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ADVERTISING Competition is keen in our industry. We have met the challenge of tremendou:s adver- tising power with a program developed after careful research and market analysis. Our advertising plans are concentrated, on two important phases-the development of pro- ductive selling messages and techniques and the studied selection o~ media to be used on the most e~cient basis. The advertising agencies which have serviced our Company in the past, have again in fiscal 1949 worked closely withthe sales and advertising departments in the planning and carrying out of the advertising programs for our various products, In order to reach the greatest possible audience in the most et~icient and productive ,say we use both, nighttime and daytime radio programs~ Entertainment value is of first~ im- portance in attracting audiences to hear our selling messages. At the same time, however, programs are planned to afford various op- portunities for the public. Thisgives an element of service to programs presented from coast to coast. We believe this is. of value not onl!y because it creates wide community interest but also because it helps build good wilt and pres- tige for our Company. We have used spot Television ad~vertising for approximately one year and' recently pre- sented a fulI time Television show. We believe that Television will develop, into an important selling medlium and' are continuing our study to develop a fulI knowledge of its potentials. Johnny, our living trademark, is particularly welll adapted~ to Television presentation. As. in the past we spent more in propor- tion to our sales than some companies and we believe that our investment in advertising is accelerating our long term growth.

i i I IIII I1~1 ,ll TELEVISION. Jinx Fall~enberg Demonstrates Philip Morris' Quality

MISSOURI MISSISSLPPI INDIANA: ALABAMA OHIO TENNESSEE GEORGIA LAND NORTH CAROLINA NEW YORK PENNSYLVANIA FLORIDA SOURCES OF PHILIP MORRIS { ~ GEORGIA I l'~-q-CUE~Vlttt ~ SOUTH CAROLINA [~J PADUCAH FLUE CURED ~ EASTERN CAROLINA FlEE CURED [~'-~' HENDERSON " ~ MIDDLE BELT ~ DARK VIRGINIA ~ o~,sttr ~ omo DOMESTIC AIR CURED LEAF CLASSIFICATION MARYLAND BURLET GREEN RIVER ONE SUCKER SUN CURED PERIQUE

LEAF Our inventories: of leaf tobacco are the largest in our history. Prior to. the end of our 1948. fiscal year it became clear that our sales would demand increased quantities of leaf, both domestic and imported. Before the open- ing of the markets in 1948 substantial amounts of aged domestic leaf were purchased' and placed in our warehouses for further aging. These stocks of leaf were increased by the extra amounts of high quality tobacco bought during. the market seasonsand ptaced in storage. Our supplies of choicest Oriental tobaccos are at our highest level. Our 1950 requirements can be: met even at an increased level of sales. The staff of our Domestic Leaf Depart- ment under Mr. Wirt H. Hatcher, wasstrength- ened during the year through the addition of Mr. Edwin W, Tucker. Mr, Tu~ker is now. gen- eral assistant to Mr. Hatcher.. Mr, J.. Raymond Kuhn continues the direct supervision of leaf stocks. The Oriental Leaf Department under Messrs. J. E' Archbell and Russell H'. Kuhn has been fortified by the recruiting, of' Mr. John H. Lane. Mr. Tucker and Mr. Lane have long been considered in the industry as outstanding experts in their respective fields, !'. i.:~i~ :~ Government controls reduc- ~ '-~ ed the crop acreage and raised the support; price. Because of these factors which artificially affect the price and limit the supply, no ma- terial reduction in the price of domestic leaf' tobacco seems likely in the near future. Left: Mr. Edwin W. Tucker was born and grew up in the tobacco country in Virginia. Work in, tobacco from growing fields to auction floors has been his career. In November of lastlyear he resigned his post as Assistant Vice Pr,esident of Universal Leaf Tobacco Company to join the Domestic Leaf Department of Philip Morris. Right: John H. Lane was born in Turkey of American parents and has maintained his contact with Oriental tobacco throughout his business ~lfe. For years he work- ed in a tobacco company in the Orient in both tech- nical and administrative positions. Last September he joined the Oriental Leaf Department of Philip Morris.

The cumulative effect of efficiency gained through our expanded program is in forcd to- day and i'r~ our plants we are turning out: more cigarettes than ever before. The manufacturing division under Mr. C. T. Ames, Jr., Vice Presi- dent, profited materially during the year by the ilmproved machines: and methods described: in greater detail,in our last two reports. Additi!onal 14 improvements in equipment and production facilities were made during the year. As an example, in the stemming department thirty. four new machines now do the work formerly requiring fifty:. Our net investme~tt in land, machinery andi buildings with over one mil- lion feet of floor space in use, now stands at $8,301,257. (continued on page 19)

STATISTIC S A record of the Company's operations and a compari- son of Philip Morris with the aggregate figures of its four major competitors Thi~ section ma~, be removed for reference

RECORD OF PHILIP MORRIS OPERATIONS Baliance Sheets at March 31, (000's 0mi~ted) 1949 1948 1947 1946 1945 1944 1939 1936 ASSETS Cash & Marketable Securities $ S,264 $ 4,857 $ 4,024 $ 2,486 $ 2,320 $ 2,455 $ 1,S01 $ 2,393" Receivables " 9,173 7,196 6,391 7,914 10,063 111,017 3~705 1,665 Inventories 132,444 93,913 98,812 112,745 87;280 69~948 27~295 8,231 Other Current Assets - - - 1,B67' 206 4,290, - - Total Current Assets 146~881 1Q5~966 109,227 125~012 99~8691 87,710 32,501 12,289 Net Property Account 8,301 6,828 6,468 4~989 5,1il0 3,471 2,885 1,250 Prepaid Items & Other Assets i,117 937 1,049 1,391t 1,929 3~304! 1,757 122 Total Assets 156,299 113,731 116,744 131,392 106,908 94,485 37,143 13,661 LIABliLITIES Notes Payable 30,000 - 5,500 44,000 16,000 5~000 7,000 3,800 Federal Taxes 7,811 3~431 3,440 2;681 6,992 6,028 1,426 395 Accounts Payable 6~773' 5,7.53 3i866 2,574 5,047 6,552 877 i,149 Other Current Liabilities 2,987 1,797 1,834 1,369 .2,255 2,045 11,206 591, Total Current Liabilities 47,571 10,981! 14,640 50,624 30;294 19,625 10,509 $,935 Long Term Debt 32,000, 32;000 32,000: 11,500 11,300: 11~500 - - Reserves for, Contingencies, etc. 237 237 500 - 250 - - - Net Worth 76,491 70,513 69~604 69,268 65,064 63;360 26,634 7,726 Total Liabilities and Capital 156,299 113,731 116,744 131,392 106,908 94,485 37,143 13,661 Net Working Capital 99,310 94,985 94i587 74,388 69~575 68,085 21,992 6,354 Net Asset Value of Common Stock 28~04 24.80 23~95 23.68 "22:56 .'21.94 "14.01 ~ *6,20 *--adiusted to present capitalization Figures for the year 1939 ar~ on a consolidated basis (with English subs[d ary) Figures for the year 1936 are on a consolidated basis (with American subsidiary),

of all'common.stockholders they were.. 79.5% 2,471 owned 499 shares or less:- of all common stockholders they were.. 15.7% 502 owned! 500 shares or more:- of a//common stockholders t.hey were.. 3,1!% No individual owned more than 6% of the Common Stock. Other stockholders are: 194 institutions and other Companies, 53 Insurance Companies and! 12 ]nvestmentl Trusts.

RECORD OF PHILIP MORRIS OPERATION5 Statements of Income for the fiscal years ended March 31, (,000 omitted), Net Sales (Including Revenue Stamps) '.,:i Cost of Sales (Including ~ : .... Revenue Stamps) :~. ,~ Gross Operating Profit ; Shipping, Selling, General . :. & Administrative Exp, Operating Profit Other Income • Total Income Income Deductions Net Income (Before Taxes). Federal and State Taxes on Income : Net Income 7.~:. Total Dividend Payments • ,~ .... declared Cash (Common) ~.:. (pfd.) - " Net Income Retained in the ": Business 9 :ii.":.. Earned per common share adiusted to present common shares :!::;i';i outstanding 7~{~ Per share earned on common, .,~.:.. shares outstanding ~ ~ •Common Shares ~ ..... (1) 1949 1948 1947 1946 1945 1944 $228;372 $171,258 $170,906 $178;686 $185,299 $177,901 188;656 146,694 148;412 159,799 15'9,051 152,290 39,716 24,564 22,494 18,887 26,248: 25,61ii 17,499 1!4,641 12,752 10,953 12,080 12,507 22,217 9,923 9,742 7,934 114,168 13,104 101 7251 6832 2,3234 267 149 22,318 10,648 110;425 10,25'7 14,435 13,253 1,658 985 2,]743 1,47'6s 9407 672 20,660 9,663 8;251 8,781 13,495 12,581 8~162 3,628 3i293 2,633 6,692' 5,930 12;498 6,035 4;958 6,148: 6,803 6,651 5,246 3,497 3;498 2,998 4;497 4,496 818: 836 863 817 866 844 6~434i 1,702 597' 2,333. 1,440 1,311 5.84 2.60' Z05 2:67 2.97 2.91 5.84 2.60 2.05 2.676 5.94 5.82 1,998i467 1,998,467 1,998,468 i,998~470' 999,235 999,235 1!9:39 $64~595 48,205 161390 7,862 8,528 108 8,636 551 8,085 1,534 6,551 3,727a 277 2,547 3.67 7.34 855,1951/2 (6), (8): (9): Including profit of $546,889:78 on sales of securities (before federal income tax of $137;000.00)i. Including recovery of $310,000.00 in. connection with government; contracts, net premium of ~;133;865.00 received in sale of 2~sc/o DeBentures, and profit of; $77,200.00 on sale of; real estate. Including premium ofl $472,000200 paid on retirement of 3~o Debentures, and provision of $500,000~00 for claims, litigation and contingencies. Including claim in amount of $1,867,527!76 for refund of federal excess profits taxes of prior years, arising under the carry-back provisions 0[ the Internal Revenue C0d~e, and excess provision of $300~000.00 in prior years for. federal income taxes. Including charge of $492,221.95 for losses arising from termination of war, less amount thereof charged against provision of $250~000.00 for post-war and other contingencies. (See Note 7). Also including chargeof $275,000.00 for reimbursement of withdrawing subscribers in: the purchase of subscription rights to shares of; Cumulative Preferred Stocki 3.60~'o series. After stock split 2:for 1. Including provision of $2501000~00 [or post,war and other contingencies, Disregarding a stock div.idend of one,haft share of Common Stoc]~ for each share of Common Stock~ Earned surplus charged $2,$97~950.00 for shares ofl Common Stock issuedl with respect to this dividend. Subject tO minor surplus ad.~ustmeuts. Figures for the year, 1939 are on a consolidated basis (with English subsidiary): Figures for the year 1936 ore on a consolidated! basis (with American subsidiary)~ 193'6: $26,876 20,171 6,705 3,498 3,207 .,: 116 ",-'~ 3,223 4121 2,802 3:94 2,408 415 1,993 1.93 5.80 415,465

A COMPARISON The fiscal year of Phiffp Morris. & Co. Ltd., Inc. ends March Philip Morris 4 Competing Company Companies $171;258,008 $2,169,816,000 $1!70,906,000. 1948 1947 Philip Morris 4 Competing Company Companies NET SALES (including Revenue Stamps) $228~372;000 $2.286~066,000 NET SALES (including Revenue Stamps) • per $1,000,000 of net property 27,51!0,000 22,536,000 25,081,000 27,523,000 -' 26,423,000 ANALYSIS OF OPERATIONS " ,,. ..... ~,~ Net Sales (Excl'uding Revenue Stamps). 100,00% 100.00% ' 100.00P/0 100.000/0 ~' ' i00~0 Cost of Sales (Excluding Revenue Stamps) 65~62 74i52 71.13 76.83 73.70 Gross Operating Profit 34.38 25.48 28.87 23.17 26.30 Shipping, Selling, General & Adminitrative Expense 15.15 7.25 17,21 6.81 14.9 Net Operating Profit 19:23 18.23 11.66 16~36 11'.35 Other Income .09 .13 .85 .29 Total Income 19:32 18.36 12,51 16~65 12.15 Income Deductions 1.4~ 1.96 1,16 1.83 Net Income before Taxes 17:88 16~40 11~35 14.82 • . 9.61 Federal and State Taxes on Income 7.06 6.62 4~26 6.07 3.83 Net Ilncome as % of Net Sales (Excluding Revenue Stamps) 10.82 9.78 7,09 8.75 Net Income as % of Net Worth 1:8:63 13.55 8.56 .. 13~28 Earnings per share of Common Stock 5.84 2.60 • I~/CAPITAL S~RUCTURE .... " ~- ~: :: % Long term debt 29.50 39.13 31.22 ' 35.18 - ~ 31.49 :~÷ "f. % Preferred Stock 18:85 11.52 20.43 11.22 21.40' Common Stock and Surpl'us 51~.65 49.35 48.35 53:60 " 47.11 9.68 ANALYSIS O:F FliNANCIAL POSITION ,,: Net Prop. Acct. as 9~ of tang. net worth 10~85. 12.96 !1.09 Current Liabil. as % of tang. net worth 62:19 46.10 ~5.57 54.06 ': 21.03 Total Liabilities as % of tang. net worth 104,34 !15.23 61.29 i12.75 ~. 67.73 Inventories as % of net working capital 133.36 118,79 98.87 li24:55 104.47 Current Liabilities as % of inventories 35.92 25.48 11.69 30.19 • 14.82 Long Term Debt as % of net working capita[ 32.22 45.13 33.69 40.61 33.83 (1) After exchange of 2 shares of: $5 par value for each share of $10: par vo 0000001463 ..... ~, ~ ~.~ ~,,~ ~. ~- .