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PHILIP MORRIS & CO. LTD. , INCORPORATED Financial Statements as of March 31, 1945 and for the fiscal year then ended LYBRAND, Ross BROS. & MONTGOMERY CERTIFIED PUBLIC ACCOUNTANTS NCW YORK OFFICG }

A-. CERTIrIrD PUBl1C ACCOUNTANTS r a NEWTONR DCTROIT DALLAS PMILALICLPNIA CLCVCLAND NDUyTON'. CNICAOO CiNCl NNAT, 9AN FRANCil1CO BO9tON ROCRFORO LO9 ANOELC! BALTINORC LOWISVPILC ]U.TTLC WA$NINOTON 6T LOUIS PiTT',7DURON~ AILANTA LONOON To the Board of Directors of Philip Morris & Co. Ltd., Incorporated: We have examined the balance sheet of PHILIP MORRIS & Co. I1rD., INCORPORATRD as of March 31, 1945, and the statements of in- come and surplus for the fiscal year then Ended, have reviewed the systeme of internal control and the accounting procedures of the company and', -without making a detailed audit of the transactions, have examined or tested accounting records of the company andother supporting evidence, by methods and to the extent we deemed a.ppro- priate. Confirmations of receivables from departments and agencies of the United States Governmer.t were not obtainable but other appropriate audit procedures were applied by us with respect to these receivables. Our examination was made in accordance with generally accepted auditing standards applicable in the circumstances andlincluded all procedures which we considered necessary. In our -opinion, the accompanying balance sheet and related statements of income and surplus present fairly the position of the co;npany at March 31, 11045, and the results of its operations for the fiscal year then ended, iniconformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. New York, May 23, 1945. i 1

00,000.00 48,0y3.00 98,714,84 00,000.00. 55,075.24 02,315.c 94,189.03 00,000.00 50,000.00 44,189.03 G3, 843 .58 ~ .G Z 03~,_Oj: . _~ A

I-41SM Illtl~,~. ~: , ~ ~~~' ,t`~~. NOTES to BALANCL SHEET' 1. Audited statements of the English subsidiary show net assets of $240,740 (on the basis of translati=into U. S. currency at the official rate of I-,,4.025 per pound sterling, except that exchange rates prevailing in the years of acquisition were applied to fixed and intar_gible assets) at March 31, 1944 and net income of .77,536 for the fiscal year then~ ended. The corresponding information as of March 31, 1945 and for the year then ended is not yet available. 2. At March 31, 1945 the Company had a balance of approximately 'Q'4396,000 on deposit with a redemption agent relative to certain shares of Cumulative Preferred Stock, 4-1/4 and 4-1/2;~ Series, (called for redemption on March 5, 1945) which had not been redeemed as of March 31, 1945. Neither such deposit with the redemption agent nor the corresponding amount of liability'f or unredeemed preferred stock is reflected in the accompanying balance sheet. 3. The Cumulative Preferred Stocko 4% Series, is redecmanle at any time, otherwise than through the sinking fund, at y)109.50 per share if redeemed on or before February 1, 1949 and thereafter at diminishing amounts (not less than ;;105.50 per share), plus accrued dividends. Ho1derAs of this class of stock are entitled to like payments upon voluntary liquilation of the Company and to ,?100 per share, plus accrueddividends, upon involuntary liquidation. Beginning with the fiscal year commencing April 1, 1945, the Com- pan is required to set aside in a sinking fund, within eighty (80T days after the end of each fiscal year, an arlount which is sufficient to red~eers, at ?'?105.50 per share, one per cent (1%)~ of the maximum number of shares of Cumulative Preferred Stock, • 4;o' Series, theretofore issued,, except that any preferred stock in treasury may be used, by rasolution of the Board oC Directors, in connection with such sinking fund requirement. The arr,ount of the first sinking fund requirement is to be set aside on or prior to June 19, 1946. 4. The terms of issue of the Twenty Year 3,°"o Debentures and the Cumula- tive Preferred'Stock) 4,19 S'eries, include certain restrictions with respect to the declaration or payment of dividends (other than dividends payable in stock of the company) on the Cor.zmon Stock. At March 31, 1945 approximately $10,000,0001 of the earned surplus was free of such restrictions. 1~}~;~332594 i I

NOTES to BALANCE SIMM , Continued 5. No provision has been made for any reductions in billings on overnment contracts for the fiscal years endcd March 31, 1944 ~preliminary proceedings have been commenced with respect to renegotiation for this year) and 1945 because the percentages of profits realized on government sales during those two years are believed to be somcwhat less than the perccntage which: resulted f rom the concluded renegotiation agreement for the fiscal year ended Mlarch 31, 1943. It is the opinion of the management that any renegotiation refunds which may be required for the fiscal years ended March 31, 1944 and 1945 will not be material in relation to the net income for those years. 6. C'ontin..;ent Liayility: A suit iristituted in~ a preceding year by certain minority stockholders e,gHlAst certain present and for^ner officers and directors of the Company was still ptrnding at March 31, 1945. Although this suit is for the benefit of the Company, it may be liable to the officers wid dii+ectorg under Section 61-a of the Gene.ral Corporation Law of the 5tat,e of New Yorn and under Hrt 1.c le V of the By-laws of the Company which provide for the indemnification of officers and directors for their reasonable exponses, including attorneyts fees.

STATEMENI'` of INCON:E for the fiscal year ended March 31, 1945 Net sales 4185,293,150429 Cost of sales _159,183,4,x6.75 Crross profit from operations 26,113,713.54 3hipping, selling, general and administrative expenses 12,079,754•89 Net profit from operations 14,035,958•65 Add: Dividends received ~ 102,209.07 Profit on sales of securities 40,764.06 Other income 124,567.15 267,540.28' 14,303,493.93 Deduct: Interest on debentures and bank loans 449,170.97 Provision for additional compensation' to officers and employees, in accordance with authorization of stockholders at annual meeting on July 20, 1937 152,002.34 Prior service contributiion under company's retirement plan 88,701.00 68 ,874.31 Net income before provisions for federal taxes on income, and post-war and other contingencies 13,613,624.62 Provision for federal taxes on income: Income taxes 4s355400.00 Excess profits tax (loss $245,000 post-war refund credit) 21205,000.00 6 960,000.00 Net Income before provision for post-wur and other contingencies Provision for post-war and other contingencies Net income transferredto,ee,rned surplus ~ 7,053,624.62 ?5C O~o~o0' 0 6, bo1624.62 Note: The provisi~on for denreciation amounted to gbout 4P471,000 for the fiscal year ended Larch 31, 1945. i 5

I;i11 Nlll;I IN STATEAIEr~' of SURPLUS for the fiscal year ended March 31, 1945 CAPITAL S'URPLUS : Balance, March 31, 1944 A dd s Excess of aggregate amount received for 103,888 shares of Cumulative Preferred Stock, 4% Series, issued at S105.50 per share, over total par value of such shares Aggregate amount received, at 81.50;per share, on exchange of 70,770 shares of Cumulative Preferred Stock, 4% Series, for a like number of shares of Cumula- tive Preferred Stock, 41' Series Less, Underc-rriting commission and other expenses in connection with issue of Ctunula:tive Preferred Stock, 4% Series 12'a1ance, Mn.rch 31, 1945~ EARNED SURPLUS': I Balance, March 31, 1944 Add, Net income (after provision of S250,000~for po8t-war and other con- tin-encies ) for the year ended March 31, 1945, per statement annexed Deduc t : Cash dividends declared: On Cumulative Preferred Stock S 866,633•17 On Common Stock 41 4961465.255,363,098.42 t571,384.00 t,15, 73 9, 645 •75 106 155 .00 677, 53 I.Q0 16,417,184.75 9,288.00 295,180.00 164,416.00 .-,.. IM5 . 2.1 `'. ? P ~16,0431939•52 t S19,764,995•35 6,803,624.62 26,568,619.97 37,7~3.50~ ~ 5,869,7r ,~5.20' ~~~',l)7~, ''~•;.ti~ 1 ;~jte : See :~~o*e 40to balance 3heet. Prer.tilrn on shares of Cumulative Preferred Stock, 41 and 4J%S' Series, redeemed pursuant to sinkinE fund requireMents Premium on 73,795 shares of Cumulative Preferred Stock, 4-,1% Series, redeemed at ;104 per share Prei-iiwu on 23,483 shares of Cumulative Preferred Stock, 41 ~ Series, redeemed r:t, :107 per s?:nre AaS»e aate ar.tcur_t p3.id, at S1.50 Per s?:~t»e, on eYchanZe of 25,1C19 sh^.res of Cunulative Preferred Stccl€, <<;' Series, for ft 1i1ce :lumber of sh,%res of C=ile.tii.re i'referred S'tcck, 44p Ser ie sBala^ce, i~~Rrcw~ 31, 1~~4~~~,i (sQe note )~