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ADDRESS OF JOSEPH F. CULLMAN,3rd PRESIDENT, PHILIP MORRIS INCORPORATED ANNUAL MEETING - RICHMOND, VIRGINIA APRIL 10, 1962

1 1 TODAY MARKS THE FIFTH OCCASION THAT IT HAS BEEN MY PLEASURE AND PRIVILEGE TO ADDRESS THE ANNUAL MEETING OF STOCKHOLDERS OF PHILIP MORRIS INCORPORATED AS PRESIDENT OF THE COMPANY. THESE PAST FIVE YEARS HAVE BEEN YEARS OF GROWTH AND CHANGE FOR US, AND IT SEEMED TO ME THAT THIS WOULD BE AN EXCELLENT OPPORTUNITY TO REVIEW THE EVENTS OF THE LAST HALF DECADE AS THEY RELATE TO PHILIP MORRIS AND TO LOOK AT SOME OF THE ACCOMPLISHMENTS OF YOUR COMPANY DURING THIS PERIOD, AS WELL AS SOME OF THE CHANGES THAT HAVE OCCURRED IN THIS TIME. FIGURES TELL ONLY PART OF THE STORY. IN THE LAST FIVE YEARS CONSOLIDATED SALES HAVE GONE FROM $439, 596, 000 IN 1957 TO $526, 752, 000 IN 1961. NET PROFITS HAVE c.~ INCREASED FROM $17, 441, 000 TO $21, 511, 000. ... .c~ ns

2 1 EARNINGS PER SHARE HAVE INCREASED FROM $4.53 PER SHARE TO $5.61 PER SHARE, AND THE DIVIDEND RATE HAS BEEN INCREASED FROM $3 TO $3. 60. UNIT PRODUCTION OF CIGARETTES IN OUR AMERICAN FACTORIES HAS INCREASED FROM SLIGHTLY MORE THAN 42 BILLION IN 1957 TO SLIGHTLY MORE THAN 50 BILLION IN 1961. W E HAV E SPENT SOME $45, 000, 000 ON CAPITAL EXPENDITURES TO PROVIDE IMPROVED MACHINERY AND FACILITIES TO PRODUCE OUR TOBACCO AND NON-TOBACCO PRODUCTS. WORKING CAPITAL HAS INCREASED FROM $149, 000, 000 TO $190, 000, 000 AND TANGIBLE NET WORTH HAS GONE UP FROM $173, 000, 000 TO $198, 000, 000. MOREOVER, THE NUMBER OF OUR SHAREHOLDERS HAS INCREASED FROM 31, 522 TO 35, 674 AND YOUR MANAGEMENT IS MOST GRATEFUL FOR YOUR CONTINUED INTEREST K) ~ ~ 0 AND SUPPORT .... . .~, bi aa .,. I

3 TOTAL U. S. CIGARETTE PRODUCTION HAS GROWN 19.7% IN THE LAST FIVE YEARS. DURING THIS PERIOD, PHILIP MORRIS HAS MAINTAINED ITS SHARE OF THIS GROWING AND HIGHLY COMPETITIVE CIGARETTE MARKET. AT THIS POINT, PHILIP MORRIS FINDS ITSELF WITH AN ESTABLISHED BRAND IN EVERY MAJOR CIGARETTE CATEGORY AND THE ONLY PREMIUM BRANDS OF ANY CONSEQUENCE. 1961 WAS THE FIRST YEAR THAT WE HAVE NOT INTRODUCED A NEW BRAND OR A NEW PACKAGE, THUS INDICATING A COMPLETION OF THE FIRST PHASE OF OUR STRENGTHENING OF OUR POSITION IN THE MARKET PLACE. IN EACH OF THE FIVE YEARS, INDEED THE LAST EIGHT, WE HAVE INCREASED SALES AND PROFITS. ALTHOUGH MANY BELIEVE THIS IS A RECORD OF CONSIDERABLE AND SUSTAINED ACHIEVEMENT, THE FIGURES, AS I HAVE INDICATED, TELL ONLY PART. OF THE STORY. FOR I FEEL THAT

4 OUR PRINCIPAL ACCOMPLISHMENT HAS BEEN IN POSTURING PHILIP MORRIS FOR A MUCH MORE SIGNIFICANT ADVANCE IN SALES AND PROFITS AT SOME TIME IN THE F UTURE. FOR EXAMPLE, DURING THE PAST FIVE YEARS WE HAVE MADE MAJOR PROGRESS IN MODERNIZING OUR ESTABLISHED MANUFACTURING FACILITIES AND INSTALLING NEW MACHINERY WHICH IS CONTRIBUTING IMPORTANTLY TO OUR PROFITABILITY. FOREMOST AMONG THE NEW EQUIPMENT HAS BEEN A REPLACEMENT OF •ALMOST ALL OUR CIGARETTE MAKING EQUIPMENT WITH THE NEWEST AND MOST MODERN MACHINES AVAILABLE. PRODUCTION TECHNIQUES HAVE BEEN PERFECTED WITH NEW EQUIPMENT THAT PROVIDES FOR EVEN MORE EFFICIENT OPERATION. WE HAVE PIONEERED IN THE DEVELOPMENT OF THE RECESSED FILTER CIGARETTE AS EXEMPLIFIED BY PARLIAMENT'S GROWTH FROM SOMEWHAT LESS THAN TWO BILLION TO SOMEWHAT OVER TEN BILLION ANTICIPATED IN 1962.

5 WE HAVE IMPROVED THE TECHNIQUE OF MAKING THE FLIP TOP BOX TO AN EFFICIENCY LEVEL WE DID NOT THINK POSSIBLE FIVE YEARS AGO SHORTLY AFTER WE INTRODUCED MARLBORO. TODAY, MARLBORO PRODUCTION RATE IS WELL ABOVE 25 BILLION ANNUALLY. WE PIONEERED IN DEVELOPING AND UTILIZING THE REVOLUTIONARY MARK VIII MAKING MACHINE, EMPLOYED FOR THE FIRST TIME IN THE UNITED STATES ON OUR PHILIP MORRIS COMMANDER CIGARETTE BRAND. OUR FINE NEW RESEARCH FACILITY HERE IN RICHMOND WE CONSIDER TO BE OF SUCH IMPORTANCE THAT WE ARE PRESENTLY ADDING AN ENTIRE NEW W ING TO SERVE ALL PHASES, TOBACCO AND NON-TOBACCO, OF OUR BUSINESS. IT HAS ALREADY MADE IMPORTANT CONTRIBUTIONS TO OUR PRODUCT STRENGTH AND PROFITABILITY. DURING THE LAST HALF-DECADE, WE TOOK OUR FIRST STEPS TO DIVERSIFY OUR BUSINESS.

6 IN THE ACQUISITION OF MILPRINT INC., OUR FLEXIBLE PACKAGING SUBSIDIARY HEADQUARTERED IN MILWAUKEE, WISCONSIN, AND A. S. R. PRODUCTS COMPANY, WHOSE MAIN MANUFACTURING PLANT IS IN STAUNTON, VIRGINIA, WE HAVE APPROACHED OUR NON-TOBACCO BUSINESS IN TWO DIFFERENT WAYS. ONE IS A BASIC SUPPLIER OF PACKAGING MATERIALS TO INDUSTRY; THE OTHER IS A MANUFACTURER OF SHAVING EQUIPMENT WHICH GIVES US OUR FIRST IMPORTANT NON-TOBACCO ENTRY IN THE CONSUMER PRODUCT FIELD WHERE WE THINK OUR MARKETING EXPERIENCE CAN BE UTILIZED CONSTRUCTIVELY. THOUGH PROFITABLE SINCE THEIR ACQUISITION, THESE NON-TOBACCO ACTIVITIES HAVE NOT YET PROVIDED THE HIGH MARGINS OF TOBACCO PRODUCTS. BUT WE ARE CONFIDENT THAT THE MANY STEPS WE HAVE TAKEN TO STRENGTHEN THEIR ORGANIZATIONS AND THEIR POSITIONS IN THEIR FIELDS WILL ULTIMATELY PRODUCE GREATER PROFITS AND PERMIT PHILIP MORRIS

7 TO PARTICIPATE IN THE GROWTH OF OUR ECONOMY ON A MUCH BROADER FRONT THAN HAD WE REMAINED IN TOBACCO PRODUCTS ALONE. WE ARE JUST NOW BEGINNING TO SEE THE RESULTS OF OUR NEW PRODUCT AND PRODUCT DEVELOPMENT PROGRAMS WHICH WE HAVE INSTITUTED AT BOTH MILPRINT AND A. S. R. JUST A FEW DAYS AGO, MILPRINT UNVEILED ITS BRAND NEW FORLAN GROUP OF POLYOLEFIN FILMS, AN EXCITING NEW, HIGH-GLOSS TRANSPARENT PACKAGING FILM WHICH HEAT-SEALS AT LOW TEMPERATURES, RUNS EFFICIENTLY AT HIGH SPEEDS ON EXISTING PACKAGING MACHINES, IS UNAFFECTED BY CHANGES IN TEMPERATURE AND HUMIDITY, AND CONTAINS SUPERIOR AGING CHARACTERISTICS. A. S. R. THROUGH ITS SUBSIDIARY, AMERICAN SAFETY RAZOR COMPANY, IN 1961 BROUGHT OUT THE NEW PAL PREMIUM INJECTOR BLADE AND THE NEW GEM PRE MIUM S ING LE EDGE B LADE. A. S. R. HAS A NUMBER OF EXCITING NEW RAZOR AND BLADE

8 PRODUCTS WHICH ARE CLOSE TO THE PRODUCTION STAGE AND WHICH WE FEEL WILL STRENGTHEN AND ENLARGE ITS POSITION IN THE PROFITABLE BLADE INDUSTRY. OUR BASIC LONG-RANGE PROGRAM FOR DIVERSIFICATION CONTINUES. PERHAPS THE MOST SIGNIFICANT PROGRESS IN THE PAST FIVE YEARS HAS BEEN MADE IN OUR PHILIP MORRIS INTERNATIONAL DIVISION. PHILIP MORRIS HAS ALWAYS HAD A STRONG POSITION IN INTERNATIONAL MARKETS, PRIMARILY BASED ON THE SALE OF OUR CIGARETTES MANUFACTURED IN THE UNITED STATES AND EXPORTED TO MORE THAN 100 COUNTRIES THROUGHOUT THE WORLD. DURING THE PAST FIVE YEARS, WE HAVE ESTABLISHED PHILIP MORRIS INTERNATIONAL AS A SEPARATE OPERATING DIVISION OF THE CORPORATION WITH ITS OWN SLATE OF OFFICERS AND EMPLOYEES AND ITS OWN OFFICE~S OCCUPYING THE THIRD F LOOR IN

9 OUR HEADQUARTERS BUILDING AT 100 PARK AVENUE, NEW YORK CITY. DURING THESE FIVE YEARS, WE HAVE EMBARKED ON AN AMBITIOUS PROGRAM OF EXPANDING OUR INTERNATIONAL OPERATIONS. WE ACQUIRED AS A WHOLLY-OWNED SUBSIDIARY BENSON & HEDGES OF CANADA, IN JULY, 1958 AND LAST FALL COMPLETED AN ULTRA-MODERN NEW FACTORY IN BRAMPTON, NEAR TORONTO, AND INTRODUCED PARLIAMENT AND ALPINE TO THE CANADIAN MARKET. WE HAVE ALSO ENLARGED FACILITIES OF OUR SMALL, WHOLLY-OWNED SUBSIDIARY, PHILIP MORRIS & CO. LTD. OF ENGLAND. IN AUSTRALIA, PHILIP MORRIS (AUSTRALIA) LTD., A MAJORITY-OWNED SUBSIDIARY, HAS ENLARGED ITS SHARE OF THE AUSTRALIAN MARKET AND IS ON AN UPWARD TREND IN BOTH SALES AND PROFITS. PHILIP MORRIS AUSTRALIA NOW HAS ANNUAL SALES OF APPROXIMATELY $15, 000, 000 AND PROFITS OF ABOUT $500, 000, PRIMARILY BASED ON SALES OF PHILIP MORRIS IN TWO SIZES, MARLBORO AND ALPINE