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VIRGINIA SI-iMS MARKETING PLAN EXECUTIVE SUMMARY 1988 vs. 1987 1988 1987 1986 Units Percent Volume Parent 4,635 5,779 6,292 -1,144 -19.8% Lights 6,529 7,255 7,901 - 726 -10.0% 120's 3,122 2,958 2,751 164 5.5% Ultra Lights 3,085 1,516 -0- 1,569 103.5% Total 17,371 17,508 16,944 - 157 -0.8% Virginia Slims Share - Percent 3.2% 3.1% 2.9% Spending -$MM 80.6 140.3* 75.5 $/M units 4.5 8.0 4.5 * Includes $57.9MM Ultra Lights national introduction and test markets. 1987 Base spending was $82.4MM. Virginia Slims has not maintained its historical growth trend over the last several years. While the introduction of Virginia Slims 120's in late 1985 provided short term growth and masked franchise weakness, unit sales have been declining since the fourth quarter 1986. Specifically, the two major components of the core business - Parent & Lights - are both declining at a rate faster than the industry. While the introduction of Ultra Lights in the last third of 1987 provided year end sales growth, the underlying weakness in the franchise remains. Virginia Slims' main objective in 1988 is to develop tactical and strategic plans to address short term weaknesses and to better position the brand for long term growth. Key issues are: The decline of both the parent and lights packings, slippage in the 18-21 smoker group, and the threat posed by Capri and other super thin products. A master plan needs to be developed to provide future growth for the franchise, based on broaden.ing.the overall appeal of the brand. To attack these issues more emphasis will be placed on retail promotions, direct mail, maximizing existing programs and new product development. Advertising will be more contemporary and "break-through" to reach new smoker groups. A shift in spending mix will move monies from media to direct marketing. A super thin product, Elan Thins 100's, will be test marketed starting in June, followed by a 85mm version. Despite the $57.9MM Ultra Lights introduction costs, net contribution for Virginia Slims only dropped 5% in 1987, from $230.8MM to $218.7MM. In 1988, it will increase 54% to $337.5MM. In summary, the brand's overall goals next year are to put in place programs that stabilize the franchise and provide a strong base for future growth. CONFIDENTIAL 023532 - 1 -

Virginia Slims Performance 12mm Share of Segment * 12mm Share of Industry* 1987 1986 1985 1987 1986 1985 Parent 8.10 8.49 8.88 1.05 1.11 1.18 Lights 7.39 7.76 8.25 1.35 1.39 1.44 120's 19.78 17.46 0.42 0.50 0.44 0.01 Ultra Lights 0.25 -- -- 0.02 N/A N/A Total 7.72 7.90 7.09 2.92 2.94 2.63 Virginia Slims (vs. year ago) -.18 0.81 -- -.02 .31 -- Regional Performance National 12mm Share of Region* Share 1 2 3 4 5 6 7 Parent 1.05 0.86 1.01 1.32 1.09 1.15 0.72 1.04 Lights 1.35 1.09 1.22 1.54 1.39 1.66 1.00 1.41 120's 0.50 0.31 0.42 0.57 0.50 0.76 0.53 0.41 Ultra Lights .02 -- -- -- -- .06 -- .05 Total 2.92 2.26 2.65 3.43 2.98 3.64 2.25 2.92 Virginia Slims (vs. year ago) -.02 -.04 -.08 -.06 -.03 .04 -.05 .02 Channel Performance 12mm Nielsen Share* 3mm Nielsen Distribution* Chains Indep Chains Indep Chains under Indep. under Chains under Indep. under $2m+ $2m $2m+ $2m $2m+ $2m $2m+ $2m Parent 1.21 1.17 1.01 1.13 98 100 93 95 Lights 1.49 1.53 1.12 1.28 98 100 92 93 120's 0.61 0.70 0.63 0.52 86 _95_ 85 75 Ultra Lights -- -- -- -- -- -- -- -- Total 3.31 3.40 2.77 2.93 98 100 93 96 Virginia Slims (vs. year 0.23 -0.16 0.11 0.09 -1 1 -- 2 ago) CONFIDENTIAL 023533

COMPETITIVE PERFORMANCE 12mm Share of 100mm Segment* 1987 1986 1985 Marlboro 100 B&H 100 Salem 100 Winston 100 Virginia Slims 100 Doral 100 Merit 100 Kool 100 Vantage 100 Kent 100 Total Segment *12mm are from August to July 14.50 11.05 9.88 9.32 6.39 4.78 4.36 3.78 3.29 3.16 14.09 11.48 9.88 9.58 6.50 3.35 4.38 3.98 3.35 3.37 13.86 12.38 10.07 9.73 7.03 1.91 4.56 4.41 3.47 3.70 Spending Review 1987 1986 Actual 1987 vs 1986 Amount PerM Amount PerM Amount PercE Advertising $ 62,098 $3.52 $41,157 $2.43 $19,143 4-, Event sponsorship 10,392 0.61 12,152 0.72 -1,643 -14 Consumer Incentives 12,767 0.71 7,450 0.44 4,754 64 Couponing/Direct 13,160 0.85 (1,700) -0.10 17,026 1002 Marketing Perm. and temp. 6,541 0.39 3,635 0.21 2,966 32 POS/artwork Sampling/product 15,106 0.91 860 0.05 14,666 170E promotions Other support 20,658 1.16 11,932 0.70 7,943 6E Total $140,722 $8.15 $75,486 $4.45 $64,855 86` * Includes Ultra Lights Introduction CONFIDENTIAL 023534 3

BRAND S-?ATUS Overview Since late 1986, when the growth from the 120's introduction leveled off, Virginia Slims' sales have been declining. While Ultra Lights will bring incremental volume to the franchise in 1988, this will not offset projected losses in Lights, Full Flavor and cannibalization to Capri. Long term brand growth is a major issue to be addressed in the coming years. The brand's strengths are a strong, recognizable brand name and high advertising awareness. The established Virginia Slims' image allows for effective execution of promotions and retail programs. The brand has good distribution (95%+) and no out-of-stock or inventory problems. Demographically, it has a growing share among total women and above average percentage of young consumers. The brand's major weaknesses are the decline of the core business (which will be further weakened by Ultra Lights introduction), slippage in its 18-24 year smoker base, and Capri's threat to Virginia Slims "thinness" positioning. Among other areas of concern are the question of whether a 3 share brand can fully support 8 packings and whether the existing packaging is attractive to female smokers. Volume/Share While Virginia Slims is off 3.8% year-to-date, the September introduction of V.S. Ultra Lights will provide enough momentum to produce a volume improvement in 1987. Of primary importance is core business erosion. Parent is forecasted to continue the downward trend that has continued since 1978 with a 582MM unit (9.2%) decline. Lights is projected to decline 6.9%, or 546MM units, due to cannibalization to 120's and Ultra Lights. 120's will provide moderate growth of 163MM units (5.9%). The expected performance of the total brand is consistent with the past four years. Sales has grown between .9% and 6.1% (120's introduction) and share .09 to .17 points per year. Recent performance has shown weakness as share 12 months ending August 1 is down -.02 vs. prior year. 1983 1984 1985 1986 1987 Sales (mm) 15,021 15,732 16,676 16,944 17,108 % Change -- +4.2 +6.1 +1.6 +0.9 Share 2.52 2.62 2.79 2.91 3.03 Change +.03 +.09 +.17 +.11 +.14 The brand is evenly split between Regular and Menthol. Full Flavor represents approximately 35% of total brand and its share is declining. 4 CQNF I DENT I AL 023535 W=

4 VOLUME PERFORMANCE/REGIONAL Virginia Slims is strongest Regions 3 and 5 with share of 3.4% and 3.6%, respectfully. Lights and 120s follow this same trend of strength in the Southeast regions. Region 6 is Virginia Slims' most underdeveloped area. YTD 8/1/87 SHARE SDI $ CONTRIBUTION 100 MM SDI Region 1 2.26 77 12.4 81 Region 2 2.66 91 14.7 88 Region 3 3.44 118 17.8 105 Region 4 3.00 103 15.0 97 Region 5 3.64 125 17.0 119 Region 6 2.26 77 9.7 108 Region 7 2.93 100 13.4 110 Total U.S. 2.92 100 100.0 100 Looking at volume change vs. year ago, the brand is weak with only 120s showing signs of growth. 120s grew 19.96% in Region 7 but at the same time Parent and Lights showed declines of 12.37% and 7.87%, respectively. TOTAL VIRGINIA SLIMS PARENT VOL %c/YAG SHARE% VOL %c/YAG SHARE% Region 1 -1.86 2.26 - 7.18 0.86 Region 2 -5.16 2.66 - 8.96 1.01 Region 3 -2.08 3.44 - 6.07 1.32 Region 4 -1.02 3.00 - 5.19 1.09 Region 5 -2.57 3.64 -10.15 1.15 Region 6 -3.93 2.26 - 9.46 0.72 Region 7 -3.14 2.93 -12.37 1.04 Total U.S. -2.77 2.92 - 8.20 1.05 ~ ~ LIGHTS 120's ~ VOL VOL G<~ %c/YAG SHARE% %c/YAG SHARE% ~ ~ Region 1 0.27 1.09 6.30 0.31 Region 2 -3.89 1.22 0.53 0.42 ~ Region 3 -2.08 1.54 8.03 0.57 Region 4 -0.73 1.39 7.24 0.50 Region 5 -8.77 1.66 9.10 0.76 Region 6 -6.01 1.00 8.68 0.53 Region 7 -7.87 1.41 19.96 0.41 Total U.S. -4.19 1.35 7.90 0.50 C0W 0~~3~1 AL 5

I I AV- Competitive Performance The performance of V.S. must be viewed within the context of overall 100mm development year-to-date. The category represents 37.7 share of the industry (+0.5 vs 1986). However, within this category the performance of the price value brands far exceeds regular products. Share of Industry Change 12 Months July '87 12 Months July '86 Total Full Price 100's 32.09 -0.66 Total Price Value 100's 5.65 1.16 As a consequence of the four brands which grew more than .1 share points in the past 12 months, two were price value brands, Doral (+.72), now the sixth largest 100mm brand and Cambridge (+.32). Among the other major 100mm brands, Marlboro & Newport demonstrated growth more than .1 share points, Salem & Merit were stable and all others declined. Share 7 Months '87 Change 1) M&rlboro 100's 5.49 0.27 2) B&H 100's 4.19 -0.14 3) Salem 100's 3.74 0.03 4) Winston 100's 3.53 -0.11 5) Virginia Slims 100's 2.42 -0.05 6) Doral 100's 1.81 0.72 7) Merit 100's 1.65 0.00 8) Kool 100's 1.43 -0.04 9) Vantage 100's 1.25 -0.04 10) Kent 100's 1.20 -0.07 The entire growth in the category is in the low tar non-menthol packings. All others are essentially flat. coNFrDCrvrzAL 023537 6

Military Sales Virginia Slims sales in military outlets in 1987 will be 376MM units, 12MM June. This is 12.4% above the same period in 1986, but 13.8% below 1985 thru June. This pattern is running contrary to brand patterns and growing since mid-86, a period of time when the overall brand is declining. Virginia Slims share in military is 2.33, down .12 from 1985 and .03 from 1985. There is no apparent reason why the brand is following these patterns. PM Sales department will be analyzing coupon usage patterns, to see if increased application of military coupons on Virginia Slims is a factor. Considering that the military is skewed male and towards price, Virginia Slims does much better than would be expected in this area. There appears to be no reason to alter any existing programs in 1988. CONFIDENTIAL 023538

Demographi.~ Review Tracking Data Overall, the 1987 Tracking Study provides a positive picture for Virginia Slims. The brand has grown a full share point among women smokers over the last two years and shows good vitality in most demographic segments. However, there are two areas that need marketing attention in 1988: First, the brand registers a sharp decline in 18-21 women smokers and second, there is considerable softness in both Lights packings, especially Lights menthol. It appears as if the 120's introduction provided the franchise with growth but simultaneously weakened Virginia Slims Lights and Parent. This is cause for concern considering the Ultra Lights introduction will further exasperate this situation. Key Findings SMOKER SHARE - Virginia Slims' share of all smokers has grown 0.3, from 3.7% to 4.0%. This is due primarily to the 120's packings moving from 0.3% to 0.7%. Of concern is slippage in Lights Menthol, which dropped from 1.1 share of smokers in the last report to 0.7%. SHARE OF WOMEN SMOKERS - The brand's share of women smokers has grown for the third straight year, moving fro,m 6.6$ in 1985 to 7.6% in this report. AGE - Of major concern is the fact that the brand is losing younger smokers. The V.S. share of 18-24 women dropped from 11.2% to 10.3%. While still the 3rd youngest brand in the industry, its index for the 18-24 female age group has dropped from 165 in 1985 to 134 currently. This slippage is being picked up in all the remaining age groups, with 35-44 showing the strongest gain, +1.4% share of women. Specifically, this decline is coming in the 18 to 21 sub-segment , where V.S. has declined from a 9.3 female share in 1985 to 8.0 this year; rather than the 21 to 24 age group, where the brand maintains a flat 12.4 share. An initial reaction is to assume_that these young smokers are going to Newport, but this is not-supported by this study. Newport is strongly a full flavor franchise and the Virginia Slims parent packings are growing in share of younger smokers. RACE - Virginia Slims has a slightly lower share of black women smokers - 7.4% - than all women smokers - 7.6%. While the brand has a growing share of black women, from 6.7 in 1985 to 7.4 in 1987, it has a declining index, indicating that the category is growing faster than the brand. SPANISH SPEAKING - Over the last three years, Virginia Slims has grown its share of Spanish speaking women from 6.3% to 8.1%. The index for Hispanic women has gone from 80 in 1986 to 110 currently. CONFIDENTIAL 023539 b

EDUCATION - A slight shift can be,3een in this area, with its share of women smokers with no college at all increasing from 6.2% to 6.9%. Overall, the brand remains better educated, with a 90 index for no college and 116 for some college, among women. INCOME - It appears as if new smokers to the franchise are coming from down market, with the share of income under $10M among women increasing from 4.8% to 5.6%. While the brand continues to be upscale (better educated/higher income), it appears to be broadening its base. NIELSEN COUNTY - Virginia Slims shows growth in the largest and the smallest counties, but slight declines in the middle. In Nielsen A County, the brand share of women has grown since last year from 7.3% to 8.4% and in Nielsen D, the gain is from 6.7% to 8.2%. The full flavor packings appear to be fueling the A County expansion while the D County advance is attributed to 120's. LIGHTS MENTHOL - The Lights Menthol packing performance is also of concern. It is the only Virginia Slims packing to have a decline in share of women smokers, from 2.1% to 1.6%. Lights Menthol also shows dramatic losses in the younger age groups, as follows: 18 to 24 - a decline from 3.7% to 2.4% and 25 to 34 - a drop from 3.2% to 1.9%. 18-21 Age Group When considering the decline in 18-21 year old smokers in the Virginia Slims franchise, several factors should be considered: 1) This trend is affecting other PM brands. Share of 18-21 Change 86 87 Virginia Slims 5.0 3.9 -1.1 Benson & Hedges 2.9 1.6 -1.3 Merit 2.4 2.1 - .3 2) 18-21 is becoming a smaller part of the industry. 18-21 % of Industry 1981 1982 1983 1984 1985 1986 11 10 9 9 8 7 3) Length: Moving away from 100MM (shares) 1984 1985 1986 80/85 66 65 67 100 32 32 30 120 - 1 1 CONFIDEN"fIAL 023540

Z_ Switchirr4- Data Analyzing the most recent switching study is difficult because it presents an artificially strong picture for the brand due to the 120's introduction. In the latest report, Virginia Slims is the leading brand for net gain of switchers, ahead of Doral and Cambridge. The studies do verify that the brand does and can attract switchers at a healthy rate. In the past four years, Slims has always had a higher % gain over losses than the 100mm category. Gains vs. Losses Total 100mm Virginia Slims Index 1983 +17 +27 159 1984 +19 +19 100 1985 +19* +23 121 1986 +22* +42 191 * 100n.m and 120mm However, it appears as if these gains are coming from line extensions, and masking a more serious problem. The parent packaging ability to attract new smokers is declining, despite the fact that 49% of all new smokers in 1986 went to a full flavor packing. With each line extension, cannibalization within the brand has intensified, to the point now where parent is losing more smokers inside the franchise than to competitive packings. Major losses are going to: Marlboro (15%), Salem (8%), Kool (3%), Merit (5%), Benson & Hedges (8%), Price Value (16%) and Virginia Slims (16%). Purchase Patterns ~ ~ Virginia Slims has a high incidence of pack purchases, driven by 0: its higher incidence of younger smokers. ~~ How Virginia Slims Bought ce) TOTAL WOMEN (100MM) V.S. CUSTOMERS INDEX W-A, 00 Packs 26.5 40.0 151 Cartons 52.1 37.9 73 Both 21.4 22.1 103 CONFIDENTIAL 023541