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Philip Morris Incorporated Annual Report 1972

1 Financial Highlights 2 Review of the Year 6 World Map-Philip Morris Incorporated 16 Philip Morris U.S.A. 22 Philip Morris International 28 Miller Brewing Company 32 Philip Morris Industrial 34 Mission Viejo Company 36 Directors and Officers 40 Financial Review Philip Morris Incorporated, 100 Park Avenue, New York, N.Y. 10017. Transfer Agents: Morgan Guaranty Trust Company of New York, 30 West Broadway, New York, N.Y. 10015; United Virginia Bank, Box 6E, Richmond, Va. 23214. Annual Meeting: April 25, 1973, 2:00 P.M. 4001 Commerce Road, Richmond, Va. rQ cn ~ O ~ ~ ~ O W 0~

Philip Morris Incorporated Annual Report 1972 Financial Highlights 1972 1971 1970 Operating Revenues .................................................. $2,131,224,000 $1,852,495,000 $1,509,540,000 Net Earnings ................................................................ 124,466,000 101,498,000 77,498,000 Per Share of Common Stock: Net Earnings: ._ Primary .............................................................. $4 67 $4 02 $3 36 Fully Diluted ....................................................... . 4.37 . 3.64 . 2.85 Dividends Declared ................................................. 1.262 1.21 1.05 Percent Increase Over Prior Year: Operating Revenues .............................................. 15.0% 22.7% 32.1% Net Earnings 22.6% 31.0% 32.8% Net Earnings Per Common Share: Primary ......... _ ........................................... 16.2% 19.6% 30.2% Fully Diluted ....................................................... 20.1% 27.7% 18.8% Operating Companies Revenues: Philip Morris U.S.A $1,164,550,000 $1,035,178,000 $ 920,323,000 Philip Morris International .................................. 623,699,000 517,670,000 424,800,000 Philip Morris Industrial ........................................ 113,136,000 95,513,000 85,875,000 Miller Brewing Company (1) ................................ 211,262,000 204,134,000 78,542,000 Mission Viejo Company (2) .................................. 18,577,000 Consolidated Operating Revenues ................... $2,131,224,000 $1,852,495,000 $1,509,540,000 Operating Companies Income: ..._ Philip Morris U. S. A . ................... ........................... $ 194,072,000 $ 166,734,000 $ 138,051,000 Philip Morris International ... ................................. 84,095,000 66,968,000 54,167,000 Philip Morris Industrial ......................................... 7,735,000 6,135,000 6,049,000 Miller Brewing Company (1) 228,000 1,300,000 4,913,000 Mission Viejo Company (2) ..... ........................ 1,331,000 Consolidated Operating Income (3) ................ $ 287,461,000 $ 241,137,000 $ 203,180,000 (1) Operating revenues from August 1, 1970. Equity of 53% in net income in period 1/1/70-7/31/70 and 100% of operating income thereafter. (2) Operating revenues and operating income from September 30, 1972. (3) 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. r•J CSI O O O 1

Joseph F. Cullman 3rd Chairman George Weissman President Review of the Year In 1972, your company reported record operating revenues and profits and, for the 19th consecutive year, increased earnings per share over the previous year. Consolidated operating revenues for 1972 increased more than 15.0%, and net income rose 22.6%. Fully diluted earnings per share increased 20.1 %, and primary per share earnings 16.2%. Philip Morris in 1972 continued to gain a larger share of the world-wide cigarette industry. In unit sales, Philip Morris became the second largest publicly-held cigarette company in the world. Marlboro became the number one brand in the world and continued as the number two brand in the United States. Philip Morris continued as the second ranking cigarette company in the U.S. World-wide cigarette sales climbed 4% to approximately 3,450 billion units. Philip Morris's total unit sales, including U. S. and international, are now 6.5% of the world-wide total. U.S. industry sales increased in 1972 for the third consecutive year to approximately 554 billion units, a rise of over 3%. In the United States, Philip Morris's cigarette unit sales increased more than 13 % during the year, and our market share increased to more than 20% at year end. Philip Morris's consolidated operating revenues have grown over the past five years at an average annual compounded rate of 18.7% . Net earnings for this period grew at an average annual compounded rate of 23.3%, and fully diluted earnings per share rose 17.6% a year. For the 45th year in a row, your company paid dividends on its common stock. For the fifth straight year, dividends were increased; the 1972 increase was the maximum permitted under the Phase II dividend guidelines. The current annual dividend is now $1.296 per common share. United States Sales Philip Morris U.S.A.'s sales gains were led by the continuing growth of Marlboro which has attained a share of more than 12.5% of the U.S. market, compared with 6.6% five years ago. Marlboro has narrowed the distance between it and the number one brand in the U.S. and continues to increase the gap between it and the brands ranked below. Philip Morris U.S.A. further strengthened its position as the leader in the 100mm category with Benson & Hedges 100's, which became the leading 100mm brand in the U.S. in 1972, as well as Marlboro 100's, Parliament 100's, and Virginia Slims. The l 00mm segment is the fastest-growing category in the U.S. market with total 100mm unit sales accounting for more than 21 % of the market for the year 1972. International In 1955, when Philip Morris initiated its international affiliate activities to supplement exports, your company sold 4.3 billion cigarettes in international markets. In 1972, Philip Morris International sold 113 billion units in more than 160 countries and territories through exports of over 14 billion cigarettes and local manufacture by affiliates and licensees. Philip Morris International's manufacturing affiliate5,are located in Argentina, Australia, elgiunr; Canada, Canary Islan s, Dominican Republic, Germany; Guatemala, ~ Holland, India, Indonesia, Mexicd! Nigeria, Pakistan, Panama, SwitzerlanUnited Kingdom, and Venezuela. Marketing affiliates exist in Ecuador, France, Greece, New Zealand, Puerto Rico, and Sweden/Licensees include manufacturers in Austria, Bolivia, Finland, Haiti, Hong Kong, Italy; Malaysia, Netherlands Antilles; The Philippines, and Yugoslavia. Philip Morris Europe, the largest International region in sales and profits, maintained its rapid growth, putting into production a new factory in West Berlin and expanding the Philip Morris Holland B. VV plant in Bergen op Zoom. Marlboro is among the leading brands in Austria, Finland, Italy and Switzerland and has substantial sales in other European countries. Muratti Ambassador is another leading Philip Morris entry in European cigarette markets. Philip Morris International's Asia/ Pacific, Canada, and Latin America- Iberia regions also strengthened their respective market positions in 1972 and reported improved sales and earnings. 2

3 Miller Brewing MiIler Brewing devoted substantial effort and resources to reorganizing and strengthening its operations, while experiencing a difficult year. Although barrel sales and operating revenues increased in 1972, Miller's operating income declined. This decline reflected the intensified price competition in the brewing industry and the rising costs for raw materials, labor and packaging materials. Miller has undertaken to strengthen its sales and profitability by instituting far-reaching changes which are not yet reflected in the company's financial results. Senior management has been substantially reinforced, marketing has been reorganized, and the distributor organization is being strengthened. In 1972, Miller's product line was expanded through new products and acquisitions. Several packaging innovations were well received. The continuing concentration of the brewing industry offers promise of long-term opportunity for Miller since it is one of the three nationally distributed brands of premium beer, the fast-growing segment of the market. In 1972, the premium beer segment accounted for 3 0 % of the market compared with 23 % in 1967. Philip Morris Industrial Philip Morris Industrial's operating revenue exceeded $100 million for the first time, an increase of 18% over 1971, and the increase in operating income was even greater- 26%. Our industrial companies benefited from the improvement in the U.S. economy in 1972, but more important is the fact that the sales .strategies of these companies have been sharply re-focused, with satisfactory results in terms of sales and profitability. The orientation of marketing strategies around high technology-high margin products produced substantial increases in revenues and income at Nicolet Paper Company and Polymer Industries, Inc., a specialty chemical manufacturer. Milprint Inc., the nation's leading producer of flexible packaging, recorded higher revenues, but income dipped slightly below the 1971 level. Mission Viejo In September, we acquired 100% of Mission Viejo Company, a new community development and home building concern. Mission Viejo's largest operations are located in Orange County, California, and it is also building homes in Phoenix, Arizona, and a new community in Denver, Colorado. Mission Viejo's sales and earnings were consolidated with those of Philip Morris's other operations in the fourth quarter of 1972. Capital Expansion We are in the initial stages of a major capital expenditure program. In 1972, our expenditures reached $120 million, a substantial increase over the $68 million spent in 1971. During the next five-year: period, we expect to spend more than $500 million for new and expanded manufacturing facilities. These will be constructed not only in the U.S. but overseas as well, and principally for tobacco operations. These plans emphasize our confidence in the continued long-range expansion and profitability of the cigarette industry around the globe. The most significant component of this program is a cigarette manufacturing complex now under construction in Richmond, Virginia, planned as the world's largest and most efficient facility of its kind. When this project is completed in 1977, its total cost, including land, buildings, equipment and machinery, will exceed $200 million. It is anticipated that the first cigarettes will be produced in this facility in 1973 and that construction of the buildings will be completed in 1974. The new 8-story Research Tower in Richmond, housing some 300 scientists, will be dedicated this April. Smoking and Health The tobacco industry continues to broaden its support of research directed to finding answers to the many unresolved questions about smoking and health. At year end, the Harvard Medical School announced acceptance of a $2.8 million grant from eight tobacco companies, including Philip Morris, and an association of tobacco growers. The grant will fund a five-year program of research on the relationships, if rv 0 0 0 0 ~ ~ ~ w ~ any, between cigarette smoking and pulmonary and cardio-vascular diseases. In announcing the grant, the principal Harvard investigator said, "While it is common knowledge that cigarette smoking has been alleged to be a major cause of these diseases, many other factors, not so well publicized, may also be important. These include exposure to air pollutants, the genetic differences in host susceptibility, and so on. A direct causal relationship for many of these or other environmental factors has not been clearly demonstrated." Philip Morris is also a participant in a $2 million research grant to Washington University, in St. Louis, Missouri, for the study of cancer immunology in man. This study is now in its second year, and encouraging progress is being made in this very active and promising field of cancer investigation. While there was little in the way of new legislative activity relative to smoking and health in the United States, several countries in which we have operations did enact laws limiting cigarette advertising and requiring warning notices on packages and advertising. Problem Areas The government's Phase II wage and price regulations and the relatively moderate fiscal and monetary policies in effect in 1972 resulted in a reduced rate of inflation of approximately 3.8 % for the entire year. Profit margin limitations prevented your company from raising the prices of its products or those of its subsidiaries during 1972. A serious threat to your company, all multi-national companies, and the national interest exists in the form of the "Hartke-Burke Bill" now before Congress. This legislation threatens harm to international trade by eliminating credits for taxes paid in other countries, which would greatly increase tax obligations in the U. S. The bill would also impose quotas on imports and prohibit the exportation of U. S. technology. As has been the case with most multi-national companies, Philip Morris's international expansion has resulted in increased U. S.

employment and a positive contribution to our balance of payments. Employment in the U.S. in support of our international activities increased more than 300% during this period. We sincerely hope that Congress will examine the record carefully before imposing any counter productive measures. In 1972, five states and the District of Columbia raised or passed legislation approving increases in cigarette excise taxes; this compares with 16 state increases in 1971. Unfortunately, we cannot realistically expect the number of future tax increases to remain at or close to the 19721eve1. In fiscal 1972, total cigarette excise tax revenues came to $5.2 billion, an amount almost 50% greater than the combined revenues from cigarette sales of the six domestic manufacturers (excluding federal excise tax). This total was composed of $2.1 billion in federal excise taxes, $3.0 billion at the state level, and $.1 billion at the municipal and county levels. It is an accepted fact that the excise tax, like the sales tax, is a regressive form of taxation in that a larger proportion of lower incomes are absorbed by each dollar of such a tax. It has been documented that excise taxes actively discriminate against poor urban dwellers who tend to smoke greater numbers of cigarettes. In many instances, excise tax increases have been at least partially self-defeating. In New York City where the "tar" tax was added to substantial existing excise taxes, the number of cigarettes taxed continued to decline. In 1972, the number of cigarettes taxed declined below the level taxed in 1965. While actual tax revenues have increased marginally, legal cigarette sales are being diverted from New York City or are being displaced by bootlegged cigarettes. The New York State Commission of Investigation estimated last year that one out of three packs of cigarettes consumed in New York City was contraband. Social Responsibility In late 1971, Philip Morris initiated a company-wide audit of its practices in the areas which fall under the heading of "corporate responsibility" in an effort to determine whether management policies and directives were, in fact, being carried out-and to what extent, and where. Requiring nearly a year, the findings have helped establish bench marks and directions for future management action at corporate, operating company, and individual plant levels. In October, our overall corporate program received favorable recognition in a report entitled "Initiatives in Corporate Responsibility," prepared and published by the Consumer Subcommittee of the U. S. Senate Committee on Commerce under the chairmanship of Senator Frank E. Moss, of Utah. This Senate Commerce Committee report, which surveyed 300 of the top corporations on the Fortune "500" list, referred to ". . . an outstanding report submitted by Philip Morris . . ." During 1972, responsibility for reviewing our continuing programs in these areas, and for initiating new programs, was assigned to two new committees of our Board of Directors -the Environmental Committee and the Corporate Committee on Social Responsibility and Contributions. These committees were created to ensure that our programs and performance are progressive and productive. The goals that we have been pursuing include recruitment of women, minorities, and veterans, advancement of equal opportunities for minorities and women, increased business with minority-owned institutions, on-the- job training, significant involvement in both community affairs and the arts, and substantial reduction or elimination of pollutants from our factories. Early in 1973, after a lengthy period of intensive study, Philip Morris announced a unique pioneering scholarship program in support of vocational training as a specific supplement to our support of higher education. We hope and expect that this program, which has received the support of the U. S. Department of Labor, will represent a significant educational experiment in time to come. In 1972, Miller completed its conversion to fully recyclable, aluminum beer cans, while Formosa Spring's and Nicolet Paper's effluent control programs became fully operational. Mission Viejo's efforts to preserve and enhance the environment during and after home construction proved highly successful. In 1972, your Board was saddened by the death of Dr. Jess H. Davis, President of the Stevens Institute of Technology. We shall miss his wisdom and dedication. The Board was subsequently strengthened by the election as Directors of Mrs. Whitney M. Young, Jr., widow of the late civil rights leader, and Mr. John T. Landry, Vice President of Philip Morris Incorporated and Group Vice President-Director of Marketing, Philip Morris U.S.A. We are optimistic about Philip Morris's future-in 1973 and the years beyond. Our record of growth in the cigarette business, in the U. S. and world-wide, is well known. Given the vitality and momentum of our cigarette brands throughout the world, there is every reason to believe that our cigarette growth will continue. We also believe there is great future potential in the brewing, industrial, and housing areas of our business. For their dedicated contributions to our continuing growth, we are grateful to all our 33,000 Philip Morris employees in this country and around the world, and we thank them for their outstanding performance. Respectfully submitted on behalf of the Board of Directors, Joseph R Cullman 3rd Chairman of the Board and Chief Executive Offlcer WJ.;.~ George Weissman President and Chief Operating Offlcer 4

Architect, Ulrich Franzen; Photographer, Ezra Stoller The new Philip Morris Research Center Tower (above), completed last f all in Richmond, will be dedicated this April in a ceremony including a scientific symposium at which three Nobel Prize winners, among others, will participate. Dr. Glenn T Seaborg, former Atomic Energy Commission Chairman and winner o f a Nobel Prize in 1951, has agreed to be keynote speaker at the ceremony. Research is a very high priority function at Philip Morris, not only in terms o f our corporate research in tobacco agronomy, product development, and product quality but also in fields not directly related to the internal Philip Morris research ~ r1? 0 ~ 0 F:. ~ ~ ~ program. Specifically, Philip Morris as a company invests substantial sums in support of scientific and medical research in the area o f cigarette smoking and health, and the U.S. tobacco industry as a whole expends more funds in such research than the federal government or all voluntary health agencies in the United States combined. It is important to note that there is a continuing exchange of scientific data and findings between the Philip Morris Research and Development Center in Richmond and research organizations operated by Philip Morris International affiliates around the world. 5

Major Locations Philipbtorris[ncorporated,OperatingCompanies,Affiliates,andLicensees Phillp Morris U.S,A. ® Philip Morris International AffiLales and Licensees • Mlller Brewing Company ~ Philip Morris Industrial Mission Viejo Company :~n ~ a In Benson & Hedges (Canada) Ltd. ~ Formosa Spring Brewery De Pere, Wisconsin 0 d Mihvaukee, NJisconsin 00 I~ Plainweil, Mich. ffi..Slamford, Connecticut Denver, Colorado ~ Warsaw, Ind'.ana/* `~ ®O,j Phillp Morris Incorporated, New York. N.Y. Fremcnl, Ohio L Hobcken Ne~v Jzrs= San Francisco, California\® Azusa, Callforlnia ~ Mission Viejo, CaliforNa\ - Evansville, Indian ~'~ I ~ - ' ~ . ~y . Louisvllle, KenluckyJ •I Downinglon, Pennsylvania Nicholasville, Kentucky-r , Richmpnd, Virgmia /Slaunton, Virginia \ Phoenix, Arizona Fon wonn, I exas . D 6 \ Tabacalera Centroamericana, S.A. / Guatemala Cigarrera Naclonal, S.A. / Mexico ~ • Licensee / Nelherlands Antilles 0p Lati E. Ledn Jimenes, C. por A. / Dominican Repnl Licensee /tiaitb~ % Phlllp Mo«IS de Pueno Rico Benson & Hedge

1j ,nna Internallonal Ltd. / Glasgow, Scotland Philip Morris & Co. L1d. / England Godfrey Phillips Ltd. I England * • r 1,Llcensee / Finland Phir,p Morris Sweden AS ~ • 'Nikorin-Werk / Bremen, West Germany ! Phlllp Moms Holland B.V. ~ 'Neltab S,A. / Belgium 0 Philip Morris Germany G.m.b.H. Philip Morris France S.A. 0 Philip Morrls Europe S.A. / Switzerland 0 Fabriques de Tabac Peunies S.A. / Swilzerlantl • • Philip Morris Espana, S.A. / Canary Islands Philip Morris Iberica, S.A. / Canary Islands r Repuh b 0 PremlerTobacco Induslries Ltd. / Pakistan • Gcdfrey Phillips, India, Lld. _uela • Philip P.lorris Nigeria Ltd. Va ~ • Licensee / Austria Licerisee / Italy .~ lS'~ N ~/ C-.p(/ ~Phdip Morris Oversees, Inc. / Greece Philip Morris Asia-Pacific Inc. / Australia ~~ _~ Phlllp Morris (Australia) Ltd. V Philip Morris Ltd. Godfrey Phallps Ltd. M

Re#rospec#ive de I'Annee En 1972, votre societe a fait etat d'un chiffre d'affaires et de benefices sans precedent et, pour la 19eme annze consecutive, les dividendes par action ont augmente par rapport a 1'annee pre- cedente, Pour 1972, le chiffre d'affaires consolide a accuse un accroissement de plus de 15,0% et les recettes nettes ont augmente de 22,6%. Le revenu par action (en tenant compte des titres convertibles) augmentait de 20,1% et le revenu effectif par action de 16,2%. En 1972, Philip Morris a continue a accroitre sa part du march6 mondial des cigarettes. En termes de ventes unitaires, Philip Morris devenait Ia seconde societe cotee en bourse de l'industrie de Ia cigarette dans le monde. Marlboro est devenue la premi8re marque sur le march6 mondial, tout en se maintenant au second rang sur le march6 des Etats-Unis. Et Philip Morris a toujours la seconde place dans 1'industrie de la cigarette aux Etats-Unis. Le chiffre d'affaires de l'industrie est monte de 4% pour atteindre approximativement 3.450 milliards d'unites. Les ventes totates de Philip Morris (en comptant les Etats-Unis et 1'etranger) atteignent maintenant 6,5% du march6 mondial. En 1972, pour la troisieme annee consecutive, les ventes de 1'industrie aux Etats-Unis ont accuse un accroissement, atteignant environ 554 milliards d'unites, soit une majoration de plus de 3%. Pendant 1'annee, les ventes unitaires de Philip Morris sur le march6 americain ont augmente de plus de 13% et notre part du marche est pass@e en fin d'annee a plus de 20%. Philip Morris a vu son chiffre d'affaires consolid'e croitre, au cours des cinq dernieres annees, au taux annuel compose de 18,7%. Pendant cette periode, les revenus nets progressaient selon un taux compose6 annuel moyen de 23,3% et les revenus par action (en tenant compte des titres convertibles) croissaient de 17,6% par annee. Pour la 45eme annee consecutive, votre compagnie a paye des dividendes sur ses actions ordinaires. Pour la cinquieme annee consecutive, les divi- dendes ont accuse une majoration; celle de 1972 represente le maximum autorise par les directives de Ia Phase II. A 1'heure actuelle, le dividende annuel se monte a$1,296 par action ordinaire. Ventes aux Etats-Unis Les gains realises par les ventes de Philip Morris aux Etats-Unis ont suivi 1'essor impressionnant de Marlboro qui, parti de 6,6% il y a cinq ans, s'est tgille une part de 12,5% du march6 americain. Marlboro s'est considerablement rapproche de la principale marque des Etats-Urils et continue a distancer de plus en plus les marques quii la suivent. Philip Morris U.S.A. a de nouveau renforce sa position de chef de file dans la categorie des 100 mm, avec Benson et Hedges 100 devenue en 1972 la principale marque de 100 mm aux Etats-Unis, suivie de Marlboro 100, de Parliament 100 et de Virginia Slims.'La categorie des 100 mm est celle qui connait aux Etats-Unis la croissance la plus rapide; en effet, ses ventes ont atteint plus de 21% de 1'ensemble du march6 pour 1972. Ventes internationales - En 1955, lorsque Philip Morris entreprit d'ouvrir des filiales dans le monde pour approvisionner le march6 de 1'exportation, ses ventes mondiales atteignirent 4,3 milliards de cigarettes, En 1972, les ventes dans 160 pays et territoires ont atteint 113 milliards d'unites, dont 14 milliards a 1'expor- tation, le reste ayant et€ fabrique localement ou sous licence. Les filiales de Philip Morris International ont des usines de cigarettes en Argentine, en Australie, en Belgique, au Canada, aux Iles Canaries, en Republique Dominicaine, en Allemagne, au Guate- mala, en Hollaride, en Inde, en Indonesie, au Mexique, au Nigeria, au Pakistan, au Panama, en Suisse, dans le Royaume-Uni, et au Venezuela. 11 existe d'autres filiales de Philip Morris en Equateur, en France, en Grece, en Nouvelle-Zelande, a Porto-Rico et en Suede. Philip Morris a octroye des licences de fabrication a des entreprises d'Autriche, de Bolivie, de Finlande, d'Haiti, de Hong-Kong, d'Italie, de Malaisie, des Antilles Neerlandaises, des Philippines et de Yougoslavie. Philip Morris-Europe qui, sur le plan interna- tional, constitue la zone la plus importante en ter- mes de ventes et ben8fices, a mis en exploitation une nouvelle usine a Berlin-Ouest et elargi les ins- tallations de Philip Morris Holland B.V. a Bergen Op Zoom. Marlboro figure parmi les premieres marques en Autriche, Finlande, Italic et Suisse et atteint des chiffres de vente importants dans d'au- tres pays d'Europe. Muratti Ambassador est une autre marque Philip Morris que reussit particu- lierement bien sur le march6 europeen de la cigarette. Dans ]es regions Asie-Pacifique, Canada, Ameri- que Latine et Espagne, Philip Morris a, en 1972, renforce ses positions sur les differents marches et il annonce une augmentation des ventes et profits. Miller Brewing Bien que 1'annee ait ete difficile pour Miller Brewing, celle-ci a consacre beaucoup d'efforts et des ressources importantes a revigorer ses op6- rations. Malgre I'augmentation des ventes de barils en 1972, Miller a vu diminuer ses recettes d'exploitation. Le declin des recettes d'exploita- tion reflete une concurrence plus sevr;re au sein de l'industrie de la bi6re, ainsi qu'une augmenta- tion des coffts des matieres premt6res, de la main d'oeuvre et des materiaux de conditionnement. Miller a entrepris de renforcer ses ventes et d'ameliorer sa rentabilite en adoptant des mesu- res de r€forme profondes dont les resultats ne se sont pas encore repercutes sur les bilans finan- ciers. Les cadres superieurs ont 6t6 fortement etoffes, le service des ventes a ete reorganise, tan- dis que le reseau de distribution se trouvait ren- force. En 1972, Miller a dlargi sa gamme de produits, en achetant ou en creant de nouvelles marques. Plusieurs innovations en mati6re de conditionnement ont donne de bons resultats. La tendance de i'industrie de la bi8re vers une con- centration de plus en plus poussee permet a Miller de faire des previsions a long terme, puis- que cette societe figure parmi les trois distribu- teurs a I'€chelle nationale de bi6res de qualit6, qui constituent le secteur du march6 dont 1'expansion est la plus rapide. En 1972, le secteur des bi8res de qualite representait 30% du marche, compare a 23% en 1967. Philip Morris Industrial Philip Morris Industrial a vu son chiffre d'af- faires depasser, pour la premi8re fois, 100 millions de dollars, cc quf represente une majoration de 18% sur 1971; 1'accrotssement des recettes d'ex- ploitation a ete encore plus marque, atteignant 26%. Nos societ€s industrielles ont profite du mouvement de reprise qui a caracterise 1'8conomie americaine en 1972; il convient cependant d'at- tacher une importance encore plus grande au fait que ces societes ont restructure leurs strat6gies de vente, cc qui a donne des resultats satisfaisants sur le plan des ventes et de la rentabilite. L'orien- tation des stratBgies de commercialisation en fonc- tion de produits qui font appel a une technologie complexe et offrent de fortes marges beneficiaires, a permis d'augmenter les chiffres d'affaires et les ben€fices de la Nicolet Paper Company et de Poly- mer Industries, Inc. qui dlabore des produits chi- miques a utilisations speciales. ilyfilprint Inc., Ie premier producteur amertcain de materiaux de conditjonnement flexibles, a enregistre une aug- mentation de son chiffre d'affaires mais une baisse de benefices par rapport au niveau de 1971. Mission Viejo Au mois de septembre dernier, nous avons acquis a 100% 1a Mission Viejo Company, nouvelle en- treprise de construction de logements et de deve- loppements communautaires. Mission Viejo a son plus grand chantier dans I'Orange County, en Cali.fornie, et construit egalement des logements a Phoenix, Arizona, et dans un nouveau quartier de Denver, Colorado. Pendant le quatrieme tri- mestre de 1972, les ventes et les benefices de Mission Viejo ont et8 consolides avec les autres operations de Philip Morris. Expansion Nous en sommes aux premieres etapes d'un vaste programme d'expansion. En 1972, nos depenses ont atteint $120 millions cc qui represente une forte majoration par rapport aux $68 millions d6- pensBs en 1971. Pendant la prochaine periode quinquennale, nous escomptons depenser plus de $500 millions pour €largir ou construire des usi- nes, non seulement aux Etats-Unis, mais aussi a 1'etranger, surtout pour 1'industrie du tabac. Ces projets temoignent de la conflance que nous avons dans 1'expansion et la rentabilite a long terme de l'industrie de la cigarette dans le monde. Le plus important el6ment de cc programme est la construction a Richmond, Virginie du complexe industriel le plus grand et le plus perfectionn6 du monde pour la fabrication de la cigarette. Une fois les travaux acheves en 1977, il aura co0te au total plus de $200 millions pour Ie terrain, les batiments, 1'equipement et les machines. Il est prevu que les premieres cigarettes sortiront de l'usine pendant le premier trimestre 1973 et que le stade de pleine production sera atteint en 1974, lorsque la cons- truction des batiments sera termin@e. La nouvelle tour de recherches, haute de 8 etages, en construction a Richmond, sera inauguree en avril prochain. Elle abritera 300 techniciens. Le tabac et la santJ L'industrie du tabac continue a intensifier 1'appui qu'elle donne a la recherche, pour resoudre les nombreuses questions qui restent encore sans reponse au sujet de Ia cigarette et de la sante. A la fin de 1'ann6e, la Faculte de Medecine de Harvard a annonce qu'elle a accepte de huit entre- prises de tabac, dont Philip Morris, et d'une association de producteurs de tabac, un don de $2,8 millions, qui doit permettre Ia realisation d'un programme de recherches echelonnees sur cinq ans, portant sur les rapports susceptibles d'exister entre la cigarette et les maladies pulmo- naires et cardio-vasculaires. En annongant cc don, le directeur des recherches a Harvard, a declare: "Tout le monde sait qu'on a accuse la cigarette d'@tre 1'une des principales causes de ces maladies; cependant, d'autres facteurs, qui n'ont pas requ la meme publicite, peuvent egalement jouer un r81e important. Parmi eux, il faut citer la pollution de 1'air, les differences genetiques en cc qui con- cerne 1a susceptibilite des hotes, etc. Nul n'a refute de fagon nette qu'il existe un rapport direct de cause a effet dans le cas de ces facteurs ou d'autres elements de 1'environnement", Philip Morris participe egalement a un don de $2 millions qui a et6 fait a Washington University, Saint Louis, Missouri, pour des recherches sur l'immunologie du cancer chez 1'homme. Cette etude, qui en est a sa seconde annee, fait des pro- gr6s encourageants dans cc domaine, tres promet- teur et tres actif, des recherches sur le cancer. Tandis que les Etats-Unis n'ont guere adopte de dispositions nouvelles en cc qui concerne la fu- m@e et la sante, plusieurs pays oil nous avons des interets ont promulgue des lois limitant la publi- cit€ des cigarettes et exigeant que des mises en garde figurent sur les paquets de cigarettes et dans le mat€riel publicitaire. Probl~mes En 1972, la Phase II des r8glements federaux en matiere de controle des prix et des salaires, ainsi qu'une politique fiscale et monetaire relativement moderee, ont eu pour effet de permettre un taux d'infiation limite a 3,8% environ pour 1'ensemble 8

de 1'annee. Les limites impos@es aux marges bene- ficiaires n'ont pas permis a votre societe d'aug- menter les prix de ses produits, ni des produits de ses filiales. pour votre societe, pour toutes les societes multi- nationales, et pour 1'interet national, le projet de toi dit "Hartke-Burke", qui fait actuellement 1'objet de deliberations au Congr~s, constitue une grave menace. Cette 1oi risque de causer des torts serieux au commerce international en eliminant les credits sur les imp8ts payes a 1'etranger (ce qui augmenterait constderablement les obliga- ttons fiscales payables aux Etats-Unis). En outre, la loi contingenterait les importations et interdi- rait 1'exportatlon de la technologie americaine. Tout comme la plupart des entreprises multina- tionales, Philip Morris a pris a 1'etranger une ex- pansion qui a cree des emplois aux Etats-Unis et s est traduite par un apport net dans notre balance de paiements. Durant la meme periode, le nombre d'emplois que nous avons crees aux Etats-Unis pour etayer nos activites internationales a aug- mente de plus de 300%. Nous esperons sincere- ment que le CongrBs examinera les dossiers avant d'imposer des mesures allant a 1'encontre des resultats escomptes. En 1972, cinq Etats et Ie District de Colombia ont propose ou adopte des lois relevant 1'impot a Ia consommation des cigarettes; en 1971, 16 Etats avaient pris des mesures analogues de majoration. Nous ne pouvons malheureusement pas nous at- tendre a ce que, a 1'avenir, le nombre de releve- ments reste au meme niveau qu'en 1972, ou proche de celui-ci. Au cours de I'annee fiscale 1972, I'impSt a la con- sommation des cigarettes a fourni un total de $5,2 milliards, c'est-a-dire une somme qui depasse de pres de 50% Ie total, hors imp6ts, des recettes nettes realisees par les six fabricants de cigarettes des Etats-Unis. Ce total se compose de $2,1 mil- liards de taxes fed'erales a la consommation, $3 milliards de taxes des divers Etats et $0,1 milliard de taxes municipales ou de comt€. C'est un fait que, A 1'instar de la taxe a la vente, 1'impot a la consommation represente une forme regressive de fiscalite, en ce sens qu'il frappe plus durement, toutes proportions gardees, la tranche des revenus les plus faibles. II est prouve que les impots a la consommation constituent une nette discrimination contre les citadins peu fortunes qui ont tendance a fumer un plus grand nombre de cigarettes. Dans de nombreux cas, les rel~vements de 1'im- pot a Ia consommation sont alles a 1'encontre de certains buts recherches. A New York, otl Ia taxe sur le "goudron" est venue s'ajouter a une taxe a Ia consommation de'a forte, Ie nombre de cigaret- tes taxees a continu~ a diminuer. En 1972, en effet, le nombre de cigarettes taxees est retomb€ a son niveau de 1965. Alors que Ie produit de la taxe augmentait legerement, les ventes legales de ciga- rettes ont diminue: les acheteurs vont s'approvi- sionner en dehors de Ia ville ou achetent des ciga- rettes de contrebande. La Commission d'Enquete de I'Etat de New York a estime qu'a 1'heure ac- tuelle, dans la ville de New York, un paquet de cigarettes sur trois est vendu en contrebande. Responsabilites sociales Vers Ia fin de 1'annee 1971, Philip Morris a en- trepris une etude d'ensemble de ses "responsa- bilites d'entreprise", afin de preciser si ses politi- ques et directives de gestion 8taient effectivement mises en oeuvre-dans quelle mesure, et otl. AprBs une annee de preparation, cette etude a permis de fixer des points de rep8re et de d'efinir des prin- cipes directeurs dont s'inspireront a 1'avenir les responsables de la compagnie a tous les echelons, qu'il s'agisse de Ia direction generale, des services d'exploitation ou des diverses usines. Au mois d'octobre dernier, le programme d'en- semble mis sur pied par notre societe a fait 1'objet d'une mention favorable dans un rapport intitule "Initiatives en mati6re de responsabilite des so- cietes", qui a ete prepare et publie, sous Ia direc- tion de M. Frank E. Moss, Senateur de 1'Utah, par la Sous-Commission de la consommation de la Commission senatoriale du Commerce. Ce rap- port, qui examine 300 entreprises figurant sur la liste des "500" dtablies par Fortune Magazine, parle d'un . . . "document remarquable presente par Philip Morris . . .". Durant 1'annee 1972, deux nouveaux comites de notre Conseil d'Administration-le Comite de 1'environnement et Ie Comite des responsabilites et contributions sociales-se sont vus confier Ia tache d'examiner les programmes que nous exe- cutons dans ces domaines et d'en instituer de nouveaux. Grace a ces comites, nous esperons veiller a ce que nos programmes et nos activites allient Ie souci de productivite a celui du progriis social. Nous nous sommes efforces de recruter des femmes, des anciens combattants et des membres des groupes minoritaires, d'offrir des chances egales aux groupes minoritaires et aux femmes, de developper les affaires avec les institutions appar- tenant aux groupes minoritaires, d'organiser l'ap- prentissage sur place, de participer a la vie de la communaute, de donner notre appui aux arts et de reduire, sinon d'eliminer la pollution, prove- nant de nos usines. . Au debut de 1973, apr8s une longue periode d'etu- des approfondies, Philip Morris a annonce Ia crea- tion d'un programme de bourses d'enseignement technique, d'une conception entierement nouvelle, qui vient completer l'appui que nous donnons a 1'enseignement superieur. Nous esperons et nous comptons que ce programme, qui a beneficie de I'appui du Departement du Travail, sera une ex- perlence en matiere d'enseignement d'une grande importance pour i'avenir. En 1972, Miller Brewing a termine la conversion en aluminum des boites de biere qui sont mainte- nant totalement recyclables, et les programmes de contr8les des effluents etablis par Formosa Springs et Nicolet Paper sont maintenant tout a fait op8- rationnels. Quant a Mission Viejo, ses efforts des- tines a preserver et embellir 1'environnement, pen- dant et apres la construction d'habitations, ont ete couronnes de succ8s. En 1972, votre Conseil d'Administration a eu la douleur de perdre le Dr. Jess H. Davis, President du Stevens Institute of Technology. Sa sagesse et son devouement nous manqueront beaucoup. Ulterieurement, le Conseil a ete renforce a la suite de I'election de deux Administrateurs, Mme Whitney M. Young, Jr., veuve du defenseur des droits civiques, et M. John T. Landry, Vice Presi- dent de Philip Morris Incorporated et Vice-Presi- dent de Groupe, Directeur des services cotnmer- ciaux, Philip Morris, U.S.A. Nous sommes optimistes en ce qui concerne 1'ave- nir de Philip Morris-en 1973 et au-dela. Notre es- sor exceptionnel dans 1'industrie de la cigarette aux Etats Unis et dans le monde entier, est un fait bien connu. Grace a la vitalite et a 1'elan dont nos marques font preuve dans le monde, il y a tout li.eu de croire que nous poursuivrons notre expan- sion sur le march6 des cigarettes. Nous croyons egalement que nos autres secteurs d'activite, tels que la brasserie, 1'industrie et le logement, offrent de grandes possibilites d'avenir. Notre reconnaissance s'adresse aux 33.000 em- ployes de Philip Morris, des Etats-Unis et d'ail- leurs. Nous les remercions pour la fapon remar- quable dont ils se sont acquittes de leur tache. Presente avec les respects du Conseil d'Administration Joseph F. Cullman 3rd President du Conseil d'Administration et Administrateur en chef George 6Weissman President et Directeur des services d'exploitation Informe del an® La Compaiiia dio cuenta en 1972 de que los ingre- sos y las ganancias por operacibn habian excedido todos los records y de que, at igual que durante los tiltimos 19 aiios consecuttvos, eran mayores las utilidades por accien que en el aiio anterior. Los ingresos por operaci6n consolidados para el ano 1972, experimentaron un aumento de mas del 15,0%, y las entradas netas se elevaron el 22,6%. Las utilidades totalmente diluidas por acci6n aumentaron 20,1%o y las utilidades primarias por acci6n 16,2%. En 1972, el incremento de Philip Morris en Ia participacibn de Ia industria mundial de cigarrillos fue mayor. En ventas unitarias, Philip Morris se convirti6 en la segunda en importancia entre las companias cigarrilleras de dominio ptiblico mun- diales. Marlboro se puso a la cabeza de las marcas en todos los mercados intemacionales y continu6 ocupando el segundo lugar en los Estados Unidos. Al presente, Philip Morris continfia siendo ei segundo entre los principales fabricantes de ciga- rrillos estadounidenses. Las ventas mundiales de Ia industria experimenta- ron un aumento de 4%; un volumen de aproxima- damente 3.450 mil millones de unidades.Tomando en cuenta los mercados internacionales y de E.U.A., las ventas unitarias de cigarrillos de Philip Morris representan el 6,5% de las cifras mundia- les totales. Las ventas de Ia industria en E.U.A. se incremen- taron durante 1972 por el tercer aiio consecutivo hasta unas 554 mil millones de unidades, o sea, un aumento de mas del 3%. Las ventas unitarias de cigarrillos subieron el 13% sobre otros aiios, y al finalizar el ai5o nuestra participacien del mercado aument6 a mas de120%. Los ingresos operativos consolidados de Philip Morris en los pasados cinco anos han aumentado en un promedio capitalizado anualmente de 18,7%. Se acrecentaron las ganancias netas pars este periodo en un promedio capitalizado anual- mente de 23,3%, y las utilidades totalmente dilui- das por acci6n se elevaron el 17,6% por aiio. La Compaiiia, por el 45 ano consecutivo, ha pagado dividendos en sus acciones ordinarias. Por el quinto aiio consecutivo, estos dividendos han sido mayores; el aumento de 1972 fue el maximo per- mitido por las normas contables sobre dividendos de los organismos reguladores de la Fase II. El actual dividendo es de $1,296 por acci6n unitaria. Las ventas en E.U.A. De nuevo el notable aumento experimentado en este pais de las ventas de Philip Morris U.S.A., se debe al continuo aumento de la marca Marlboro que ahora llega a participar del mercado en un 12,5%, en comparaci6n con 6,6% de hace cinco aiios. La distancia que separa Marlboro de la marca que va a la cabeza de Ia industria cada vez se acorta m'as y, es mayor cada vez mas Ia dis- tancia entre Marlboro y las marcas,que Ie van a la zaga. Philip Morris U.S.A. se ha afianzado en el puesto de lider en la categoria de cigarrillos de 100mm, con Benson & Hedges 100, que se convirti6 en Ia marca de 100mm mAs importante en 1972 en E.U.A., al igual que Marlboro 100, Parliament 100 y Virginia Slims. Este rengl6n es el de mayor empuje entre las categorias que experimentan auge mayor en el mercado de E.U.A. cuyas ventas unitarias totales de 100mm para 1972 llegaron a mas del 21% del mercado. Actividades internacionales Cuando en 1955 Philip Morris inici6 sus activida- des por medio de las compaiuas afiliadas interna- cionales con el fin de suplementar las exportacio- nes, la Companfa vendi6 en el mercado mundial 4,3 mil millones de cigarrillos. En 1972, Philip Morris International vendi5 113 mil millones de unidades en mas de 160 paises y territorios por intermedio de Ia exportaci6n de m'as de 14 millones de cigarrillos y la manufactura local de sus afiliados y concesionarios. Philip Morris International cuenta con compaiifas afiliadas manufactureras en Alemania, Argentina, Australia, Belgica, Canadra, Guatemala, Holanda, India, Indonesia, Islas Canarias, Mexico, Nigeria,

Pakistan, Panama, Reino Unido, Reptiblica Dominicana, Suiza, y Venezuela, y existen compa- 6ias afilladas de distribucion y venta en Ecuador, Francia, Grecia, Nueva Zelandia, Puerto Rico y Suecia. Hay concesionarios que incluyen fabri- cantes en Austria, Bolivia, Finlandia, Haiti, Hong Kong, Italia, Malasia, Antillas Holandesas, Filipinas y Yugoslavia. Considerada como la mayor de las regiones inter- nacionales tanto en ventas como en utilidades, Philip Morris Europa ha mantenido su rapido de- sarrollo; ya esta en producci6n una nueva fabrica en Berlin occidental y se ha ampliado la planta de la Philip Morris Holland B.V. en Bergen op Zoom. Marlboro se cuent2 entre las marcas prmcipales en Austria, Finlandia, Italia y Suiza y goza de excelentes ventas en otros paises europeos. Otra marca popular de Philip Morris en los mercados cigarrilleros de Europa es la Muratti Ambassador. En las regiones del Pacifico asiatico, del Canad"a y de Espana e Hispanoam8rica, se ha observado aflanzamiento en las respectivas posiciones del mercado durante 1972 para Philip Morris Interna- tional y las ventas y ganancias obtenidas han sido mayores. La cervecerfa Miller Cuantiosos esfuerzos y recursos dedic6 la Cerve- ceria Miller a la reorganizaci6n y fortalecimiento de sus operaciones, a la vez que atraves6 por un ano dificil. A pesar de que las ventas por barril y las entradas operativas aumentaron durante 1972, declinaron las utilidades por operaci6n de Ia empresa Miller. Dicha disminuct6n reflej6 Ia intensificaci6n de la competencia en precios en la industria cervecera y los costos cada vez mayores de las materias primas, la mano de obra y los materiales de envase. Se ha propuesto Miller fortalecer su estructura de ventas y su remunerabilidad al instituir cambios de largo alcance que atin no se refiejan en los resultados financieros de la Compania. En forma tangible la gerencia principal ha adquirido mas solidez, las operaciones de distribuci6n de ventas y mercadeo se han reorganizado y se perfecciona la organizaci6n distribuidora. En 1972, el rengl6n de productos Miller se ampli6 debido a nuevos productos y adquisiciones. Demostraron tener exito varias innovaciones en el.envase. La continuada concentraci6n de Ia industria cer- vecera ofrece una promesa de oportunidades de larga duraci6n para la compaiiia Miller ya que Bsta es una de las tres marcas de cerveza de cali- dad alta distribuidas de costa a costa, siendo este el segmento de m5s rapido crecimiento del mercado. En 1972, el rengl6n de cervezas de calidad aita alcanz6 el 30% del mercado en com- paraci6n a 23% en el ano 1967. Philip Morris Industrial Las utilidades operativas de Philip Morris Indus- trial sobrepasaron $100 millones por primera vez, un aumento de 18% sobre 1971, y el aumento en entradas operacionales fue aun mayor - 26%. Nuestras compaiiias industriales se beneficiaron de Ia economia de E.U.A. en 1972, pero, lo que todavia es mds importante es el hecho de que la estrategia de ventas de estas compaiiias tiene un enfoque totalmente nuevo con resultados satisfac- torios en ]o que se refiere a ventas y a beneficios. La orientaci6n de las estrategias de ventas que descansan en la premisa de tecnologia avanzada- productos de alto margen, dio por resultado utilidades mayores y mayores entradas, tanto en Nicolet Paper Company como en Polymer Indus- tries, Inc., un fabricante de especialidades quimi- cas, y en Milprint Inc. el productor principal de toda la naci6n de envases flexibles, compania que obtuvo ingresos mas elevados, pero con ganancias algo mas reducidas que en 1971. Mission Viefo En septiembre, adquirimos el. 100% de la Mission Viejo Company, empresa que se dedica al de- sarrollo de nuevas comunidades y a la construcci6n de casas. Su esfera de actividad es en Orange County, California y Ileva a cabo las construccio- nes de viviendas en los suburbios de Phoenix, Arizona y en una nueva urbanizaci6lr'de Denver, Colorado. Las ventas y Ias ganancias de la Mission Viejo se consolidaron con las de Philip Morris en sus operaciones correspondientes ai cuarto trimestre de 1972. Expansion de capital Nos hallamos en la actualidad en la etapa inicial de un importante programa de erogaciones de capital. Nuestros gastos en 1972 alcanzaron la cifra de $120 millones, un considerable aumento sobre los $68 millones empleados en 1971. En el transcurso de los pr6ximos cinco an-os calculamos gastar mas de $500 millones en nuevas instalacio- nes o en la modernizaci6n de las existentes. Dichas construcciones tendrdn lugar no s6lo en los E.U.A., sino tambien en el extranjero, especial- mente para las operaciones tabacaleras. Estos planes ponen de relieve nuestra confianza en la continua expansi6n de grandes alcances y en la remunerabilidad que ha de esperarse de la indus- tria mundial de cigarrillos. La fase mas significativa de este programa es el conglomerado de instalaciones para Ia manufac- tura de cigarrillos que se esta construyendo ahora en Richmond, Virginia, el cual se piensa ha de ser el mayor y mas moderno en su genero. Cuando esta obra este terminada del todo en 1977, el costo total, inclusive el terreno, edificios, equipo y ma- quinaria, excedera $200 millones. Se espera que este lista para Ia producci6n de los primeros ciga- rrillos en 1973 y que Ia construcci6n de los edifi- cios finalice en 1974. El nuevo edificio de 8 pisos que albergar'a el centro de investigaciones en cuyas labores se dedi- caran 300 expertos y cientificos, se inaugurara el pr6ximo mes de abril. El fumar y Ia salud La industria tabacalera continua prestando su decidido apoyo a la investigaci6n que ha de brin- dar las respuestas a tanta pregunta que hoy en dia esta en la inc6gnita, referentes al fumar y a la salud. A fines de aiio, Ia Escuela de Medicina de Harvard anunci6 la aceptaci6n de una dona- ci6n de $2,8 millones hecha por ocho compaiiias tabacaleras, inclusive Philip Morris, y por una asociaci6n de productores de tabaco. Con este dinero se llevara a cabo un programa de investiga- ci6n, de cinco aiios de duraci6n, sobre las rela- ciones, de existir 6stas, entre el fumar cigarrillos y las enfermedades pulmonares y cardiovasculares. Al anunciar esto, el investigador principal de Harvard ha dicho: "Aunque es de todos conocido el hecho de que se ha relacionado el fumar a estas importantes enfermedades, tal vez haya otros muchos factores, a los que no se les ha hecho tanta publicidad, que pueden ser importantes. Entre ellos, la exposici6n a los contaminadores del aire, las diferencias geneticas en susceptibilidades favo- rables hospedantes, y otros mas. Una relaci6n causal directa sobre estos u otros factores ambien- tales aun no ha sido claramente demostrada." Participa asimismo Philip Morris de una donaci6n de $2 millones para investigaciones hecha a la Washington University, en St. Louis, Misuri, para el estudio de Ia inmunologia del cancer en el ser humano. Se halla al presente este estudio en su segundo aiio y se han obtenido halagadores progre- sos en eate campo tan prometedor y activo de investigaci6n de cancer. Aunque es poco lo nuevo que puede decirse acerca de las actividades recientes legislativas relativas al fumar y la salud en Estados Unidos, en varios de los paises en los que hacemos operaciones se han instituido leyes que limitan la publicidad de los cigarrillos y que exigen la inclusi6n de avisos en los paquetes y en la publicidad. Areas diJiciles La Fase II de las relaciones gubernamentales que rigen los precios y salarios junto con las normas monetarias y fiscales, relativamente moderadas, vigentes en 1972, causaron un indice de inflaci6n menor de alrededor de 3,8% durante eL ano. Las limitaciones con relaci6n al margen de ganan- cias no permitieron que la Compania aumentara el precio de sus productos ni el de los productos de las empresas subsidiarias. Lo que representa ser una seria amenaza para esta Compafiia, toda compaiiia multinacional y el interes nacional es la medida llamada "Proyecto de Ley Hartke-Burke" ahora en manos del Con- greso. Esta ley causaria daflo al comercio interna- cional al eliminar los creditos obtenidos por impuestos pagados en otros paises, lo cual aumen- taria en forma cuantiosa las obligaciones tributarias en E.U.A. Este proyecto de ley impondria tambi8n cuotas a las importaciones y prohibiria la expor- taci6n de la tecnologia estadounidense. Tal como sucede con la mayoria de las compaiiias multinacionales, Ia expansi6n internacional de Philip Morris ha dado por resultado el aumento de empleos en E.U.A. y una positiva contribuci6n a nuestra balanza de pagos. Durante este periodo, el numero de empleados que se tomaron para hacer frente a nuestras actividades internacionales, aument6 mas del 300%. Confiamos en que el Con- greso examinara los antecedentes a fondo, antes de imponer ninguna medida contraproducente. En 1972, cinco estados y el Distrito de Columbia plantearon o aprobaron legislaciones en las que se autorizaba el aumento de los impuestos sobre el consumo, esto en comparaci6n con el mismo aumento en 16 estados durante 1971. L'astima que no podamos realisticamente esperar que el numero de futuros aumentos de impuestos se mantenga igual a 1972 o que casii sean iguales. Durante el ano fiscal de 1972, las entradas deven- .gadas de los impuestos sobre el consumo de ciga- rrillos fueron casi $5,2 mil millones, o sea, cerca de 50% mayores que las entradas netas combina- das obtenidas de las ventas de cigarrillos por los seis principales fabricantes estadounidenses (con exclusi6n del impuesto federal sobre consumos). Form6 este total la suma de los 52,1 mil millones de los impuestos sobre consumo federales, 53,0 mil millones al nivel estatal y$0,1 mil millones a los niveles municipales y condales. Es un hecho aceptado que, este impuesto sobre consumos, at igual que el impuesto sobre ventas, es una forma regresiva de imponer impuestos porque una gran proporci6n de entradas mas bajas son absorbidas por cada d61ar de tal impuesto. Se ha documentado que tales impuestos sirven para la discriminaci6n activa contra los habitantes urbanos pobres, que son los que tienen la ten- dencia de fumar mas. En muchos casos, los aumentos en el impuesto sobre consumos han sido contraproducentes, en parte por lo menos. En Ia ciudad de Nueva York donde el impuesto sobre la "brea" fue aiiadido a una serie ya existente bastante cuantiosa de impues- tos sobre consumos, el numero de cigarrillos a los que se les aplica el impuesto contintia decli- nando. En 1972, el ntimero de cigarrillos sujeto a impuesto declin6 al nivel gravado en el 1965. Mientras que las entradas obtenidas por los impuestos han aumentado marginalmente, las ven- tas legales de cigarrillos dejan de efectuarse en Ia ciudad de Nueva York o en vez de ellas se obtienen cigarrillos de contrabando. La Comisi6n Investigadora del Estado de Nueva York calcul6 el aiio pasado que una de cada tres cajetillas de cigarrillos vendidas en Ia ciudad de Nueva York era de contrabando. Responsabilidades sociales A ultimos de 1971, inici6 Philip Morris una revi- si6n extensa que abarca las `areas de "incumbencia corporativa" de la compania, para efectuar la determinaci6n de d6nde y en que forma los man- datos de la gerencia eran implementados y si las normas eran cumplidas. Esto, que necesit6 cast un aiio para completarse, ha contribuido a establecer los puntos de referencia y la direcci6n que nuestro rumbo futuro ha de tomar tanto en Ia acci6n adminlstrativa at niyel corporativo y de funciona- miento, como en los niveles de cada planta individual. En el mes de octubre, este programa corporativo global mereci6 favorables comentarios en un informe intitulado "Initiatives in Corporate Responsibility" (Iniciativas en Responsabilidad Corporativa) preparado y publicado por el Sub- comite del Consumidor del Comite Comercial del rj Ln a a 10

Senado de E.U.A., bajo la direccion del senador Sr. Frank E. Moss, de Utah. Dicho comite repaso 300 de 1as companfas de mayor importancia, aquellas de la lista de las "500" de la revista Fortune, y se refirid al estudio del que tratamos diciendo "..: un informe extraordinario presen- tado por Philip Morris..." En 1972, se les asigno a dos nuevos comites de nuestra Junta Directiva -el Comit€ de Asuntos Ambientales Y el Comite Corporativo sobre Res- ponsabilidades Sociales y Contribuciones- Ia tarea de hacerse cargo de la revisidn de nuestros programas continuados en este sentido y para la iniciacion de otros nuevos. Se crearon los comites con et fin de asegurar que nuestros programas y desenvolvimiento son progresistas y productivos. Los objetivos que perseguimos incluyen el recluta- miento de personalfemenino, minorias y de veteranos,las oportunidades de mejoramiento y avance para los empleados de grupos de minoria y para las mujeres, aumento de los negocios con empresas propiedad de minorias, adiestramiento en el misrno trabajo, consagracion significativa a los intereses de la comunidad y a los eventos artisticos, y reduccibn considerable o eliminaci6n de contaminantes en nuestras f5bricas. A comienzos del 1973, despues de haberse termi- nado un periodo de estudios extensivos, Philip Morris ha anunciado un precursor y iurico pro- grama de becas para el respaldo del adiestramiento vocacional como un suplemento especifico de nuestro apoyo a la educacibn superior. Esperamos y confiamos en que este programa, al que el Departamento de Trabajo de E.U.A. Ie ha dado su aprobacion, ha de representar un experimento significativo en educaci6n para el futuro. En 1972 la Cerveceria Miller puso en marcha ya la conversion a las latas de envase de cerveza de aluminio completamente reutilizabies, mientras que los programas de regulacion de descarga de efluente de Formosa Springs y de Nicolet Paper funcionaron en operacion completa. Gran 8xito tuvieron los esfuerzos de Mission Viejo encamina- dos a la conservacion y embellecimiento de las cercanias durante la construccion de viviendas y al finalizar dicha construccion. La Junta Directiva de la Compaiua, en 1972, paso por la pena del fallecimiento del Dr. Jess H. Davis, Presidente del Stevens Institute of Technology; sus grandes conocirnientos y consagracidn nos han de hacer mucha falta. La Junta Directiva adquirid mayor envergadura con la eleccidn como Directores de ella de la Sra. Young, viuda del lider de derechos civiles Whitney M. Young; se nombro asimismo al Sr. John T. Landry para el cargo de vicepresidente de Ia Philip Morris Incorporated y vicepresidente- director de mercadotecnica de la Philip Morris, U.S.A. Nuestro optimismo es grande respecto al futuro de Philip Morris - tanto en 1973 como en los afios venideros. Es bien conocido nuestro crecimiento y auge en E.U.A. y en todo e1 mundo, de nuestra lfnea de cigarrilios. Si tomamos en cuenta la vitali- dad y el impulso de que gozan nuestras marcas por el mundo entero, tenemos todas las razones para creer que nuestro crecimiento en el ramo de los cigarrillos ha de continuar. Asimismo creemos que es enorme el potencial futuro en nuestras operaciones cerveceras, industriales y de la cons- truccion de viviendas. Deseamos agradecerles a todo nuestro personal, tanto del pals como del extranjero, los 33.000 empleados de Philip Morris, su contribucidn y lealtad y asimismo manifestarles 1o mucho que apreciamos el excelente desempeiio de sus labores. Presentado respetuosamente a nombre de la Junta Directiva, Joseph F. Cullman 3o Presidente de la Junta Directiva Y Primer Oficial Ejecutivo i1a~9- ~J.~.e.I a.e~.~..a George W~ eissman Presidente y.Oficial Jefe de Operaciones Jahresbericht Im Jahre 1972 gab Ihre Firma neue Rekorde in bezug auf Betriebsergebnisse und Ertrage und- damit 19 Jahre hintereinander-gegeniiber dem Vorjahr erhohte Gewinne pro Aktie bekannt. Das konsolidierte Betriebsergebnis fur 1972 wuchs um mehr als 15,0%, und der Reingewinn stieg urn 22,6% an. Gewinne pro Aktie bei voller Konver- sion von Wandelanleihen vermehrten sich um 20,1%, und der ausgeschiittete Gewinn pro Aktie um 16,2%. Philip Morris hat 1972 weiterhin seinen Anteil an der weltweiten Zigarettenindustrie vergrossert. Am Gesamtumsatz gemessen, wurde Philip Morris zur zweitgrossten internationalen Aktiengesell- schaft unter den Zigarettenproduzenten der Welt. Marlboro wurde zur bestverkauften Zigaretten- marke der Welt und behielt seine Stellung als zweitbestverkaufte Marke in den Vereinigten Staaten bei. Philip Morris ist weiterhin der zweit- grosste Zigarettenhersteller in den USA. Der internationale Absatz an Zigaretten stieg urn 4% auf ungefahr 3450 Milliarden Stuck. Der Gesamtumsatz von Philip Morris, die USA und den internationalen Markt mit eingeschlossen, betragt jetzt 6,5% des Gesamtumsatzes auf dern Weltmarkt. Der Zigarettenumsatz der gesamten tabakverarbeitenden Industrie in den USA ver- mehrte sich 1972 schon das dritte Jahr in der Reihe auf ungefahr 554 Milliarden Stiick, was einen prozentuellen Zuwachs von mehr als 3% darstellt. Der Gesamtumsatz von Philip Morris stieg wahrend des Jahres urn mehr als 13% und unser Marktanteil wuchs zurn Jahresende auf mehr als 20% an. Das konsolidierte Betriebsergebnis von Philip Morris ist in den letzten funf Jahren um eine durchschnittliche Jahresrate von insgesamt 18,7% gewachsen. Der Reingewinn stieg in diesem Zeitabschnitt jahrlich um eine durch- schnittliche Rate von insgesamt 23,3% und der Gewinn pro Aktie bei voller Konversion von Wandelanleihen um jahrlich 17,6% an. Ihre Firma hat fiir das 45. Jahr in einer Reihe Dividenden auf ihre Stammaktien ausgeschuttet. Die Divi- denden wurden funf Jahre lang hintereinander erhoht; die ErhBhungen fiir 1972 erreichten die in der Wirtschaftsphase II unter den Dividenden- bestimmungen erlaubten Grenzen. Der derzeitige alljahrliche Dividendenstand betragt 1,296 Dollar pro Stammaktie. Umsatz in den USA Die Umsatzsteigerung in den USA wurde wiederurn durch das fortgesetzte Anwachsen von Marlboro angefuhrt. Diese Marke hat nun 12,5% des US-Marktes inne, im Vergleich zu 6,6% vor fiinf Jahren. Marlboro ist naher an die bestver- kaufte Marke in den USA herangeriickt und vergrossert such weiterhin standig den Abstand zu den nachfolgenden Marken. . Philip Morris USA hat ausserdem seine Position als Spitzenhalter in der 100mm-Kategorie mit den Marken Benson & Hedges 100's, die 1972 zur fuhrenden 100mm-Marke wurden, wie auch Marlboro 100's, Parliament 100's und Virginia Slims gefestigt. Die 100mm-Kategorie ist der schnellst wachsende Tell des US-Marktes, und der Gesamtumsatz an 100mm-Zigaretten machte fur das Jahr 1972 mehr als 21% des Marktes aus. Internattonaler Umsatz Als Philip Morris 1955 seine internationalen Tochterunternehmen zur Exportstarkungin Betrieb setzte, verkaufte Ihre Firma 4,3 Milliar- den Zigaretten auf den internationalen Markten. Im Jatire 1972 setzte Philip Morris Intettlati0Ila1 113 Milliarden Stiick in iiber 160 Ldndern und Gebieten durch Exporte von iiber 14 Milliarden Zigaretten sowie durch die Herstellung am Ort durch Tochtergesellschaften und Lizenzinhaber ab. Tochtergesellschafteri von Philip Morris Inter- national befinden sich in Argentinien, Australien, Belgien, Kanada, den Kanarischen Inseln, der Dominikanischen Republik, Deutschland, Guate- mala, Holland, Indien, Indonesien, Mexiko, Nigerien, Pakistan, Panama, der Schweiz, Gross- britannien und Venezuela. Vertriebsbranchen liegen in Ecuador, Frankreich, Griechenland, Neuseeland, Puerto Ricoa und Schweden. Und es zahl,en zu unseren Lizenzinhabern noch Hersteller in Osterreich, Bolivien, Finnland, Haiti, Hong- kong, Italien, Malaysia, den niederldndischen Antillen, den Philippinen und Jugoslawien. Philip Morris Europe, der grosste internationale Absatz- und Gewinnbereich, hat sein schnelles Wachsturn aufrechterhalten, eine neue Fabrik in Westberlin in Betrieb genommen und das Philip Morris Holland B.V.-Werk in Bergen op Zoom erweitert. Marlboro gehdrt in Osterreich, Finn- land, Italien und der Schweiz zu den fuhrenden Marken und verkauft sich in anderen europaischen Landern sehr gut. Die Muratti Ambassador ist ebenfalls ein fuhrender Verkaufsschlager von Philip Morris auf dem europaischen Zigaret- tenmarkt. Im asiatisch-pazifischen, im kanadischen wie auch im lateinamertkanisch-iberischen Raum hat Philip Morris International im Jahre 1972 jeweils seine Marktposition verstarkt und registrierte erhdhte Umsdtze und Einnahmen. Miller Brewing Miller Brewing wendete in einem schwierigen Jahr grosse Miihe und Mittel an die Neuorga- nisierung und Verstarkung ihrer Betriebe. Obwohl der Fassbierausstoss und das Betriebsergebnis im Jahre 1972 anstieg, sanken Millers Betriebsertrage. Das Absinken spiegelt die verscharfte Preiskon- kurrenz im Brauereiwesen und die steigenden Kosten fur die Rohmaterialien, Gehalter und Lohne sowie fur die Verpackungsmaterialien wieder. Miller hat durch Einfuhrung von weitreichenden Veranderungen begonnen, den Verkauf zu akti- vieren und die Gewinnspanne zu vergrossern, was sich bis jetzt noch nicht-in den finanziellen Ergebnissen dieses Unternehmens niederschlagt. Die Verwaltung wurde dutch neue Fiihrungs- krafte erheblich gestarkt, der Vertrieb reorgani- siert, und die Verteilerorganisation untergeht derzeit einer Verstarkung. Millers Angebot wurde 1972 durch neue Produkte und Ankaufe erweitert. Verschiedene neue Verpackungs- methoden haben guten Anklang gefunden. Die fortbestehende Konzentrierung der Brau- industrie verspricht auf lange Sicht gute Aus- sichten fur Miller, da es eine der drei im ganzen Land vertriebenen Biermarken der gehobenen Preisklasse ist, ein Art3kel, dessen Marktanteil schnell anwachst: Im Jahre 1972 betrug der Markt- anteil des Biers in der gehobenen Preisklasse 30% im Vergleich zu den 23% des Jahres 1967. Philip Morris Industrial Das Betriebsergebnis von Philip Morris Industrial stieg zum erstenmal auf uber 100 Millionen Dollar-ein Anstieg von 18% gegeniiber 1971-, und die Erhdhung des Betriebsertrages war mit 26% sogar noch grbsser. Unsere Industrieunter- nehmen profitierten von dem wirtschaftlichen Aufschwung in den Vereinigten Staaten im Jahre 1972, aber noch wesentlicher ist die Tat- sache, dass man die Verkaufstaktik dieser Firmen einer radikalen Uberprufung unterzogen hat, was zufriedenstellende Ergebnisse in bezug auf Absatz und Profit zeitigte. Die Konzentrierung der Absatztaktik auf hochtechnisierte Erzeugnisse mit hohen Gewinnspannen brachte wesentlich erhShte Ergebnisse und Ertrage fiir die Nicolet Paper Company, die Polymer Industries, Inc., eine chernische Spezialbranche, und Milprint Inc., 11

der fiihrende Hersteller fiir flexible Verpackungen in den USA, registrierte hohere Gewinne, doch die Einkiinfte sanken leicht unter den Stand von 1971 ab. Mission Viejo Im September erwarben wir einenlo0prozentigen Anteil der Mission Viejo Company, eines neuen Siedlungs- und Wohnbauunternehmens. Die grossten Unternehmen von Mission Viejo befinden sich im kalifornischen Orange County, Woh- nungen werden auch in Phoenix (Arizona) und eine neue Siedlung in Denver (Colorado) gebaut. Mission Viejos Umsatze und Profite wurden im vierten Quartal von 1972 mit denen von Philip Morris konsolidiert. Kapitalerweiterung Wir befinden uns am Beginn eines Programms gesteigerter Kapitalaufwendungen. Unsere Aus- gaben erreichten 1972 eine Summe von 120 Mil- lionen Dollar, eine wesentliche Steigerung gegeniiber den 1971 ausgegebenen 68 Millionen. Wahrend der nachsten funf Jahre rechnen wir mit Ausgaben von iiber 500 Millionen Dollar fiir unsere erweiterten Herstellungsanlagen. Neue Anlagen werden nicht nur in den USA, sondern auch in Ubersee errichtet werden, hauptsachlich zur Tabakverarbeitung. Diese Plane unterstreichen unser Vertrauen in diefortwahrende Ausdehnung und die gesteigerten Profitmoglichkeiten der Zigarettenindustrie rund urn die Erde. Der wichtigste Bestandteil dieses Programms ist ein sich in Richmond (Virginia) im Bau befind- licher Zigarettenfabrikationskomplex, der als der grosste und modernste seiner Art geplant ist. Nach Fertigstellung dieses Projekts im Jahre 1977 werden sich die Gesamtkosten, Grundstiick, Gebaude, Ausstattung und Maschinen inbegriffen, auf mehr als 200 Millionen Dollar belaufen. Es ist vorgesehen, dass die ersten Zigaretten in diesem Werk im Jahre 1973 produziert werden und die volle Betriebsfahigkeit im Jahre 1974 erreicht wird. Das neue, achtstdckige Forschungszentrum in Richmond, das ungefahr 300 Wissenschaftler auf- nehmen kann, wird diesen April eingeweiht werden. Rauchen und Gesundheit Die Tabakindustrie unterstutzt auch weiterhin die Forschung zur LSsung vieler ungeloster Fragen in bezug auf das Rauchen und die Gesundheit. Zum Jahresende gab die Harvard Medical School die Annahme eines Zuschusses von 2,8 Millionen Dollar bekannt, eine Spende von 8 Tabakfirmen, Philip Morris eingeschlossen, und einer Vereinigung von Tabakpflanzern, Der Zuschuss dient der Finanzierung eines fiinf- jahrigen Forschungsprogramms, das den Zusam- menhang, wenn ein solcher bestehen sollte, zwischen Zigarettenkonsum und Lungen- und Herzkrankheiten ergriinden soil. Bei der Annahme des Zuschusses betonte der Leiter des Harvard- Projekts: "Wahrend es allgemein bekannt ist, dass der Zigarettenkonsum als eine Hauptursache dieser Krankheiten angeschuldigt wird, konnten auch viele andere, nicht so allgemein verbreitete Faktoren von Bedeutung sein. Diese schliessen die Auswirkung der Luftverschmutzung ein, die genetischen Unterschiede von anfalligen Menschen, usw. Ein direkter Kausalzusammenhang fiir so viele dieser oder anderer umweltbedingter Faktoren ist noch nicht klar erwiesen." Philip Morris steuert auch zu einem Zwei-Mil- lionen-Dollar-Forschungszuschuss fiir die Wash- ington University in St. Louis (Missouri) bei, der der Untersuchung der menschlichen Krebs- immunologie dienen soll. Diese Studie lauft zur Zeit schon das zweite Jahr, und es sind ermuti- gende Fortschritte auf diesem so sehr aktiven und vielversprechenden Gebiet der Krebsforschung gemacht worden. Wahrend in bezug auf das Rauchen und die Gesundheit in den Vereinigten Staaten wenig in Hinsicht auf eine neue Gesetzgebung getan worden ist, haben mehrere Lander, in denen wir vertreten sind, Gesetze erlassen, die die Zigaretten- werbung einschranken und Warnungen auf Zigarettenpackungen und Anzeigen vorschreiben. Problemgebiete Die unter Wirtschaftsphase II von der Regierung vorgenommenen Lohn- und Preiskontrollen und die relativ bescheidene Fiskal- und Wahrungs- politik des Jahres 1972 verminderte die Infiations- rate des gesamten Jahres auf ungefahr 3,8%. Die Profitbeschrankungen hielten Ihre Firma von Preissteigerungen ihrer Erzeugnisse oder derer unserer Tochtergesellschaften ab. Eine ernsthafte Gefahrdung Ihrer Firma, aller multinationalen Gesellschaften sowie der nationalen Interessen stellt die jetzt vor den Kongress gebrachte sogenannte "Hartke-Burkesche Gesetzvorlage" dar. Diese Gesetzvorlage gefahr- det durch die Aufhebung von Steuerkrediten in Ubersee (was die Steuerabgaben in den USA erheblich erhohen wurde) den internationalen Handel. Diese Vorlage wurde uns auch Einfuhr- quoten aufbiirden und die Ausfuhr von amerika- nischen technischen Erzeugnissen verbieten. Wie bei den meisten muitinationalen Gesell- schaften hat auch bei Philip Morris die inter- nationale Ausdehnung zur Vermehrung von Arbeitsplatzen in den USA und zu einem positiven Beitrag in bezug auf unsere Zahlungsbilanz gefiihrt. Die Zahl unserer Arbeitsplatze in den USA, die direkt mit der Durchfiihrung unserer internationalen Unternehmungen in Beziehung steht, ist in diesem Zeitabschnitt urn mehr als 300% angestiegen. Wir hoffen sehr, dass der Kongress diese Zahlen ernsthaft erwagt, ehe er uns irgend- welche produktionshemmenden Massnahmen aufbiirdet. 1972 haben fiinf Staaten und der District of Columbia Gesetze eingebracht oder verab- schiedet, die eine Erhohung der Umsatzsteuern fiir Zigaretten genehmigen. Vergleichsweise hatten 1971 sechzehn Staaten die Steuern erhoht. Leider konnen wir uns keiner begrundeten Hoff- nung hingeben, dass die Zahl der Steuerer- hohungen auf oder nahe dem Stand von 1972 bleiben wird. Die Umsatzsteuereinnahmen durch Zigaretten beliefen sich 1972 auf die Gesamtsumme von 5,2 Milliarden Dollar, eine Summe, die um beinahe 50% grosser ist, als der aus dem Zigaretten- verkauf entstehende Gesamteinkommen der sechs amerikanischen Hersteller zusammengenommen (nach Abzug der Bundes-Umsatzsteuer). Diese Ge- samtsumme setzt sich aus 2,1 Milliarden an Bundes-Umsatzsteuern, 3,0 Milliarden an staat- lichen Steuern und 0.1 Milliarde an stadtischen und lokalen Steuern zusammen. Es ist allgemein anerkannt, dass die Verbrauchs- steuer wie auch die Verkaufs.steuer, eine regressive Form der Besteuerung darstellt, da mit jedem Steuerdollar ein gr6sserer Anteil der niedrigeren Einkommenssparte verschlungen wird. Man hat nachgewiesen, dass die Verbrauchssteuer direkt die drmere Stadtbevolkerung benachteiligt, die zu einem grosseren Zigarettenkonsum neigt. . In vielen Fallen haben sich ErhShungen der Verbrauchssteuer wenigstens teilweise selbst den Garaus gemacht. In der Stadt New York, wo die "Teersteuer" auf bereits betrachtliche Verbrauchs- steuer aufgestockt wurde, ging die Zahl von besteuerten Zigaretten standig zuriick. 1972 gmg die Zahl von besteuerten Zigaretten auf den Jahresstand von 1965 zuriick. Wahrend sich die tatsachlichen Steuereinnahmen nur unwesent- lich erhoht haben, wird der legale Zigaretten- verkauf aus New York verdrangt oder durch ge- schmuggelte Zigaretten ersetzt. Nach einer im vorrgen Jahr durchgefuhrten Schatzung der New York State Commission of Investigation war in der Stadt New York jede dritte Zigarettenpackung Schmuggelgut. Soziale Verantwortltchkett Ende 1971 begann Philip Morris mit einem das gesamte Unternehmen umfassenden Rechen- schaftsbericht uber unsere Verfahrensweise in den Bereichen, die unter dem Titel "Korporative Verantwortlichkeit" zusammengefasst sind. Wir wollten herausfinden, ob, wie weit und in welchen Bereichen die Grundsatze und Verfiigun- gen der Firmenfiihrung befolgt bezw. durch- gefiihrt werden. Diese Untersuchung nahm bei- nahe ein Jahr in Anspruch und die Ergebnisse legen die "Hohenmarke" und Richtung der kiinf- tigen Verwaltungspolitik auf Gesamt- und Einzelbetriebsebene fest. Unser gesamtes korporatives Programm fand im Oktober eine positive Anerkennung in einern vom Konsumenten-Unterausschuss des US-Senats- ausschusses fiir Handel (Vorsitz: Senator Frank E. Moss, Utah) vorbereiteten und verdffentlichten Bericht mit dern Titel "Initiativen in kor- porativer Verantwortlichkeit". Der Bericht des Handelsausschusses des Senats, der 300 Spitzenunternehmen aus der 500 solche Unter- nehmen umfassenden Liste der Zeitschrift "Fortune" studierte, erwahnt den "von Philip Morris vorgelegten, ausgezeichneten Bericht1°. Zwei neue Ausschiisse unseres Vorstandes er- hielten 1972 die Aufgabe, unsere fortlaufenden Programme auf diesen Gebieten zu uber- priifen und neue einzuleiten: der Ausschuss fiir Umweltschutz und der Ausschuss fur korpora- tive Verantwortlichkeit und Mitwirkung. Diese Ausschusse sollen die Fortschrittlichkett und Produktivitat unserer Programme und unseres Ver- haltens sicherstellen. Unter anderem verfolgen wir solche Ziele wie die Anstellung von Frauen, von Angehorigen einer Minderheit und Kriegs- veteranen, die Erlangung gleicher Rechte fiir Min- derheiten und Frauen, verstarkte Geschffts- kontakte mit Unternehmen, die im Besitz von Minderheitsgruppen sind, Ausbildung am Arbeitsplatz, tatkraftige Mitwirkung bei Gemein- schaftsfragen und den Kiinsten, sowie eine wesentliche Verminderung oder die Abschaffung der Verschmutzung durch unsere Fabriken. Nach einer langen intensiven Untersuchung hat Philip Morris zu Beginn des Jahres 1973 ein ein- zigartiges und bahnbrechendes Stipendienpro- gramm zur Unterstiitzung der beruflichen Aus- bildung als spezifische Erganzung unserer Forderung hoherer Erziehung bekanntgegeben. Wir hoffen und erwarten, dass dieses Pro- gramm, welches die Unterstiitzung des US- Arbeitsministeriums (Department of Labor) fand,ein wesentliches Erziehungsexperiment der Zukunft bilden wird. . 1972 hat sich Miller Brewing endgiiltig auf den Einsatz von voll wiederverwertbaren Alu- miniumbierdosen umgestellt, und gleichzeitig kamen die Kontrollmassnahmen von Nicolet Paper und Formosa Springs zur vollen Wirkung. Die Bemuhungen von Mission Viejo um die Erhaltung und Verschonerung der Umwelt nach dem Hauserbau erwiesen sich als ausser- ordentlich erfolgreich. Unser Vorstand erlitt 1972 durch das Ableben von Dr. Jess H. Davis, Prasident des Stevens Insti- tute of Technology, einen schweren Verlust. Wir werden seine Intelligenz und Einsatzbereitschaft vermissen. Spater konnte unser Vorstand durch die Wahl von Mrs. Whitney M. Young, der Frau des verstorbenen Burgerrechtskampfers, und von Mr. John T. Landry, Vizeprasident von Philip Morris Incorporated und Gruppenvizeprasident und Di- rektor der Vertriebsabteilung von Philip Morris USA, zu Vorstandsmitgliedern einen positiven Zuwachs verzeichnen. Wir sehen der Zukunft von Philip Morris fiir 1973 und die folgenden Jahre mit Zuversicht ent- gegen. Unser Wachstum im Zigarettengeschaft, sowohl in den USA wie auch auf weltweiter Basis, ist allgemein bekannt. Wenn man die Vi- talitat und Schwungkraft unserer Zigaretten- marken in aller Welt in Betracht zieht, dann haben wir alles Recht zu glauben, dass unser Wachs- turn auf dem Zigarettensektor anhalten wird. Wir glauben auch an die grossen Zukunftsmoglich- keiten bei den Brauerei-, Industrie- und Wohn- bauunternehmen unserer Firma. Wir schulden allen unseren 33 000 Mitarbeitern bei Philip Morris in diesem Land und in der ganzen Welt Dank fiir ihren einsatzfreudigen Bei- trag zu unserern standigen Weiterwachsen, und wir danken ihnen ebenfalls fiir ihre grossartige Leistung. Fiir den Aufsichtsrat respektvoll vorgelegt von Joseph F. Cullman 3rd Vorsitzender des Aufsichtsrats und Leiter des Gesamtunternehmens George Weissman Vorsitzender und H au p t g e s ch af ts f i ihr e r

~ Rassegna dell'Anno La Vostra Societa ha presentato net 1972 'eccezionali entrate ed utili d'esercizio e, per it diciannovesimo anno consecutivo, utili per azione maggiori di quelli dell'anno precedente. Le entrate consolidate d'esercizio per it 1972 sono aumentate di oltre it 15% e it reddito netto del 22,6%. Assumendo esercitate tutte le opzioni, 1'utile per azione e aumentato del 20,1%, mentre 1'aumento e del 16,2% se riferito alle azioni esistentt. ,tei 1972 Ia Philip Morris ha continuato a gua- dagnare terreno nell'industria mondiale delle sigarette. Come vendite unitarie, la Philip Morris e divenuta la seconda nel mondo tra ie societa private del ramo sigarette. Marlboro e divenuta la marca numero uno del mondo e continua ad essere la marca numero due negli Stati Uniti. La Philip Morris 8 tuttora la societa numero due del ramo sigarette negli Stati Uniti. Le vendite di sigarette net mondo sono aumentate del 4% a circa 3,450 miliardi di unita. It quanti- tativo totale venduto dalla Philip Morris, tanto negli Stati Uniti che all'estero, rappresenta oggi it 6,5% del totale mondiale. Le vendite di sigarette negli Stati Uniti sono aumentate nel 1972 per it terzo anno consecutivo sino a raggiungere un totale approssimativo di 554 miliardi di unita, un aumento cioe di oltre it 3%. Le vendite unitarie delta Philip Morris negli Stati Uniti sono aumentate di oltre i1 13% durante 1'anno, e la nostra quota del mercato e salita ad oltre it 20% alla fine dell'anno. Le entrate consolidate ordinarie della Philip Morris sono aumentate durante gli ultimi cinque anni ad un saggio annuale composto del 18,7%. L'utile netto durante tale periodo e aumentato al saggio composto annuale de123,3%o e gli utili per azione, assumendo esercitate tutte le opzioni, sono sallti del 17,6% all'anno. Per it 45mo anno consecutivo la Vostra Societa ha pagato un divi- dendo su11e sue azioni ordinarie. Per it quinto anno consecutivo it dividendo e stato aumentato; net 1972 1'aumento e stato it massimo permesso dai regolamenti per la 2a Fase imposti dal governo. II dividendo annuale corrente d$1,296 per azione ordinaria. Vendite neglt Statl Unlti Le vendite della Philip Morris negli Stati Uniti sono state capeggiate dalla Marlboro, in continuo accrescimento, che ha raggiunto una quota del 12,5% del mercato nazionale, rispetto a16,6% di cinque anni or sono. Marlboro si ~ avvicinata alla marca numero uno degli Stati Uniti e con- tinua ad aumentare it suo distacco dalle marche classificate al disotto di essa. La Philip Morris U.S.A. ha ulteriormente rinforzato 1a sua posizione di primato net campo delle sigarette 100 mm con le Benson & Hedges 100's, che sono divenute Ia prima marca 100 mm negli Stati Uniti durante it 1972, ed anche con le Marlboro 100's, Parliament 100's e Virginia Slims. II settore 100 mm ~ quello in piir rapida crescita negli Stati Uniti, con vendite complessive rappresentantid oltre it 21% del mercato durante il 1972. Vendite Internazionali. Nel 1955, quando-allo scopo di integrare le esportazioni-la Philip Morris avvia 1'attivita delle sue affiliate internazionali, essa vendette 4,3 miliardi di sigarette nei mercati esteri. Net 1972 la Philip Morris International ha venduto 113 miliardi di unita in oltre 160 paesi e territori tramite esportazioni di oltre 14 miliardi di sigarette e manifatture locali di societa affiliate o licenziatarie. La Philip Morris International ha affiliate fabbri- canti in Argentina, Australia, Belgio, Canada, Isole Canarie, Repubblica Domenicana, Ger- mania, Guatemala, Olanda, India, Indonesia, Messico, Nigeria, Pakistan, Panama, Svizzera, Regno Unito e Venezuela. Affiliate distributrici esistono in Ecuador, Francia, Grecia, Nuova Zelanda, Portorico e Svezia. Tra i licenziatari vi sono fabbricanti in Austria, Bolivia, Finlandia, Haiti, Hong Kong, Italia, Malesia, Antille Olandesi, Filippine e Jugoslavia. Philip Morris Europe, costituente la massima regione come vendite e profitti, ha mantenuto il suo rapido ritmo di espansione mediante la messa in esercizio di una nuova fabbrica in Berlino Ovest e l'ingrandimento dello stabilimento in Bergen Op Zoom della Philip Morris Holland B.V Marlboro c tra le marche primarie in Austria, Finlandia, Italia e Svizzera e ha vendite rilevanti in altri paesi europei. Muratti Ambas- sador P un'altra primaria marca deila Philip Morris nei mercati europei. W egioai Asia/Pacifico, Canada, e Latino ericana-Iberia della Philip Morris International hanno anche esse registrato un rafforzamento delle loro rispettive posizioni net mercato durante it 1972 ed aumentati vendite e profitti. Mi/ler Brewing Miller Brewing ha dedicato sostanziale lavoro e mezzi alla rivitalizzazione delle sue attivita e superato un anno difficile. Malgrado net 1972 le vendite siano aumentate quantitativamente, come pure le entrate ordinarie, il reddito d'esercizio de11a Miller e diminuito. La diminuzione del reddito d'esercizio rifiette la intensificata concorrenza net mercato della birra e gli aumenti net costi delle materie prime, manodopera e materiali per imballaggio. Miller ha affrontato it rinvigorimento delle sue vendite e del suoi profitti con I'effettuazione di cambiamenti profondi, i quali non hanno ancora prodotto risultati finanziari per la societa. I ranghi dei funzionari dirigenti sono stati rinforzati sostanzialmente, it marketing t; stato riorganizzato e Ia rete dei distributori e in corso di rafforza- mento. Net 1972 Ia linea dei prodotti della Miller e stata estesa con nuovi prodotti ed acquisti. Diverse innovazioni nella confezione hanno dato favorevoli risultati. La continua concentrazione nell'industria della birra promette alla Miller delle possibilita a lungo termine dato che 8 una delle tre marche di birra di lusso distribuite in tutta la nazione e questo e it settore del mercato che registra rapido aumento. Nel 1972 it settore della birra di lusso ha rappre- sentato it 30% del mercato contro it 23% del 1967. Philip Morris Industrial Le entrate ordinarie della Philip Morris Industrial hanno superato per la prima volta i 100 milioni di dollari, con aumento di oltre it 18% rispetto al 1971, e l'aumento nel reddito di esercizio e stato anche maggiore, de126%. Le nostre societa indu- striali hanno beneficiato del miglioramento ge- nerale nella economia nazionale durante it 1972, ma it fatto piir importante e che le coordinazioni strategiche nel campo vendite di queste societa sono state nettamente rimesse a fuoco con risul- tati soddisfacenti in termini di vendite e profitti. L'orientamento della strategia di vendita verso prodotti ad alta tecnologia-alti margini e risultato in notevoli aumenti nelle entrate e nel reddito della Nicolet Paper Company e Polymer Industries, Inc., la quale fabbrica specialita chimiche. Milprint Inc., Ia primaria produttrice nazionale di imballaggi fiessibili, ha riportato maggiorii entrate, ma it reddito e diminuito leggermente rispetto al 1971. Mission Viejo Net settembre abbiamo acquistato i1 controllo al 100% delta Mission Viejo Company, dedicata allo sviluppo di nuove comunita ed alle costruzioni residenziali. I maggiori progetti delta Mission Viejo sono siti in Orange County, California, ma sta costruendo case anche in Phoenix, Arizona ed una nuova comunita a Denver, Colorado. Le vendite e i profitti' della Mission Viejo sono stati consolidati con quelli delle altre operazioni della Philip Morris durante il quarto trimestre del 1972. Espansione degli Investimenti Siamo allo stadio iniziale di un grandioso pro- gramma di investimento. Nel 1972 tali nostre spese hanno raggiunto i 120 milioni di dollari con aumento sostanziale sui 68 milioni di dollari spesi nel 1971. Durante it susseguente periodo di cinque anni noi contiamo di spendere oltre 500 milioni di dollari per nuovi o maggiorati impianti produttivi. Essi verranno costruiti non solo negli Stati Uniti, ma anche oltremare e saranno addetti principalmente ad operazioni net ramo tabacchi. Tali nostri piani sottolineano la nostra fiducia nella continua espansione a lungo termine dell'industria delle sigarette e nella sua redditi- vita nel mondo intero. Il componente piu significativo di questo pro- gramma c lo stabilimento per la produzione di sigarette attualmente in corso di costruzione a Richmond, Virginia, progettato quale it piiY grande ed il pitl efficiente impianto del mondo di questo ramo. Quando il progetto verra completato net 1977, it suo costo totale, includendo terreno, edifici, impianti e macchinari, superera i 200 milio- ni di dollari. Ci si attende che le prime sigarette saranno fabbricate in questo stabilimento durante it terzo trimestre del 1973 e che Ia costruzione degli edifici sar'a ultimata nel 1974. La nuova Torre delle Ricerche, ad otto piani, in Richmond, che ospitera circa 300 scienziati, sara dedicata questo aprile. II Furno e la Salute L'industria del tabacco continua ad estendere it suo appoggio alle ricerche volte a trovare risposte ai molti problemi non risolti riguardanti it rap- porto tra it fumare e la salute. Alla fine dell'anno, la Harvard Medical School ha annunziato che accettava una donazione di S2,S milioni da parte di otto societa del ramo tabacchi, tra le quali la Philip Morris, e una associazione di coltivatori di tabacco. La donazione provvederL mezzi per un programma di ricerche di cinque anni sul rapporto-se esiste-tra it fumare sigarette e malat- tie polmonari e cardiovascolari. Ne1 dare notizia delta donazione, il capo ricercatore di Harvard ha detto: "Mentre e di pubblico dominio it fatto che it fumare sigarette 8 stato accusato di essere una delle massime cause di queste malattie, molti altri fattori, assai meno pubblicizzati, pos- sono anche rivestire importanza. Essi includono 1'essere esposti a sostanze inquinanti 1'aria, le differenze genetiche nella suscettibilita delta persona esposta, eccetera. Una relazione causale diretta per molti di questi ed altri fattori ambien- tali non e stata chiaramente provata". Philip Morris partecipa anche nella donazione per ricerche di 2 milioni di dollari alla Washing- ton University di St. Louis, Missouri, per to studio della immunologia al cancro nell'uomo. Questo studio e entrato adesso nel suo secondo anno e si registra un progresso incoraggiante in questo campo delle ricerche sul cancro, tanto attivo e promettente. Mentre negli Stati Uniti vi e stato ben poco di nuovo nel campo della legislazione relativa al fumare-salute, diversi paesi nei quali abbiamo attivita hanno messo in vigore leggi che limitano la publicita per sigarette e che impongono diffide sui pacchetti e nella publicita. I problemi I regolamenti del Governo per it controllo dei salari e det prezzi, Fase 2a, e Ia politica relativa- mente mite nei campi fiscale e monetario che ha prevalso per it 1972 hanno prodotto una inflazione ]imitata, di circa it 3,8% per tutto 1'anno. Le limitazioni del margine di utile hanno impedito alla Vostra Societa di rialzare i prezzi sui prodotti suoi e delta sue affiliate. Una minaccia grave alla Vostra Societa, a tutte Ie societa plurinazionali e all'interesse della Nazione 8 rappresentata dal cosidetto "Hartke- Burke Bill" ora sull'agenda del Congresso. Questa proposta di legge minaccia di danneg- giare ii commercio internazionale mediante la eliminazione dei crediti per tasse pagate all'estero, cio che porterebbe ad incremento sostanziale dei carichi fiscali negli Stati Uniti. Inoltre la proposta di legge imporrebbe quote su11e importazioni e proibirebbe 1'esportazione della tecnologia nazionale. Analogamente a quanto e stato registrato dalla maggioranza delle societa plurinazionali, la espansione inter- nazionale della Philip Morris ha avuto come risultato un aumento nell'impiego di personale negli S.U.A. e un contributo positivo alla bilancia dei pagamenti. It numero dei nostri dipendenti negli Stati Uniti che lavora in appoggio delle nostre operazioni internazionali 8 aumentato di oltre it 300% durante tale periodo. Noi speriamo sinceramente che il Congresso esaminera gli atti prima di imporre al paese rego- lamenti sconsiderati. Nel 1972, cinque stati e it Distretto di Columbia hanno approvato regolamenti che aumentano o sanzionano aumenti nelle tasse di consumo sulle sigarette, mentre it numero di Stati. che ha approvato aumenti nel 1971 is stato di 16. Sfortunatamente non possiamo realisticamente attenderci che it numero del futuri aumenti di tasse rimanga nelle vicinanze del livello del 1972. Net 1972 i1 totale delle tasse dirette di consumo sulle sigarette i: ammontato a$5,2 miliardi, cifra che eccede quasi del 50% le entrate nette com- plessive dei sei fabbricanti nazionali derivanti da vendite di sigarette (non considerando la tassa di consumo federale). 11 totale indicato comprende 2,1 miliardi di dollari di tasse di consumo federali, 3 miliardi di dollari al livello statale, e 0,1 miliardi di dollari al livello municipale e provinciale. E fatto riconosciuto che le tasse di consumo, at pari delle tasse sulle vendite, rappresentano una forma di tassazione regressiva in quanto ogni dollaro percepito assprbe in proporzione mag- giore i redditi bassi. E stato documentato che le tasse di consumo costituiscono una forma di attiva discriminazione contro residenti poveri delle citta che hanno la tendenza a fumare un maggior numero di sigarette. In molti casi, gli aumentii nelle tasse di consumo sono stati almeno in parte controproducenti. Nella Citta di New York, ove la tassa "catrame" 6 stata aggiunta a sostanziali tasse di consumo gia esistenti, it numero delle sigarette tassate continua a scendere. Net 1972 it numero delle sigarette tassate 8 sceso at livello di quelle tassate net 1965. Mentre le entrate effettive dalla tassazione sono aumentate in modo marginale, Ie vendite legit- time di sigarette vengono distolte dalla Citta di New York oppure sono soppiantate da sigarette di contrabbando. La Commissione d'Inchiesta 12 13

dello Stato di New York calcola che nella Citta di New York lo scorso anno, uno su tre pacchetti di sigarette consumati e di contrabbando. Responsabilitd Sociale Verso la fine del 1971 la Philip Morris ha avviato una verifica estesa all'intera azienda delle prassi seguite nelle aree che cadono sotto la denomi- nazione di "responsabilita societarie", nell'intento di accertare se la politica e le direttive dell'am- ministrazione erano attuate in pratica e sjno a quale misura e dove. Dopo quasi un anno di lavoro i risultati sono serviti a definire punti di riferimento e direttrici per la futura azione degli amministratori, al livello della societa in generale, delle singole societa di gestione e delle singole fabbriche. Durante il mese di ottobre il programma generale della Societd ha ricevuto favorevole riconosci- mento in una relazione dal titolo "Iniziative in tema di responsabilith societarie", preparata e pubblicata dal Sottocomitato per i Consumatori del Comitato per il Commercio del Senato degll Stati Uniti, sotto la presidenza del Sen. Frank E. Moss dello Utah. La relazione del Comitato per il Commercio del Senato, che ha coperto 300 delle maggiori societa della lista di "500" preparata dalla rivista Fortune, menzionava ". . . un eccezionale rapporto presentato dalla Philip Mori•is . . .". Durante il 1972 la responsabilita per la verifica dei nostri programmi permanenti in queste aree, e per l'avvio di nuovi programmi, fu affidata a due nuovj comitati del nostro Consiglio d'Am- ministrazione: il Comitato per I'Ambiente ed il Comitato per la Responsabilita ed i Contributi Sociali. Questi comitati sono stati istituiti per assicurare che i nostri programmi e attivita siano progressivi e produttivi. Gli obiettivi che abbiamo perseguito comprendono assunzione dipersonale femminile, di gruppi di minoranza e veterani, miglioramento della eguaglianza di opportunitA per minoranze e donne, aumento delle transazioni con ditte di proprieta delle minoranze, addestra- mento sul lavoro, rilevante interessamento tanto nella vita della comunita che nelle arti, e riduzione sostanziale oppure eliminazione degli inquina- menti provenienti dalle nostre fabbriche. AI principio de11973, dopo unlungo periodo di studi intensi, ]a Philip Morris ha annunziato un eccezionale programma unico e innovativo di borse di studio, in appoggio all'educazione pro- fessionale, quale supplemento specjale del nostro appoggio all'educazione superiore. Noi speriamo e contiamo che questo progranuna, che ha ricevuto l'approvazione del Ministero del Lavoro degli Stati Uniti, possa rappresentare un signifi- cattvo esperimento nel campo dell'educazione col passare del tempo. Nel 1972 la Miller Brewing has ultimato la sua conversione all'uso di scatole di alluminio completamente riutilizzabili, mentre i programmi per i1 controllo delle emissioni da parte della Formosa Springs e la Nicolet Paper sono entrati in piena operazione. Gli sforzi della Mission Viejo nel preservare ed abbellire l'ambiente durante e dopo la costruzione delle residenze sono stati coronati da grande successo. II Vostro Consiglio d'Amministrazione fu rat- tristato nel 1972 dalla morte del Dott. Jess H. Davis, Direttore dello Stevens Institute of Technology. Sentiremo Ia mancanza della sua saggezza e devozione. II nostro Consiglio d'Am- ministrazione 8 stato pitl tardi arricchito mediante la elezione a Consigliere della Sig. ra Whitney M. Young Jr., vedova del compianto campione dei diritti civili, e del Sig. John T. Landry, Vice Direttore della Philip Morris Incorporated, Vice Direttore di Gruppo e Capo del Marketing della Philip Morris U.S.A. Siamo ottimisti circa il futuro della Philip Morris per il 1973 e per gli anni a venire. Il nostro passato di accrescimento nel ramo sigarette, negli Stati Uniti ed in tutto il mondo, 6 noto a tuttt. Considerati Ia vitalita e lo slancio delle nostre marche per il mondo intero, abbiamo ogni diritto di credere che il nostro accrescimento nel campo sigarette continuerd. Riteniamo anche che vi sia un grande potenziale futuro nei-rami della nostra attivita dedicati alla produzione di birra, ai prodotti industriali ed alle costruzioni residenziali. Siamo grati a tutti i 33.000 dipendenti della Philip Morris, in questo paese e nel mondo, per il loro devoto apporto,alla nostra continua espansione e li rtngrazuamo per it loro eccellente lavoro. Presentato rispettosamente per il Consiglio d'Amministrazione Joseph F. Cullman 3rd Presidente del Consiglio e Chief Executive Officer tJra.Oa Wa:aay...~ George Weissman Direttore Generale e Chief Operating Officer Jaarrapport In 1972 meldde Uw firma rekordomzetten en -winsten, als ook voor het nege::tiende opeen- volgende jaar, een hogere winst per aandeel. De gekonsotideerde omzet nam in 1972 met meer dan 15,0% toe, terwijl de nettowinst met 22,6%a steeg. De winst steeg met 20,1%, als aile aandeel- houders gebruik zouden maken van hun optierecht en met 16,2% per aandeel na conversie. Philip Morris verwierf in 1972 een groter aandeel in de internationale sigarettenmarkt. In hoeveel- heid verkochte sigaretten uitgedrukt werd Philip Morris de op een na grootste sigarettenfabrikant ter wereld met beursnotering. Ivlarlboro is op het ogenblik het meest verkochte merk ter wereld en bleef nummer twee op de Amerikaanse markt. Philip Morris is nog steeds op den na de grootste sigarettenfabrikant in de VS. De verkoop van de sigarettenindustrie nam over de gehele wereld toe met 4% tot een totaal van ongeveer 3.450 miljard stuks. De totale verkoop van Philip Morris (VS. en internationaal), in sigaretten uitgedrukt, bedraagt nu 6,5% van het totaal over de gehele wereld. De verkoop van de industrie in the VS. steeg in 1972 voor het derde opeenvolgende jaar tot onge- veer 554 miljard stuks, een toename met meer dan 3%. De verkoop van Philip Morris steeg in de VS., in sigaretten uitgedrukt, met meer dan 13% en ons marktaandeel nam toe tot meer dan 20% aan het eind van het jaar. De gekonsolideerde omzet van Philip Morris groeide tijdens de afgelopen vijf jaar met een jaar- gemiddelde van 18,7%. De netto-winst steeg in deze periode met een gemiddelde van 23,3% en de wjnst per aandeel, voor konversie, met 17,6% per jaar. Voor het 45ste opeenvolgende jaar keerde Uw firma een dividend uit op de gewone aandelen. Voor het vijfde opeenvolgende jaar werd het divi- dend verhoogd; de verhoging over 1972 bedroeg het maximum, dat de richtlijnen gedurende de tweede fase van de loon- en prijsmaatregelen toestaan. Het huidige jaarlijkse dividend be- draagt nu $1,296 per gewoon aandeel. Verkoop in de Verenigde Staten De toename in de verkoop van Philip Morris in de VS. was in de eerste plaats te danken aan de voortdurende groei van Marlboro. Dit merk be- reikte een marktaandeel van 12,5%, vergeleken met 6,6% vijf jaar geleden. Marlboro komt steeds dichter bij het meest verkochte merk in de VS. en liep, net als Philip Morris USA, uit op de merken die in rangorde volgen. Philip Morris USA verstevigde zijn positie verder als grootste in de 100mm klasse, met Benson & Hedges 100,dathet meestverkochte merk 100mm sigaretten in 1972 werd, met Marlboro 100, Parliament 100 and Virginia Slims. De 100mm groep is het snelst groeiende soort sigaret op de Amerikaanse markt. De totale verkopen van 100mm sigaretten namen in 1972 meer dan 21% van de markt voor hun rekening. Internationaal Toen er in 1955 een begin werd gemaakt met de nevenaktiviteiten in andere landen, verkocht Philip Morris al 4,3 miljard sigaretten op de in- ternational markt. In 1972 verkocht Philip Morris 113 miljard sigaretten in meer dan 160 landen door export van 14 miljard sigaretten en lokale produktie van filialen en licenttehouders. De dochtermaatschappijen van Philip Morris International, die zich met produktie bezig hou- den, bevinden zich in Argentinie, Australie, Belgie, Canada, de Canarische Eilanden, de Domini- caanse Republiek, Duitsland, Guatemala, Holland, Indie, Indonesie, Mexico, Nigerie, Pakistan, Panama, Zwitserland, het Verenigd Koninkrijk en Venezuela. Er zijn verkoop-dochtermaatschappijen gevestigd in Ecuador, Frankrijk, Griekenland, Nieuw Zeeland, Puerto Rico en Zweden. Tenslotte behoren fabrikanten in Oostenrijk, Bolivia, Fin- land, HaYti, Hong Kong, Italie, Malaysia, de Nederlandse Antillen, de Philippijnen en Joego- Slavie tot onze licensie-houders. Gedurende het afgelopen jaar handhaafde Philip Morris Europe-als maatschappij die de grootste bijdrage levert aan de omzet en de winst van Philip Morris International-zijn groei, die aan- vullende fabrikagefaciliteiten in Zwitserland, Nederland en West-Berlijn noodzakelijk maakte. Marlboro is nu een van de voornaamste Europese sigarettenmerken, met name in Oostenrijk, Fin- land, Italie en Zwitserland. Op de andere markten in Europa neemt de afzet van dit merk snel toe. Muratti Ambassador komt op de tweede plaats van de meer dan honderd sigarettenmerken die Philip Morris in Europa op de markt brengt. Ook in de verkoopgebieden in Azie/Stille Oceaan, Canada, Latijns-Amerika en Iberie versterkte Philip Morris International in 1972 zijn markt- positie en werden grotere verkopen en winsten gerapporteerd. Miller Brewing Miller Brewing getroostte zich aanzienlijke krachtsinspanningen en investeringen ten behoeve van een reorganisatie en versterking van haar aktiviteiten gedurende een moel.lijk jaar. Hoewel de verkoop van bier in vaten toenam in 1972 en de omzet steeg, daalde de bedrijfsinkom- sten. Deze daling weerspiegelt de versterkte prijs- konkurrentie in de biermarkt als ook de stijgende kosten voor grondstoffen, arbeid en verpakkings- materialen. Miller heeft het op zich genomen, de verkoop en het winstvermogen te versterken door het invoeren van ingrijpende veranderingen, die nog niet weer- spiegeld zijn in de financiele resultaten der onder- neming. De topleiding werd aanzienlijk versterkt, de verkoopmethoden werden herzien en het net van verkoopagenten wordt verstevigd. Het assor- timent van Miller werd in 1972 door nieuwe pro- dukten en ondernemingen uitgebreid. Verschei- dene nieuwe verpakkingen werden enthousiast ontvangen. De voortgaande koncentratie van de bier-industrie stelt Miller goede mogelijkheden over lange ter- mijn in het vooruitzicht, daar het edn van de drie kwaliteitsmerken is, die overal in de Verenigde Staten verkocht worden en dit de marktsectoris, die het snelst groeit. De kwaliteitsbier-sector nam in 1972 30% van de totale markt voor zijn reke- ning, vergeleken met 23% in 1967. Philip Morris Industrial De omzet van Philip Morris Industrial lag voor het eerst boven de $100 miljoen, een toename van 18% over 1971 en de bedrijswinst nam zelfs toe met een nog hoger percentage: 26%. Onze industriele ondernemingen profiteerden van de verbeteringen in de Amerikaanse economie in 1972, maar belangrijker nog is het feit, dat de ver- koopstrategie van deze ondernemingen grondig onder de loep genomen werd. Dit leidde, wat ver- koopvolume en winst betreft, tot resultaten, die tot voldoening stemmen. Het richten van de ver- koopstrategie op technisch hoog ontwikkelde pro- dukten met een hoge winstmarge leidde tot een aanzienlijk toegenomen omzet en winst bij de Nicolet Paper Company, bij Polymer Industries, Inc., een fabrikant van bijzondere chemische pro- dukten. Milprint Inc., Amerika's grootste produ- cent van specialiteits-verpakkingen rapporteerde hogere inkomsten, maar een winst die kleiner was dan in 1971. Mission Viejo In september verwierven wij 100% der aandelen van Mission Viejo Company, een nieuwe onderne- ming voor landontwikkeling en woningbouw. De grootste projekten van Mission Viejo bevinden zich in Orange County in de staat Californie. Het bedrijf bouwt ook woningen in Phoenix (Arizona) en een nieuwe woongemeenschap in Denver (Colorado). De verkoop- en winstcijfers van Mission Viejo werden in het vierde kwartaal van 1972 gekon- solideerd met die van de overige aktiviteiten van Philip Morris. Investeringen Wij staan aan het begin van een groot investerings- programma. In 1972 besteedden wij hiervoor $120 miljoen, wat een aanzienlijke toename is verge- leken met het bedrag van $68 miljoen dat wij in 1971 uitgaven. Gedurende de komende periode van vijf jaar verwachten wij meer dan $500 miljoen te besteden aan nieuwe produktiefaciliteiten of uitbreiding van bestaande installaties. Deze zullen niet alleen in de VS. gebouwd worden, maar ook in het buitenland en wel voornamelijk voor het fabriceren van tabaksartikelen. Deze plannen leggen de nadruk op ons vertrouwen in de voort- durende groei en in het winstvermogen van de sigarettenindustrie overal ter wereld. Het belangrijkste onderdeel van dit plan is een fabriekscomplex voor sigarettenfabrikage, dat nu in Richmond, Virginia, in aanbouw is-de grootste en mees'te efflciente ter wereld. Als dit projekt in 1977 gereed is, zullen de totale kosten, met in- begrip van terreinen, gebouwen, uitrusting en machinerieen, meer dan $200 miljoen bedragen. Men voorziet dat de eerste sigaretten in deze fabriek in 1973 gefabriceerd zullen worden en dat de gebouwen in 1974 gereed zullen zijn. De nieuwe research-toren van acht verdiepingen in Richmond, die onderdak zal geven aan 300 vaklieden, zal in april a.s. in gebruik genomen worden. - Roken en Gezondheid De tabaksindustrie gaat door met het uitbreiden van steun aan wetenschappelljk onderzoek dat gericht is op het beantwoorden van de vele onop- 14 1:

geloste vragen, die betrekking hebben op roken en gezondheid. De medische fakulteit van de uni- versiteit van Harvard maakte aan het eind van het jaar bekend, dat een subsidie vaa S2,8 miljoen dollar was aanvaard,gegeven door achttabaks- maatschappijen (o.a. Philip Morris) en een groep tabakstelers. De subsidie zal een researchpro- g ramma van vijf jaar financieren over het verband zo dat bestaat) tussen het roken van sigaretten en long- en vaatztekten. Toen de subsidie bekend gemaakt werd, zei de voornaamste onderzoeker, "Terwill het algemeen bekend is, dat het roken van sigaretten wordt aangevoerd als een van de betangrllkste oorzaken van deze ziekten, kunnen vele andere faktoren, die niet zo'n uitgebreide publikatie kregen, ook van belang zijn. Tot deze faktoren behoren het blootgesteld zijn aan luchtverontreiniging, de erfelijke verschillen in gevoeligheid enz. Een direkt oorzakelijk verband is niet duidelijk aangetoond voor vele van deze of andere milieufaktoren:' Philip Morris neemt ook deel in een research- subsidie van $2 miljoen voor de Washington TJniversiteit in St. Louis (Missouri), bestemd voor het onderzoek van kanker-inununologie bij de mens. Dit onderzoek bevindt zich thans in zijn tweede jaar en men maakt bemoedigende vooruit- gang op dit aktieve en veelbelovend gebied van kanker research. Er was in de Verenigde Staten weinig te doen, wat nieuwe wetgevende aktiviteit op het terrein van roken en gezondheid aangaat, maar verscheidene andere landen, waarin wij werkzaam zijn, namen wetten aan, waardoor beperkingen worden opge- legd voor het adverteren van sigaretten en waar- door waarschuwingen vereist zijn op de pakjes en in advertenties. Problemen De tweede fase van de loon- en prijsbeheersings- maatregelen der regering en het relatief voor- zichtig fiscaal en monetair beleid in 19721eidden tot een beperktere infiatie van ongeveer 3,8% voor het gehele jaar. Beperkingen ten aanzien van de winstmarges verhinderden, dat Uw onderneming de prijzen van haar produkten, of die van haar dochtermaatschapptlen, kon verhogen. Een ernstige bedreiging voor Uw onderneming, a11e multi-nationale ondernemingen en het alge- meen belang wordt gevormd door de z.g. °`Hartke-Burke Wet," die nu in het Congres in behandeling is. Deze wet dreigt ernstige schade toe te brengen aan de door in het buitenland betaalde belastingen niet langer als aftrekposten te beschouwen. Tevens zou deze.wet invoerquota's vaststellen en de uitvoer van Amerikaanse tech- nologie verbieden. Zoals het geval was voor de meeste multi-nationale ondernemingen, heeft de internationale expansie van Philip Morris tot gevolg gehad, dat de werkge- legenheid in de VS. toenam en een positieve bijdrage tot de betalingsbalans geleverd werd. De binnenlandse werkgelegenheid, die rechtstreeks in verband staat met onze buitenlandse aktiviteiten, steeg met meer dan 300%. Wij hopen oprecht, dat het Congres de feiten bestudeert, voor dat maatregelen worden genomen, die een averechtse uitwerking zullen hebben. In 1972 werden in vijf staten en in het district Columbia wetten ter verhoging van de sigaretten- accijns voorgesteld of aangenomen. In 1971 werd deze accijns in 16 staten verhoogd. Jammer genoeg kunnen wij, realistisch denkend, niet verwachten dat het aantal toekomstige belastingverhogingen gelijk zal blijven aan het peil van 1972, of niet veel zal veranderen. De totale opbrengst van de sigaretten-accijns bedroeg $5,2 miljard in 1972. Dit bedrag is bijna 50% groter dan de gezamenlijke netto opbrengst van de sigarettenverkoop der zes binnenlandse fabrikanten (na aftrek van de federale accijnsbe- lasting). Dit totaal bestond uit $2,1 mjljard fede- rale accijns, $3,0 miljard accijns door de staten geheven en $0,1 miljard door districten en gemeenten. Het is een onomstreden feit dat accijnsbelasting, evenals ornzetbelasting, een regressieve belasting is; per dollar betalen de lagefe lnkomens naar verhouding meer. Het is bewezen dat accijnsbe- lastingen discrimineren tegen de armere stads- bewoners, die ertoe geneigd zijn om grotere aantallen sigaretten te roken. In vele gevallen hebben accijnsverhogingen een averechtse uitwerking gehad. In de stad New York, waar de z.g. teer-accijns werd toegevoegd aan de reeds zeer aanzienlijke accijns, neemt het aantal sigaretten waarop belasting wordt geheven, steeds verder af. Dit aantal nam in 1972 af tot beneden het peil van 1965. Terwijl de opbrengst van de accijns in geringe mate is toegenomen, worden meer sigaretten op legale wijze buiten New York verkocht, of koopt men klandestiene sigaretten. De New York State Commission of Investigation schatte vorig jaar dat van elke drie pakjes die er in New York City gerookt worden, er een gesmokkeld is. Sociale Yerantwoordelijk73eid Eind 1971 stelde Philip Morris een onderzoek in, dat zich over de gehele onderneming uitstrekte en dat zich richtte op de gebieden, die men kan plaatsen onder het hoofd "verantwoordelijkheid van de onderneming." Het doel was te bepalen, of de politiek en de richtlijnen van de direktie in feite uitgevoerd werden, in welke mate en waar. Dit onderzoek vergde bijna een jaar en de konklu- sies hielpen maatstaven vast te stellen en aanwij- zingen te geven voor toekomstige aktie door de moedermaatschappij, de werkmaatschappijen en deindividuelefabrieken. In oktober kreeg ons programma, dat de gehele onderneming omvat, een gunstige vermelding in een rapport getiteld "Initiatives in Corporate Responsibility," dat samengesteld en gepubliceerd werd door het "Consumer Subcommittee of the U.S. Senate Cornmittee on Commerce" (onder voorzitterschap van Frank E. Moss, Senator uit de staat Utah). Dit rapport, dat 300 der grootste ondernemingen onderzocht, die voorkomen op de door "Fortune" gepubliceerde lijst der 500 grootste ondernemingen, verwees naar "... een uitstekend rapport door Philip Morris ..." Gedurende 1972 werd de verantwoordelijkheid voor de herziening van onze werkzaamheden op deze gebieden en voor het beginnen van nieuwe aktiviteiten opgedragen aan twee nieuwe kom- missies in onze raad van bestuur; de kommissie voor milieu-aangelegenheden en de kommissie voor sociale verantwoordelijkheid der onderneming en bijdragen. Deze kommissies werden ingesteld om ervan verzekerd te zijn, dat onze richtlijnen en de uitvoering daarvan progressief en produktief zijn. Tot de doeleinden, die wij nastreven, behoren het aanstellen van vrouwen, leden van minderheids- groepen en veteranen,het bevorderen van gelijke kansen voor.leden van minderheidsgroepen en vrouwen, meer zakendoen met instellingen, die in handen zijn van minderheidsgroepen,tratning op het werk, het in aanzienlijke mate betrokken zijn in zowel gemeenschapsaangelegenheden als in kunstzaken en de belangrijke vermindering of uitschakeling van lucht- en waterverontreiniging. Na een lange periode van intensieve studie kon- digde Philip Morris, in begin 1973, een uniek en baanbrekend programma van studiebeurzen aan ter ondersteuning van beroepstraining als supple- , ment van onze steun aan voortgezet onderwijs. Wij hopen en verwachten, dat dit programma, dat ondersteund wordt door het Amerikaans Minis- terie van Arbeid, een belangrijk experiment op onderwijsgebied zal betekenen in de toekomst. In 1972 voltooide Miller Brewing de ornschakeling tot volledig herbruikbare aluminium blikjes, ter- jl bij Formosa Springs en Nicolet Papier de Vvalwater-zuiveringsinstallatie in gebruik geno- men werd. De pogingen van Mission Viejo om het milieu tijdens en na de woningbouw te be- schermen en te verbeteren bleken zeer veel succes te hebben. In 1972 had Uw rood von bestuur het verlies van Dr. Jess H. Davis, president van Stevens Institute of Technology, te betreuren. Wij zullen zijn advies niissen. De raad werd versterkt door de verkiezing van Mrs. Whitney M. Young Jr., weduwe van de strijder voor burgerrechten, en van Mr. John T. Landry, vice-president van Philip Morris Incorpo- rated en groeps vice-president en directeur van verkoop van Philip Morris U.S.A., tot leden. Wij zijn optimistisch ten aanzien van de toekomst van Philip Morris; in 1973 en in de daarop- volgendejaren. De geschiedenis van onzegr oei in de sigaretten- industrie, in de VS. en in de gehele wereld, is welbekend. Gezien de vitaliteit en het groeitempo van onze merken, overal ter wereld, is er iedere reden om aan te nemen, dat onze groej op het gebied van sigaretten zich zal voortzetten. Wij geloven ook, dat er grote toekomstmogelijkheden ztjn voor de brouwerij-, industriele- en woning- bouwaktiviteiten van onze onderneming. Wij danken al onze 33.000 Philip Morris em- ployees, in de Verenigde Staten en over de gehele wereld, voor hun toewijding en bijdragen tot onze voortdurende groei. Met hoogachting aangeboden, namens de Raad van Bestuur, Joseph F. Cullman 3rd Chairman of the Board en Chief Executive Officer George Weissman President en Chief Operating Officer 14 15 Y

~ philip Morris U.S.A., ~ (000 omitted) 1972 1971 1970 operating Revenues $1,164,550 S1,035,178 5920,323 Operating Income 194,072 166,734 138,051 Philip Morris U. S. A. recorded new highs in operating revenues and profits in 1972 as its unit sales of cigarettes increased for the 17th straight year. Philip Morris U. S. A.'s market share rose from about 18% to more than 20%, and the company today has a solid number two position in the United States. This growth is attributable to your company's strong position within the filter cigarette market, which has been the fastest-growing segment since the 1950's, and to its leadership in the 100mm category. The filter segment of the industry has grown from 29% in 1956 to 83% in 1972, while the 100mm segment has grown from 9% in 1967 to more than 21 % last year. Unique among cigarette companies, Philip Morris has four major brands currently enjoying strong growth trends. 17 Marlboro, our leading brand, advanced to second place among all brands in 1971 and accelerated its rise toward the top in 1972. Total Marlboro unit sales increased by 17% in 1972 and accounted for more than 12% of the total U. S. market. Benson & Hedges 100's became the leading 100mm brand in 1972 with a sales increase of 13%. Virginia Slims, with its special appeal to women, grew 13%. Parliament, with its exclusive recessed filter, increased by more than 4%, much of that growth coming from the Parliament 100's. With Benson & Hedges 100's, Parliament 100's, Marlboro 100's and Virginia Slims, Philip Morris is the leading company in the 100mm category. The distinct positioning of our major brands permitted sharp marketing focus for each. The "Marlboro Country" theme has proved adaptable to magazine, newspaper, and outdoor advertising. This theme was amplified in several unusual ways in 1972. A unique eight-page magazine insert-the "Marlboro Country Store"-offered to the public items of Western merchandise that have been requested by consumers over the years. In a new promotional effort, the "Marlboro Chuckwagon and Western Art Exhibit" was a leading attraction at major fairs throughout the country. 1) Architect's rendering of new manufacturing complex in Richmond, Virginia. 2) Aerial view of manufacturing complex under construction; it will be completed in 1974. 3) New Philip Morris Research Tower adjacent to manufacturing complex.

1) Philip Morris U.S.A. scientists and researchers have patented 102 discoveries. The research staff now includes more than 400 scientists, technicians and support personnel. 2) Spider Sabich, one of the stars on the Benson & Hedges 100's Grand Prix, a popular series of Pro Ski classics. 3) The Virginia Slims Women's_ Tennis Circuit attracted record crowds throughout 1972. 4) Marlboro cartons on the line in Richmond. 5) Benson & Hedges Multifilter cartons on the line. Benson & Hedges 100's continued to concentrate on "extra length" in its advertising, emphasizing its light-hearted "disadvantages" theme. Benson & Hedges 100's also became the leading sponsor of the "Grand Prix" of professional skiing in cooperation with the International Ski Racers Association. The Virginia Slims Women's Tennis Circuit and the Virginia Slims Women's Opinion Poll by Louis Harris helped reinforce that brand's print and outdoor advertising which continued the well-established theme for women smokers, "You've come a long way." While total investment in cigarette marketing increased slightly, expenditures per 1,000 cigarettes decreased as a result of higher volume. Advertising expenditures remained below those in 1970, the last year of cigarette broadcast advertising. In 1972, our sales force was strengthened by additional field personnel, and a highly sophisticated marketing training course for field personnel was initiated. The majority of our new sales people are either Viet Nam veterans, women, or members of minority groups. More than 26% of the Philip Morris U.S.A. sales force are Viet Nam era veterans. The growing demand for Philip Morris cigarettes fully utilizes all of our present production capacity. Our new manufacturing complex nearing completion in Richmond represents a major move toward optimum efficiency and provision for future growth. I 18

This new cigarette manufacturing ~ complex, designed by architect Gordon Bunshaft, Senior Partner of Skidmore, Owings & Merrill, will ultimately have a capacity equal to nearly 25% of the total number of cigarettes currently sold in the United States. Production will commence this year, and construction of the buildings will be completed in 1974. A new generation of machinery and equipment and a vastly modified production line will assure the highest quality standards now attainable and make this facility the most efficient as well as the largest and most modern in the world. In every way, this cigarette manufacturing complex symbolizes your company's confidence in the future of the cigarette business and Philip Morris's continued growth within the industry. 1) Marlboro packages on the Louisville production line. 2) Benson & Hedges 100's-graphic depictions of "America's Favorite Cigarette Break." 3) Retail display rack for the new "Flicker" ladies' safety shaver. 19 1) Benson & Hedges 100's cartons ready to be packed. 2) Another retail rack featuring the Personna 74' tungsten steel razor blade, together with the new Face Guard blade. 3) "The Parliament recessed filter works like a cigarette holder works"-for Parliament regular and Parliament 100's. 4) Member of expanded U.S. sales force, working at the retail counter.

1) Virginia Slims-"You've come a long way." 2) Data processing at Richmond Operations Center. 3) Marlboro Lights expanded brand's reach into the high filtration segment of the market. 4) Inspection control point on Virginia Slims line. 5) The "Marlboro Country" theme lives in print advertising. 5 Many innovations that will improve the environment for our manufacturing people have been incorporated in this facility. Machinery will be arranged in modules. Each team of employees will be involved in virtually all stages of production. This will provide variety in their work routines and personal identification with the quality of the finished product. These employees will be trained for this highly sophisticated production plant in the newly established training center in Richmond. It is our intention to incorporate in our Louisville operation the manufacturing equipment, techniques and modular manufacturing philosophy being implemented in the new Richmond factory. To effect this, plans are under study to completely modernize and enlarge our Louisville facilities. In addition to construction of our new cigarette manufacturing complex, Philip Morris in 1972 also completed a new 8-story Research and Development Tower, which represents a major expansion of the Philip Morris U.S.A. Research: Center in Richmond. The new Research Tower will enable us to expand further our current body of knowledge in the scientific and technical areas of our operations. The research staff-scientists, technicians and support personnel- has also been expanded. Research activity receives high priority at Philip Morris, and the achievements of our research staff have gained increasing recognition in recent years. One Philip Morris development, a gas sensor which assists the analysis of cigarette smoke, received an award as one of the major industrial inventions in 1972. In the past five years, Philip Morris U.S.A. researchers have published more than 164 papers and have patented 102 discoveries. Many of our research discoveries have application to Philip Morris operations and products, and, like our new factory, they symbolize our persistent effort to enhance product quality, to satisfy consumer preferences, and to increase efficiency. The physical integration of the Research Tower with the Operations Center and the new plant in one modern complex again emphasizes the productive relationship of research, leaf, marketing, and manufacturing functions. The General Products Division of Philip Morris U.S.A. introduced several new products in 1972. Among them were Face Guard, a blade designed for sensitive skin, and Flicker, a women's shaving instrument shaped like a compact. In spite of its growing size and complexity, Philip Morris U. S. A. has been able to enlarge its management almost entirely by promotion from within. This fact attests to the capabilities of its employees and is an important factor in the loyalty of our personnel. 20

~ philip Morris U.S.A. Operating Revenues 1 Nillions of Dollars 400 1300 1200 1100 1000 900 800 700 600 500 400 300 200 100 Philip Morris U.S.A. Filter Cigarette Unit Sales a Non-Filter Cigarette Unit Sales Billion Units 120 0 64 '65 '66 Operating Revenues of Philip Morris U.S.A. have increased at an average annual compounded rate of 10.2% since 1963. Marlboro Share of Total U.S. Industry Percentage 14 12 10 8 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72 All categories of Marlboro now represent 12.6% of industry, a growth rate of 10.9% per year since 1963. Philip Morris U.S.A. unit cigarette sales have grown at an average annual compounded rate of 9.1% over the last 10 years. Filter cigarette sales represent 98% of Philip Morris U.S.A.'s total. 100mm Cigarette Share of U. S. Industry s Philip Morris 100mm Share of U. S. Industry- Percentage 24 22 Since 1965, the year 100mm cigarettes were introduced, this category has grown, at a rate of about three percent in share of market per year, to 21.6% of industry sales. Philip Morris U.S.A. brands, 6% of industry total, account for more than 27% of the category. U,S, Cigarette Industry Unit Sales Total Filter Cigarettes ® Total Non-Filter Cigarettes _ Philip Morris Share of U.S. Industry (% )- Billion Unlts Percentage 600 30 Total U.S. cigarette industry unit sales have increased at an average annual compounded rate of 2.8 % since 1970 and at a rate of 1.1% since 1963. The filter segment has grown at a rate of 5.3% since 1963. Philip Morris U.S.A,'s share of U,S. industry was 20.0% for 1972. I 21

Philip Morris International (000 omitted) 1972 1971 1970 Operating Revenues $623,699 $517,670 $424,800 pperating Income 84,095 66,968 54,167 Philip Morris International posted new records in sales and income in 1972. Cigarette unit sales increased 14% over 1971, and consolidated operating revenues were 20% higher than the previous year. Operating income increased 25%. During 1972, Philip Morris became the leading exporter of cigarettes from the U.S., and Marlboro now ranks as the number one cigarette brand around the world. Philip Morris International's growth is due in great part to the demand for Philip Morris brands generated by our international affiliates, licensees, and marketing companies in their own markets. Our major international brands account for approximately 5 0 % of our international sales, but in many countries national brands dominate the market. Philip Morris Europe, the largest of the international regions in sales and profits, continued its rapid growth during the year. It added to production capacity with the opening of a factory in West Berlin and with the expansion of Philip Morris Holland B. V.'s plant in Bergen op Zoom. Marlboro continued to grow as the leading American brand in several European countries, while European brands-such as Muratti Ambassador -continued to strengthen their market positions. New marketing offices were opened during the year in Paris, France and Amstelveen, Holland, with resulting marketing efficiencies. In the Asia/Pacific region, Philip Morris strengthened its position. The Philip Morris (Australia) group recorded another large increase in sales and profits. This was achieved primarily by enlarging Philip Morris's share of the Australian cigarette market. Lindeman Wines, in the first full year after acquisition, also posted satisfactory sales and profit growth. Our New Zealand affiliate and Philippines licensee both increased sales with the successful introduction of new brands. 1) Marlboro display at JFK Airport duty-free shop. 2) Marlboro sponsors European motor racing teams on the International Grand Prix circuit. 3) Viscount is a leading brand in Australia.

1) Marlboro is gaining an increasing market share in Europe. 2) Marlboro stagecoach promotion in Mexico. 3) Laboratory technician in Venezuela. 4) Marlboro boat cruises a Dutch canal. 5) Introductory advertising for Marlboro box packing in Germany. I In Indonesia, where P. T. Philip Morris Indonesia was formed in 1971 with local partners, our activities were directed toward structuring the organization and renovating the factory. The India-Pakistan war disturbed the cigarette markets in both those countries. Despite the obvious handicaps, our affiliate companies remained_profitable. In the Latin America/Iberia region, Philip Morris Espana S.A. and Philip Morris Iberica S.A. increased their staffs and equipped their manufacturing facilities in the Canary Islands in preparation for marketing of brands on the Spanish mainland. Our Venezuelan affiliate, C. A. Tabacalera Nacional, further improved its market position with Astor, a leading brand, which now j accounts for over half of the ; Venezuelan cigarette market. Our affiliate in Mexico, Cigarrera Nacional, S.A., has increased its sales but continues unprofitable. The Government of Mexico in November, 1972, formed a company, Tabacos Mexicanos, S. A. de C. V. (Tabamex), which has taken over all responsibilities in the nation for the growing and sale of leaf tobacco. Tabamex has indicated it will negotiate for the purchase of Cigarrera Nacional's growing and leaf processing facilities. In addition, the Mexican Government is now seeking the Mexicanization of foreign controlled cigarette companies to y bring foreign share ownership of cigarette companies to a minority position. Your management will make every effort to obtain fair and equitable compensation for shares made available to Mexicans upon Mexicanization. Tabacalera Centroamericana, S. A., our Guatemalan affiliate, successfully concentrated its marketing efforts on enlarging its share of the Guatemalan cigarette business. During the year, Philip Morris acquired a substantial interest in its licensee in Panama, Tabacalera Nacional, S.A. In Argentina, Massalin y Celasco S.A.C. e I. continued to make progress in the sale of its premium-priced brands. Argentina's inflation and r`J Cdl .0 O 0 ~ 0 Oll G 24

25 monetary problems, however, have adversely affected this affiliate's profitability. In the Dominican Republic, E. Leon Jimenes, C. por A. has successfully introduced a new brand and is continuing its marketing and development programs. A licensing and technical exchange agreement with Colombia's largest cigarette manufacturer, Cia. Colombiana de Tabaco, S.A., was successfully negotiated. Benson & Hedges (Canada) Ltd. had another successful year. A larger share of the cigarette market produced greater earnings for Benson & Hedges Tobacco Company which dominates the 100mm category with its Benson & Hedges 100's. The company purchased a leaf-processing plant in Delhi, Ontario, and expanded its Montreal factory. 333 1) Umbrella in Bombay promotes Cavander s cigarettes, a leading brand in India. 2) Lindeman's wine display in Australia. 3) Muratti Ambassador is the leading charcoal filter brand in Switzerland. 4) Cases of Canadian cigarettes packed for shipment. 5) Marlboro 100's-introductory advertising in Argentina. 1) Baronet is the third largest brand in Mexico. 2) Benson & Hedges retail shop in Toronto. 3) Formosa Spring Brewery quality control laboratory, Barrie, Ontario. 4) Company-supported clinic in Indonesia. 5) Cigarette research laboratory in Canada. 2

1) Formosa Spring Brewery is expanding its plant in Ontario. 2) Astor is the best-selling cigarette brand in Venezuela. 3) Swiss affiliate's factory in Neuchatel. 4) Marlboro jazz concert in Australia. korsnangen, fore over~ar~gstall, 1) Marlboro sign adorns hotel on the Mediterranean. 2) Delivery of Colorado cigarettes in Argentina. 3) Bond Street bus advertising in Sweden. 4) Marlboro greets travelers at airport in Quito, Ecuador. 5) Philip Morris is now the leading exporter of U.S.-made cigarettes. 4 4 Formosa Spring Brewery, which began production in its new brewery in February, 1972, increased its share of the Ontario beer market fourfold throuQh the introduction of a new brand, Oktoberfest. A new warehouse has already been added to the brewery, and a new aging facility and another bottling line will be completed by mid-1973. Although not yet profitable, Formosa Spring Brewery has achieved a growth record which indicates an encouraging potential. The increasing demand for quality American cigarettes like Marlboro in conjunction with Philip Morris International's ability to provide consumers around the world with their own indigenous types of cigarettes places your company in a position ideally suited for further international growth.

Philip Morris International Operating Revenues Consolidated  Unconsolidated 1 Millions of Dollars 1200 1100 1000 g00 800 700 Philip Morris International Cigarette Unit Sales Export, Affiliates, Licensees Billion Units 120 63 '64 65 66 67 68 '71 72 '69 '70 Excluding affiliates not wholly owned, Philip Morris International Consolidated Operating Revenues have grown at an average annual compounded rate of 30% since 1963. Operating Revenues of consolidated and unconsolidated affiliates have increased at a rate of 28% since 1963. Total Exports of U.S.-Made Cigarettes ® (%) - Philip Morris Share Billion Units 60 50 40 30 20 10 Percentage 30 25 20 15 10 5 '63 '64 '65 '66 '67 '68 '69 '70 '71 '72 Total exports of U.S.-made cigarettes have grown 1.4% per year compounded annually since 1963. Philip Morris share of U.S.-made cigarette exports reached 30% in 1972 for an average annual compounded growth rate of 11.8%. '63 #~#~I . , . t 6 65 72 66 '67 68 69 70 71 Since 1963, Philip Morris International unit sales of cigarettes by affiliates, licensees, and through exports have grown at a compounded rate of 23% per year. Total World Cigarette Unit Sales Excluding U.S.A., Sino & Soviet Blocs Total Filter Cigarettes x Total Non-Filter Cigarettes Philip Morris Share of World Market (55) - Billion Units 2000 _ 1600 Percentage r0 1400 7 1200 6 800 600 400 200 64 '65 '66 '67 '68 '69 '70 '71 Industry unit cigarette sales in international markets (excluding the United States and Sino and Soviet Bloc countries) reached 1.8 trillion in 1972 arid have grown at an average annual compounded rate of 4.1% since 1963. 27

29 Miller Brewing Company (000 omitted) 1972 1971 1970 Operating Revenues $211,262 $204,134 $198,479 Operating Income• 228 1,300 11,409 Miller Brewing Company's barrel sales increased 4% in 1972 and its operating revenues increased 3%, although operating income declined. The decline in operating income reflected the intensified price competition in the brewing industry and the rising costs for raw materials, labor and packaging materials. This cost-price squeeze has resulted in a decline in the number of U. S. brewing companies from approximately 118 in 1965 to approximately 65 today. Miller's potential is promising, however, since it is one of the three nationally distributed brands of premium beer, the fastest-growing segment of the market. In 1972, the premium beer segment accounted for 30% of the market compared with 23 % in 1967. 1) Miller High Life bottles move to market from the Milwaukee brewery. 1) Miller High Life in neon at the point of sale. 2) Cases of Miller High Life Beer move to market. 3) New Miller 7-oz. no deposit bottles were introduced in 1972.

1) New brands and new packages greatly expanded the Miller family last year. Notable addition was Miller Ale, while Miller Malt Liquor went national. 2) The Miller Tavern at Milwaukee brewery -important stop on visitors' tours. 3) Copper brewing kettles in Milwaukee. 2 2 1) Miller Reclamation Center for recycling aluminum cans-Azusa, California. 2) Miller High Life Beer in new lightweight, quart-size brown glass bottles was introduced during the year; they are encased in insulating foamed polystyrene sleeves-a first in the malt beverage industry. 3) Inspectors oversee quality production all along the Miller High Life line. 4) The Meister Brau brand names acquired in mid-year included both Meister Brau, sold in Illinois and several Midwest states, and Lite, a low calorie and low carbohydrate beer. During 1972, Miller's senior management was substantially strenb hened and reinforced. The Marketing Department has been restructured, and a brand management system has been introduced. The Sales Management Department has also been reorganized, and Miller's distributor relationships and organization have been revitalized. Miller expanded its product line in 1972 through the acquisition of established brands. In June, 1972, Miller acquired the trade names and distribution network of Meister Brau, Inc. Meister Brau is one of the top three brands in the Chicago area and is marketed in several Midwest states. This purchase gives Miller an established brand iri the popular- price segment. The Lite brand, a low calorie and low carbohydrate beer, and the Buckeye brand were also purchased. In addition to giving Miller.additional brands to market through existing distributors, the Meister Brau acquisition increased the number of Miller distributors from approximately 750 to nearly 850. 30

Miller also expanded its product line in 1972 through the introduction of two new products-Milwaukee Extra and Miller Ale. Milwaukee Extra, a new popular-price brand, was introduced and test marketed in Greensboro, North Carolina, and Phoenix, Arizona, while Miller Ale was introduced and test marketed in three Northeast markets. During 1972, national distribution of Miller Malt Liquor was also begun. Miller also launched several innovative packages in 1972. The Miller High Life 7 oz. bottle in the 8-bottle "pony pack" was introduced with great success in the East and then expanded with similar success to most U.S. markets. Miller Plasti- Shield quarts, bottles with insulating plastic sheaths, have also been introduced in five test markets. Another important development during 1972 was the passage of a law by Oregon which-by means of a lower deposit-encourages the use of returnable bottles interchangeable among brewers. Since October 1, Miller High Life has been packaged for distribution in Oregon in stubby brown bottles, instead of the clear bottles. Consumer acceptance has been positive. The substantial malt beverage market in the United States, estimated at $11.2 billion in 1972, remains attractive in terms of its potential for growth. We are confident that Miller's new management will acquire a larger, more profitable share in the years to come. Miller Brewing Company Operating Revenues a Share of Total Industry ( % ) - Millions of Dollars zso Percentage 10 Over the last 10 years Miller's Operating Revenues have increased 7.7% per year compounded annually. Miller's share of total beer industry sales in 1972 was 4.1%. Domestic Beer Industry Unit Sales Nationally Distributed Premium Beer (est.) m Regional and Non-Premium Beer (est.) Mlllions of Barrels 160 140 120 Since 1963, total beer industry unit sales have grown 3.8% a year on a compounded average annual basis. In contrast, the premium segment has grown 9.8% per year in this period. 31

1) Test application of electrostatic coating powder at Armstrong Products, in Warsaw, Indiana. 2) Milprint's Education Division produces Trans-Vision overlays-as shown here-that are used in textbooks and industrial manuals. 3) Press rolls of Milprint packaging materials used by national customers. 4) Kentucky Governor Wendall H. Ford (1.), with Nicolet Paper president Robert G. Etter, announcing planned construction of new paper coating materials operation in Nicholasville. 1 ~M- I LP RiN:T i p/fCUAIlff UATIMWLf: ,.,.~ .. .. _ 1) Quality control check at Milprint's Milwaukee plant. 2) Night view of one of Milprint's six packaging facilities. 3) Checking the print job on Kellogg's Pep® packages. 4) Specialty paper used for food packaging in production at Nicolet Paper Co., in De Pere, Wisconsin. 5) Employee concentration on one of Philip Morris Industrial's production lines. 2 Philip Morris Industrial (000 omitted) 1972 1971 1970 Operating Revenues $113,136 $95,513 S85,875 Operating Income 7,735 6,135 6,049 Philip Morris Industrial exceeded $ 100 million in operating revenues for the first time in 1972 by recording an 18% increase over 1971. Operating income was up 26%. There are several reasons for this favorable performance. The improvement in the U. S. economy was one important factor; also the company's increased emphasis on strategic marketing of sophisticated high margin products was successful. Milprint Inc. increased revenues. Its operating income, however, was down slightly from 1971 due to the ' cost of enlarging its marketing organization and strengthening its market promotions. Initiated in 1971, the new marketing programs should have a positive effect on earnings in 1973. The company entered 1973 with a substantial backlog of orders. 32

Milprint produces flexible packaging materials used primarily for snack foods, candy, coffee, processed meat and dry processed foods, Its growing reputation as a leader in its field was enhanced last year when Milprint won nine of twenty-four awards presented to ten packaging-converter companies by the National Flexible Packaging Association. It also received a first place award from the World Packaging Organization in Tokyo. Among Milprint's newest award-winning developments are flexible pouches for antifreeze and motor oil. In addition, Milprint is now supplying a micro-thin, laminated material to Polaroid Corporation for use in the film for the new SX-70 Land camera. In May, Milprint established another manufacturing facility in Fremont, Ohio, to make thermoformed containers for packaged luncheon meats. Milprint's Koch Label Division was merged into its Midwest Packaging Division in an effort to broaden Koch's markets beyond the seasonal beer label business. Sales and earnings of Milprint's Educational Division were virtually unchanged. Nicolet Paper Co., which produces glassine and printing and specialty papers, recorded its highest sales in history while increasing its earnings. In October, Nicolet announced it will build a $5 million manufacturing facility in Nicholasville, Kentucky, as headquarters of its Special Products Division. Created in 1971 to coat paper and plastic materials for food packages, the division will begin coating operations in the new plant in late 1973. Nicolet's Plainwell Paper Co., Inc., produced satisfactory sales and earnings increases in 1972. The b owing demand for- its fechnical and printing papers required the start-up of its third paper-making machine with a capacity of 10,000 tons a year. This Annual Report is printed on Plainwell paper. Polymer Industries, Inc., also attained new highs in sales and earnings. The textile industry, Polymer's principal market for its coatings, expanded with the development of woven textured polyester fabrics. Polymer also maintained its leadership position in specialty coatings for household fabrics. Polymer's major new product introduced in 1972 was Mira-Glos RT, a high-gloss paper coating for the printing industry which "cures" or dries at room temperature. Similar competitive coatings require high temperatures for curing. Mira-Glos was introduced into Europe by the Polymer Industries Europe S. A. marketing organization. Polymer's further penetration into Europe will be aided by the acquisition lastNovember of Wikolin Werk, Willi E. Kohlmeyer G.m.b.H. of Bremen, Germany, an established specialty chemical manufacturer serving the European Common Market. Armstrong Products Co., acquired in 1971, increased its sales and profits in 1972 with its liquid epoxy adhesives, electrostatic coating powders and powder application systems, three growing lines. Armstrong expanded its research and development laboratories, which are essential to the continuing development of new specialty chemicals, and strengthened its marketing organization in anticipation of increased demand for its products. Philip Morris Industrial Operating Revenues PAiilions oi Dollars 120 Philip Morris Industrial's Operating Revenues have increased at an average annual compounded rate of 5.9% since 1963. 33

1) The "Tour de Mission Viejo" drew- champion bicycle racers from Mexico, as well as the U.S. The race attracted thousands of viewers and exceptional coverage throughout California. 2) Action on the gridiron at Mission Viejo school. 3) One section of the Mission Viejo community, as seen from the air. 4) The community has hosted some of the nation's top pro golfers at its Club House and championship golf course. 2 4 1) Table tennis is a popular sport at the Recreation Centers. 2) Young artists at work. 3) The basketball courts are always in play. Missi®n'Vie j® Company (000 omitted) 1972 1971 1970 Operating Revenues $60,824 $37,812 $26,834 Operating Income 5,714 2,256 682 In September, Philip Morris Incorporated completed the acquisition of 100% of Mission Viejo Company, a new community, land development and home-building corporation headquartered in Southern California. Philip Morris had assumed operating control in 1970 after negotiating an option to acquire the company. Recording its best year in 1972, Mission Viejo received sales agreements for 1,920 homes. It sold 1,596 homes in the Mission Viejo planned community in Orange County, California, 178 homes in a development in Tempe, Arizona, a suburb of Phoenix, and 146 homes in Mission Viejo, Colorado, a suburban community of Denver, which opened in September. 34

35 By December, the population of Mission Viejo's communities at all three locations reached almost 24,000. Approximately 8,000 acres of our 11,000-acre California community remain to be developed. The Mission Viejo planned community in Colorado encompasses 640 acres and eventually will include 3,000 homes and townhouses, in addition to recreational centers and commercial land sites. In the Arizona project, called "The Lakes," Mission Viejo is building homes in conjunction with a community developer. Four neighborhoods with a population of 1,000 are now open, and construction on a fifth will begin this year. Mission Viejo's financial services division became a comprehensive operation in 1972. It now includes MVC Financial Corporation, Mission Viejo Insurance Agency, Mission Viejo Realty, and Mission Viejo Escrow Corporation. This new division now enables homeowners to obtain mortgages at favorable rates, insure their property, and resell their homes. Mission Viejo builds homes of several price ranges in its communities. As a result, almost half of the Mission Viejo homeowners who sell their homes do not leave the community-rather, they tend to upgrade to larger houses within the community. Homes constructed by the company have shown greater-than-average appreciation. This is partly the result of the environmental amenities which are an integral and visible asset of each of Mission's carefully planned communities. For example, since 1965 at Mission Viejo, California, 95,000 trees and shrubs have been planted at a cost of $4.2 million- many more trees and shrubs, incidentally, than were removed in the process of home construction. Land is devoted to golf courses, large parks and green belts, and extensive, fully-equipped recreation centers. As one of the nation's most advanced and progressive new community corporations, we expect Mission Viejo to continue to outpace the housing market as it has in the past. Mission Viejo has consistently observed conservative accounting practices. Sales revenues are not recorded until the transaction has closed and payment in full has been received. Essentially all of Mission Viejo's revenues are from the sale of houses and land. Mission Viejo's operating results for the fourth quarter have been included in the consolidated financial statements of Philip Morris Incorporated starting with the fourth quarter of 1972. 1) At "The Lakes," outside of Phoenix, Arizona, Mission Viejo is building homes in conjunction with a community developer. 2) Supervised games on one of the community's playing fields. 3) A typical street scene, where the traffic is never heavy. 0

1) Joseph E Cullman 3rd. 2) George Weissman. 3 ) Hugh Cullman. 4) Margaret B. Young. 5) Richard W. Dammann. 6) James E. West. .._._ 5 6 Directors and Officers Directors James C. Bowling Vice President Alfred Brittain III President, Bankers Trust Company Andrew C. Britton Vice President George V Comfort George Com f ort & Sons Company, Inc. John E. Cookman Senior Vice President Dr. J. A. Cordido-Freytes President, C. A. Tabacalera Nacional Hugh Cullman Executive Vice President Joseph F. Cullman 3rd Chairman of the Board Richard W. Dammann Dammann & Heming, Attorneys-at-Law Clifford H. Goldsmith Vice President Chandler H. Kibbee* John T. Landry°`x Vice President Edward Lasker Counsel, McKenna, Fitting & Finch, 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 John A. Murphy Vice President George Weissman President James E. West Chairman of the Board, Mission Viejo Company J. Harvie Wilkinson, Jr. Consultant, United Virginia Bankshares Margaret B. Young" Chairman, Whitney M. Young, Jr. Memorial Foundation Wirt H. Hatcher Director Emeritus Ray Jones Director Emeritus Arthur Snapper Member, Advisory Board *Retired Senior Vice President *New1y elected directors and officers O fficers Joseph F. Cullman 3rd Chairman of the Board and Chief Executive Officer George Weissman President and Chief Operating Ojficer Ross R. Millhiser Executive Vice President and President, Philip Morris U.S.A. Hugh Cullman Executive Vice President and President, Philip Morris International John E. Cookman Senior Vice President and Chief Financial Officer Thomas F Ahrensfeld Vice President andGeneral Counsel James C. Bowling Vice President, Assistant to the Chairman of the Board and Director, Corporate Aff airs Andrew C. Britton Vice President and Senior Vice President-Operations, Philip Morris U.S.A. Clifford H. Goldsmith Vice President and Executive Vice President, Philip Morris U.S.A. S. Lyle Graham Vice President-Personnel John T. Landry Vice President and Group Vice President-Director of Marketing, Philip Morr•is U.S.A. Jetson E. Lincoln Vice President-Planning George W. Macon, Jr. Vice President and Vice President- Leaf, Philip Morris U.S.A. Hamish Maxwell Vice President and Regional Vice President-Asia/Pacific, Philip Morris International John A. Murphy Vice President and President, Chief Executive Officer, Miller Brewing Company Philip J. Reilly Vice President and President, Mission Viejo Company Benjamin A. Soyars** Vice President and Vice President- Manufacturing, Philip Morris U.S.A. 36'

1 37 Fred M. Stefan Vice President and President, Philip Morris Industrial Ronald H. Thomson** Vice President and Regional Vice Presiden t-Europe /Middle East/ Africa, Philip Morris International Dr. Helmut R. R. Wakeham Vice President and Vice President- R & D, Philip Morris U.S.A. Eugene J. T Flanagan Associate General Counsel, Secretary C. Gilbert Collingwood Treasurer Walter F Sperber Con tro ller Stephen F W. Ball Assistant Treasurer and Assistant Secretary Buford A. Tynes Assistant Treasurer James G. Gilleran Assistant Controller Robert H. Souther" Assistant Controller Robert A. White Assistant Controller Mary E. Russell Assistant Secretary Executive Committee J. F Cullman 3rd, Chairman A. Brittain III G. V Comfort J. E. Cookman H. Cullman T. N. Lawler R. R. Millhiser G. Weissman J. H. Wilkinson, Jr. C. H. Kibbee - Ex O fficio Finance Committee J. E. Cookman, Chairman A. Brittain III H. Cullman - C. H. Kibbee E. Lasker R. R. Millhiser G. Weissman J. H. Wilkinson, Jr. Audit Committee J. H. Wilkinson, Jr., Chairman A. Brittain III R. W. Dammann E. Lasker H. R. Marschalk 1) Ross R. Millhiser and James C. Bowling. 2) John A. Murphy. 3) John E. Cookman. 4) Andrew C. Britton. 5) Edward Lasker. 6) Alfred Brittain III. 7) T. Newman Lawler. 3 2 r.y ~ 0 0 ~ 0 ~ 1) Chandler H. Kibbee. 2) Dr. J. A. Cordido-Freytes. 3) JohnT. Landry and Clifford H. Goldsmith. 4) J. Harvie Wilkinson. 5) George V Comfort. 6) H. Robert Marschalk.

Hugh Cullman Ross R. Millhiser Philip Morris U.S.A. 100 Park Avenue New York, New York 10017 Ross R. Millhiser, President Clifford H. Goldsmith, Executive Vice President Andrew C. Britton, Senior Vice President-Operations John T. Landry, Group Vice President-Director of Marketing George W. Macon, Jr., Vice President-Leaf Dr. Helmut R. R. Wakeham, Vice President-Research and Development Benjamin A. Soyars, Vice President-Manufacturing Max L. Berkowitz, Vice President- Assistant Director of Marketing Russell N. Freund, Vice President-Personnel Edward M. Schaaf, Jr., Vice President-Production Shepard P. Pollack, Vice President-Finance and Planning Charles H. Wilson, Vice President-General Products Division Richard D. Robertson, Vice President-Ecology Alex J. Kay, Jr., Controller Philip Morris International 100 Park Ayenue New York, New York 10017 Hugh Cullman, President Regional Vice Presidents: Charles Lombard, Canada Hamish Maxwell, Asia/Pacific Carlos E. Salguero, Latin America/Iberia Ronald H. Thomson; Europe/Middle East/Africa James E. Turner, Vice President-Sales William J. O'Connor, Vice President & Chief Administrative Officer Albert E. Bellot, Vice President Aleardo G. Buzzi, Vice President Fred C. Moessinger, Vice President-Personnel R. W. Murray, Vice President-Finance Miller Brewing Company 4000 West State Street Milwaukee, Wisconsin 53201 John A. Murphy, President, Chief Executive Officer William K. Howell, Executive Vice President Lauren S, Williams, Vice President-Sales Clifford R. Wilmot, Vice President-Brand Management Thomas B. Shropshire, Vice President-Market Planning Charles H. Day, Vice President, Director of Operations Robert H. Lindstrom, Vice President-Finance Clement G. Meyn, Vice President-Master Brewer Warren H. Dunn, General Counsel, Secretary Phil A. Grau, Assistant Secretary Stanley C. Zupek, Controller I 38

Philip Morris Industrial 4200 North Holton Street Iviilwaukee, Wisconsin 53212 Fred M. Stefan, President Arthur P. Witt, Vice President-Finance & Planning James B. Kurtzweil, President-Milprint Inc. Robert G. Etter, President-:Vicolet Paper Co. Paul H. Groth, Vice President & General Nfanager-Nicolet Paper Co. Richard L. Radt, Executive Vice President & General 6lanager-Plainwell Paper Co., Inc. Richardson Thurston, Presrdent-Polymer Industries, Inc. Leonard L. Adler, Executive Vice President- Polymer industries, Inc. Edmund P Whitby, President-Armstrong Products Co., Inc. John A. Murphy ! i 39 Mission Viejo Company 26137 La Paz Road Mission Viejo, California 92675 James E. West, Chairman of the Board Philip J. Reilly, President Anthony R. Moiso, Secretary James G. Toepfer, Senior Vice President, Operations Roger E Clark, Vice President, Financial Services Division James G. Gilleran, Vice President, Administrative Services Division Geurt Henri Lodder, Vice President, Environmental Systems Division Robert M. Rodman, Controller William K, Smith, Assistant Secretary Philip J. Reilly

Financial Review 5-10-15-Year Growth Record (000 Omitted) 5 Years 1972 O ti 1967 Compounded Average Annual Growth Rate pera ng Revenues $2,131,224 Pre-Tax Income 229,634 Earnings per Share Primary 4.67 Fully Diluted 4.37 $904,841 81,317 1.97 1.94 18.7% 23.1% 18.9% 17.6% 10 Years 1972 1962 i Compounded Average Annual Growth Rate Operat ng Revenues $2,131,224 $550,624 14.5% Pre-Tax Income 229,634 47,464 17.1% Earnings per Share Primary 4.67 0.98 16.9% Fully Diluted 4,37 0.98 16.1% 15 Years 1972 1957 i O Compounded Average Annual Growth Rate perat ng Revenues $2,131,224 $439,920 11.1% Pre-Tax Income 229,634 35,740 13.2% Earnings per Share Primary 4.67 0.76 12.9% Fully Diluted 4.37 0.76 12.4% The year 1972 was one of significant achievement for Philip Morris Incorporated in terms of unit sales, revenues, profits and continued strengthening of its financial position. The above table highlights the record of our growth during the last 5-, 10-, and 15-year periods. This performance establishes Philip Morris as one of the leading growth companies in U. S. industry. _. The improving trend in pre-tax profit margin which commenced in 1965 continued during 1972, as may be noted in Chart 1. This improvement was particularly gratifying in view of the increased cost of tobacco leaf, labor, and other raw materials, and the absence of any opportunity to increase prices due to government controls. This improvement was primarily the result of the significantly greater unit volume and an effective cost control program throughout the company. Record levels of capital expenditures were recorded during 1972 in the amount of $120 million. However, our expanding funds from operations provided the majority- 97 percent in 1972-of our capital expenditure requirements, as illustrated in Chart 2 and further amplified in the Financial Statements. We anticipate that this high level of capital spending will continue for at least the next five years and that during that time these requirements will be exceeded by internally generated funds from operations. For the fifth consecutive year, the company increased the dividend on its common stock. As a result of the Phase II restrictions, this increase was limited to 4% for 1972. As illustrated in Chart 3, our dividend , payout continues to be conservative and we believe represents sound financial policy in view of the high level of capital expenditures anticipated for the next several years. This conservative dividend policy, plus conversion of debentures, has resulted in a rather rapid expansion of stockholders' equity (Chart 7). Nonetheless, our pre-tax return on stockholders' equity continues to exceed 30%, which is well ahead of the return on equity of the 30 Dow Jones industrial companies (Chart 4). The recent rapid growth in our per share earnings extended into 1972. Chart 5 illustrates this growth and compares Philip Morris performance with that of the 425 stocks used in the Standard and Poor's industrial average. Our overall financial condition strengthened further in 1972 with a substantial increase in working capital as well as stockholders' equity (Chart 7). Long term debt increased from the prior year primarily as a result of converting $150 million of our short term borrowings to long term. However, the ratio of long term debt to equity (Chart 6) has been reduced from a peak in 1969 and is presently, in our opinion, at a conservative level. There are no significant near term maturities of funded debt, and with our strong financial condition we anticipate no need for any domestic long term debt or equity financing. The continuation of the government's balance of payments program requires us to raise certain funds overseas. During the year, Philip Morris sold $31 million of 15-year Deutsche Mark debentures. We would expect that other offshore term financing will be required from time to time for as long as the balance of payments program remains in effect. Following the Smithsonian Accord in December, 1971, there were no major currency realignments that affected earnings in a material manner. The net result of such realignments that did occur in 1972 was reflected by an increase in the reserve applicable to international operations of $3.8 million. During the year, the company was advised by the New York Stock Exchange that as a result of changes in its listing requirements our 3.90% Series Preferred was to be delisted. This would have resulted in further reducing its already limited marketability. Consequently, in December, 1972, the company offered to purchase all shares of the 3.90% Series Preferred for $70 per share and simultaneously offered to purchase all shares of the 4% Series Preferred at $75 per share. Upon the expiration of the offer, January 12, 1973, 141,565 shares representing 80.5% of the combined outstanding shares had been purchased and will be canceled. Subsequent to the offer, the 4% Series was also delisted. N i.tl 0 0 0 O J ~ 40

Operating Revenues N Pre-Tax Margins (% ) - Chart 1 Millions of Dollars 2400 2200 11 Funds from Operations (after Dividends) a Consolidated Capital Expenditures - Chart 2 Millions o'r Dollars 130 Primary Earnings per Share a Dividends Declared per Share - Chart 3 Dollars 5.00 Pre-Tax Return on Stockholders' Equity Primary Earnings Per Share Long-Term Debt to Equity Philip Morris a (1958=100) Senior Long-Term Debt a Dow Jones 30 Industrials - Philip Morris m Subordinated Long-Term Debt Chart 4 Standard & Poor's 425 - Chart 6 Chart 5 Percentage Index Percentage 35 Stockholders' Equity a Working Capital - Chart 7 Millions of Dollars 8c0 700 58'59 60'61 62 63'64 65'66 Percentao= 12 67 68'69'70'71 72 600 500 400 '58'S9'60'61'62'63'64'65'66'67'68'69'70'71'72 100 90 70 0 56'59'60'61'62'63'64'65'66'67'68'69'70 71 '72 r\) :SI O O O r-~ 41

Conso9idated Balance Sheets Philip Morris Incorporated and Consolidated Subsidiaries December 31, 1972 and 1971 1972 1971 Assets: Cash and cash equivalents ................ ..................... .................................................... ,. $ 54,471,000 $ 48,343,000 Receivables ..................................................... .......... ...... :.................... ................ ._..,.... _...... . . 128,935,000 102,448,000 Inventories : Leaf tobacco ........................................... ................ ........... _._.._.......... .............................. 591,894,000 497,954,000 Other raw materials .................................................... .......................... ....:........ ........... 51,997,000 42,348,000 Work in process and finished goods .......................................................................... 130,827,000 129,942,000 Housing programs under construction ...... ............. ................................... ....._............. 26,427,000 801,145,000 670,244,000 Prepaid expenses .......................................................................... ..................... ................... 5,157,000 5,418,000 Total current assets 989,708,000 826,453,000 Investments in and advances to unconsolidated subsidiaries and affiliates: Domestic ............................ ........... . ............... ....... .-:: . .. . . .... ............. .......... ....... .... .... 20,086,000 Foreign ............................................ 92,431,000 80,369,000 92,431,000 100,455,000 Land and offtract improvements ........................................................................................... -25,999, 000 Property, plant and equipment, at cost: Land and land improvements .......... ........................................................................... 18,796,000 14,362,000 Buildings and building equipment ......... ........................................................ .......... 129,171,000 108,945,000 Machinery and equipment ................................................. ......................... ....................... . 313,639,000 265,638,000 Construction in progress ................................................ ..................................... .._.... 109,542,000 58,130,000 571,148,000 447,075,000 Less, Accumulated depreciation .......... .................. _............................................ ..........._ 197,776,000 173,005,000 373,372,000 274,070,000 Other assets ............................................... ............. _..........-.....:...............:._.........._...._.... 17,696,000 22,127,000 Brands, trademarks, patents and goodwill ........................................................_......... 202,288,000 168,930,000 $1,701,494,000 $1,392,035,000 See notes to financial statements. 42.

1972 1971 Liabilities: Notes payable ........................ ...................... .................................................. ........................ $ 197,900,000 $ 201,400,000 Current portion of long-term debt ................................................................................. 3,300,000 100,000 Accounts payable and accrued liabilities ..................................................................... 212,489,000 166,704,000 Federal and other income taxes ....................._..........._.................................................. 42,287,000 32,3 65,000 Dividends payable ......................... ............. .................................. ................................ 8,941,000 8,293,000 Total current liabilities ................................ ........................................... .,......... Long-term debt: 464,917,000 408, 862,000 Senior ...................... .................................. ...._........... ........ ............................................. - 370,154,000 216,433,000 Subordinated ................................:......................................... 109,652,000 136,003,000 Deferred income taxes ............................... ...................................................................... 35,674,000 30,658,000 Reserve applicable to international operations .......................................................... 17,963,000 14,401,000 Other liabilities ........................................................_........................................... .............. 7,585,000 6,564,000 Total liabilities .......................................... ................................................... ....: .... .... 1,005,945,000 812,921,000 Stockholders' Equity: Cumulative preferred stock, par value $100 per share .............................................. 24,773,000 25,104,000 Common stock, par value $1 per share .......................................................................... 27,315,000 26,285,000 Additional paid-in capital ...........................................................:................................ 179,581 ,000 150,104,000 Earnings reinvested in the business ............................................................................... 473,925,000 384,031, 000 705,594,000 585,524,000 Less, Cost of treasury stock ............................................................................ 10,045,000 6,410,000 695,549,000 579,114,000 $1,701,494,000 $1,392,035,000 43

Consolidated Statements of Earnings Philip Morris Incorporated and Consolidated Subsidiaries- }or the years ended December 31, 1972 and 1971 1972 1971 Operating revenues $2,131,224,000 $1,852,495,000 Cost of sales: Cost of products sold ..... .................. ........... .......... .............. .:...._.................. ......... ... 832,890,000 700,021,000 Federal and foreign excise taxes on products sold .. .............................................. 722,929,000 642,529,000 Gross profit .................................................................................................... ......... 575,405,000 509,945,000 Marketing, administration and research costs ................. ........................... :............... 299,422,000 278,736,000 275,983,000 231,209,000 Equity in net earnings of unconsolidated subsidiaries and affiliates .......................... 11,478,000 9,928,000 Operatin~ income of operating companies ........................................................ 287,461,000 241,137,000 Corporate expense .................................... .................... .-._....:.,.......... ..... ............. ...... ... -19, 870,000 18,412,000 Interest expense ...... ..................................... ........ ............ .....:...:...::-........ ...................... 37,870,000 35,472,000 Other deductions (income), net ......................................................:............................. 87,000 (2,547,0 00) Earnings before income taxes ............................ ................................................... 229,634,000 189,800,000 Provision for federal and other income taxes: Current ........................ ............ ................... .................. ........ :...................................... 100,278,000 78,743,000 Deferred .. ................ .............. ................................................ ........... ....................... 4,890,000 9,559,000 105,168,000 88,302,000 Net earnings ............. ............................. ............... :::..:..... ........................ ............... $ 124,466,000 $ 101,498,000 Earnings per common share: Primary .............................................................. ....:,.:.:......................... .................................. . $4.67 $4.02 Fully diluted ................................... ................ ................................ ............................. $4.37 $3.64 See notes to financial statements. 44

Consolidated Statements of Stockholders' Equity Philip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 1972 and 1971 Preferred Stock, Authorized and Issued at $100 Par Value Common Stock, Authorized 50,000,000 Shares at $1 Par Value dditional Paid-In Capital Earnin12 s Rein~ested Cost of Total in the Treasury Stockholders' B i us ness Stock E_ tluity Balance, January 1,1971 Net earnings for the year $25,434,000 $24,414,000 $ 95,210,000 $314,365,000 (S 6.574,000) 5452.849.000 1971 Cash dividends declared: 101,498,000 101,491t,000 Preferred stock: 4% Series ( 496,000) ( 496 000) 3.90% Series ( 256,000) ( , 256 000) Common stock, $1.21 per share ( 31.,080,000) ( , 31,080,000) Preferred stock purchased for treasury ( 2,021,000) ( 2,021 000) Treasury and unissued common stock issued upon conversion of debentures ,690,000 1,274,000 ,936,000 , 54,900,000 Proceeds from common stock issued under stock options 181,000 3,539,000 3,720,000 Preferred stock retired through sinking fund ( 330,000) 81,000 249,000 Balance, December 31,1971 25,104,000 26,285,000 150,104,000 384,031,000 ( 6,410,000) 579,114,000 Net earnings for the year 1972 124,466,000 124,466,000 Cash dividends declared: Preferred stock: i 4% S 447 000 447 000 er es ( ) , ( , ) 3.90% Series ( 243,000) ( 243,000) Common stock, $1.262 per share ( 33,882,000) ( 33,882,000) Preferred stock purchased for treasury ( 4,188,000) ( 4,188,000) Treasury and unissued common stock issued upon conversion of debentures - 86,000 5,098,000 11,000 6,295,000 Proceeds from common stock issued under stock options 144,000 4,290,000 4,434,000 Preferred stock retired through sinking fund ( 331,000) 89,000 242,000 Balance, Decernber31,1972 $24,773,000 $27,315,000 $179,581,000 $473,925,000 ($10,045,000) $695,549,000 ( ) Denotes deduction. See notes to financial statements. Uri 0 0 ~ ~ 0 CO ~ 45

Consolidated Statements of Changes in Financial Position Philip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 1972 and 1971 1972 1971 Additions to Working Capital: Operations: Net earnings ........... ..... ................................ ......... ........... ............................. $124,466,000 $101,498,000 Add (deduct) items not requiring current use of working capital: Depreciation ..... ::.:...... .................................................... ::. . . . . . ..... ............................ 26,576,000 21,500,000 Amortization . .............................................. _ .........: _:.-:.....: .. ...................................... 1,563,000 1,421,000 Deferred income taxes .................. ..................... _..................................... ................ 4,890,000 9,559,000 Provision for reserve applicable to international operations .................................. 1,723,000 Equity in net earnings of unconsolidated subsidiaries and affiliates ...................... (11,478,000) (9,928,000) Dividends received from unconsolidated subsidiaries .. ................. '........................... 4,692,000 2,875,000 From operations ......... ....... ............ .......... ::...... ......... ...-............... ..:...:............. 150,709,000 128,648,000 Financing*: Long-term debt: Issued .............................................. .... ::........................................... .......................... 184,108,000 47,868,000 Prepayments and retirements .................................................................................... . (38,892,000) (9,766,000) From long-term debt ....................... :.................... ...::..:..:....................................... .. 145,216,000 38,102,000 Stockholders' equity: Shares issued under stock options .................. :.................. .............. ......................... 4,434,000 3,720,000 Shares of preferred stock purchased for treasury .................................................... (4,188,000) (2,021,000) From equity transactions .................................................................................. - 246,000 1,699,000 From financing ............................:.......... .. 145,462,000 39,801,000 Other: Disposal of property, plant and equipment ................................................................... 1,433,000 8,442,000 Net unrealized exchange gains added to reserve applicable to international operations ........................................................................ 3,755,000 2,928,000 Additions to working capital ........................................................................ 301,359,000 179,819,000 Uses o f Working Capital: Dividends ........................................................ ............ _...................... ........ . 34,572,000 31,832,000 Expansion and modernization of property, plant and equipment .................................. 120,034,000 68,001,000 Investments in and advances to unconsolidated subsidiaries and affiliates .................... 5,276,000 4,013,000 Investments in consolidated subsidiaries, net of working capital acquired* *: Mission Viejo Company ............................................................. .............................. 22,524,000 Other subsidiaries ............. .................................... .....: ........... .......................... .. 6,873,000 2,255,000 29,397,000 2,255,000 Other, net .............................................. ............... ......... -.,...... ........... ....::..... ............. ............. 4,880,000 3,809,000 Working capital used .............................. ..................................................... ........ 194,159,000 109,910,000 Increase in working capital ................................... ........ .:.::.-............................ $107,200,000 $ 69,909,000 Changes in components of working capital: Cash and cash equivalents .......... ....... ............. ....._........... _:.....:...,...~..-r.-.....-:....,............. $ 6,128,000 ($ 3,699,000) Receivables ....................... ....................................... .-:....-....:............................... .:...::._:.,......... 26,487,000 929,000 Inventories ............................................ _........:..:..........-.:r.::::..:>... ..,._,.:::... _..: ........ 130,901,000 101, 816,000 Notes payable ............................. ............... .............. _........................................................ 3,500,000 (14,200,000) Accounts payable and accrued liabilities ................................... .......................... ............ (45,785,000) (19,960,000) Other, net......:........................................:............. (14,031,000) 5,023,000 $107,200,000 $ 69,909,000 ~ *Other significant financing transactions, not affecting working capital,. were conversions of $26,351,000 and $56,066,000 of debentures into common stock in 19 * *Represented by: 72 and 1971, respecti vely. b O G ~ ~ Net noncurrent assets of companies acquired, principally land and offtract 0 im rovements $ 21 004 000 000 $ 362 ~ p ...................................................... .................... , , , . ~~ Cost in excess of net assets acquired .................................................:.......................... 28,479,000 1,893,000 49,483,000 2,255,000 Less, Amount invested in Mission Viejo Company in 1970 .................................. 20,086,000 See notes to financial statements $ 29,397,000 $ 2,255,000 I . 46

~ 1 Notes to Consolidated Financial Statements Summary of Accounting Policies: The significant accounting policies followed by Philip Morris and its subsidiaries are presented below to assist the reader in reviewing the consolidated financial statements and other data contained in this report. These policies comply with generally accepted accounting principles and have been consistently applied. Consolidation: The consolidated financial statements include the accounts of the Company and all wholly owned subsidiaries. Investments in and advances to unconsolidated subsidiaries and affiliates are stated at cost adjusted for equity in undistributed earnings or losses since the dates of acquisition. Foreign operations: Appropriate amounts provided out of earnings are added to the reserve applicable to international operations for possible losses which might arise from diminution in value of the Company's investments in foreign subsidiaries as the result of events such as governmental actions or currency devaluations. The accounts of foreign subsidiaries are translated into U.S. dollars at year-end rates or average rates during the year except for noncurrent assets and liabilities which are translated at rates in effect in the years the balances arose. Net unrealized translation gains are added to this reserve and net unrealized translation losses would be charged to income should such losses exceed previous unrealized gains and provisions. Receivables: Current earnings are charged with an allowance for doubtful accounts based on experience and any unusual circumstances which may affect the ability of customers to meet their obligations. Receivables are reported in the balance sheet net of such accumulated allowances. Accounts deemed uncollectible are charged against this allowance. 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. It is a generally recognized industry practice to classify the total amount of leaf tobacco inventory as a current asset although part of such inventory, because of the duration of the aging process, ordinarily would not be utilized within one year. The cost of housing programs under construc- tion represents the cost of land, including ofltract improvements, interest and property taxes, plus housing construction costs on sites currently under development. Land and ogtract improvements: The cost of land, including offtract improvements, interest and property taxes, is reported as a noncurrent asset until a designated area is placed into development. Offtract improvements are items such as access roads, utilities, etc., which are essential to the development of a community, but which are not directly attributable to the development of a particular tract or area. The cost of these improvements is allocated to the entire acreage available for sale. Brands, trademarks, patents and goodwill: In conformity with an opinion of the Accounting Principles Board, the cost in excess of net assets of companies acquired after November 1, 1970 is being amortized over a period of no more than forty years. Such excess cost in connection with investments made prior to November 1, 1970 is not being amortized because, in the opinion of management, the related investments have not experienced any diminution in value. Patents and patent rights are being amortized on the straight-line method based on their respective lives. Income taxes: The provisions for federal and foreign income taxes are calculated on reported pre-tax earnings. Certain items of income and expense included in the financial statements, such as depreciation, are reported in different years in the tax returns in accordance with applicable income tax laws. The resulting difference between the financial statement income tax provision and income taxes currently payable is reported in the financial statements as deferred income taxes. Investment tax credits on assets placed in service during the year are accounted for as a reduction in the provision for income taxes. Provision is also made for federal income taxes on the portion of undistributed earnings of foreign subsidiaries that is expected to be remitted to the United States. Maintenance, repairs and depreciation: Maintenance and repairs are charged to income and expenditures for renewals and improvements are capitalized. Provision for depreciation of assets is recorded by a charge against income at rates considered adequate to amortize the cost of such assets over their useful lives using the straight-line method of computation. Pension plans: The Company and certain of its consolidated subsidiaries have pension plans covering substantially all of their employees. Prior service costs, which are being amortized over periods of up to thirty years, and accrued pension costs are funded with u-? ~ independent trustees. C Research and development: ° Research and development costs are charged against earnings in the year incurred. ~ . ~~ 47

Acquisitions: In 1970, the Company invested $20,086,000 in convertible notes, capital stock and related options of Mission Viejo Company, a planned community builder. During 1972, the Company converted the notes and invested an additional $13,500,000 to exercise the options. Also in 1972, the Company acquired, under new agreements, all of the remaining ownership interest in Mission Viejo for a maximum purchase price of $30,011,000. Of this amount, $21,010,000 is payable over a five-year period and is subject to downward adjustment if Mission Viejo's cumulative earnings, as defined, do not reach a specified level. The acquisition of Mission Viejo has been accounted for as a purchase and its accounts have been included in the consolidated results since September 30, 1972. The consolidation of Mission Viejo since September 30, 1972 affected the comparability of net earnings for the years 1972 and 1971 only to a minor extent. Investment cost in excess of net assets of Mission Viejo is included in brands, trademarks, patents and goodwill. Excess cost of $24,309,000 attributable to the 1970 agreements is not being amortized because, in the opinion of management, there has been no diminution in the value of the related investment. Excess cost attributable to the 1972 agreements of $176,000 at December 31, 1972 and the excess cost which will arise on payment of the remaining purchase price under such agreements will be amortized over a period of forty years. A number of other small acquisitions were made during 1972. None of these materially affected the reported operating results, Foreign Subsidiaries: Principal financial data of foreign subsidiaries are as follows: Consolidated Unconsolidated 1972: Assets ....... ........................................................................................ ..........._.......................... .......... .:...:....... :... $391,353,000 $241,151,000 Liabilities, other than due the Company ....................... _.................... -:._....:..:....................... -- 198,572,000 114,554,000 Net assets .................................................... ................ ...:.......:...:.........:_:_....... ............ `.,:...... ..... 192,781,000 126,597,000 Company's equity and advances ............................ ................ :....... ......... .............. ........... 192,781,000 83,695,000 Operating revenues ......... ...... ......... ................... ........... .......... ...: _.:::-:.--:.:.-..... .............. ........ 521,159,000 456,131,000 Net earnings ................................................ ................... .................. ::......... :........ ..................... 25,031,000 19,168,000 ... Company's equity ............................................... .-.... ...._.................. ............ ... ............ 25,031,000 11,478,000 1971: Operating revenues ......................................... ............. -,:.................. :.............. ............ ..... _ 434,874,000 389,739,000 Net earnings ..................................................... ........ ._:._: -..:.:.............. ._.:-............. ...................... 19,392,000 16,279,000 Company's equity .... ............................................. ._....::.......:......_........_..._........................ 19,392,000 9,928,000 At December 31, 1972, the Company's investments in unconsolidated foreign subsidiaries exceeds its equity in their net assets by approximately $8,700,000. The Company is amortizing $3,000,000 of this excess which arose subsequent to November 1, 1970. Federal income tax has not been provided on $110,000,000 of undistributed earnings of foreign subsidiaries, accumulated since inception of the Company's investments in such subsidiaries, which is expected to be permanently invested abroad. Expansion of Facilities: Construction of the new cigarette manufacturing complex in Richmond, Virginia is proceeding on schedule. The construction cost, including interest and real estate taxes during the construction period, will total approximately $100,000,000. Installation of the latest machinery and equipment over the next five years will bring the total cost of this complex to over $200,000,000. Actual commitments at December 31, 1972 at all locations for plant, equipment and machinery approximated $125,000,000. 48

Brands, Trademarks, Patents and Goodwill: At December 31, 1972, this account includes $202,200,000 of brands, trademarks and goodwill of which approximately $11,000,000, applicable to investments subsequent to November 1, 1970, is being amortized over periods of up to forty years. Long-Term Debt: 4.90% Notes, payable $2,600,000 annually from 1974 to 1988 and $16,000,000 in 1989 ............................ ....................... .,........... ....,...,.,.,....-.............................................: 65i's % Sinking Fund Debentures, payable $3,500,000 annually from 1976 to 1992 and $15,500,000 in 1993 ................................................................................................ Bank Term Loan Agreement maturing in 1980. Interest is at 1/2 % above the bank prime rate .................................................................................................... ...... 63/4 % Loan 100,000,000 Deutsche mark, payable 10,000,000 Deutsche mark annually from 1978 to 1987 ............................................................................................. 81/z % Guaranteed (by Philip Morris Incorporated) Sinking Fund Debentures of Philip Morris International Capital N. V, payable $600,000 annually 1975 through 1979, $1,500,000 annually 1980 through 1985 and $3,000,000 December 31 1972 1971 $ 55,000,000 $55,000,000 75,000,000 75,000,000 150,000,000 31,226,000 in 1986 .............................. ............................. .._.....__..._............,._,.................. ........... ............. 15,000,000 15,000,000 8% Guaranteed (by Philip Morris Incorporated) Notes of Philip Morris International Capital N. V., payable in 1978 ................................................... ...................................... .. 15,000,000 15,000,000 71/2 % Guaranteed (by Philip Morris Incorporated) 60,000,000 Dutch guilder notes of Philip Morris International Capital N. V., payable 15,000,000 Dutch guilders annually beginning in 1975 .....................I ........ ........ _...... ................................................ :.. 17,868,000 17,868,000 Secured trust deed notes of Mission Viejo Company. Interest ranges from 5% to 8.875% ............................. ...................................... ............................ ............ _ 10,943,000 4~/s % Sinking Fund Debentures ......................................................................................... 9,705,000 Eurodollar revolving credit agreement cancelled December 31, 1972 ............................ 26,000,000 Other notes and debentures ................................................................................................... . 3,417,000 2,960,000 373,454,000 216,533,000 Less, Portion currently payable ...................................... ....................... ................... ........ 3,300,000 100,000 Senior debt ...................................................._............................................... ................ $370,154,000 $216,433,000 10% Subordinated Notes, payable $3,600,000 annually from 1974 to 1976, $5,760,000 annually from 1977 to 1981 and $32,400,000 in 1982. Callable after February 1, 1974 at no premium ............................................................................ $ 72,000,000 $ 72,000,000 6% Convertible Subordinated Debentures due 1994, convertible at $27.75 per share .................................................................................................... ........................ 28,590,000 49,778,000 Other subordinated convertible debentures ........................................................................ 9,062,000 14,225,000 Subordinated debt ..................................................... ............ ............................... ........ $109,652,000 $136,003,000 Generally, the long-term debt is callable, at annually decreasing premiums. Expenses incurred in securing long-term loans are included in other assets and are being amortized on the straight-line method over the respective lives of the issues giving rise thereto. Aggregate maturities of long-term debt in each of the following years are: 1973, $3,300,000; 1974, $7,400,000; 1975, $11,300,000; 1976, $21,400,000; 1977, $18,000,000. 49

Capital Shares: Authorized Issued Treasury Outstanding Preferred, 4% Series: AtDecember3l, 1971 .................................. -_ 147,873 147,873 ( 30,874) 116,999 Purchased .............................. .............. :......... - - ( 36,205) (36,205) Retired ......................................... ....... ....:....... - --- (1,999) (1,999) 1,999 AtDecember 31, 1972 ......................... :...... 145,874 145,874 ( 65,080) 80,794 Preferred, 3.90% Series: At December 31, 1971 .................................. 103,163 103,163 ( 40,528) 62,635 Purchased ............................ ................... . ( 21,634) (21,634) Retired ............................................................. .- (1,307) (1,307) 1,307 AtDecember3l, 1972 .................................. 101,856 101,856 ( 60,855) 41,001 Common, $1 par value: At December 31, 1971 .................................. 50,000,000 26,284,981 (115,521) 26,169,454 Issued for: Debenture conversions ............................ 886,302 22,416 908,718 Stock options ............................................ 143,873 143,873 - AtDecember3l, 1972 .................................. 50,000,000 27,315,156, ( 93,111) 27,222,045 Pursuant to an offer to stockholders to purchase all outstanding preferred shares, the Company had purchased and included in treasury stock at December 31, 1972, 32,535 shares of the 4% Series and 21,634 shares of the 3.90% Series. An addi- tiona158,224 shares of the 4% Series and 29,172 shares of the 3.90% Series were purchased in January, 1973. As of December 31, 1972, 1,291,782 shares of common stock are reserved for conversion of convertible debentures and 273,592 shares are reserved for the exercise of stock options. Stock Options: Pursuant to stock option plans approved by stockholders, common stock of the Company has been made available for option to officers and other key employees at market prices on the dates granted. 1972 1971 Shares under option, beginning of year ............................. ................. ....~:,.......... ....... .......... 363,835 442,711 Options granted ............................................................................... _...:........ ........................ 55,750 106,350 Options exercised ............................. ...... ................ ......... .. ....... ......:..:.... .......... .......... (143,873) (181,441) Options canceled ........ ................. ............. ................. _._ .......... .w........ .......... .......... .............. (2,120) (3,785) Shares under option, end of year ................................ ................. .....-.::.-.:........................ 273,592* 363,835 Shares available for option, end of year ............................................................................ 25,992 79,622 *At prices ranging from $23.56 to $104.06. 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 purchase, redemption or retirement of capital shares. At December 31, 1972, approximately $326,000,000 of consolidated earnings reinvested in the business was free of such restrictions. 50

Earnings Per Share: Primary earnings per common share is calculated on the weighted average number of shares of common stock outstanding during each year, which was 26,499,669 in 1972 and 25,063,307 in 1971. Fully diluted earnings per common share gives effect to the reduction in earnings per share which would result from the conversion of all outstanding convertible securities and the exercise of stock options. Convertible securities were assumed to have been converted from the beginning of the period and net earnings were adjusted for related interest net of tax. Funds assumed to have been received from exercise of stock options 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 28,632,716 for 1972 and 28,278,474 for 1971. Incentive Compensation Plan: In accordance with the Company's Incentive Compensation Plan, which was approved by stockholders at the 1967 annual meeting, a provision of $1,933,000 was made against 1972 earnings for awards that will be made to officers and other key employees in 1973. A provision of $1,702,000 was made against 1971 earnings. These amounts were less than the maximum amounts that could be provided under the plan. Income Taxes: 1972 1971 Provision for federal and other income taxes : Federal .................................................................................................... ........................... $ 75,001,000 $66,207,000 State and local ..................................................... _......... .. .................... ..................... ..... . 10,100,000 6,980,000 Foreign ............................ ................ ................. ...............:_.............. .................................. 20,067,000 15,115,000 $105,168,000 $88,302,000 Additional Information: 1972 1971 Depreciation of plant and equipment .................................................................................. $ 26,576,000 $21,500,000 Pension plan expense ................................. ....... ......_........... .......... .......................................... $ 10,620,000 $11,200,000 Investment tax credit .................................................................................................... ........ $ 2,702,000 $ 908,000 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, 1972 and the related consolidated statements of earnings, stockholders' equity and changes in financial position 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, 1971. In our opinion, the financial statements mentioned above present fairly the financial position of Philip Morris Incorporated and consolidated subsidiaries at December 31, 1972 and 1971 and the results of their operations and the changes in financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. New York, January 30, 1973. Lybrand, Ross Bros. & Montgomery 51

Fifteen Year Financial Review Philip Morris Incorporated and Consolidated Subsidiaries (in thousands except last nine items) 1972 1971 1970 1969 1968 Operating Revenues ........................ ..... ............ .................... ...__............. $2,131,224 1,852,495 1,509,540 1,142, 373 1,019, 846 Federal Excise Taxes ........................................................................................._ . 494,778 441,143 372,092 319,086 295,903 Foreign Excise Taxes ........................................................................ 228,151 201,386 147,124 54,247 41,841 Operating Income ............... ............................................. ...................... ...... 287,461 241,137 203,180 153,237 126,159 Earnings Before Income Taxes ........................................................ 229,634 189,800 150,008 115,613 100,107 Pre-Tax Profit Margins ..... .......... ............... ........................................ __ . 10.8% 10.2% 9.9% 10.1% 9.8% Net Earnings ...... .................................... ........ .................................... ...........- = - 124,466 101,498 77,498 58,340 48,866 Dividends Declared: Common .............................................................. 33,882 31,080 24,452 21,794 18,755 Common Dividends Declared As % of Net Earnings .................... 27.2% 30.6% 31.6% 37.4% 38.4% Dividends Declared: Preferred ...................................... .................. ....-_ 690 752 870 887 922 Net Earnings Reinvested .......................................................... ....._..... 89,894 69,666 52,176 35,659 29,189 Capital Expenditures ............................................................................-- 120,034 68,001 39,595 23,636 26,373 Annual Depreciation .......................................................................... 26,576 21,500 17,658 13,512 12,139 Property, Plant & Equipment (Gross) ....... ....................................... ...._ 571,148 447,075 394,088 236,962 219,346 Property, Plant & Equipment (Net) ............... .............................. ......._ 373,372 274,070 236,697 147,354 138,704 Inventories .......... .............................................................................. .............._ 801,145 670,244 568,428 447,319 451,922 Current Assets ......................... ......................................................... ......- 989,708 826,453 728,837 574,988 561,685 Working Capital .................................................................................. 524,791 417,591 347,682 315,871 312,406 Total Assets ............................................. ......... .......... ......................... ............_ 1,701,494 1,392,035 1,239,424 976,489 786,578 Short-Term Debt ............................................................................... . 197,900 201,400 187,100 158,100 153,800 Senior Long-Term Debt ..................................................................... 373,400 216,500 178,500 168,700 176,000 Subordinated Long-Term Debt .............................................. ............ __ 109,700 136,000 192,100 163,600 25,000 Total Debt ................................................................................................- 681,000 553,900 557,700 490,400 354,800 Stockholders' Equity ............................................................................. 695,549 579,114 452,849 355,808 314,496 Primary Earnings Per Common Share ............................................ $4.67 4.02 3.36 2.58 2.18 Fully Diluted Earnings Per Common Share .............................. ......... .- 4.37 3.64 2.85 2.40 2.14 Dividends Declared Per Common Share .................. ....................... .__ 1.262 1.21 1.05 .98 .85 Book Value Per Common Share .................................................... ~ 25.10 21.44 17.87 14.78 13.12 Market Price of Common Share High-Low .................................... 1181/4-673/.~ 71-463/4 501/4-28 363/s-25I/s 34i/4-22 Closing Price Year End ......................................................................... 118~/4 701/4 491/2 353/4 32 Price/Earnings Ratio ............... -................ ............. .......................... _ _ 25 17 14 13 14 No. of Common Shares-Actual Year End ...................................... -_ _ 27,222,045 26,169,454 24,158,840 22,565,334 22,200,308 No. of Common Shares-Weighted Average .................................. 26,499,669 25,063,307 22,806,598 22,269,461 21,928,890 52

1967 1966 1965 1964 1963 1.962 1961 1960 1959 I 1958 904;841 771,975 704,544 641,439 585,059 550,624 529,127 509,332 499,598 473.552 271,073 234,975 214,128 194,312 193,768 187,133 184,146 175,947 168,608 163,023 39,658 30,057 27,780 22,462 8,276 3,785 101,838 81,867 65,128 55,568 56,634 56,402 52,701 52,376 49,690 47,426 81,317 65,144 52,423 44,466 46,729 47,464 45,985 44,578 41,159 39,854 9.0 % 8.4 % 7.4 % 6.9 % 8.0 % 8.6 % 8.7% - 8.8% 8.2070 8.4% 43,601 34,183 26,509 22,614 22,052 21,946 21,511 20,984 19,590 18,705 15,226 15,101 12,896 12,867 12,855 13,046 13,212 13,085 11,140 10,467 34.9% 44.2% 48.6% 56.9% 58.3% 59.4% 61.4% 62.4% 56.9% 56.0% 922 923 943 953 953 953 970 1,011 1,024 1,037 27,453 18,159 12,670 8,794 8,244 7,947 7,329 6,888 7,426 7,201 25,688 17,089 12,078 19,366 26,243 11,843 8,733 7,300 12,380 8,580 10,903 9,532 8,857 8,316 6,765 6,293 5,638 5,362 4,932 4,981 193,656 172,593 159,759 153,224 139,595 110,204 99,066 93,641 90,050 80,906 123,555 110,157 104,044 102,417 93,150 68,664 61,560 59,960 59,655 53,444 386,576 297,761 271,823 257,256 235,375 228,088 232,541 209,326 210,967 219,744 485,908 372,895 339,082 318,978 297,295 279,068 277,350. 249,819 252,239 271,658 306,172 253,257 2i3,826 202,810 190,982 179,222 190,859 190,423 187,404 150,103 648,994 512,549 466,277 443,438 412,543 365,024 351,018 321,717 321,620 333,489 82,600 27,200. 57,300 56,700 53,800 57,400 45,200 21,000 30,000 89,400 173,800 133,800 100,800 102,300 91,400 63,400 65,400 67,400 69,100 30,600 256,400 161,000 158,100 159,000 145,200 120,800 110,600 88,400 99,100 120,000 280,186 249,821 230,677 217,783 208,711 201,720 199,685 195,956 189,317 181,352 1.97 1.54 1.19 1.01 .99 .98 .94 .91 .85 .81 1.94 1.54 1.19 1.01 .99 .98 .94 .91 .85 .81 .70 .70 .60 .60 .60 .60 .60 .60 .52 .50 11.77 10.48 9.63 9.03 8.62 8.25 7.99 7.74 7.47 7.13 283/4-153/4 17~/8-12i/4 16i/8-12?/s 14i/s-11i/4 15-11i/s 183/4-10i/8 207s-13 13i/z-10 10~/s-9 10i/4- 71/8 2214 17 143/4 12 i/4 123/8 121/4 183/8 13.3/s 103/8 10 i/4 11 11 -- 12 12 12 12 19 14 12 12 21,830,874 21,613,344 21,521,730 21,458,478 21,429,444 21,526,428 21,972,954 22,029,792 21,937,686 2 1,774,654 21,674,884 ~

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