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1 Financial Highlights 2 Review of the Year 14 Philip Morris U. S. A. 20 Philip Morris International 26 Miller Br'ewing Company 28 Philip Morris Industrial 30 Mission Viejo Company 36 Financial Review PM

Philip Morris Incorporated Annual Report 1971 Financial Highlights 1971 OperatingRevenues ...................................................... $1,852,495,000 Net Earnings ................................................................ 101,498,000 Per Share of Common Stock: Net Earnings: Primary ........................................................ ..._....... $4.02 Fully Diluted ........ ............................. ...._:...... 3.64 Dividends Declared .................................................... .. 1.21 1970 $1,509,540,000 77,498,000 $3.36 2.85 1.05 1969 S1,142,373,000 58,340,000 $2.58 2.40 .98 Percent Increase Over Prior Year: Operating Revenues .................................................. . . 22.7% Net Earnings .............. ............................................ ...... 31.0% Net Earnings Per Common Share: Primary ...................................................................... 19.6% Fully DIluted ..................................................... ...........__ 27.7% 32.1 % 32.8% 30.2% 18.8% 12.0% 19.4% 18.3% 12.1% Operating Companies Revenues: Philip Morris U.S.A ................................................. ...__$1,035,178,000 $ 920,323,000 $ 800,949,000 Philip Morris International ...................................... 517,670,000 424,800,000 256,769,000 Philip Morris Industrial .............................................. ._ .95,513,000 85,875,000 84,655,000 Miller Brewing Company (1) .................................. 204,134,000 78,542,000 Consolidated Operating Revenues ........... .:......... . $1,852,495,000 $1,509,540,000 $1,142,373,000 Operating Companies Income: (2) Philip Morris U.S.A .................................................. $ 166,734,000 $ 138,051,000 $ 106,435,000 Philip Morris International ...................................... 66,968,000 54,167,000 38,717,000 Philip Morris Industrial ............................................. . 6,135,000 6,049,000 5,392,000 Miller Brewing Company (1) .................................... 1,300,000 4,913,000 2,693,000 Consolidated Operating Income (2) .................... $ 241,137,000 $ 203,180,000 $ 153,237,000 (1) Miller operating revenues only from August 1, 1970. Philip Morris Equity of 53% in Miller net income in period 7/1/69-7/31/70 and 100% of Miller operating income thereafter. (2) Corporate expense, interest, other items and income taxes, which are not directly attributable to the operating companies, are not allocated since any allocation thereof would be arbitrary. The notes to consolidated financial statements should be read in conjunction with the above data. t'J s O O O ~ 1

Review of the Year In 1971, for the eighteenth consecutive year, your company moved to new highs in both operating revenues and profits. Consolidated operating revenues for 1971 totalled $1,852,495,000, gaining 22.7% over the $1,509,540,000 reported last year. Net income advanced 31.0%, climbing to $101,498,000, compared with $77,498,000 for 1970. Primary earnings per share rose to $4.02 from the $3.36 attained last year, an increase of 19.6%. Fully diluted earnings per share were $3.64, compared to $2.85 in 1970, an increase of 27.7%. Already the leading U.S.-based company in the rapidly expanding international market, Philip Morris in 1971 became the second ranking cigarette company in the U.S. market. Our U.S. unit sales increased more than 11 % during the year, and at year end the company's share of the U.S. market was more than 18 %. For the industry as a whole, total U.S. cigarette unit sales were up approximately 2.5%, rising from 524 billion in 1970 to a record high of 537 billion in 1971, according to a leading tobacco industry analyst. Our consolidated operating revenues over the past five years have grown at an average compounded annual rate of 19.1 %, while net earnings over the same period have increased at a rate of 24.3 % and primary earnings per share have increased 21.2% a year. And for the 44th year in a row, the company paid dividends on its common stock. In addition, it was the fourth consecutive year that dividends were increased, although the 1971 increase was limited by the U. S. government's economic controls. The current annual dividend rate is $1.24 per common share: Sales of our major U.S. brands continued to grow throughout the year. Marlboro, which now accounts for more than 11 % of the U.S. market compared with 5.7% five years ago, moved into second place among all brands. In the overall 100mm category, your company moved into first place in 1971 led by Benson & Hedges 100's strong growth at year end. Virginia Slims 100mm sales continued to lead the women's cigarette field, and Parliament, aided by an increasingly good market reception for its 100mm charcoal filter version, also gained in sales. In the new product category, our principal activity centered on the introduction of the new Marlboro Lights, a lowered "tar" and nicotine cigarette and a major entry in the high filtration field. The introduction was accomplished through newspaper and magazine advertising, and the brand is now being promoted on a national basis. Internationally, the free world market for cigarettes continued its pattern of 4% annual growth, while Philip Morris International increased its worldwide sales more than 10% during 1971, with Marlboro continuing to lead all U.S. brands in overseas sales. Our unit cigarette sales outside of the United States during 1971 approximated our U.S. total. Overseas sales are not as profitable in total as U.S. sales, however, because of lower margins realized in many markets. Chairman Joseph H Cullman, 3rd During the year, Philip Morris International made an investment in Weltab S.A., a Belgian tobacco company, added to manufacturing facilities in Switzerland and Holland, and formed Philip Morris Espana S.A. and Philip Morris Iberica S. A. with local partners to produce cigarettes for sale in Spain. We also look forward in 1972 to the opening of a cigarette factory in West Berlin, Germany. In our Asia/Pacific region, a new manufacturing company, P T. Philip Morris Indonesia, was incorporated as a joint venture with Indonesian partners. Philip Morris (Australia) Limited increased its share of the Australian market to over 30%. It should be noted that, during 1971, Philip Morris (Australia) Limited moved into a new field with the acquisition of Lindeman (Holdings) Limited, a leading Australian wine company with a good profit record and an outstanding reputation in the industry. In Canada, Benson & Hedges (Canada) Ltd. increased its cigarette market share and Formosa Spring Brewery completed construction of its new brewery in Barrie, Ontario. In the Latin American region, our affiliates continued penetration of their respective markets, although low profit margins still exist for several affiliates in this region. In total, through local manufacture and export, Philip Morris International now has more than 140 cigarette brands that are marketed in 162 countries and territories. Our manufacturing and marketing affiliates are located in Argentina, Australia, Belgium, Canada, Canary Islands, Dominican Republic, Ecuador, France, Germany, Guatemala, Holland, India, Indonesia, Mexico, New Zealand, Nigeria, Pakistan, Puerto O r-, O ~ ~ O ~ ~ 2

Rico, Sweden, Switzerland, the United Kingdom and Venezuela. Licensees include prominent manufacturers in Austria, Bolivia, Colombia, Finland, Hong Kong, Italy, Malaysia, Morocco, Netherlands Antilles, Panama, the Philippines, and Yugoslavia. Tobacco, of course, remains the dominant force in your company's progress. Our tobacco activities have been growing at such a pace that the percentage of non-tobacco activities has not increased substantially. However, operating revenues from our non-tobacco activities, excluding Mission Viejo, totalled more than $350 million in 1971. 1971-the first full year under 100% Philip Morris ownership-was the year for repositioning the Miller Brewing Company, our major non-tobacco operation, for the future. A new advertising campaign was launched successfully, and the first major new product in Miller's history, Miller Malt Liquor, was introduced in many markets. The organization was strengthened with the election in September 1971 of John A. Murphy as chairman and chief executive officer. He had previously been executive vice president of Philip Morris International. The demand for Miller increased 4.5% in barrelage at the retail level and operating revenues increased 2.8%. However, there was a substantial decline in operating income due to planned increases in marketing costs and severe increases in manufacturing costs. We are hopeful that activities undertaken during this rebuilding phase will produce additional barrelage and an increased market share in future years. Philip Morris Industrial, represented in the specialty paper, flexible packaging President George Weissman and specialty chemical fields by its Milprint, Nicolet and Polymer operations, registered sales gains despite adverse economic conditions in these industries. Profits after start-up costs of the newly acquired paper mill in Plainwell, Michigan, were up slightly from the previous year. Mission Viejo Company, a planned community, home building and land development operation in which Philip Morris has an investment, achieved major increases in sales and profits. This is significant because, although there was a strong market for housing in the United States throughout the year, aerospace industry cutbacks created depressed conditions in Orange County, California, where Mission Viejo's primary operations are located. During the year, this company also expanded geographically and initiated new housing projects in the suburbs of Phoenix, Arizona, and Denver, Colorado. As a measure of our confidence in the world-wide tobacco industry's great potential for further expansion, as well as emphasizing our dedication to constantly improved product quality in every field in which we operate, we are moving ahead on a five-year capital expansion program which will total approximately $400 million, principally for tobacco operations. The largest single expenditure in this program is allocated for our new manufacturing plant now under construction in Richmond, Virginia, at a cost of more than $ 80 million. Designed to help Philip Morris meet the projected increase in U.S. demand for our quality cigarette products in the years ahead, this single new facility will be the largest, most modern cigarette manufacturing factory in the world. It will begin production in 1973. In addition, our new $6 million, 8-story research tower, also presently under construction in Richmond, will increase the company's research space by more than 60%, to a total of more than 260,000 square feet. It will house more than $1 million worth of advanced technological equipment, most of which will be devoted to tobacco research, and will considerably increase our research capability and efficiency. We are also planning an important expansion and modernization of our cigarette manufacturing facilities in Louisville, Kentucky. Significant capital expenditures have also been planned for new or expanded manufacturing facilities overseas, since the rapid growth of our international cigarette business clearly indicates the need for additional production capacity outside of the United States. Finally, we plan additional capital expenditures for both Miller and Philip Morris Industrial. During the year, Philip Morris joined six other tobacco firms and a tobacco growers' association in making an unprecedented grant of $2,000,000 to the Washington University School of Medicine, St. Louis, Missouri. The grant finances a five-year program of basic research on the immunologic processes involved in cancer. The project is to be conducted by some of the most distinguished and talented scientists in the field of cancer research. It is hoped that this work will lead to a broader basic understanding of cancer, as well as providing methods for early diagnosis, treatment, and possible prevention of certain cancers. 2

This is the largest grant ever made to a sinale institution by the tobacco industry in its 17-year history of supporting independent, objective biological research, and the latest in a long series of financial commitments by the industry which are approaching the $40 million level. There were few noteworthy developments in the field of tobacco and health research in 1971. The anti-tobacco forces claimed no "breakthrough" in their attempts to connect cigarette smoking with disease. The continuing absence of valid experimental evidence, the increasing indication that many factors other than smoking are significantly associated with many of the diseases for which smoking has been blamed and the increased recognition by the scientific community of the need to enlarge its efforts to obtain a basic understanding of these diseases tends to strengthen our belief that the theory of a causal relationship between smoking and disease is becoming, if anything, increasingly open to question. Cigarette tax increases across the nation are a cause of growing concern to the tobacco industry. As of last September, 15 states had passed new tax bills dealing with cigarettes, 13 of them increasing taxes, one making an existing rate permanent, and another granting a major city-New York-the right to impose a cigarette tax based on "tar" and nicotine content. The average state cigarette tax rose from 10.70 to 11.9¢ per pack, with the average increase amounting to 3.71 ¢. Tax increases, of course, bring higher retail prices and also contribute to the further spread of crime through encouraging the hijacking and bootlegging of cigarettes. They are inequitable, discriminatory and regressive taxes which bearllown unfairly on the lower income groups. In July, the Federal Trade Commission announced its intention to start a proceeding to require the inclusion in cigarette advertising of the caution notice which Congress now requires on cigarette packages. Prior to that time, Philip Morris, along with most other tobacco companies, had been depicting in newspaper, magazine and billboard advertising the side panel of a cigarette package on which this caution notice was clearly legible. Our decision to show the "notice" side of the package was made after discussions with members of Contrress and government officials and was publicly announced in April, 1971. In January, 1972, Philip Morris joined five other tobacco companies in an agreement with the Federal Trade Commission on this issue. The agreement, which is subject to final approval by the Commission, specifies the form, size, conspicuousness and legibility of the depiction of the Congressionally-approved caution notice and the type of advertising on which it must be included, and represents, in our opinion, a fair settlement of the issue. By this action, and the current practice of including "tar" and nicotine listings, cigarette manufacturers appear to have met the demands that have been made for full disclosure of information in cigarette advertisements. We also believe that the tobacco industry has shown a responsible and cooperative attitude toward government demands for additional consumer information in advertising. The "tar" and nicotine listings and the caution notice will now be readily available to consumers, and the use of print, billboard, and other available advertising media will permit manufacturers to describe the characteristics of existing products as well as to introduce to cigarette smokers new, improved products as they are developed. Considering such factors as the cigarette and health controversy, the banning of television and radio advertising in certain countries, the pressures on print advertising, and the increasing tax burden, the continuing growth of both your company and the world-wide tobacco industry is exceedingly encouraging. It can be seen as indicating both a decline in the credibility of the case against tobacco, and a reaffirmation of how important tobacco is in the lives of millions of people all over the world, providing as it does a relief from the tensions of our times and a source of pleasure and satisfaction. We are pleased with your company's progress in terms of sales and earnings, but we also take considerable pride in the sense of corporate responsibility that Philip Morris has demonstrated. In today's world we believe that it is incumbent upon every responsible corporation to be a good citizen in the fullest sense of that term, and to help improve the quality of life for all citizens. A company that fails to do so is remiss in its responsibility to its employees, its stockholders and the public at large. Our activities are currently channeled into five programmed areas: education, urban and minority group problems, health and welfare, environmental protection and cultural activities. Mr. Lewis F. Powell, Jr., a member of your company's board of directors since 1964, resigned at the end of 1971 upon his acceptance of an appointment as Associate Justice of the United States Supreme Court. His wise counsel will be missed by Philip Morris but our company was honored by his selection. Given our record of continuing growth under difficult conditions, the future of your company must certainly be viewed with optimism. The base of our business today is broad and our forward momentum is strong. All four of our major U. S. brands are well positioned and growing. Internationally, we have achieved consistent progress in terms of geographic expansion and market position of our brands around the world. We now have important non-tobacco interests. Future progress, as has been the case with our past growth, will be accomplished only through the efforts and talents of our 29,000 employees. We are exceedingly grateful for their continuing dedication, cooperation and contributions to our success. Respectfully submitted on behalf of the Board of Directors, Joseph F. Cullman, 3rd Chairman of the Board and Chief Executive Officer George Weissman President and Chief Operating Officer 4

12etr®spective de 9'Annee En 1971, pour la dix-huitieme annee consecutive, votre compagnie a atteint de nouveaux sommets, tant en ce qui concerne le chiffre d'affaires que les bene- fices. Le chiffre d'affaires consolide pour 1971 s'est @leve a$1.852.495.000, une augmentation de 22,7% par rapport a$1.509.540.000 realises 1'an dernier. Les revenus nets ont augmente de 31,0%, progressant de $77.498.000 en 1970 a$101.498.000. Le revenu effectif par action s'est eleve a$4,02 par rapport a $3,36 l'annee derniere, soit une progression de 19,06%. Le revenu par action (en tenant compte des titres convertibles) se montait a$3,64 compare a $2,85 en 1970, une augmentation de 27,7%. Deja en tete des societes americaines sur le marchB international en rapide expansion, Philip Morris deve- nait, en 1971, la seconde societe americaine de I'indus- trie de la cigarette. Nos ventes unitaires aux Etats- Unis se sont accrues de plus de 11% pendant 1'annee; une annee a la fin de laquelle la part du marche americain detenue par la compagnie depassait 18%. Pour 1'industrie dans son ensemble, le total des ventes unitaires de cigarettes aux Etats-Unis a augmente d'environ 2,5%, passant de 524 milliards en 1970 a un niveau record de 537 milliards en 1971, selon un des principaux analystes de 1'industrie du tabac. Au cours des cinq dernieres annees, notre chiffre d'affaires consolide s'est accru selon un taux annuel moyen de 19,1%. Durant la meme periode, les benBfices nets ont augmente de 24,3% annuellement et le revenu effectif par action de 21,2%o par an. Et, pour la 448me annee consecuti.ve, Ia compagnie a verse des dividendes aux porteurs de ses actions ordinaires. En outre, pour la quatri~me annee consecutive les dividendes ont ete augmentes, bien que 1'augmentation de 1971 ait ete limitee par les mesures de contr8le economique du gouvernement am8ricain. Le taux actuel du dividende annuel est de 51,24 par action ordinaire. Aux Etats-Unis, les ventes de nos principales marques ont continue de croitre au cours de 1'annee. MARLBORO, qui realise actuellement plus de 11% du marche americain contre 5,7% il y a cinq ans, est devenue la seconde marque du marche. En 1971 Philip Morris est devenu le leader dans la categorie des 100 mm, par marque BENSON & HEDGES 100's est arrive pres de la premiere place. Les ventes de VIRGINIA SLIMS 100 mm ont augmente, alors que cette marque continuait de dominer Ie marche de la cigarette feminine. PARLIAMENT, aidee par une receptivite croissante du marche a 1'egard de sa version 100 mm a filtre charcoal, a egalement accru ses ventes. Dans le domaine des nouveaux produits, notre principale activite a ete le lancement de la nouvelle MARLBORO LIGHTS, une cigarette a tr8s faibie teneur en "goudron" et en nicotine, et un pas considerable dans le domaine de Ia haute filtration. Le lancement a fait 1'objet d'une campagne pu- blicitaire dans la presse ecrite et Ia promotion de la marque se fait maintenant a 1'echelon national. A I'echelon international, le marche de la cigarette du monde libre maintenait sa progression annuelle de 4% tandis que Philip Morris International augmen- tait ses ventes de plus de 10% en 1971; MARLBORO etant toujours en tete de toutes les marques ameri- caines sur les marches etran ers. Pour 1971, nos ventes de cigarettes par unit~, en dehors des Etats- Unis, avoisinaient nos ventes totales aux Etats-Unis. Toutefois, dans leur ensemble, les ventes a 1'etranger ne sont pas aussi profitables qu'aux Etats-Unis, ceci a cause de 1'etroitesse des marges dans plusieurs marches. Pendant 1'ann€e, Philip Morris International a pris une participation chez Weltab S.A., une societe de tabac beige, augmentait sa capacite de production en Suisse et en Hollande et creait, avec des partenaires locaux, Philip Morris Espafia S.A. et Philip Morris Iberica S.A. pour produire des cigarettes destinees a 1'Espagne. En 1972, il est egalement prevu d'inau- gurer une fabrique de cigarettes en Allemagne, a Berlin-Ouest. En Asie/Pacifique, une nouvelle societe de produc- tion, la P. T. Philip Morris Indonesia, etait creee, en association avec des partenaires indo_nesiens. Philip Morris (Australia) Limited portait sa part du marche australien a plus de 30%. II est a noter qu'en 1971 Phi.lip Morris (Australia) Limited elargissait son activite en acquerant Linde- man (Holdings) Limited, une soci€te viticole comp- tant parmi les premi'eres d'Australie et jouissant d'une bonne rentabilite et d'une reputation exceptionnelle dans cette industrie. Au Canada, Benson and Hedges (Canada) Ltd. aug- mentait sa part du marche de la cigarette et Formosa Spring Brewery achevait la construction de sa nou- velle brasserie a Barrie (Ontario). En Amerique latine, no's ffiiales continuaient leur progression a 1'interieur de leurs marches respectifs mais, certaines de ces filiales realisent encore des marges beneficiaires assez etroites. Dans son ensemble, grace a ses unites de production locales et a 1'exportation, Philip Morris International possede maintenant 140 marques de cigarettes ven- dues dans 162 pays et territoires. Nous avons des manufactures et des filiales commer- ciales domiciliees en Allemagne, Argentine, Austra- lie, Belgique, Canada, Equateur, France, Guatemala, Iles Canaries, Inde, Indonesie, Mexique, Nigeria, Nouvelle Zelande, Pakistan, Pays-Bas, Porto Rico, Republique Dominicaine, Royaume Uni, Sui3de, Suisse et V€nezuela. Au nombre de nos licencies figurent des producteurs qui comptent parmi les plus importants aux Antilles neerlandaises, Autriche, Bolivie, Colombie, Finlande, Hong-Kong, Italie, Malaisie, Maroc, Panama, Philippines et Yougoslavie. Le tabac, naturellement, demeure le facteur domi- nant du succes de notre societe. Nos activites dans ce domaine ont augmente avec une telle rapidite que la part de nos autres secteurs d'activite ne s'est pas accrue de fapon aussi substantielle. Neanmoins, en dehors du tabac, le chiffre d'affaires de 1'ensemble de nos activites, a 1'exclusion de Mission Viejo, s'est eleve, pour 1971, a plus de $350 millions. 1971, premiere annee entiere de contr8le absolu par Philip Morris, a permis de restructurer Miller Brew- ing Company, notre branche la plus importante en dehors du tabac. Une nouvelie campagne de publicite etait lancee avec succes et le premier nouveau produit important de i'histoire de Miller, la MILLER MALT LIQUOR, etait introduit dans plusieurs marches. La nomination, en septembre, de John A. Murphy, comme president directeur general, a renforce 1'or- ganisation de Ia societe. John A. Murphy etait, auparavant, executive vice-president de Philip Morris International. La demande des produits Miller a augmente en volume de 4,5%o au niveau du detail et le chiffre d'affaires de 2,8%o. Neanmoins, on enregistre une baisse notoire des benefices d'exploitation due aux augmentations prevues des frais commerciaux et du cout de fabrication. Nous avons 1'espoir que les acti- vit€s entreprises dans cette phase de restructuration produiront une augmentation additionnelle des ventes et permettront de prendre une part plus grande du marche dans les annees a venir. Philip Morris Industrial represente dans les industries des papiers speciaux, des emballages souples et dans les specialites chimiques par Milprint, Nicolet and Polymer-a enregistr€ une augmentation de ses ventes en depit des conditions economiques defavorables rencontrees par ces industries. Les profits, aprPs les frais de mise en train, de Plainwell (Michigan), une papeterie nouvellement acquise ont I€gerement aug- mente par rapport a 1'annee prec€dente. Mission Viejo, societ€ specialisee dans la construction de maisons et la mise en valeur de terrains, dans laquelle Philip Morris a d'importants investissements, a realise des augmentations importantes de ventes et de benefices. Ceci est significatif car, malgre la fermete du marche de la construction aux Etats-Unis, pendant I'ann@e, les reductions des projets de l'industrie aero- spaciale ont cree des conditions de recession dans la region d'Orange (Californie) oir Mission Viejo exerce son activite. Durant 1'annee, cette societe a egalement elargi son activite geographique en realisant de nouveaux projets de construction dans le faubourgs de Phoenix (Arizona) et de Denver (Colorado). Comme preuve de notre confiance dans les grandes possibilites d'expansion de 1'industrie mondiale du tabac et pour souligner notre volonte d'ameliorer constamment la qualite de nos produits dans tous les secteurs de notre activite, nous avons pr€vu un pro- gramme d'expansion de cinq ans qui totalise environ $400 millions, principalement dans les centres de production de 1'industrie du tabac. L'investissement le plus important de ce programme est consacr€ a notre nouveau centre de production actuel]ement en construction a Richmond (Virginie) au cout de plus de $80 millions. Con£ue pour permettre a Philip Morris de faire face a 1'accroissement anticipe de la demande de nos cigarettes de qualite aux Etats-Unis, cette nouvelle installation sera la plus grande, la plus moderne et la plus productive des fabriques de cigarettes du monde. La production cornmencera en 1973. D'autre part, notre nouveau centre de recher- che, une tour de huit etages, de $6.000.000, egalement en cours de construction, augmentera de 60% la surface destinee a la recherche qui comptera plus de 24.000 m2. Son equipement technique d'avant-garde representera une valeur de plus de plus de $1 million et augmentera considerablement la capacite et 1'ef`i-icacite de notre recherche. Nous prevoyons egalement une importante expansion et une modernisation de notre manufacture de ciga- rettes a Louisville (Kentucky). Des investissements importants ont egalement ete prevus pour l'installation ou 1'agrandissement de manufactures a 1'etranger. L'accroissement rapide de notre activite internationale necessite 1'elargissement de notre capacite de production en dehors des Etats- Unis. Enfin, nous envisageons des investissements supplementaires pour Miller et Philip Morris Industrial. Au cours de 1'annee, Philip Morris se joignait a six autres societes de la branche du tabac et a une asso- ciation de planteurs de tabac pour faire une dona- tion d'un montant sans precedent, $2.000.000, a 1'ecole de medecine de 1'universite Washington de St-Louis (Missouri). Cette donation est destinee a financer on programme de cinq ans dans la recherche fondamentale sur des procedes d'immunologie du cancer. Ce programme sera dirige par des cher- cheurs comptant parmi les plus eminents dans Ia recherche sur Ie cancer. On peut esperer que ces travaux aboutiront a un elargissement de la connaissance fondamentale sur le cancer et qu'ils permettront d'elaborer des methodes de diagnostics precoces de traitement et, peut-~tre, de prevention de,certains cancers. Cette donation est la plus importante jamais faite par 1'industrie du tabac a one seule institution au cours de ses dix-sept annBes de soutien a la recherche biologique independante et, la derniere en date, d'une longue serie d'engagements financiers de 1'industrie, engagements qui avoisinent un montant de $40 millions. En 1971, il y eut peu de developpements notables dans le domaine du tabac et de la sante. Les adversaires du tabac n'ontrevendique aucune "percee" dans leurs tentatives en vue de relier 1'habitude de fumer et la maladie. Le manque d'evidence reposant sur des experiences valables, le nombre croissant d'indi- cattons prouvant que plusieurs facteurs autres que la fumee sont associes d'une faeon significative a beaucoup de maladies pour lesquelles on avait accuse la fumee ainsi que la reconnaissance par le monde scientifique de la necessite d'accroitre ses efforts pour parvenir a une connaissance fondamentale de ces maladies, tendent a renforcer notre croyance selon laquelle, la theorie de relation de causalite entre le fait de fumer et la maladie est en train de devenir, pour autant qu'elle ait ete fondee, de plus en plus fragile. L'augmentation des taxes sur les cigarettes dans le pays est cause d'inquietude croissante pour 1'industrie du tabac. Depuis septembre dernier, 15 etats ont vote des textes relatifs a de nouvelles taxes sur les cigarettes, 13 d'entre eux concernaient des augmenta- tions de taxes, 1'un rendait permanente une con- tribution existante, Ie dernier octroyait a la principale ville-New York-le droit de percevoir une taxe sur les cigarettes basee sur la teneur en "goudron" et en nicotine. En moyenne, la taxe d'Etat sur les cigarettes est passee de 10,7 cents a 11,9 cents par paquet, avec une augmentation moyenne atteignant jusqu'a 3,71 cents. Les augmentations de taxes entrainent evidemment celles des prix de detail et contribuent egalement a I'extension de la criminalite en favorisant Ie bandi- tisme et la contrebande des cigarettes. Il s'agit la de taxes a caract8re peu equitable, discriminatolre et regressif frappant de fapon injuste les groupes a faibles revenus. En juillet, la Commission federale du commerce annongait son intention d'engager.une procedure pour requerir I'inclusion dans la publictt€ des cigarettes de la mention de mise en garde deja exig€e par le Congres sur les paquets de cigarettes. Avant cette date, Philip Morris, et la plupart des autres com- pagnies de tabac, presentatent d€ja-dans les publicites des journaux, magazines et affiches-le c8te d'un paquet de cigarettes sur lequel cette mention de mise en garde 8tait clairement lisible. Notre decision de montrer le c8te du paquet comportant la mention avait ete prise apres en avoir debattu avec des mem- bres du CongrBs et des representants du gouvemement et annoncee publiquement en avril 1971. 5

Repaso del Ano En janvier 1972, Philip Morris et cinq autres com- pagnies ont conclu un accord avec la Commission fed6rale du commerce sur ce sujet. L'accord, qui est soumis a 1'approbation definitive de la Commission, specifie Ia forme, le format, la mise en evidence et la lisibilit€ de la mention de mise en garde approuvee par le Congriss et le type de publicite dans lequel elle doit etre inclue. Cet accord reprBsente, a notre avis, un fagon judicieuse de regler la question. Par cette action, la pratique courante qui consiste a mentionner les taux de "goudron" et de nicotine, les fabricants de cigarettes sont all€s au devant des demandes qui avaient et€ formulees pour obtenir une information complete et objective de la publicite des cigarettes. Nous croyons aussi que I'industrie du tabac a fait preuve de responsabilite et de coop8ra- tion a 1'egard des demandes du gouvernement pour une information supplementaire du consommateur dans Ia publicite, et a elimin6 les aspects controvers8s de la publicit6 des cigarettes. La mention des taux de "goudron" et de nicotine et la mention de mise en garde seront maintenant visibles pour le consommateur et l'utilisation de la presse, des affiches et des autres medias publicitaires disponibles permettra aux fabricants de decrire les caractdris- tiques des produits existants et d'introduire sur Ie marchB des produits nouveaux, amelior€s au fur et a mesure de leur developpement. Si 1'on prend en considBration des facteurs tels que la controverse concernant la cigarette et Ia sant8, l'interdiction de la publicit6 t6levisBe et radiophonique dans certains pays, les pressions sur le contenu de la publicite imprim@e et 1'accroissement du fardeau des taxes, Ia croissance continue de notre compagnie et de l'industrie mondiale du tabac est extremement encourageante. On peut 1'interprBter comme indiquant a la fois le d6clin de la credibilit6 dans la mise en cause du tabac et comme une confirmation de 1'im- portance du tabac dans la vie de millions de personnes de par le monde, le tabac apportant un soulagement aux tensions de notre temps et une source de joie et de satisfaction. Nous sommes heureux des progri's de notre com- pagnie, ainsi que des ventes Yt des profits, mais nous sommes egalement fiers du sens de Ia responsabilit6 sociale que Philip Morris a tdmoign6e. Dans Ie monde d'aujourd'hui, nous croyons qu'iI incombe d chaque entreprise responsable de se conduire en bon citoyen dans Ie plein sens du terme, et de contribuer a 1'amelioration de la qualit6 de vie de tous les citoyens. Une compagnie qui manque a cette fonction ne remplit pas ses devoirs envers son personnel, ses actionnaires et le public en gen@ral. Nos activit€s se repartissent actuellement dans cinq domaines: education, problames de I'urbanisation et des minori- tes, sant€ et action sociale, protection de 1'environ- nement et activites culturelles. M. Lewis F. Powell, Jr., un membre du Conseil d'Administration de votre compagnie depuis 1964 a demissione a fin 1971, ayant accept8 un si8ge en tant qu' "Associate Justice" a Ia Court Supr@me des Etats-Unis. La valeur de ses conseils nous manquera, n@anmoins notre compagnie se sent honoree par cette nomination. Grace a une croissance continue malgr€ des condi- tions difflciles, 1'avenir de notre compagnie doit etre envisage avec optimisme. Aujourd'hui, la base de notre entreprise est large et notre motivation est forte. Nos quatre marques les plus importantes aux Etats- Unis sont en bonne position et en croissance. Sur le plan international, nous avons accompli des progras consid€rables: expansion geographique, renforcement des positions de nos marques sur les marchBs mon- diaux. Nous avons maintenant d'importants intBrets dans des domaines autres que celui du tabac. Les progr8s futurs, comme cela a€tb le cas dans notre croissance pass@e, seront accomplis seulement grace aux efforts et a la qualification de nos 29.000 em- ploy6s. Nous leur sommes extremement reconnaissants pour leur dBvouement, leur collaboration et leur contribution a notre succi's. Presente respectueusement au norn du Conseil d'Admirtistration Joseph R Cullman, 3rd PrBsident du Conseil d'Administration En 1971, por d'ecimoctavo aiio consecutivo, la compa- iiia lleg6 a nuevos altos niveles de ventas y beneficios netos. Las ventas consolidadas durante 1971 ascendie- ron a$1.852.495.000, un incremento del 22,7% sobre el total de $1.509.540.000 del aiio anterior. Las utili- dades netas subieron en un 31,0%, llegando a 5101.498.000, en comparaci6n con los $77.498.000 del aiio 1970. Las ganancias por acci6n subieron en $4,02 sobre los $3,36 obtenidos el aiio anterior, lo que ha supuesto un incremento del 19,6%. Dichas ganan- cias por acci6n, completamente diluidas, fueron de $3,64 en comparaci6n con $2,85 de 1970, o sea, un incremento del 27,7%. En 1971, Philip Morris, que ya era el lider en el creciente mercado internacional de las compaiiias basadas en los Estados Unidos, lleg6 a ser la segunda firma en importancia en el mercado norteamericano. Nuestras ventas de unidades en los Estados Unidos subieron en mds de un 11% durante el aiio y a finales del mismo, la participaci6n de Ia compafua en el mercado norteamericano era algo m'as que el 18%. De acuerdo con un prestigioso analista de la industria tabaquera, dentro del marco general de nuestra industria, la venta de cigarrillos americanos subi6 aproximadamente en un 2,5% sobre 524.000 millones en 1970 a un nivel extraordinariamente alto de 537.000 millones en 1971. Durante los tiltimos cinco anos, nuestras ventas netas consolidadas han crecido un promedio anual de 19,1%, mientras que la utilidad neta consolidada durante el mismo periodo ha subido en un 24,3% y las ganancias por acci6n lo han hecho en un 21,2% anual, y por e144 aiio consecutivo, la compaiiia pago dividendos sobre las acciones comunes. Tambi6n es el cuarto aiio consecutivo en el que se aumentaron los dividendos, aunque el incremento de 1971 fu6 limi.- tado por los controles econ6micos del gobierno norte- americano. El promedio anual actual es de $1,24 por acci6n. Durante el aiio, las ventas de nuestras principales marcas norteamericanas continuaron creciendo. Marlboro, que actualmente cuenta con m'as del 11% del mercado norteamericano, comparado con el 5,7% de cinco aiios atras, lleg6 a ocupar el segundo lugar entre todas las marcas y Benson and Hedges 100's se aproximaba aceleradamente a finales de aiio a la primera posici6n en la categoria de cigarrillos de 100 mm. Las ventas de Virginia Slims 100 mm subieron, debido a que esta marca continu6 siendo Ia preferida por las mujeres. Parliament, cuya nueva versi6n de 100 mm con filtro de carb6n activado ha tenido una buena recepci6n en el mercado, tambi8n obtuvo ventas superiores con respecto al ario anterior. Philip Morris ocupa actualmente la primera posi- cion en lo que respecta a ventas de cigarrillos de 100 mm dentro de la industria tabaquera. En la categoria de nuevos productos, nuestra actividad principal fu€ el lanzamiento de Ia nueva marca Marlboro Lights, con un contenido reducido de brea y nicotina y que representa una nueva participaci6n en el campo de la alta filtraci6n. El lanzamiento fu€ realizado a trav6s de publicidad en prensa y revistas y se estd llevando a cabo una promoci6n a escala nacional. El mercado mundial de cigarrillos continu6 su creci- miento normal de un 4% por aiio, ntientras que Philip Morris aument6 sus ventas mundiales en m`as de un 11% durante 1971 y Marlboro continu6 siendo la primera marca norteamericana en el extranjero. Las ventas en unidades fuera de los Estados Unidos durante 1971 igualaron el total de ventas dentro del pais pero las ventas en el extranjero no son tan lucra- tivas debido a los bajos mrargenes obtenidos en mu- chos mercados. Durante el aiio, Philip Morris Internacional invirti6 capital en una compania tabaquera belga, Weltab, S. A.: ampli6 las f£bricas de Suiza y Holanda y cons- tituy6 las compaiifas canarias, Philip Morris Espana, S. A. y Philip Morris IbBrica, S. A., conjuntamente con socios locales, para la produccion de cigarrillos y su venta en toda Espaiia. Esperamos tambi€n inau- gurar una nueva f`abrica de cigarrillos en Berlin Occi- dental, Alemania, en 1972. En nuestra regi6n del Asia y el Pacifico se estableci6 una nueva factoria: P. T. Philip Morris Indonesia, en uni6n con socios locales. Philip Morris (Australia) Limited increment6 su participaci6n en el mercado australiano a mras del 30% del mismo. Hemos de destacar que durante 1971, Philip Morris (Australia) penetr6 un nuevo mercado con Ia adquisi- ci6n de Lindeman (Holdings) Limited, una de las principales compaSias australianas de vinos, con un buen historial de beneficios y una gran reputaci6n en su campo. En Canad'a, Benson and Hedges (Canada) Limited, increment6 su participaci6n en el mercado tabaquero y Formosa Spring Brewery finaliz6 la construcci6n de su nueva planta de cerveza en Barrie, Ontario. En la region latinoamericana, nuestras compaiiias afiliadas continuaron la expansi6n dentro de sus res- pectivos mercados, aunque algunas de estas compa- fiias contintian teniendo margenes de beneficios muy reducidos. En total, entre Ia fabricaci6n local y la exportaci6n, Philip Morris Internacional cuenta ahora con m5s de 140 marcas de cigarrillos que estan en venta en 162 paises y territorios. Contamos con compaiiias afiliadas dedicadas a la producci6n y mercadotecnia en Alemania, Argentina, Australia, Belgica, Canad`a, Ecuador, Espafia (Islas Canarias), India, Indonesia, Mejico, Nueva Zelanda, Nigeria, Pakistan, Puerto Rico, Reptiblica Dominicana, Suecia, Suiza y Vene- zuela. Entre los que fabrican bajo licencia est'an incluidos importantes fabricantes en Antillas Holan- desas, Austria, Bolivia, Colombia, Filipinas, Fin- landia, Hong-Kong, Italia, Malasia, Marruecos, Panam'a y Yugoslavia. Naturalmente, el tabaco sigue siendo Ia fuerza domi- nante en el progreso de la compaiifa. Nuestras activi- dades tabaqueras se han desarrollado a tanta velocidad que el porcentaje de actividades no-tabaqueras no ha tenido el mismo auge. A pesar de esto, las ventas netas operacionales, derivadas de nuestras actividades no-tabaqueras, exceptuando Mission Viejo, sumaron mas de $350 millones en 1971. El aiio 1971, el primer aiio completo bajo propiedad 100% de Philip Morris, fu6 el ano de reestructuraci6n con vistas aI futuro de Miller Brewing Company, nuestra principal operacibn no-tabaquera. Una nueva campafia publicitaria fue lanzada con gran exito y el nuevo producto de mas importancia en la historia de Miller, el Licor de Malta, fu6 introducido en muchos mercados. La organizaci6n interna se vi6 reforzada con la elecci6n, en Septiembre de 1971, del Setior John A. Murphy como presidente y ejecutivo maximo de la empresa, quien con anterioridad habia ocupado el cargo de vicepresidente ejecutivo de Philip Morris International. La demanda para los productos Miller en barrileria al nivel de ventas al detalle se increment6 en un 4,5% y las ventas netas aumentaron un 2,8%. Sin embargo, los beneficios operacionales sufrieron una reducci6n a causa de los incrementos planificados en los costos de marketing y los fuertes aumentos en los costos de fabricaci6n. Esperamos que en el futuro, las acti- vidades emprendidas durante esta fase de reestruc- turacion producirdn una mayor cantidad de ventas en barrileria y una participaci6n creciente en el mercado. Philip Morris Industrial, representada por Milprint, Nicolet y Polymer en los mercados de papel y emba- lajes especiales como tambien de especialidades quimicas, aument6 sus ventas a pesar de las adversas condiciones econ6micas en estas industrias. Sin em- bargo, despuBs de las importantes inversiones en la instalaci6n de su recien adquirida frabrica de papel en Plainwell, Michigan, las utilidades aumentaron s61o algo mas que en el aiio anterior. Mission Viejo Company, compania dedicada a la planificaci6n y construcci6n de urbanizaciones, en la cual Phiilp Morris ha hecho una importante inversi6n, logr6 incrementar notablemente sus ventas y benefi- cios. Esto es significativo porque atin existiendo un fuerte mercado de edificaci6n en los Estados Unidos durante el aiio, la depresi6n en la industria aeroes- pacial cre6 condiciones anormales en Orange County, California, donde estdn situadas las principales ope- raciones de Mission Viejo. Durante el aiio, esta com- paiiia creci6 geogrraficamente e mici6 nuevos proyectos de construcci6n de edificios en los suburbios de Phoenix, Arizona, y Denver, Colorado. Como muestra de nuestra confianza en Ia industria tabaquera mundial y en su potencial de expansion y a Ia vez como fndice de nuestra dedicaci6n a la mejora constante de la calidad de los productos en cada uno de los campos en que operamos, estamos desarro- llando un programa de expansi6n de bienes de capital a 5 anos plazo, que totaltzard aproximadamente $400 millones, principalmente-para operaciones tabaqueras. . La inversi6n principal de este programa sera la nueva fabrica que se esta construyendo en Richmond, Virginia, y que costard mas de $80 millones. Esta nueva fabrica esta diseiiada para que Philip Morris pueda absorber el incremento previsto en la demanda norteamericana para nuestros productos tabaqueros de alta calidad en los pr6ximos aiios y ser5 Ia fabrica de cigarrillos mas grande, moderna y eficiente del mundo. Empezara a producir en 1973. Tambien nues- George Weissman Pr€sident Directeur G6neral 6

Jahresberich# 1971 tro nuevo ecio de investigaci6n, de ocho plantas y con un costo de $6 millones, que actualmente esta- mos construyendo en Richmond, Virginia, aumentara el espacio que dispone la compania para investi- gacibn en m6s de un 60%, hasta un total de 26.000 metros cuadrados. En 61, dispondremos de equipos de avanzada tecnologia por valor de mas de $1 millbn, en su mayorfa dedicados al analisis y estudio del tabaco, con lo que aumentara considerablemente nues- tra capacidad y eficacia. Tambien tenemos planificada Ia modernizaci6n e importante expansi6n de nuestra fabrica de cigarrillos en Louisville, Kentucky. Como el crecinuento rapido de nuestro negocio tabaquero internacional indica claramente la necesi- dad de una mayor producci6n fuera de los Estados Unidos, hemos presupuestado importantes inversiones para construir nuevas plantas en el extranjero y mejorar las ya existentes. Tambien hemos planificado inversiones adicionales en Miller y Philip Morris Industrial. Philip Morris se uni6 a seis firmas tabaqueras y a una asociaci6n de cultivadores de tabaco para hacer una donaci6n sin precedentes de dos millones de d6lares a la Escuela de Medicina de Ia Universidad de Washington, St. Louis, Missouri. Esta donaci6n financiar'a un programa de cinco aiios para la investi- gaci6n b•asica de los procesos inmunol6gicos impli- cados en el c6ncer. El proyecto sera realizado por algunos de los mlas distinguidos y expertos hombres de ciencia en el campo de la investigaci6n del cancer. Se espera que este trabajo provocara una mejor com- prensi6n basica del c£ncer y tambien proveera meto- dos para el diagn6stico precoz, tratamiento de y la posible prevenci6n de ciertos tipos de cancer. Esta es la mayor donaci6n hecha a una sola institu- ci6n durante los 17 aflos que Ia industria tabaquera ha apoyado a la investigaci6n biol6gica independiente y objetiva y es Ia mas reciente en una larga serie de apoyos financieros por parte de nuestra industria, cuyo total asciende a m'as de $40 millones. En 1971, se hicieron notables progresos en la inves- tigaci6n sobre los efectos del tabaco en la salud. Las fuerzas anti-tabaco declararon que no existia ninguna confurmaci6n en sus pruebas para relacionar el hecho de fumar cigarrillos con las enfermedades. La conti- nua ausencia de una valiosa evidencia experimental, la creciente indicaci6n de que hay muchos otros factores que intervienen aparte del hecho de fumar y que estdn significativamente relacionados con muchas de las enfermedades de cuyas causas se culpa a los cigarrillos, y el creciente reconocimiento por parte de Ia comunidad cientifica de la necesidad de aumentar sus esfuerzos para obtener una comprensi6n basica de estas enfermedades, sirven para reforzar nuestra creencia de que si existe la teorla de una relaci6n casual entre el fumar y las enfermedades, es una teoria cuya fuerza es cada vez menor. Los incrementos en impuestos sobre cigarrillos en toda la naci6n son causa de creciente preocupaci6n para Ia industria tabaquera. Durante el mes de Septiembre pasado, 16 estados aprobaron nuevas medidas de impuestos sobre cigarrillos: 14 de ellos incrementaron sus impuestos, uno estableci6 como definitiva una tarifa existente y otro di6 a una impor- tante ciudad-Nueva York-el derecho de establecer un impuesto sobre cigarrillos basado en su contenido de brea y nicotina. El impuesto promedio de los estados subi6 de 10,7 centavos a 11,9 centavos por cajetilla, con un incremento promedio de 3,71 cen- tavos. Naturalmente, incrementos en los impuestos traen consigo unos precios de venta m'as altos y tambien contribuyen a la expansibn de actos crimina- les tales como robos y contrabando. Son impuestos regresivos que afectaran injustamente a los grupos econbmicos m'as debiles. En Julio Ia Comisi6n de Comercio Federal anunci6 su prop&ito de requerir la inclusi6n en Ia publicidad de cigarrillos de la nota de precauci6n que el Con- greso exige se muestre en todas las cajetillas de ciga- rrillos. Con anticipacibn a este anuncio, Philip Morris junto con otras importantes compaiiias tabaqueras, habian presentado en su publicidad en prensa, revistas y vailas Ia parte de la cajetilla de cigarrillos en la que aparece claramente detallada la nota de precau- ci6n. Nuestra decisibn de incluiiTa nota de precau- ci6n en toda la publicidad fue tomada despu6s de conversaciones con miembros del Congreso y del gobierno en general y fu6 hecha ptiblica en Abril de 1971. En enero de 1972, se lleg6 a un acuerdo entre Philip Morris, otras cinco companias tabaqueras y la Comi- si6n de Comercio Federal para tratar de darle una soluci6n definitiva a este tema. El acuerdo, sujeto a la aprobaci6n final por la Comisi6n, especifica la forma, medidas, claridad y legibilidad de la nota de precau- ci6n y el tipo de publicidad en el que debe aparecer. Este convenio en nuestra opini6n representa una solu- ci6n ecuanime a este problema. Basado en la politica existente de incluir las cifras de contenido de brea y nicotina en la publicidad, los fabricantes de cigarrillos han satisfecho, al parecer, el requisito de mayor y mejor informacibn en su pro- paganda. Tambien creemos que la industria tabaquera ha demostrado una actitud responsable y de coopera- cibn hacia la demanda del gobierno para una mejor informaci6n al consumidor en la publicidad y ha elimi- nado en la misma todos los aspectos de controversia. La inclusibn de las cifras de brea y nicotina y la nota de precauci6n y la propaganda a traves de los diferentes medios disponibles permitiran al fabri- cante describirlas caracteristicas de sus productos asi como Ia presentacion al consumidor de productos nuevos de mejor calidad en el futuro. Teniendo en cuenta factores tales como Ia contro- versia sobre los cigarrillos y la salud, la prohibicion de publicidad en televisi6n y radio en ciertos paises, la presi6n sobre el contenido de Ia publicidad escrita y la creciente carga de los impuestos, el contintio desarrollo de la compania y tambi6n el de la industria tabaquera mundial es alentador. Ello puede ser visto como indicacibn de que declina la opini6n contra el tabaco y se reafirma le importancia del tabaco en las vidas de millones de personas en todo el mundo, suministrando, tal como hace, un alivio a las tensiones de nuestro tiempo y una fuente de placer y satisfaccion. Estamos contentos con el progreso de la compania en t€rminos de ventas e ingresos y tambi€n estamos orgullosos del sentido de responsabilidad empresarial que ha demostrado Philip Morris. En el mundo de hoy, estimamos que es de la incumbencia de toda compaiiia el ser ciudadanos responsables y ayudar a mejorar el nivel de vida del medio ambiente en que desarrollamos nuestras actividades. Una compania que no logra esto, esti fallando con su responsabili- dad para con sus empleados, sus accionistas y el publico en general. Actualmente nuestras actividades estdn encauzadas a cinco areas b6sicas: Ia educa- ci6n, los problemas urbanos y de minorias, los pro- blemas sanitarios y de bienestar social, la protecci6n .de Ia naturaleza y las actividades culturales. El Seiior Lewis F. Powell, Jr., miembro de la Junta Directiva de su compaiiia desde 1964, demision6 a fines del 1971, cuando acept6 su nominaci6n como Associate Justice del Tribunal Supremo de los Estados Unidos. Nos faltarfan sus sabios consejos, pero nuestra compaiii:a se siente honrada por su selecci6n. Dado el hecho de un crecimiento continuado bajo condiciones dificiles, hemos de ver el futuro de nues- tra compaiua con optimismo. La base de nuestro negocio hoy es amplia y nuestro empuje es fuerte. Nuestras 4 mancas principales nortearnericanas estin bien colocadas y en posici6n ascendente internacional- mente, hemos logrado notables progresos en terminos de expansi6n geografica y participaci6n de nuestras marcas en los mercados mundiales. Actualmente tene- mos importantes empresas no-tabaqueras. El pro- greso futuro, tal como en el caso de nuestro pasado desarrollo, s6lo podremos lograrlo con los esfuerzos e inteligencia de nuestros 29.500 empleados. Estamos muy agradecidos por su dedicacibn continua, su cooperaci6n y su importante contribucibn. Presentado respetuosamente a nombre de Ia Junta Directiva, Joseph F. Culiman, 3rd Presidente de la Junta y Funcionario Ejecutivo en Jefe George Weissman Presidente y Funcionario de Operaciones en Jefe Das Jahr 1971 war das achtzehnte aufeinanderfol- gende Jahr, in welchem Ihre Gesellschaft neue Spitzenumsatze und-gewinne erzielt hat. Das konsoli- dierte Betriebsergebnis fur 1971 belief sich auf $1,852,495,000 und lag somit urn 22.7% iiber dem Vorjahresergebnis von $1,509,540,000. Der Reingewinn wuchs um 31.0% auf $101,498,000 gegenuber $77,498,000 im Jahre 1970. Der ausgeschuttete Gewinn pro Aktie stieg von den im vorhergehenden Jahr erzielten $3.36 um 19.6% auf $4.02. Die Gewinne pro Aktie bei voller Konversion von Wan- delanleihen betrugen $3.64 gegenuber $2.85 1970, was einen Anstieg von 27.7% ausmacht. Als bereits fuhrende Firma der USA auf dem rasch expandierenden internationalen Markt hat Philip Morris 1971 auf dem amerikanischen Markt die zweite Stelle der Zigarettenfirmen eingenommen. Im Laufe des Jahres nahm unser Zigarettenabsatz in den USA urn mehr als 11% zu, und am Jahresende betrug der Anteil der Firma am amerikanischen Markt uber 18%. Laut einern fuhrenden Analytiker der Tabak- industrie, erhShte sich der Absatz der gesamten Zigarettenindustrie in den Vereinigten Staaten um rund 2.5%, womit er von 524 Milliarden Stuck im Jahre 1970 auf eine Rekordhohe von 537 Milliarden Stiick im Jahre 1971 anstieg. Die durchschmittliche jahrliche zwachsrate unserer konsolidierten Betriebsertrage betrug in den vergan- genen fiinf Jahren 19.1%, wahrend der Reingewinn in derselben Zeitspanne urn jahrlich 24.3% stieg und der ausgeschiittete Gewinn pro Aktie sich jahrlich urn 21.2% erh8hte. Zum 44. Male hintereinander schuttete die Firma Dividenden auf ihre Stammaktien aus. Es war zudem das vierte aufeinanderfolgende Jahr, in welchem die Dividende erhoht wurde, obschon durch die Wirtschaftskontrollmassnahmen der amerikanischen Regierung der Erhohung Grenzen gesetzt wurden. Die Jahresdividende betragt gegenwartig $1.24 pro Stammaktie. Die Umsatze unserer grossten amerikanischen Zigarettenmarken stiegen im Verlaufe des Jahres weiterhin an. Marlboro, deren Marktanteil in den USA heute iiber 11% betragt, im Vergleich zu 5.7% vor ftinf Jahren, liegt jetzt an zweiter Stelle aller Zigarettenmarken. In der 100mm Kategorie riickte Philip Morris in 1971 an erste Stelle, nachdem sich Benson & Hedges 100 zu Jahresende der ersten Markenposition naherte. Virginia Slims 100 Umsatze waren weiter fi]hrend auf dem Gebiet der Damenzigarette. Parliament konnte, unterstiitzt durch eine zunehmend gute Aufnahme ihrer 100mm Charcoal Filter Version, ihren Umsatz ebenfalls erhohen. Im Bereich der neuen Produkte konzentrierten wir unsere Tatigkeit auf die Einfuhrung der neuen Marlboro Lights, einer Zigarette mit herabgesetztem "Teer-" und Nikotingehalt, ein bedeu- tender Einstieg in den Bereich der "nikotinarmen" Zigaretten. Diese neue Marke wurde durch Zeitungs- und Zeitschriften-Werbung eingefuhrt und wird heute auf nationaler Ebene gefordert. International wuchs der Zigarettenmarkt ausserhalb des kommunistischen Blocks weiterhin um jahrlich 4%, wahrend Philip Morris International im Jahre 1971 ihren Umsatz auf dem Weltmarkt urn mehr als 10% erhohte, wobei Marlboro im Ueberseegeschaft weiterhin an der Spitze aller amerikanischen Marken stand. Unsere Zigarettenumsatze ausserhalb der Vereinigten Staaten betrugen 1971 mengenmassig annahernd so viel wie unser Gesamtumsatz in den USA. Die Umsatze in Uebersee sind jedoch insgesamt wegen der auf vielen Markten erzielten njedrigeren Gewinnspannen weniger ertragreich als die Umsatze in den USA. Im vergangenen Jahr investierte die Philip Morris International Kapital in die belgische Tabakfirma Weltab S.A., erweiterte die Fabrikationsanlagen in der Schweiz und in Holland, und grundete die Philip Morris Espaiia S.A. und die Philip Morris Iberica S.A., mit ortlichen Geschaftspartnern, fur die Herstellung und den Verkauf von Zigaretten in Spanien. 1972 sehen wir auch der Eroffnung einer Zigarettenfabrik in Westberlin entgegen. In unserer Region Asien/Pazifik wurde als Gemein- schaftsunternehmen mit indonesischen Geschafts- partnern eine neue Herstellerfirma, die P. T. Philip Morris Indonesia, gegriindet.Philip Morris (Australia) Limited erhShte ihren Anteil am australischen Markt auf uber 30%. Festzuhalten ist, dass Philip Morris (Australia) Limited im Laufe des Jahres 1971 ein neues Geschafts- gebiet betreten hat mit dem Erwerb der Firma Lindeman (Holdings) Limited, einer fuhrenden australischen Weinfirma, die gute Ertragsergebnisse aufweist und in dieser Branche einen hervorragenden Ruf geniesst. In Kanada erhohte die Benson & Hedges (Canada) Limited ihren Anteil am Zigarettenmarkt und die Formosa Spring Brewery vollendete den Bau ihrer neuen Brauerei in Barrie, Ontario. 9 7

im lateinamerikanischen Raum gelang unseren Toch- tergesellschaften ein weiteres Durchdringen ihrer Markte, obwohl bei verschiedenen Tochtergesellschaf- ten in dieser Region die Gewinnspannen immer noch niedrig sind. Insgesamt verfUgt die Philip Morris International durclt lokale Herstellung und Export jetzt iiber mehr als 140 Zigarettenmarken, die in 162 Landern und Territorien verkauft werden. Unsere Produktions- und Marketing-Tochtergesellschaften behnden sich in Argentinien, Australien, Belgien, Deutschland, in der Dominikanischen Republik, in Equador, Frankreich, Grossbritannien, Guatemala, Holland, Indien, Indo- nesien, Kanada, auf den Kanarischen Inseln, in Mexiko, Neuseeland, Nigeria, Pakistan, Puerto Rico, Schweden, in der Schweiz und in Venezuela. Zu un- seren Lizenznehmern zahlen fiihrende Hersteller in Bolivien, Finnland, Hong Kong, Italien, Jugoslawien, Kolumbien, Malaysia, Marokko, den niederlandischen Antillen, Oesterreich, Panama und den Philippinen. Das Tabakgeschditist sel'ostverstdndlich nach wie vor die dorninierende Kraft im Fortschritt Ihrer Firma. Unser Tabakgeschaft hat derart zugenommen, dass der Prozentsatz der ausserhalb der Tabakbranche liegenden Tatigkeiten nicht wesentlich gestiegen ist. Dennoch beliefen sich 1971 die Betriebsertrage jener Geschafte, ohne die Mission Viejo Company, auf iiber $350 Millionen. 1971, das erste voile Jahr der Miller Brewing Com- pany als 100% ige Tochter von Philip Morris, war auch das Jahr, in dern unserem Hauptunternehmen ausser- halb des Tabaksektors, eine neue Grundlage fUr die Zukunft geschaffen wurde. Mit Erfolg wurde eine neue Werbekampagne gestartet und das erste bedeu- tende neue Produkt in der Geschichte dieser Firma, das Miller Malt Liquor, auf zahlreichen Mdrkten ein- gefiihrt. Durch die Wahl von John A. Murphy zurn Vorsitzenden und Chief Executive Officer im Septem- ber 1971, wurde die Organisation gefestigt. Er war vorher Executive Vice President der Philip Morris In- ternational. Die Nachfrage nach Miller-Erzeugnissen stieg im Einzelhandel mengenmassig um mehr als 4.5% und der Betriebsertrag erhohte sich um 2.8%. Es ergab sichjedoch wegen der geplanten hoheren Marketing- kosten und der ernsthaften Erhohungen der Herstel- lungskosten ein betrachtlicher Riickgang im Betriebs- gewinn. Wir hoffen, dass die wahrend dieser __ Umbildungszeit getatigten Geschafte in den kommenden Jahren einen Produktionsanstieg und einen grosseren Marktanteil zur Folge haben werden. Die Philip Morris Industrial-vertreten in den Industriezweigen Spezialpapier, Weichpackungen und chemische Spezialerzeugnisse durch ihre Unternehmen Milprint, Nicolet und Polymer-verzeichnete Umsatzgewinne trotz ungunstiger Marktlage in diesen Branchen. Nach Abzug der Anfangskosten fUr die neuerworbene Papiermiihle in Plainwell, Michigan, lagen die Gewinne nur wenig iiber den Vorjahreser- gebnissen. Die Mission Viejo Company, ein Unternehmen fUr Siedlungsplanung, Wohnungsbau und Landerschlies- sung, an welchem die Philip Morris massgebend beteiligt ist, wies betrachtliche Umsatz- und Gewinn- anstiege auf. Dies ist von Bedeutung, da-wenngleich in den Vereinigten Staaten wahrend des ganzen Jahres eine starke Nachfrage auf dem Wohnungssektor herrschte-der Abbau in der Flugzeugindustrie in Orange County, Kalifornien, wo die Hauptunterneh- men der Mission Viejo liegen, eine Schwachung der Marktsituation verursachte. Im Laufe des Jahres wuchs diese Firma auch in geographischer Hinsicht und begann neue Wohnungsbauprojekte in den Vororten von Phoenix, Arizona und Denver, Colorado. Als Zeichen unseres Vertrauens in die grossen Moglichkeiten der weiteren Ausdehnung der weltweiten Tabakindustrie, und unter Betonung unserer Hingabe zur s.tandigen Qualitatsverbesserung der Produkte aus jedem unserer Tatigkeitsgebiete, verfolgen wir weiter einen Ft7nfjahresplan fUr Investitionserweiterung, der sich auf ungefahr $400 Millionen, hauptsachlich fur den Tabakbereich bestimmt, belaufen wird. Der grosste Einzelposten in diesern Programm ist unsere neue, derzeit in Richmond, Virginia,.ini Bau befind- liche Fabrikationsanlage, mit Kosten von iiber $80 Mil- lionen. Geplant, urn der Philip Morris bei der Deckung der fiir die kommenden Jahre in den USA erwarteten wachsenden Nachfrage nach unseren Qualitatszi- garetten zu helfen, wird diese neue Anlage allein die grosste, modernste und leistungsstarkste Zigaretten- herstellungsfabrik auf der ganzen Welt sein. Sie wird im Jahre 1973 die Produktion aufnehmen. Daruber hinaus wird unser neues, achtstockiges Forschungs- hochhaus, das gegenwartig fur $6 Millionen ebenfalls in Richmond gebaut wird, die unserer Firma zu Forschungszwecken zur Verfiigung stehende Flache um uber 60% auf mehr als 24,000 Quadratmeter vergrdssern. Es wird hochentwickelte technische Anlagen im Wert von tiiber $1 Million beherbergen, die gr8sstenteils der Tabakforschung dienen und unsere Forschungsmoglichkeiten und -leistungen betrachtlich erhbhen werden. Ausserdem planen wir eine bedeutende Erweiterung und Modernisierung unserer Zigarettenherstellungsanlagen in Louisville, Kentucky. Betrachtliche Kapitalinvestitionen sind auch fUr neue oder erweiterte Herstellungsanlagen in Uebersee geplant, da das rasche Wachstum unseres internatio- nalen Zigarettengeschaftes deutlich die Notwendigkeit von zusatzlicher Produktionskapazitat ausserhaib der Vereinigten Staaten anzeigt. Schliesslich sehen wir auch zusatzliche Kapitalinvestitionen fUr die Miller Brewing Company und die Philip Morris Industrial vor. Im Laufe des Jahres steilte die Philip Morris, zusammen mit sechs anderen Tabakfirmen und einer Tabakpflanzer-Vereinigung, der Washington School of Medicine in St. Louis, Missouri, die beispiellose Summe von $2 Millionen zur Verfiigung. Mit dieser Zuwendung wird ein Funfjahresprogramm fiir die Grundlagenforschung auf dem Gebiet der immuno- logischen Vorgange bei Krebs finanziert. Das Projekt soll von einigen der hervorragendsten und fahigsten Krebsforschungswissenschaftlern geleitet werden. Man hofft, durch di.ese Arbeit zu umfassenderen und grundlegenderen Erkenntnissen iiber die Krebskrank- heit zu gelangen, sowie Methoden fur die friihzeitige Erkennung, Behandlung und fiir die mogliche Vehiitung gewisser Krebsarten zu finden. Dies ist die grosste Zuwendung, die je eine einzelne Institution von der Tabakindustrie erhalten hat, seit diese vor siebzehn Jahren mit der finanziellen Unter- stiitzung der unabhangigen, objektiven biologischen Forschung begonnen hat, und die jiingste einer langen Reihe von finanziellen Verpflichtungen dieses Indus- triezweiges, die sich der 40 Millionen-Dollar-Grenze nahern. Im Jahre 1971 gab es wenige beachtenswerte Entwick- lungen auf dem Forschungsgebiet "Rauchen und Gesundheit". Die zigarettenfeindlichen Krdfte konnten keinen "Durchbruch" vermelden, bei ihren Versuchen, das Zigarettenrauchen fur gewisse Krankheiten verantwortlich zu machen. Das andau- ernde Fehlen von giiltigen, auf Experimente gestiitzen Beweisen, die zunehmenden Anzeichen dafur, dass zahlreiche Faktoren, die mit dem Rauchen nichts zu tun haben, in bedeutsamer Weise mit vielen Krank- heiten in Zusammenhang stehen, deren Ursache man dem Rauchen zugeschoben hatte, und die wachsende Erkenntnis bei den Wissenschaftlern, dass sie ihre Bemuhungen urn ein grundlegendes Erfassen dieser Krankheiten unbedingt vermehren mussen, starkt uns in unserer Ueberzeugung, dass die Theorie eines kausalen Zusammenhanges zwischen Rauchen und Krankheit immer mehr fraglich wird. Die Erhohung der Zigarettensteuern im ganzen Land geben der Tabakindustrie Anlass zu wachsender Besorgnis. Bis zum vergangenen September haben 15 Bundesstaaten neue Steuergesetze fUr Zigaretten verabschiedet; 13 davon erhbhten die Steuern, ein Bundesstaat erklarte einen bereits bestehenden Steuer- satz fiir dauerhaft, ein anderer verlieh einer grbsseren Stadt-New York-das Recht, eine auf dem "Teer-" und Nikotingehalt basierende Zigaret- tensteuer zu erheben. Die durchschnittliche staatliche Zigarettensteuer stieg von 10,7 Cents auf 11,9 Cents pro Packung, was einer durchschnittlichen Preiser- hohung von 3,71 Cents gleichkommt. Steuererhohungen fiihren natiirlich zu hoheren Einzelhandelspreisen und tragen ausserdern zur weiteren Verbreitung krimineller Vergehen bei, indern sie den Schmuggel und Schwarzhandel mit Zigaretten fordern. Hierbei handelt es sich urn ungleiche, diskriminierende und re- gressive Steuem, die sich auf unfaire Weise gegen die unteren Einkommensklassen richten. Im Juli erklarte die Federal Trade Commision (Bundeshandelskommission) ihre Absicht, ein Verfahren einzuleiten, durch welches die Tabak- industrie verpflichtet wurde, in die Zigarettenwerbung die jetzt vom Kongress auf allen Zigarettenpackungen verlangte Warnung einzuschliessen. Schon vorher hatte die Philip Morris, zusammen mit den meisten anderen Tabakfirmen, in der Zeitungs-, Zeitschriften- und Plakatwerbung die Langsseite einer Zigaretten packung abgebildet, auf welcher die Warnung deutlich lesbar war. Unser Beschluss, die Langsseite mit der Warnung abzubilden, war nach Unterredungen mit Vertretern des Kongresses und der Regierung gefasst, und im April 1971 offentlich bekanntgegeben worden. Im Januar 1972 gelangten die Philip Morris und fiinf weitere Tabakfirmen mit der Federal Trade Com- mission zu einer diesbezuglichen Einigung. Das Uebereinkommen, das von der Kommission noch pnehmigt werden muss, legt Form, Grdsse, Grad der Auffalligkeit und Lesbarkeit der Abbildung der vom Kongress genehmigten Warnung sowie die Art des Werbemediums, in der sie erscheinen muss fest und entspricht unseres Erachtens einer gerechten Beile- gung dieser Streitfrage. Mit dieser Massnahme-also mit der derzeitigen Praktik, die "Teer-" und Nikotinwerte anzugeben- scheinen die Zigarettenhersteller den Forderungen nach detaillierter Information in den Zigarettenan- zeigen zu entsprechen. Wir glauben auch, dass die Tabakindustrie eine verantwortungsbewusste und kooperative Haltung gegeniiber den Forderungen der Regierung nach zusatzlicher Information des Ver- brauchers in der Werbung an den Tag gelegt und die umstrittenen Aspekte der Zigarettenwerbung aus der Welt geschafft hat. Die "Teer-" und Nikotinangaben sowie die Warnung wird der Verbraucher jetzt jederzeit zur Hand haben. Die Werbung in der Presse, auf Plakaten und iiber andere Medien wird es den Herstellern ermogli- chen, die Eigenschaften bereits bestehender Produkte zu beschreiben und den Zigarettenraucherferner iiber die Entwicklung neuer, verbesserter Produkte auf dem Laufenden zu halten. Berucksichtigt man solche Faktoren wie die Kontro- verse um das Problem Rauchen und Gesundheit, das Verbot der Fernseh- und Radiowerbung in gewissen Landern, den Druck auf die Zeitungs- und Zeitschrif- tenwerbung und die wachsende Steuerlast, so ist das fortwahrende Wachsen Ihrer Firma und das der welt- weiten Tabakindustrie uberaus ermutigend. Man kann darin sowohl ein Anzeichen der sinkenden Glaubwiirdigkeit der gegen den Tabak vorgebrachten Anschuldigungen als auch eine erneute Bestatigung dafur erblicken, wie wichtig der Tabak im Leben von Millionen Menschen auf der ganzen Welt ist, da er eine Erholung von den Spannungen unserer Zeit und eine Quelle des Vergnugens und der Befriedigung ist. Mit dem Fortschritt Ihrer Firma sind wir, was Um- satz und Ertrage angeht, zufrieden, doch erfiillt uns auch das von der Philip Morris bewiesene Verant- wortungsbewusstsein in der Gesellschaft mit grossem Stolz. In der heutigen Welt halten wir es fur die Pflicht eines jeden verantwortungsbewussten Unter- nehmens, ein gutes Gesellschaftsmitglied im um- fassendsten Sinne dieses Ausdruckes zu sein und zur Verbesserung der Lebensbedingungen aller Mit- menschen beizutragen. Eine Firma, die dies unter- lasst, kommt ihrer Verantwortung den Angestellten, Aktionaren und der gesamten Oeffentlichkeit ge- geniiber nicht nach. Unsere Tatigkeiten verteilen sich gegenwartig auf fiinf Gebiete: Erziehung, Pro- bleme der Stadte und Minderheitsgruppen, Gesundheit und Wohlfahrt, Umweltschutz und kulturelle Belange. Wir teilen ihnen ferner mit, dass Mr. Lewis F. Powell, ein Vorstandsmitglied unserer Firma seit 1964, zum Jahresende 1971 sein Amt niederlegte um einer Ernennung zum assozierten Richter am U. S. Bundes- gerichtshof Folge zu leisten. Wir werden ihn als weisen Ratgeber vermissen, jedoch fiihlt sich unsere Gesellschaft durch seine Ernennung geehrt. Angesicht des soeben beschriebenen, anhaltenden Wachstums unter schwierigen Bedingungen muss der Zukunft Ihrer Firma sicherlich optimistisch entgegen gesehen werden. Wir verfugen heute uber eine breite Geschaftsbasis und iiber grosse Dynamik. Unsere vier grossen amerikanischen Marken haben sich einen guten Platz erobert und finden immer weiteren Absatz. Auf internationaler Ebene konnen wir auf einen stetigen Fortschritt in Bezug auf die geo- graphische Ausbreitung und die Position unserer Marken auf dern Weltmarkt blicken. Wir haben jetzt wichtige Beteiligungen, die ausserhalb der Tabak- industrie liegen. Wie das Wachsturn der Firma in den vergangenen Jahren wird auch der kunftige Fort- schritt nur durch die Anstrengungen und Fahig- keiten unserer 29,000 Angestellten erreicht werden. Wir sind iiberaus dankbar fur deren unermiidlichen Einsatz, deren Mitarbeit und deren Beitrag zu un- serem Erfolg. Unterbreitet im Namen des Verwaltungrates Joseph F. Cullman, 3rd Vorsitzender des Verwaltungsrates 0 ~J. ~ George Weissman Prasident und Generaldirektor

Relazione Annuale Net 1971-per il 18° anno consecutivo-la vostra azienda ha raggiunto nuovi traguardi tanto per quel che concerne tl fatturato quanto per quel che riguarda gli utili. Il fatturato consolidato del 1971 ha raggiunto 1.852.495.000 dollari con un incremento del 22,7% su 1.509.540.000 dollari dello scorso anno. L'utile netto i3 aumentato del 31,0% passando a 101.498.000 dollari rlspetto ai 77.498.000 dollari del 1970. II reddito effettivo per azione 6 passato dai 3,36 dollari dell'anno scorso a 4,02 dollari, cio' che rappresenta un aumento del 19,6%o. Il dividendo per auone (tenendo conto dei titoli convertibili) e dunque stato di 3,64 dollari rispetto a 2,85 dollari del 1970, con un incremento del 27,7%. Gia ai primissimi posti fra le compagnie americane in rapida espansione sul mercato internazionale, nel 1971 la Philip Morris e salita al secondo posto fra Ie aziende produttrici di sigarette sul mercato ameri- cano: le nostre vendite negli Stati Uniti hanno subito un incremento superiore all'11% nel corso del 1971 e alla fine dell'anno Ia nostra quota di mercato negli Stati Uniti era di oltre il 18%. Considerando Ia produzione del ramo nel suo com- plesso, le totali vendite americane di sigarette sono aumentate, secondo un eminente esperto dell'industria del tabacco, del 2,5%o passando da 524 miliardi di pezzi nel 1970 alla produzione record di 537 miliardi nel 1971. Il nostro fatturato consoli- dato negli scorsi cinque anal i; aumentato alla media annuale del 19,1%, mentre i profitti netti nello stesso periodo sono cresciuti a un tasso del 24,3% ed i1 reddito effettivo per azione ha subito un incre- mento de121,2% all'anno; per il 44' anno consecutivo 1a Societa ha pagato dividendi sulle azioni ordinarie. Inoltre per il quarto anno consecutivo i dividendi sono aumentati, sebbene nel 1971 1'aumento sia stato fimitato dalle disposizioni economiche imposte dal Governo degli Stati Uniti. Il dividendo annuale normale 8 di $ 1,24 per ogni azione ordinaria. Le vendite delle nostre maggiori marche americane hanno continuato a crescere per tutto il corso dell'anno. La marca Marlboro, che detiene attualmente oltre 1'11,0% del mercato americano rispetto al 5,7% di cinque anni or sono, 8 passata al secondo posto fra tutte Ie marche di sigarette. Nella categoria 100 mm Philip Morris ha raggiunto nel 1971 il primo posto grazie alla marca Benson & Hedges 100's che si e avvicinata alla posizione leader nella categoria, e alla marca Virginia Slims 100mm, che ha registrato un aumento delle vendite ed ha continuato a detenere il primo posto nel settore delle sigarette per signora. Anche la marca Parliament, favorita da un'ottima ricettivita del mercato alla versione 100 mm con filtro al carbone attivo, ha aumentato le proprie vendite. Nel settore dei nuovi prodotti i nostri sforzi sono stati dedicati soprattutto all'introduzione sul mercato della nuova Marlboro Lights, una sigaretta a ridotto tasso di "catrame" e nicotina e una delle maggiori protagoniste nel campo del filtri ad alto assorbimento. L'introduzione di questa sigaretta sul mercato e stata effettuata con appoggio pubblicitario su quotidiani e riviste; la marca viene attualmente promossa su base nazionale. Sul piano internazionale il mercato delle sigarette nel mondo libero ha continuato ad espandersi nella misura del 4% all'anno, mentre le vendite mondiali della Philip Morris International hanno registrato nel 1971 un aumento superiore al 10%. La marca Marlboro continua ad essere la prima in classifica fra tutte le marche di sigarette americane per 1e vendite sui mercati esteri. Le nostre vendite di sigarette, al di fuori degli Stati Uniti nel 1971, hanno all'incirca eguagliato le nostre vendite negli Stati Uniti, per quanto occorre precisare come le vendite all'estero non siano globalmente altrettanto redditizie quanto quelle negli Stati Uniti, a causa del piu bassi margini realizzabili su molti mercati. Net corso del 1971, la Philip Morris Int. ha effettuato investimenti nella Socteta tabacchifera belga Weltab S.A., ha attivato nuovi impianti di-produzione in Svizzera e in Olanda e ha costituito con consociati locali la Philip Morris Espafia S.A. e la Philip Morris Iberica S.A. per produrre sigarette destinate alla ven- dita sul mercato spagnolo. Nei nostri programmi per il 1972 P prevista, in Germania, I'apertura di un un- pianto per la produzione di sigarette a Berlino Ovest. Nell'area Asia-Oceano Pacifico, 6 stata incorporata, sotto forma di compartecipazione con soci indo- nesiani, una nuova societa di produzione, la P.T. Philip Morris Indonesia. La Philip Morris (Australia) Ltd. ha aumentato la propria quota del mercato australiano ad oltre i130%. Si noti che, nel 1971, questa azienda ha fatto il proprio ingresso in un nuovo settore con 1'acquisizione della Lindeman (Holdings) Ltd., una delle maggiori aziende vinicole australiane, caratterizzata da un alto livello di profitto e da un'ottima reputazione sul mercato. In Canada, Ia Benson & Hedges (Canada) Ltd. ha aumentato la propria partecipazione al mercato delle sigarette, mentre la fabbrica di birra Formosa Spring Brewery ha completato la costruzione di nuovi impianti a Barrie, Ontario. Nell'America Latina, le nostre consociate hanno continuato la loro opera di penetrazione sui mer- cati di loro competenza, sebbene parecchie di esse abbiano margini di profitto piuttosto bassi. In totale, sia mediante produzione in loco sia at- traverso 1'esportazione, Ia Philip Morris International controlla attualmente oltre 140 marche di sigarette introdotte sui mercati di 162 paesi. Le nostre consociate per la produzione e la vendita sono situate in Argentina, Australia, Belgio, Canada, Isole Canarie, Repubblica Dominicana, Equador, Francia, Germania Occidentale, Guatemala, Olanda, India, Indonesia, Messico, Nuova Zelanda, Nigeria, Pakistan, Porto Rico, Svezia, Svizzera, Inghilterra e Venezuela. Importanti unita di produzione operanti sotto licenza sono presenti in Austria, Bolivia, Colombia, Finlandia, Hong Kong, Italia, Malesia, Marocco, Antille Olandesi, Panama, Filippine e Jugoslavia. II tabacco resta naturalmente il fattore preminente nel progresso della vostra Societa. La nostra attivita nel campo del tabacco 8 aumentata a un tasso tale che la percentuale delle attivita al di fuori di questo campo non si 8 accresciuta in misura apprezzabile; tuttavia i1 fatturato di queste ultime attivita, con esclusione della Mission Viejo, ha raggiunto nel 1971 una cifra superiore ai 350 milioni di dollari. Il 1971, primo anno sotto totale controllo della Philip Morrts, ha v3sto la ristrutturazione della Miller Brewing Co., la nostra maggiore azienda at di fuori del campo del tabacco, in vista delle attivita future. La ristrutturazione e stata accompagnata da una nuova efficace campagna pubblicitaria e dall'intro- duzione in molti mercati del Miller Malt Liquor, il primo importante nuovo prodotto nella storia della Societa produttrice di birra Miller. La struttura organizzativa 8 stata rafforzata, nel settembre 1971, con la nomina di John A. Murphy quale Presidente e Ammmtstratore Delegato della Societa. Murphy aveva gia ricoperto la carica di Executive Vice President nella Philip Morris International. La richiesta dei prodotti Miller 6 aumentata del 4,5% al livello della vendita al dettaglio e il fatturato e aumentato del 2,8%; tuttavia e da segnalare una notevole diminuzione degli utili lordi imputabile al previsto aumento dei costi di commercializzazione e ai forti incrementi dei costi di produzione. Ci auguriamo che 1'attivita intrapresa nella fase di ristrutturaziohe della Societa conduca nei prossimi anni ad un ulteriore aumento delle vendite e alI'acquisizione di una piit larga quota del mercato. La Philip Morris Industrial rappresentata-nel settore delle carte speciali, degli imballaggi flessibili e di particolari produzioni chimiche-dalle sue aziende Nicolet, Milprint, e Polymer, ha registrato incrementi nelle vendite nonostante le negative condizioni economiche che hanno caratterizzato questi settori. I profitti, tenendo conto del pesanti costi iniziali sopportati dalla cartiera di Plainwell, recentemente acquisita nel Michigan, sono saliti di poco rispetto all'anno precedente. La Societa Mission Viejo, che si occupa di costruzioni ad uso civile, di sviluppo territoriale e di struttura- zione di centri residenziali (Societa nella quale la Philip Morris ha importanti interessi) ha registrato forti incrementi sia nelle vendite che nei profitti. CiB 8 tanto prtl significativo in quanto-sebbene per I'intero anno la domanda di abitazioni sia stata alta in tutti gli Stati Uniti-la contrazione dell'attivita aerospaziale ha creato condizioni sfavorevoli nel ter- ritorio di Orange, California, dove si svolgono le pitl importanti attivita della Mission Viejo. Sempre nel 1971, questa Societa ha esteso la sua attivita in altre zone degli Stati Uniti e ha dato vita a programmi per nuovi quartieri di abitazione nella zona dei sob- borghi residenziali di Phoenix, Arizona e di Denver, Colorado, A testimoaianza della nostra fiducia nella costante espansione a livello mondiale dell'industria del tabacco e della nostra volonta di migliorare continua- mente la qualita del prodotto in ogni settore della nostra attivita, stiamo dando vita ad un programma quinquennale di investimenti per circa 40 milioni di dollari, principalmente nell'area del tabacco. La piir importante spesa stanziata nell'ambito di questo programma 6 destinata alla nuova unita di produzione attualmente in fase di allestimento a Richmond (Virginia), che verra a costare pi.u di 80 milioni di dollari. Destinati a permettere alla Philip Morris di far fronte nei prossimi anni al previsto aumento della domanda delle sue sigarette di qualita da parte del mercato americano, questi nuovi im- pianti saranno i piu grandi, i pitit moderni e i piu perfezionati del mondo nel settore della pro- duzione di sigarette: la produzione iniziera nel 1974. Inoltre il nostro nuovo centro di ricerche (un edi- ficio di 8 piani del valore di sei milioni di dollari, attualmente anch'esso in costruzione a Richmond) aumentera di oltre i1 60% lo spazio che la Societa consacra alle ricerche, portandolo ad un totale di 24.000 metri quadrati. I1 nuovo edificio ospitera apparecchiature tecniche di avanguardia del valore di oltre un milione di dollari; la maggior parte ditali apparecchiature sara destinata alla ricerca nel settore del tabacco e aumentera considerevolmente la nostra ef&cienza e le nostre potenzialite. Stiamo anche progettando notevoli opere di espan- sione e modernizzazione degli impianti di produzione di sigarette a Louisville nel Kentucky. II rapido aumento delle nostre attivita internazionali net campo delle sigarette ha dimostrato chiaramente ia necessita di aumentare la capacita di produzione al di fuori degli Stati Uniti e importanti investimenti sono stati previsti per la creazione o per il miglioramento di centri di fabbricazione all'estero. Iafine, abbiamo in programma investimenti sia per la Miller che per Ia Philip Morris Industrial. Nel 1971 la Philip Morris si 8 unita ad altre sei Societa produttrici di tabacco e ad una Associazione di coltivatori di tabacco per concedere un finanzia- mento di due milioni di dollari (una cifra di questo genere non ha precedenti) alla Washington University School of Medicine di St. Louis, nel Missouri. Il finanzlamento i: destinato ad un programma quin- quennale di ricerca di base sui processii immunologici coacernenti il cancro: i1 programma si svolgera sotto 1a direzione di alcuni fra i maggiori e piir rinomati scienziati nel campo delle ricerche sul cancro. E' augurabile che questa attivita conduca ad una migliore conoscenza di base del cancro, nell'intento soprat- tutto di sviluppare nuovi metodi per la diagnosi precoce, il trattamento e la prevenzione di certi tipi di cancro. Si tratta del maggior fmanziamento mai concesso ad un singolo istituto dall'industria del tabacco durante i 17 anal di appoggio alla ricerca bio- logica indipendente ed obiettiva, e 1'ultimo di una lunga serie di impegni finanziari che ammontano ad una somma molto vicina ai 40 milioni di dollari. Nel campo delle ricerche sul tema del tabacco e della salute, nel corso del 1971 ci sono stati pochi elementi degni di nota. Le forze del fronte "antitabacco" non si sono concesse tregua nei loro tentativi di collegare it fumo della sigaretta ad ogni genere di malattia. II fatto che continuino a mancare valide e attendibili prove sperimentali, gli aumentati indizi tendenti a comprovare che molti altri fattorii al di fuorii del fumo siano alla radice di molte malattie delle quail il fumo 6 stato incolpato, il crescente riconoscimento da parte di molti scienziati della necessita di ampliare lo sforzo per giungere ad una vera e approfondita conoscenza di tali malattie, tendono a rafforzare la nostra opinione che Ia teoria di un nesso causale fra il fumo e certe malattie stia diventando una questioae sempre piit aperta. Gli aumenti dell'imposta sulle sigarette in tutto il Paese sono stati, per noi dell'industria del tabacco, causa di crescenti preoccupazioni. Fino allo scorso settembre 15 Stati hanno approvato nuove leggi in materia di imposte sulle sigarette, 13 di essi aumentandola, uno confermando il livello gia esistente, e 1'altro concedendo ad un grande centro metropolitano come New York il diritto di imporre una tassa sulle sigarette basata sul contenuto di "catrame" e aicoflna. La tassa media statale sulle sigarette 6 passata da 10,7 a 11,9 cents per pacchetto, con un incremento medio di 3,71 cents. L'aumento delle tasse ha avuto naturalmente come conseguenza maggiori prezzi al dettaglio e ha contribuito all'aumento della criminalita incoraggiando il furto e il contrabbando di sigarette. Si tratta d'imposte ingiuste, discriminatorie e regressive che fanno sentue il loro effetto negativo sui gruppi a piu basso reddito. In luglio la Federal Trade Commission ha annunciato la sua intenzione di iniziare una procedura intesa a chiedere 1'inserimento nella pubblicita per le sigarette dell' "avvertimento" che il Congresso degli Stati Uniti attualmente richiede sui pacchetti di sigarette. Gia prima del mese di luglio la Philip Morris, insieme con la maggior parte dei produttori di tabacco, aveva messo in evidenza nella pubblicita su quotidiani, riviste e manifesti murali, il lato di un pacchetto di sigarette sul quale 1'avvertimento era chiaramente leggibile. La nostra decisione di evidenziare 1'avverti- mento sul lato del pacchetto fu presa dopo averne discusso con membri del Congresso e funzionari governativi, e fu annunciata pubblicamente nell'- aprile 1971. Nel gennaio 1972 la Philip Morris si uni ad altre cinque aziende produttrici di tabacco per sottoscrivere su questo punto un accordo conla Federal Trade Commission. L'accordo-soggetto all'approvazione finale della comniissione-specifica la forma, la dimensione, 1'evidenza e la leggibilita dello avverti- mento, cosi come approvato dal Congresso, nonch8 i tipi di pubblicita nei quail 1'avvertimento deve essere incluso, e rappresenta, a nostro avviso, un equo compromesso in questa materia. 9

TerugblBk op het jaar 1971 Mediante questa azione-la pratica attuale gi3 include 1'elenco del tassi di "catrame" e nicotina-ci pare che i produttori di sigarette abbiano soddisfatto Ie richieste avanzate per una informazione completa nella pubblicita per le sigarette, Crediamo anche che l'industria del tabacco abbia dimostrato di saper assumere un atteggiamento di responsabilitii e di collaborazione nei confronti delle richieste go- vernative per ulteriori informazioni ai consumatori nella pubblicita e abbia quindi eliminato gli aspetti controversi della pubblicitk per le sigarette. L'elenco dei tassi di catrame e nicotina e 1'avverti- mento saranno d'ora in poi immediatamente accessibili ai consumatori e 1'utilizzo della stampa, del manifesti murali e degli altri media pubblicitari disponjbili consentira ai fabbricanti di descrivere le caratteristiche dei prodotti esistenti e di presentare ai fumatori di sigarette nuovi e migliorati prodotti ogni qual volta saranno introdotti nel mercato. Tenendo conto di fattori quail la controversia sul tema delle sigarette e della salute, 1'impossibilita di fare pubblicitd televisiva e radiofonica in certi Paesi, le pressioni per intervenire sul contenuto della pub- blicitA stampata e I'aumentato carico fiscale, la continua crescita sia della nostra azienda sia del- 1'industria del tabacco in tutto il mondo ~ certamente molto incoraggiante. Questo fatto puo' essere considerato sia come un affievolimento della credi- bilitA degli argomenti fin qui portati contro il tabacco e una riaffermazione di quanto il tabacco sia importante nella vita di milioni di persone in tutto il mondo, distribuendo come esso distribuisce sollievo alle tensioni del nostro tempo ed essendo fonte di piacere e soddisfazione. Ci dichiariamo soddisfatti del progressi realizzati dalla nostra azienda sia dal punto di vista delle vendite sia da quello degli utili, come siamo anche orgogliosi del senso diresponsabilita aziendale chela Philip Morris ha dimostrato. Noi crediamo che nel mondo attuale ogni azienda responsabile abbia il dovere di comportarsi come un "buon cittadino" nel piu ampjo senso del termine e che debba quindi concorrere a migliorare la vita di tutti i cittadini. Un'azienda che cia non facesse, rinuncerebbe alla propria responsabilitd nei confronti del propri dipendenti, del propri azionisti e del pubblico in ge- nerale. In questo campo le nostre attivitd si sviluppano normalmente in cinque settori: istruzione, problemi dei centri urbani e delle minoranze, salute e pro- grammi sociali, protezione dell'ambiente, attivitd culturali. Inoltre abbiamo di annunciare che Lewis F. Powell, Jr. membro del consiglio d'ammin;strazione della vostra azienda da1 1964, ha dato le dimissioni alla fine del 1971 per accettare la nomina ad Associate Justice della Corte Suprema degli Stati Uniti. Sentiremo la mancanza dell suo saggio consiglio, ma la nostra Societd era onorata dalla sua selezzione. Sottolineati i risultati conseguiti attraverso una crescita continua in condizioni difficili, crediamo che il futuro della vostra azienda debba certamente essere considerato con ottimismo. La base delle nostre attivita aziendali 8 ampia e il nostro slancio verso futuri traguardi C forte. Tutte e quattro le nostre maggiori marche di sigarette negli Stati Uniti sono in ottima posizione ed in fase di sviluppo. Per quanto riguarda il mercato internazionale, ab- biamo ottenuto considerevoli risultati in termini di espansione geografica e di posizione delle nostre marche sul mercato in tutto il mondo. Inoltre abbi- amo adesso importanti e impegnativi interessi in settori al di fuori di quello del tabacco. I progressi futuri-cosi come 6 stato per quelli del passato- saranno realizzati soltanto grazie allo sforzo e alla capacitd dei nostri 29.000 dipendenti. Ad essi noi siamo grati per la loro lealtA, la loro collabora- zione, il loro contributo al nostro successo. Joseph F. Cullman, 3rd Presidente del Consiglio di Amministrazione A--., o" vJA-+, George Weissman Direttore Generale In 1971 is uw maatschappij, voor de achttiende ach- tereenvolgende keer, tot een hoger niveau gekomen zowel wat betreft omzet als winst. De geconsolideerde omzet bedroeg in 1971 $1.852.495.000, een toename van 22,7% ten opzichte van $1.509.540.000 vermeld in het verslag van het vorige jaar. De netto inkomsten stegen met 3 1,0% en liepen op tot $101.498.000 tegen- over $77.498.000 in 1970. De winst per gewoon aandeei steeg tot $4,02 tegenover $3,36 dat vorig jaar werd bereikt, een stijging van 19,6%. De "fully diluted" winst per aandeel kwam op $3,64 tegenover $2,85 in 1970, een stijging van 27,7%. Philip Morris, reeds de leidende in de Verenigde Staten gevestigde maatschappij op de zich snel uit- breidende intemationale markt, werd in 1971 op 8en na de grootste sigarettenmaatschappij op de ameri- kaanse markt. Onze verkoop in de Verenigde Staten steeg gedurende het verslagjaar met meer dan 11% en aan het einde van het verslagjaar was het aandeel van de maatschappij op de amerikaanse markt meer dan 18%. Met betrekking tot de industrie in haar geheel, lag volgens een vooraanstaand deskundige op het gebied van de tabaksverwerkende industrie, de totale verkoop van sigaretten in de Verenigde Staten circa 21/z% hoger, een stijging van 524 miljard in 1970 tot een rekord hoogte van 537 miljard in 1971. Onze geconsolideerde omzet is gedurende de laatste 5 jaar gemiddeld jaarlijks gegroeid met 19,1%, terwijl de netto winst gedurende dezelfde periode gestegen is met 24,3% en de winst per aandeel met 21,2% per jaar. De maatschappij heeft gedurende 44 achtereen- volgende jaren dividenden op haar gewone aandelen uitgekeerd. Bovendien werd het dividend vier ach- tereenvolgende jaren verhoogd, hoewel de verhoging in 1971 beperkt werd door de ekonomische maatregelen van de amerikaanse regering. De huidige dividend- basis bedraagt $1,24 per gewoon aandeel per jaar. De verkoop van onze voornaamste amerikaanse mer- ken bleef gedurende het gehele jaar stijgen. Het merk Marlboro, dat thans meer dan 11%o van de amerikaanse markt bezit tegenover 5,7% vijf jaar geleden, bezet de tweede plaats onder alle merken. In de 100 mm klasse bereikte Philip Morris in 1971 de eerste plaats, terwijl het merk Benson & Hedges 100 tegen het einde van het jaar het leidende merk dicht naderde. Het merk Virginia Slims 100 mm bleef de leiding behouden wat betreft damessigaretten. Parlia- ment, geholpen door de steeds betere ontvangst op de markt van zijn 100 mm sigaretten met houtskool- filter, had eveneens een grotere verkoop. Wat nieuwe produkten betreft, concentreerde onze voomaamste aktiviteit zich op de introduktie van de nieuwe Marlboro Lights, een sigaret met een verlaagd teer- en nicotine-gehalte, waarmee wij toegang kregen tot de markt voor extra gefiltreerde sigaretten. De introduktie vond plaats door advertenties in kranten en tijdschriften en de verkoop van het merk wordt nu op nationale basis bevorderd. Internationaal gezien, zet de markt in de vrije wereld haar jaarlijkse stijgjng van 4% voort, terwijl Philip Morris International haar verkoop in 1971 over de hele wereld met meer dan 10% zag stijgen. Marlboro blijft de leiding behouden van aile amerikaanse merken wat betreft verkopen overzee. Onze verkoop van sigaretten buiten de Verenigde Staten in 1971 benaderde ons totaal in de Verenigde Staten. De over- zeese verkoop is in totaal echter niet zo winstgevend als de verkoop in de Verenigde Staten, als gevoig van de lagere marges die in vele landen worden gemaakt. In het verslagjaar heeft Philip Morris International een investering gedaan in Weltab S.A., een belgische tabaksmaatschappij, en produktie faciliteiten uitge- breid in Zwitserland en Nederland; ook werden Philip Morris Espana S.A. en Philip Morris Iberica S.A. samen met lokale partners opgericht om sjgaretten voor de verkoop in Spanje tefabriceren. Wij ver- wachten in 1972 ook de opening van een sigaretten- fabriek in West-Berlijn, Duitsland. In ons gebied Azie/Stille Oceaan werd een nieuwe produktiemaatschappij opgericht, P. T. Philip Morris Indonesia, als een joint-venture met indonesische partners. Philip Morris (Australia) Limited vergrootte haar aandeel op de australische markt tot ruim 30%. Opgemerkt dient te worden, dat Philip Morris (Aus- tralia) Limited zjch in 1971 op een nieuw terrein heeft begeven door de aankoop van Lindeman (Holdings) Limited, een leidende australische wijnfirma met een goede winstgeschiedenis en een uitstekende naam in de industrie. In Canada verhoogde Benson & Hedges (Canada) Ltd. haar aandeel op de sigarettenmarkt en de Formosa Spring Brewery voltooide de bouw van baar nieuwe brouwerij in Barrie (Ontario). In het latijns-amerikaanse gebied gingen onze doch- terondememingen door met de penetratie in hun respectieve markten, hoewel bij verschillende dochter- ondernemingen in dit gebied de winstmarges nog steeds laag zijn. In totaal heeft Philip Morris International thans, door plaatselijke produktie en export, meer dan 140 sigarettenmerken, die verkocht worden in 162 landen en gebieden. Onze geaffilieerde produktie- en mar- ketingmaatschappijen zijn gevestigd in Argentinie, Australie, Belgie, Canada, de Dominicaanse Repu- bliek, Duitsland, Ecuador, Frankrijk, Groot-Brittannie, Guatemala, India, Indonesie, de Kanarische Eilan- den, Mexico, Nederland, Nieuw Zeeland, Nigeria, Pakistan, Porto Rico, Venezuela, Zweden en Zwitzer- land. Tot de licentie-houders behoren prominente fabrikanten in Bolivia, Columbia, de Filippijnen, Finland, Hong Kong, Italie, Joegoslavie, Maleisie, Marokko, de Nederlandse Antillen, Oostenrijk en Panama. Tabak blijft natuurlijk de dominerende kracht in de vooruitgang van onze maatschappij. Onze tabaksak- tiviteiten zijn zo snel toegenomen, dat het percentage non-tabaksaktiviteiten niet zo sterk is toegenomen. Maar toch bedroeg de omzet voor onze non-tabaks- aktiviteiten, met uitzondering van de Mission Viejo, in 1971 meer dan $350 miljoen. 1971, het eerste volledige jaar waarin Miller Brewing Company voor 100% tot Philip Morris behoorde, was het jaar van een op de toekomst gericht opnieuw positie kiezen van dit bedrijf, onze belangrijkste non- tabaksaktiviteit. Een nieuwe advertentiecampagne werd met sukses op touw gezet, en het eerste belang- rijke nieuwe produkt in Miller's geschiedenis, "Miller Malt Liquor", werd op vele markten geYntroduceerd. De organisatie werd versterkt door de verkiezing in September 1971 van John A. Murphy als chairman en chief executive officer. Voordien was hij executive vice-president van Philip Morris International. De vraag naar Miller steeg met 4,5% in hectoliters op kleinhandelsniveau en de omzet steeg met 2,8%. Er was echter een belangrijke daling in de bedrijfs- winst, als gevolg van de geplande stijgingen van de kosten voor marketing en van de zeer grote toename van de produktiekosten. Wij hebben alle hoop, dat de ondemomen aktiviteiten gedurende deze fase van herorientering de verkoop van grotere hoeveelheden zal opleveren, alsmede een vergroot aandeel op de markt voor de toekomstige jaren. Philip Morris Industrial is met haar werkmaatschap- pijen Milprint, Nicolet en Polymer vertegenwoordigd in de sector van speciale papiersoorten, flexibele verpakkingen en speciale chemicalien. Hier werd een stijgende verkoop genoteerd, ondanks tegenwerkende ekonomische omstandigheden in deze industrieen. De winst na aanloopkosten van de nieuw aangekochte papierfabriek in Plajnwell (Michigan) was een weinig hoger dan die van het voorafgaande jaar. De Mission Viejo Company, een maatschappij voor de ontwikkeling van woongemeenschappen, hui- zenbouw en landontwikkeling, waarin Philip Morris een belangrijk aandeel heeft, bereikte een belangrijke stijging in verkoop en winst. Dit is veelbetekenend, want hoewel er gedurende het gehele verslagjaar in de Verenigde Staten een goede markt was voor huizen- bouw, schepten de besnoeiingen in uitgaven voor de aerospace-industrie ongunstige voorwaarden in Orange County (Californie), waar Mission Viejo haar belangrijkste aktiviteiten ontplooit. Gedurende het verslagjaar breidde deze maatschappij zich ook geografisch uit en begon zij met nieuwe huizenbouw- projekten in de voorsteden van Phoenix (Arizona) en Denver (Colorado). Als bewijs van ons vertrouwen in de grote mogelijk- heden voor verdere uitbreiding van de tabaks- industrie over de gehele wereld, en benadrukkend onze wens de kwaliteit van onze produkten op alle gebieden waarop wij werken, doorlopend te verbe- teren, gaan wij door met een 5-jarenplan voor kapitaaluitbreiding, die in totaal ongeveer $400 miljoen zal bedragen, voornamelijk in de tabaks- sector. De grootste afzonderlijke uitgave in dit programma is bestemd voor onze njeuwe fabriek die nu wordt gebouwd in Richmond (Virginia), en die meer dan $80 miljoen zal kosten. Bedoeld om Philip Morris te helpen bij haar streven te voldoen aan de in de komende jaren yerwachte stijging van de vraag naar kwaliteitssigaretten in de Verenigde Staten, zal deze nieuwe fabriek de grootste, modernste en meest I I 10

Marlboro, of course, is a classic example of this achievement with its widely recognized "Marlboro Country" theme, which has been translated strongly into print advertising. The same is true of the Benson & Hedges 100's "disadvantages" theme, and of the "You've Come a Long Way, Baby" of Virginia Slims. In the first launching of a major new cigarette product in the United States in more than a decade that did not utilize iiadio and television, the Marlboro family was enlarged through the introduction of Marlboro Lights, the first lowered "tar" (14mg) and nicotine (1.1mg) cigarette to be introduced under a highly successful brand name. With concentrated advertising in daily and weekly newspapers and Sunday 1) Parliament 100's packages on the line. 2) New Virginia Slims subway poster. 3) Marlboro cigarettes on the production line. 4) Marlboro Lights-low tar entry in Marlboro line. 5) Model of new cigarette factory under construction in Richmond, Va. 6) Ross Millhiser, Philip Morris U.S.A. President, tours new plant construction site. 1 supplements, Marlboro Lights was test-marketed inNewEngland with good results, then introduced nationally. Marlboro Lights is designed specifically for smokers who prefer lighter tasting, low "tar" and nicotine cigarettes but still desire flavor. The continuing growth of our cigarette business and the increasing demarid for our high-quality products were the major factors influencing our decision to build a new factory, now under construction in Richmond, Virginia. This facility, which will be the largest and most modern cigarette manufacturing plant in the world, is scheduled for completion in 1973. It should enable Philip Morris to meet its estimated requirements for a number of years. The vast new factory and five other buildings of the new manufacturing complex are being designed by Gordon Bunshaft of the New York office of Skidmore, Owings & Merrill. Its cost will be in excess of $ 80 million. The complex will cover an area of about 18 city blocks. Two major considerations govern the design: One is efficiency, and the other is people. The plant is being built with the well-being of those who will work there in mind. No reasonable expense is being spared to insure that it will be a pleasant place in which to work. Indeed, we hope to make it one of the most beautiful working environments in the world, and at the same time to insure that it is highly adaptable to human needs, and technologically flexible. Complementing the new factory, and in keepingwith ourbelief in the importance of research and development as an integral part of our business, a new $6 million, 8-story research tower is also under construction in Richmond. This new research facility-designed by 15

Ulrich Franzen and scheduled to open by mid-1972-will enlarge our total research facilities to more than 260,000 square feet, will enable us to accommodate our expanding research staff of nearly 400 scientists, research specialists and support staff, and will increase our scientific capability and efficiency. Space is also available for expansion, and the flexibility of the modular design will assure orderly space changes when these become necessary. More than $1 million in advanced technological equipment will be housed in the new research tower, for continued progress in tobacco research. In the General Products Division of Philip Morris U.S.A., the year's major new product was the Personna 74* Tungsten steel blade. The Personna 74* blade represents a major metallurgical 1) Marlboro Lights introduction-newspaper and magazine ads. 2) Complete Clark Gum line, including new Super Stick. 3) Virginia Slims passing quality control station. 4) 1971 Marlboro Trail was major auto racing promotion. 5) Print ad for Multifilter. 6) "Flicker"-new shaving product for women. innovation in the blade field. Also in the General Products area, Philip Morris U.S.A. developed Flicker, a new shaving product for women that is designed like a compact, and Face Guard, a special blade for persons with tender skin. It is expected that both products will be in national distribution during 1972. Another Philip Morris U.S.A. non-tobacco operation, the Clark Gum Company, performed well during the year, enjoying increased acceptance of its products, which include Teaberry, Cinnamint, Fruit Punch, Peppermint, Spearmint and Di-et Smile brand chewing gums. Clark introduced a new improved Smile sugar-free gum during 1971 and began converting to a 7-stick pack designed to sell for 10¢ at the retail level. Clark Super Stick, described as "the world's biggest stick of gum," was also introduced last year. Early in 1971 your company divested itself of its ASR Medical Industries division. 3 1 2 a ~ Philip Morris U.S.A. Operating Revenues Miuioat oe nouars 1100 1000 900 4 800 700 600 500 400 300 200 9 loo ~ J IJ, '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 Since 1962 Philip Morris U.S.A. Operating Revenues have increased at an average annual compounded rate of 9.1%. 5 16

4 Philip Morris U.S.A. Filter Cigarette Unit Sales ~ Non-Filter Cigarette Unit Sales Billion Units 100 90 80 70 60 ~ 50 y 40 30 20 lo 74? '62 '63 '64 '65 '66 '67 '68 `69 '70 '71 Philip Morris U.S.A. unit cigarette sales have grown at 7.9% per year on an average annual compounded rate over the last ten years. Sales of filter cigarettes represent 97% of Philip Morris U.S.A.'s total unit sales. 1) Personna 74"-new blade of Tungsten steel. 2) R&D scientists use mass spectrometry to identify components of cigarette tobacco and smoke. 3) New outdoor ad for Benson & Hedges 100's, a leading 100mm brand. 4) Marlboro Country in magazine ads. 5) Patented fresh air injection system (U.S. Patent 3,490,461). U.S. Cigarette Industry Unit Sales Marlboro Share of Total U. S. Industry Total Filter Cigarettes ' Total Non-Filter Cigarettes Philip Morris Share of U.S. Industry (%) - Billion Units Percentage Percentage 600 30 14 The total U.S. cigarette tte industry unit sales grew Marlboro, which now accounts for more than 2.5% between 1970 and 1971 and 0.9% 11% of the U.S. market compared with 5.7% compounded annually over the last ten years. In five years ago, moved into second place among contrast, the filter segment has grown at an all brands in 1971. average annual compounded rate of 5.3 %o since 1962. Philip Morris U.S.A. share of the U.S. industry in 1971 was 13.1%. 3 17

Philip Morris International (000 omitted) 1971 1970 1969 Operating Revenues $517,670 $424,800 $256,769 Operating Income 66,968 54,167 38,717 Philip Morris International achieved another record year in 1971, increasing its cigarette unit sales more than 10% over 1970. Consolidated operating revenues rose 21.9% to $517,670,000 as operating income moved up to $66,968,000, a gain of 23.6% over the previous year. Philip Morris is the leading American- based cigarette company and Marlboro the best-selling American brand in free world markets, which are approximately three times as large as the U.S. market and growing at the rate of 4% a year. 1) Promotional cars touring Madrid, Spain. 2) Modern distribution center, Weltab S.A., Belgium. 3) Muratti Ambassador cigarettes ready for shipment, Switzerland. 4) Factory expansion in Australia. 5) Huge trailer load of tobacco hogsheads, Venezuela. 1 2 Each of Philip Morris International's regions-Europe, Asia/Pacific, Latin America, Canada and Middle East/ Tropical Africa/Seastores-contributed to overall growth during the year. Philip Morris Europe, which produces the largest share of the company's international revenues, was further strengthened through an investment in Weltab S.A., a Belgian tobacco company with a cigarette factory and a modern distribution center. Philip Morris Europe also expanded manufacturing facilities in Switzerland and Holland to meet increasing demand for existing products and provide capacity for new cigarette brands. Philip Morris Germany G.m.b.H. opened new offices in Frankfurt in 1971 and a new cigarette factory will be opened in West Berlin in 1972. A new company, Philip Morris France S.A., was formed to assist in marketing cigarettes in that country. Also in the European region, Philip Morris Espana S.A. and Philip Morris Iberica S.A. were established with Spanish partners to produce cigarettes for sale in Spain. Marlboro was launched in Yugoslavia where it is being manufactured under license. Philip Morris Nigeria Ltd. continued to expand its market share and during the year made further improvements in its factory in Ilorin. In the Asia/Pacific region, management services were strengthened through formation of Philip Morris Asia-Pacific with offices in Melbourne, Australia. Philip Morris (Australia) Limited is doubling the size of its Melbourne factory to integrate production of Godfrey Phillips brands and keep pace with the growth which brought it an increased share of the Australian 20

cigarette market and considetably higher sales and profits in 1971. To capitalize on the promising long-term potential of the large Indonesian market for cigarettes, a new company, p T; Philip Morris Indonesia, was incorporated toward the end of the year with participating Indonesian partners. In India, Godfrey Phillips, India, Limited gained record cigarette sales and its largest market share to date. Sales advances were also recorded by our associate company in Pakistan. Despite adverse economic conditions, our licensee in the Philippines also increased its sales of our brands. 1) Marlboro sales force car in Switzerland. 2) Containers of U.S. export cigarettes boarding ship, Norfolk, Va. 3) Checker cigarettes are increasingly popular in Sweden. 4) Mark Ten cigarettes continue as largest brand in Canada. 5) Sampling girls offer Marlboros in Paris, France. In the Canadian market, Benson & Hedges (Canada) Ltd. expanded its market share and achieved record sales and profits. During 1971, major Canadian cigarette manufacturers, including Benson & Hedges, voluntarily agreed to terminate broadcast advertising and certain other marketing activities, effective January 1, 1972. It is not expected that this development wi11 P* °'~ ~ffect sales. ~~- - To achieve greater coordination and efficiencies within its region, Latin American headquarters management moved from New York to Coral Gables, Florida. C. A. Tabacalera Nacional, Philip Morris's Venezuelan affiliate, again expanded in sh6, e of market with its Astor brand bea m~ that country's number one brand.b~ alera Nacional began substantial m e zation of its Maracay factory ~{r the year. i In Argentina, our affiliate Massalin y Celasco, S. A. C. e I. commenced an expansion of its factory. However, economic and monetary conditions held profit levels down. In the second full year of operations in Mexico, Cigarrera Nacional, S.A., strengthened its market position as its Baronet brand tripled in volume. With continuing high marketing costs and low margins, this company has not yet become profitable. ~PiilllJn~l~ ~ iili f~ii~ ~ t~j I !1~! liii ii: if~liflluiilllul~u~Inl ': r,1 C n 0 0 a ~ ~ ~ 0 ~ 21

Our Guatemalan affiliate, Tabacalera Centroamericana, S.A., which serves the Central American Common Market, further improved its share of this multi- country market, despite the withdrawal of Honduras from this trading group. Growth also continued in the Dominican Republic, where E. Leon Jimenes, C. por A., completed a new tobacco processing facility. A new cigarette marketing company, Proveedora Ecuatoriana, S.A., increased our brands' share of the Ecuadorian market. During the year, the Philip Morris worldwide sales organization and network of distributors achieved record 1) Philip Morris salesman in Holland. 2) Marlboro umbrellas adorn Mediterranean beach. 3) Clark chewing gum delivery in Belgium. 4) Market share is growing in Mexico. 5) Marlboro street sign in Switzerland. sales of exports of our quality products. The major changes in the U.S. international economic policies during 1971 had no discernible effect upon our exports. Non-tariff trade barriers and increased import duties in certain countries continued to be the foremost obstacles to our export business. Philip Morris International also progressed in other product areas during 1971. In a major move, Philip Morris (Australia) Limited acquired Lindeman (Holdings) Limited, a leading 3 Australian wine company with a good profit record and outstanding reputation in the industry. In Canada, Formosa Spring Brewery at Barrie, Ontario, began operating its new brewery on schedule, permitting increased production and marketing of its high quality ales and lagers in Ontario. The Godfrey Phillips group of printing and publishing companies in the United Kingdom had another successful year. Although our chewing gum company in Guatemala was terminated during the year, the Clark Gum Company in Bornem, Belgium increased its market share in that country and further developed its expanding export business. The growing consumer demand for our products favorably reflects the emphasis upon quality which is synonymous with the Philip Morris name around the world. 5 I 0 22

Philip Morris International Philip Morris International Total Free-World Cigarette Unit Sales Qperating Revenues Cigarette Unit Sales Excluding U.S.A. Consolidated Export, Affiliates, Licensees Total Filter Cigarettes - Unconsolidated Total Non-Filter Cigarettes Philip Morris Share of Free World Market (%) - Mllions of Dollars 1000 900 800 700 600 500 400 : 300 ~ 200 ? "a 3 100 ~ ; A '62 '63 '64 '65 '66 '67 '69 '69 '70 '71 Since 1962 Consolidated Operating Revenues (excluding affiliates not wholly owned) of Philip Morris International have grown at an average annual compounded rate of 35.5%. Operating Revenues of consolidated and unconsolidated affiliates have increased at 29.0% on a compounded average annual basis since 1962. 1) Cavander's is principal cigarette brand in India. 2) Viscount cigarette sales are increasing in Australia. 3) Wine casks of Lindeman (Holdings) Ltd. in Australia. 4) Architect's drawing of the new Formosa Spring Brewery, Canada. 5) Marlboro Country billboard in Australia. Billion Units 100 90 80 70 - 3 60 ; 50 40 30 20 10 3 ~ A ~i i '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 Billion Units Percentage 2000- - 10 1800 9 1600 8 1400 7 1200 6 1000 - - - .; - . 5 800 600 - - _ - ~ _ 3 400 3, # ~ ! 2 200 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 Unit sales of cigarettes by Philip Morris Excluding the United States, total unit cigarette International through affiliates, licensees, and sales throughout the free world are approximately exports in 162 countries and territories have 1.7 trillion per year, growing at 4.0% per year grown at an average annual compounded rate of on a compounded average annual basis. 26.1% since 1962. Filter cigarettes now contribute 80% of unit sales. 23

I Miller Brewing Company (000 omitted) 1971 1970 1969 Operating Revenues $204,134 $198,479 $193,541 Operating Income 1,300 11,409 15,374 In the first full year under 100% Philip Morris ownership, the Miller Brewing Company had a 2.8 % increase in operating revenues, although operating income was sharply reduced by a combination of factors. These factors included planned increased marketing costs associated with the launching of a new advertising campaign, expanded promotional activities, and the introduction of a new product, Miller Malt Liquor. In addition, there were heavy increases in factory, packaging and raw material costs without any significant compensating price increases. 1) Trophy for Miller-sponsored 500 mile stock car race at Ontario Motor Speedway, California. 2) Miller's distinctive bottles move along production line. 3) Outdoor boards feature Miller's new advertising theme. 4) Miller High Life neon sign. 5) Miller opened reclamation centers for recycling aluminum cans. 6) Free summertime movies sponsored by Miller in Central Park, New York. Despite the difficulties and the poor profit performance, management continues to be optimistic over the long-term prospects of Miller. The principal characteristics which made the acquisition attractive initially still pertain. Miller High Life Beer is a quality product and one of only three premium beers sold in all fifty states. This is the dynamic and profitable segment of the beer industry and offers Miller true long-term potential. A great deal needs to be accomplished to restore the vitality that will enable Miller to improve its position in the industry and its profitability, and a number of programs were initiated toward this end during the year. A leading international advertising agency developed a new advertising campaign around the theme, "If you've got the time, we've got the beer." The campaign, presented on broadcast as well as in print media, has been well received. 3 4 The year also marked another new departure for Miller-the introduction of its first new product, Miller Malt Liquor, designed to compete in the small but growing malt liquor market. The product has sold well, and we expect its sales to grow as the demand for malt liquor is increasing at a rate of about 10% a year, compared with 31/2 % to 4% for the entire brewing industry. In September, John A. Murphy, who has contributed substantially to the progress of Philip Morris International as its executive vice president, was elected chairman and chief executive officer of Miller Brewing Company. In other developments calculated to contribute to Miller's growth, the expansion of the company's brewery in Fort Worth, Texas, is scheduled for completion in 1976 and will increase capacity by 45%. Both the Azusa and Fort Worth breweries converted to aluminum cans, which industry trends indicate are preferred by consumers and have the added advantage of a higher salvage value. Miller's shipments from brewery to distributor during the year increased only slightly due to the heavy build-up of field inventories at the end of 1970. Retail sales, however, were 4.5% ahead of 1970, matching the industry's historical average and

reducing field inventories going into 1972" During the last two years, Miller has moved from eighth place to sixth in the brewing industry in terms of barrel sales. The changes which have been made at yliuer_new advertising, new packaging, strengthened management, new products and improved manufacturing e{iciencies-should lead to an improved performance by the company in the years ahead. In addition, the continuing consumer trend toward national premium brands should be a positive factor for the company. To take fullest advantage of what we see as excellent opportunities for Miller, we will continue to emphasize the building of market franchises for long-run profitability, although this may mean sacrificing profits over the short term. 1) Magazine advertising for Miller High Life. 2) New Miller Malt Liquor was introduced in 1971. 3) The brewing process underway, 4) Action at the Miller High Life Open Bowling Championship Tournament. 5) Miller brewery at Azusa, California. 1 3 Miller Brewing Company Domestic Beer Industry Unit Sales Operating Revenues j Nationally Distributed Premium Beer (est.) Share of Total Industry (% )- Regional and Non-Premium Beer (est.) Millions of Dollars Percentage Millions of Barrels 250 10 160 225 9 140 200 $ 175 7 120 150 .1 _-1 ._ a -1 6 100 125 5 80 100 4 60 75 3 50 ~ 2 40 25 ~ ~ :A 1 20 9 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 '62 '63 '64 '65 '66 '67 '68 '69 '70 '7i Operating Revenues of Miller have increased Since 1962 the total beer industry unit sales have at an average annual compounded rate of 7.7% increased at 3.7% per year on a compounded for the last ten years. Miller Brewing Company average annual basis. In contrast, the premium has a 4.0% share of the total beer market. segment has grown at 9.5% per year over the same period. 27

Philip Morris Industrial (000 omitted) 1971 1970 1969 Operating Revenues $95,513 $85,875 $84,655 Operating Income 6,135 6,049 5,392 Philip Morris Industrial had a good sales increase while its operating income was up only slightly in 1971. This was encouraging in view of the economic conditions that seriously affected profit margins in the specialty paper, flexible packaging, and specialty chemical fields during the year. In addition, Philip Morris Industrial incurred heavy start- up costs in connection with its recently acquired Plainwell Paper Co., Inc., in Plainwell, Michigan. Philip Morris Industrial's major component is Milprint, Inc., which is 1) Wisconsin's Governor Patrick J. Lucey inspects Nicolet's new water treatment facility. 2) Polymer scientist examines sizing sample at textile laboratory. 3) Milprint artist works on customer package design. 4) Polymer's pigment printing products are applied to sheeting fabrics. 1 engaged primarily in producing flexible packaging for the food industry. In 1971, Milprint's sales and income were down, but its profit margin was maintained at the same level as the previous year, primarily as a result of a new product development program and the elimination of low margin business. Milprint is now a major producer of flexible packaging materials used in the gas-flush packaging of coffee for hospitals and other institutions, and supplies most of the protective packaging used for domestic and export dried fruit products. Promising new products developed in 1971 include an adhesive enabling candy makers to seal bar wrappings without heat, thus speeding up their packaging process and reducing costs; a new coating enabling easy removal of lids on candy, meat and pharmaceutical containers; and a flexible packaging material that makes it possible to pack food products while they are still hot. 3 During the year, Milprint, through its Koch Label Division, remained strong in the beer label business and expanded by 40% in other label markets. Milprint's Education Division, while continuing its service to the textbook and educational markets, enlarged its line to include general sales promotion, sales aids and specialty product, information materials. Nicolet, which manufactures glassine, greaseproof, and specialty and printing papers, had increased sales but profits were down because of rising pulp, coal, and labor costs, plus start-up costs incurred at the Plainwell mill. The DePere Division, one of Nicolet's three divisions, is the nation's largest producer of glassine for snack foods and supplies a major portion of the glassine for the candy bar packaging markets. The Plainwell Paper Co:, Inc., which was acquired in December 1970, produces premium coated and uncoated printing 28

C papers for financial reports, point-of- purchase displays, catalogues, and many other uses. Plainwell's sales performance was encouraging in its first full year of operation. The Special Products Division was activated during the year and plans are under way for the construction of a new plant which will more than double Nicolet's output of coated glassine products. This new division will open up new marketing possibilities for coating applications on films and other types of paper. polymer Industries, which produces specialty chemical products for the packaging and textile industries, showed 1) Milprint film sealers for mustard containers. 2) Quality paper control at the Plainwell paper mill in Michigan. 3) Individual portion containers are produced on new thermoformer at Milprint. 4) Conversion to glassine paper on Nicolet's supercalender. 5) Printing inspection at Milprint. 1 substantial gains in sales and income in 1971. The textile industry is Polymer's largest principal market, and pigment printing products, applied mainly to sheeting fabrics, represented Polymer's fastest growing product group in 1971. The activities of Polymer should be further improved by the acquisition in June of Armstrong Products Company, of Warsaw, Indiana, which manufactures liquid epoxy adhesives, powder coatings for industrial finishings, and fluidized bed equipment for applying powder coatings. In the new product area, Polymer completed the development of a high-gloss, protective coating for packaging and graphic arts papers, foils and films, and polyurethane fabric bonding adhesives which successfully withstand washing and dry cleaning. Polymer also increased its overseas sales in 1971 to direct-packaging industry customers in Europe. 2 4 Philip Morris Industrial Operating Revenues' Millions of Dollara 110 100 90 80 70 60 50 40 30 20 10 '62 '63 '64 '65 '66 '67 '68 '69 '70 '71 Since 1962 Philip Morris Industrial's Operating Revenues have increased at an average annual compounded rate of 4.5%. V 29

a Mission Viejo Company (000 omitted) 1971 1970 1969 Operating Revenues $37,812 $26,834 $29,610 Operating Income 2,256 682 733 The Southern California-based land development company, Mission Viejo- in which Philip Morris has an investment as well as operating control -had its best sales year in 1971. Population in Mission Viejo's planned 11,000-acre community in Orange County, California, increased by 3,000 1) One of Mission Viejo's three large recreation centers. 2) Mission Viejo's population passed 17,000 in 1971. 3) Directional sign indicates scope of Mission Viejo community. 4) New professional building at Mission Viejo. 5) One convenience shopping center at Mission Viejo. 1 30 to more than 17,000 during the year. Developed land in the community totalled 2,200 acres at year end, leaving 8,800 acres to be developed and sold. The company led all Orange County builders in sales of single family houses in 1971, completing and selling 951 homes, for a gain of 25% over 1970. Orders received for houses in 1971 were 3 8 % higher than deliveries, with the result that Mission Viejo entered 1972 with a backlog of orders worth over $17 million. Despite the continuing adverse effects of the aerospace industry cutbacks in the Orange County area, Mission Viejo benefited from the greater availability and reduced cost of mortgage monies for housing that 3 increased the home-building rate in Southern California to record levels, Overall, Mission Viejo today offers 30 different house models in six neighborhoods at prices ranging from $17,700 to $50,000. During 1971, sales of its new medium-priced line of "Madrid" houses ($30,000-$50,000) continued to be highly successful. In addition, Mission Viejo further broadened its price range and expanded its market potential in opening "Aliso Villas" quadruplex condominiums with units starting at $17,000. 4

Facilities in the Mission Viejo community continued to be expanded , during the year.The company completed construction of a 125-bed hospital, a sixth elementary school, and a fourth access point from the San Diego Freeway. Saddleback Junior College, now housed in temporary quarters in Mission Viejo, is continuing construction of its permanent campus there. 1) Mission Viejo's "wilderness park." 2) Waterfront homes at "The Lakes," near Phoenix, Arizona. 3) Fully furnished models add market appeal. 4) Community activities at Mission Viejo. 5) Man-made brook at "The Lakes." 2 In addition, land was sold for a major shopping center, seven convenience centers, four gas stations, a second post office, and other commercial purposes. Expanding outside Southern California for the first time, Mission Viejo began building and selling houses in August at "The Lakes"-a 350-acre project in Tempe, a suburb of Phoenix, Arizona. The planned community, which will include single family houses, townhouses and quadruplex condominiums, features a well equipped recreation center and a man-made lake with five miles of shoreline. In still another move outside California, Mission Viejo announced plans in September to build a $108 million community on a 640-acre site in Aurora, a suburb of Denver, Colorado. This development willl include single family homes, apartment houses, townhouses, parks, schools, churches, a recreation center, shopping facilities and bicycle trails. Construction of model homes has already begun at the site, which will officially open in 1972. The results of Mission Viejo are not included in the consolidated financial statements of Philip Morris Incorporated. 31

Directors and Officers Directors James C. Bowling Vice President Alfred Brittain III President, Bankers Trust Company Andrew C. Britton Vice President George V Comfortx President, The George Comfort 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, A ttorneys-at-Law Dr. Jess H. Davis President, Stevens Institute of Technology Clifford H. Goldsmith Vice President Chandler H. Kibbee Senior Vice President Edward Lasker Irwin, Gluecksman & Lasker, Attorneys-at-Law 3 4 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 Lewis F Powell, Jr.** Hunton, Williams, Gay, Powell & Gibson, Attorneys-at-Law George Weissman President James E. West Chairman o f the Board, Mission Viejo Co. J. Harvie Wilkinson, Jr. Chairman, Finance Committee, United Virginia Bankshares Wirt H. Hatcher Director Emeritus Ray Jones Director Emeritus Howard S. Cullman Member, Advisory Board Arthur Snapper Member, Advisory Board *Newly elected directors. **Lewis F. Powell, Jr., Esq., a member of the Board of Directors of Philip Morris Incorporated since 1964, resigned from the Board on December 31, 1971, after having been nominated by President Nixon, and confirmed by the Senate as Asso- ciate Justice of the,United States Supreme Court. 6 O fficers Joseph F Cullman 3rd Chairman of the Board and Chief Executive Officer George Weissman President and Chief Operating Officer Ross R. Milthiser 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 Chandler H. Kibbee Senior Vice President Thomas F Ahrensfeld Vice President and General Counsel James C. Bowling Vice President, Assistant to the Chairman of the Board and Director, Corporate A ff airs 9 10 32

Andrew C. Britton Dr. Helmut R. R: Wakeham R. R. Millhiser Vice President and Senior Vice Vice President and Vice G Weissman Philip Morris President-Operations President-R&D Philip Morris U.S.A . , , . J. H. Wilkinson Jr. U.S.A. Eugene J T Flanagan*** , . C. H. Kibbee-Ex Officio Clifford H. Goldsmith Associate General Counsel, Secretary Vice President and Executive Vice C. Gilbert Collinb ood Finance Committee President, Philip Morris U.S.A. Treasurer J. E. Cookman, Chairman S. Lyle Graham Walter F Sperber A. Brittain III Vice President-Personnel Controller H. Cullman John T Landry Stephen F W. Ball J. H. Davis Vice President and Group Vice Assistant Treasurer and Assistant C. H. Kibbee President-Director o f Marketing, Secretary E Lasker Philip Morris U.S.A. BufordA T nes*** . Jetson E. Lincoln"` y . Assistant Treasurer R. R. Millhiser Vice President-Planning G. Weissman Ralph C. White George W. Macon, Jr. Assistant Treasurer and Assistant J. H. Wilkinson, Jr. Vice President and Vice Secretary Audit Committee President-Leaf, Philip Morris U.S.A. James G. Gilleran J. H. Wilkinson, Jr., Chairman Hamish Maxwell Assistant Controller A. Brittain III Vice President and Regional Vice Robert A. White* * * R. W. Dammann President-Asia/Pacific Phili Morris E. Lasker , p Assistant Controller International H. R. Marschalk Mary E. Russell John A. Murphy Assistant Secretary 1) Joseph F. Cullman 3rd. 2) Lewis F. Powell, Jr. Vice President and Chairman, Chief 3) George Weissman. 4) Richard W. Dammann. ""New1y elected officers. Jr Murphy 5) J Harvie Wilkinson 6) John A Executive Officer Miller Brewing . , . . . , 7) T. Newman Lawler. 8) James E. West. Company Executive Committee 9) Dr. Jess H. Davis. 10) Dr. J. A. Cordido- 11) Edward Lasker 12) Chandler H Fre tes Philip J. Reilly J. F Cullman 3rd Chairman . . . y , Kibbee. 13) John E. Cookman. 14) Ross R. Vice President and President, Mission A. Brittain III Millhiser. 15) Alfred Brittain III. 16) George V. Viejo Compan Comfort. 17) James C. Bowling. 18) Hugh y J. E. Cookman Cullman. 19) H. Robert Marschalk. 20) Clifford Fred M. Stefan H. Cullman H. Goldsmith. 21) Andrew C. Britton. Vice President and President , R W Dammann Philip Morris Industrial . . J. H. Davis T. N. Lawler I 11 13 12 14 15 16 17 21 33

Philip Morris U.S.A. 100 Park Avenue, New York, New York Ross R. Millhiser, President Clifford H. Goldsmith, Executive Vice President Russell N. Freund, Vice President-Personnel Richard D. Robertson, Vice President Shepard P. Pollack, Director-Finance and Planning Alex J. Kay, Jr., Controller R. Stephen Fountaine, Director-Market Research Tobacco Products Andrew C. Britton, Sr. 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-R&D Benjamin A. Soyars, Vice President- Maratfacturing Max L. Berkowitz, Vice President-Assistant Director of Marketing Robert H. Cremin, Director-Brand Management John Paul Jeb Lee, Director-Sales Raymond R. Nolan, Director-Distribution and Customer Service John J. Gillis, Director-Sales Planning Alan H. Bick, Director-Marketing Administration Edward M. Schaaf, Jr., Director-Manufacturing James A. Remington, General Factories Manager- Richmond W. John Campbell, General Factories Manager- Louisville Dr. Robert B. Seligman, Director-Commercial Development Frank E. Resnik, Director-Research Center Operations Hugh P West, Director-Leaf Purchases General Products American Safety Razor Company Burma-Vita Company Clark Gum Company The Lightfoot Company Charles H. Wilson, Vice President Peter G. Viele, Group Marketing Director John R. Baker, General Manager, Staunton Operations William P. Kerr, President-The Lightfoot Company 1 Philip Morris International 100 Park Avenue, New York, New York Hugh Cullman, President William K. Howell, Regional Vice President- Latin America Hamish Maxwell, Regional Vice President- Asia/Pacific Ronald H. Thomson, Regional Vice President- Europe Antonio Toledo, Regional Vice President-Canada James E. Turner, Vice President-Sales William J. O'Connor, Vice President & Chief Administrative Officer Albert E. Bellot, Vice President L. Morton Blumberg, Vice President Carlos E. Salguero, Vice President-New Development M. J. Adler, Vice President-Operations Fred C. Moessinger, Vice President-Personnel R. W. Murray, Vice President-Finance Philip Morris Europe Lausanne, Switzerland Fabriques de Tabac Rdunies S.A. Neuchatel, Switzerland Cousset, Switzerland Philip Morris Holland N.V Eindhoven, Holland Bergen Op Zoom, Holland Amstelveen, Holland Weltab S.A. Brussels, Belgium Philip Morris France S.A. Paris, France Philip Morris Germany G.m.b.H. Frankfurt, Germany Philip Morris Espana S.A. Santa Cruz de Tenerife, Canary Islands Philip Morris Iberica S.A. Santa Cruz de Tenerife, Canary Islands Philip Morris Sweden AB Stockholm, Sweden N.V. Philip Morris S.A. Bornem, Belgium Ronald H. Thomson, President Albert E. Bellot, Executive Vice President Carlos E. Salguero, Area Vice President Aleardo G. Buzzi, Area Director Staffan Gunnarsson, Area Director Paul Isenring, Area Director I. C. Ludwig, Area Director John T. McKenzie, Area Director James E. Rehlaender, Director of General Products Lucien Welle, Managing Director, Weltab S.A. JSrg von Wyss, Director of Operations Witold Griinbaum, Director of Operations David S. Grobet, Director of Operations Walter Thoma, Director of Finance & Administration Philip Morris Ltd. Godfrey Phillips Ltd. London, England D. V. Littlejohn, Chairman & Managing Director R. E. F Baker, Director D. P. C. Harris, Director D. H. Kelting, Director P M. Steele, Director & Secretary Philip Morris Nigeria Ltd. Lagos, Nigeria Thomas B. Shropshire, Chairman & Managing Director Godfrey K. J. Amachree, Director J. F. Brown, Director J. Scott, Director Philip Morris Overseas, Inc. Athens, Greece W. R. Dales, Sales Director-Middle East Philip Morris Asia-Pacific Melbourne, Australia Hamish Maxwell, President Philip U. Lovett, Area Director William H. Webb, Area Director Michael S. Hamson, Director of Adrninistration & Finance Philip Morris (Australia) Ltd. Philip Morris Limited Godfrey Phillips Pty. Ltd. Melbourne, Australia James R. Fawke, Chairman Charles J. Altson, Vice Chairman Hamilton Hurley, Director & General Manager, Philip Morris Limited John L. Fisher, Director William R. M. Irvine, Director Lisle J. T. Jones, Director Ronald E. Kneale, Director Kenneth W. Schultz, Director Lindeman (Holdings) Ltd. Sydney, Australia Michael P. Webber, Chairman David N. Reid, Deputy Chairman Raymond H. Kidd, Managing Director L. Keith Asquith, Director John A. Minter, Director Godfrey Phillips, India, Ltd. Bombay, India Brian C. Belham, Managing Director A. B. Bilimoria, Director D. J. Castrinakis, Director P. K. Das Gupta, Director B. N. Sen, Director R. A. Shah, Director Godfrey Phillips (New Zealand) Ltd. Wellington, New Zealand Michael W. M. Rouse, General Manager 2 34

Prenier Tobacco Industries Ltd. Karachi, Pakistan (Associated Company) S. A. Samad, Chairman & Managing Director p• T. Philip Morris Indonesia ;vfalang, Indonesia ~ViIly Hardiman Setiasarwana, Director Djarot Setyabudi, Director John P. Barry, General Manager Benson & Hedges (Canada) Ltd. Toronto, Ontario, Canada Benson & Hedges Tobacco Company Montreal, Quebec, Canada Formosa Spring Brewery Barrie, Ontario, Canada Antonio Toledo, President Charles Lombard, Executive Vice President & President, Benson & Hedges Tobacco Company George E. Mara, Director & Chairman, Formosa Spring Brewery Norman B. Wright, Vice President & President, Formosa Spring Brewery Harold F. Powell, Vice President Oscar Y Primeau, Vice President John R. Pritchard, Vice President Ronald A. Moles, Director of Finance, Treasurer & Secretary Paul Bienvenu, Director Robert B. Chisholm, Director John B. Claxton, Q.C., Director William Stevenson, Director W. Denis Whitaker, Director Philip Morris Latin America Coral Gables, Florida William K. Howell, Regional Vice President Cigarrera Nacional, S.A. Mexico, D.F., Mexico Leon R. Kraiem, President Lic. Fernando Hahnhausen, Director & Secretary William A. Saupe, Managing Director Allen A. Schumer, General Manager Tabacalera Centroamericana, S.A. Guatemala, Guatemala Alfonso A. Sobalvarro, President Lic. Jorge Skinner-Klee, Director & Secretary Alvaro Delgado Wyld, Director Douglas R. Pilling, General Manager E. Le6n Jimenes, C. Por A. Santiago de los Caballeros Dominican Republic Eduardo A.Leon,President Fernando A. Leon, Executive Vice President Jose A. I:e6n, Director C. Guillermo Leon, Director Dr. F. Carlos Alvarez, Director Philip Morris de Puerto Rico Caparra Heights, Puerto Rico Charles M. Pasarell, Chairman Julio Ayala, General Manager Proveedora Ecuatoriana, S.A. Quito, Ecuador Fernando Donoso, General Manager & Executive Vice President Thomas C. Wright, Director Dr. Antonio J. Quebedo, Director Fabiola Quebedo, Secretary South America Hans W. Kolbe, Area Director C. A. Tabacalera Nacional Caracas, Venezuela Alberto Reyna, Chairman of Advisory Board Dr. J. A. Cordido-Freytes, President & Director Jorge Blohm, Vice President & Director Andres Boulton, Vice President & Director Eugene Capucio, Vice President & Director Richard A. Hutchinson, Jr., General Manager Carlos Tejada, Secretary Massalin & Celasco, S.A.C. e I. Buenos Aires, Argentina Alejandro J. Massalin, President & Director Horacio E. Celasco, Vice President & Director Francisco J. Celasco, Vice President & Director Danilo R Massalin, Vice President & Director Pedro C. Massalin, Vice President & Director Dr. Damian Beccar Varela, Director Roger V. D. Booth, General Manager Miller Brewing Company 4000 West State Street, Milwaukee, Wisconsin John A. Murphy, Chairman B. William Kostecke, President John F. Savage, Executive Vice President, Secretary & General Counsel Harold C. Cushenbery, Vice President, Director of Marketing Charles H. Day, Vice President, Director of Operations Eugene J. Hayman, Vice President, Director of Industrial Relations Lauren S. Williams, Vice President, Corporate Planning Robert H. Lindstrom, Controller Clement G. Meyn, Master Brewer and Technical Director Phil A. Grau, Assistant Secretary Philip Morris Industrial 622 North Cass Street, Milwaukee, Wisconsin Fred M. Stefan, President F James Short, Vice President Arthur E Witt, Vice President Milprint Inc. 4200 North Holton Street, Milwaukee, Wisconsin James B. Kurtzweil, President Max G. Kocour, Executive Vice President Thomas V. Stoll, Executive Vice President and Treasurer Ralph J. Becker, Vice President Walter J. Hullinger, Vice President Edward B. Kime, Vice President Jack R. Jewell, Secretary Nicolet Paper Company West De Pere, Wisconsin Robert G. Etter, President T. Richard Probst, Senior Vice President Horace B. Faber, Jr., Vice President Richard L. Radt, Vice President William L. Goggins, Controller and Assistant Treasurer Plainwell Paper Company, Inc. Plainwell, Michigan Robert G. Etter, President Richard L. Radt, Executive Vice President Donald V. Martin, Vice President Polymer Industries, Inc. 1200 High Ridge Road Stamford, Conn. Richardson Thurston, President Leonard L. Adler, Vice President Raymond T. Clarke, Vice President Albert E. Cohen, Vice President James S. Zoller, Vice President Warren D. Fletcher, Controller-Treasurer Armstrong Products Company Argonne Road Warsaw, Indiana Cecil W. Armstrong, President Edmund P. Whitby, Executive Vice President and Treasurer Mission Viejo Company 26137 La Paz Road, Mission Viejo, California James E. West, Chairman of the Board Philip J. Reilly, President Anthony R. Moiso, Vice President and Secretary Jerome Moiso, Director Richard O'Neill, Director James G. Toepfer, Senior Vice President- Operations Roger F. Clark, Vice President, Financial Systems Division James G. Gilleran, Vice President, Administrative Services Division Robert E. Osborne, Vice President, Building Systems Division Robert Rodman, Controller 1) Ross R. Millhiser. 2) Hugh Cullman. 3) John A. Murphy. 4) Fred M. Stefan. 5) Philip J. Reilly. 35

i I Financial Review The year 1971 was one of continuing major gains in operating revenues, income and the strength of the Philip Morris Incorporated balance sheet. The accompanying table illustrates the considerable increase in operating revenues and earnings per share for the past 5-10-15 year period. These results clearly establish Philip Morris among the leaders of major growth companies. We were pleased during the year to see an improvement in the important pretax profit margin as illustrated in Chart # 1. The improvement in this margin during the past five years of almost 25 % is one of the important reasons for the continuing good increases in our earnings per share. This improvement has been the result of our sharply higher sales together with a highly effective cost control program. Capital expenditures during the year were up sharply to a new record level of $68,001,000. However, as indicated on Chart #2 and in greater detail on page 42, funds from operations after dividends were more than sufficient to cover our capital expenditures. We are anticipating that the same situation will continue for the next five years during which period we are forecasting aggregate capital expenditures of over $400,000,000. In 1972, capital expenditures are expected to exceed $85,000,000. 1971 was the fourth consecutive year in which the common stock dividend was increased. However, due to the Phase 2 restrictions, we were permitted to raise the quarterly dividend by only 4%, or 1¢ per share. Chart # 3 illustrates our very conservative dividend policy in recent years, which we consider sound in view of the substantial growth in our business with the attendant need for 36 more and more funds, plus the important fact that our pretax return on stockholders' equity as shown in Chart #4 has averaged better than 30% in recent years. The rapid growth in our per share earnings has been well documented, but Chart # 5 illustrates this growth performance as contrasted with that of the 425 stocks used in the Standard & Poor's Industrial Average. Our balance sheet position continued to strengthen substantially and Chart #6 illustrates the important reductions in the past few years in our debt-to- equity-ratios. In the past five years stockholders' equity has increased $329 million and working capital $164 million as shown in Chart #7. With - total assets over $11/s billion and a strong current position, your company is in excellent financial condition and well postured to finance our projected growth. There are no near-term maturities on the funded debt, and there appears to be no need for any domestic long-term debt or equity financing in the next several years. If the "Balance of Payments Program" is continued, it will probably be necessary for us to sell some medium- and long-term bonds overseas to obtain the funds we will need for our expanding international business. During 1971 we sold in Europe $15 million of 7-year notes, $15 million of 15-year bonds, and $17.9 million of 7-year guilder notes. These three issues, together with our Eurodollar revolving credit, provided the company with ample funds for its international operations. The new monetary accord, which revalued most of the major currencies and which took effect in December, appears to have been a sound move. However, whether it will prove to be a permanent solution to the monetary problems that have plagued the world in the last several years will depend to a considerable extent on the success of the trade and other negotiations which are now taking place. The various revaluations of foreign currencies resulted in an overall favorable balance sheet adjustment of $3 million which was credited to the Reserve for International Operations. The effect of this program on our operating results was positive but not material. The effects of Phase 2 on our business in 1972 are rather difficult to assess at this time. Tobacco workers' wage increases of approximately 6% under our union contract have gone through, and leaf tobacco, by far the largest item in our cigarette costs, is not under Phase 2 controls. Thus, we will be faced with higher costs not only in our cigarette business but also in all our other divisions and departments. Whether we will be permitted a small cigarette price increase is undeterminable at this time. However, we do anticipate the benefits of higher volume in 1972. 5-10-15-Year Growth Record (000 Omitted) 5 Years 1971 1966 O i Compounded Average Annual Growth Rate perat ng Revenues $1,852,495 $771,975 19.1% Pre-Tax Income 189,800 65,144 23.89'0 Earnings Per Share 4.02 1.54 21.2% 10 Years 1971 1961 O ti Compounded Average AnnualGrowth Rate pera ng Revenues $1,852,495 $529,127 13.3010 Pre-Tax Income 189,800 45,985 . 15.2% Earnings Per Share 4.02 0.94 15.6% 15 Years 1971 1956 O i Compounded Average AnnualGrowth Rate perat ng Revenues $1,852,495 $410,263 10.6%' Pre-Tax Income 189,800 31,781 12.75'o Earnings Per Share 4.02 0.67 12.7%

operating Revenues pre-Tax Margins ( % ) - Chart 1 Net Funds from Operations Earnings per Share > after Dividends a Dividends Declared per Share - Consolidated Capital Expenditures - Chart 3 Chart 2 yfiIlions of Dollars Percentage Millions of Dollars 2000 20 '140 1800 , 18 57'58'59'60'61 '62'63'64'65'66'67'68'69'70'71 130 120 110 100 90 80 70 '57 58'59 60 61'62'63 64'65 66'67 68 69'70'71 Dollars 5.00 4.50 4.00 3.50 j 3.00 -5 ~ 2.50 2.00 1.50 1.00 ~ 50 A ' 5 7' 5 8' 5 9' 60 ' 61 ' 62' 6 3' 64' 65 ' 6 6' 67 ' 6 8' 69.' 70 ' 71 Pre-Tax Return on Stockholders' Equity Primary Earnings Per Share (1957=100) Long-Term Debt to Equity Philip Morris a Philip Morris a Senior Long-Term Debt to Equity ;.A Dow Jones 30 Industrials - Standard & Poor's 425 - Subordinated Long-Term Debt to Equity Chart 4 Chart 5 Chart 6 Percentage Index Percentage 40 35 600 100 90 80 '57'58'59'60'61 '62'63'64'65'66'67'68'69'70'71 Stockholders' Equity a Working Capital - Chart 7 Millions of Dollars 600 37

i.rOnsOlIlJaie47 Balance Slleet5 Philip Morris Incorporated and Consolidated Subsidiaries December 31, 1971 and 1970 1971 1970 Assets: Cash and cash equivalents ..................... ......... ......... ............................ ......__............ .. $ 48,343,000 $ 52,042,000 Receivables .................................................................................................... ................ Inventories : 102,448,000 101,519,000 Leaf tobacco .................................................................................................... ............ 497,954,000 444,102,000 Other raw materials .................. ......... ............... .................... ............ ................. .......... 42,348,000 39,152,000 Work in process and finished goods ........... ........................... ............................. ............. 129,942,000 85,174,000 670,244,000 568,428,000 Prepaid expenses ................................................. ....................... ....................................... . 5,418,000 6,848,000 Total current assets ..................................... ........... ........ _........_.................... . Investments in and advances to unconsolidated subsidiaries and affiliates: 826,453,000 728,837,000 Domestic .................................................................................................... .._................... 20,086,000 21,637,000 Foreign .............. . .......... ....................................................................- 80,369,000 67,752,000 100, 455,000 89,389,000 Property, plant and equipment, at cost: ..... Land and land improvements ....... .......... ............... .............. .......................................... 14,362,000 12,357,000 Buildings and building equipment ................................................................................ 108,945,000 107,35 7,000 Machinery and equipment ................................................................................... ............... 265,638,000 254,029,000 Construction in progress .................................................................................................... .. 58,130,000 20,345,000 447,075,000 394,088,000 Less, Accumulated depreciation ...................................................................... 173,005,000 157,391,000 274,070,000 236,697,000 Other assets .......................................................... ................ ........... ...................................... 22,127,000 15,396,000 Brands, trademarks, patents and goodwill .................................................................... 168,930,000 169,105,000 $1,392,035,000 $1,239,424,000 See notes to financial statements. ,x

1971 1970 Liabilities: Notes payable ................................................... .......... :......... ...... .............................. :.... $ 201,500,000 $ 187,300,000 Accounts payable and accrued liabilities 166,704,000 146,744,000 Federal and other income taxes ............................................................ ...:................... 32,365,000 39,642,000 Dividends payable ............. .......................... ..:.............................................................. 8,293,000 7,469,000 Total current liabilities ............................ .....,.,................ :::..............._............... 408, 862,000 381,155,000 Lonb term debt: Senior ........................................ .......... . . ..... e . .................. . ....... . . . .-. .. , . . . . . ......... 216,433,000 178,331,000 Subordinated ......................... ,....... .... 136,003,000 192,069,000 Deferred income taxes ............... ...................... ............__.......:.......... 30,658,000 19,822,000 Reserve applicable to international operations ........................................................ 14,401,000 8,618,000 Other, including deferred investment credit 6,564,000 6,580,000 Total liabilities ... .............................................. .. ,....__ . _....... ..... .. ..-. ,.:: .. .. __: . . .. . .. ... : 812,921,000 786,575,000 Stockholders' Equity: Cumulative preferred stock, par value $100 per share ............................................ 25,104,000 25,434,000 Common stock, par value $1 per share ...................................................................... 26,285,000 24,414,000 Additional paid-in capital ........................................................ ...:.................... ............... 150,104,000 95,210,000 Earnings reinvested in the business ......................... ................ ._.:_............................... : 384,031,000 314,365,000 585,524,000 459,423,000 Less, Cost of treasury stock .............................................................................. 6,410,000 6,574,000 579,114,000 452, 849,000 $1,392,035,000 $1,239,424,000 39

Consolidated Statements of Garn1hgsPhilip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 1971 and 1970 1971 1970 Operating revenues .......................................- $1,852,495,000 $1,509,540,000 Cost of sales: Cost of products sold ....... .................................. ........................................................ 700,021,000 577,106,000 Federal and foreign excise taxes on products sold ................................................ 642,529,000 519,216,000 Gross profit ............................................................................, .............................. 509,945,000 413,218,000 Marketing, administration and research costs 278,736,000 219,527,000 231,209,000 193,691,000 Equity in net earnings of unconsolidated subsidiaries and affiliates: Domestic ....... ............................................... :..........__......._........._..:.._..,.............,.,...... 2,710,000 Foreign . 9,928,000 6,779,000 9,928,000 9,489,000 Operating income of operating companies ........................................................ -241,137,000 203,180,000 Corporate expense ....... ................. .......... ...... ...................... _...................................... ...... - 18 412 000 15 310 000 Interest expense ........................................... ........ .- : .- . :.. ........ . .. . ........... ...... ... . ....... .. .. , , 35,472,000 , , 35,425,000 Other (income) deductions, net ................................. .............. .......... .......... ....... :......... (2,547,000) 2,437,000 Earnings before income taxes ............................................................................ 189, 800,000 150,008,000 Provision for federal and other income taxes: Current ................................................. .....................____......._....................._..........._.. 78,743,000 72,168,000 Deferred ........................................ .. . . 9,559,000 342,000 88,302,000 72,510,000 Net earnings .................................................................................................... ......... ... 101,498,000 $ 77,498,000 Earnings per common share: Primary ..................... ............................................................. .................... .................. $4.02 $3.36 Fully diluted ............................................................ ...:......... .. .:........................:,:....... $3.64 $2.85 See notes to financial statements. 40

I Consolidated Statements of Stockholders' Equity Philip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 1971 and 1970 Preferred Stock, Authorized and Issued at $100 Par Value Common Stock, Authorized 50,000,000 Shares at $1 Par Value dditional Paid-In Capital Earnings Reinvested in the Business ost of Treasury Stock otal Stockholders' Equity Balance, January 1, 1970 $25,765,000 $23,410,000 $ 58,947,000 $262,189,000 ($14,503,000) $355,808,000 Net earnings for the year 1970 77,498,000 77,498,000 Cash dividends declared: Preferred stock: 4% Series ( 545,000) ( 545,000) 3.90% Series ( 325,000) ( 325,000) Common stock, $1.05 per share (24,452,000) ( 24,452,000) Preferred stock purchased for treasury ( 596,000) ( 596,000) Treasury and unissued common stock issued upon conversion of debentures 27,000 3,343,000 ,238,000 2,408,000 Proceeds from common stock issued under stock options 177,000 2,876,000 3,053,000 Preferred stock retired through sinking fund ( 331,000) 44,000 287,000 Balance, December31,1970 25,434,000 24,414,000 95,210,000 314,365,000 ( 6,574,000) 452,849,000 Net earnings for the year 1971 101,498,000 101,498,000 Cash dividends declared: 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 purchasedfortreasury ( 2,021,000) ( 2,021,000) Treasury and unissued common stock issued upon conversion of debentures _ ,690,000 1,274,000 ,936,000 4,900,000 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,December31,1971 $25,104,000 $26,285,000 $150,104,000 $384,031,000 ($ 6,410,000) $579,114,000 ( ) Denotes deduction. See notes to financial statements. 41

Consolidated Statements of Changes in Financial Position Philip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 1971 and 1970 1971 Source: Net earnings ................................. .................................. ..........._~._.._ . . : ..................... ... $101,498,000 Add (deduct) items not requiring outlay of funds: Depreciation ................... .................. ...__.......... :.. . :..:,.....,.................................. ..:... 21,500,000 Amortization ............................................................ .................................:................. 1,421,000 Deferred income taxes and investment credit ................................... .................... 9,559,000 Provision for reserve applicable to international operations .................................. 1,723,000 Equity in net earnings of unconsolidated subsidiaries and affiliates .................... ( 9,928,000) Dividends received from unconsolidated subsidiaries ............. __......................... ....... 2,875,000 Funds from operations ..................................................................................... . 128,648,000 Financing: Changes in long-term debt: New long-term debt ........................................................... ...:_.:............................... .. 47,868,000 Reduction in lonb term debt: Conversions into common stock .......................................................................... (56,066,000) Prepayments and retirements ...................... ...................................................... :.... ( 9,766,000) Net change in long-term debt............................................................................ (17,964,000) Stockholders' equity: Shares issued on conversion of debt ............................... ................................... 54,900,000 Shares issued under stock options ......................................................................... ... . 3,720,000 Shares of preferred stock purchased for treasury .................................................... ( 2,021,000) 1970 (Note ) $ 77,498,000 17,658,000 1,672,000 342,000 2,101,000 ( 9,489,000) 1,648,000 91,430,000 86,750,000 (43,575,000) ( 5,141,000) 38,034,000 42,408,000 3,053,000 ( 596,000) Funds from financing .................................... ................................... .38,635,000 82,899,000 Net unrealized exchange gains added to reserve applicable to international operations ........................................................................ 2,928,000 548,000 Total funds available ........................................,...................................,........ .. $170,211,000 $174,877,000 A p plication: Dividends ................... ................................................. ....................................................... .. $ 31,832,000 $ 25,322,000 Expansion and modernization of property, plant and equipment: Additions .................................................................................................... ....................:.. 68,001,000 39,595,000 Disposals ..................................... ............................................... ,_..................................... 8,442,000 2,362,000 Net cost of expansion and modernization ......................................................... 59,559,000 37,233,000 Investments in and advances to unconsolidated subsidiaries and affiliates ................ 4,013,000 2,210,000 Investments in consolidated subsidiaries: I Miller Brewing Company ..................................... ::.......................... .:........................... 97,106,000 Other ......................................... ......................... .::..........._.... ..... ........ :........... ......... ............ 12,489,000 13,533,000 12,489,000 110,639,000 Less, working capital acquired ........ ............. ................................ ,.,.,........ ............ ... 10,234,000 33,162,000 Net funds applied to investments in consolidated subsidiaries* .................... 2,255,000 77,477,000 Other, net ......... .................... ................................. :_ -................ ................. ...................... 2,643,000 824,000 Increase in working capital (see supporting schedule) . ................................................ 69,909,000 31,811,000 Total funds applied.........................................................:.:......:.............,............ .. . . $170,211,000 $174,877,000 Note: Restated to conform with an opinion of the Accounting Principles Board. `Net funds applied to investments in consolidated subsidiaries represent: r i Net non current assets of companies acquired, principally property, plant and ~ equipment, net ............. .............................................................................................. ......._................... $ 362,000 _~ $ 50,769,000 Cost in excess of net assets acquired .............................................................................. 1,893,000 ~ 156,708,000 ~ 2,255,000 W 207,477,000 Less, Amount invested in Miller Brewing Company in 1969 .. ................. ~ 130,000,000 Net funds applied to investments in consolidated subsidiaries ..................... $ 2,255,000 $ 77,477,000 See notes to financial statements. 42

Changes in Components of Workl9ig Cap1taI Philip Morris Incorporated and Consolidated Subsidiaries for the years ended December 31, 19"11 and 19'10 1971 1970 Changes in current assets: Cash and cash equivalents .. . . ................................. .......... _............... .............. .......... ($3,699,000) $ 10,157,000 Receivables ................ ..._....... ..................................................... 929,000 19,174,000 Inventories: Leaf tobacco ............. .......... ... .................................................................. 53, 852,000 80,576,000 Other raw materials ...................... .................... ............ ........ .......... ............. ................ - 3,196,000 14,609,000 Work in process and finished goods ....... .........._... ................................................ 44,768,000 25,924,000 Prepaid expenses ................................... _.................. ..................................................... ( 1,430,000) 3,409,000 Increase in current assets 97,616,000 153,849,000 Less, Changes in current liabilities: Notes payable ............................... ..................... _........... ............ ...... .................... ... 14,200,000 28,900,000 Accounts payable and accrued liabilities ................................................................. 19,960,000 69,149,000 Federal and other income taxes ................................................................................ ( 7,277,000) 22,352,000 Dividends payable .................................................................................................... 824,000 1,637,000 Increase in current liabilities ........... ................................................................ 27,707,000 122,038,000 Increase in working capital $ 69,909,000 $ 31,811,000 See notes to financial statements. Report of Independent Certified Public Accountants To the Board of Directors and Stockholders of Philip Morris Incorporated: We have examined the consolidated balance sheet of PHILIP MORRIS INCORPORATED and Consolidated Subsidiaries as of December 31, 1971, 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, 1970. In our opinion, the financial statements mentioned above present fairly the financial position of Philip Morris Incorporated and consolidated subsidiaries at December 31, 1971 and 1970 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 25, 1972 Lybrand, Ross Bros. & Montgomery 43

Notes to Consolidated Financial Statements CONSOLIDATION: The consolidated financial statements include the accounts of the Company and all subsidiaries whose common stock is wholly owned. In 1969, the Company purchased approximately 53% of the capital stock of Miller Brewing Company and on July 31, 1970 acquired all of the remaining outstanding shares. The Company's equity of 53% in the net earnings of•Miller from January 1 through July 31, 1970 is shown as equity in net earnings of domestic unconsolidated subsidiaries and affiliates in the accompanying 1970 consolidated statement of earnings; thereafter Miller's results are fully consolidated. Included in 1971 and 1970 operating revenues and operating income of operating companies were $204,134,000 and $78,542,000, respectively, of sales and $1,300,000 and $4,913,000, respectively, of operating income of Miller Brewing Company. During 1970, the Company invested $20,055,000 in convertible notes, capital stock and related options of Mission Viejo Company, a California based land development company. Under the terms of the agreement, the Company will make an additional investment of $13,500,000 if the options are fully exercised, which exercise must be made in no less than three nor more than five years from December, 1969. The agreement also provides for the Company to vote a majority of the stock of Mission Viejo while the options are outstanding. Exercise of all of the options and conversion of the notes would give the Company a majority interest in Mission Viejo. This investment in Mission Viejo is stated at cost and is included in investments in and advances to unconsolidated domestic subsidiaries and affiliates in the December 31, 1971 and 1970 consolidated balance sheets. Investments in and advances to other unconsolidated subsidiaries and affiliates (the Company's percentage of ownership ranges from 30% to 92%) are stated at cost adjusted for equity in undistributed earnings or losses since the dates of acquisition except for one minor foreign affiliate which is stated at cost. The Company's investment in these subsidiaries exceeds its equity in their net assets by approximately $5,000,000. The Company is not amortizing this excess, which represents goodwill that arose prior to November 1, 1970, because, in the opinion of management, the related investments have not experienced any diminution in value. Amounts included in the financial statements for the foreign subsidiaries have been translated at rates which do not differ significantly from year-end rates or average rates during the year, other than amounts for noncurrent assets and liabilities which have been translated at rates in effect in the years the balances arose. FOREIGN SUBSIDIARIES: Principal financial data of foreign subsidiaries were as follows : Consolidated Subsidiaries Unconsolidated Subsidiaries 1971: Assets ..............................................................................................:..... ..................................., $294,477,000 $219,483,000 Liabilities, other than due the Company ................................................................:...•••..... 153,652,000 105,611, 000 Net assets ................................................. ............. ...... ...... ................................................... ....,.. 140, 825,000 113, 872,000 Company's equity and advances ..................................................................................... 140,825,000 75 ,245,000 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 1970: Operating revenues ..... ........................... ......................... ............:........... .:............................. . 345,111,000 280,806,000 Net earnings .............. ........................................................ .>............. ................. ...................... 14,147,000 10,940,000 Company's equity ............. ......................................... ................... ................................... . ........ 14,147,000 6,779,000 RESERVE APPLICABLE TO INTERNATIONAL OPERATIONS: It is the Company's policy to provide out of earnings appropriate amounts for possible losses which might arise from any downward revaluation of the Company's investments in foreign subsidiaries which could be caused by governmental actions or by currency devaluations ($1,723,000 and $2,101,000 provided in 1971 and 1970, respectively) and for U. S. income taxes relating to undistributed earnings of foreign subsidiaries ($1,132,000 and $754,000 provided in 1971 and 1970, respectively). In addition, in accordance'with the Company's policy, this reserve was increased by net exchange gains on translation of foreign currencies of $2,928,000 in 1971 and $548,000 in 1970. 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 reflected 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. ~ PROPERTY, PLANT AND EQUIPMENT AND RELATED DEPRECIATION: H Property, plant and equipment are recorded at cost. Maintenance and repairs are charged to income and expenditures for W renewals and improvements are capitalized. rs The Company provides for depreciation of these assets 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. 44

The provisions for depreciation included in the consolidated statements of earnings were $21,500,000 for 1971 and $17,658,000 for 1970. The Company is presently constructing a new cigarette factory in Richmond, Virginia. This facility is scheduled for completion in 1973 at an estimated cost, exclusive of processing equipment, of $80,000,000 of which $19,500,000 had been expended at December 31, 1971. BRANDS, TRADEMARKS, PATENTS AND GOODWILL: At December 31, 1971, this account included costs in excess of net assets of companies acquired prior to November 1, 1970 of approximately $166,700,000. The Company is not amortizing such costs because, in the opinion of management, the related investments have not experienced any diminution in value. Costs in excess of net assets of companies acquired after November 1, 1970 of $1,893,000 are being amortized over a period of no more than forty years in conformity with an opinion of the Accounting Principles Board. Patents and patent rights are being amortized on the straight-line method based on their respective lives. LONG-TERM DEBT: 4%s % Sinking Fund Debentures, due June 1, 1979 .......................................................... 4.90% Notes, payable $2,600,000 annually from 1974 to 1988 and $16,000,000 on November 1, 1989 .................................................................................................... ........ 65/a % Sinking Fund Debentures, payable $3,500,000 annually from 1976 to 1992 and $15,500,000 on October 15, 1993 ........................................................................ 75,000,000 Eurodollar revolving credit maturing on July 1, 1976. Interest on currentnotes is 6-13/16% to 8% ..... ........ _........................................................................ ... 8 i/2 % Guaranteed (by Philip Morris Incorporated) Sinking Fund Debentures of Philip Morris International Capital N. VV payable $600,000 annually 1975 through 1979, $1,500,000 annually 1980 through 1985 and $3,000,000 on June 1, 1986 ............................ .............. ......... .... ........._,. .......... 8% Guaranteed (by Philip Morris Incorporated) Notes of Philip Morris International Capital N. VV payable on June 1, 1978 ............................................................................... 7i/2 % Guaranteed (by Philip Morris Incorporated) 60,000,000 Dutch guilder notes of Philip Morris International Capital N. VV payable 15,000,000 Dutch guilders annually beginning November 1, 1975 .............................._......................................... Other notes and debentures .................................................................................................... . Less, Amount included in current liabilities .................................................................. Senior debt ............_ .................... ......................................... ......... .................................. ... 10% Subordinated Notes, payable $3,600,000 annually from 1974 to 1976 and $5,760,000 annually from 1977 to 1981 and $32,400,000 on August 1, 1982. Callable after July 31, 1973 at no premium ................................................................ 6% Convertible Subordinated Debentures, payable $4,000,000 annually from 1980 to 1993 and $44,000,000 on September 1, 1994. Of the original issue of $100,000,000, $50,222,000 have been converted into 1,809,652 common shares through December 31, 1971. The remaining debentures are convertible at $27.75 per share into 1,.793;801 shares of common stock of the Company subject to adjustment under certain conditions ....................................... ....... 4i/2 % Subordinated Guaranteed (by Philip Morris Incorporated) Debentures of Philip Morris International Finance Corporation. Of the original issue of $25,000,000, $21,326,000 have been converted into 669,156 common shares through December 31, 1971. The balance is payable on August 1, 1988 if not previously converted. The remaining debentures are convertible at $31.86 per share into 115,317 shares of common stock of Philip Morris Incorporated subject to adjustment under certain conditions ............................................................................ 43/4 % Subordinated Guaranteed (by Philip Morris Incorporated) Debentures of Philip Morris International Finance Corporation. Of the original issue of $40,000,000, $29,449,000 have been converted into 813,517 common shares through December 31, 1971. The balance is payable on January 1, 1989, if not previously converted. The remaining debentures are convertible at $36.19 per share into 291,544 shares of common stock of Philip Morris Incorporated subject to adjustment under certain conditions ............................................................................ Subordinated debt .................................................................................................... .... December 31 1971 1970 $ 9,705,000 $ 14,580,000 55,000,000 55,000,000 75,000,000 75,000,000 26,000,000 29,750,000 15,000,000 15,000,000 -17,868,000 . _ 2,960,000 4,201,000 216,533,000 178,531,000 100,000 200,000 $216,433,000 $178,331,000 $ 72,000,000 $ 72,000,000 49,778,000 81,152,000 ~ 3,674,000 ~ 8,097,000 ~ - W ~ 10,551,000 30,820,000 $136,003,000~ $192,069,000 45

Generally, the long-term debt is callable, at annually decreasing premiums. The sinking fund requirements of the convertible debentures may be satisfied by the amount of debentures converted. 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: 1972, $100,000; 1973, $300,000; 1974, $7,900,000; 1975, $11,300,000; and 1976, $40,800,000. CAPITAL SHARES: December 31 1971 1970 Preferred, 4% Series: Authorized and issued ...............................,......................................_............................. . 147,873 149,872 In treasury .................................................................. ........ ............................. .................. - 30,874 18,956 Outstanding ........................................................ ..,.:.:....... ......-.:....... .................................... 116,999 130,916 Preferred, 3.90% Series: Authorized and issued ........................................ ............................................................ 103,163 104,470 In treasury .............................................. .............,.r..:.............. .::................................:..... 40,528 23,705 Outstanding ................................................ ............................................................ . 62,635 80,765 Common, $1 par value: Authorized .......................... ........ ................. :.-....................................... .......... - ........... ..... 50,000,000 50,000,000 Issued ...................... ................... :.....................:.............:...........:....................................... 26,284,981 24,413,807 In treasury ............. ................................................ ..:........:................................................. 115,527 254,967 Outstanding ..............................:.......................:.. ........ ...:..~......................................... 26,169,454 24,158,840 The Company is required to set aside annually in sinking funds, amounts sufficient to redeem 1,999 shares of preferred stock, 4% Series, at $105.50 per share and 1,307 shares of 3.90% Series at $100.75 per share. Shares held in treasury at December 31, 1971 are sufficient to fulfill sinking fund requirements for more than the next 15 years. During the year, 32,047 shares of the preferred stock were acquired for the treasury. The preferred stock is redeemable at any time, otherwise than through sinking funds, at $105.50 per share plus accrued dividends for the 4% Series and at $100.75 per share plus accrued dividends for the 3.90% Series. During 1971, 139,440 shares of treasury common stock and 1,689,733 unissued shares of common stock were issued upon conversion of convertible subordinated debentures. In addition, 181,441 unissued shares of common stock were issued upon exercise of stock options under approved stock option plans. 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. 1971 1970 Shares under option, beginning of year ..................... ....................................... 442,711 513,647 Options granted ................................................... :..... .................... ._..................... ..:.................. . 106,350 109,000 Options exercised .................................................................................................... ............. (181,441) (176,262) Options canceled ...................................................... ................ :,.:...,.......... ............................ (3,785) (3,674) ._.. . . .... ..... ...... Shares under option end of year 835* - 363 I 442 711 . . ... ....... ...... . ....................................____... , , , , Shares available for option, end of year .. ........................... ............................... .:...,.,,....,. 79,622 i 182,187 *At prices ranging from $11.50 to $65.25. 46

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, 1971, approximately $248,000,000 of consolidated earnings reinvested in the business was free of such restrictions. EARNINGS PER SHARE: Primary earnings per common share is calculated on the weighted average number of shares of common stock outstanding during each year, which was 25,063,307 in 1971 and 22, 806,598 in 1970. 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 year and net earnings were adjusted for related interest net of its tax benefit. 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 28,278,474 for 1971 and 28,298,283 for 1970. PENSION PLANS: The Company and certain of its consolidated subsidiaries have pension plans covering substantially all of their employees. The total pension expense for the years 1971 and 1970, respectively, was $11,200,000 and $8,250,000, which includes amortiza- tion of prior service cost over a period of 30 years. The Company's policy is to fund accrued pension cost. FEDERAL AND OTHER INCOME TAXES: Deferred federal and foreign income taxes have been provided in recognition of timing differences in reporting certain items of income and expense, including depreciation, for financial statement and tax purposes. During 1970, the Company provided for the estimated loss to be incurred on the proposed sale of certain assets and recognized the appropriate deferred income tax benefit. For tax purposes, the loss became deductible in 1971. This timing difference is a major reason for the net change in the provision for deferred income taxes. Investment tax credits had no material effect on these financial statements. RESEARCH AND DEVELOPMENT: These expenses are charged to income as incurred. 47

Fifteen Year FOnancaal eied/0ewPhilip Morris Incorporated and Consolidated Subsidiaries l (in thousands except last eight items) 1971 Operating Revenues ........................................................._.....,.... $1,852,495 Federal Excise Taxes .... ............... ............... _................. ............... 441,143 Foreign Excise Taxes ........................................................................ 201,386 Earnings Before Income Taxes ............................................................. .. 189,800 Pre-Tax Profit Margins .................................................................. 10.2% Net Earnings .................................................................................. 101,498 Dividends Declared: Common .................................................... 31,080 Dividends Declared: Preferred ..................................................... . 752 Net Earnings Reinvested ............................................................. 69,666 % of Net Earnings Reinvested .................................................. 68.6% 1970 1,509,540 372,092 147,124 150,008 9.9% 77,498 24,452 870 52,176 67.3% 1969 1,142,373 319,086 54,247 115,613 10.1% 58,340 21,794 887 35,659 61.1% 1968 1,019,846 295,903 41,841 100,107 9.8% 48,866 18,755 922 29,189 60.0% 1967 904,841 271,073 39,658 81,317 9.0% 43,601 15,226 922 27,453 63.0% Capital Expenditures ..................................................................... 68,001 Annual Depreciation ....................................................................... 21,500 Property, Plant & Equipment (Gross) .................................................. _ 447,075 Property, Plant & Equipment (Net) ............................................... ._ 274,070 Inventories ......................................................................................... . 670,244 Current Assets ................................................................................ 826,453 Working Capital ................................................................................ .. 417,591 Total Assets .................................................................................... 1,392,035 Short-Term Debt .............................................. ........................ ..........:.... ._ . 201,400 39,595 17,658 394,088 236,697 568,428 728,837 347,682 1,239,424 187 100 23,636 13,512 236,962 147,354 447,319 574,988 315,871 976,489 158 100 26,373 12,139 219,346 138,704 451,922 561,685 312,406 786,578 153 800 25,688 10,903 193,656 123,555 386,576 485,908 306,172 ~ 648,994 82 600 Senior Long-Term Debt .............. ................................................ 216,500 Subordinated Long-Term Debt ......... .......................................... ............- 136,000 Total Debt ....................................................................................... 553,900 Stockholders' Equity ..................................................................................-_-- 579,114 , 178,500 192,100 557,700 .452,849 , 168,700 163,600 490,400 355,808 , 176,000 25,000 354,800 314,496 , 173,800 256,400 280,186 No. of Common Shares-Actual .................. ............ ............... ............. ._26,169,454 24,158,840 22,565,334 22,200,308 21,830,874 No. of Common Shares-Weighted Average ............................ 25,063,307 22,806,598 22,269,461 21,928,890 21,674,884 Primary Earnings Per Common Share ...................................... $4.02 3.36 2.58 2.18 1.97 Fully Diluted Earnings Per Common Share ............................ 3.64 2.85 2.40 2.14 1.94 Dividend Declared Per Common Share .................................. ......._ 1.21 1.05 .98 .85 .70 Book Value Per Common Share ................................................. 21.44 17.87 14.78 13.12 11.77 Market Price of Common.Share High-Low ................................ 71-463/4 501/4-28 363/s-251/s 34i/4-22 283/4-153/4 Closing Price December 31 .......................................................... 701/4 491/2 353/4 32 22~/4 48

1966 1965 1964 1963 1962 1961 1960 1959 1958 1957 771,975 704,544 641,439 585,059 550,624 529,127 509,332 499,598 473,552 439,920 234,975 214,128 194,312 193,768 187,133 184,146 175,947 168,608 163,023 151,646 30,057 27,780 22,462 8,276 3,785 65,144 52,423 44,466 46,729 47,464 45,985 44,578 41,159 39,854 35,740 8.4 % 7.4 % 6.9 % 8.0 % 8.6 % 8.7 % 8.8 % 8.2 % 8.4 % 8.1910 34,183 26,509 22,614 22,052 21,946 21,511 20,984 19,590 18,705 17,441 15,101 12,896 12,867 12,855 13,046 13,212 13,085 11,140 10,467 10,017 923 943 953 953 953 970 1,011 1,024 1,037 1,039 18,159 12,670 8,794 8,244 7,947 7,329 6,888 7,426 7,201 6,385 53.1% 47.8% 38.9% 37.4% 36.2% 34.1% 32.8% 37.9% 38.5% 36.6% 17,089 12,078 19,366 26,243 11,843 8,733 7,300 12,380 8,580 8,337 9,532 8,857 8,316 6,765 6,293 5,638 5,362 4,932 4,981 4,472 172,593 159,759 153,224 139,595 110,204 99,066 93,641 90,050 80,906 74,009 110,157 104,044 102,417 93,150 68,664 61,560 59,960 59,655 53,444 51,024 297,761 271,823 ' 257,256 235,375 228,088 232,541 209,326 210,967 219,744 213,209 372,895 339,082 318,978 297,295 279,068 277,350 249,819 252,239 271,658 263,210 253,257 213,826 202,810 190,982 179,222 190,859 190,423 187,404 150,103 149,063 512,549 466,277 443,438 412,543 365,024 351,018 321,717 321,620 333,489 327,224 27,200 57,300 56,700 53,800 57,400 45,200 21,000 30,000 89,400 84,200 133,800 100,800 102,300 91,400 63,400 65,400 67,400 69,100 30,600 33,700 161,000 158,100 159,000 145,200 120,800 110,600 88,400 99,100 120,000 117,900 249,821 230,677 217,783 208,711 201,720 199,685 195,956 189,317 181,352 179,352 21,613,344 21,521,730 21,458,478 21,429,444 21,526,428 21,972,954 22,029,792 21,937,686 21,774,654 2 1,728,070 1.54 1.19 1.01 .99 .98 .94 .91 .85 .81 .76 1.54 1.19 1.01 .99 .98 .94 .91 .85 .81 .76 .70 .60 .60 .60 .60 .60 .60 .52 .50 .50 10.48 9.63 9.03 8.62 8.25 7.99 7.74 7.47 7.13 7.05 17~/s-12i/4 16i/s-12i/s 14i/s-11i/4 15-111/s 183/4-10i/s 20'/s-13 13i/z-10 10'/s-9 10i/4-7i/s 75/s-6 3/s 17 143/4 12 i/4 12 3/ 8 121 /4 18 3/ 8 13 3/ s 10 3/ 8 101 /4 7 i/ 8 ~ v cs U O ~ '7 d 0 ~ ~ E O V ~ F-+ ~1r CJ T G 4. J v .II U C e0 ~ Q

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