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EXH1DIT A PHILIP MORRIS

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, , ~,.._, y ~ .~.-_,.::~ . ~,•I I' ,, - • . ~ [t l.rJy. ~. ..~.~.:....- . , M~% OWNED BY 16,456 STOCKHOLDERS OPERATED BY 3,405 EMPLOYEES :1 'trec~o~,3 O. H. CHALKLEY, Chairman J. E. ARCHIIELL CF:o. P. I311AUHURCER L. C. HAMox A. E. LYON J. J. S\VITZER 0. PAI1Kea \1cCoMAs H, E. RInuT.LL K. H. ROCKEY W. B. RYAN, JR. (flfeC7Xj A. E. LYON; President 0. PAnKt:R McCoarAS, Vice-President L. C. IIANsON, V'fce•Presidont & Treasurer W. C. FoLEY, Vice-President T. F. GAN`oN, Vice•Presideut W. H. HATCHER, Vice-President W. E. LIEBETRAIJ, Vice-President C. J. IIENN, Vice-President 11AY ]cSti1s, Vire•Presidkut C. T. AatEs, Vice-President E. W. nlNwtaalF, Vice-President L. C. N1ErzcER, Secretarv W. S. RouLIIAC, Assistant Treasurer H. R. BLUat, Assistant Secretary ~0i . . . . . . . . . . Cuarnnty Trust Co., 140 Broadway, New York, N. Y. 14. . . . . .... . . . . . . Commercial National Bank & Trust Co. of New York (()(wN.sr1 . . .~Xvw'%NS- . . 11 si i~ PHILIP MORRIS & CO., LTD., INC. 119 Fifth Avenue • New York, N. Y. .. Conix)y, Ilewitt, O'Brien & Bonrdman, 39 Broadway, New York •. Lybrand, Ross Bros. & Montgomery, 90 Broad Street, N. Y. 2 i

uring the fiscal year 1947 your company's sales were $170,905,550, less than the peak year 1945 when large quantities were being shipped to the Armed Forces, but nearly twice the $S7 million sales of pre-war 1941. Export of Philip Morris products, other than those delivered to the armed forces overseas, omounted to 1•11 of the total goods sold In flscal 1947 as compared to 4.3% in fiscal 1946 and 2,9% in fiscal 1945, At \f arch 31st our current assets were $109,227,074 and current liabilities were $14,640,322, indicating net working capital of $94,586;752. Included in current assets Is a leaf Inventory nc-tahle for its high quality and moderate cost. Net profits per common share were considerably lower than in the preceding year and amounted to $2.04 per share of common stock. Believing that~ the conditions which affected our net in the past year were unustll, and that eventualities had been arnply provided for in a contingency reserve, the directors dish•ibutecJ during the year 85Z of these net profits in the form of the regular $1.50 dividend and a25¢ extra dividend. The past year has been one of great importance as a period of consolidation in the lift! of your compauy. We have overccmle dillicnlt(i's Which ucctuMulatcd duriug the time of our greatest expansion and have completed changes, planned in the war years, leading to greater efficiency. A period of change is always a period of high cost and last year's profits were unfavorably affected by external conditions, including a lack of materials for packing and a narrnw pmfit mar6in resulting fi•clin price controls. ltolief from these condi- tions did not come until mid-year and although the secon& half year showed improvement, it coulci not elltirely ofFs(,t the advvrse lnfluences oft1-e first hulE. In order to view more clolrly the re-ulty of the year'y ulpcrutkms and the outlook for the years ahead, I would likc to estahlish a perspective by reviewing the past. NIT INQOME !lEORE FEDERAI tNCOME iAXES RROVhIOHFOR THE FUTURE C=:7 EEDERAI TAXES PREFERRED OIV)DENDS COMMON DIVIDENDS M M M 1935 1936 1934 1937 1938 1939 1940 1941 1942 1943 1944 1945 19461947 Ma,ft 0 «,.MI 3

on he growth of your company since 1937 has been unprecedented. Sales have risen from $55.6 million in the 1933 fiscal year to the present level of $171 million. This increase of about 2087 coincided with a 1202 increase in the industry as a whole. The normal difficulties attendant upon such growth were magnified in our case during the war years. Leaf purchases were limited by allocations based on consumption in a prior period, while our stocks were drained by larger sales. The demands of a country at war, increasing daily, made our need of tobacco for aging greater than ever before. Finished goods prices were fixed but costs were steadily mounting. Heavy financial requirements of expanding production were accentuated by a narrowing marginof profit on sales. Manpower demands of war production and the fighting forces caused upsetting changes In our personnel and reduced our sales force. While war conditions were troublesome, other serious problems have appeared more recently. Within the past eighteen months industrv has been shaken by sudden changes in the shift of the nation from war to pcacc•time tempo. In the fall of 1945 the end of the enormous requirements of the. armed forces converted cigarette shortages to surpluses almost overnight and brousht do- mestic stocks out of hoarding. In 1946 the eno of controls in the raw tobacco markets brought wide advances of leaf prices. The prlco rise was apparently arrested in November and more normal markets are anticipated by 1948, You will be interested to know how we met these problems and our operations will be dis- cussed later in this report, To summarize the results: 1. We have retained our gains in domestic sales and delivered to our customers in the past year 29 billion cigarettes, not far below our wartime volume when cigarettes sent to the fighting fronts were added to our doracstic deliveries, 2. Our financial condition is sound and compares favorably with the industry as shown in the table on pages 16 and 17. 3. Our inventory of leaf tobacco in quality and age we believe is second to none. In cost it is below the current market. In quantity and quality it is sufficient to take care of increased eon- sumption. 4

1 300 275 250 225 200i 175 150 125 100 25 0 Cak`rda4 Zfe~ Oisdu wox~w, 1937 -100 } 4. Operating e#1'iciency is on a high level and our margin of operating profit has increased 25% as compared to last year. i 5. Our earnings amply cover our regular dividend of $1.50 per share, ~ t 6. Our s11es organization, consisting of Philip Morris employees serving the distributors and }.~- ( retailers who 11;inc110 our produets, has been expanded and is now well equipped to meet the CD kerner cmnyetit'iull of the host•war mark0, 5 ,r... ..~.~~. 1932 1 1933 1 1934 11935! 1936 f 1937 I 1938 I 1939 I 1940 1 1941 111942 I 1943 I 1944 1 1945 11946 1 1947

SALES AND PROMOTION It, e0ie11mt v has altivavti m,ii1uEtctured ti,h;ic'c0 11rt,tliocts of hrCInihin (lIi,tlitr. This is still the hiisis of our ahlma l to tlit. s.nnki'n huf>lic, N~~'ith the l,runchinOf tlW l°hiloh \lorris F.ngla.1I 131rncl ciga- rette in 1933, vour cc mpane• first introducecU a premiiun qualitv ci(Tarette at a popular price, Our sales promotion, as always, is huilt, omc]rnsf• cooher.ition with the distributors and retailers. We con- tinuc in the helief that the dealer who brings tobacco products to the counters of your neighbor- hood store is a most important link between vour company as manufacturer and you and your ut it;hGrtr a~ smokrrs, Our ahilitv to seri-e our clistributors duriiig the war and return quickly to the competitive conditions of the peace-time market was hampered by the loss of personnel. Our sales force was diminished, with many entering military service, to a low of 80 compared to over 500 in the last pre-war year. NVithin the past year, however, our sales force has been partly restored. We now have 4OO men serving 6IX00 distributors and retailers to whom we ship directly in 1000 cities and towns. We expect that by the fall of this year, as more and more veterans join our sales force, our sales organization will be restored to normal! Some Philip Morris tobaccot are aged for eiqht years, N 6

. y MR. W. H. HATCHER, VICE-PRESIDENT and chief of the leof de- portment, is known throughout the plantation areas and the auction markets for his Inchiw knowledge o(bripht and burley quality. A dilcriminating buyer, during the market season from June to March he seldom relaxes except for occasional outings with dog and gun over the fields of his farm or in the duck marshes of Virginia. MR, J. E. ARCHBEII came from a farm in eastern Carolina forty-four yeart ago to work in a tobacco company in New York and rapidly advanced'to be super- intendent of its Brookiyn plant. He went to the Middle East in 1912 and' in, the Twentios become head of the largest American concern buying oriental to- bacco there. He returned in 1928 to retire, a young man, Inactivity didh't suit him and he joined our company in 1931 to work with Mr. Hatcher in Rich- mond. The selection and purchase of our Tu,kish and lotakia tobaccos is under his direction,,His wide eMperience in all phases of the production of fine ciga- rettes and smoking tobaccos is often drown upon by his fellow directors in setting the policies of the company. His office is in our main plant and almost every evening finds him~ in his Virginia country home when he is not travelling on company business. he quality of our blends Is our grcatcst incljrect sales appeal. Achieved even during the war, we see clear sailing ahead in this respect today. There are signs that in cigarettes, as in everything the eon• suming public buys, a return to pre-war habits of discriminating on the basis of quality has begun and our advertising contiiltlhs to feature Philip Morris quality. , 7 /