exe- cuted in accordance with management's authorization and properly recorded, that assets are safeguarded, and that accountability for assets is maintained. The system of internal controls is characterized by a control-oriented environment within the company which includes written policies and procedures, careful selection and train- ing 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 statements. Their examinations were performed in accordance with generally accepted auditing standards and included studies and evalu- ations of internal accounting controls to the extent deemed neces- sary by them. The Audit Committee of the Board of Directors, composed of five non-management directors, meets periodically with Coopers & Lybrand, the company's internal auditors and management repre- sentatives to review internal accounting control, auditing and finan- cial reporting matters. Both Coopers & Lybrand and the internal auditors have unrestricted access to the Audit Committee and may meet with it without management representatives being present.

Board of Directors Thomas F. Ahrensfeld I Senior Vice President and General Counsel Alfred Brittain III Chairman of Bankers Trust Company, New York, NY Dr. Harold Brown''- Chairman of Foreign Policy Institute, The Johns Hopkins University School of Advanced International Studies, Washington, DC Dr. Josd Antonio Cordido-Freytes } Member of Betancourt, Cordido and Associates, Caracas, Venezuela, Attorneys, and President of C.A. Tabacalera Nacional Hugh Cullman 1,2,4,5 Vice Chairman of the Board Joseph F. Cullman 3rd 1 Chairman Emeritus William H. Donaldson 1,2,3 Chairman and Chief Executive Officer of Donaldson Enterprises Incorporated, New York, NY Paul W. Douglas 1 Chairman and Chief Executive Officer of The Pittston Company, Greenwich, CT Jane Evans i President and Chief Executive Officer of Monet Jewelers, Inc., New York, NY William K. Howell Vice President and President and Chief Executive Officer, Miller Brewing Company Robert E.R. Huntley 2,3,4 President and Chief Operating Officer of Best Products Co., Inc., Richmond, VA Jacques G. Maisonrouge 3 4 Vice Chairman of Liquid Air Corporation, New York, NY Hamish Maxwell 1,2,4,5 Chairman of the Board and Chief Executive Officer Ross R. Millhiser L•- Vice Chairman of the Board T. Justin Moore, Jr. 2,4 Chairman of Dominion Resources, Inc., Richmond, VA John A. Murphy'.'-,' President and Chief Operating Officer and Chairman, Miller Brewing Company William Murray Vice President and President and Chief Executive Officer, Philip Morris International John S. Reed 1,2,3 Chairman and Chief Executive Officer of Citicorp and Citibank, N.A., New York, NY Frank E. Resnik Vice President and President and Chief Executive Officer, Philip Morris U.S.A. Hans G. Storr 2 Vice President and Chief Financial Officer George Weissman 1,5 Chairman of the Executive Committee Margaret B. Young 3,4 Chairman of the Whitney M. Young, Jr. Memorial Foundation, New York, NY George V. Comfort Director Emeritus H. Robert Marschalk 3 Director Emeritus Richard W. Dammann Member, Advisory Board Edward Lasker Member, Advisory Board i Member of Executive Committee _George Weissman, Chairman z Member of Finance Committee Hugh Cullman, Chairman 3 Member of Audit Committee Robert E.R. Huntley, Chairman 4 Member of Committee on Public Affairs and Social Responsibility Hugh Cullman, Chairman ' Member of Office of the Chairman Hamish Maxwell, Chairman Hamish Maxwell Hugh Culiman George Weissinan John A. Murphy Ross R. Millhiser Joseph F. Cullman 3rd

:alfred Brittain III John S. Reed Dr. Jose Antonio Cordido-Freytes Thomas F. Ahrensfeld Margaret B. Young Jacques G. Maisonrouge William H. Donaldson Paul W. Douglas Jane Evans William K. Howell William Murray 00 T. Justin Moore, Jr. Robert E.R. Huntley Hans G. Storr Frank E. Resnik

Officers Officers of the Corporation Officers of the Corporate Philip Morris U.S,A. Hamish Maxwell Staff and of the Frank E Resnik Chairman of the Board and William J. O'Connor Vice President Tobacco Technology Group . President and Chief Executive Officer , Chief Executive Officer Administration and Human John A Murphy Resources Bruce S Brown William I Cam bell . President and . Staff Vice President and . p Executive Vice President Chief Operating Officer F. Harrison Poole Director Taxes , Marketing Vice President, , Hugh CulIman Financial Affairs Donal P. O'Brien Mark A. Serrano Vice Chairman of the Board Senior Vice President Executive Vice President Philip J. Reilly , Tobacco Technology Group , O erations Ross R. Nlillhiser Vice President p Vice Chairman of the Board James A. Remington John Campbell W James A, Remington President . Senior Vice President Thomas F. Ahrensfeld Vice President , Tobacco Technology Group , Plant Operations Senior Vice President and General Counsel Frank E. Resnik Frank A. Saunders Fred J Laux Vice President Staff Vice President . Senior Vice President R. Nelson Beane Vice President and Carlos E. Salguero , Cultural Affairs , Personnel Controller Vice President Dr. Robert B. Seligman Albert J. Bissmeyer III Geoffrey C Bible Stanley S. Scott Vice President, Vice President, Business . Vice President Vice President, Director of Research and Development, Development Corporate Affairs Tobacco Technology Group William I Campbell Vincent J. Buccellato , Vice President Thomas B. Shropshire William C. Smiy Vice President; Sales Vice President Staff Vice President Eugene J.T Flanagan and General Auditor 0. Witcher Dudley , Richard L Snyder Vice President Leaf Vice President, Secretary, and . Vice President William K Transue , Associate General Counsel . Robert A Fitzmaurice Staff Vice President , Edward W. Frantel Hans G. Storr , Personnel Vice President, Vice President Vice President and Chief Brand and Promotion Financial Officer Louis R. Turano Ehud Houminer Vice President John J. Gillis Vice President Planning Lauren S. Williams , International Services Vice President, National , Vice President , Accounts Tobacco Technology Group William K Howell . Vice President Alexander Holtzman John van Harn Dr. Max Hausermann Associate General Counsel Vice President Leaf Vice President, George R. Lewis , , Research and Development Vice President and Herbert Millington Tobacco Technology Group Treasurer Deputy Treasurer Alexander Holtzman Vice President and Jetson E. Lincoln Norman J. Treisman General Counsel Vice President Strategic Deputy Treasurer , F Robert Kurimsky Research Edward G Silcock . . Vice President William D. McCoy Assistant Treasurer , Information Services Vice President John C. Lino Guy L Smith IV William Murray Assistant Controller . Vice President, Corporate Vice President Horace W. Pierpoint Affairs Assistant Controller Harry G, Steele Robert H. Souther Vice President, Assistant Controller Finance and Administration Robert A. White George W,B. Taylor Assistant Controller Vice President, Engineering and Planning James T. Breedlove Assistant Secretary James L. Thompson, Jr. Vice President Media Bernadette T. Fee , Assistant Secretary Horace P. Jones Controller

Philip Morris International Miller Brewing Company The Seven-Up Company Mission Viejo Realty Group Inc. William Murray John A. Murphy Edward W. Frantel Phili J Reill President and Chairman President and p , y President and Chief Executive Officer William K. Howell Chief Executive Officer Chief Executive Officer Geoffrey C. Bible President and Charles W. Schmid James G Gilleran Executive Vice President Chief Executive Officer Executive Vice President, . Executive Vice President Carlos E. Salguero Thomas B. Shropshire Soft Drink Group Executive Vice President Senior Vice President, Edward P. Callahan Jack G. Raub Executive Vice President Treasurer, and Assistant Senior Vice P id Richard L. Snyder to the President res ent, Administrati James G. Toepfer Executive Vice President on Executive Vice President Warren H. Dunn J Stewart Bakula Gabriel F. N, Bechaalany President Senior Vice President, . Vice President, James L. Huesman , Administration General Counsel and Secr t Senior Vice President and Seven-Up International , e ary Treasurer Elizabeth Butson Thomas A, Fulrath Philip A, Unverzagt Senior Vice President Vice President Finance William K. Smith Vice President , Personnel , Vice President and Secretary Aleardo G. Buzzi Robert P Swank Vice President Allen A. Schumer Senior Vice President, Philip Morris Industrial . Vice President Mary W. Covington Operations William D. McCoy Danette S. Fenstermacher Vice President Billy R. Apple President and Controller Dinyar Devitre Vice President, Chief Executive Officer Vice President Plant Operations Alan G. Wernick Philip Morris Credit Corporation Marc Goldberg Dr. Vincent S. Bavisotto Senior Vice President Vice President Vice President, Thomas J Contrucci Hans G. Storr Richard A, Hutchinson, Jr. Brewing and Research . Controller President Vice President Alan G. Easton Norman J. Treisman Thomas M Kearns Vice President, Senior Vice President . Vice President, Finance Corporate Affairs James T. Breedlove Lee Pollak Leonard J. Goldstein Vice President and Secretary Vice President Vice President, Sales Michael J. Kinney George D Riemer Larry K. Neuman Vice President . Vice President, Personnel Vice President, Material Flow Dennis J. Floam William A Saupe Director of Finance Walter Thoma . Vice President Vice President, Planning Edward G. Silcock and Development Treasurer-Finance Jose de la Torriente Vice President Ronald R. Strain Katherine P. Wickham Vice President and Controller William H. Webb Controller Vice President Bernadette T. Fee Georgy N. Tarala Assistant Secretary Andrew Whist Vice President, Engineering Vice President , Corporate Affairs Robert A. Toledo Vice President, Mary-Ellen Johnson Brand Management Treasurer and Director Finance Charles A. Whipple , Vice President, Paul Tiller National Retail Sales Controller Raymond E. Jones, Jr. Vice President, General Counsel, and Secretary Carroll A. Bodie Assistant Secretary N cti William G. Schmus 0 Assistant Secretary 0 0 ~ 0 10 001 0

General Corporate lnforw'ation Corporate Headquarters: Philip Morris (Australia) Limited Annual Meeting: Stock Exchange Ustings: Philip Morris Incorporated One Little Collins Street M lb Vi t i 3000 The annual meeting of stock- New York 120 Park Avenue e ourne, c or a holders of Philip Morris Incor- A t d New York, New York 10017 Australia porated will be held on April 25 ms er am Basel (2 12) 880-5000 Benson & Hedges (Canada) Inc. , 1985, at the Philip Morris Frankfurt 600 Rue de Lagauchetiere, West Manufacturing Center 3601 Com- Geneva Operating Company Suite 2800 , merce Road, Richmond Virginia. Lausanne Headquarters: Montreal, Quebec H3B 4M1 , Paris Philip Morris U.S.A. Canada Form iO-1C: Zurich 120 Park Avenue Seven-Up International The company's annual report on NY Stock Exchange New York, New York 10017 120 Park Avenue Form 10-K, which will be filed Symbol: MO New York, New York 10017 with the Securities and Exchange Philip Morris International Miller Brewing Company Commission, will be available Auditors: 120 Park Avenue to stockholders in April upon New York, New York 10017 3939 West Highland Boulevard written request to: Coopers & Lybrand Milwaukee, Wisconsin 53201 1251 Avenue of the Americas Regional Headquarters: Eugene J.T. Flanagan, Secretary New York, New York 10020 The Seven-Up Company Philip Morris Incor orated Philip Morris EEC p Brillancourt 4 121 South Meramec 120 Park Avenue Annual Report Paper: Case Postale St. Louis, Missouri 63105 New York, New York 10017 Paper stock used in this report 1001 Lausanne Philip Morris Industrial 4hnsfer Agents and- is made by Plainwell Paper Switzerland 100 Park Avenue Registrars: Company, a division of Philip Philip Morris EFTA Eastern New York, New York 10017 Morris Industrial. , Europe, the Middle East & Africa Mission Viejo Realty Group Inc Morgan Guaranty Trust Company of New York Cover: Solitaire Gloss 80# Place Chauderon 4 . Text: Solitaire Gloss 100# Case Postale 13 26137 La Paz Road 30 West Broadway 1000 Lausanne 9 Mission Viejo, California 92691 New York, New York 10015 Principal Photography: Peter Kane, Erich Switzerland Philip Morris Credit Corporation United Virginia Bank Hartmann/Magnum, Michael Melford. Photography: Dart Bickel, Lois Gervais, Box 26665 Richard Kalvar/Magnum, Claus Meyer/Black Philip Morris Latin America/Iberia 120 Park Avenue Star James Milmoe James T Van Horn III 120 Park Avenue New York, New York 10017 Richmond, Virginia 23261 , , . . Printed in U.S.A. by Case-Hoyt. New York, New York 10017 Dhrldend Reinvestment Philip Morris Asia, Inc. Agent. 25th Floor United Centre , 95 Queensway Central Morgan Guaranty Trust , Hong Kong Company of New York Dividend Reinvestment Plan P,O. Box 3506 Church Street Station New York, New York 10"008

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