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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 /

FINANCIAL I Xat comha ny's financii~l holicy Iias ~rlhvay.s been a(fected by thc. nc ce ssity tc~ huiltl' stocks of le tf cco and increase hroclnctive c<<laacity in lina with the trc~menclc~us ~;rowth in salk~s, `i'herc~ pns• sible it has been our policy to meet expansion requirements out of income. For this reason our divi- dend payments have been a moderate proportion of net inco,ne: ln recognition of the stockholders' undistributed equity in our net earnings, we issued a stock dividend during the late Thirties, thus retaining in the business the funds which a cash dividend would have withdrawn. Our continuing rapid growth, h0wewer, was such that stockholders were givcn the opportunity to subscribe addi- tional funds through preferred stock four times during the past ten years. The first three of these issues have either been converted into common stock or refunded by the presently outstanding 4% preferred. The $3.60 preferred outstanding was issued last year. . At the pcak of the war demand when tobacco prices were making new h16hs every year, your directors found that additional funds could be used again to the interesf of the stockholders. An issue of preferred stock was planned principally to provide the increased capital funds necessary to finance the higher price of tobacco, the increase& volume of revenue stamps and the larger in- ventory requirements of the company occasioned by growing sales. The opportunity to purchase needed tobacco on favorable terms came in advance of the stock issue and funds were borrowed from banks on short term. Conditions in the tobacco industry were undergoing marked change during the long period of preparation and registration of the new preferred stock issue which was made necessary by the laws and practices governing financial markets. As it happened, the offer- ing of the preferred stock coincided with the end of purchases for the armed forces as described earlier in this letter. The income and production figures covering the period immediately preceding the offering of this stock inchided the effect of military orders. With the sudden ending of this de- mand, sales of the entire industry dropped sharply, much more than could have been expected be- cause of the season of the year. Your management believed that the stockholders should be apprised of this situation and concurrently gave them the option to cancel their subscriptions. All but 19,543 shares were cancelled. This event led your company to make its first substantial long term loan. 1•, ?100" ,-~

'Clte maltal;ement nlight well have eontimted to nrtke short term loiu-s tnasmuch as the lenders of funds to be repluced by the capital subscription were (luite happy to have the loans remain. But first, because the growth of the company had made its im•entory requirements permanently higher, and second, bccause thp! nature of Its inventory holding is long term due to the aging period; it was believed wisest to substitute a long term debt for short term notes payable to banks. A $32 million issue of debeilttires was placed with the Equitable Life Assurance Society of the United States, as described in the annual report last year. It was taken on the most favorable terms and lowest interest cost ever advanced by a large finan- cial institution to a member of the tobacco business CU1111nullity Ul) to that tlllle. MR. L. G. HANSON, the chief financial officer of the company, has been with us for twenty-three years. Treasurer and Director since 1934, he became Vice. President during the latter weeks of the war. His fellow directors rely upnn the soundness of his judq• ment in matters affecting the financial policy of your company. We entered the 1947 fiscal year in a sound condition. During that year we added over $1.4 million to the conlhtuty's pruductiive eduipment and at the same time iinproved Its working capital position. This improvement in liquid condition was accomplished through a reduction of manu- factured stocks and accounts receivable and the application of the $32 million bond issue to the reduction of bank loans and outstanding long term debt. Current assets on March 31st, 1947 were more than seven times current liabilities and our net working capital was at an all time high of $94,588,752. t' CONTINGENCY RESERVES 0 Your directors have deemed it proviclent' to set aside the sum of $500,000 out of the net~ earnings 9

COMPOSITION AND USE OF NET PROFITS 1946 1947 Profit fiomioperations and investments $8,006,267 S9;81],226 :. Pa6 for interest~ and prior service contribu~ i { tionito retirement fund' 558;573 1,202,141 . Providedfor taxes on income 2,550;C00 3,200,C30 Arail:`!a from usual' op,.,rati,"s for dirid~!^ds and prnis!:n for futura n~".'s of G",a busi-.:ss 4,497,694 5,409,085 But in each year, there were charges of an unusual nature whichi were paid or set aside outlof income: Losses from termination of war and reim• bursement of stockholder costs arising from subscription cancellations on 3.60 pfd $517,222 Premium paid on retirement ofi3% debentures Set aside for possible future charges , Total deductions $4]200 5001000 517,222 972;000 And, in each~ year there were credits or sums received not, in the ordinary course of business: Refund of excess Frofits taxes 1,867,528 Excess income tax provision prior years 3('0,000 Recovery under Government contracts 310,000 Profit'on sale of property 77,200 Premium received on 2s/, debentures, less expenses 133,865 Total'additions 2,167,528 521,065 Leaving, after including the unusuallitems 6,148,000 41958,150 Out of which wara pai44ri0ends 3,814,660 4,361,086 And the balance set aside for future business needs was 2,333,340 597,064 of the year just enclc•d in order to create a reserve to tirke carc of VVentualittes and leavv future carn• ings free of contitil;ent charges. Among the possible charges provided for are the expenses to the comhany which may be incurred in the settling of claims described in some detail in the pros- pectus of Jan. 16, 1946 under "pending litigation," 10

. This Is -he lost of eleven stages of mixing before the -obacco goes to the clgarefte making machines. The hot strips of tobacco which have just been pasteurized are here being treated with a cooling spray. J 11

LEAF AND BLENDING has been played by the n uiitst;mdini; part in the success of 1'hilih \1c-rris clurii-g the l rst teu years men of theleaif and blending e]ehartme--t. Mr. Hatcher„a vice-president, and Mr. Archbell, a direc- 0 tur of the con-I~,uiv, h.tVr Wurk-'cl t+-grthUn Ituclr,sr ecwl-Vrutitnt sii-ce tltrv, With 11r. Uluwiclclie, our h-huccl- hlvndiut; eslwrt, uriKiuntrtl the 11hilijt Morris E-it;lish 111cnal ili I932. lttich of our success has hevirtlhe to 1l10r itl-llitv ti- tnnlntitin ni°statul:-rtl of -IuitNtv'usvr the yatrr, Because of the vuri,chility of weather, tobacco froni the same seecl grown in the same ground by the same fanner will differ sufficiently from year to year to affect its taste. Therefore at the time of the making of a cigarette there must be on hand not only the proper amount of well aged tobacco of many types but also a duplication of these types from at least three crop years. This is necessary to instire uniformity of blend. To anticipate in the auction markets requirements for manufacturing for years ahead and to buy with unerring accuracy quatntities of aged tobacco of proper grade and dualityisahvays difl5- cult. It is even more difficult with the added problem of a large increase in sales from year to year. It is to the credit of this branch of our business that the quality of Philip Morris English Blend ciga- rettcs is just as high today as at the time of the origination of the blend. The mi•n of our leaf deparhneut have a knowledl;c of tobacco which eXtunds over more thai) two bcnerations and covers the entire world. Owing to wide experience with tobacco markets our )eaf purchasing problems clid not become acute until the complications caused by government allocations and the rising prices of rnw tobacco brought by the war years were upsetting the entire ihdustry, I)urinb 19-15 we bought a substantial portion of the tobacco which had been owned by the Axton Fishvr Tobacco Comptny. We were able to select from it large quantities of high quality and ft_ 12 I ~

TheN machines, by means of alternote application of high vacuum and -teom, nstore moiitvre to the tobacco which has previously been dried and aged, thuw giving the beil tex-ure for machine handllnq. The machines accomplish In a few hours what formerly required weeks. The vacuum is to perfect that when a machine is closed and the vacuum applied, to use the words of our foreman, "all the men in Richmond couldn't qet the hogshead out." well aged leaf to use in the immediate production of the additional cigarettes necessitated by the growth of the company's sales. Without it, inventory of aged leaf would have been dangerously reduced. Its use in the critical period just passed has made it possible for your company to achieve today an aged tobacco inventory outstanding in the industry in terms of the company's quality and production requirements. Thanks to this fortunate acquisition we came into the year 1946 with enough tobacco of Philip :1lorris quality to enable us to be selective in our purchases of raw tobacco in the crop season just concluded when prices reached an all time peuk. Our inventory costs are well below those price It^\-+4 untl tlir cunilntnv'L4inventorypotiitiun willperinit uK totukr -ttlvunt-igeof anyl-rice rrcessl«m in rnA-ing furthc'r piirchases. 13 ~ .~.......~~,,.. ~..y ...~._.....~..._._._~__....~...

OPERATING EFFICIENCY he manuf!:>cturing dehartment Of your comhclnl' is under Mr. C. T. Ames, Ir., 1'ice:-1'tesident in charge of produe- tion. In 1937 this department was lo- cated in our main plant in Richmond which had 213,000 square feet of floor space. By purchase and building, (some of the building in the difficult war years) we have expanded.to our present size with two complete pro- duction units In Richmond and one each in Louisville and London, Eng- land. MR. C. T. AMES, JR., VICE-PRESIDENT in charge of monu- facturinp, come with us in 1935. Beginning forty years of experience In clyarett* mokinp as a factory worker In a large tobacco company, he started up the management ladder when he was madi packing foreman In 1910, By 1919 he was plant wperintendent and continued In a managerial capacity thenceforth. The investment in land, machinery, and buildings with 962,000 square feet of floor space now operated, stands at $6,468,421, after deduction of reserves. This compares to $1,513,914 of net prop- erty investment in 1937. Annual deductions, now aggregating $3,370,020, are made to provide for replacement of equipment when it wears out or when better, more efficient machines may be de- veloped, Finished Philip Morris products might be compared to the dishes prepared by a fine chef. Assembling the best ingredients is the starting point. Skill and! imagination are combined in the blending, flavoring and making, to reach in the end the pleasurable taste giving the greatest satis- faction. When cigarettes were made by hand, excellent quality could be achieved but only at a cost prohibitive to the general public. Our application of the science of mass production and lab- oratory cleanliness to the art of cigarette making has added uniformity to the excellence of the cigarette maker's best work and has brought vintage tobacco within the range of all smokers. Although tobacco prices on the average have risen 78% and wages have more than doubled, manufacturing efficiency and an increase in volume have made up enough of the increase in the 14

A TEN YEAR RECORD OF PHILIP MORRIS OPERATIONS Statements of Income for the fisca[years ending March 31. (000,omitted) 1938 1939 1940 1941 1942 1943 1944 19/5 1946 1947 NET SALES (including Revenue GROSS OPERATING PROFIT 14,008 16,507 16,815 19,713'! 25,390 27,365_ 25,611 26,248 16,881 21,581 SHIPPING, SELLING, GENERAL & -- - ADMINISTRATIVE EXPENSE 6,487 7,979 7,191 9,149 10,884 12,420 12,501 12,080 10,953 12,845 OPERATING _ PROFIT4_ ~_- 7,521_ 8,528 9,684 10,564 14,506 14,945 13,104 14,168 7,934 9,742 OTHER INCOME 430 _ 108 131 161 193 183 149 267 (3)2,323 (5)683 TOTAL INCONIE 7,951 8,636 9,815 10,725 1~4,699 15,128 13,253_ 14,435 10,257 _ 10,425 -- --.~ _ INCOME DEDUCTIONS 584 551 675, 594 445 515 672 (2)940 (4)1,476 (6)2,114_ NET INCO'.1E (pefore Taxes) 1,367 8;085 9,140, 10,131 14,254 14,613 12,581 13,495 8,781 8,251 FEDERAL AND, STATE TAXES 1,704 1,534 1,704 2,171 6,462 7,682 5,930 6,692 2,633 3,293 : NET INC0~,1E 5,663 6,551 7,436 7,360 7,792 6,931 6,651 6,803 6,148 4,958 OST 'Jr SALES (mc u+ng evenue Stamps) 41,605 48,088 56,469 67,639 87,175 113 682 152 290 159 051 159 799 148,319 Stamps) 555,613 $64,595 $73;344 $87,352 $112,565 $141,047 $177;901 $185,299 $178,686 $170,906 ! d' R ; TOTAL DIVIDEND PAYMENTS- CASH 3;1115 (1)4,004 4,455 4,549 5,103 5,091 5,340 5,363 3,815 4,361 NET INCO;r1E RETAINED IN THE BUSINESS (7) 2,548 2,547 2,981, 2,812 2,689 1,840 11,311 1,441 2,333 597 ' (1) Disregarding a stock dividend of one-half share of Common Stock for each share of Common Stock. Earned Surplus charged 32;597,950.001for shares of Common Stock issued4ith respect to this dividend. i(2) Inciuding provision,of $250,000;00 for post-war and other contingencies. (3) Incl'uding claim in amount of a1,867;521.76 for refund of federal excess profits taxes of prior years, arising under the carry-back provisions of the Internal Revenne Code, and excess provision of $300,000 in prioryear5 for federal income taxes. (4) Including charge of$492,22ll.95 forlosses arising from termination of war, less amount thereof chargeda8ainst provision of $250,000.00 for post•war, i and other contingencies; (See Note 2),, Also including,charge of, $275,000:00 for reimbursement of withdrawing subscribers in the purchase of , subscription rights to shares of Cumulative Preferred Stock, 3.607o,series. ;(5) Includes recnveryof $310,000 in connection with government contracts, net premium of $133,865 received in sale of 25~% Debentures, and profit of $71,200 on sale of real estate, 3) Includes premium of $472;000 paid on retirement of 370 Debentures, and provision of $500,000 for claims, litigation and contingencies, -{1) Subject to, minor, surplus adjustments. A TEN YEAR RECORD OF PHILIP MORRIS OPERATIONS Balance Sheets at March 31, (000 omitted) 1938 1939 1940 1941 1942 1943 1944 1945 1946 1941 ASSETS Cash and Marketable Securities $ 1,082 $ 1,501 $ 1,529 $ 9,524 $ 3,158 $ 3,175 $ 2;455 $ 2,320:' $ 2,486 $ 4,024 Receivables 3,093 3,705 3,854 5,172 6,255 8,219 11,017 10,063 7,914 6,391 Invytoqes 20,915 27,295 32,038 34,816 53,143 70,570 69948 87,280 112,745 98,812 Othen Current Assets -- - - -- - 102 4,290 206 1,867 -- Total Current Assets 25,090 32,501 37,421' 49,572 62,556 82,066 87,710 99;869 125,012 109227 Net Property Account 2,438 2,885 2;783 3,099 3,729 3,723 3,471 5,110 4,989 6,468 -Prepaid I(yms & Other Assets 1,713 1,157 2,051 2,044 2,534 3,286 3,304 1,929 1,391 1,049 Totat Assets 29,241 37,143 42,255 54,715 68,819 89,075 94,485 106,908 1311,392 116,144 LIABILITIES Notes Payable 850 8 7,000 9,000 52 8;000 -- 5;000 16,000, 44,000 5,500 Federal Taxes , 602 1 1,426 1,700 2;706 6,212 1,917 6,028 6,992 2,681 3,440 Accounts Payable , 121 1 877 665 31!708 3;425 5,427 6,952 5,447 2.574 3,866 OtherCurrent Liabilities , 1,134 1,206 1,298 .1,552 1,795 1,774 1,645 1,855 1,369 1,834 Total Currentliabifities 12,707 10,509 12,663 8,018 19,432 15,118 - 19,625 30,294 50,624 --- 14,640 - Long Term Debt ~ -- -- --- -- -- - 11,700 - 11,500- 11,300- 11,500~ -- ----- 32,0001 Reserves for Contingencies etc. -- - 250 - - 500~ , ~ Net Worth 16,534 26,634 29,592 46,691_49;387 62251 63,360 65,064_69,268' 69,604 ~Totat Liabilities 29 241' 37,143 42,255 54,715 68;81989,075 94,485 106,908 131,392 116,744 Net Working Capital , 12,383 21,992 24,758 41,554 43,124 66,948 68,08569,575 14,388 _ 94,587 1_'U~:333199 ,-.

A COMPARISON OF PHILIP MORRIS OPERATIONS WITH nHE AGGREGATE FIGURES OF ITS FOUR MAJOR COMPETITORS The fiscal year of Philip Morris & Co. Ltd., Inc. ends March 31. The figures of the four major competitors are on a calendar year b;,~Uq emapA the 1937 comparison is between the March 31, 1938 fiscal year dt Philip Morris and the 1937 calendar year for the other companies. 1931 1938 1939 1940 1941 1942 1943 1944 1945 1946 ET SALES (including Revenue Stamps) P. M. Co, 000 omitted $55,613 4 Compeling Companies 000 omitted $864,056 P. M. Ca 000 emitted $64,595 4 Competint P. M. Ca, Companies ON emitul 000 omltted $841,009 .=73,344 4 Competing F. M. Co, 4 Compsunt Companles Comp~niq 000 omitted 000 omitted 000 aninw $851,838 ~$81,352 $902,967 p. M. Co. qfo eoihed $112,565 4 Compotlnl Compeniss 000 omitted $1,045,506 P. M. Co. 000 omitted $141,047 4 Compelln~ Companles 000 omitted $1,206,242 F. M. Co, 000 omitted $177,901 4 Compotln(< Companies NO omitted $1,408,276 P. M. Co. ON omitted $185,299 4 C 0 $ Competln ompanies 00 omllled 1,419,195 F. M. Co. 4 CCO omItled O $178,686 $ Conqennt ComNeNs M omitted 1,514,167 F. M. Cs. ON ommed $110,906 4 $ Conqonn Campanlss NO omlttd 1,965,829 NET Smt E< (including Revenue Stamps) per $1,000,000 of net property 22,810 16,063 22,390 15,530 26,354 14,925 28,187 15,815 30,186 17,459 37,885 21,375 51,253 27,199 36,262 29,542 35,815 32,771 26,423 33,908 ANALYSIS OF Ui'4RAI1uris t -- -- - ` --- --- •-- ---- --- -- , , . 00.00% 100.00% ' 100.00% 100;00~0 •100.0070 100.0070 100.00% 100,00 a 100,0070 100.00% Cost of Sales (Excluding Revenue Stamps) 48.36 (1)61.20 48.07 62.32 62.55 60.65 51.61 j 59,71 50,97 59,17 58.65 62.15 68.54 68.16 72.52 75.09 77.43 78.76 73.70 ]1.13 Gross Operating Profit 51.64 38.80 51.93 37.68 1~` 41.45 39.35 48.39 40,29 49.03 40.23 41.35 37.85 31.46 31.84 27.48 2431 22.57 21.24 26.30 22.27 Shipping, Selling, General & Administrative Expense 23 91 16 65 25 10 29 16 ' 20.22 16.60 22 46 ` 15 92 21 02 i 15 19 18 ]1 12 54 15 36 ~ 46 10 12 65 7 86 13 09 5 77 14 95 6 18 . . . . . . . . , . . . . . . . . . Net Operating Profit 21,13 22.15 26.83 21.39 27.23 22.75 25.93 $ 24.37 28.01 25.04 22.58 25.31 16.10 ~ 21.38 14.83 11,05 9.48 15.47 11.35 16.09 Other Income 1.58 1,18 .34 1.15 .37 .63 .40 1 .42 .37 .57 .28 .45 .18 .32 .28 30 2.78 i .35 .80 .23 Total Income 29.31 - 23,33 21,11- 22.54 21.60 23.38 26.33 ~ 24.79 28.38 25.61 i 22.86 25.76 16.28 21.10 15.11 17.35 12.26 16,82 . 12.15 16.32 Income Deductions 215 1.98 173 1.43 1,90 1,54 1,46 1.58 ~ 18 1.58 i 83 ~ 1 40 ..98 1.44 ' 1.76 N 1.94 ; 2.54 `. 1.80 ~{ , . Net Income before Taxes 27.16 21.35 25.44 21.11 25.70 ; 21.84 24,81 4 ) + f:;2 24.03 22.08 24.18 i 15.45 20.30 14,13 15.91 10.50 13.88 9.61 14.52 Federal and State Taxes 6.28 3.97 4.83 4.08 4.79 4.32 ,~. 6.80 6.59 -12.48 10.77 11.61 13.46 7.28 11.37 7.00 8.23 i 3.15 .; 6.22 3.83 5.92 Net Income as % of Net Sales (Excluding Revenue Stamps) 20.88 ~ 11.38 20.61 17.03 20.91 17.52 18.07 I6.64 15.04 13 26 10.47 10.72 8.17 8.93 ~°. 7.13 7.68 7.35 + 7.66 5.78 ! 8.60 Net Income as % of Net Worth 34.25 14.14 24.60 13.43 25.13 13.75 15.16 ± 13.10 15.11 12.00 11.13 10.12 , 10.50 10.15 10.45 9.34 8.88 8.82 1.12 11.68 Net Income er sh re of Commo St k 10 91 94 5 4 67 3)2 04 2 p a n oc . hU.50 , 8.33 8.14 , 8.01 ,6.10 5.81 . ( . . CAP!TAt SiIA!TUk( % Long term debt 9.65 11.89, 11.18 46 10 9.88 15.82 20.24 16.36 , 20.89 14.79 28:21 14.24 28.97 31.49 43.63 ~~. . % Preferred Stock 14.92 10.04 13.44 2.86 13.37 31.91' 13.28 130•11 i 13.37 26.66 , 11.53 26.07 11.11 26.11 9.99 27.16 14.36 . 21.40 10.93 % Common Stock' and Surplus 100.00 15.43 89,96 74.67 97.14 75.45 68.09 16.26 69.83 76.75 57.52 68,23 58,5] 68.00 59.04 61.80 58.60 56.67 47.11 45.44 ASSET PO,Iil;" '! ~ ~ k i w Net tangible assets per $1000 of debt 10,263 7,787 8,493 9033 9,510 ; 6,321 4,582 6,509 4,457 ° 6,758 3,328 7,019 3,259 3,191 1,939 Net tangible assets per common share 31.85 (2)28,02 32.58 35.51 38.58 42.58 43.87 45.11 (3)23.66 24.20 Net current assets per $1000 of debt 8,418 6,404 6,994 7,407 7,842 5,]22 3,936 5,920 3,860 6,157 2,943 6,469 2,984 2,956 1,7]4 Net current assets per common share 23.85 (2)22.59 27.10 29.81 31.57 35.56 37.09 38.32 (3)20.49 20.44 (1) Partially estimated, (2) after 50% stock dividend, (3) after exchange of 2 shares $5 par value for each share of $10 Par Value Stock, 17 lt?

``... . _. To insure against the presence of porticles of tobacco stem in the finished cigarettes, the soft part, of the leaf Is removed from the dem at an early stage of manufoctu-e. Theie machlnn each do in one day the work which would' require weeks of tedious application for a man. 11ltilih Jlurris costs to lot-rmit us tu sell the tn-v;tryiitg I'lulip Morris quality at present prices, only 18q higher than in 1937. Cre;tt progress has brcn marlh in iinhroveci rnntrol and recluction c-f costs, llurinb the past cit;hhecn InotttllS Ilnllrtwctnvnts il- metltc-cl and ntcl-inery tleveluhccl In coping with the actttr war• thile tlilfictiltivs have luet- nl-pliet3 with sloleticliil rt-snlts. Costs of tnakii-I; each thousand cigat- rcttes lra%•c been reduced and the titiic re<lnircd to gt•t freshly l-ackrcl cib,uettes from the factory to the tobacco ctnnitcr•in -Iuuntities to tneet rurrcl-t ttnmttntl has been ftlrtht-r HlturtenrtL '1'1Lr cloauges til.-nnecl by yonr co-npany, nnclrr great strain iii mceti--g hnge demantls, reachetl lidl ;rplriii•aFion cliiring tL4• N'r•ur ji-st I-ar•xccl --rnti' luwi,r operaling cn" t.-4 are nntiuil-atecl nt~xt )'i-c-r. is

ADDITION TO THE MANAGEMENT t n tluef:lll' n( I'll(oIr, (1, I';Ulkl•r 1It'(;unluti )uinrtl us ati 1'iir 1'rt~itlr nt :tucl 1)ircctur. IJc Irrin~s to the trrg,uiizatit+n eslwrience and Wii<cltnn t;;tint•tl in a clistint;+lislu•tl huuking c,u't t r, After taking a rnaster's degree at Princeton Universitv in, 1917; he juined thw army and won the Silver Star in action in France. lie was dernol>ilieed in 1919 and began a business career in Wil ( l St 1"!',l't I I 1 1920. For many years he was a vice-president of the Bankers Trust Company of New York, repre- senting thcm both in this country and 1brold. In, 1937 he was rlaced in charge of the Banking De- partment in addition to the Foreign Department. He resigned from this post and came to us and his valuc to Philip Morris has already been de.mnnstrated. This Is one of the machines which make. 600,000 cigarettes per day. The worker fills the cases with ciga- rettes to go to the packing machines on the overhead trolley. In the lower tray ore cigarettes for one of the many tests of qyality which feoture Philip Jvlorris mo nufoctu ring processes, -. - ~#fR "\ _ji rl~+l ...:~ "•=. W-`. ,1. ~ ~ ~' ~ ilk ~ ~- "' ~`-` + - , , .- y~. Each of thece packing machines automatically fill& 50,000 pack- ages of Philip Morris cigarettes per d'oy and each pays the Government $3,500 in revenue stamps. '- . " /':; W .~.l~+ r~y~r 1 I 1,• •-`. l~I ~ 0 , N :r+-,~~w. • +w~ VI* .w,'~r ` . ~ . +~•

RESEARCH IS IMPORTANT i ith the inh,„liir tinn of the 1'iiilip \lorrk t;ngli,lh lilvnd cig;irette yoiir eniu(riny clulp,u•te,(l r;iclic;illy from custonian• hractice in cigarcttc manu&acture. As a rcsult of this, leacling scientists in labora- tory eslerimcnt:ti as \ti-cl1 as clinical investigrtions with smokers proved Philip Morris cibarcttes' to be less irritating than other cigarettes, The research department directs research and development activities and t;ikes an iinhortant part in hroimotional work as %ve1l. Its personnel! is made up~ of highly trained men, all of whom are graduate chemists. These men, in addition to their technical work, speak before scientific bodies and medicali groups, ee- plaininl;thcscientific basis for the Philip Morris claim of superiority. Exhibits at medical and allied conventions are included in this program. Ile,ticnrch fi,llowv nt;tny chuunc lr; studics of h,tek.rl;es and packaging materials for cigarettes and smoking tobaccos; physiological and pharmacological research into the effects of smoking; im- provements in methods of tobacco treatment and all other means of making our products better. Scientific means to aid in the control of every operation from the selection of tobaccos to the maintenance of proper moisture content have been developed and continuous testing of the finished product is done to make sure that Philip Morris cigarettes always attain the high standards set for them. -~.. -'f~, ~-'sI~ ~ .. _G .,. r

i THE PHILIP MORRIS TEAM our money, invested as it is in this business, even with the finest tobacco and modern buildings and equipment, could not be productive without the skill, experience and interest of the men and women who nmke np the Philip Morris hvun. At the close of our fiscal year thcre were 3,405 people working in the main offices in New York 1nd the three prochicinl; units in l;ichmond and Louisville. In each department each member of our organization performs an indispensable part in creating Philip Morris products and delivering them to our customers. Our plants are air-conditionedi equipped with the most efficient light~ng„and kept spotlessly elean. Standards of safety are maintained on a high level consistent with the best national practise by a committee working with the representative of our insurance company. Monthly meetings of supervisors and foremen in the plants implemeut~ the safety education program in eliminating ncci• dents through proper use of machines, Dining facilities are provided in our plants through non-profit, company run cafeterias where wholesome and attractive dishes are prepared under the direction of highly qualified restaura- teurs. Modern, comfortably furnished rest rooms are maintained and medical care is administered In scientific dispensaries by registered nurses under the direction of physicians. Hospitalization insurance has been arranged by the company and provides for cases necessi- tating hospital care, such as severe illness of employees, surgery or pregnancy. In addition to the usual workmen's compensation insurance maintained under the laws of the states in which the company operates, group life insurance is made available to all. By a participating arrangement, the cost of this insurance to the employee is kept at a low figure, with your company making up any difference in the billing by the life insurance company. The retirement fund which the com- pany maintains provides for life income to employees who have reached retirement age and under an optional retirement plan, provides for income to hcneficiaries aftcr the denth of the employee. Union organizations of the A. F. of L. exist in each of our plants and through a committee arrangement representatives of the union workers have access to management representatives at all times. We have had no strikes and morale is high. ~10 21

REVENUE STAMPS 315,007,308--- sl:,4 2 610 2 4 'W-FEDERAI INCOME TAXES $3,200,000 ~ DIVIDENDS 51,361,085 RESERVES S500,000 RfTAINEO NET INCOME ;597,065 r WHAT HAPPENED TO THE $170,905,550 PAID YOUR COMPANY FOR ITS PRODUCTS 1 retavie specialists in many fields among our personnel. Their experience as individuals covers a wide range from tobacco farming to the chemists' laboratory. In the factory the production workers using machines are aided by maintenance crews of skilled mechanics whose work in continu- ous inspection and repair helps to prevent accidents and loss of time due to machinery failure. En• gaged in research and in the operation of our laboratories are scientists who guard the quality of our products by frequent checking and periodic tests. The people of our sales'and promotion depart• ment are constantly in touch with the smoking public and their observations are passed on to pro- duction personnel. Most of our supervisory positions have been filled from the ranks of those who have grown ti. [ r,. with us and spent their lives working with the company, and with each of the individuals in the ~.: key points of our organization are others acquiring by experience the knowledge necessary to step into those key positions when the present occupants step down. O G"1 +TORACCO AND -ROCESSiNp COST 22

Skilled mechonics maintain the watch-like precision of the many machines in our factories. This pack- ing machine inspects the cigarettes before the package is closed and automatically rejects any package containing a cigarette having the slight- esf imperfection. The entire factory is moisture controlled. F+ery two minutes a reading Is taken which shows'molsture content of tobacco to 11 10 ofone percent. Vorir!- tion from the standard is corrected instantly throughout the entire plant. Graduate chemists establish scientific tests to maintain the hiah standards set for Philip Morris products.

ti ur employees last year received 57,978,5S7 and the manabement apprecintcs their aid in meeting the 6nn1 responsibility for smooth~ nnd etf'ective teamwork during the year, A. E. Lyon President May 28, 1947 24. ~...,.a.~.._ I I I I t I

hilip \forris prtxlucts are backed by a hundred years of $ne cigarette makinb. The best tobaccvs ubtainable are used in the blends -u-d their flavor and aroma are brought out by carefully guarded secret formulas employed in the course of manufacture. The cigarettes and pipe tobaccos pro- duccd are designed to meet the taste of the most discriminating smolcers, Philip Morris English Blend, sold at the popular price, has become our principal product in point of sale and has demonstrated its superiority for day-in dayout smoking pleasure. It wears well. Marlboro cigarettes, enlivened by the rich aroma of selected oriental leaf, are created to suit the preference for extreme mildness in smoking. They are produced in three styles: Ivory Tipped and Plain End, appealing to both men and women, and Beauty Tipped (red ) created especially for women. Other cigarettes produced are the well-known Dunhill Majors, now made in a long size, having a definite appeal to a select market; the English Ovals, manufactured in an oval shape since the early Twenties of a blend of best quality Turkish and domestic tobaccos and packed in crush-proof boxes, selling in the premium price class. Player's Navy Cut "Medium" cigarettes are constituted principally of select bright Virginia tobacco packed in slide and shell crush proof boxes and sold in the premium class. Fleetwood~ and Spud cigarettes are brands acquired in the purchase of certain assets of the Axton Fisher Tobacco Compa-iy. Fleetwoods, in the popular price class, are 20% longer than the standard cigarette and have a special trade and consumer acceptance. Spuds, made in cork tip and plain ends, are an evenly mentholated blend of high quality domestic and imported tobaccos. For the pipe smoker the largest selling item is Bond Street. It is an aromatic blend of selected tobaccos and is comparable in every way to the most expensive mixtures. Revelation is a particularly mild blend of five of the world's finest quality tobaccos, skillfully combined. This tobacco is designed to appeal to the most discriminating pipe smoker seeking per- fection. Country Doctor, Handsome Dan, Barking Dog and Wakefield English Mixture are pipe mixtures, each varying slightly, to appeal to the special tastes of a wide range of smokers. Lyon's Own is a very superior ,nixture In the premium price class. 25

AUDITOR'S CERTIFICATION a.Z~/Gr~rr~i~/l~,x~ ~`i~~,~,^~f~,ifft'/)1`r~ CERTIFIED PUBLIC ACCOUNT~ANTS • Tothe Board of Directors of Philip Morris & Co, Ltd., Incorporated: We have examiiicd the balance sheet of PHILIP MORRIS & CO. LTD., INCOR- POIZATED as of March 31, 1947, and the statements of income and surplus for the fiscal year then ended, have reviewed the system of internal control and the accounting procedures of the company and, withaut making a detailed audit of the transactions, have examined or tested accounting records of the company and other supporting evidence, by methods and to the extent we deemed appropriate. Our examination was made in accordance with generally accepted auditing stAnd- ards applicable in the circumstances and included 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 Philip Morris & Co, Ltd., Incorporated at March 31, 1947, and the results of its operations for the fiscal year then ended, in conformity with generally accepted accounting principles applied on a basis consistent with that of the preceding year. New York, May 12,1947. 28

COMPARATIVE STATEMENT OF INCOME for the fiscalyears ended March 31, 1947 and 1946 NET SALES ........................... ................................ COST OF GOODS SOLD....................... Gross profit~ ....................................................... SHIPPING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES......... Operating profit before federal income taxes ...... ...... .. .. . , OTHER INCOME......................................................... OTHER DEDUCTIONS: Interest on debentures ................................................ Other interest ........................................................ Miscellaneous ......................................................... 1947 1946 $170,905,550 $178,686,032 148,411,919 159,882,242 = 22,493;631' $ 18,803,790 12,844,765 10,953,363 s 9,648,866 S 7;850,421 162,360 155,840 $ 9;811,226 $ 81006,267 S 830,725 Z 345,500 219,669 452,161 151,747 160,912 $ 1,202,141 $ 958;513 ! ~ - ; 8,609,085 = 1,047,694 PROVISION FOR FEDERAL INCOME TAXES ........... ........ 3,200,000 2,550;000 Income for year before special items sef forth betow .................. $ 5,409,085 $ 4,497,694 ADDITIONS: Recovery of federal excess profits taxes of prior years..................... . . . . . . . . . . 1,867,528 Recovery in connection with Government contracts..,,........,........... 310,000 ....... Excess provision in prior years for federal income taxes ..............,.... .... ,.. ... 300,000 Premium received on sale of~2%% Sinking Fund Debentures, less expenses of issue . . . . ... .... .. .. ...... .. ..................... 133,865 Profit on sale of,realiestate ............................................. 77,200 ....... $ 5,930J50 = 6,665,222 DEDUCTIONS: Losses arising from terminatiorr of war ($492,222), less $250,000 charged against reserve therefor ... . . . . . . . . . . . ... . . . . . . . . . . .. . .. . . , . . ... .. .. .. . . . . . . . . 2421222 Premium paid on retirement of Twenty Year3J Debentures .............. 472,000 .. .. . Settlement of claims in connection withicanceled subscriptions toicumutative preferred stock,3~,6070 series........................................ .......... 275,000 Provision for claims, litigation and contingencies .. . . . . ..., . . . . . . . . . . . . . . .. 500,000 . . . . . . . $ 972,000 $ 517,222 Balance of income transferred to earned surplus . ............. ....... $ 4,958,150 $ 6,148,000 i

PHILIP MORRIS & CO. LTD., INCORPORATED (Incon"row In Vk91n16) ASSETS CURRENT: Demand deposits in banks and cash~on hand . ....... .................... United States Government obligations„at cost . . . . . . . .. . .. ... .. ........... Accounts receivable from customers, less allowance for discounts and doubtful accounts, a609380 for 1947 and'a625;684 for 1946............ Accounts receivable from others. . . . .. ....... .... .. ..... ................ Inventories, at average cost: Leaf tobacco (including imported leaf in bond subject to duty)......... Manufactured stock,............,.................................. Stock in process, revenue stamps and operating supplies ..... .. ... .... Totafinventories .............................................. Refund receivable for federal excess profits taxes of prior years.......... Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. .. . ... PROPERTY, PLANT AND EQUIPMENT, AT COST: Land, buildings, machinery and equipment ............................... Less, Allowance for depreciation .................................... OTHER ASSETS: Notes retieivable from supplier .... . . . . . . . . ... . . . ... . ... . .. . . . . ., .. . . . .. . Investment, at cost, in Philip Morris & Co., Ltd. (England) (Note 1) ........ Other investments .................................................... Prepaid expenses and deferred chargas . . . . . . . . . .. ... . . . . . . .. . . . . . . . . . . . Good will, trade-marks and brands . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . ., . 1947 1946 $ 3,999,636 $ 2,461,395 24,414 24,414 5,583,334 6,326,257 807,236 1,588,204 85,217,504 92,177,814 8,214,029 15,193,063 5,380,921 5,373,701 $ 98,812,454 $112,744,578 , . . . . . . . . . 1,867,528 $109,227,074 $125,012,376 9,838,441 8,006,041 3,370,020 3,016,891 = 6,468;421 ; 4,989,150 93,750 156,250 235,965 235,965 11,800 11,800 707,400 731,016 . , .. . . . . . . . 50,000 $ 1,048,915 $ 1,185,031 =116,744,410 $131.186,557

COMPARATIVE BALANCE SHEET, MARCH 31, 1947 AND 1946 LIABILITIES 1947 1946 CURRENT: Notes payable to banks ...................... ................... ,...... $ 5,500,000 = 44,000,00G Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . ... . . . . . . . . . . . . . . . . . . . . . . . . 1,464,486 966,863 Accounts payable ............................ 2,401,822 1,607,781 Accrued1 liabilities-interest, taxes (other than federal income taxes), advertising, etc......... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . „ , 1,833,539 1,369,158 Provision for federal income taxes ... .. . . . . . . . . . . . . . . . . . . . . . . . . . .. . .. ... 3,440,475 2,680,587 Total current liabilities ... . . . .. . . . . . . . ... . . . . . . . . . . . . . .. . . . . , , , , , $ 14,640,322 $ 50,624,389 FUNDED DEBT: Twenty-year 3Y0 Debentures, less $205,750 sinking fund cash held by trustee .......... 11,294,250 2r6yo Sinking Fund Debentures, due April 1, 1966 (sinking fund payments commence March 31, 1956) .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . RESERVE FOR CLAIMS, LITIGATION AND CONTINGENCIES ............... CAPITAL CAPITAL STOCK: Cumulative preferred, par value $100 per share, authorized 350,000 shares issuable in series: 4% Series, authorized 199,847 shares; at March 31,1947 redeemed 1,999 shares and outstanding 197,848 shares (Note 2) ... . ... .. .. . . . ..... 3.60% Series„ authorized 149,883 shares, outstanding 19,543 shares (Note 2) . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Common, par value $5 per share, authorized 3,000,000 sharos; outstanding at March 31,1947,1,998,468 shares (552,000 shares issued for equivalent of $2 per share) ................ .................. ................. CAPITAL SURPLUS, statement annexed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . EARNED SURPLUS, statement annexed (Note 3) ............................ 32,000,000 500,000 19,784,800 19,984,700 1,954,300 1,954,300 8,336,340 8,336,350 15,949,390 15,960,374 23,579,258 23,032.194 $ 69;604,088 = 69,267;918 $116,744,410 $131,186,557 29

1 ,, STATEMENTS OF SURPLUS for the fiscal year ended March 31, 1947 fARXED CAPITAL SURPLUS SURPLUS Balance of income transferred from statement of income . . . . . . . . . . . .. . . . . . .. 4,958,150 Transfer of common stock heretofore reserved against scrip certificates which BALANCES, MARCH 31„ 1946 .. . . . . . . . . . . . . . ... . . . . , . . . . . . . . . . . . . , . . . . . . . . $2.3,032,194 expired during year . . . . ...... ..... . ..... ......... ... .... ......... . . ... . . , . . $27,990,344 Deduct: Premium on 1,999 shares of cumulative preferred stock, 4570 series, redeemed during year . . . . . . . . . . . . . . . .. . .. . . .. . ... . . . . . . . . . . . . . ..., . . . . . . j Dividends declared: On cumulative preferred stock, 470 series.......... : 793,391 On cumulative preferred stock„3.60yo series ....... 70,355 $ 863,746 4 On common stock, $1.75 per share . ..... .........." 3,497,340 4,361,086 Write-oH of cost of good will, trade-marks and brands . ............. ..... . 50,000 $15,960,374 10 $15,960,384 t•. $ 10 994 , k 1,j 11 $ 4,411,086 S 10,994 BALANCES, March 31, 1947 Note 3 ...................................... $23,579,258 $15,949,390 30

NOTES TO FINANCIAL STATEMENTS 1. Net assets of this wholly owned English subsidiary are approximately edual to the invest- ment amoemt, on the basis of the o(ficial rate of exch;euge. 2. The Cunwlative Preferred Stock is red'ecmable at any time, otherwise than through the sinking funds, at $105.50 per share for 4Z Series (up t(Februnry 1„ 1949) and $10:3.00 per share for 3.60'Z Series (up to February 1, 1950), and at dimiiushing per share amounts after those dates but not less than $105.50 for 4Z Series and S100,00 for 3.GW Series; hlus accrued dividends in each case. Holders of the shares of each series are entitled to such simcifii'd payments upon voluntury liqiiidatiun of the coinpuny and to $100.00 per share, plus accrued dividends, upon involuntary liquidation. The company is required to set asidt•, in sinkiug funds, amounts sufiicient to redeem Uof the maximum number of shares that have been issued of each series, at $105.50 per share for the 4% Series and $100.00 per share for the 3.60% Series. Preferred stock in treasury may be used in connection with such §inking fund requirements. The sinking fund payments to be made within one year from March 31, 1947 aggregate $230,494.50. 3. The terms~ of issue of the 2'A% Sinking Fund! nehentures include certain restrictions with respect to the declaration or payment of dividends (other than dividenus payable in stock of the company) on any shares of capital stock of the company, and to payments on account of the purchase, redemption or other retirement of its capital shares. At March 31, 1947, approximately $4,836,000 of the earned surplus wus free of such restrictions. 4 1 :1 *Aal The terms of issue of the Cumulative Preferred Stock include certain restrictions with respect to the declaration or payment of dividends (other than dividends payable in stock of the company) on the common stock. The amount of earned surplus free of such restrictions was in excess of the $4,$36;000 shown above. The company has submitted information to the Government concerning its renegotiable contracts for the fiscal year ended March 31, 1945 and for the nine months ended December 31, 1945. It is the opinion of the r.ianagement that any renegotiation refunds which may be required will not be material In relation to net Income for the tfscul years ended March 31, 1945 and 1946. Provision for depreciation of plant and equipment charged to costs and expenses aggregated $475,112 for the fiscal year 1947 and $471,701 for the fiscal year 1946.

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