Tobacco Documents Online

Philip Morris Incorporated Annual Report 1970

Cover: Our cover, composed of embossed Philip Morris crests, graphically illustrates the growth of operating revenues over the past 15 years. In 1956, operating revenues totaled $410 million; in 1970, they were $1,510 million.

Philip Morris Incorporated Annual Report 1970 Contents 4 Review of the Year 11 Philip Morris U.S.A. 17 Philip Morris International 23 Miller Brewing Company 27 Philip Morris Industrial 30 Mission Viejo Company 33 Corporate Responsibility 40 Financial Review Financial Highlights 1970 1969 1968 Operating Revenues $1,509,540,000 $1,142,373,000 $1,019,846,000 Net Earnings 77,498,000 58,340,000 48,866,000 Per Share of Common Stock: Net Earnings-Primary $3.36 $2.58 $2.18 Dividends Declared 1.05 .98 .85 Percent Increase over Prior Year: Operating Revenues 32.1% 12.0% 12.7% Net Earnings 32.8% 19.4% 12.1 % Net Earnings per Common Share 30.2% 18.3% 10.7% Number of Common Shares: Weighted Average Outstanding during the Year 22,806,598 22,269,461 21,928,890 Actual Outstanding at End of Year 24,158,840 22,565,334 22,200,308 Number of Employees 27,566 27,064 19,066 Operating Companies Revenues: Philip Morris U.S.A. $ 920,323,000 $ 800,949,000 $ 724,570,000 Philip Morris International 424,800,000 256,769,000 211,702,000 Philip Morris Industrial 85,875,000 84,655,000 83,574,000 MUler Brewing Company(1) 78,542,000 - - Consolidated Operating Revenues $1,509,540,000 $1,142,373,000 $1,019,846,000, Operating Companies Income:(2) Philip Morris U.S.A. _. .$ 138,051,000 $ 106,435,000 $ 87,954,000 Philip Morris International 54,167,000 38,717,000 31,391,000 Philip Morris Industrial 6,049,000 5,392,000 6,814,000 MillerBrewingCompany(1) 4,913,000_ 2,693,000 - Consolidated Operating Income(2) $ 203,180,000 $ 153,237,000 $ 126,159,000 (1) Miller operating revenues only from August 1, 1970. Philip Morris Equity of 53% in Miller net income in period 7/1/69- 7/31/70 and 100% of Miller operating income thereafter. (2) Corporate expense, interest, other items and income taxes, which are not directly attributable to the operating companies, are not allocated since any allocation thereof would be arbitrary. . The notes to consolidated financial statements should be read in conjunction with the above data. 1

Major Locations of Philip Morris Incorporated Operating Companies Philip Morris U.S.A. Hoboken, New Jersey Louisville, Kentucky New York, New York Richmond, Virginia Shippenville, Pennsylvania St. Louis, Missouri Staunton, Virginia Philip Morris International Affiliates Argentina Australia Belgium Canada Dominican Republic Ecuador Germany Guatemala Holland' India Malaysia Mexico New Zealand Nigeria Puerto Rico Sweden 2

Switzerland Licensees Hong Kong Panama a Miller Brewing _ • Philip Morris Downingtown, Milwaukee, United Kingdom Ausfria Italy _ The Philippines Company Industrial Pennsylvania Wisconsin Ve l Bolivia Morocco Yugoslavia Azusa, California Belgium Evansvilfe, Indiana Plainwef(, Mi i nezue a Associated Finland Netherlands Fort Worth, Texas De Pere, Wisconsin Greenville, South Carolina ch gan San Francisco Antilles Milwaukee, _ _=_ - _ , Calif i Company Wisconsin orn a Pakistan Stamford, Connecticut 3

Review of the Year For the seventeenth consecutive year your company maintained its forward momentum as it again reached new highs in operating revenues and profits for 1970. Consolidated operating revenues for 1970 of $1,509,540,000 and net earnings of $77,498,000 represented increases of 32.1 % and 32.8%, respectively, over the 1969 results. Earnings per share were $3.36, up 30.2% in 1970 over the $2.58 achieved in 1969. The quarterly dividend on the common stock was increased at the November Board meeting from $.25 to $.30 per share. 1970 marked the 43rd consecutive year that the company has paid dividends on its common stock. The keystone of our operations is still the tobacco business in the United States and worldwide, with Marlboro clearly the fastest-growing major brand on a world basis, and the flagship of our tobacco brand structure. WhNe we have continued to expand our diversified base, we have great •confidence in the future of the tobacco business. Within the next five years, we are projecting capital expenditures of more than $250 million for new and enlarged cigarette production facilities both in the United States and worldwide. These will include the world's largest and most modern cigarette factory and an addition to our research facilities both of which are in Richmond, Virginia. Your company has long been dedicated to the philosophy that modern a"nd efficient manufacturing facilities are required not only to meet the growing demand for our products at home and abroad but also to assure that these products will be produced with the highest possible quality and at the lowest possible cost. Despite attacks upon it from various governmental and other sources, the cigarette industry shows remarkable strength and vitality. In the United States, the industry, after experiencing small declines in unit sales in both 1968 and 1969, reversed the trend in 1970 with a unit sales gain of approximately 1.5%. We feel this reversal is particularly encouraging in view of the anti-cigarette 4 propaganda and rising retail prices, due mainly to state tax increases. Against this background, Philip Morris U.S.A. made a remarkable showing by increasing total unit sales more than 11 %, with Marlboro highlighting the advance with a 16.4% unit sales gain over the 1969 level. Our other major brands, Benson & Hedges 100's, Parliament, Virginia Slims, and Multifilter performed well during the year, and the Parliament Charcoal 100's was successfully introduced. We are fortunate to have such a strong lineup of cigarette brands covering most major segments of the marketplace. The record operating income of Philip Morris U.S.A. reflects not only the growth in cigarette volume but also the recent manufacturers' price increases, plus continued progress in manufacturing efficiencies. In the international cigarette market, which is approximately triple the size of the United States market, sales are estimated to have increased 4%. Philip Morris International unit sales were up more than 18% over the 1969 level, equaling our unit sales in the United States. Our total unit sales worldwide now position your company as the third largest publicly-held cigarette manufacturer in the world. Our affiliates abroad now manufacture in Argentina, Australia, Belgium, Canada, Dominican Republic, Guatemala, Holland, India, Mexico, Nigeria, Switzerland, the United Kingdom, Venezuela, and Pakistan. We have licensing agreements in Austria, Bolivia, Finland, Hong Kong, Italy, Morocco, Netherlands Antilles, Panama, the Philippines, and Yugoslavia. Through local manufacture and export, we supply over 150 countries and territories of the world. While our worldwide tobacco business continued to improve, we were fortunate to be able to increase our commitment to the brewing industry in 1970. Thus, Philip Morris acquired the remaining 47% of the stock of the Miller Brewing Company of Milwaukee, Wisconsin. N cn O 0 O ~ 0 ~ ~ Chairman Joseph F. Cullman, 3rd We also made our first move in the international beer market last spring when our affiliate, Benson & Hedges (Canada) Ltd., purchased the Formosa Spring Brewery in Ontario. Despite the aftereffects of the 51/2 -week strike in 1969, scattered trucking strikes in the spring of 1970 against distributors, and a decline in overseas military sales, the Miller Brewing Company increased overall sales volume in barrels and dollars. Operating profits were off due to higher manufacturing costs and higher promotional expenditures. Miller High Life, which is believed to be the nation's sixth largest-selling beer brand and one of the three nationally distributed premium beers, continues to show strength in major population centers. We are planning new and aggressive marketing programs and have confidence in the future growth of Miller, best illustrated by our plans for expanding its brewing capacity. In another non-tobacco business, Philip Morris Industrial showed an increase in sales and profits in 1970. The performance was particularly encouraging in view of the depressed economic conditions that adversely affected the operating results of most companies in the paper and packaging industries.

As we reported last year, your company made an investment in and obtained operating control of Mission Viejo Company, a major new town and home development company in Orange County, California. In view of the depressed economy in Southern California and the high cost and difficulty of obtaining mortgage money, the company had a relatively good year. We are optimistic at this time of its potential, especially in view of the very large need for housing units in the coming years. The question of smoking and health obviously commanded a great deal of attention from the industry. On April 1,1970, the "Public Health Cigarette Smoking Act of 1969" was signed into law; its purpose is to inform the public that cigarettes may be hazardous to their health. This act banned cigarette advertising on radio and television after January 1, 1971, and prescribed a new revised caution notice on cigarette packages. The ban on radio and television cigarette advertising went into effect as this letter is being written. Obviously, it is too early to determine its immediate effects on our business. However, our experience in selling cigarettes in the United States before the advent of television, and the important market penetration we have been able to make in many international markets without the use of electronic media, leaves us optimistic about our ability to continue to market our products successfully in the United States. ._,. - In another interaction with the government, eight cigarette manufacturers volunteered to disclose "tar" and nicotine figures in advertising. Following discussions with The Tobacco Institute, the.Federal Trade Commission has accepted the industry's proposal and the "tar" and nicotine information will appear soon in our advertisements. In volunteering this action, the manufacturers disclaimed any assumptions as to any significance of "tar" and nicotine in relation to the health question. Another area of activity was in connection with the Federal Communications Commission. In 1967, the FCC ruled that cigarette smoking was a controversial subject, hence broadcasters were obligated to devote without charge a portion of their time to anti-cigarette commercials. In the last year alone, it is estimated that $75 million worth of these anti-cigarette messages were broadcast free. When faced with cigarette commercials going off the air, the FCC issued on December 15, 1970, a new ruling that the broadcasters no longer have a definite obligation to carry free anti-smoking messages but are expected to do so in the time they devote to matters of public concern. At the same time, the FCC ruling indicates that broadcasters are now free to decide whether the issue of smoking and health is no longer controversial and whether they should allow the industry to answer attacks upon it. Philip Morris and other . tobacco manufacturers are appealing in the Federal Court stating that any broadcaster who presents anti-cigarette material has a clear obligation to present the contrary point of view. Once again, the popular press created headlines of revisions of old statistical material, restated with more dire warnings than scientific substance. Our position remains the same-more and better research is needed to answer the questions that have been raised by statistical associations that themselves are wide open to questioning. To this end, the tobacco industry is spending more money than the combined forces of all the voluntary health agencies on research in smoking and health through The Council for Tobacco Research -USA and the American Medical Association's Education and Research Foundation. In this area, a newsworthy attempt was made by the American Cancer Society to publicize an experiment which allegedly demonstrated that 12 beagles, exposed to cigarette smoke forced through holes cut into their windpipes, developed lung cancer of the type encountered in humans. Your Chairman, as Chairman of the Executive Committee of The Tobacco Institute, challenged the American Cancer Society to make the laboratory data available for evaluation by an impartial panel of experts. The Cancer Society refused to do so and, at a news conference in New York on April 30, 1970, our challenge to the Cancer Society was made public. The position of The Tobacco Institute in regard to this matter was supported editorially by a number of important newspapers, including The New York Times. Articles describing the study were submitted for publication to two prominent medical journals both of which rejected them. The Journal of the American Medical Association declined to publish the article after it was reviewed by 18 independent authorities. Although the article has now been published in a minor publication in revised form without claiming that the beagles contracted lung cancer from smoking cigarettes, we believe that through our efforts we have demonstrated that the study is of no real significance as was originally claimed by the American Cancer Society and, further, that often the scientific information which is relied on to indict cigarette smoking is of dubious validity. Obviously, the smoking and health controversy is one that will continue until many major scientific questions are answered. As time progresses and the charges against our industry remain unproved, our long-range position should improve, and we are confident that this whole question will be viewed in better perspective in the future. However, because we are serious and responsible people, we welcome all serious and responsible opportunities to cooperate with the government and other agencies in the field of smoking and health. We would like to recall that we cooperated with the rQ ~ O 0 O 0 10 0:~ 5 0

Federal Trade Commission in setting up its "tar" and nicotine testing laboratories. In fact, they are using smoking machines developed by Philip Morris. Your Chairman first volunteered, on behalf of the industry, to take television and radio commercials off the air. The tobacco industry volunteered to put "tar" and nicotine , values in advertising. Perhaps the greatest area of response has been in the changes we as an industry have made in our products. Filter cigarettes today account for 80% of the industry's output. In the 16 years since the smoking and health controversy began, the industry has markedly reduced the "tar" and nicotine deliveries of cigarettes. Our computations indicate that the "tar" delivery of the average cigarette has been reduced by approximately 46% and the nicotine delivery by 47% during this period. Our responsibility has not been confined to health alone. Over the years, we have discontinued all campus promotional activities and advertising in college newspapers. We have discontinued the use in advertising of celebrities and sporting figures, and the use of testimonials by them. We volunteered to go off the air, which was a very big move, in an attempt to clear' the air. In addition, in the environmental field, your company has made notable progress in anticipating and meeting public needs as well as governmental standards throughout our corporate facilities. More than $5 million of the expenditures planned for our new cigarette factory in Richmond are devoted to the elimination of industrial pollution. In other matters of public concern, your company has achieved notable gains in minority employment, increased its participation in aid to education and cultural activities, and devoted considerable funds and manpower to meet the urban crisis. While we are proud of the efforts and progress we have made in all these areas, we are also cognizant of the magnitude of the tasks ahead and our responsibility to do our part. No accounting of the past year could be accurate without a strong tribute to the more than 27,000 employees who are part of the Philip Morris family throughout the world. Once again, their skills, devotion, and loyalty have produced the quality products that are a reflection of the quality of our personnel. Respectfully submitted on behalf of the Board of Directors, Joseph F. Cullman, 3rd Chairman of the Board and Chief Executive Officer AZ441-r, George Weissman President and Chief Operating Officer March 1, 1971 6

Retrospective de 1'Annee Pour la dix•septibme annde consecutive votre compagnie a continue sa progression; en effet, son chiffre d'affaires at ses b6n64ices ont attetM de nouveaux records en 1970. En 1970, le chiffre d'affaires consolidd se monte ~ $1.509,540.000 et les b6nt:fices nets b$77.498.000, ce qui reprdsente des augmentations de 32,1 % et de 32,8 % par rapport aux r2sultats de 1969. En 1970, les b€ndfices par ac- tion ont atteint $3,36, soit 30,2% de plus qu'en 1969, annde au cours de laquelle iIs avalent atteint $2.58. Lors de sa r€union du mois de novembre, le Conseil d'Administration a porte de $0.25 ~$0.30 le dividende trimestriel pour les ac• tions ordinaires. L'annde 1970 a marque la 43tme annde con- sdcutive pendant laquelle Ia compagnie a payd des dividendes aux porteurs de ses actions ordinaires. Le tabac demeure la clt: de voGte de notre exploitation, aussi bien aux Etats-Unis que dans le reste du monde; Marl- boro est, sans doute, celle des grandes marques mondiales qui r€alise les progrPs les plus rapides, et qui nous sert de porte•drapeau. Tout en poursuivant nos efforts de diversifica- tion, nous avons grande confiance en I'avenir de I'industrie du tabac. Au cours des cinq prochaines anndes, nous projetons d'in- vestir plus de 250 millions de dollars pour construire de nou- velles usines ou agrandir nos installations de production de cigarettes, aussi bien aux Etats•Unis qua dans le reste du monde. En particulier, nous construirons A Richmond, dans I'Etat de Virginie, la fabrique de cigarettes la plus importante et la plus moderne du monde et agrandirons, dans cette meme ville, nos laboratoires de recherches. Votre compagnie est acquise tlepuis longtemps au principe qu'il faut des installations modernes et efficaces, non seule- m ent pour rdpondre A la demande croissante de nos produits aux Etats-Unis et A I'Btranger, mais aussi, s'assurer qu'ils seront de la meilleure qualite possible et produits au co0t le plus bas. Malgrd les attaques dont elle fait I'objet de la part de divers gouvernements et autres sources, I'industrie de la cigarette fait preuve d'une vigueur et d'une vitalitA remar- quables. Aux Etats•Unis, aprPs avoir subi queiques revers peu importants en 1968 et en 1969, [as ventes ont repris leur progression en 1970, annde durant laquelle elles ont enregis- trA un gain par unitd d'environ 1,5 %.A notre avis, ce renverse- ment de tendance est particuliPrement encourageant, compte tenu de la propagande ndgative dont la cigarette fait I'objet et de la hausse des prix de d€tail imp: table en majeure partie au reliivement des impots perc,us par les divers Etats. Dans ce contexte, Philip Morris U.S.A. a obtenu des re;sul- tats remarquables: ses ventes ont augmentd de plus de 11 %; Marlboro venant en ti9te, avec un gain de plus de 16,4% par rapport b 1969. Nos autres marques principales, Benson & Hedges 100's, Parliament, Virginia Slims et Multifilter, se sont bien comportdes en cours d'ann€e, et I'introduction sur le march6 de la Parliament Charcoal 100's a Btd couronnde de succds. Nous nous f6licitons de pouvoir offrir une complete gamme de marques de cigarettes qui permettent de r€pondre aux pr@fdrences de la majorit6 des fumeurs. Les recettes records rdalist:es par Philip Morris U.S.A. sont non seulement imputables 21 la croissance des ventes de cigarettes, mais aussi aux rei6vem ents de prix auxquels les fabricants ont rd• cemment procdde, ainsi qu'aux progri's constants de I'effica- citd de fabrication. Sur le marchA international des cigarettes, qui repr€sente environ le triple du march6 des Etats•Unis, les ventes ont augmentd de 4%. Le nombre d'unitt:s vendues par Philip Morris International a progressd de plus de 18% par rapport ~ 1969, dgalant d6sormais nos ventes aux Etats•Unis. Le nom• bre total d'unit6s que nous vendons aujoud'hui dans le monde place votre compagnie au troisidme rang mondial des socidt6s anonymes de Is branche cigarette. Nos filiales dtrangeres fabriquent actuellement des ciga- rettes dans les pays suivants: Argentine, Australie,, Belgique, Canada, Guatemala, Hollande, Inde, Mexique, Nig6r,ia, Paki- stan, Republique Dominicaine, Royaume-Uni, Suisse at Vene- zuela. Nous avons des accords de licences avec les Antilles nr:erlandaises, I'Autriche, la Bolivie, Is Finlande, Hong Kong, I'Italie, le Maroc, Panama, les Phjlippines-et la Yougoslavie. Grace A nos fabriques locales at A nos exportations, nos produits sont distribuds dans plus de 150 pays at territoires. Tandis que notre activit6 dans I'industrie mondiale du tabac continuait de progresser, en 1970 nous avons eu la possibilite d'augmenter notre participation dans I'industrie de la bibre. C'est ainsi que Philip Morris a acquis les 47% restants des actions de Miller Brewing Company, de Milwaukee, Wisconsin. Nous nous sommes d'autre part engagds pour la premiiire fois sur le marchd international de la bi~re, au printemps dernier, lorsque notre filiale Benson & Hedges (Canada) Ltd., acqudrait la Formosa Spring Brewery, dans I'Ontario. Malgrd les consdquences de la gr6ve de cinq semaines et demie, en 1969, les grfves perli?es declench6es par les cami• onneurs, au printemps de 1970, dirigdes contre [as distri- buteurs, et en dBpit d'une baisse des ventes aux armdes amdricaines stationn6es ~ I'Btranger, Miller Brewing Company a augment6 ses ventes, en barils et en dollars. Ses bdndfices d'exploitation enregistrent un recul d0 A I'augmentation des co0ts de production et des d6penses publicitaires. Miller High Life, qui se situe environ au sixii'me rang des marques de biPre aux Etats-Unis et qui compte parmi les trois bidres "de Iuxe" dont les rdseaux de commercialisation couvrent I'ensemble du pays, continue sa progression dans les grands centres urbains. Nous prdvoyons de nouveaux programmes dynamiques de marketing et avons pleine conflance en I'avenir de Miller; te?moin nos projets d'augmenter sa capacit6 de production. Dans un autre secteur Atranger au tabac, Philip Morris In- dustrial a vu augmenter ses ventes et ses bdndfices en 1970. Cette performance a dtB particuliiirement encourageante compte tenu du marasme 4conomique qui a compromis les rasultats d'exploitation de la plupart des entreprises de I'industrie du papier at de I'emballage. Comme nous I'avons annonc€ I'annde dernirsre, votre com- pagnie a placE: des capitaux dans Mission Viejo Company, dont elle a ainsi acquis le controle; il s'agit d'une importante sociAte d'urbanisme at de logement sise dans le comt6 d'Orange, en Californie. Compte tenu de la d4pression 4co- nomiq,ie qui sevit dans le sud de la California, des restrictions et du rencherissement des prets hypoth6caires, la compagnie a connu une annde relativement bonne. Actuellement nous sommes optimistes an ce qui concerne ses possibilitds, no- tam ment en raison des besoins considdrables an logem ents qui vont apparaitre au cours des prochaines annees. La question du tabac et de la santd a dvidemment retenu toute I'attention de l'industrie. Le ler avril 1970, a dte a signee la "Loi de 1969 sur la Cigarette at la Sante Publique," qui a pour but d'informer le public qua la cigarette est susceptible de prt;senter des dangers pour la santd. Cette loi interdit Is publicite6 pour les cigarettes i3 la radio at A la t6l€vision apres le ler janvier 1971 at prescrit que [as paquets de cigarettes porteront une mise an garde dont le IibeliB sera modihd. L'interdiction de la publicitd pour les cigarettes i3 la radio et A la td:Avision prend effet au moment meme de la rddaction de la prdsente lettre; il est donc 6videmment trop t8t pour en desterminer les effets im mddiats sur nos entreprises. Toute- fois, notre expesrience de Is vente des cigarettes aux Etats- Unis avant la t€Ie;vision at la forte penetration que nous avons obtenue sur de nombreux march6s internationaux sans I'utilisa- tion des organes de diffusion dlectroniques nous permet d'envisager avec optimisme la possibilitd de vendre nos pro- duits sans I'intermediaire des moyens electroniques de diffu• sion. Par ailleurs, les rapports entre I'industrie et [as pouvoirs publics ont dte marques par la proposition, presentee volon- tairement par huit fabricants de cigarettes, d'indiquer, dans leur publicitd, la teneur en "goudron" et nicotine. AprBs pourparlers avec I'Institut du Tabac, la Commission Fdd€rale du Commerce a accepte? la proposition de notre industrie et, ainsi, des indications concernant le "goudron" et la nicotine vont bient8t figurer dans notre pubiicit6. Tout en proposant d'eux•memes cette mesure, les fabricants ont rejete toute hypothbse concernant la relation entre "goudron"-nicotine et santd. Autre domaine d'activiti;, nos rapports avec la Commission F€d6rale des Communications (FCC). En 1967, la FCC avait statud qua I'usage de la cigarette pretait A controverse et avait donc contraintles entreprises de radiodiffusion b consa- crer gratuitement une partie de leur temps d'dmission ~ des annonces anti-cigarette. Au cours de la seule ann2e 1970, on estime que 75 millions de dollars de propagande anti-cigarette ont Atd diffusds gratuitement. Lorsqu'ii fut ddcidd d'interdire la publicitd des cigarettes sur [as ondes, la FCC prit, le 15 ddcembre 1970, une nouvelle ddcision selon Iaquelie les entreprises de radio n'avaient plus l'obligation catdgorique de diffuser gratuitement des messages anti-cigarette, mais devaient le faire dans les tranches horaires consacrBes aux questions d'int€ret public. D'autre part, la d6cision de la FCC confie dordnavant aux entreprises de radiodiffusion la responsabilitB de ddcider si la question du tabac et de la sant6 prete effectivement d controverse, et, si I'industrie a la possibilitd de rdpondre aux attaques dont elle fait I'object. Philip Morris at deux autres fabricants de tabac en ont appelA au Tribunal F6d6ral pour statuer que toute entreprise de radio- diffusion qui diffuse de la propagande anti-cigarette a I'obli- gation formelle de prdsenter I'opinion contraire. Une fois de plus, la grande presse a publid en manchette d'anciennes statistiques r6visdes, en les accompagnant de mise en garde qui se distinguaient plus par leur pessimisme que par leur rigueur scientifique. Notre position reste in- changee-il faut multiplier et am6liorer les recherches pour r6pondre aux questions que posent certaines cofnci- dences statistiques qui elles•memes ne sont pas 8 I'abri des critiques. C'est pourquoi I'industrie du tabac ddpense plus d'argent qua toutes [as associations bdndvoles pour effectuer d a n s ses laboratoires des recherches sur la fumt e et la sante, sous les auspices du Conseil de Recherche sur le Tabac- USA at de la Fondation pour I'Education et la Recherche de I'Association M6dicale Am6ricaine. Dans ce domaine, il convient de signaler les efforts de la Socidtd Amdricaine de Lutte contre le Cancer pour faire publier dans la presse [as r6sultats d'une expdrience prd- tendant avoir prouv6 que 12 chiens exposds ~ la fum6e de cigarette qui leur dtait inject6e par des orifices am dnagds dans leur trachde•art0e auraient contractB le cancer des poumons du type qua I'on rencontre chez I'homme. En sa qualit6 de Prdsident du Comitd Ex6cutif de I'Institut du Tabac, votre Pr6sident a demandd 6 la SociBtB Amdri- caine de Lutte contre le Cancer de iui communiquer les donndes de laboratoire disponibles afin de les faire analyser par un groupe d'experts impartiaux. La Socidtd de Lutte contre le Cancer a refusd at, lors d'une conf6rence de presse, 6 New York le 30 avril 1970, nous avons rendu publi• que notre demande A la Socidtd AmBricaine de Lutte contre le Cancer. Certains grands journaux, dont le "New York Times," ont appuy6 dans leurs dditoriaux, la position prise dans ce domaine par I'Institut du Tabac. Des articles relatant I'Atude ont 6tA soumis, aux fins de publication, A deux importantes revues de medecine, qui les ont toutes deux refusds. Le Journal of the American Medf- cal Association a€galement refus4 de publier I'article apr8s I'avoir fait examiner par 18 personnalit~s ind pendantes. Bien que I'article ait finalement paru, sous une forme rzvisESe, dans une publication d'importance secondaire, sans dBclarer que [as chiens avaient contract6 le cancer des poumons du fait de la cigarette, nous croyons avoir prouvd, grace 8 nos efforts, que I'etude n'a pas la portee que lui . avait accordde la Societd Am ericaine de Lutte contre le Cancer et que, souvent, les donndes scientifiques auxquelles on se refbre pour condam ner la cigarette ont une validit6 douteuse. • La controverse au sujet de la cigarette et de la santd va certainment se poursuivre tant que ne seront pas trouvdes [as rdponses ~ un grand nombre de questions scientifiques. Au fur et i3 mesure qua le temps passe et qua [as accusa- tions, dont notre industrie est I'objet, restent sans preuve, notre position A long terme devrait s'ameliorer; nous sommes certains que toute cette question sera present€e i; I'avenir sous un meilleur jour. Toutefois, comme nous avons le sens de nos responsabilitds, nous saisissons toutes les occasions qui nous sont offertes pour cooperer avec le gouvernement et d'autres institutions dans le domaine de la cigarette at de la santd. Nous aimerions rappeler qua nous avons colla- bor6 avec la Commission FBdArale du Commerce pour I'aider A organiser ses laboratoires pour les tests sur le "goudron" at la nicotine. En fait, ces laboratoires emploient des ma- chines b fumer que Philip Morris a mises au point. Votre Prt;sident a etd le premier ~ offrir, au nom de I'industrie, de supprimer la publicitd 6 la tB;dvision et i3 la radio. L'industrie du tabac a offert de son propre chef d'indiquer la teneur en "goudron" et en nicotine dans les annonces publicitaires. C'est peut-etre dans les changements apportds A nos pro- duits qu'ii faut voir les rdactions les plus significatives de notre industrie. En effet, les cigarettes filtres reprdsentent aujourd'hui le 80 % de la production. Depuis [as 16 anndes que dure la controverse au sujet du tabac et de la sant€, I'industrie a rdduit la teneur an "goudron" et nicotine des cigarettes. Nos analyses indiquent qu'en moyenne, durant cette pdriode, la teneur en "goudron" a tst6 rdduite d'envi- ron 46%, et la teneur en nicotine de 47%. Notre sens des responsabilit6s ne s'est pas manifestd au seul secteur de la santd. Au cours des ans, nous avons cessd toute activite de propagande dans les €tablissements d'enseignement et avons arr@tt: notre publicitd dans [as revues universitaires. Nous avons cessd de publier dans la publicit6 les tdmoignages de personnalit6s ci;l8bres dans le monde des sports. Nous avons, de nous-memes, proposd d'arr@ter la publicit€ sur les ondes; ce fut Ib une d€cision tr8s importantes que nous avons prise afin de dissiper les malentendus. En outre, dans le domaine de I'environnement, votre com pagnie a rdalisB des progre's considerables pour rdpondre i3 I'avance aux d6sirs du public et appliquer dans toutes ses installations les normes fixdes par le gouvernement. Dans notre nouveau centre de production de cigarrettes de Rich- mond, 1'diimination de la pollution industrielie co0tera plus de 5 millions de dollars. Dans d'autres domaines d'intdrdt public, votre compagnie a realisd des progr8s notables en ce qui concerne I'emploi des minorites, augment6 son aide A I'dducation et aux acti• vit6s cu;turelles at consacrd des sommes et des effectifs considdrabies pour pallier ~ la crise des centres urbains, Nous sommes fiers de nos efforts de nos progrbs dans tous ces secteurs, mais nous nous rendons dgalement compte de I'ampieur des tdches qui nous attendent at de la responsa- bilitd qui nous incombe. Le compte rendu de I'exercice 6could serait inexact si nous ne rendions pas un vibrant hommage aux employds, plus de 27.000, membres de la famille Philip Morris dans le monde entier. Une fois de plus, leur talent, leur ddvoue- ment at leur Ioyautd ont permis d'dlaborer des produits dont Is qualitB refl8te la qualitd meme de notre personnel. Prdsent6 respectueusement au nom du Conseil d'Administration Joseph F. Cullman, 3rd Prdsident du Conseil d'Administration George Weissman Prdsident Directeur G6ndral 7 i

Repaso dei Ano Este es ya el decimos6ptimo ano consecutivo en que to com- pania ha mantenrdo su impefu de avance, af alcarizar nuevas ci4ras m5ximas en los ingresos por operaci6n y ganancias en 1970. Los ingresos consolidados por operaci6n de $1.509.540.000 y en ganancias netas de $77.498.000 en 1970, representan aumentos de 32,1% y 32,8%, respectivamente, sobre los resultados de 1969. Las utilfdades por acci6n fueron de $3,36, un 30,2% de aumento en 1970 sobre los $2,58 obtenidos en 1969. El dividendo trimestral de las acciones comunes fue aumentado de $0,23 a$0,30 pcr acci6n en la Reuni6n de noviembre de la Junta Directiva. Con el ano 1970 han sido cuarenta y tres los ahos consecutivos en que Ia companfa ha pagado dividendos sobre sus acciones ordinarias. El sector primordial de nuestras operaciones todavfa sigue siendo la industria tabacalera, tanto en los Estados Unidos como en el resto del mundo, y desde un punto de vista mun- dial, Marlboro indudablemente resufta ser to marca principal de mas rapido incremento, la marca a la delantera de nues- tros productos de tabaco. No obstante de que hemos conti- nuado expandfendo nuestra base diversificada, confiamos mu- chd en el futuro de Ia industria tabacaiera. Para los pr6ximos cinco arTos hay planes para invertir m6s de $250 millones de capital en nuevas y m6s amplias instala- clones para Ia produccf6n de cigarrillos en Estados Unidos y en todo el mundo. En estos planes se incluye la construccibn en Richmond, Virginia, de la fabrica de cigarrillos m6s grande y moderna del mundo y tambf6n una adici6n a nuestro centro de investigaciones. Desde hace tiempo el criterio de to comparTfa ha sido que es indispensable contar con instalaciones modernas y funcio- nales de fabricacf6n, no s61o para hacer frente a la demanda siempre mayor de nuestros productos en el mercado dom6s- tico y en el internacional, sino tambi6n para asegurar que estos productos est6n fabricados de calidad 6ptfma y al precfo m6s econ6mico posible. A pesar de los ataques de varias oficinas gubernamentales y de otros sectores, to industria de cigarrillos demuestra un vigor y vitalidad notables. Esta industria, en los Estados Unidos, despu6s de experimentar pequenas disminuciones de ventas unitarfas tanto en 1968 como en 1969, en 1970 cambi6 de rumbo, con ganancias sobre las ventas unitarias de un 1,5% aproximadamente. Nos parece que este cambio es suma- mente alentador, teniendo en cuenta to propaganda que se ha Ilevado a cabo contra los cigarrillos y los aumentos en el precio al consumidor, causados en su mayor parte, por los aumentos en los impuestos en los diversos Estados de los EE.UU. Tomando en cuenta estos antecedentes, Philip Morris U.S.A. demostr6 un curso muy halagador al aumentar el total de las ventas unitarias en m6s de un 11%, con Marlboro en primer lugar con ganancias de ventas de m6s de un 16,4% sobre 1969. Nuestras otras marcas importantes, Benson & Hedges 100's, Parliament, Virginia Slims y Multifilter tuvieron un buen ano; y se lanz6 al mercado el nuevo Parliament Charcoal 100's, con exito. Tenemos suerte de poder contar con un ren- gl6n tan fuerte de marcas de cigarrillos con las que cubrimos pr3cticamente todos los segmentos importantes del mercado. La cifra record obtenida por Philip Morris U.S.A. en ingresos por operaci6n no s61o refleja un incremento en el volumen de cigarrillos, sino, asfmismo, los recientes aumentos de precio de fabrica, junto con un progreso contfnuo en eficiencia de fabricaci6n. En ef mercado internacfonal de cigarrillos, que es m3s o menos el triple de to que abarca el mercado de los Estados Unidos, se caicula que las ventas han aumentado en un 4%. Las ventas unitarias de Philip Morris International aumenta- ron mas del 18% sobre el nivel de 1969, igual3ndose con nuestras ventas unitarias en Estados Unidos. La posici6n de nuestra companfa, desde el punto de vista mundial, con res- pecto al total de ventas unitarias, la coloca ahora en el tercer lugar entre las Sociedades'An6nimas tabacaleras del mundo. Nuestras afiliadas en el extranjero fabrican ahora en Argen- tina, Australia, 661gica, Canad6, Guatemala, Holanda, India, M6xico, Nigeria, Pakist6n, Reino Unido, Republica Dominicana, Suiza y Venezuela. Tenemos concesionarios ert"-Antillas Ho- landesas, Austria, Bolivia, Filipinas, Finlandia, Hong Kong, Italia, Marruecos, Panam6 y Yugoeslavia. Abastecemos m6s de 150 pafses y territorios en el mundo entero por medio de fabricaci6n local y exportaciones. Mientras que nuestros negocios tabacaleros continuaban mejorando en todo el mundo, en 1970 tuvimos to suerte de po- der aumentar nuestra participaci6n en la industria cervecera. Asi fue como Philip Morris adquiri6 el 47 % restante de las ac- cfones de la Miller Brewing Company de Milwaukee, Wisconsin. Asfmismo, dimos nuestro primer paso hacia la participaci6n en el mercado internacional de cervezas, al adquirir, Ia prima- vera pasada, la Formosa Spring Brewery de Ontario por inter- medio de nuestra afilfada Benson & Hedges (Canada) Ltd. A pesar de los efectos posteriores a la huelga de 5r1z sema- nas en 1969, huelgas espor6dicas de repartidores contra los distribuidores en la primavera de 1970, y de la disminu- ci6n en las ventas militares de ultramar, to Miller Brewing Company Iogr6 un aumento en el volumen total de ventas; por barriles y en d6lares. Sin embargo las ganancias de operaci6n se vieron reducidas debido al aumento en los gastos de produc- ci6n y los presupuestos de promocf6n m3s efevados. La Miller High Life, qua se considera en sexto lugar en ventas y es una de las tres cervezas de primera calidad con distribuci6n na- cional, continGa teniendo mucha fuerza dentro de los lugares de mayor poblaci6n. Se han preparado programas nuevos y de empuje para su mercado y tenemos confianza en que la Miller tendr6 gran auge en el futuro, tal como lc indican nues- tros planes para ampliar su capacidad productiva cervecera. En otra industria, no tabacalera, Philip Morris Industrial tuvo un aumento de ventas y ganancias en 1970, to que fu6 halagueno especialmente si se tiene en cuenta el receso de la economfa nacional que ha afectado adversam ente los resul- tados de las operaciones de to mayorfa de las companfas papeleras y de empaquetado. El ano pasado indicamos que nuestra companfa invirti6 y obtuvo el control operativo de Mission Viejo Company, impor- tante empresa estadounidense de urbanizaci6n y construcci6n de casas en el condado de Orange en California. En vista del receso de la economfa en la regi6n sur de California y del costo tan elevado y las dificultades en obtener empr€stitos hipotecarios, se puede decir que la companfa ha tenido rela- tivamente un buen ano; nos sentimos optimistas de su poten- cial, muy especialmente debido a la gran demanda de vivfen- das que habra en el futuro. La Industria le di6 mucha importancia a los asuntos de la salud y el cigarriilo, El 1ro de abril de 1970, fue firmada to ley "Pubtic Health Cigarette Smoking Act of 1969" (Ley de Salu- bridad Publica de 1969 sobre ed cigarrillo) con el prop6sito de informar al publico que los cigarrillos pueden ser peiigro- sos para la salud. Esta ley trajo consigo la prohibici6n de la publicidad de cigarrillos en to radio y la televisi6n despu6s del 1ro de enero de 1971, ademas de una nueva advertencia en cada paquete de cigarrilios, dirigida a los fumadores. La prohibici6n de publicidad por la radio y to televisf6n entr6 en vigor mientras escribiamos este reporte. Obviamente es m uy temprano para predecir los efectos que producird en nuestro negocio. Sin embargo, nuestra experiencia en ventas de cigarriilos en los Estados Unidos antes de que existiera la televisi6n, y la importante penetraci6n del producto que hemos Iogrado en los diferentes mercados internacionales sin to ayuda de los medios electr6nicos, nos deja optimistas so- bre nuestra capacidad de vender nuestros productos sin nece- sidad de valernos de dichos medfos. En otra accf6n reciproca con el gobierno, ocho fabricantes de cigarrillos se ofrecieron a dar a conocer en to publicidad el contenido de "brea" y nicotina de los cigarrilios. Despues de tratar el asunto con el Instituto del Tabaco, Ia Federal Trade Commission acept6 la proposici6n de to industria y pronto aparecera en nuestros anuncios la informaci6n sobre el contenido de "brea" y nicotina. AI adoptar esta decisi6n voluntaria, los fabricantes repudiaron las suposiciones refe- rentes al efecto que la "brea" y la nicotina pudieran tener en to salud. En conexi6n con la Federal Communications Commission tambi6n se Ilevaron a cabo otras actividades. En 1967,1a FCC decret6 que fumar cigarrillos era asunto que se prestaba a controversia, de modo que se oblig6 a las estaciones radiales y canales de televisi6n a que dedicaran, gratis, parte de su tiempo a anuncios contra los cigarrillos. Se cree que el total de anuncios comerciales contra cigarriltos, que se transmitie- ron gratuitamente, Ileg6 a la suma de $75 miflones. AI decf- dirse que no se permitirfa publicidad en radio ni en televisi6n, el 15 de diciembre de 1970 to FCC di6 a conocer un nuevo decreto en el sentido que las estaciones radiales y canales de televisi6n ya no tendrfan la obligacf6n estricta de difundir mensajes gratuitos contra los cigarrillos, pero en el tiempo que se dedica a asuntos de inter6s pGblico se cree que astas continuaran haciendolo. AI mismo tiempo, el decreto de la FCC indica que depende del difusor ef decidir si estos anuncios contra el cigarrillo son motivo de controversia y si se ha de permitir que la industria se defienda de d(chos ataques. Philip Morris y otros fabricantes tabacaleros han apelado al Tribunal Federal declarando que toda difusora que presente material atacando a los cigarriilos tiene asfmismo la obligaci6n clara de ofrecer el punto de vista contrario. Otra vez la prensa popular ha puesto en grandes titulares revisiones de material estadfstico viejo y de nuevo ha vuelto a publicar avisos con advertencias mas alarmantes que cien- tfficamente valederas. Nuestra posici6n se mantfene igual. Se necesitan m6s y mejores investigaciones para responder a las preguntas surgidas de Asociacfones Estadfsticas, las cuales a su vez se prestan a duda. Con este objectivo,la Industria Tabacalera gasta mas dinero en esto que todos los organismos voluntarios de salubridad pGblica juntos, en investigaciones sobre ef efecto de fumar cigarrillos en la salud, por intermedio del Council for Tobacco Research-USA y de la Fundacf6n de Educacf6n y de Investi- gaci6n de la American Medical Association. En este campo, to American Cancer Society trat6 de darle publicfdad a un experimento que segOn decfan demostraba que doce perros sabuesos desarrollaban una clase de c5ncer del pulm6n pare- cido al del ser humano, cuando se les exponfa aI humo de cigarrilto forzado en aberturas hechas en sus tr6queas. En su calidad de Presidente del Comit6 Ejecutivo del Insti- tuto de Tabaco, el Presidente de nuestra companfa ret6 a to American Cancer Society a que pusfera los datos obtenidos en ellaboratorfo a la disponibilidad de un grupo imparcial de expertos para que los evaluara. La Sociedad del C6ncer rehus6 y el 30 de abril de 1970, durante una conferencia de prensa en Nueva York, nuestro reto a la Cancer Society fue divulgado al publfco. En editoriafes de un numero de prestigiosos perf6- dicos,incluso The New York Times, aparecieron opiniones apo- yando el punto de vfsta del Instituto del Tabaco. Se sometieron unos artfculos, que describfan ef estudfo, a dos prominentes revistas m6dicas para su publicaci6n, pero ambas los rechazaron. Despuds de que dieciocho autoridades independfentes estudiaron el artfculo, la revista The Journal of the American Medical Association tambi6n se neg6 a pu- blicarlo. Aunque el artfculo ha salido publicado en una revista de menor importancia, en forma corregida, sin que se pretenda que los sabuesos desarroliaron cancer por fumar cigarrillos, creemos que con nuestro esfuerzo en este sentido hemoS de- mostrado que el estudio carece de significado, como original- mente pretendia la American Cancer Society, y que, tambiBn, a veces la informaci6n cientffica en que se basan los que ata- can al cigarrillo es de dudosa validez. Sin duda, la controversia sobre fumar y su efecto en la salud ha de continuar hasta que gran numero de inc6gnitas cienti- ficas hayan sido resueltas. Con el paso del tiem po y al quedar infundados los cargos que se hacen a nuestra industria, nues- tra posici6n a to larga ha de mejorar, y tenemos la confianza que mas adelante todo este asunto ser6 enfocado con pers- pectivas m3s favorables. Pero, como somos personas serias y responsables, estamos siempre dispuestos a aprovechar toda oportunidad seria y responsable de cooperar con el gobierno y con otros organismos sobre la cuesti6n de fumar y la salud. Deseamos recordar que nosotros hemos cooperado con la Federal Trade Commission en el estabiecimiento de los labora- torios de pruebas de "brea" y nicotina. Hasta utilizan maqui- nas de fumar producidas por Philip Morris. Nuestro Presi- dente, como portavoz de la Industria, fue el primero que ofreci6 suprimir voluntariamente los anuncios en la radio y televisi6n. La industria tabacalera ofrecf6 voluntariamente in- dicar en la pubiicidad el contenido de "brea" y de nicotina. Tal vez la receptividad mayor se ha observado en los cam- bios que, nosotros, como industria, hemos adoptado en nues- tros productos. Los cigarrillos con filtro constituyen al pre- sente el 80% de la producci6n total de la industria. En los diecfseis anos transcurridos desde que se inici6 la contro- versia sobre el cigarrillo y sus efectos en la salud, la indus- tria ha reducido de modo notable la cantidad de "brea" y nicotina que emana de los cigarrillos. Nuestros calculos de- muestran que to cantidad de "brea" que emana de un cigarri- Ilo regular ha sido reducida aproximadamente en un 46% y la de nicotina en un 47% durante este perfodo. Nuestro sentido de responsabilidad no se ha circunscrito al campo de la salud solamente. En el transcurso de los anos he- mos suspendido las actividades de promoci6n en los terrenos de las universfdades y to publicidad en peri6dicos estudianti- les. Ya no hacemos mas publicidad con personas c€lebres ni deportistas famosos, ni publicamos sus recomendaciones o en- dosos. Propusimos to que constituy6 un paso de gran importan- cia: retirarnos del aire para tratar de hacer el aire mas puro. Ademas, nuestra companfa ha progresado notablemente ai anticipar y responder a las necesidades ecol6gicas publicas, asf como a las normas establecidas por el gobierno mediante las instalaclones de nuestra compa"nfa. Mas de $5 millones de los gastos presupuestados para nuestra nueva fabrica de ciga- rriilos de Richmond se dedicaran a eifminar la contaminaci6n industrial. Con respecto a otros aspectos tocantes a intereses del pu- blico, notables han sido las mejoras logradas por nuestra companfa respecto al aumento de empleos para grupos de minorfa, mayor participaci6n en la ayuda a la educaci6n y a las actividades culturales, y a to dedicaci6n de sumas consi- derables y del tiempo de nuestros empleados para hacer frente a las crisis urbanas. A pesar de que nos enorgullecemos de los esfuerzos dedi- cados y los progresos alcanzados en todos estos campos, com- prendemos bien la magnitud de las tareas aun por Ilevar a cabo y nuestra responsabilidad en contribuir con to que nos corresponde. No quedarfa completo nuestro recuento del pasado ano si no rindf6ramos tributo a los m6s de 27,000 empleados que forman parte de to familia Philip Morris en et mundo entero. De nuevo han sido su consagraci6n altrabajo, su competencia, honestidad y lealtad to que ha hecho posible productos de calid'ad, que son el reflejo de la calidad de nuestro personal. Presentado respetuosamente a nombre de la Junta Directiva, Joseph F. Cullman, 3rd Presidente de la Junta y Funcfonario Ejecutivo en Jefe George Weissman Presidente y Funcionario de Operaciones en Jefe ~ 8

Jahresbericht 1970 Siebzehn Jahre lang hat sich lhre Firma nun mit ungebrochener Vitalitat vorwartsentwickelt und dabei im Jahre 1970 wie- derum Spitzenerfolge in ihren Betriebsergebnissen und Er• tragen erzielt. Das konsolidierte Betriebsergebnis fUr 1970 in Hbhe von $1.509.540.000 und der Reinertrag im Werte von $77.498.000 stellten einen Anstieg von 32.1°; bzw. 32.8% gegenuber den Vorjahresergebnissen dar. Die Ertrage pro Aktie betrugen $3.36 und stiegen damit im Jahre 1970 um 30.2%, im Ver- gleich zu $2.58, die im Jahre 1969 erzielt wurden. Anldsslich der Aufsichtsratssitzung im November wurde die Vierteljahres- dividende auf die Stammaktien von $ .25 auf $ .30 pro Aktie erhoht. Im Jahre 1970 hat die Firma zum 43. Male hinterein- ander Dividenden auf ihre Stammaktien ausgeschuttet. Der Produktionsschwerpunkt in den Vereinigten Staaten wie in den anderen L2ndern der Welt bleibt das Tabakge- schaft, wobei auf weltweiter Basis Marlboro eindeutig die Zigarettenmarke ist, die sich am schnellsten verbreitet und die Rangliste unserer Tabakmarkenstruktur anfuhrt. Obwohl wir unsere diversifizierte Basis weiterhin ausgebaut haben, setzen wir doch grosses Vertrauen in die Zukunft des Tabak- geschaftes. Fur die nzchsten funf Jahre haben wir Kapitalinvestitionen von uber $250 Millionen fur neue und erweiterte Zlgaretten- herstellungsanlagen in den USA und der ganzen Welt vorge- sehen. Hierzu wird die grosste und modernste Zigarettenfabrik der Welt und eine Erweiterung unserer Forschungsanlagen, beide in Richmond, Virginia, gehiiren. Ihre Firma hat sich seit langer Zeit der Auffassung ver- schrieben, dass moderne, leistungsfahige Produktionsstdtten nicht nur notwendig sind, um der wachsenden Nachfrage fur unsere Erzeugnisse im In-und Ausland gerecht werden zu konnen, sondern well sie die Gewdhr bieten, dass diese Erzeugnisse mit der hdchstmiiglichen Qualitat zu moglichst niedrigen Kosten hergestellt werden. Trotz der auf sie verObten Angriffe von seiten verschiedener Regierungs-und anderer Stellen beweist die Zigaretten- branche eine bemerkenswerte Starke und Vitalitat. In den Vereinigten Staaten hat sich im Jahre 1970 nach einem gering- fugigen Rdckgang des Zigarettenumsatzes im Jahre 1968 und 1969 der Trend mit einem Umsatzanstieg von ungefahr 1.5% geandert. Im Hinblick auf die zigarettenfeindliche Werbung und die steigenden Einzelhandelspreise, die vorwiegend auf erhohten Staatensteuern beruhen, halten wir diesen Um• schwung fUr besonders ermutigend. Vor diesem Hintergrund ist die Erhiihung des Gesamtum- satzes der Philip Morris U.S.A. um mehr als' 11% als elne beachtliche Leistung anzusehen. Dabei lag die Zigaretten- marke Marlboro mit uber 16.4% Umsatzanstieg im Vergleich zu 1969 an erster Stelle. Unsere anderen grossen Marken, Benson & Hedges 100, Parliament, Virginia Slims und Multi- filter haben sich im Laufe des Jahres gut behauptet, und die Zigarettenmarke Parliament Charcoal 100 wurde mit Erfolg auf dem Markt eingefuhrt. Wir sind in der glucklichen Lage, uber eine derartig grosse Auswahl von Zigarettenmarken zu verfGgen, die fast alle grossen Sektoren des Marktes erfassen. Der Spitzenertrag der Philip'Morris U.S.A. reflektiert nicht nur den volumenmassigen Zuwachs an Zigaretten, sondern auch die kurzlichen Preiserhohungen der Hersteller sowie den an• haltenden Fortschritt in der Produktivitat unserer Betriebe. Auf dem internationalen Zigarettenmarkt, der etwa die dreifache Grosse des Marktes der Vereinigten Staaten um• fasst, haben sich die Umsztze schatzungsweise um 4% erhiiht. Der Zigarettenumsatz der Philip Morris International ist ge- genuber dem Vorjahresstand um mehr als 18% gestiegen und kommt damit unserem Umsatz in den Vereinigten Staaten gleich. Der gesamte Umsatz an Zigaretten auf weltweiter Basis macht Ihre Firma jetzt zur drittgrdssten tabakverarbeit- enden Aktiengesellschaft der Welt. Unsere Tochtergesellschaften im Ausland prcduzieren jetzt in Argentinien, Australien, Belgian, Kanada, in der pomini- kanischen Republik, Guatemala, den Niederlanden, Indien, Mexiko, Nigeria, in der Schweiz, Grossbritannien, Venezuela und Pakistan. Wir haben Lizenznehmer in Oesterreich, Bolivi- en, Finniand, Hong Kong, Italien, Marokko den niederland- ischen Antillen, Panama, den Philippinen und Jugoslawien. Durch Herstellung am Orte und Exportlieferungen beliefern wir Ober 150 L'ander der Welt. Wahrend sich unsere Position in der Tabakindustrie weiter- hin verbessert hat, waren wir in der glucklichen Lage, unser Engagement in Brauereien im Jahre 1970 zu erweitern. So hat Philip Morris die restlichen 47% der Aktien der Brauerei Miller Brewing Company in Milwaukee, Wisconsin, erworben. Im letzten Fruhjahr erweiterten wir unsere Aktivitat auf den internationalen Biermarkt, als der uns angeschlossene Betrieb Benson & Hedges (Canada) Ltd. die Brauerei Formosa Spring Brewery in Ontario kaufte. Trotz der Nachwirkungen des 5t/2 Wochen dauernden Streiks im Jahre 1969, vereinzelter gegen Vertriebsgesellschaften unternommener Streiks der Transportarbeiter im Fruhjahr 1970 und eines Riickgangs der Verkaufe an Militardienststellen in Uebersee konnte die Miller Brewing Company das Gesamt- umsatzvolumen pro Fass und Dollar erhohen. Die Betriebs• ertrage waren wegen der hdheren Herstellungskosten und der hoheren Werbekosten riicklaufig. Das Bier Miller High Life, die angeblich sechstgrdsste Biersorte in den USA und eine der drel im ganzen Land vertriebenen Qualitatsmarken, erweist sich in den grossen Bevolkerungszentren weiterhin als sehr gefragt. Wir haben neue und aggressive Absatzprogram me vorgesehen und haben Vertrauen in das kunftige Wachstum von Miller, was durch unsere Plane zur Erweiterung der Braukapazitat am besten veranschaulicht wird. In einem weiteren Unternehmensbereich ausserhalb des Tabaksektors verzeichnete Philip Morris Industrial im Jahre 1970 einen Anstieg von Umsatz und Ertrag. Diese Leistung war besonders ermutigend angesichts der schlechten Wirtschafts- lage, die sich auf das Betriebsergebnis der meisten Firmen der Papier- und Verpackungsbranche ungunstig auswirkte. Wie wir im vergangenen Jahr berichteten, hat Ihre Firma im Rahmen einer Kapitalinvestierung die Betriebsleitung der Mission Viejo Company ubernommen, einem der grosseren Unternehmen zur Erschliessung neuer Stadte und Eigenheime in Orange County in Kalifornien. Im Hinblick auf die Wirt- schaftskrise in SUd-Kalifornien und die hohen Kosten sowie die Schwierigkeit, Hypothekenkredite zu erhalten, hatte die Firma ein relativ gutes Jahr, und wir sind zu diesem Zeitpunkt, was ihr Potential angeht, optimistisch, insbesondere in Bezug auf den sehr grossen Bedarf an Wohneinheiten in den kom- menden Jahren. Der Frage "Rauchen und Gesundheit" m usste von der In- dustrie viel Aufinerksamkeit geschenkt werden. Am 1. April 1970 trat das "Gesetz von 1969 uber Volksgesundheit und Zigarettenrauchen" in Kraft, dessen Ziel es ist, die Oeffentlich- keit daruber zu informieren, dass die Zigaretten gesundheits- schadlich sein konnen. Mit diesem Gesetz wurde die Zigaretten- werbungim Rundfunk oder Fernsehen nach dem 1.Januar1971 untersagt und fiir Zigarettenpackungen eine neue, abgeanderte Warnung angeordnet. Das Verbot der Zigarettenwerbung in Rundfunk und Fern- sehen ist zur Zeit der Abfassung des vorliegenden Berichts in Kraft getreten, und es ist daher offensichtlich zu frOh, seine unmitteibare Auswirkung auf unser Geschaft vorauszusehen. Jedoch ermutigen uns unsere Erfahrung mit dem Absatz von Zigaretten in den Vereinigten Staaten vor Einfiihrung des Fernsehens und die bedeutende Marktdurchdringung, die wir auf vielen internationalen Markten ohne den Einsatz von elektronischen Werbetragren erreicht haben,zu einer optimist- ischen Prognose hinsichtlich unserer Fahigkeit, unsere Er- zeugnisse auch ohne die elektronischen Werbetrager erfolg- reich abzusetzen. Bel einem weiteren' gemeinsamen Vorgehen mit der Re- gierung haben acht Zigarettenhersteller sich freiwillig erboten "Teer" und Nikotin-Zahlenangaben in der Werbung zu er- wahnen. Nach Besprechungen mit dem Tabakinstitut hat die Federal Trade Commission den Vorschlag der Industrie ange- nommen, und die Angabe des "Teer" und Nikotingehaltes wird in KOrze in unsere Werbung einbezogen. Somit haben die Hersteller jegliche Mutmassung Ober irgendeine Be- deutung des "Teer-" . und Nikotingehaltes im Zusammen- hang mit der Gesundheitsfrage klar zuruckgewiesen. Bei einem weiteren Tatigkeitsfeld handette es sich um die Federal Communications Commission (Bundeskommission fur das Nachrichtenwesen). Die FCC stellte die FCC in Jahre 1967 fest, dass das Zigarettenrauchen eine Streitfrage darstelle und dass folglich Rundfunk- und Fernsehstationen die Verpflichtung hatten, kostenlos einen Teil ihrer Zeit auf Anti•Zigaretten- Werbesendungen zu verwenden.Schat?ungsweise wurden allein im letzten Jahr $75 Millionen fur derartige Anti-Zigaretten Sendungen ausgegeben. Als die Beendigung von Zigaretten- werbesendungen bevorstand, hat die FCC am 15. Dezember 1970 eine neue Entscheidung gefallt, wonach Rundfunk- und Fernsehsender nicht mehr verpflichtet sind, kostenlos Sendun- gen gegen den Tabakgenuss zu ubertragen. Es wird jedoch erwartet, dass sie es dennoch in Sendungen von offentlichem Interesse einflechten. Gieichzeitig besagt die Entscheidung der FCC, dass es den Sendern jetzt uberlassen wird zu entscheiden, ob das Problem "Rauchen und Gesundheit" noch umstritten bleibt und ob sie der Industrie gestatten sollen, sich gegen Angriffe zu verteidigen. Philip Morris und andere Tabakhersteller haben bei einem Bundesgericht Berufung ein- gelegt und gefordert, dass jeder Sender, der Programme gegen das Zigarettenrauchen bringt, die eindeutige Verpflichtung hat, auch den gegenteiligen Standpunkt darzulegen. Wieder einmal machte die Boulevardpresse Schlagzeilen mit ihrem Ruckgriff auf abgeandertes, statistisches Material, wieder einmal ver6ffentlicht mit mehr unheilverkundenden Warnungen als wissenschaftlichern Gehalt. Unsere Position bleibt die gleiche-wir brauchen mehr und bessere Forschung, um Fragen zu beantworten, die statistiche Verbande aufwarf- en, bei denen selber einiges fraglich ist. Zu diesem Zweck wendet die Tabakindustrie mehr Mittel auf als samtliche freiwilligen Gesundheitsorganisationen zu• sammen, indem sie zur Forschung auf dem Gebiet "Rauchen und Gesundheit" durch den Einsatz von Laboratorien der Tabak- industrie, dem USA Rat fUr Tabakforschung und der Stiftung "Ausbildung und Forschung" der amerikanischen Aerztekammer (American Medical Association) beitragt. In dieser Hinsicht war der Versuch der Amerikanischen Gesellschaft fur Krebskrankheiten (American Cancer Society) berichtenswert, die ein Experiment publizieren woilte, mit dem angeblich nachgewiesen wurde, dass 12 kleine Spurhunde, die Zigarettenrauch ausgesetzt wurden, den man durch eine in die Luftriihre geschnittene Oeffnung hineinzwang, dieselbe Art von Lungenkrebs entwickelten, die man beim Menschen antrifft. Ihr Vorsitzender hat als Vorsitzender des geschsftsfiihr- enden Ausschusses des Tabakinstituts die Amerikanische Gesellschaft fUr Krebskrankheiten aufgefordert, die Mess- und Versuchswerte einer unparteiischen Gruppe von Sachverstand- igen zur Begutachtung vorzulegen. Die Amerikanische Gesell- schaft fiir Krebskrankheiten weigerte sich jedoch, und auf einer Pressekonferenz in New York am 30. April 1970 gaben wir unsere Aufforderung an die Amerikanische Gesellschaft f(Jr Krebskrankheiten offentlich bekannt. Die Position des Tabak• institutes im Zusammenhang mit dieser Angelegenheit wurde in den Leitartikeln einer Reihe bedeutender Zeitungen, da- runter die New York Times, unterstutzt. Artikel, in denen die Untersuchung besch(ieb2n Wird, WUrd- en Zwei namhaften, medizinischen Fachzeitschriften zur Ver- dffentlichung angeboten und von beiden zuruckgewiesen. Die Fachzeitschrift der Amerikanischen Aerztekammer lehnte die Veroffentlichung des Artikels ab, nachdem er von achtzehn unabhangigen Sachverstandigen nachgepruft ,vorden war. Obgleich der Artikel seitdem in einer unbedeutenden Zeit- schrift in abgeanderter Form und ohne die Behauptung, dass die SpOrhunde sich durch das Rauchen von Zigaretten Lungen- krebs zugezogen hatten, erschienen ist, sind wir der Ansicht, dass wir durch unsere Anstrengungen den Beweis erbracht haben, dass diese Studie keine wirkliche Bedeutung besitzt, wie das ursprunglich von der Amerikanischen Gesellschaft fUr Krebskrankheiten behauptet wurde, und ferner, dass die wissenschaftliche Information, auf die man sich so oft bei Anklagen gegen das Zigarettenrauchen verlasst, von zwei- felhaftem Wert ist. Die Debatte um das Problem "Rauchen und Gesundheit" ist offensichtlich von solcher Tragweite, dass sie weitergehen wird, bis die vielen grossen wissenschaftlichen Sachverhalte geklart sind. Mit fortschreitender Zeit, wenn die Anklagen gegen unsere Industrie weiterhin nicht bewiesen werden konnen, muss sich unsere langfristige Position bessern, und wir sind zuversichtlich, dass diese ganze Frage in Zukunft in der richtigen Perspektive gesehen werden wird. Da wir jedoch seriose und verantwortungsvolle Leute sind, begrussen wir alle seriosen und verantwortungsvollen Gelegenheiten, mit der Regierung und privaten Organisationen auf dem Gebiet "Rauchen und Gesundheit" zusam menzuarbeiten. Wir mdchten daran erinnern, dass wir mit der Bundeshandelskommission an der Einrichtung ihrer Untersuchungslaboratorien fur "Teer" und Nikotin zusammengearbeitet haben. Sie verwenden in der Tat Rauchmaschinen, die von Philip Morris entwickelt wurden. Ihr Vorsitzender hat zuerst im Namen der Industrie den frei- willigen Verzicht auf Rundfunk und Fernsehwerbung vorge- schlagen. Die Tabakindustrie hat sich freiwillig erboten, "Teer-" und Nikotinwerte in ihrer Werbung anzugeben. Die wohl grosste Beachtung fanden die Veranderungen, die wir als Industrie an unseren Produkten vornahmen. Die Filter• zigaretten betragen heute 80 % der Erzeugung der Industrie. In den sechzehn Jahren seit Beginn der Auseinandersetzung im Zusammenhang mit Rauchen und Gesundheit hat die In- dustrie bei samtlichen Zigaretten die durchschnittliche Ab- gabe von "Teer" und Nikotin merklich reduziert. Unsere Be- rechnungen ergeben, dass wahrend dieser Zeit der Teergehalt der Durchschnittszigarette um ca. 46 % und der Nikotingehalt um 47% reduziert wurde. Unsere Verantwortung hat sich nicht auf den Bereich der Gesundheit beschrankt. Im Laufe der Jahre haben wir jede Verkaufsfdrderung auf Universitatsgelanden, in Universitats- zeitungen, sowie die Werbung durch prominente Persiinlich- keiten, namhafte Sportier oder deren Empfeh;ung, eingestelit. Wir haben versucht, durch freiwilliges Aufgeben der War- besendungen die "LUft etwas zu reinigen", was einen be- deutungsvollen Schritt darstellte. Zusatzlich hat lhre Firma auf dem Gebiet des Umwelt- schutzes bemerkenswerten Fortschritt dadurch erzielt, dass sie sich in samtlichen Konzernanlagen auf die Belange der Oeffentlichkeit und die amtlichen Normen einrichtete und dies dann auch durchfiihrte. Ueber $5 Millionen der fUr unsere neue Zigarettenfabrik in Richmond vorgesehenen Ausgaben werden der Beseitigung industrieller Verschmutzung zukommen. Auch auf einem anderen Gebiet von offentlichem Interesse leistete Ihre Firma Beachtliches. Die Einstellung von Ange- hdrigen der Minderheitsgruppen nahm entscheidend zu, und die Beitrdge zu Ausbildungszwecken und kulturelten Veran- staltungen wurden erhoht. Weiterhin hat sie der grossen Krise der Stadte erhebliche Betrage und Arbeitszeit zugewendet. Obwohl wir stolz sind auf die Bemuhungen und den Fort- schritt, den wir auf allen diesen Gebieten erzielt haben, sind wir uns ebenfalls der Grosse der vor uns liegenden Aufgaben sowie unserer Verantwortung bewusst, das unsrige beizutragen. Kein Riickblick auf das vergangene Jahr kiSnnte Anspruch auf Vollstandigkeit erheben, wenn er nicht den mehr als 27.000 Mitarbeitern in der ganzen Welt, die ein Tell der Philip Morris-Familie sind, seine Anerkennung bezeugen wurde. Einmal mehr haben ihr Konnen und ihre Hingabe Qualitatser- zeugnisse geschaffen, in denen sich die Qualitat der Mitar- beiter spiegelt. Unterbreitet im Namen des Verwaltungrates Joseph F. Cullman, 3rd Vorsitzender des Verwaltungsrates George Weissman Prasident und Generaldirektor 9

Rassegna dell'Anno Ancora una volta, e per il 17mo anno consecutivo, la Vostra SocietA-mantenendo in pfeno il suo slancio-P riuscita nel 1970 a stabifire nuovi record nelle entrate e nell'utile di esercizio. Le entrate consolidate del 1970, di $1.509.540.000 e I'utile netto di $77.498.000, rappresentano rispettivamente un au- mento del 32,1% e 32,8% sulle cifre del 1969. L'utile per azione 8 stato nel 1970 di $3,36, con un aumento del 30,2% rispetto ai $2,58 raggiunti nel 1969. II Consiglio di Ammini- strazione, nella sua seduta del Novembre scorso, ha deliberato un incremento del dividendo trimestrale sulie azioni ordinarie da $0,25 a$0,30. II 1970 6 il 43mo anno consecutivo in cui la Societh ha pagato dividendi sulle azioni ordinarie. La chiave di volta della nostra attivite, negli Stati Uniti e nel mondo intero, P tuttora I'industria del tabacco, con la Marlboro decisamente in testa alle maggiori marche mondiali per rapiditi3 di crescita, e portabandiera delle nostre marche di tabacchi. Pur continuando ad espandere la nostra diversifi- cazione, abbiamo grande fiducia nel futuro dell'industria del tabacchi. Per i prossimi cinque anni progettiamo di investire oltre 250 milioni di dollari in nuovi impianti per la produzione di sigarette e in ampliamenti di quelli esistenti, tanto negli Stati Uniti che nei resto del mondo. Tra i nuovi impianti verrb inclusa la pill grande e pilb moderna fabbrica di sigarette nel mondo, pib un aggiunta agli impianti di ricerche che saranno costruite a Richmond, Virginia. La Vostra societ~ segue da moito tempo il principio secondo il quale impianti produttivi moderni e efficienti sono necessari non solo per venire incontro alla crescente domanda del suoi prodotti nel mercato nazionale ed estero, ma anche al fine dl assicurarsi che tali prodotti siano della migliore qualite e vengano fabbricatl al minima costo possibile. Malgrado gii attacchi ai quail e stata sottoposta da parte di enti governativi ed altri, l'industria delle sigarette dimostra notevole energia o vitalite. Negli Stati Uniti, dopo aver risen- tito minori flessioni nelle vendite unitarie tanto nel 1968 che nel 1969, nel 1970 essa ha visto rovesciarsila situazione, con un aumento nelle vendite di circa 1'1,5%. Questo rovescia- mento della situazione ci sembra particolarmente incoraggiante, in considerazione dalia propaganda contra le sigarette e degli aumenti del prezzi al dettaglio dovuti principalmente all'in- cremento delle tasse imposte dai singoli Stati. Considerati questi dati generali, appalono invero notevoli i risultati conseguiti dalla Philip Morris U.S.A., che ha otte- nuto un aumento nelle vendite unitarie di oltre I'11%. La marca Marlboro ha guidato I'avanzata con un aumento nelle vendite del 16,4% rispetto al 1969. Le nostre altre maggiori marche: Benson & Hedges 100's, Parliament, Virginia Slims e Multifilter sono andate bene durante I'anno e le Parliament Charcoal 100's sono state introdotte sul mercato con suc- cesso. Siamo fortunati di avere un cosi forte schieramento di marche di sigarette, che copre quasi tutti I settori pib importanti del mercato. L'eccezionale reddito d'esercizio della Philip Morris U.S.A. riflette non soltanto I'aumentato volume delle vendite di sigarette, ma anche i recenti aumenti di prezzo del fabbricanti, oltre che il continuo progresso nella efficienza di fabbricazione. Nei mercato internazionale delle sigarette, che 6 circa tre volte quello degli Stati Uniti, si stima che le vendite siano aumentate del 4%. Le vendite unitarie da parte della Philip Morris International sono aumentate del 18% rispetto al 1969, uguagliando le nostre vendite unitarie negli Stati Uniti. II totale delle nostre vendite in tutto il mondo fa della Vostra Societ5 la terza in ordine di grandezza tra le societe private produttrici di sigarette nel mondo. Oggi le nostre affiliate nella manifattura del tabacchi pro- ducono in Argentina, Australia, Belgio, Canada, Guatemala, India, Messico, Nigeria, Olanda, Pakistan, Regno Unito, Repub- blica Domenicana, Svizzera e Venezuela. Abbiamo accordi per la fabbricazione su licenza in Austria, Bolivia, Finlandia, Hong Kong, Italia, Marocco, Antille Olandesi, Panama, Filippine e Yugoslavia. Forniamo pill di 150 paesi e territori nel mondo attraverso le fabbriche lvi impiantate e le esportazioni. Mentre su scala mondiale la nostra posizione neil'industria dei tabacchi continuava a migliorare, abbiamo avuto la fortuna di poter, nel 1970, aumentare il nostro investimento nell'in- dustria della birra. Pertanto, la Philip Morris ha acquistato il rimanente 47% del capitale azionario delta Miller Brewing Company di Milwaukee, Wisconsin. Ci siamo anche affacciati ai mercato internazionale della birra nella primavera scorsa, quando la nostra affiliata Benson & Hedges (Canada) Ltd. ha acquistato la Formosa Spring Brew- ery in Ontario. Malgrado gli strascichi dello sciopero di cinque settimane e mezzo del 1969, gli scioperi sporadici del camionisti contra i distributori locali nella primavera del 1970 e Ia diminuzione nelle vendite alle forze armate oltremare, la Miller Brewing Company ha venduto un maggior quantitativo di barill ed ha aumentato il suo fatturato. 11 reddito d'esercizio e diminuito in seguito all'aumento nel costo di produzione e alle maggiori spese di pubblicitA. La Miller High Life, la sesta maggiore marca di birra negli Stati Uniti a una delle tre birre di alta qualitA vendute in tutto il Paese, continua ad essere molto popolare nei maggiori centri abitati. Intendiamo lanciare nuovi ed aggressivi programmi di marketing e nutriamo fiducia nel futuro sviluppo della Miller, fiducia dimostrata chiaramente dai nostri piani per I'espansione della sua capacite di pro- duzione. La Philip Morris Industrial, anche essa operante fuori del ramo tabacchi, ha segnato nel 1970 un aumento delle vendite e degli utili. Questo risultato e quanta mai incoraggiante in vista deile condizioni depresse dell'economia in generale, condizioni che hanno avuto un effetto negativo sui risultati d'esercizio della maggior parte tlelle aziende nei rami carta e imbailaggi. Vi abbiamo informato lo scorso anno che la Vostra societ8 aveva effettuato un investimento, acquistando il pacchetto di controllo delia Mission Viejo Company, una societe di prima piano nella costruzione di nuove cittd e nell'edilizia residen- ziale in Orange County, California. Considerati I'economia de- pressa della California meridionale e I'alto costo e la scarsa disponibilitA del mutui ipotecari, la societA ha avuto un'annata relativamente buona. Oggi siamo ottimisti circa il suo poten- ziale, specialmente in vista dell'estremo bisogno di alloggi nei prOSSimi anni. I problemi relativi alla questione fumo e salute hanno natu- ralmente richiesto grande attenzione da parte dell'industria del tabacco. II primo Aprile 1970 venne firmato il "Public Health Cigarette Smoking Act of 1969," il cui scopo 8 di informare il pubblico che le sigarette possono essere nocive alla salute. Questa legge vieta la pubblicitA alle sigarette alla radio e televisione a partire dal 1 Gennaio 1971 e prescrive inoltre una nuova, riveduta avvertenza sui pacchetti di sigarette. II divieto di pubblicite alle sigarette alla radio e alla tele- visione P divenuto operante al momento in cui questa lettera viene scritta e, ovviamente, e troppo presto per determinare quale effetto immediato esso avrA sulle nostre attivith. Tutta- via la nostra esperienza nella vendita di sigarette negli Stati Uniti prima dell'avvento della televisione a la notevole pene- trazione che siamo riusciti ad ottenere in molti mercati esteri senza ricorrere a media elettronici, ci rendono ottimisti circa la nostra capacitA di vendere con successo i nostri prodotti senza I'ausilio di tali canali di pubblicite. Ancora in tema di trattative con ii Governo, otto produttori di sigarette hanno offerto spontaneamente di divulgare nella loro reclame le percentuali dl "catrame" e nicotina. A seguito di consultazioni con il Tobacco Institute, la Commissione Fe- derale per il Commercio ha accettato la proposta degli indu- striali e ben presto la nostra pubblicit2i comprenderb la segna- lazione delle percentuali di "catrame" e nicotina. Nel prendere spontaneamente tale decisione, gli industriali hanno formal- mente negato qualsiasi pretesa di stabilire un qualsivoglia rapporto tra le percentuali di "catrame" e nicotina e il pro- blema della salute. Anche I'area delle relazioni con la Commissione Federale per le Comunicazioni (FCC) 8 stata attiva. Nel 1967 la FCC decise che il fumare sigarette era soggetto controverso, per cui le stazioni radio e televisive furono obbligate a cedere a titolo gratuito parte del loro tempo di trasmissione ai mes- saggi contro le sigarette. Si stima che, solo in quest'ultimo anno, la diffusione gratuita di questi messaggi anti-sigarette abbia utilizzato un tempo che poteva rendere alle trasmittenti 75 milioni di dollari. Messa di fronte al fatto che la pubbli- citi3 alle sigarette sarebbe stata eliminata dalla radiodiffu- sione, la FCC emise il 15 Dicembre una nuova ordinanza, ai sensi della quale le stazioni radio e televisive non hanno pill I'obbligo di trasmettere gratuitamente messaggi contro ii fumo, ma saranno invece tenute a farlo nel tempo dedicato alle trasmissioni di interesse pubblico. AI contempo, la deci- sione della FCC indica che I radiodiffusori sono liberi di decidere se la questione fumo e salute e tuttora controversa o meno e se essi debbano o meno permettere all'industria del tabacchi di rispondere ad eventuali attacchi in proposito. La Philip Morris e altri fabbricanti del ramo hanno presentato ricorsd alla Corte Federale, chiedendo che si stabilisca che se un radiodiffusore trasmette messaggi contro le sigarette, ha anche I'obbligo di presentare il punto di vista contrario. Ancora una volta la stampa a Iarga diffusione ha ripubbli- cato con grossi titoli del vecchi dati statistici, ripresentati con pill catastrofici ammonimenti che sostanza scientifica. La nostra posizione rimane immutata: ~ necessario svolgere ricerche pi0 approfondite ed estese per poter rispondere agli Interrogativi che sono sorti in seguito all'associazione di dati statistici i quail, di per sd, sono fortemente discutibili. L'Industria del tabacco sta spendendo pi0 denaro nelle ricerche inerenti alla questione fumo e salute (ricerche con- dotte dei Comitato per le Ricerche sul Tabacco-USA e della Fondazione per I'Educazione e le Ricerche dell'Assoclazione Medica Americana), che non tutte le associazioni per la sanitA messe insieme. Sempre In tema di ricerca, la American Cancer Society ha fatto un considerevole sforzo per reclamizzare un esperimento che pretende dimostrare come 12 cani bracchi al quati era stato somministrato il fumo di sigarette attraverso dei fori praticati nella trachea avessero contratto cancro del polmone del tipo che si riscontra negli esseri umani. il Vostro Presidente, nella sua qualit6 di Presidente del Comitato Esecutivo deil'IStituto del Tabacco, ha sfidato la American Cancer Society a metter i dati di laboratorio a di- sposizione di un gruppo imparziale di espert3 per il loro esame. La Cancer Society si P rlfiutata di farlo e pertanto la nostra sfida 6 stata resa di pubblico dominio ad una conferenza stampa tenuta a NewYork il 30 Aprile 1970. La posizione assunta dall'Istitutd del Tabacco riguardo a questo esperimento E` stata appoggiata In articoli di fondo da diversi importanti giornali, incluso il "New York Times." Articoli descriventi I'esperimento furono offerti per la pubblicazione a due importanti giornali medici ed entrambi ii rifiutarono. 11 "Journal of the American Medical Association" declind la pubblicazione dell'articolo dopo che esso fu esa- minato da 18 autoriti! indipendenti. Pur essendo tale articolo apparso adesso in una pubblica- zione secondaria in forma riveduta e senza I'asserzione che i bracchi avevano contratto cancro del polmone dal fumo delle sigarette, noi riteniamo che i nostri sforzi siano valsi a dimostrare che tale esperimento non ha reale valore, come era stato inizialmente asserito dalla American Cancer Society, e che, inoltre, i dati scientifici sui quail spesso ci si fonda quando si mette sotto accusa ii fumo delle sigarette, sono di dubbia validitd. E' ovvio che la controversia circa il rapporto tra fumo e salute d di natura tale che continueri3 fino a che non si tro- verb risposta a molti, importanti interrogativi scientifici. Col passare del tempo, a dato che le accuse formulate contro ia nostra industria rimangono senza prova, a lunga scadenza la nostra posizione dovrebbe migliorare, e nutriamo fiducia che I'intera questione potre essere considerata in una migliore prospettiva nel futuro. Tuttavia, siccome siamo gente seria e responsabile, accogliamo di buona grazia tutte le serie e concrete occasioni che ci vengono offerte di cooperare con il governo ed altri enti nel campo fumo e salute. Desideriamo ricordare che noi abbiamo cooperato con la Commissione Fe- derale per il Commercio nella messa in funzione dei suoi labo- ratori addetti aile analisi del "catrami" e deila nicotina. In effetti tale Commissione usa macchine per fumare inventate dalla Philip Morris. II Vostro Presidente fu il primo ad offrire spontaneamente, per conto dell'industria, di eliminare la diffu- sione delia pubblicite per radio e televisione. L'industria del tabacco ha altresl spontaneamente offerto di inserire nella pubblicitb i dati quantitativi del "catrame" e della nicotina. Ma, forse, la pil] valida e vasta risposta si i' avuta nei cam- biamenti che noi, come industriali, abbiamo apportato ai no- stri prodotti. Le sigarette con filtro rappresentano oggi 1'80% della produzione dell'industria. Nei sedici anni trascorsi dall'inizio della controversia sul rapporto tra fumo e salute, I'industria del tabacco ha considerevolmente ridotto il "catrame" e la nicotina presenti nelle sigarette. I nostri studi indicano che nel periodo sopraindicato il "catrame" presente nella siga- retta media o diminuito approssimativamente del 46% e la nicotina del 47%. Questo senso di responsabilitA neil'affrontare i problemi non e stato timitato esclusivamente al campo della salute. Nel corso di alcuni anni abbiamo eliminato tutte le attivit8 reciamistiche presso le universiti3 e le inserzioni sui giornali universitari. Abbiamo smesso il ricorso nella pubblicith alle celebrite e ai campioni sportivi e I'uso dei loro attestati. Siamo stati noi stessi ad offrirci spontaneamente di scomparire dall'etere-un passo indubbiamente di grande importanza-nel tentativo di rischiarare I'atmosfera. Inoltre, per quanto riguarda I'ambiente in cui viviamo, la Vostra societe ha segnato un notevole progresso nell'antici- pare e soddisfare i bisogni del pubblico, come pure le norme governative, in tutti i suoi impianti. Oltre 5 milioni di dollari deila spessa prevista per la nostra nuova fabbrica di sigarette a Richmond sono destinati all'eliminazione dell'inquinamento industriale. In altri argomenti di pubblico interesse, la Vostra societe ha raggiunto un notevole successo nell'impiego delle mino- ranza etniche, ha aumentato la sua partecipazione all'assi- stenza aila istruzione pubblica e alle attivit~ culturali ed ha impegnato una quantite considerevole di capitale e di perso- nale nel fronteggiare la crisi urbana. Siamo fieri dei nostri sforzi e dei progressi che abbiamo realizzato in tutti questi campi, ma ci rendiamo perfettamente conto dell'importanza del compiti che ci attendono e della nostra responsabilite di contribuire alla loro realizzazione. Una rassegna del decorso esercizio non si pub considerare completa se non si rende adeguato tributo ai 27.000 e pi] impiegati che fanno parte della famiglia della Philip Morris in tutto il mondo. Ancora una volta, la loro abilite, devozione e lealte si sono tradotte in prodotti di qualite, che riflettono la qualitb del nostro personale. Presentata rispettosamente per il Consigiio di Amministrazione Joseph F. Cullman, 3rd Presidente del Consiglio di Amministrazione George Weissman Direttore Generale 10

Philip Morris IP.S.A. An Operating Company of Philip Morris Bnc. long the production IPne. 11

_ 1970 1969 1968 O .perating Revenues s920,323,000 $800,949,000 $724,570,000 . Operating I ncome 7 38,051,000 106,435,000 87,954,000_ A model of the world's largest cigarette factory, under construction in Richmond. 12

The new research and development tower, also being built in Richmond. Philip Morris U.S.A. increased its unit sales during 1970 by 11.2% and expanded its share of the domestic cigarette market to 16.8% at year end. Marlboro is our leading and fastest- growing brand. Our data indicate that it has become the second most popular brand in the United States market. Marlboro is already the number one American cigarette internationally. At the year end, all our major filter brands showed improved sales-Marlboro, Benson & Hedges 100's, Parliament, Virginia Slims, and Multifilter. Indicative of our confidence in the continued growth of our cigarette business and our dedication to the highest quality in all our products, we have started construction of the world's largest cigarette factory in Richmond, Virginia. At an estimated cost of $80 million, the factory will provide us with facilities to produce our quality products more efficiently, under the most rigorous controls. In addition, it -,~--- nna0 ~ fQR ers°74 p~Eic , cN- TUNGSTEN STEEL Production in the new factory is scheduled to begin in 1974. In June, we began construction of a $6 million research and development tower. This modern, eight-story addition to our research facilities in Richmond, Virginia, designed by Ulrich Franzen, will provide 90,000 square feet for research and associated activities. Floors will be devoted to chemical research, physical research, a modern technological library, a patent office, a technical planning and information facility, a 212-seat seminar lecture hall, and administrative office space. The modular design of the tower will provide maximum flexibility to meet constantly changing research demands. 100 millimeter cigarettes continue to be the fastest-growing segment of the market and now account for 18% of total sales in the United States. Philip Morris is the leading company in this field with our Benson & Hedges 100's, Marlboro 100's, Parliament 100's, and Virginia Slims. Filter cigarettes represent 80% of all cigarette sales, and unit volume for this segment is growing at the rate of more than 5% a year. Some 97% of our sales were in the filter segment of the market. With the end of television and radio advertising on January 1,1971,we, as well as all our competitors, face a new challenge in the marketing of tobacco products. However, with our corporate experience in marketing cigarettes in many countries without radio and television, together with the momentum all our major brands are presently enjoying, we have confidence in our ability to continue our success pattern. \ There has been considerable discussion regarding the monies that will now be available to the cigarette companies with the end of advertising on radio and television. In the past, the amount spent in electronic media by the industry and by Philip Morris has been substantial. We shall 2500010997 i3 will give us greater flexibility and capability for more sophisticated products as well as a substantial increase in our production capacity. The architects, Skidmore, Owings & Merrill, have developed a unique, modern plant design that is as attractive as it is functional. Located on a 125-acre site, adjoining our Richmond Operations Center, the new manufacturing facility will consist of an integrated group of six modern buildings emphasized by a series of ten towers. The main manufacturing area will provide a clear span larger than four football fields. More like a university than a factory in setting and appearance, the new facility will blend effectively with the natural environment of the area. The design concept places major emphasis on providing the best possible working conditions. It will meet the growing needs of our increasing market share in the United States as well as for export.

,ontinue an effective marketing program, 'cut we are budgeting reduced advertising expenditures for our cigarette brands. The resultant savings will be in part diverted to some of our other domestic consumer products and to some of our overseas affiliates. The balance will be devoted to expanded research efforts and improved earnings. The General Products Division of Philip Morris U.S.A. includes the American Safety Razor Company, best known for its Personna double edge and injector blade. Personna 74T, a new double edge and injector blade, the first made of Tungsten steel, represents an important technological breakthrough. This new blade is now being introduced. Tungsten steel is one of the hardest metals known to man; and, for the first time, a razor blade is able to use the toughness of Tungsten to produce the sharpest, most durable blade ever made. The other component of the U.S.A. Division, the Clark Gum Company, which makes Teaberry, Cinnamint, Fruit Punch, Peppermint, and Spearmint, continued to increase its sales during 1970. The performance of the Di-et Smile brands was also encouraging. Marlboro packages pause for inspection at a quality control station.

IRG NIA SLIMS At the Virginia SIims Invitational TennisTournaments,the world's leading women tennis players have been drawing capacity crowds throughout the U.S. 15

Philip Morris U.S.A. Operating Revenues Chart 1 MILLIONS OF DOLLa.RS 'C00 Philip Morris U.S.A.  Filter Cigarette U nit Sales Non-Filter Cigarette U nit Sales -Share of U.S. Industry (%) BILLION UNITS 100 90 Chart 3 PERCENTAGE 25 1961 '62 '63 '64 '65 66 '67 '68 '69 1970 U.S. Cigarette Industry Unit Sales Chart 2 i Total Filter Cigarettes : Total Non-Filter Cigarettes BILLION UNITS 600 Philip Morris U.S.A. Statistical Review 1. Operating Revenues of Philip Morris U.S.A. have increased at an average annual compounded rate of 8.3% since 1961. 2. The total U.S. cigarette unit sales in 1970 had an increase of 1.5% over 1969 but have shown little growth since 1961. The filter segment has grown at an average annual compounded rate of 5.3'/o in the last 10 years. 3. Philip Morris U.S.A. unit cigarette sales have grown at a 7.2% average annual compounded rate since 1961 and accounted for 16.8% of industry sales in 1970. Filter sales represent 97% of Philip Morris U.S.A.'s total unit sales. 16

1970 1969 1968 Operating Revenues $424,800,000 5256.769,000 $211,702,000 Operating Income 54,167,000 38,717,000_ 31,391,000 Consumer sampling is oneof the most effective-marketing tools used by the Philip Morris International affiiiate in Venezuela. In this case,the product Philip Morris International achieved record results during 1970. Consolidated revenues were $425 million, an increase of 65.4% over 1969. This includes, for the first time, the sales of several of the company's affiliates which became wholly owned during the year. Operating income of $54 million was 39.9% above the prior year. The consolidated assets of this multi- national enterprise are $318 million. We presently sell more cigarettes in Europe than in any other region. The European cigarette market is approximately 18 equal to that of the United States, and our brands are steadily earning a larger market share. Philip Morris Europe, the headquarters for our European'region, is located in Lausanne, Switzerland. The factories of our affiliates, Fabriques de Tabac Reunies S.A. in Neuchatel, Switzerland, and Philip Morris Holland N.V. in Eindhoven, Holland, were expanded during the year and a new factory in Bergen op Zoom, Holland was acquired. Additional markets are served by licensees in Austria, Finland, and Italy. A new - marketing company, Philip Morris Germany G.m.b.H., was established to further expand sales in Europe. Godfrey Phillips' printing and publishing companies in the United Kingdom had another successful year in sales and earnings. Our greeting card business was augmented in May by the acquisition of the assets and business of Kaye Cards Ltd. Our affiliate, Philip Morris Nigeria Ltd., increased unit cigarette sales by 28% and expanded its facilities. Our Nigerian operation is one of our newer ventures and

~--: Marlboro continues to maintain its stron j position as the largest selling U.S. brand in Switzerland-and throughout the has not yet become profitable. However, with the cessation of internal hostilities in Nigeria, we foresee significant growth in the country's national economy and the cigarette industry. Our customers located in the eastern Mediterranean area and much of Africa are serviced through the Athens, Greece, offices of Philip Morris Overseas, Inc. Benson & Hedges (Canada) Ltd. improved its market share and attained record sales and profits. In April, Benson & Hedges acquired Formosa Spring Brewery ~,. world. Pictured is a Marlboro store front sign in Switzerland. Ltd., a small brewery which markets its products in the Province of Ontario. A new brewery is now under construction and scheduled to be o urin 1 In the Latin American region, Massalin & Celasco, S.A.C. e I., our affiliate in Buenos Aires, Argentina, improved manufacturing efficiencies and obtained a 13% unit sales increase in the 11 months since cigarette advertising was banned on radio, television, and cinema. C. A. Tabacalera Nacional, our Venezuelan affiliate, continued its successful operation. Its Lido and Astor brands held leading positions in the market. Sales achieved by our Mexican affiliate, Cigarrera Nacional, S.A., during its first full year of operations were impressive; however, with continuing start-up costs and very low profit margins, the company has not yet achieved a profit. In the Asia/Pacific region, the Australian operations of Godfrey Phillips Pty. Ltd. were merged into Philip Morris (Australia) Ltd. This Australian group achieved record sales, market share and profits. Godfrey Phillips, India, Ltd, significantly increased its sales volume, but inflationary increases in costs and expenses which were not 250001 1003Z. 19

Celebrating the expansion of the Benson & Hedges (Canada) plant in Ontario, The Honorable Stanley J. Randall, Minister of Trade & De- velopment for the Province was among the speakers who addressed government officials and Philip Morris executives from all over the world. 2500011004 recovered by price increases have adversely affected profit growth. Our affiliates in India, Pakistan, Malaysia, and New Zealand provide a basis for continued affiliate progress in this region. Sales of our products manufactured under license in the Philippines continue to be significant, but repatriation of funds from the Philippines presently is restricted. Our worldwide sales organization and network of distributors in more than 150 countries and territories again achieved record cigarette exports from the United 20 States. This was accomplished despite higher import duties, numerous non-tariff trade barriers, and the larger volume of our products being manufactured by affiliates and licensees. Philip Morris products are now available in almost every country and territory of the world through exports, licensing arrangements with prominent cigarette manufacturers, and our affiliates. This positions us well for future growth. The total free-world cigarette market is three times larger than that of the United States and is growing at the rate of approximately 4% per year. This provides a vast market for future sales opportunities. ~ In Africa,the Target brand of Philip Morris Nigeria Limited continues to increase its market share.

,~ t ~', I „', • 1 ~1'I•'' , V ~ '11T.~.~ _ The interior of the Philip Morris plant in Australia,where Philip Morris (Austral Philip Morris International received President Nixon's "E Star" Award"For continued superior performance in marketing." 21

'hilip Morris International Chart 1 Dperating Revenues f Consolidated Unconsolidated 41LLIONS OF DOLLARS 100 >00 _ >00 ~ ~ ~ 500 1961 62 '63 64 65 Philip Morris International Cigarette Unit Sales 'Export, Affiliates, Licensees) '66 67 '68 '69 1970 Chart 2 31LLION UNITS ICO )0 Total Free-World Cigarette Unit Sales (Excluding U.S.A.) Chart 3 ® Total Filter Cigarettes A Total Non-Filter Cigarettes -Philip Morris Share of Free World Market (%) Philip Morris International Statistical Review 1. Consolidated Operating Revenues (excluding affiliates not wholly owned) of Philip Morris International have increased at an average annual compounded rate of 29.9% since 1961. During 1970, certain affiliates became wholly owned, and this had the effect of increasing consolidated revenues by $87 million. Operating Revenues of our consolidated and unconsolidated affiliates have increased at an average annual compounded rate of 27.5% since 1961. 2. Philip Morris International's unit sales of cigarettes through affiliates, licensees, and exports in more than 150 countries and territories have grown at an average annual compounded rate of 27.2% since 1961 with 80% now in filters. 3. Total cigarette sales throughout the free world, excluding the United States, are approximately 1.6 trillion units and have grown at an average annual rate of 4.2'/0. BILLION UNITS 2000 PERCENTAGE i0 1'.) [f1 1800 9 ~ 1600 O ~ 1400 1200 ~ ~ 1000 ~ Q

1970 19_6_9 1968 Operating Revenues $198,479,000 $193,541,000 $181,373,000 Operating I ncome 11,409,000 15,374,000 18,065,000 In August of 1970, the remaining 47% minority interest in the Miller Brewing Company was acquired by Philip Morris for $97 million in cash and notes, and Miller is now a wholly-owned operating company of Philip Morris Incorporated. Despite a number of problems in 1970, Miller's operating revenues and barrel sales were slightly higher than the 1969 levels and reached all-time peaks. Operating income, however, decreased due to higher manufacturing costs, increased marketing expenditures, and the considerable price cutting that occurred in many areas of the country. One of the most important factors influencing Miller's 1970 results was the continuing adverse effect of the 1969 strike in Milwaukee which affected some 80% of the company's capacity. This resulted in a considerable loss of distribution, shelf- space, and on-premise availability for Miller High Life Beer which was only partially regained in 1970. A noticeable slowdown of overall industry sales during the latter part of the year and a decline in military sales overseas were other adverse factors. Finally, there were a number of strikes affecting the company's distributors in the Midwest, New York, and California. Miller Brewing Company moved from eighth to seventh place in industry barrel sales in 1970, and Miller High Life is believed to be the sixth largest-selling beer brand in the United States. We are encouraged that Miller has been_able to 24 Copper brewing kettles at Miller's Milwaukee brewery. 25000110fJ8

9 A nighttime view of the Miller brewery in Fort Worth,Texas, which is currently being enlarged. increase its sales in both 1969 and 1970 in spite of many adverse factors that affected its business in both years. We are not satisfied, however, with its present rate of growth. Many steps are being taken to improve and enlarge its overall marketing programs. Miller has now engaged the services of McCann-Erickson, an international advertising agency, whose wide range of services should enable Miller High Life to compete more effectively in the growing premium beer markets. During the year, the Miller sales organization was restructured to work more effectively with the company's network of 750 independent beer wholesalers who sell Miller High Life in all 50 states. We believe the long-range potential of Miller will best be served by increasing its share of the growing premium beer market rather than by emphasizing short-term profit goals. Modern and efficient manufacturing facilities are required to offset rapidly rising costs and to meet anticipated consumer demand. During 1970, initial steps were taken to enlarge the capacity of our Fort Worth brewery by 300,000 barrels, and a site was purchased in Newark, Delaware, for the future construction of an eastern brewery. We believe the tradition of product excellence established by Frederick Miller in 1855 provides a solid foundation for building additional sales and earnings in the coming decade for Miller Brewing Company. 25O+J0110J9 25

Miller Brewing Company Operating Revenues Share of Total Industry (°h)- Chart 1 MILLIONS OF DOLLARS PERCENTAGE 250 10 225 9 2C0 8 1961 '62 '63 64 '65 66 '67 Domestic Beer Industry Unit Sales 68 69 1970 Chart 2 Regional and Non-Premium Beer(estimated) IIIIINationally Distributed Premium Beer (estimated) MILLIONS OF BARRELS 160 1a0 t~0 1C0 ~ SC " 40 ; 20 j®®®i 1 U 1961 '62 '63 '64 '65 '66 '67 '68 '69 1970 Miller Brewing Company Statistical Review 1. Operating Revenues of Miller Brewing Company have grown at an average annual compounded rate of 8.6% since 1961. Miller has 4.3% of the total beer market. 2. The total beer industry's unit sales have grown at a 3.2% average annual compounded rate since 1961. The premium beer segment has grown at a rate of 9.0% during the same period. 26

Quality inspection of specialty papers at Plainwell Paper. Philip Morris Industrial increased its sales and earnings in 1970. This was achieved despite the state of the economy which had a considerable adverse effect on the sales and earnings of the packaging, paper, adhesive, and specialty chemical businesses. Milprint's performance in the flexible packaging industry was espec+ally encouraging and indicated that the new management structure will be an important factor in the future progress of the company. This division, which accounted for 70% of Industrial's sales in 1970, seems well placed to move ahead in the somewhat improved economic conditions anticipated for 1971 and beyond. Nicolet increased its production of glassine, greaseproof, and specialty papers and had a strong year in sales although its profit margins were eroded by sharply rising costs. In December, 1970, a small paper mill was acquired in Plainwell, Michigan. It is equipped to manufacture products that broaden our line of specialty paper Quality labels are produced at high speed at Milprint. products. Nicolet's future sales and earnings should benefit from this Operating Revenues acquisition. Polymer Industries continued to show good gains in sales and earnings, both of which reached new peaks. Increased sales of specialty chemical products to the packaging and textile industries continue to benefit from Polymer's technological competence. The company is now also finding a growing market for its products in Europe. Philip Morris Industrial's steady performance in the troubled economy of 1970 augurs well for the future. Philip Morris Industrial MILLIONS OF DOLLARS 100 Philip Morris Industrial Statistical Review Operating Revenues of Philip Morris Industrial have increased at an average annual compounded rate of 3.4% since 1961. 29

Mission Viejo Company 30

Mission Viejo,Company, in which Philip Morris made a major investment and obtained operating control in January, 1970, had a satisfactory year despite the depressed economic conditions in Southern California and the serious shortage and high cost of mortgage money. Mission Viejo is developing a new town on approximately 11,000 acres located between Los Angeles and San Diego.The first homeowner arrived in 1966, and the population currently exceeds 14,000, making.this one of the fastest-growing new towns in the United States. Plans call for an eventual population of 100,000 within the next 20 years. In addition to the 3,800 houses already occupied, there are commercial, industrial, and extensive educational and recreational facilities. Nationally, the homebuilding industry was severely affected by the 1970 business downturn. The rate of housing starts dropped as mortgage interest rates, housing costs, and unemployment increased. The Southern California economy was particularly hard hit as layoffs in aerospace and defense industries raised unemployment in that area well above the national level. For Mission Viejo, however, 1970 was another year of achievement, and the company recorded the highest total sales of any home builder in Orange County. Two more elementary schools were completed during the yearfor a total of five. Another recreation center, a medical center, a county library, a motion picture theater, a permanent fire station, and a 144-unit apartment project were also added. The Saddleback Junior College in Mission Viejo with more than 2,000 students, now housed in temporary buildings, allocated $4 million to build a Schools, playing fields,and recreational centers play a major role in community life in Mission Viejo. permanent campus. Seven and a half miles of arterial highway now link the north-south axis of the community. In its first venture outside Southern California, Mission Viejo Company has agreed with a large land, developer to build 850 residential units in a 450-acre planned community in the Tempe suburb of Phoenix, Arizona. Construction of the model homes was started in December of 1970, and the first sales of houses are expected in the summer of 1971. The selection of Mission Viejo for this program is indicative of the reputation the company has established for its successful community planning and development, its architectural excellence, and the basic soundness of its houses. A number of other companies with available land for development have approached Mission Viejo in connection with other projects similar to the one in Phoenix. Such projects, requiring limited capital investment and offering attractive potential returns, will represent a sound extension of the company's activities. Mission Viejo is gaining national recognition as an outstanding land development company with an imaginative and creative management and fine capability in the home building and new community fields. We believe it will give Philip Morris an opportunity for further growth in this large and important industry, which satisfies a basic and unfulfilled consumer need. 0 ~- tn

Corporate Responsibility "The head of a corporation is remiss in his stewardship if he fails to move his corporation into closer general involvement with the needs of the community. The need for social involvement of business is today an indisputable fact of American life. This goes beyond corporate philanthropy. It means that we can have a basic impact on society in the very ways in which we do business-where we build-whom we employ-how we protect the environment. "I believe a study would show that those corporations, which are strongly committed to an enlightened course of social responsibility, are also the ones which are most successful in business. The company that is sensitive to its role in the community indicates that it has the type of leadership and imagination necessary for success. "IfAmerican business should ever become anything less than dynamic and innovative, society will surely outgrow us; and we will become a fossilized relic of the past. "For America to fulfill its destiny, every influential sector in our society must be dedicated to creating a better life for all the people. Business will do its share as long as it can continue to attract young men and women of high quality, who are activists and well motivated." Joseph F. Cullman, 3rd Chairman of the Board Philip Morris Incorporated University of Virginia December 8, 1970 "Cities have traditionally been the home of business and industry in America. However, the flow of people, of jobs, and capital out of the city is inflicting great hardships upon urban communities all across the nation. "It is inherently unsound that the city which contributes so much to our economy and general well-being should be exploited in this way. It is also dangerous; for as goes the health and tenor of the city, so the health and tenor of the adjoining areas." Ross'R. Millhiser President, Philip Morris U.S.A. Richmond Rotary Club Richmond, Virginia October 20, 1970 "I am optimistic for the future because I have faith in the realism of our leaders, in and out of the business community. We can minimize the confrontations, ameliorate grievances, avoid violence ... only if we have the understanding that befits our positions. "We can effectively exercise the leadership our positions give us, only if we meet the expectations and anticipations of our people. We, as a nation, cannot exist if we promise peace and give war, promise prosperity and tolerate poverty, promise freedom and allow repression, promise equality but condone segregation." George Weissman President Philip Morris Incorporated Baruch College Dinner New York, New York May 14, 1970 "By the year 2000, the world's population will be approximately 7 billion-nearly twice what it is today. This burgeoning growth imposes serious demands upon us and our envi ronment. Unless we learn to manage better, unless we show more reverence for the l imited space in which we live, unless we educate ourselves and our children to cope with it, we will face insoluble problems. We can no longer tolerate any lack of respect for our environment." James C. Bowling Vice President Philip Morris Incorporated President, Keep America Beautiful, Inc. International Convention, Keep America Beautiful New York, New York November 6, 1970 "American corporations expecting to do business successfully in other countries must make a special effort to become responsible citizens of the host countries. Our affiliates around the world make a special effort to do so. "We must always bear in mind that our success is dependent upon more than manufacturing and marketing the finest products at reasonable prices-that is expected of us. "it is incumbent upon the multi-national corporation to be in the vanguard of those who help improve the quality of life as well as elevate the standards of technology." Hugh Cullman President Philip Morris International Naval Academy Association of New York April 21, 1970 "With the growth of consumerism, the buying public is becoming more demanding than ever before. We are, of course, expected to manufacture and market products of high quality at a reasonable cost, but that is not enough. In today's world the corporation must also show its interest and involvement with social issues and be an instrument for creating a better life for all citizens. "Miller Brewing Company accepts this responsibility, and we are going to meet the new challenges and demands that society places upon us." B. William Kostecke President Miller Brewing Company Miller National Sales Meeting Boca Raton, Florida January 28, 1971 33

Directors James C. Bowling Vice President Alfred Brittain III President Bankers Trust Company Andrew C. Britton Vice President John E. Cookman Senior Vice President and Chief Financial Officer D r.J. A.Cordido-Freytes President C. A. Tabacalera Nacional Hugh Cullman Executive Vice President Joseph F. Cullman, 3rd Chairman of the Board and Chief Executive Officer Joseph F. Cullman, 3rd George Weissman Richard W. Dammann Dammann & Heming Attorneys-at-Law Dr. Jess H. Davis President, Stevens Institute of Technology Clifford H. Goldsmith Vice President Chandler H. Kibbee ExecutiveVice President- Strategic Planning Edward Lasker I rwi n,Gluecksman & Lasker Attorneys-at-Law T. Newman Lawler Lawler, Sterling & Kent Attorneys-at-Law H. Robert Marschalk President Richardson-Merrell Inc. Ross R. Millhiser Executive Vice President 0 Dr. J. A. Cordido-Freytes Lewis F. Powell, Jr. Hunton, Williams, Gay, Powell & Gibson Attorneys-at-Law Paul D. Smith Vice President George Weissman President and Chief Operating Officer James E. West Chairman of the Board Mission Viejo Company J. Harvie Wilkinson, Jr. Chairman of the Board United Virginia Bank/ State-Planters President, United Virginia Bankshares James C. Bowling J. Harvie Wilkinson, Jr. Wirt H. Hatcher Director Emeritus Ray Jones Director Emeritus Howard S. Cullman Member, Advisory Board Arthur Snapper Member, Advisory Board Chandler H. Kibbee John E. Cookman Officers Joseph F. Cullman, 3rd Chai rman of the Board and Chief Executive Officer George Weissman President and Chief Operating Officer Chandler H. Kibbee Executive Vice President- Strategic Planning Ross R. Millhiser Executive Vice President Hugh Culiman Executive Vice President John E. Cookman Senior Vice President and Chief Financial Officer Thomas F. Ahrensfeld Vice President and General Counsel, Secretary Hugh Cullman T..Newman Lawler James C. Bowling Vice President Assistant to the Chairman of the Board and Director, Corporate Affairs Andrew C. Britton Vice President Clifford H. Goldsmith Vice President S. Lyle Graham Vice President-Personnel John T. Landry Vice President George W. Macon, Jr. Vice President Hamish Maxwell Vice President John A. Murphy Vice President Philip J. Reilly Vice President ~ 34

Clifford H. Goldsmith Richard W. Dammann Dr. Jess H. Davis Andrew C. Britton H. Robert Marschalk Edward Lasker James E. West Paul D. Smith Lewis F. Powell, Jr. Ross R. Millhiser Paul D. Smith Executive Committee Counsel Management Committee Stock Transfer Agents Auditors Vice President J. F. Cullman, 3rd Conboy Hewitt O'Brien & J F Cullman 3rd Mor an Guarant Trust L brand Ross Bros & Fred M. Stefan Chairman , , Boardman . . , Chairman g y Company of New York y , . Montgomery Vice President 20 Exchange Place 30 West Broadway 2 Broadway Dr. Hel mut R.R.Wakeham J. E. Cookman New York, N.Y. 10005 J. E. Cookman NewYork, N.Y.10015 NewYork, N.Y. 10004 Vice President H. Cullman H. Culiman United Virginia Bank/ C. Gilbert Collingwood R. W Dammann C. H. Goldsmith State-Planters Treasurer . J. H. Davis C. H. Kibbee 900 East Main Street Richmond, Va. 23214 Walter F. Sperber C H Kibbee Finance Committee B. W. Kostecke Controller . . Stock Registrars T N Lawler R. R. Millhiser James G Gilleran . . J. E. Cookman r11 . Assistant Controller H. R. Marschalk Chairman P. D. Smith U'I First National City Bank 55 Wall Street R R Millhiser F. M. Stefan 10 NewYork N Y 10015 Ralph C. White . . A. Brittain III O , . . Assistant T d G. Weissman G. Weissman O Chemical Bank reasurer an A J. H. Davis :-, 20 Pi St t ssistant Secretary J. H. Wilkinson, Jr. C. H. Kibbee ne ree NewYork, N.Y.10015 Stephen F. W. Ball ~ Assistant Treasurer E. Lasker ~ Virginia Trust Company P D Smith ~ 821 East Main Street Mary E. Russell . . Richmond, Va. 23214 Assistant Secretary G. Weissman J. H. Wilkinson, Jr. 35

Philip Morris U.S.A. 100 Park Avenue, NewYork, NewYork Ross R. Millhiser Ross R. Millhiser, President Clifford H. Goldsmith, Executive Vice President Dr. Helmut R. R. Wakeham, Vice President-Research and Development Donald S. Harris, Vice President-Media and Programming Jetson E. Lincoln, Vice President-Finance and Planning Russell N. Freund, Vice President-Personnel Alex J. Kay, Jr., Controller Tobacco Products Andrew C. Britton, Senior Vice President-Operations John T. Landry, Group Vice President-Director of Marketing Max L. Berkowitz, Vice President-Assistant Director of Marketing George W. Macon, Jr., Vice President-Leaf Benjamin A. Soyars, Vice President-Manufacturing General Products Division American Safety Razor Company Burma-Vita Company Clark Gum Company The Lightfoot Company Charles H. Wilson, Vice President William P. Kerr, President-The Lightfoot Company Medical Products Division Richard D. Robertson, Vice President Philip Morris International 100 Park Avenue, New York, New York Hugh Cullman Hugh Cullman, President John A. Murphy, Executive Vice President William K. Howell, Regional Vice President-Latin America Hamish Maxwell, Regional Vice President-Asia/Pacific Ronald H. Thomson, Regional Vice President-Europe Antonio Toledo, Regional Vice President-Canada and Latin America Export Sales James E. Turner, Vice President-Sales Albert E. Bellot, Vice President L. Morton Blumberg, Vice President Carlos E. Salguero, Vice President-New Development M. J. Adler, Vice President-Operations Fred C. Moessinger, Vice President-Personnel Robert A. White, Vice President-Finance Philip Morris Europe Lausanne, Switzerland Fabriques de Tabac Reunies S.A. Neuchatel, Switzerland Philip Morris Holland N.V. Eindhoven, Holland Bergen Op Zoom, Holland Philip Morris Germany G.m.b.H. Frankfurt, Germany Philip Morris Sweden AB Stockholm, Sweden N. V. Philip Morris, S.A. Bornem, Belgium Ronald H. Thomson, President Albert E. Bellot, Executive Vice President Carlos E. Salguero, Area Vice President Aleardo G. Buzzi, Area Director Staffan Gunnarsson, Area Director I. C. Ludwig, Area Director John T. McKenzie, Area Director Paul Isenring, Area Director James Rehlaender, Managing Director-Clark Gum Company Jorg von Wyss, Director of Operations Witold Grunbaum, Director of Operations Walter Thoma, Director of Finance & Administration Richard W. Stone, Director of Marketing Philip Morris Ltd. Godfrey Phillips Ltd. London, England D. V. Littlejohn, Chairman and Managing Director R. S. Allwood-Coppin, Director R. E. F. Baker, Director D. P. C. Harris, Director D. H. Kelting, Director P. M. Steele, Director and Secretary Philip Morris Nigeria Ltd. Lagos, Nigeria Thomas B. Shropshire, Chairman and Managing Director Godfrey K. J. Amachree, Director E. J. Buck, Director D. Lincoln-Gordon, Director Philip Morris Overseas, Inc. Athens, Greece W. R. Dales, Sales Director-Middle East Philip Morris (Australia) Ltd. Philip Morris Limited Godfrey Phillips Pty. Ltd. Melbourne, Australia Arthur H. Etherington, Chairman Charles J. Altson, Vice Chairman James R. Fawke, Managing Director John L. Fisher, Director Hamilton Hurley, Director William R. M. Irvine, Director Lisle J. T. Jones, Director Ronald E. Kneale, Director Philip U. Lovett, Director Kenneth W. Schultz, Director John C. Scott, Director Godfrey Phillips, India, Ltd. Bombay, India Brian C. Belham, Managing Director A. B. Bilimoria, Director D. J. Castrinakis, Director R. A. Shah, Director Godfrey Phillips (Malaysia) Sendirian Berhad Kuala Lumpur, Malaysia T. M. B, de Ponti, Director Godfrey Phillips (New Zealand) Ltd. Wellington, New Zealand Frank W. Littlejohn, Managing Director Premier Tobacco Industries Ltd. Karachi, West Pakistan (Associated Company) S. A. Samad, Chairman and Managing Director Benson & Hedges (Canada) Ltd. Toronto, Canada Antonio Toledo, President Charles F. Lombard, Executive Vice President Earl K. Brownridge, Vice President Oscar Y. Primeau, Vice President John R. Pritchard, Vice President Norman B. Wright, Vice President Ronald A. Moles, Director of Finance and Treasurer Paul Bienvenu, Director Robert B. Chisholm, Director George E. Mara, Director 36

Paul B. Pitcher, Director William Stevenson, Director W. Denis Whitaker, Director Formosa Spring Brewery Ltd. Formosa, Ontario, Canada George E. Mara, Chairman Earl K. Brownridge, President Harold F. Powell, Executive Vice President William S. Oliver, Vice President J. A. F. Miller, Director and Secretary Philip Morris de Puerto Rico Caparra Heights, Puerto Rico Charles M. Pasarell, Chairman Antonio Toledo, President John E. Margetts, Vice President and General Manager Proveedora Ecuatoriana S.A. Quito, Ecuador Fernando Donoso, Director and General Manager Thomas C. Wright, Director Cigarrera Nacional, S.A. Mexico, D. F., Mexico Leon R. Kraiem, President William A. Saupe, General Manager Lic. Fernando Hanhausen, Director and Secretary Austin Lorenzo, Finance Manager Enrique Rodriguez-Escalona, Marketing Manager Erik Scholte-Ubing, Operations Manager Tabacalera Centroamericana, S.A. Guatemala, Guatemala Alfonso A. Sobalvarro, President Allen A. Schumer, General Manager Lic. Jorge Skinner-Klee, Director and Secretary Alvaro Delgado Wyld, Director Productos Clark de Centroamerica, S.A. Guatemala, Guatemala Douglas R. Pilling, General Manager Lic. Jorge Skinner-Klee, Director and Secretary E. Ledn Jimenes, C. Por A. Santiago de los Caballeros, Dominican Republic Eduardo A. Leon, President Fernando A. Leon, Director Carlos Guillermo Le6n, Director - Jose A. Lebn, Director Dr. Federico Carlos Alvarez, h., Director South America Hans W. Kolbe, Area Director C. A. Tabacalera Nacional Caracas, Venezuela Alberto Reyna, Chairman of Advisory Board Dr. J. A. Cordido-Freytes, President Hans W. Kolbe, General Manager Roger V. D. Booth, Assistant General Manager Jorge Blohm, Vice President and Director L. Morton Blumberg, Vice President and Director Andres Boulton, Vice President and Director Eugene Capuclo, Vice President and Director Carlos Tejada, Secretary Massalin & Celasco, S.A.C. e I. Buenos Aires, Argentina Alejandro J. Massalin, President Horacio E. Celasco, Vice President Richard A. Hutchinson, Jr., General Manager Dr. Francisco J. Celasco, Director Danilo P, Massalin, Director Pedro C. Massalin, Director Dr. Damian Beccar Varela, Director Miller Brewing Company 4000 West State Street Milwaukee, Wisconsin B. William Kostecke Charles W. Miller, Chairman B. William Kostecke, President John F. Savage, Executive Vice President, Secretary & General Counsel Harold C. Cushenbery, Vice President, Director of Marketing Charles H. Day, Vice President, Director of Operations Eugene J. Hayman, Vice President, Director of Industrial Relations Robert H. Lindstrom, Controller Clement G. Meyn, Master Brewer, Director of Staff Phil A. Grau, Assistant Secretary Philip Morris Industrial 622 North Cass Street Milwaukee, Wisconsin Fred M. Stefan Nicolet Paper Company West DePere, Wisconsin Robert G. Etter, President T. Richard Probst, Vice President Horace B. Faber, Jr., Vice President William L. Goggins, Controller & Assistant Treasurer Plainwell Paper Company, Inc. 200 Allegan Street, Plainwell, Michigan Donald V. Martin, Vice President Polymer Industries, Inc. 1200 High Ridge Road, Stamford, Connecticut Richardson Thurston, President Leonard L. Adler, Vice President Raymond T. Clarke, Vice President Albert E. Cohen, Vice President James S. Zoller, Vice President Warren D. Fletcher, Controller-Treasurer Mission Viejo Company 26137 La Paz Road Mission Viejo, California Philip J. Reilly James E. West, Chairman of the Board Philip J. Reilly, President Anthony R. Moiso, Executive Vice President Jerome Moiso, Director Richard O'Neill, Director James G. Toepfer, Senior Vice President John T. Martin, Vice President, Marketing Robert E. Osborne, Vice President, Construction Robert M. Maurer, Vice President, Purchasing Frank L. Fehse, Vice President, Engineering Philip L. Chariton, Director of Planning Thomas D. Colvin, Controller Fred M. Stefan, President Edward B. Kime, Vice President F. James Short, Vice President Milprint Inc. 4200 North Holton Street, Milwaukee, Wisconsin r. -) f.J} O O 0 James B. Kurtzweil, President ~ Max G. Kocour, Executive Vice President ~ Thomas V. Stoll, Executive Vice President & Treasurer O rl t Ralph J. Becker, Vice President John P. Halan, Vice President Walter J. Hullinger, Vice President Jack R. Jewell, Secretary 1-- 37

Philip Morris Advertising Pictured here are examples of Philip Morris print advertisements-for major cigarette brands in the United States and worldwide, as well as for Miller Beer. Strong brand identification characterizes Philip Morris advertising around the world. We made Vryinm s ims e5peaally for women because women are d~nry and beauhful and sweet mo genera~y dfferent from men, Arnerica's favorde cigarette break. ee„So„ a Hddgft,ooa Aepla, wMe1r1or There are 20 cigarette hotders to every pack of Parliament. Thc tip of a Parllamcnt u a r.garetrc holdcr. Wz calt it a holder becausc it works like wx There's a firm cutcr shcll that surrcunCs the nlter. And thcn the filtetu rec¢sacd-tu<4cd Ir W~~rks 6kc a back iasssrt. AwaY ft- your IrFe. ..~~ rnanrm ho4lcr So ycu gec z cbn.i taue. it• LL++.kv ~ n- 111111 A d ll y &oo rsste rz Tne Parliamcne holder. 1%i, It really worki . v~ 38

2500011023

Financial Review The accompanying table illustrates the increase in revenues, pre-tax income, and earnings per share for the past 5, 10 and 15 year periods. The five-year compounded growth rate in earnings per share of 23% per year clearly establishes Philip Morris as a major growth company. During the year, several affiliated companies were consolidated with the parent as a consequence of becoming wholly owned, and consolidated revenues were thereby increased by $166 million in 1970. This had the effect of interrupting the trend of improving profit margins which, on a comparable basis, would have continued to show a good improvement in 1970 (chart #1). We continue to stress greater efficiency in our manufacturing facilities combined with the highest possible quality of our products. The company increased its capital expenditures to a record level of $40 million in 1970, as compared with $24 million in 1969. Retained earnings and depreciation continue to be well in excess of capital expenditures (chart #2). For 1971, our capital expenditures should approach $60 million and will in all probability be greater in subsequent years. We are projecting that retained earnings and depreciation will exceed these expenditures. In view of our rapidly expanding business, we believe a continuation of our conservative dividend policy.isin the best interest of our stockholders (chart #3). In November, 1970, the Directors voted to increase the quarterly dividend from $.25 to $.30 per share. This was the third consecutive year in which the dividend has been, increased, however, the dividend paid out in 1970 amounted to only 31 % of per share earnings resulting in a large increase in stockholders equity. Additionally, we believe that our stockholders benefit from our conservative dividend policy due to the high pre-tax return on stockholders equity which continues to increase (chart #4) and was approximately 33% in 1970. This was higher than the average of the 30 Dow Jones Industrial companies and well above the median for the consumer goods industry. The expanding nature of our business, worldwide, requires constantly larger inventories, principally consisting of leaf tobacco. At December31, 1970, inventories were $121 million greater than in the prior year. At the same time, total senior debt expanded only $10 million and continues to be well below total inventories (chart #5). Senior long-term debt increased only slightly during the year, while the ratio of senior long-term debt to equity was further reduced to 39% from a high of 62% in 1967 (chart #6). The ratio of total long-term debt, including subordinated debt, to equity was 82% which, we believe, represents an optimum utilization of debt and enhances the per share earnings growth. Our sinking fund requirements are quite small for the next several years and, except for the Eurodollar revolving credit, we have no debt maturities until 1979. During 1970, approximately $44 million of subordinated convertible debentures were converted to common stock. The aggregate of these debentures at December 31, 1970, was $120 million out of an original amount of $165 million. At the present time, the company plans no long-term financing in the U.S. As a result of the U.S. balance of payments program, it may be advisable within the next few years to sell medium- to long-term notes in the Eurodollar market to reduce the outstanding borrowing under our revolving credit agreement which was established to provide Eurodollars under the U.S. balance of payments program. We recognize the importance of maintaining a favorable balance of payments for the U.S., the present program, however, appears to be essentially a near term expedient. For the longer term, it would seem essential that present policy be revised to achieve a more permanent solution to the U.S. problem. During a year marked by some of the most serious financial crises of the past several decades, Philip Morris was fortunate to be in a highly liquid condition. We were able to expand our available credit from banks, and our commercial paper was always well received by investors. Although capital expenditures and investments in unconsolidated subsidiaries increased, working capital expanded, and the company ended the year in a stronger financial condition. 5-10-1 5-Year Growth Record (000 Omitted) 5 Years 1970 1965 Compounded Operating Revenues 1,509,540 704,544 Average Annual Growth Rate 16.5% Pre-Tax Income 150,008 52,423 23.3% Earnings Per Share 3.36 1.19 23.1 % 10 Years 1970 1960 Compounded Operating Revenues 1,509,540 509,332 Average Annual Growth Rate 11.5% Pre-tax Income 150,008 44,578 12.9% Earnings Per Share 3.36 0.91 14.0% 15 Years 1970 1955 Compounded Operating Revenues 1,509,640 359,023 Average Annual Growth Rate 10.1% Pre-tax Income 150,008 28,070 11.8% Earnings Per Share 3.36 0.56 12.7% 40

Operating Revenues Chart 1 Consolidated Capital Expenditures- Chart 2 Pre-Tax Margins (%) - Reinvested Earnings i Depreciation MILLIONS OF DOLLARS PERCENiAGE MILLIONS OF DOLL'ARS 1600 40 s0 1400 35 70 1200 30 60 1000 25 S00 20 600 15 400 10 200 5 1956 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 1970 Earnings per Share Dividends per Share - DOLLARS 4.00 3.50 Total Inventories Senior Debt- (Excluding subordinated debt) MILLIONS OF DOLLARS 600 500 1956 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 1970 1956 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 1970 Chart 3 Pre-Tax Return on Stockholders' Equity  Philip Morris - Dow Jones 30 Industrials Chart 4 PERCENTAGE 40 35 1956 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 1970 Chart 5 Long Term Debt to Equity  Senior Long Term Debt to Equity * Subordinated Long-Term Debt to Equity Chart 6 PERCENTAGE 100 90 SO 70 1956 '57 '58 '59 '60 '61 '62 '63 '64 '65 '66 '67 '68 '69 1970 2500011025 41

Consolidated Balance Sheets Philip Morris Incorporated and Consolidated Subsidiaries December 31, 1970 and 1969 1970 1969 Assets: Cash and cash equivalents .......................................................... $ 52,042,000 $ 41,885,000 Receivables ...................................................................... 101,519,000 82,345,000 Inventories: Leaftobacco ................................................................... 444,102,000 363,526,000 Other raw materials .............................................................. 39,152,000 24,543,000 Work in process and finished goods ................................................ 85,174,000 59,250,000 568,428,000 447,319,000 Prepaid expenses ................................................................. 6,848,000 3,439,000 Total current assets ........................................................ 728,837,000 574,988,000 Investments in and advances to unconsolidated subsidiaries and affiliates: Domestic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,637,000 132,302,000 Foreign ........................................................................ 67,752,000 95,589,000 89,389,000 227,891,000 Property, plant and equipment, at cost: Land and land improvements ....................................................... 12,357,000 6,675,000 Buildings and building equipment .................................................. 107,357,000 56,846,000 Machinery and equipment ........................................................ 274,374,000 173,441,000 394,088,000 236,962,000 Less, accumulated depreciation ............................................. 157,391,000 89,608,000 236,697,000 147,354,000 Other assets ...................................................................... 15,396,000 12,919,000 Brands, trademarks, patents and goodwill ............................................. 169,105,000 13,337,000 $1,239,424,000 $976,489,000 See notes to financial statements. 3 42

1970 1969 Liabilities: Notes payable .................................................................... $ 187,300,000 $158,400,000 Accounts payable and accrued liabilities .............................................. 146,744,000 77,595,000 Federal and other income taxes ...................................................... , 39,642,000 17,290,000 Dividends payable ................................................................. 7,469,000 5,832,000 Total current liabilities ..................................................... 381,155,000 259,117,000 Long-term debt: Senior ......................................................................... 178,331,000 168,356,000 Subordinated ................................................................... 192,069,000 163,644,000 Deferred income taxes ............................................................. 19,822,000 18,061,000 Reserve applicable to international operations ......................................... 8,618,000 5,215,000 Other, including deferred investment credit ....................................... . ..... 6,580,000 6,288,000 Total liabilities ............................................................ 786,575,000 620,681,000 Stockholders' Equity: Cumulative preferred stock, par value $100 per share .................................... 25,434,000 25,765,000 Common stock, par value $1 per share ................................................ 24,414,000 23,410,000 Additional paid-in capital ........................................................... 95,210,000 58,947,000 Earnings reinvested in the busine_ss................................................... 314,365,000 262,189,000 459,423,000 370,311,000 Less, cost of treasury stock ................................................. 6,574,000 14,503,000 452,849,000 355,808,000 $1,239,424,000 $976,489,000 43

Consolidated Statements of Earnings Philip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 1970 and 1969 1970 1969 O perating revenues ................................................ ............... $1,509,540,000 $1,142,373,000 Cost of sales: Cost of products sold ............................................................. 577,106,000 454,718,000 Federal and foreign excise taxes on products sold ....................... . ......... . . . 519,216,000 373,333,000 Gross profit ...... ......... . 413,218,000 314,322,000 Marketing, administration and research costs .............. . ........................... 219,527,000 165,591,000 193,691,000 148,731,000 Equity in net earnings of unconsolidated subsidiaries: Domestic ....................................................................... 2,710,000 2,693,000 Foreign ........................................................................ 6,779,000 1,813,000 9,489,000 4,506,000 Operating income of operating companies .............................. . .......... 203,180,000 153,237,000 Corporate expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ... , , . , . , , . . , . . . . . . . . . . . . , 15,310,000 12,569,000 Interest expense ................................................................... 35,425,000 28,640,000 Other (income) deductions, net ...................................................... 2,437,000 (3,585,000) Earnings before income taxes ................................................... 150,008,000 115,613,000 Provision for federal and other income taxes: Current ........................................................................ 72,168,000 53,379,000 Deferred ....................................................................... 342,000 3,894,000 72,510,000 57,273,000 Net earnings .................................................................. $ 77,498,000 $ 58,340,000 Earnings per common share:._._. - Primary ........................................................................ $3.36 $2.58 Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2.85 $2.40 N) See notes to financial statements. Ln Q O O ~ .~ ~ N 03 44

Consolidated Statements of Source and Application of Funds Philip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 1970 and 1969 1970 1969 Source: Net earnings ...................................................................... $ 77,498,000 $ 58,340,000 Add (Deduct), items not requiring outlay of funds: Depreciation ................................................................. 17,658,000 13,512,000 A m ortization ................................................................. 958,000 489,000 Deferred income taxes and investment credit ................................... ... 342,000 3,894,000 Equity in net earnings of unconsolidated subsidiaries ............................... (9,489,000) (4,506,000) Dividends received from unconsolidated subsidiaries ...... ........................... 1,648,000 1,356,000 Funds from operations ............................................................. 88,615,000 73,085,000 Financing: New long-term debt .............................................................. 86,750,000 140,000,000 Less, prepayments, and retirement of long-term debt ................................ 4,775,000 8,400,000 Net additional long-term debt ............................................... 81,975,000 131,600,000 Less, debt discount ............................................................ - 2,603,000 Net proceeds of long-term debt .............................................. 81,975,000 128,997,000 Shares issued under stock options .................................................. 3,053,000 4,911,000 Funds from financing .............................................................. 85,028,000 133,908,000 Total funds available ....................................................... $173,643,000 $206,993,000 Application: Dividends ........................................................................ $ 25,322,000 $ 22,681,000 Expansion and modernization of property, plant and equipment: Additions ...................................................................... 39,595,000 23,636,000 Disposals ....................................................................... 2,362,000 662,000 Net cost of expansion and modernization ...................................... 37,233,000 22,974,000 Investments in and advances to: _ Unconsolidated subsidiaries ...................................................... 2,210,000 27,686,000 Consolidated subsidiaries: Miller Brewing Company ....................................................... 97,106,000 130,000,000 Other ........................................................................ 13,533,000 - 112,849,000 157,686,000 Less working capital acquired.................................................. 33,162,000 - 79,687,000 157,686,000 Other, net ........................................................................ (410,000) u~i 3,256,000 0 Increase in working capital ......................................................... 31,811 000 0 396,000 , ~ Total funds applied ........................................................ $173,643,000 C $206,993,000 N) See notes to financial statements. 10 45

Consolidated Statements of Stockholders' Equity Philip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 1970 and 1969 Preferred Stock, Authorized and Issued at $100 Par Value Common Stock, Authorized 50,000,000 Shares at $1 Par Value dditional Paid-In Capital arnings Reinvested in the Business ost of Treasury Stock otal Stockholders' Equity Balance-January 1, 1969 $26,095,000 $23,088,000 $53,544,000 $226,530,000 ($14,761,000) $314,496,000 Net earnings for the year 1969 58,340,000 58,340,000 Cash dividends declared: Preferred stock-4% series (562,000) (562,000) -3.90% series (325,000) (325,000) Common stock-$.975 per share (21,794,000) (21,794,000) 4% Preferred stock purchased for treasury (625,000) (625,000) Treasury common stock issued upon conversion of debentures 776,000 591,000 1,367,000 Proceeds from common stock issued under stock options 322,000 4,589,000 4,911,000 Preferred stock retired through sinking fund (330,000) 38,000 292,000 Balance-December 31,1969 25,765,000 23,410,000 58,947,000 262,189,000 (14,503,000) 355,808,000 Net earnings for the year 1970 77,498,000 77,498,000 Cash dividends declared: Preferred stock-4% series (545,000) (545,000) -3.90% series (325,000) - (325,000) Common stock -$1.05 per share (24,452,000) (24,452,000) Preferred stock purchased for treasury (596,000) (596,000) Treasury and unissued common stock issued upon conversion of debentures 827,000 33,343,000 8,238,000 42,408,000 Proceeds from common stock issued under stock options 177,000 2,876,000 3,053,000 Preferred stock retired through sinking fund (331,000) 44,000 287,000 Balance-December 31, 1970 $25,434,000 $24,414,000 $95,210,000 $314,365,000 ($ 6,574,000) $452,849,000 ( ) Denotes deduction. See notes to financial statements. Report of Independent Certified Public Accountants To the Board of Directors and Stockholders of Philip Morris Incorporated: We have examined the consolidated balance sheet of PHILIP MORRIS INCORPORATED and Consolidated Subsidiaries as of December 31, 1970, and related consolidated statements of earnings and stockholders' equity and the consolidated statement of source and application of funds for the year then ended. Our examination was made in accordance with generally accepted auditing standards, and accordingly included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. We previously examined and reported upon the consolidated financial statements for the year ended December 31, 1969. In our opinion, the financial statements mentioned above present fairly the financial position of Philip Morris Incorporated and consolidated subsidiaries at December 31, 1970 and 1969, and the results of their operations and the source and application of funds for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. ~ } , ' . New York, January 25, 1971. Lybrand, Ross Bros. & Montgomery d5

Notes to Consolidated Financial Statements principfes of Consolidation: The consolidated financial statements include the accounts of the Company and all subsidiaries whose common stock is wholly-owned. Certain wholly-owned companies in the Godfrey Phillips, Limited group, included in unconsolidated subsidiaries in the 1969 finan- cial statements while :he group was being reorganized, are fully consoli- dated in the 1970 financial statements. In 1969, the Company purchased approximately 53% of the capital stock of Miller Brewing Company and on July 31, 1970, acquired for $97,000,000 all of the remaining outstanding shares of Miller's capital stock. The Company's equity of 53% in the net earnings of Miller from July 1, 1969 through July 31, 1970 is shown as Equity in net earnings of Domestic unconsolidated subsidiaries in the accompanying consolidated statements of earnings; thereafter Miller's results are fully consolidated. In addition to Miller and the Godfrey Phillips companies, three foreign subsidiaries previously unconsolidated became wholly-owned and are fully consolidated for the first time in the 1970 financial statements. Oper- ating revenues in 1970 include $166,000,000 applicable to subsidiaries consolidated for the first time in 1970. The consolidation of these compa- nies affected the comparability of net earnings for the years 1970 and 1969 only to a minor extent. The Company also acquired the assets and business of several small companies during 1970. Cost in excess of net assets of Miller Brewing Company of $149,000,000 is included in brands, trademarks, patents and goodwill. The Company is not amortizing this cost because, in the opinion of management, there has been no diminution in the value of this investment. During 1970, the Company invested $20,055,000 in convertible notes, capital stock and related options of Mission Viejo Company, a California land development company. Under the terms of the agreement, the Com- pany will make an additional investment of $13,500,000 if the options are fully exercised, which exercise must be made in no less than three nor more than five years from December 1969. The agreement also provides for the Company to vote a majority of the stock of Mission Viejo while the options are outstanding. Exercise of all of the options and conversion of the notes would give the Company a majority interest in Mission Viejo. The investment in Mission Viejo is included in Investments in and ad- vances to unconsolidated domestic subsidiaries and affiliates in the accompanying December 31, 1970 balance sheet. Investments in and ad- vances to unconsolidated subsidiaries are stated at cost adjusted for equity in undistributed earnings or losses since the dates of acquisition. Accounts of foreign subsidiaries have been translated at appropriate exchange rates. Foreign Subsidiaries: Principal financial data for 1970 of foreign subsid- iaries were as follows: Consolidated Subsidiaries Unconsolidated Subsidiaries Assets $244,190,000 $147,446,000 Liabilities (other than due the Company) - 108,298,000 53,046,000 Net assets 135,892,000 94,400,000 Company's equity 135,892,000 66,928,000 Operating revenues 345,111,000 280,806,000 Net earnings 14,147,000 10,940,000 Company's equity 14,147,000 6,779,000 Reserve Applicable to International Operations: This reserve provides for Possible revaluation of investments in foreign subsidiaries which could be necessitated by governmental actions, such as currency devaluations, and for income taxes relating to undistributed earnings of foreign subsidiaries. Inventories: Inventories are valued at the lower of cost or market.The cost of leaf tobacco is determined on an average cost basis and the cost of other inventories is determined generally on a first-in, first-out basis. Long-Term Debt: December 31 4~/a % Sinking fund debentures, payable $2,000,000 annually (installments through 1977 will be paid with deben- tures purchased previously) and $12,000,000 on June 1, 1979 .. . . . . ... . . 4.90% Notes, payable $2,600,000 annually from 1974 to 1988 and $16,000,000 on November 1, 1989 .................. 65/s% Sinking fund debentures, payable $3,500,000 annually from 1976 to 1992 and $15,500,000 on October 15, 1993. . 75,000,000 Eurodollar revolving credit ma- turing $25,000,000 on March 1,1973 and $50,000,000 on March 1, 1974. Interest on current notes is 7~46% to 12Ya% .... Other notes and debentures .. . . . . . . . . . . Less, amount included in current liabilities ..................... Senior debt .................. 10% Subordinated Notes, payable $3,600,000 annually from 1974 to 1976 and $5,760,000 annually from 1977 to 1981 and $32,400,000 on August 1,1982. Callable in three years at no premium. . 6% Convertible Subordinated Deben- tures, payable $4,000,000 annually from 1980 to 1993 and $44,000,000 on Sep- tember 1, 1994. The remaining deben- tures are convertible at $27.75 per share into 2,924,396 shares of common stock of the Company subject to adjustment under certain conditions. Of the original issue of $100,000,000, $18,848,000 have been converted into 679,167 common 1970 1969 $ 14,580,000 $ 19,750,000 55,000,000 55,000,000 75,000,000 75,000,000 29,750,000 15,000,000 4,201,000 3,906,000 178,531,000 168,656,000 200,000 300,000 $178,331,000 $168,356,000 $ 72,000,000 shares through December 31, 1970. ... 81,152,000 $100,000,000 41/2 % Subordinated Guaranteed (by Philip Morris Incorporated) Debentures of Philip Morris International Finance Cor- poration, payable $1,100,000 annually from 1979 to 1987 and $15,100,000 on August 1, 1988. The remaining deben- tures are convertible at $31.86 per share into 254,143 shares of common stock of the Parent company subject to adjust- ment under certain conditions. Of the original issue of $25,000,000, $16,903,- 000 have been converted into 530,406 common shares through December 31, 1970 .......................... :.. 8,097,000 23,646,000 2500011031 have been converted into 253,579 com- mon shares through December 31, 1970 30,820,000 39,998,000 Subordinated debt ............. $192,069,000 $163,644,000 43/4 % Subordinated Guaranteed (by Philip Morris Incorporated) Qebentures of Philip Morris International Finance Cor- poration, payable $1,750,000 annually from 1980 to 1988 and $24,250,000 on January 1, 1989. The remaining deben- tures are convertible at $36.19 per share into 851,616 shares of common stock of the Parent company subject to adjust- ment under certain conditions. Of the original issue of $40,000,000, $9,180,000 Generally, the long-term debt is callable, at annually decreasing pre- miums. The sinking fund requirements of the convertible debentures may be satisfied by the amount of debentures converted. 47

Fifteen Year Financial Review (in thousands except last eight items) Capital Shares: December 31 1970 1969 Preferred, 4% Series: Authorized and issued .............. 149,872 151,871 In treasury ........................ 18,956 12,855 Outstanding ....................... 130,916 139,016 Preferred, 3.90% Series: Authorized and issued .............. 104,470 105,777 In treasury ........................ 23,705 22,302 Outstanding ....................... 80,765 83,475 Common, $1 par value: Authorized ........................ 50,000,000 50,000,000 Issued ............................ 24,413,807 23,410,400 In treasury ........................ 254,967 845,066 Outstanding ....................... 24,158,840 22,565,334 The Company is required to set aside annually in sinking funds, amounts sufficient to redeem 1,999 shares of preferred stock, 4% Series, at $105.50 per share and 1,307 shares of 3.90% Series at $100.75 per share. Shares held in treasury at December 31, 1970 are sufficient to fulfill sinking fund requirements for the ensuing year. During the year, 10,810 shares of the preferred stock were acquired for the treasury. The preferred stock is redeemable at any time, otherwise than through sinking funds, at $105.50 per share plus accrued dividends for 4% Series and at $100.75 per share plus accrued dividends for 3.90% Series. During 1970, 593,463 shares of treasury common stock and 827,145 un- issued shares were issued upon conversion of convertible subordinated debentures. Stock Options: Pursuant to stock option plans approved by stockholders, common stock of the Company has been made available for option to offi- cers and other key employees at market prices on the dates granted. 1970 1969 Shares under option, beginning of year .. 513,647 710,174 Options granted ...................... 109,000 135,750 Options exercised .................... (176,262) (322,482) Options canceled .................... (3,674) (9,795) Shares under option, end of year ..... 442,711 * 513,647 Shares available for option, end of year 182,187 287,587 *At prices ranging from $11.50 to $47.75. Dividend Restrictions: Certain of the agreements covering long-term debt and preferred stock contain restrictions with respect to the payment of dividends (other than stock dividends) on common stock and to the pur- chase, redemption or retirement of capital shares. At December 31, 1970, approximately $152,000,000 of consolidated earnings reinvested in the business was free of such restrictions. Earnings per Share: Primary earnings per common share is calculated on the weighted average number of shares of common stock outstanding dur- ing each year, which was 22,806,598 in-1970 and 22,269,461 in 1969. Fully diluted earnings per common share gives effect to the reduction in earnings per share which would result from the conversion of all out- standing convertible securities and the exercise of stock options. Con- vertible securities were assumed to have been converted from dates of issue and net earnings were adjusted for related interest net of its tax benefit. Funds assumed to have been received from exercise of stock op- tions were assumed to have been used to acquire shares for the treasury at the higher of the average market price during the periods or the market price at the close of the periods. The number of shares of common stock used in this computation was 28,298,283 for 1970 and 24,779,306 for 1969. Depreciation: Depreciation for book purposes Is determined on a straight- line basis over the estimated useful lives of the depreciable property, plant and equipment. The provisions for depreciation included in the con- solidated statements of earnings were $17,658,000 for the year 1970 and $13,512,000 for the year 1969. Federal and Other Income Taxes: Deferred federal and foreign income taxes have been provided in recognition of timing differences in reporting certain items of income and expense, including depreciation, for financial statement and tax purposes. Pension Plans: The Company and certain of its consolidated subsidiaries have pension plans covering substantially all of their employees.The total pension expense for the years 1970 and 1969, respectively, was $8,250,000 and $5,850,000, which includes amortization of prior service cost over a period of 30 years. The Company's policy is to fund accrued pension cost. Philip Morris Incorporated and Consolidated Subsidiaries 1970 1969 Operating Revenues $1,509,540 1,142,373 Federal Excise Taxes 372,092 319,086 Foreign Excise Taxes 147,124 54,247 Earnings Before Income Taxes 150,008 115,613 Pre-Tax Profit Margins 9.9% 10.1 '/c Net Earnings 77,498 58,340 Dividends Declared: Common 24,452 21,794 Dividends Declared: Preferred 870 887 Net Earnings Reinvested 52,176 35,659 % of Net Earnings Reinvested 67.3% 61.1% Capital Expenditures 39,595 23,636 Annual Depreciation 17,658 13,512 Property, Plant & Equipment (Gross) 394,088 236,962 Property, Plant & Equipment (Net) 236,697 147,354 Inventories ' 568,428 447,319 Current Assets 728,837 574,988 Working Capital 347,682 315,871 Total Assets 1,239,424 976,489 Short-Term Debt 187,100 158,100 Senior Long-Term Debt 178,500 168,700 Subordinated Long-Term Debt 192,100 163,600 Total Debt 557,700 490,400 Stockholders' Equity 452,849 355,806 No. of Common Shares-Actual 24,158,840 22,565,334 No. of Common Shares-Weighted Average 22,806,598 22,269,461 Primary Earnings Per Common Share $3.36 2.58 Fully Diluted Earnings Per Common Share 2.85 2.40 Dividend Declared Per Common Share 1.05 .98 Book Value Per Common Share 17.87 14.78 Market Price of Common Share High-Low 501/4•28 363/e-25Ye Closing Price 12/31 491/2 353/4 R) CJi a Q Q r-~ 0 W 48

1968 1967 1966 1965 1964 1963 1962 1961 1960 1959 1958 1957 1956 1,019,846 904,841 771,975 704,544 641,439 585,059 550,624 529,127 509,332 499,598 473,552 439,920 41 0,263 295,903 271,073 234,975 214,128 194,312 193,768 187,133 184,146 175,947 168,608 163,023 151,646 144, 165 41,841 39,658 30,057 27,780 22,462 8,276 3,785 - 100,107 81,317 65,144 52,423 44,466 46,729 47,464 45,985 44,578 41,159 39,854 35,740 31,781 9.8% 9.0% 8.4% 7.4% 6.9% 8.0% 8.6% 8.7% 8.8% 8.2% 8.4% 8.1 % 7.7% 48,866 43,601 34,183 26,509 22,614 22,052 21,946 21,511 20,984 19,590 18,705 17,441 15,544 18,755 15,226 15,101 12,896 12,867 12,855 13,046 13,212 13,085 11,140 10,467 10,017 9,516 922 922 923 943 953 953 953 970 1,011 1,024 1,037 1,039 1,041 29,189 27,453 18,159 12,670 8,794 8,244 7,947 7,329 6,888 7,426 7,201 6,385 4,987 60.0% 63.0% 53.1% 47.8% 38.9% 37.4% 36.2% 34.1% 32.8% 37.9% 38.5% 36.6% 32.1 % 26,373 25,688 17,089 12,078 19,366 26,243 11,843 8,733 7,300 12,380 8,580 8,337 13,830 12,139 10,903 9,532 8,857 8,316 6,765 6,293 5,638 5,362 4,932 4,981 4,472 3,872 219,346 193,656 172,593 159,759 153,224 139,595 110,204 99,066 93,641 90,050 80,906 74,009 68,464 138,704 123,555 110,157 104,044 102,417 93,150 68,664 61,560 59,960 59,655 53,444 51,024 48,717 451,922 386,576 297,761 271,823 257,256 235,375 228,088 232,541 209,326 210,967 219,744 213,209 215, 188 561,685 485,908 372,895 339,082 318,978 297,295 279,068 277,350 249,819 252,239 271,658 263,210 263, 152 312,406 306,172 253,257 213;826 202,810 190,982 179,222 190,859 190,423 187,404 150,103 149,063 148, 144 786,578 648,994 512,549 466,277 443,438 412,543 365,024 351,018 321,717 321,620 333,489 327,224 324, 927 153,800 82,600 27,200 57,300 56,700 53,800 57,400 45,200 21,000 30,000 89,400 84,200 85,200 176,000 173,800 133,800 100,800 102,300 91,400 63,400 65,400 67,400 69,100 30,600 33,700 36,500 25,000 - - - - - - - - - - - - 354,800 256,400 161,000 158,100 159,000 145,200 120,800 110,600 88,400 99,100 120,000 117,900 121,70 0 314,496 280,186 249,821 230,677 217,783 208,711 201,720 199,685 195,956 189,317 181,352 179,352 167, 518 22,200,308 21,830,874 21,613,344 21,521,730 21,458,478 21,429,444 21,526,428 21,972,954 22,029,792 2 1,937,686 21,774,654 21,728,070 21,728,070 21,928,890 21,674,884 -°- - 2.18 1.97 1.54 1.19 1.01 .99 .98 .94 .91 .85 .81 .76 .67 2.14 1.94 1.54 1.19 1.01 .99 .98 .94 .91 .85 .81 .76 .67 .85 .70 .70 .60 .60 .60 .60 .60 .60 .52 .50 .50 .50 13.12 11.77 10.48 9.63 9.03 8.62 8.25 7.99 7.74 7.47 7.13 7.05 6.78 341/4-22 283/4-153/4 17~/e-12Y4 161/e-121/e 141/a-11y4 15-111/a 183/4-101/8 20~/a-13 131/2-10 10~/e- 9 10Y4-8~/s 75/e'-63/s 7~/a-6I/2 32 22 1/4 17 143/4 12 Y4 123/s 12 1/4 183/8 13 3/e 10 3/8 10 1/4 71/e 7 - ~ ~ ~ ~ ~ ~ ~ W W Litho in USA

Philip Morris Incorporated 100 Park Avenue, New York, N.Y.1®017

---

---

---

---

---